ATRIUM COMPANIES INC, 424B3, 1999-08-12

ATRIUM COMPANIES INC
424B3, 1999-08-12
METAL DOORS, SASH, FRAMES, MOLDINGS & TRIM

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As Filed Pursuant to Rule 424(b)(3)
PROSPECTUS Registration No. 333-82921

[LOGO]

OFFER TO EXCHANGE

ANY AND ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE 2009, SERIES A
FOR
10 1/2% SENIOR SUBORDINATED NOTES DUE 2009, SERIES B
OF

ATRIUM COMPANIES, INC.

TERMS OF EXCHANGE OFFER

- Expires 5:00 p.m., New York City time, September 14, 1999, unless
extended.

- We will not receive any proceeds from the exchange offer.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

The date of this prospectus is August 12, 1999.
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TABLE OF CONTENTS

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PAGE
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Prospectus Summary......................................................................................... 1

Risk Factors............................................................................................... 15

Forward-looking Statements................................................................................. 21

Use of Proceeds............................................................................................ 21

The Exchange Offer......................................................................................... 22

Capitalization............................................................................................. 33

Selected Consolidated Historical Financial Data of Atrium (after the 1998 recapitalization)................ 34

Selected Consolidated Historical Financial Data of Atrium (previous registrant)............................ 36

Unaudited Pro Forma Consolidated Financial Statements...................................................... 37

Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 47

Business................................................................................................... 58

Management................................................................................................. 71

Certain Relationships and Related Transactions............................................................. 78

Beneficial Ownership....................................................................................... 81

Description of Certain Indebtedness........................................................................ 82

Description of the Exchange Notes.......................................................................... 84

Book-Entry; Delivery and Form.............................................................................. 118

Certain United States Federal Income Tax Considerations.................................................... 121

Plan of Distribution....................................................................................... 125

Legal Matters.............................................................................................. 126

Experts.................................................................................................... 126

Available Information...................................................................................... 126

Index to Financial Statements.............................................................................. F-1
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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS EXCHANGE OFFER.
IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU IN
MAKING A DECISION TO EXCHANGE THE OUTSTANDING NOTES. FOR A MORE COMPLETE
UNDERSTANDING OF THIS EXCHANGE OFFER, WE ENCOURAGE YOU TO READ THIS ENTIRE
DOCUMENT.

THE EXCHANGE OFFER

On May 17, 1999, we completed a private offering of $175,000,000 aggregate
principal amount of our 10 1/2% senior subordinated notes due 2009, or the
outstanding notes. On the same day, we entered into a registration rights
agreement with the initial purchaser of the outstanding notes agreeing, among
other things, to deliver to you this prospectus and to use our best efforts to
complete this exchange offer within 210 days of the issuance of the outstanding
notes. You should read the discussion under the headings

"--Summary Description of the Exchange Notes" and "Description of the Exchange
Notes" for further information regarding the registered notes.

THE COMPANY

We are one of the largest manufacturers and distributors of residential
windows and doors in the United States based on 1998 pro forma net sales. We
offer a complete product line including aluminum, vinyl and wood windows and
doors to our customers, which include leading national homebuilders and home
center retailers. We have grown rapidly through a combination of internal growth
and complementary acquisitions. Our acquisitions of Heat, Inc. and Champagne
Industries, Inc. and their subsidiaries are a continuation of our strategy to
become the largest nationwide manufacturer and distributor of residential
windows and doors. The Heat acquisition strengthens our vinyl product offering,
enhances our nationwide presence and provides access to a proprietary
distribution network of 22 distribution centers. The Champagne acquisition
enhances our presence in the vinyl markets of Colorado, Kansas and Nebraska. Pro
forma for the transactions described in "Unaudited Pro Forma Consolidated
Financial Statements", we would have had net sales and adjusted EBITDA of $123.3
million and $10.3 million, respectively, for the three months ended March 31,
1999.

We were founded in 1948 and we believe we are one of the two largest
manufacturers and distributors of residential non-wood windows and the third
largest manufacturer and distributor of residential doors in the United States
based on 1998 pro forma net sales. Our portfolio of products includes some of
the industry's most recognized brand names including ATRIUM-TM- and
WING-Registered Trademark-. Our full product line of aluminum, vinyl and wood
windows and 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, vinyl and wood windows and 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 53 manufacturing facilities and distribution centers strategically
located in 24 states to service customers on a nationwide basis. We distribute
through multiple channels including direct distribution to large homebuilders
and independent contractors, one-step distribution through home centers and
lumberyards and two-step distribution to wholesalers and dealers who
subsequently resell to lumberyards, contractors and retailers. We believe that
our multi-channel distribution network allows us to reach the greatest number of
end customers and provide nationwide service to those customers.

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COMPETITIVE STRENGTHS

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

- our leading market positions;

- our strong brand name recognition;

- our complete, high-quality product offering;

- our multi-channel distribution network;

- our established and diversified customer base; and

- our low cost, vertically integrated manufacturing operations.

BUSINESS STRATEGY

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

- enhance our nationwide presence;

- extend and cross-sell our product offerings;

- capitalize on the ATRIUM brand name;

- continue to pursue operational efficiencies; and

- make selective strategic acquisitions.

THE ATRIUM TRANSACTIONS

On May 17, 1999, we acquired Heat and its subsidiaries for approximately
$85.0 million, including $0.7 million of assumed indebtedness, and Champagne for
approximately $3.6 million, excluding $0.5 million to be paid upon the
achievement of certain operational targets. Additionally, a post closing
adjustment of $3.5 million was paid on May 17, 1999 related to working capital
delivered in excess of the target defined in the Heat stock purchase agreement.
On March 27, 1998 we purchased substantially all of the assets of Masterview
Window Company, LLC. On January 27, 1999, we purchased substantially all of the
assets of Delta Millwork, Inc. The Heat and Champagne acquisitions, the
transactions described in "--The 1998 Recapitalization," the Delta and
Masterview acquisitions, the offering of the outstanding notes, and the
application of the net proceeds from the offering of the outstanding notes are
referred to in this prospectus as the "Atrium transactions."

THE 1998 RECAPITALIZATION

On October 2, 1998, GE Investment Private Placement Partners II, a Limited
Partnership, or GEIPPPII, which was formed by GE Investment Management
Incorporated, a wholly-owned subsidiary of General Electric Company, and
Ardshiel, Inc., a private equity firm, and certain of its affiliates, acquired
Atrium in a transaction valued at $225.0 million. In connection with the Atrium
acquisition, GEIPPPII and an affiliate of Ardshiel recapitalized Wing and Darby
and combined them with Atrium. As part of the recapitalization, GEIPPPII and
Ardshiel contributed to Atrium $50.0 million from the sale of common stock of
Atrium's ultimate parent and approximately $52.0 million in the implied value of
the Wing and Darby businesses. In addition, the proceeds from the issuance of
$45.0 million of discount debentures of Atrium Corporation to GEIPPPII and an
affiliate of Ardshiel were used to fund in part the acquisition of Atrium and
the repurchase of a portion of our existing senior subordinated notes. The
remaining sources of funds included a $205.0 million senior secured credit
facility consisting of a $30.0 million revolver, of

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which $2.0 million was drawn at closing, a $75.0 million term loan B, and a
$100.0 million term loan C, of which approximately $29.1 million was repaid 36
days after closing. The revolving credit facility, term loan B and term loan C
mature in June 2004, June 2005 and June 2006, respectively. The transactions
described in this paragraph are referred to in this prospectus as the "1998
recapitalization."

EXPLANATORY NOTE

The term "Wing" refers to Wing Industries, Inc. and its direct parent, Wing
Industries Holdings, Inc., as a combined entity and the term "Darby" refers to
R.G. Darby Company, Inc., R.G. Darby Company, Inc.-South, Total Trim, Inc.,
Total Trim, Inc.-South and their direct parent, Door Holdings, Inc., as a
combined entity, which entities were either contributed to Atrium and became our
subsidiaries in connection with the 1998 recapitalization or were formed
subsequent to the 1998 recapitalization.

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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER

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THE EXCHANGE OFFER................ We are offering to exchange $1,000 principal amount of
exchange notes for each $1,000 principal amount of
outstanding notes. Outstanding notes may only be
exchanged in $1,000 principal amount increments. In
order to be exchanged, an outstanding note must be
properly tendered and accepted. All outstanding notes
that are validly tendered and not validly withdrawn will
be exchanged.

RESALES........................... We believe that you may resell or otherwise transfer
exchange notes issued pursuant to the exchange offer
without compliance with the registration and prospectus
delivery provisions of the Securities Act, however,
there are exceptions to this general statement. You may
not freely transfer the exchange notes if:

- you are an "affiliate" of ours within the meaning
of Rule 405 under the Securities Act;

- you are a broker-dealer who acquired the
outstanding notes directly from us without
compliance with the registration and prospectus
delivery provisions of the Securities Act;

- you did not acquire the exchange notes in the
ordinary course of your business; or

- you have engaged in, intend to engage in, or have
an arrangement or understanding with any person to
participate in the distribution of the exchange
notes.

By tendering your notes you will be making
representations to this effect.

Any recipient of exchange notes that is subject to any
of the exceptions above and each participating
broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer in exchange for
outstanding notes that were acquired as a result of
market-making, must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with the resale of the exchange notes.

You may incur liability under the Securities Act if our
belief is incorrect and you transfer any exchange note
issued to you in the exchange offer without delivering a
prospectus meeting the requirements of the Securities
Act or without an exemption from registration of your
exchange notes from such requirements. We do not assume
or indemnify you against any such liability.

EXPIRATION OF EXCHANGE OFFER...... 5:00 p.m., New York City time, on September 14, 1999,
unless we extend the exchange offer, in which case the
term "expiration date" means the latest date and time to
which the exchange offer is extended.
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INTEREST ON THE EXCHANGE NOTES AND
THE OUTSTANDING NOTES........... Each exchange note will bear interest from May 17, 1999.
If your outstanding notes are accepted for exchange, you
will not receive accrued interest on the outstanding
notes, and will be deemed to have waived the right to
receive any interest on the outstanding notes from and
after May 17, 1999.

CONDITIONS TO THE EXCHANGE
OFFER........................... The exchange offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions."

PROCEDURES FOR TENDERING.......... If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal in accordance with its instructions and
deliver the letter of transmittal, together with the
outstanding notes and any other required documentation,
to the exchange agent at the address set forth in the
letter of transmittal.

If you hold outstanding notes through The Depository
Trust Company and wish to accept the exchange offer, you
must do so pursuant to The Depository Trust Company's
Automated Tender Offer Program, by which you will agree
to be bound by the letter of transmittal.

SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... If you are a beneficial owner whose outstanding notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you
wish to tender in the exchange offer, you should contact
the person in whose name your outstanding notes are
registered promptly and instruct the person to tender on
your behalf. If you wish to tender in the exchange offer
on your own behalf, you must, prior to completing and
executing the letter of transmittal and delivering your
outstanding notes, either make appropriate arrangements
to register ownership of the outstanding notes in your
name or obtain a properly completed bond power from the
person in whose name your outstanding notes are
registered. The transfer of registered ownership may
take considerable time.

GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your outstanding notes in the
exchange offer and your outstanding notes are not
immediately available or you cannot deliver your
outstanding notes, the letter of transmittal or any
other required documents or you cannot comply with the
procedures for book-entry transfer prior to the
expiration date, you may tender your outstanding notes
according to the guaranteed delivery procedures.

WITHDRAWAL RIGHTS................. Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date.

ACCEPTANCE OF OUTSTANDING NOTES
AND DELIVERY OF EXCHANGE
NOTES........................... We will accept for exchange any and all outstanding
notes that are properly tendered in the exchange offer
prior to the expiration date. The exchange notes issued
pursuant to the exchange offer will be delivered
promptly after the expiration date.
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CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES.................... We believe with respect to the exchange of outstanding
notes for exchange notes:

- the exchange will not constitute a taxable
exchange for U.S. federal income tax purposes;

- you will not recognize gain or loss upon receipt
of the exchange notes; and

- you must include interest on the exchange notes in
gross income to the same extent as the outstanding
notes.

REGISTRATION RIGHTS AGREEMENT..... You have the right to exchange the outstanding notes
that you now hold for exchange notes with substantially
identical terms. This exchange offer is intended to
satisfy that right. If you do not tender your
outstanding notes in the exchange offer, you will not
have any further exchange or registration rights with
respect to your outstanding notes. All untendered
outstanding notes will continue to be subject to
restrictions on transfer under the Securities Act.

EXCHANGE AGENT.................... State Street Bank and Trust Company is serving as our
exchange agent in connection with the exchange offer.
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SUMMARY DESCRIPTION OF THE EXCHANGE NOTES

The form and terms of the exchange notes will be substantially the same as
the form and terms of the outstanding notes except that:

(1) the exchange notes have been registered under the Securities Act and
will not bear legends restricting the transfer of the exchange notes; and

(2) the holders of the exchange notes, except for limited instances,
will not be entitled to further registration rights under the registration
rights agreement.

The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture under which the outstanding
notes were issued.

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EXCHANGE NOTES OFFERED............ $175.0 million aggregate principal amount of 10 1/2%
senior subordinated notes due 2009.

MATURITY DATE..................... The exchange notes will mature on May 1, 2009.

INTEREST.......................... We will pay interest on the exchange notes at the rate
of 10 1/2% per year on May 1 and November 1 of each
year, beginning on November 1, 1999.

GUARANTEES........................ Each of our subsidiaries fully and unconditionally
guarantees the outstanding notes on a senior
subordinated basis. Future subsidiaries also may be
required to guarantee the outstanding notes on a senior
subordinated basis.

RANKING........................... The exchange notes will be unsecured senior subordinated
obligations of Atrium and will be subordinated to all of
our existing and future senior indebtedness. The
exchange notes will rank equally with all our other
existing and future senior subordinated indebtedness and
will rank senior to all our subordinated obligations.
The guarantees will be unsecured senior subordinated
obligations and will be subordinated to all existing and
future senior indebtedness of the guarantors. The
guarantees will rank equally with all of the guarantors'
other existing and future senior subordinated
indebtedness and will rank senior to all of the
guarantors' subordinated obligations.

SINKING FUND...................... None.

OPTIONAL REDEMPTION............... We may not redeem the exchange notes prior to May 1,
2004, except as described below. After May 1, 2004, we
may redeem the exchange notes, in whole or in part, at
any time prior to maturity.

At any time on or prior to May 1, 2002, we may redeem up
to 35% of the exchange notes with the net cash proceeds
of certain equity offerings.

CHANGE OF CONTROL................. If we experience certain change of control events, you
will have the right to require us to repurchase all or a
portion of your exchange notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
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CERTAIN COVENANTS................. The indenture governing the exchange notes will limit
our ability and the ability of certain of our
subsidiaries to, among other things,

- incur additional indebtedness,

- pay dividends on, redeem or repurchase our capital
stock,

- make investments,

- sell assets,

- in the case of certain of our subsidiaries,
guarantee indebtedness, without guaranteeing the
exchange notes,

- engage in transactions with affiliates, and

- consolidate, merge or transfer all or
substantially all of our assets or the assets of our
subsidiaries on a consolidated basis.

These covenants are subject to important exceptions and
qualifications.

EXCHANGE OFFER; REGISTRATION
RIGHTS.......................... To remove the transferability restrictions on the
outstanding notes, we and the guarantors have agreed:

- to file the registration statement of which this
prospectus is a part with the Commission to exchange
the outstanding notes for the exchange notes
within 60 days after the original issue date of
the outstanding notes;

- to use our best efforts to cause the registration
statement to be declared effective by the Commission
within 180 days after the original issue date of
the outstanding notes;

- to use our best efforts to commence the exchange
offer and cause such exchange offer to be
consummated within 210 days after the original
issue date of the outstanding notes; and

- to use our best efforts to file a shelf
registration statement for the resale of the
outstanding notes if we cannot effect an exchange
offer within the time periods listed above and in
certain other circumstances.

The interest rate on the outstanding notes will increase
if we do not comply with our obligations under the
registration rights agreement.

USE OF PROCEEDS................... We will not receive any cash proceeds from the exchange
offer.
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RISK FACTORS

You should carefully consider all of the information in this prospectus
before deciding whether to invest in the exchange notes. In particular, you
should evaluate the specific risk factors under "Risk Factors."

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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA

Prior to October 2, 1998, Atrium's consolidated historical financial
statements as filed with the Commission included its operations and the
operations of its subsidiaries. On October 2, 1998, pursuant to the 1998
recapitalization, the stock of Wing and Darby were contributed to Atrium.

As Wing was determined to be the accounting acquiror in a "reverse
acquisition", the consolidated historical financial statements of Atrium, prior
to October 3, 1998, were replaced with the consolidated historical financial
statements of Wing. The summary consolidated historical income statement and
other data for 1998 include the operations of Wing from January 1 through
December 31 and the operations of Atrium and Darby from October 3 through
December 31. The summary consolidated historical income statement and other data
for the three months ended March 31, 1999 include the operations of Atrium, Wing
and Darby. The summary consolidated historical income statement data and other
data for the years ended December 31, 1994, 1995 and 1997, the three months
ended March 31, 1998 and the periods ended October 25, 1996 and December 31,
1996 only include the operations and accounts of Wing and its predecessor.

Wing was acquired by its present controlling shareholders on October 25,
1996. The December 31, 1998 summary consolidated historical balance sheet data
includes the accounts of Atrium, Wing and Darby. The December 31, 1994, 1995,
1996 and 1997 and October 25, 1996 summary consolidated historical balance sheet
data only include the accounts of Wing and its predecessor. The references in
the "Summary Consolidated Historical Financial Data of Atrium (after the 1998
recapitalization)" to the periods ended December 31, 1996 and October 25, 1996,
refer to the periods October 26, 1996 through December 31, 1996 and January 1,
1996 through October 25, 1996, respectively.

The summary consolidated historical financial data of Atrium (previous
registrant) are provided for information purposes only. These include the
summary consolidated historical income statement data and other data for the
years ended December 31, 1994, 1995, 1996 and 1997, the nine months ended
September 30, 1997 and the period from January 1, 1998 to October 2, 1998, and
the summary consolidated historical balance sheet data as of December 31, 1994,
1995, 1996 and 1997, September 30, 1997 and October 2, 1998.

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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(AFTER THE 1998 RECAPITALIZATION)

The summary consolidated historical income statement and other data set
forth below for the year ended December 31, 1995, the periods ended October 25,
1996 and December 31, 1996 and the years ended December 31, 1997 and 1998, and
the summary consolidated historical balance sheet data at December 31, 1995,
1996, 1997 and 1998 and October 25, 1996 were derived from Atrium's (after the
1998 recapitalization) audited consolidated financial statements. The summary
consolidated historical financial data as of and for the year ended December 31,
1994 and the three months ended March 31, 1998 and 1999, were derived from
Atrium's (after the 1998 recapitalization) unaudited consolidated financial
statements, which in the opinion of management reflect all adjustments necessary
for a fair presentation of results for such periods. The summary consolidated
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 prospectus.
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PREDECESSOR
-----------------------------------
THREE
MONTHS
YEAR ENDED PERIOD YEAR ENDED DECEMBER ENDED
DECEMBER 31, ENDED PERIOD ENDED 31, -----------
---------------------- OCTOBER 25, DECEMBER 31, -------------------- MARCH 31,
1995 1996 1996 1997 1998 1998
--------- ----------- ------------- --------- --------- -----------
1994
-----------
(UNAUDITED) (DOLLARS IN THOUSANDS) (UNAUDITED)
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INCOME STATEMENT DATA:
Net sales........................ $ 72,496 $ 68,481 $ 62,880 $ 13,200 $ 99,059 $ 211,059 $ 39,450
Gross profit..................... 12,945 15,461 15,569 3,273 20,789 51,919 8,986
Selling, delivery, general and
administrative expenses........ 14,032 13,931 13,271 2,242 15,671 39,754 6,606
Interest expense................. 909 1,039 509 374 2,953 9,081 992
Income (loss) before income
taxes.......................... 179 491 1,789 532 1,391 (2,239) 1,242
Net income (loss)................ 35 279 1,119 303 696 (2,819) 686

BALANCE SHEET DATA (END OF
PERIOD):
Total assets..................... $ 20,740 $ 18,515 $ 19,966 $ 36,404 $ 55,383 $ 359,869 $ 57,514
Total debt....................... 10,296 8,522 8,154 20,489 32,238 179,227 33,385

OTHER DATA:
EBITDA(1)........................ $ 1,777 $ 2,374 $ 3,014 $ 1,166 $ 5,836 $ 14,732 $ 2,702
Depreciation and amortization.... 689 844 716 260 1,492 7,950 468

MARCH 31,
1999
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INCOME STATEMENT DATA:
Net sales........................ $ 106,842
Gross profit..................... 32,134
Selling, delivery, general and
administrative expenses........ 23,151
Interest expense................. 4,346
Income (loss) before income
taxes.......................... 1,018
Net income (loss)................ 190
BALANCE SHEET DATA (END OF
PERIOD):
Total assets..................... $ 366,766
Total debt....................... 185,260
OTHER DATA:
EBITDA(1)........................ $ 8,301
Depreciation and amortization.... 2,937
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(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, special charges, stock option
compensation expense and certain non-recurring expenses related to
acquisitions. While we do not intend for EBITDA to represent cash flow from
operations as defined by GAAP and we do not suggest that you consider it as
an indicator of operating performance or an alternative to cash flow or
operating income (as measured by GAAP) or as a measure of liquidity, we
include it herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We believe EBITDA provides investors
and analysts in the building materials industry the necessary information to
analyze and compare our historical results on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
However, as EBITDA is not defined by GAAP, it may not be calculated on the
same basis as other similarly titled measures of other companies within the
building materials industry.

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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(PREVIOUS REGISTRANT)

The summary consolidated historical financial data set forth below as of and
for each of the four years in the four-year period ended December 31, 1997 and
as of and for the period from January 1, 1998 to October 2, 1998 were derived
from Atrium's (previous registrant) audited consolidated financial statements.
The summary consolidated historical financial data as of and for the period
ended September 30, 1997 were derived from Atrium's (previous registrant)
unaudited consolidated financial statements, which in the opinion of management
reflect all the adjustments necessary for fair presentation of results for such
periods. The summary consolidated 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 prospectus.

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PERIOD ENDED
YEAR ENDED DECEMBER 31, --------------------------
-------------------------------------------- OCTOBER 2,
1994 1995 1996 1997 1998
----------- --------- --------- --------- -----------
SEPTEMBER 30,
1997
-------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
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INCOME STATEMENT DATA:
Net sales................................ $ 123,571 $ 135,478 $ 156,269 $ 186,764 $ 139,793 $ 167,418
Gross profit............................. 37,999 41,503 53,928 65,463 50,137 58,183
Selling, delivery, general and
administrative expenses................ 26,895 29,303 34,815 44,486 33,114 37,704
Interest expense......................... 355 2,753 4,786 11,523 8,542 9,545
Income (loss) before income taxes........ 9,795 3,393 8,078 10,235 9,353 (2,069)
Net income (loss)........................ 9,191 1,849 4,203 6,167 5,868 (4,862)

BALANCE SHEET DATA (END OF PERIOD):
Total assets............................. $ 58,507 $ 48,569 $ 74,750 $ 83,375 $ 91,823 $ 121,703
Total debt............................... 6,786 49,000 100,000 100,000 102,962 118,985

OTHER DATA:
EBITDA(1)................................ $ 16,094 $ 17,070 $ 21,463 $ 25,842 $ 20,279 $ 22,055
Depreciation and amortization............ 1,678 2,087 5,228 3,585 2,384 3,246
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UNAUDITED SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA

We present below the unaudited summary pro forma consolidated financial data
for Atrium. The unaudited summary pro forma consolidated financial data are
derived from the audited and unaudited historical financial statements listed in
the Index to Financial Statements on page F-1 and certain unaudited historical
financial statements of other acquired businesses. The unaudited summary pro
forma consolidated income statement and other data for the year ended December
31, 1998 give effect to the Atrium transactions as if they had occurred on
January 1, 1998. The unaudited summary pro forma consolidated income statement
and other data for the three months ended March 31, 1999 gives effect to the
acquisitions of Delta, Heat and Champagne and the offering of the outstanding
notes and our use of the proceeds as if they occurred on January 1, 1999. The
unaudited pro forma consolidated balance sheet data gives effect to the Heat and
Champagne acquisitions and the offering of the outstanding notes and our use of
the proceeds as if they had occurred on March 31, 1999.

The unaudited summary pro forma consolidated financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Atrium
transactions had been consummated on the dates indicated nor are they
necessarily indicative of the results that may be expected or achieved in the
future. See also "Risk Factors-- Substantial Leverage and Debt Service,"
"Unaudited Pro Forma Consolidated Financial Statements," and "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 prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, 1999 DECEMBER 31, 1998
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................................... $ 123,287 $ 493,079
Gross profit................................................................ 37,362 156,367
Selling, delivery, general and administrative expenses...................... 29,506 106,445
Income from operations...................................................... 4,065 33,117
Income (loss) before income taxes........................................... (3,736) 983

OTHER DATA:
EBITDA(1)................................................................... $ 9,336 $ 55,214
Adjusted EBITDA(2).......................................................... 10,347 59,255
Depreciation and amortization............................................... 5,202 13,072
Stock option compensation expense........................................... -- 9,257
Cash interest expense....................................................... 7,393 29,894
Capital expenditures........................................................ 1,330 10,283
Ratio of adjusted EBITDA to cash interest expense........................... 1.4x 2.0x
Ratio of total debt to adjusted EBITDA...................................... -- 5.1x

AS OF MARCH 31, 1999
---------------------------------
ACTUAL PRO FORMA
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(3).......................................................... $ 67,820 $ 78,628
Total assets................................................................ 366,766 474,372
Total debt.................................................................. 185,260 308,656
Stockholder's equity........................................................ 133,253 110,417
</TABLE>

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

(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, special charges, stock option
compensation expense and certain non-recurring expenses

13
<PAGE>
related to acquisitions. 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 results on a comparable
basis with other companies on the basis of operating performance, leverage
and liquidity. However, as EBITDA is not defined by GAAP, it may not be
calculated on the same basis as other similarly titled measures of other
companies within the building materials industry.

(2) Adjusted EBITDA is calculated as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
EBITDA.............................................................. $ 9,336 $ 55,214
Elimination of non-recurring transaction costs and certain general
and administrative expenses of Heat............................... 130 520
Cost savings related to new supply agreements on raw materials of
Heat.............................................................. 298 1,190
Cost savings related to new supply agreements on raw materials of
Champagne......................................................... 85 341
Cost savings related to the consolidation of Atrium's wood
operations, including raw material and logistics savings and the
elimination of certain general and administrative expenses........ 498 1,990
----------- ------------
Adjusted EBITDA..................................................... $ 10,347 $ 59,255
----------- ------------
----------- ------------
</TABLE>

While we do not intend for adjusted 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."

(3) Computed as current assets less current liabilities, excluding current
portion of notes payable.

14
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE EXCHANGE NOTES INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE EXCHANGE NOTES.

OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.

We have a significant amount of debt. On a pro forma basis, after giving
effect to the Heat and Champagne acquisitions and the offering of the
outstanding notes and our use of the proceeds, at March 31, 1999, we would have
had approximately $308.7 million of consolidated debt outstanding, of which
approximately $136.3 million would have been senior indebtedness (exclusive of
unused commitments under our revolving credit facility), which includes
approximately $1.3 million of senior indebtedness of our subsidiaries (exclusive
of their guarantee of approximately $135.0 million of our senior indebtedness)
and our total consolidated debt, as a percentage of capitalization, would have
been approximately 74%.

Our high level of indebtedness could have important consequences to you. For
example, it could:

- limit our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service requirements
or other purposes;

- limit our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service requirements;

- increase our vulnerability to interest fluctuations because, on a pro
forma basis, after giving effect to the Heat and Champagne acquisitions
and the offering of the outstanding notes and our use of the proceeds,
approximately $71.5 million of our debt would have been at variable
interest rates as of March 31, 1999;

- limit our ability to compete with others who are not as highly leveraged
as we are; and

- limit our ability to react to changing market conditions, changes in our
industry and economic downturns.

Our ability to meet our debt service obligations and to satisfy our other
obligations will depend upon our future operating performance. If in the future
we cannot generate sufficient cash from operations to make scheduled payments on
the exchange notes or to meet our other obligations, we will need to refinance
our debt, obtain additional debt or equity financing or sell assets. To the
extent we need to sell significant assets to make scheduled payments on the
exchange notes or meet our other obligations, such sales would have a material
adverse effect on our business, operating results or financial condition.

OUR EXISTING DEBT AGREEMENTS IMPOSE SIGNIFICANT RESTRICTIONS ON US.

The operating and financial restrictions and covenants in our existing debt
agreements, including the indenture governing the exchange notes and our credit
facility, and any future financing agreements may adversely affect our ability
to finance future operations or capital needs or to engage in other business
activities. A breach of any of these restrictions or covenants could cause a
default under our debt, including the exchange notes. Such a default may trigger
defaults under our other debt instruments that contain cross-acceleration or
cross-default provisions. A significant portion of our indebtedness then may
become immediately due and payable. We are not certain whether we would have, or
be able to obtain, sufficient funds to make these accelerated payments,
including payments on the exchange notes.

15
<PAGE>
WE MAY NOT BE ABLE TO INTEGRATE SUCCESSFULLY THE HEAT AND CHAMPAGNE BUSINESSES
AND OTHER BUSINESSES THAT WE MAY ACQUIRE IN THE FUTURE.

Our future performance will depend heavily on our ability to integrate the
Heat and Champagne businesses and other businesses that we may acquire in the
future. In order to integrate the newly acquired businesses into our business,
we must integrate manufacturing facilities, extend our financial and management
controls and operating, administrative and information systems in a timely
manner and on satisfactory terms and conditions. We cannot assure you that we
will be able to integrate the Heat and Champagne businesses or other businesses
that we may acquire in the future or that we will be able to realize projected
cost savings and synergies in connection with such acquisitions on the timetable
contemplated or at all.

Furthermore, the costs of the acquisitions of Heat and Champagne and of
acquisitions of other businesses that we may consummate in the future could have
an adverse effect on short-term operating results. Such costs could include:

- restructuring charges associated with the acquisitions; and

- other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees,
investment banking fees, recognition of transaction-related obligations
and various other acquisition-related costs.

The integration of the Heat and Champagne businesses or other newly acquired
companies may also lead to diversion of management attention from other ongoing
business concerns. In addition, we may need to recruit additional managers to
supplement the incumbent management of newly acquired companies but we may not
have the ability to recruit additional managers with the skills necessary to
enhance the management of the acquired companies.

THE EXCHANGE NOTES WILL BE SUBORDINATE TO ALL OF OUR EXISTING AND FUTURE SENIOR
INDEBTEDNESS AND THE GUARANTEES WILL BE SUBORDINATE TO ALL EXISTING AND FUTURE
SENIOR INDEBTEDNESS OF THE GUARANTORS.

The exchange notes will be subordinate to all of our existing and future
senior indebtedness. The guarantees will be subordinate to all existing and
future senior indebtedness of the guarantors. On a pro forma basis, after giving
effect to the Heat and Champagne acquisitions and the offering of the
outstanding notes and our use of the proceeds, at March 31, 1999, we would have
had approximately $136.3 million of senior indebtedness outstanding, exclusive
of unused commitments under our revolving credit facility, and the guarantors
would have had approximately $1.3 million of senior indebtedness outstanding,
exclusive of their guarantee of approximately $135.0 million of our senior
indebtedness.

In the event of our bankruptcy, liquidation or dissolution, our assets would
be available to pay obligations on the exchange notes only after all payments
had been made on our senior indebtedness. Similarly, in the event of bankruptcy,
liquidation or dissolution of any guarantor, its assets would be available to
pay obligations on the exchange notes only after all payments had been made on
its senior indebtedness. We cannot assure you that sufficient assets will remain
to make any payments on the exchange notes. In addition, certain events of
default under our and the guarantors' senior indebtedness would prohibit us and
the guarantors from making any payments on the exchange notes or the guarantees.

WE MAY BE UNABLE TO PASS ON TO CUSTOMERS FLUCTUATIONS IN RAW MATERIAL COSTS AND
SUPPLY, AND INTERRUPTIONS OF OPERATIONS AT ANY OF OUR MANUFACTURING FACILITIES
OR SUPPLIERS' DELAYS MAY ADVERSELY AFFECT OUR BUSINESS.

We purchase aluminum, vinyl, wood, glass and other raw materials from
various suppliers. While all of these materials are available from numerous
independent suppliers, commodity raw materials are subject to fluctuations in
price. We cannot assure you that severe shortages of such materials will not
occur in the future, which could increase the cost of, or delay the shipment of,
our products and have a material adverse effect on our operating results. In
addition, we may be unable to pass on to customers gradual increases in

16
<PAGE>
raw material prices. Moreover, sharp increases in raw material prices are more
difficult to pass through to the customer in a short period of time and may
negatively impact our short-term financial performance.

In addition, loss of or interruptions of operations at any of our
manufacturing facilities or suppliers experiencing delays or generating higher
costs could have an adverse effect on our business, operating results or
financial condition.

WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.

We compete with other national and regional manufacturers in our markets,
including Reliant Building Products, Inc., Nortek Inc., Andersen Corporation,
American Architectual Products Company and Pella Corporation in the window
market, and Premdor, Inc. and Jeld-Wen in the door market. Certain of our
principal competitors may be less highly-leveraged than we are and have greater
financial resources than we do. Accordingly, such competitors may be better able
to withstand changes in conditions within the industries in which we operate and
may have significantly greater operating and financial flexibility than we do.

As a result of the competitive environment in the markets in which we
operate, we face and will continue to face pressure on sales prices of our
products from competitors, as well as from large customers. As a result of such
pricing pressures, we may in the future experience reductions in the profit
margins on sales, or may be unable to pass future raw material price or labor
cost increases on to our customers which would also reduce profit margins. We
cannot assure you that we will not encounter increased competition in the future
which could have a material adverse effect on our business, operating results or
financial condition.

WE HAVE BEEN, AND MAY IN THE FUTURE BE, SUBJECT TO CLAIMS AND LIABILITIES UNDER
ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS.

Our past and present operations and 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 or remediation under these
environmental laws and regulations that would have a material adverse effect on
our business, operating results or financial condition. However, the applicable
requirements under the law may change at any time.

The nature of our past and present operations and assets expose us to the
risk of claims under these environmental, health and safety laws and
regulations. We cannot assure you that material costs or liabilities will not be
incurred in connection with such claims. We have been subject to such claims in
the course of our operations, and have made expenditures to address these known
conditions in a manner consistent with applicable laws and regulations. Based on
our experience to date, we do not believe that these existing claims will have
any further material adverse effect on our business, operating results or
financial condition. We cannot assure you, however, that the discovery of
presently unknown environmental conditions, changes in environmental, health,
and safety laws and regulations or other unanticipated events will not give rise
to claims that may involve material expenditures or liabilities.

Prior to 1993 we received correspondence in which we were named as
potentially responsible parties at two Superfund sites, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended or comparable state statutes. In one instance, we have entered into a
settlement and in the other instance, the group of potentially responsible
parties has negotiated a proposed remediation plan which has been approved by
the relevant state agency and is being reviewed by the United States
Environmental Protection Agency. Based on the actions taken to date and our
current insurance coverage, we believe that any liability associated with the
Superfund sites does not currently have and will not have a material adverse
effect on our business, operating results or financial condition.

17
<PAGE>
However, because the Comprehensive Environmental Response, Compensation and
Liability Act provides for strict, and sometimes joint and several liability, we
cannot assure you that the liabilities in question will not result in material
expenditures in the future.

TRENDS IN THE HOUSING SECTOR AND IN GENERAL ECONOMIC CONDITIONS DIRECTLY IMPACT
OUR FINANCIAL PERFORMANCE.

Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity. For the year ended December 31,
1998, we estimate that approximately 42% of our pro forma 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 into the United States and migration of the population within the
United States have a direct impact on our business. Cyclical declines in new
housing starts may have a material adverse effect on our business, operating
results or financial condition.

OUR BUSINESS WOULD BE SERIOUSLY IMPAIRED IF WE LOST OUR CURRENT RELATIONSHIP
WITH THE HOME DEPOT.

We have a significant relationship with The Home Depot, one of the largest
home center retailers. The Home Depot accounted for approximately 23% of our pro
forma net sales for the year ended December 31, 1998. Our operating and
financial performance is currently dependent, in part, upon our relationship
with this customer. We cannot assure you that we will be able to maintain such
relationship consistent with historic levels or at all.

OUR BUSINESS IS SUBJECT TO SEASONALITY.

Markets for our building-related products are seasonal. Historically, our
window business has experienced increased sales in the second and third quarters
of the year due to increased construction during those periods. Because interior
construction and repair increase during the winter months, the first and fourth
quarters of the year have historically been peak seasons for our door products,
particularly our interior doors. We cannot assure you that these seasonal trends
will not have a material adverse effect on our business, operating results or
financial condition.

THE LOSS OF CERTAIN KEY OFFICERS OR EMPLOYEES OR INABILITY TO FIND A CHIEF
EXECUTIVE OFFICER COULD ADVERSELY EFFECT US.

The success of our business is materially dependent upon the continued
services of certain of our key officers and employees. The loss of such key
personnel could have a material adverse effect on our business, operating
results or financial condition. While we have non-competition agreements with
certain key officers and employees, we cannot assure you that a court will find
such agreements enforceable under applicable state law.

In addition, we are currently engaged in a search for a chief executive
officer. We cannot assure you that we will find a suitable candidate in the near
future or that such candidate will be able to manage our business effectively,
but we believe that our current management structure is sufficient to operate
our business.

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY POTENTIAL LABOR DISPUTES.

Approximately 36% of our hourly employees are covered by three-year
collective bargaining agreements which expire in 2001. We cannot assure you that
we will not experience work stoppages or slowdowns in the future. In addition,
we cannot assure you that our non-union facilities will not become subject to
labor union organizing efforts or that labor costs will not materially increase.

18
<PAGE>
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS OR REGISTER OUR SIGNIFICANT
MARKS.

We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality and non-disclosure agreements and other contractual
provisions to protect our proprietary rights, measures that provide only limited
protection. We cannot assure you that our means of protecting our proprietary
rights will be adequate or that competitors will not independently develop
similar technologies.

We have applied to register certain of our trademarks. We cannot assure you
that we will obtain registrations of principal marks in key markets. Failure to
obtain registrations could compromise our ability to protect our trademarks and
brands and could increase the risk of challenge from third parties to our use of
our trademarks and brands. Our failure to enforce and protect our intellectual
property rights or obtain from third parties the right to use necessary
intellectual property could have a material adverse effect on our business,
operating results or financial condition.

THE YEAR 2000 PROBLEM WILL REQUIRE SIGNIFICANT EXPENDITURES AND COULD DISRUPT
OUR OPERATIONS, IMPACTING OUR REVENUES.

We are assessing the impact of the Year 2000 problem and have or intend to
modify portions of our hardware and software so that our computer systems will
function properly with respect to dates in the Year 2000 and thereafter. Much of
our assessment efforts have involved and depends on inquiries with our major
suppliers and customers as to their Year 2000 compliance. Substantially all of
our major suppliers and customers have indicated that their Year 2000 testing
and remediation programs are complete or will be complete by the end of the
third quarter of 1999. We have not, however, tested or independently verified
the Year 2000 compliance of our major suppliers and customers.

We face certain risks related to the Year 2000 problem including potential
disruptions in our operations due to Year 2000 problems with our systems,
potential disruptions in material supply due to Year 2000 problems with our
suppliers' systems and potential loss of sales or delayed cash collections in
the event of Year 2000 problems with our customers' systems. Although we have
not formalized a contingency plan to address the problems associated with these
risks, there are several factors that we believe may mitigate potential Year
2000 problems. Because our business has only recently been computerized, we
believe we can run our business without significant interruptions using manual
labor and "paper" systems in the event of a Year 2000 problem with our systems.
In addition, because we source our materials from several suppliers, we believe
we have decreased the likelihood that a Year 2000 disruption at one of our
suppliers will materially interrupt our material supply. Although we believe
these factors mitigate our Year 2000 risks, we cannot assure you that problems
arising from these risks will not have a material adverse effect on our
business, operating results or financial condition.

Although we believe that the Year 2000 problem will not pose significant
operational problems for us, we cannot assure you that our computer systems or
the computer systems of companies we acquire or the computer systems of other
companies with whom we conduct business will be Year 2000 compliant prior to
December 31, 1999. Furthermore, we cannot assure you that the inability of any
such systems to process accurately Year 2000 data will not have a material
adverse effect on our business, operating results or financial condition.

WE MAY NOT HAVE SUFFICIENT FUNDS TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED
BY THE INDENTURE OR OTHER AMOUNTS PAYABLE UPON A CHANGE OF CONTROL.

Upon the occurrence of a change of control, we will be required to offer to
purchase all of the outstanding exchange notes. Furthermore, a change of control
will result in an event of default under our credit facility, permitting the
lenders to accelerate all unpaid amounts, in which case such indebtedness would
be required to be repaid in full before repurchase of the exchange notes. We
cannot assure you we will have funds available to pay the accelerated amounts
and to repurchase the exchange notes.

19
<PAGE>
In addition, a change of control under our indenture will also constitute a
change of control for purposes of the indenture governing the discount
debentures issued by our parent, Atrium Corporation. In such case, Atrium
Corporation will be required to repurchase the discount debentures.

GEIPPPII AND ARDSHIEL, OUR CONTROLLING STOCKHOLDERS, HAVE A SIGNIFICANT
INFLUENCE OVER OUR MANAGEMENT AND POLICIES AND THEIR INTERESTS MAY DIFFER FROM
THE INTERESTS OF HOLDERS OF THE EXCHANGE NOTES.

GEIPPPII and Ardshiel own approximately 97% of the outstanding shares of
common stock of our ultimate parent, D and W Holdings, Inc. As a result of this
ownership and the provisions of the stockholders agreement executed by the
stockholders of D and W Holdings, GEIPPPII and Ardshiel are able to direct the
election of 8 of the 9 members of the Board of Directors of D and W Holdings and
therefore direct our management and policies. The interests of GEIPPPII and
Ardshiel may differ from the interests of holders of the exchange notes. The
stockholders agreement also provides that we cannot take certain actions without
obtaining the prior written consent of GEIPPPII and that D and W Holdings will
cause us to make dividend payments to make interest and principal payments on,
or to repurchase, redeem or repay, the discount debentures.

AN ACTIVE TRADING PUBLIC MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES CAUSING
DIFFICULTIES FOR YOU IF YOU TRY TO RESELL THE EXCHANGE NOTES.

There is no established trading market for the exchange notes or the
outstanding notes. Although the initial purchaser of the outstanding notes has
informed us that it intends to make a market in the outstanding notes and the
exchange notes, it has no obligation to do so and may discontinue making a
market at any time without notice. Furthermore, we do not intend to apply for
listing of the exchange notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System.

The liquidity of and trading market for the exchange notes depends upon the
number of holders of the exchange notes, our performance, the market for similar
securities, the interest of securities dealers in making a market in the
exchange notes, and other factors. As a result, we cannot assure you as to the
development of a liquid trading market for the exchange notes.

UNDER CERTAIN CIRCUMSTANCES, A COURT COULD SUBORDINATE OR AVOID ANY OF THE
GUARANTEES.

Although laws differ among various jurisdictions, in general, under federal
bankruptcy laws and comparable provisions of state fraudulent conveyance laws,
under certain circumstances a court could subordinate or avoid any of the
guarantees.

If a court avoided a guarantee as a result of fraudulent conveyance, or held
it unenforceable for any other reason, holders of the exchange notes would cease
to have a claim against the relevant guarantor and would be solely creditors of
Atrium and the other guarantors.

We believe that the guarantees are being incurred for proper purposes and in
good faith. This belief is based on our analysis of internal cash flow
projections and estimated values of assets and liabilities of the guarantors at
the time of this offering. We cannot assure you, however, that a court passing
on these issues would make the same determination.

20
<PAGE>
FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. We caution prospective investors that forward-looking statements
are not guarantees of future performance. These forward-looking statements are
subject to risks, uncertainties, and assumptions about us, including, among
other things:

- our anticipated growth strategies;

- our ability to integrate acquired businesses, including, but not limited
to, Heat and Champagne;

- our intention to introduce new products;

- anticipated trends in our businesses and the economy, including trends in
the markets for windows and doors, the availability of consumer credit,
interest rates, employment, levels of consumer confidence, consumer
preferences, new housing starts, raw material costs and pricing pressures;

- our future capital expenditures; and

- our ability to continue to control costs and maintain quality.

Many of these factors are beyond our control, and our actual results could
differ materially from those discussed in these statements. In light of these
risks, uncertainties and assumptions, you should not place undue reliance on
these forward-looking statements. We undertake no obligation to update or revise
any forward-looking statements or the reasons why actual results may differ,
whether as a result of new information, future events or otherwise.

USE OF PROCEEDS

This exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement entered in connection with the offering of the
outstanding notes. We will not receive any cash proceeds from the exchange
offer. In consideration for issuing the exchange notes, we will receive
outstanding notes in like principal amount. We will cancel all outstanding notes
surrendered in exchange for the exchange notes. Accordingly, issuance of the
exchange notes will not result in any change in our indebtedness.

In addition to financing the acquisitions of Heat and Champagne, we used the
$172.4 million of proceeds from the offering of the outstanding notes to:

- repay certain of our borrowings under our credit facility, including
accrued interest through date of repayment,

- retire our remaining existing senior subordinated notes including accrued
interest through the date of repayment and repurchase premium,

- fund a distribution to Atrium Corporation to repurchase a portion of the
discount debentures, including accreted discount through the date of
repurchase, held by GEIPPPII and an affiliate of Ardshiel, and

- pay transaction fees and expenses.

21
<PAGE>
THE EXCHANGE OFFER

The following discussion summarizes the material terms of the exchange
offer, including those set forth in the letter of transmittal distributed with
this prospectus. This summary is qualified, in its entirety by reference to the
full text of the documents underlying the exchange offer, including the
indenture and the registration rights agreement governing the exchange notes,
which are exhibits to the exchange offer registration statement of which this
prospectus is a part.

GENERAL

In connection with the sale of the outstanding notes to the initial
purchaser, we entered into a registration rights agreement, dated May 17, 1999,
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated as
initial purchaser.

The registration rights agreement requires among other things that we:

- file with the Commission within 60 days after the original issue date of
the outstanding notes a registration statement under the Securities Act in
connection with the issue of the exchange notes;

- use our best efforts to cause the registration statement relating to such
registered exchange offer to become effective under the Securities Act
within 180 days after the original issue date of the outstanding notes;

- use our best efforts to have the registration statement relating to the
exchange offer to remain effective until the closing of the exchange
offer;

- use our best efforts to commence the exchange offer and cause such
exchange offer to be consummated within 210 days after the original issue
date of the outstanding notes; and

- upon the effectiveness of the exchange offer registration statement,
commence the exchange offer and keep the exchange offer open for not less
than 20 business days, or longer if required by applicable law.

If we consummate this exchange offer within the required time periods, we
will satisfy certain of our obligations under the registration rights agreement.
This prospectus, together with the letter of transmittal, is being sent to all
beneficial holders of the outstanding notes known to us.

In addition, we agreed, under the registration rights agreement, to file a
shelf registration statement pursuant to Rule 415 under the Securities Act, if:

- applicable law or the Commission's policy do not permit us to effect the
exchange offer;

- for any other reason the exchange offer is not consummated within 210 days
after the original issuance date of the outstanding notes;

- any holder of outstanding notes notifies us within 20 business days after
the commencement of the exchange offer that (1) due to a change in
applicable law or the Commission's policy it is not entitled to
participate in the exchange offer or it may not resell the exchange notes
without delivering a prospectus and the appropriate prospectus is not
available or (2) is a broker-dealer and owns outstanding notes acquired
directly from us or one of our affiliates; or

- the holders of a majority of outstanding notes may not resell the exchange
notes without restriction under the Securities Act and under applicable
blue sky or state securities law.

We have agreed to use our best efforts to cause such shelf registration
statement to become effective under the Securities Act as soon as practicable
but in no event later than 60 days after the filing of the shelf registration
statement. In addition, we agreed to use our best efforts to keep such shelf
registration

22
<PAGE>
statement continually effective, supplemented and amended for a period of at
least two years following the effective date of the shelf registration
statement, or such shorter period as will terminate when all outstanding notes
covered by such shelf registration statement have been sold.

Except as we have described, this prospectus may not be used for any offer
to resell, resale or other transfer of exchange notes.

Except as described above, after consummation of the exchange offer, holders
of outstanding notes will have no registration or exchange rights under the
registration rights agreement.

REGISTRATION DEFAULTS; LIQUIDATED DAMAGES

If either of the following registration defaults occur, we have agreed to
pay liquidated damages to each affected holder of outstanding notes:

- the registration statement related to the exchange offer or shelf
registration statement is not timely filed or declared effective or ceases
to be effective or fails to be usable for its intended purpose without
being succeeded immediately by an additional registration statement
covering all outstanding notes that is filed and is declared effective, or

- if the exchange offer has not been consummated on or prior to the 210th
day after the original issuance date of the outstanding notes.

Liquidated damages will accrue and become payable on the outstanding notes
as follows:

- with respect to the first 90-day period while a registration default is
continuing immediately following the occurrence of such registration
default, in an amount equal to 0.25% per annum of the principal amount of
the outstanding notes; and

- the amount of liquidated damages will increase by an additional 0.25% per
annum of the principal amount of the outstanding notes for each subsequent
90-day period while a registration default is continuing until all
registration defaults have been cured, up to an aggregate maximum amount
of 1.00% per annum of the principal amount of the outstanding notes.

Liquidated damages shall be computed based on the actual number of days
elapsed during which any such registration default exists. Following the cure of
a registration default, the accrual of liquidated damages with respect to such
registration default will cease.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The expiration date shall mean 5:00 p.m., New York City time, on September
14, 1999, unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date will be the latest date and time to which the exchange
offer is extended.

To extend the exchange offer, we will notify the exchange agent of any
extension by oral or written notice, followed by a public announcement thereof
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. In no event will the expiration date be
extended to a date more than 30 days after effectiveness of the registration
statement.

We reserve the right, in our reasonable judgment:

(1) to delay accepting any outstanding notes, to extend the exchange
offer or to terminate the exchange offer if any of the conditions described
below have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent, or

(2) to amend the terms of the exchange offer in any manner.

23
<PAGE>
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement.

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders of the outstanding notes may tender some or all of their
outstanding notes pursuant to the exchange offer.

The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture. The form and terms of the
exchange notes are substantially the same as the form and terms of the
outstanding notes, except that:

- the exchange notes have been registered under the Securities Act and thus
will not bear legends restricting their transfer; and

- holders of the exchange notes generally will not be entitled to certain
rights under the registration rights agreement or liquidated damages,
which rights generally will terminate after consummation of the exchange
offer.

Holders of outstanding notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Securities Exchange Act, as amended and the
rules and regulations of the Commission thereunder, including Rule 14e-1.

We shall be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders pursuant to the
exchange agent agreement for the purpose of receiving the exchange notes from
us.

If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, the certificates for any such unaccepted outstanding
notes will be returned, without expense, to the tendering holder as promptly as
practicable after the expiration date.

Holders who tender their outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes in connection with the exchange of
outstanding notes in the exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange offer. See "--Fees and Expenses."

INTEREST ON EXCHANGE NOTES

Each exchange note will bear interest from May 17, 1999. Holders of the
outstanding notes whose outstanding notes are accepted for exchange will not
receive:

- accrued interest on such outstanding notes for any period from and after
the last interest payment date to which interest has been paid for on such
outstanding notes prior to the original issue date of the exchange notes,
or

- if no such interest has been paid, will not receive any accrued interest
on such outstanding notes, and will be deemed to have waived the right to
receive any interest on such outstanding notes accrued from and after such
interest payment date, or if no such interest has been paid or duly
provided for, from and after May 17, 1999.

24
<PAGE>
Interest on the exchange notes will be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1999.

PROCEDURES FOR TENDERING OUTSTANDING NOTES

Only holders of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:

- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,

- have the signatures guaranteed if required by the letter of transmittal,
and

- mail or otherwise deliver such letter of transmittal or such facsimile,
together with the outstanding notes and any other required documents, to
the exchange agent so as to be received by the exchange agent at the
address set forth below prior to 5:00 p.m., New York City time, on the
expiration date.

Delivery of the outstanding notes may be made by book-entry transfer of such
outstanding notes into the exchange agent's account at The Depository Trust
Company in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the exchange agent prior to the
expiration date.

By executing the letter of transmittal, each holder will make to us the
representation described below in the first paragraph under the heading
"--Resale of Exchange Notes."

The tender by a holder and our acceptance will constitute an agreement
between the holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.

The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is at the election and
risk of the holder. Instead of delivery by mail, it is recommended that holders
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the exchange agent before the expiration date.
No letter of transmittal or outstanding notes should be sent to us. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect the above transactions on their behalf.

Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.

Signatures on the letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution", which is defined below, unless the
outstanding notes tendered:

- are signed by the registered holder, unless such holder has completed the
box entitled "Special Exchange Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or

- are tendered for the account of an eligible institution.

In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, such guarantee must be by a member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act. Any of the
entities described in the prior sentence is an eligible institution.

If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed in that letter, the outstanding notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such
outstanding notes, with the signature guaranteed by an eligible institution.

25
<PAGE>
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by us,
evidence satisfactory to us of its authority to so act must be submitted with
the letter of transmittal.

All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all outstanding notes not properly tendered or any outstanding notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties.

Unless waived, any defects or irregularities in connection with tenders of
outstanding notes must be cured within such time as we shall determine. Although
we intend to notify holders of outstanding notes of defects or irregularities
with respect to tenders of outstanding notes, neither we nor the exchange agent
or any other person shall incur any liability for failure to give such
notification. Tenders of outstanding notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any outstanding
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.

BOOK-ENTRY DELIVERY PROCEDURES

Promptly after the date of this prospectus, the exchange agent will
establish accounts with respect to the outstanding notes at The Depository Trust
Company, which will be the book-entry transfer facility for purposes of the
exchange offer. Any financial institution that is a participant in the
book-entry transfer facility systems may make book-entry delivery of the
outstanding notes by causing The Depository Trust Company to transfer such
outstanding notes into the exchange agent's account at such book-entry transfer
facility in accordance with such book-entry transfer facility's procedures for
such transfer. Timely book-entry delivery of outstanding notes pursuant to the
exchange offer, however, requires receipt of a confirmation of a book-entry
transfer prior to the expiration date. In addition, although delivery of
outstanding notes may be effected through book-entry transfer into the exchange
agent's account at the book-entry transfer facility, the letter of transmittal
or a manually signed facsimile of the letter of transmittal, together with any
required signature guarantees and any other required documents, or an agent's
message, which is defined below, in connection with a book-entry transfer, must
be delivered or transmitted to and received by the exchange agent at its address
set forth on the cover page of the letter of transmittal prior to the expiration
date to receive exchange notes for tendered outstanding notes, or the guaranteed
delivery procedure described below must be complied with. Tender will not be
deemed made until such documents are received by the exchange agent. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the exchange agent.

TENDER OF OUTSTANDING NOTES HELD THROUGH THE DEPOSITORY TRUST COMPANY

The exchange agent and The Depository Trust Company have confirmed that the
exchange offer is eligible for The Depository Trust Company's Automated Tender
Offer Program. Accordingly, participants in The Depository Trust Company's
Automated Tender Offer Program may, instead of physically completing and signing
the applicable letter of transmittal and delivering it to the exchange agent,
electronically transmit their acceptance of the exchange offer by causing The
Depository Trust Company to transfer outstanding notes to the exchange agent in
accordance with The Depository Trust Company's Automated

26
<PAGE>
Tender Offer Program procedures for transfer. The Depository Trust Company will
then send an agent's message to the exchange agent.

The term agent's message means a message transmitted by The Depository Trust
Company, received by the exchange agent and forming part of the book-entry
confirmation, which states that The Depository Trust Company has received an
expressed acknowledgment from a participant in The Depository Trust Company's
Automated Tender Offer Program that is tendering outstanding notes which are the
subject of such book-entry confirmation, that such participant has received and
agrees to be bound by the terms of the applicable letter of transmittal or, in
the case of an agent's message relating to guaranteed delivery, that such
participant has received and agrees to be bound by the applicable notice of
guaranteed delivery, and that we may enforce such agreement against such
participant.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their outstanding notes and:

(1) whose outstanding notes are not immediately available;

(2) who cannot deliver their outstanding notes, the letter of
transmittal or any other required documents to the exchange agent; or

(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date, may effect a tender if:

(a) the tender is made through an eligible institution;

(b) prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed notice
of guaranteed delivery by facsimile transmission, mail or hand delivery
setting forth the name and address of the holder, the certificate
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered, stating that the tender is being made and
guaranteeing that, within three (3) New York Stock Exchange trading days
after the expiration date, the letter of transmittal or facsimile of the
letter of transmittal, together with the certificate(s) representing the
outstanding notes or a book-entry confirmation transfer of such
outstanding notes into the exchange agent's account at The Depository
Trust Company and all other documents required by the letter of
transmittal, will be deposited by the eligible institution with the
exchange agent; and

(c) such properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all
tendered outstanding notes in proper form for transfer or a book-entry
confirmation transfer of such outstanding notes into the exchange agent's
account at The Depository Trust Company and all other documents required
by the letter of transmittal, are received by the exchange agent within
three (3) New York Stock Exchange trading days after the expiration date.

Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures described above.

WITHDRAWAL OF TENDERS

Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.

27
<PAGE>
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any such notice of withdrawal must:

- specify the name of the person having deposited the outstanding notes to
be withdrawn;

- identify the outstanding notes to be withdrawn, including the certificate
number(s) and principal amount of such outstanding notes, or, in the case
of outstanding notes transferred by book-entry transfer, the name and
number of the account at The Depository Trust Company to be credited;

- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the indenture
register the transfer of such outstanding notes into the name of the
person withdrawing the tender; and

- specify the name in which any such outstanding notes are to be registered,
if different from that of the depositor.

We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. Any outstanding notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued unless the outstanding notes so withdrawn are validly
retendered. Any outstanding notes which have been tendered but which are not
accepted for exchange will be returned to such holder without cost as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn outstanding notes may be retendered by following one
of the procedures described above at any time prior to the expiration date.

CONDITIONS

Despite any other term of the exchange offer, we shall not be required to
accept for exchange any outstanding notes, and may terminate or amend the
exchange offer as provided herein before the acceptance of such outstanding
notes, if:

(a) in the reasonable opinion of our counsel, the exchange offer or any
of its parts violates any applicable law or any applicable policy of the
Commission;

(b) any action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer or any material adverse
development has occurred in any such action or proceeding with respect to
us;

(c) any governmental approval has not been obtained, which approval we
shall deem necessary for the consummation of the exchange offer as
contemplated hereby; or

(d) none of the outstanding notes have been duly tendered in accordance
with the terms of the exchange offer.

EXCHANGE AGENT

State Street Bank and Trust Company will act as exchange agent for the
exchange offer with respect to the outstanding notes.

28
<PAGE>
Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal for the outstanding notes and
requests for copies of the notice of guaranteed delivery should be directed to
the exchange agent, addressed as follows:

By registered or certified mail or overnight courier:

State Street Bank and Trust Company
Corporate Trust Division
P.O. Box 778
Boston, MA 02102-0778
Attn: Kellie Mullen

By facsimile (for eligible institutions only): (617) 664-5290

Confirm by telephone: (617) 664-5587
Kellie Mullen

FEES AND EXPENSES

We will pay the expenses of soliciting outstanding notes for exchange. The
principal solicitation is being made by mail by the exchange agent. However,
additional solicitations may be made by telephone, facsimile or in person by our
officers and regular employees and our affiliates and by persons so engaged by
the exchange agent.

We will pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses and pay
other registration expenses, including fees and expenses of the trustee under
the indenture, filing fees, blue sky fees and printing and distribution
expenses.

We will pay all transfer taxes applicable to the exchange of the outstanding
notes pursuant to the exchange offer. If, however, certificates representing the
exchange notes or the outstanding notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the outstanding notes
tendered, or if tendered outstanding notes are registered in the name of any
person other than the person signing the letter of transmittal, or if a transfer
tax is imposed for any reason other than the exchange of the outstanding notes
pursuant to the exchange offer, then the amount of any such transfer taxes,
whether imposed on the registered holder or any other person, will be payable by
the tendering holder.

ACCOUNTING TREATMENT

The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is the aggregate principal amount or accrued value, as
applicable, of the outstanding notes, as reflected in our accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized in connection with the exchange offer. The expenses of the
outstanding notes offering and the exchange offer will be amortized over the
term of the exchange notes.

RESALE OF EXCHANGE NOTES

Based on no-action letters issued by the staff of the Commission, we believe
that holders of the exchange notes issued pursuant to this exchange offer in
exchange for outstanding notes may offer for resale, resell and otherwise
transfer the exchange notes, other than such a holder who is a broker-dealer,
without further compliance with the registration and prospectus delivery
requirements of the Securities Act. This is true as long as such exchange notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any

29
<PAGE>
person to participate in a distribution within the meaning of the Securities Act
of such exchange notes. Despite the above, any holder of outstanding notes may
be subject to separate restrictions if it:

- is our "affiliate" within the meaning of Rule 405 under the Securities
Act;

- does not acquire such exchange notes in the ordinary course of its
business;

- intends to participate in the exchange offer for the purpose of
distributing exchange notes; or

- is a broker-dealer who purchased such outstanding notes directly from us.

Holders of outstanding notes falling into any of the categories above:

- will not be able to rely on the no-action letters of the staff of the
Commission referred to above;

- will not be permitted or entitled to tender such outstanding notes in the
exchange offer; and

- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such
outstanding notes unless such sale is made pursuant to an exemption from
such requirements.

Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where those outstanding notes were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such exchange notes. The Commission has taken the position that
broker-dealers may fulfill their prospectus delivery requirements with respect
to exchange notes, other than a resale of an unsold allotment from the original
sale of the outstanding notes, with this prospectus. Under the registration
rights agreement, we are required during the period required by the Securities
Act to allow broker-dealers and other persons with similar prospectus delivery
requirements to use this prospectus in connection with the resale of such
exchange notes.

In addition, as described below, if any broker-dealer holds outstanding
notes acquired for its own account, then such broker-dealer may be deemed a
statutory "underwriter" within the meaning of the Securities Act and must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such exchange notes.

Each holder of outstanding notes and each initial purchaser who is required
to deliver a prospectus in connection with sales or market making activities, by
acquisition of outstanding notes, agrees that, upon a receipt of notice from us
that:

(1) the issuance by the Commission of any stop order suspending the
effectiveness of the exchange offer registration statement under the
Securities Act or of the suspension by any state securities commission of
the qualification of the outstanding notes from offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, or

(2) the existence of any fact or the happening of any event that makes
any statement of a material fact made in the registration statement or this
prospectus, or any amendment or supplement to it or any document
incorporated by reference herein untrue, or that requires the making of any
additions or changes in the registration statement or this prospectus in
order to make the statements in this prospectus, in light of the
circumstances under which they were made, not misleading,

such holder or person shall discontinue disposition of the outstanding notes
pursuant to this prospectus until such holder or person has received copies of
the supplemented or amended prospectus or such holder or person is advised in
writing by us that use of the prospectus may be resumed and has received copies
of any additional or supplemental filings that are incorporated by reference in
the prospectus.

30
<PAGE>
In addition, each holder or person will be deemed to have agreed that it
will either:

(1) destroy any prospectuses, other than permanent file copies, then in
such holder or person's possession which have been replaced by us with more
recently dated prospectuses; or

(2) deliver to us, at our expense, all copies, other than permanent file
copies, then in such holder's or person's possession of the prospectus
covering such outstanding notes that was current at the time of receipt of
the suspension notice regarding the happening of any event described in part
(2) of the prior paragraph.

We shall extend the time period regarding the effectiveness of the registration
statement by a number of days equal to the number of days in the period from and
including the date of delivery of the suspension notice regarding the happening
of any event described in part (2) of the prior paragraph to the date of
delivery of the supplement or amendment.

CONSEQUENCES OF FAILURE TO EXCHANGE

Any outstanding notes tendered and exchanged in the exchange offer will
reduce the aggregate principal amount of outstanding notes. Following the
consummation of the exchange offer, holders who did not tender their outstanding
notes generally will not have any further registration rights under the
registration rights agreement, and such outstanding notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such outstanding notes could be adversely affected.

The outstanding notes are currently eligible for sale pursuant to Rule 144A
through Private Offerings, Resales and Trading through Automated Linkages
(PORTAL). Because we anticipate that most holders will elect to exchange such
outstanding notes for exchange notes in the exchange offer due to the absence of
restrictions on the resale of exchange notes, except for applicable restrictions
on any holder of exchange notes who is our affiliate or is a broker-dealer which
acquired the outstanding notes directly from us, under the Securities Act, we
anticipate that the liquidity of the market for any outstanding notes remaining
after the consummation of the exchange offer may be substantially limited.

As a result of the making of this exchange offer, we will have fulfilled
certain of our obligations under the registration rights agreement, and holders
who do not tender their outstanding notes, with certain exceptions, will not
have any further registration rights under the registration rights agreement or
rights to receive liquidated damages for failure to register. Accordingly, any
holder that does not exchange its outstanding notes for exchange notes will
continue to hold the untendered outstanding notes and will be entitled to all
the rights and subject to all the applicable limitations under the indenture.

The outstanding notes that are not exchanged for exchange notes pursuant to
the exchange offer will remain restricted securities within the meaning of the
Securities Act. Accordingly, such outstanding notes may be resold only:

- to us or any of our subsidiaries;

- inside the United States to a qualified institutional buyer in compliance
with Rule 144A under the Securities Act;

- inside the United States to an institutional "accredited investor", which
term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act, an "accredited investor" that, prior to such transfer, furnishes or
has furnished on its behalf by a U.S. broker-dealer to the trustee under
the indenture a signed letter containing certain representations and
agreements relating to the restrictions on transfer, the form of which
letter can be obtained from such trustee;

- outside the United States in compliance with Rule 904 under the Securities
Act;

- pursuant to the exemption from registration provided by Rule 144 under the
Securities Act, if available; or

- pursuant to an effective registration statement under the Securities Act.

31
<PAGE>
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the outstanding notes from the initial
purchaser will be required to sign a letter confirming that such person is an
accredited investor under the Securities Act and that such person acknowledges
the transfer restrictions summarized in this prospectus.

OTHER

Participation in the exchange offer is voluntary and holders of outstanding
notes should carefully consider whether to accept the offer to exchange their
outstanding notes. Holders of outstanding notes are urged to consult their
financial and tax advisors in making their own decision on what action to take
with respect to the exchange offer. We may in the future seek to acquire
untendered outstanding notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. We have no
present plans to acquire any outstanding notes that are not tendered in the
exchange offer or to file a registration statement to permit resales of any
untendered outstanding notes.

32
<PAGE>
CAPITALIZATION

The following table sets forth our consolidated capitalization as of March
31, 1999 on an actual and a pro forma basis. You should refer to our unaudited
pro forma consolidated financial statements and the financial statements,
related notes and other financial information included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
ACTUAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt......................................................... $ 2,206 $ 2,206
Long-term debt, excluding current maturities:
Revolving credit facility............................................................... 10,700 5,098
Term loans.............................................................................. 142,930 127,930
Existing senior subordinated notes...................................................... 29,070 --
Other................................................................................... 354 1,054
Outstanding notes (net of unamortized debt discount of $2,632).......................... -- 172,368
---------- -----------
Total long-term debt.................................................................. $ 185,260 $ 308,656
---------- -----------
Stockholder's equity:
Common stock, par value $.01 per share; 3,000 shares authorized; 100 shares
outstanding........................................................................... $ -- $ --
Additional paid-in capital.............................................................. 134,852 134,852
Accumulated deficit..................................................................... (1,630) (24,466)
Accumulated other comprehensive income.................................................. 31 31
---------- -----------
Total stockholder's equity............................................................ 133,253 110,417
---------- -----------
Total capitalization................................................................ $ 318,513 $ 419,073
---------- -----------
---------- -----------
</TABLE>

33
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(AFTER THE 1998 RECAPITALIZATION)

The selected consolidated historical income statement and other data set
forth below for the year ended December 31, 1995, the periods ended October 25,
1996 and December 31, 1996 and the years ended December 31, 1997 and 1998, and
the selected consolidated historical balance sheet data at December 31, 1995,
1996, 1997 and 1998 and October 25, 1996 were derived from the audited
consolidated financial statements described below. The selected consolidated
historical financial data as of and for the year ended December 31, 1994 and the
three months ended March 31, 1998 and 1999, were derived from Atrium's (after
the 1998 recapitalization) unaudited consolidated financial statements, which in
the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. The selected consolidated 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 prospectus.

As Wing was determined to be the accounting acquiror in a "reverse
acquisition," the consolidated historical financial statements of Atrium, prior
to October 3, 1998, were replaced with the consolidated historical financial
statements of Wing. As a result, the selected consolidated historical income
statement and other data for 1998 includes the operations of Wing from January 1
through December 31 and the operations of Atrium and Darby from October 3
through December 31. The selected consolidated historical income statement and
other data for the three months ended March 31, 1999 include the operations of
Atrium, Wing and Darby for the three months ended March 31, 1999 and Delta since
January 27, 1999. Wing was acquired by its present controlling shareholders on
October 25, 1996. The selected consolidated historical income statement and
other data for the years ended December 31, 1994, 1995 and 1997, the three
months ended March 31, 1998 and the periods ended October 25, 1996 and December
31, 1996 only include the operations and accounts of Wing and its predecessor.
The December 31, 1998 selected consolidated historical balance sheet data
includes the accounts of Atrium, Wing and Darby. The December 31, 1994, 1995,
1996 and 1997, and October 25, 1996 selected consolidated historical balance
sheet data only include the accounts of Wing and its predecessor.

The references in the selected consolidated historical financial data to the
periods ended December 31, 1996 and October 25, 1996, refer to the periods
October 26, 1996 through December 31, 1996 and January 1, 1996 through October
25, 1996, respectively.

<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------
YEAR ENDED DECEMBER
PERIOD PERIOD YEAR ENDED DECEMBER THREE MONTHS ENDED
31, ENDED ENDED 31, ------------------------
---------------------- OCTOBER 25, DECEMBER 31, -------------------- MARCH 31, MARCH 31,
1995 1996 1996 1997 1998 1998 1999
--------- ----------- ------------- --------- --------- ----------- -----------
1994
-----------
(UNAUDITED)
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $ 72,496 $ 68,481 $ 62,880 $ 13,200 $ 99,059 $ 211,059 $ 39,450 $ 106,842
Gross profit................. 12,945 15,461 15,569 3,273 20,789 51,919 8,986 32,134
Selling, delivery, general
and administrative
expenses................... 14,032 13,931 13,271 2,242 15,671 39,754 6,606 23,151
Interest expense............. 909 1,039 509 374 2,953 9,081 992 4,346
Income (loss) before income
taxes...................... 179 491 1,789 532 1,391 (2,329) 1,242 1,018
Net income (loss)............ 35 279 1,119 303 696 (2,819) 686 190
</TABLE>

34
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------
YEAR ENDED DECEMBER
PERIOD PERIOD YEAR ENDED DECEMBER THREE MONTHS ENDED
31, ENDED ENDED 31, ------------------------
---------------------- OCTOBER 25, DECEMBER 31, -------------------- MARCH 31, MARCH 31,
1995 1996 1996 1997 1998 1998 1999
--------- ----------- ------------- --------- --------- ----------- -----------
1994
-----------
(UNAUDITED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................. $ 20,740 $ 18,515 $ 19,966 $ 36,404 $ 55,383 $ 359,869 $ 57,514 $ 366,766
Total debt................... 10,296 8,522 8,154 20,489 32,238 179,227 33,385 185,260

OTHER DATA:
EBITDA(1).................... $ 1,777 $ 2,374 $ 3,014 $ 1,166 $ 5,836 $ 14,732 $ 2,702 $ 8,301
Depreciation and
amortization............... 689 844 716 260 1,492 7,980 468 2,937
Ratio of earnings to fixed
charges(2)(3).............. 1.16x 1.37x 3.32x 2.23x 1.36x -- N/A 1.21x
</TABLE>

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

(2) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes, extraordinary charge
and fixed charges. Fixed charges consist of (1) interest, whether expensed
or capitalized; (2) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized; and (3) that
portion of rental expense considered to represent interest cost (assumed to
be one-third). For the year ended December 31, 1998, earnings were
insufficient to cover fixed charges by $2,329 which includes the effects of
$3,851 of non-cash stock option compensation expense.

(3) On a pro forma basis, for the year ended December 31, 1998, earnings were
insufficient to cover fixed charges by $166 and for the period ended March
31, 1999 the ratio of earnings to fixed charges was 1.35x.

35
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(PREVIOUS REGISTRANT)

The selected consolidated historical financial data set forth below for each
of the four years in the four-year period ended December 31, 1997 and as of and
for the period from January 1, 1998 to October 2, 1998, were derived from
Atrium's (previous registrant) audited consolidated financial statements. The
selected consolidated historical financial data as of and for the period ended
September 30, 1997 were derived from Atrium's (previous registrant) unaudited
consolidated financial statements, which in the opinion of the management affect
all the adjustments necessary for the fair presentation of results for such
period. The selected consolidated 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 prospectus.

Prior to October 2, 1998, Atrium's historical financial statements as filed
with the Commission, included its operations and the operations of its
subsidiaries. On October 2, 1998, pursuant to the 1998 recapitalization, the
stock of Wing and Darby were contributed to Atrium.

As Wing was determined to be the accounting acquiror in a "reverse
acquisition," the historical financial statements of Atrium (prior to October 3,
1998) were replaced with the historical financial statements of Wing. Therefore,
the selected consolidated historical financial data of Atrium (the previous
registrant) are provided for information purposes only.

<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, --------------------------
------------------------------------------ SEPTEMBER 30, OCTOBER 2,
1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) (UNAUDITED)
INCOME STATEMENT DATA:
Net sales.................................... $ 123,571 $ 135,478 $ 156,269 $ 186,764 $ 139,793 $ 167,418
Gross profit................................. 37,999 41,503 53,928 65,463 50,137 58,183
Selling, delivery, general and administrative
expenses................................... 26,895 29,303 34,815 44,486 33,114 37,704
Interest expense............................. 355 2,753 4,786 11,523 8,542 9,545
Income (loss) before income taxes............ 9,795 3,393 8,078 10,235 9,353 (2,069 )
Net income (loss)............................ 9,191 1,849 4,203 6,167 5,868 (4,862 )

BALANCE SHEET DATA (END OF PERIOD):
Total assets................................. $ 58,507 $ 48,569 $ 74,750 $ 83,375 $ 91,823 $ 121,703
Total debt................................... 6,786 49,000 100,000 100,000 102,962 118,985

OTHER DATA:
EBITDA(1).................................... $ 16,094 $ 17,070 $ 21,463 $ 25,842 $ 20,279 $ 22,055
Depreciation and amortization................ 1,678 2,087 5,228 3,585 2,384 3,246
</TABLE>

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

(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, stock option compensation expense,
special charges and certain non-recurring expenses related to acquisitions.
While we do not intend for EBITDA to represent cash flow from operations as
defined by GAAP and we do not suggest that you consider it as an indicator
of operating performance or an alternative to cash flow or operating income
(as measured by GAAP) or as a measure of liquidity, we include it herein to
provide additional information with respect to our ability to meet our
future debt service, capital expenditures and working capital requirements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations." We believe EBITDA provides investors and analysts in the
building materials industry the necessary information to analyze and compare
our historical results on a comparable basis with other companies on the
basis of operating performance, leverage and liquidity. However, as EBITDA
is not defined by GAAP, it may not be calculated on the same basis as other
similarly titled measures of other companies within the building materials
industry.

36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Our unaudited pro forma consolidated financial statements are derived from
the audited and unaudited historical financial statements listed in the Index to
Financial Statements on page F-1 and certain unaudited financial statements of
other acquired businesses.

Our unaudited pro forma consolidated financial statements have been prepared
to give effect to the transactions described below. As a result of the 1998
recapitalization, Wing is deemed to be the "accounting acquiror" in a reverse
acquisition transaction for financial statement purposes. As a result, our
historical consolidated statement of operations for the year ended December 31,
1998 includes Wing's operations for the entire year and only includes operations
for Atrium (previous registrant) and Darby from October 3, 1998 through December
31, 1998. The historical consolidated financial statements of operations for the
period ended March 31, 1999 includes the operations of Atrium for the three
months ended March 31, 1999, and the operations of Delta since it was acquired
on January 27, 1999.

Our unaudited pro forma consolidated balance sheet as of March 31, 1999 has
been prepared to give effect to the Heat and Champagne acquisitions and the
offering of the outstanding notes and our use of the proceeds as if they
occurred on March 31, 1999. The assets and liabilities acquired have been
recorded at their estimated fair market values. Our unaudited pro forma
consolidated statement of operations for the year ended December 31, 1998 gives
effect to the Atrium transactions as if they occurred on January 1, 1998. Our
unaudited pro forma consolidated statement of operations for the three months
ended March 31, 1999 gives effect to the acquisitions of Delta, Heat and
Champagne and the offering of the outstanding notes and our use of the proceeds
as if they occurred on January 1, 1999.

The unaudited pro forma adjustments are based upon available information and
certain assumptions that we believe are reasonable. Our unaudited pro forma
consolidated financial statements and the accompanying notes should be read in
conjunction with the historical financial statements listed in the Index to
Financial Statements on page F-1 and other financial information contained in
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. Our
unaudited pro forma consolidated financial statements are not indicative of
either future results of operations or the results that might have occurred if
the Atrium transactions had been consummated on the indicated dates.

37
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

MARCH 31, 1999

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- -------------------------
ATRIUM HEAT CHAMPAGNE ADJUSTMENTS CONSOLIDATED
---------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ -- $ 1,143 $ 25 $ (1,168)(a) $ --
Equity securities-available for sale........... 144 144
Accounts receivable, net....................... 50,718 5,227 1,505 -- 57,450
Inventories.................................... 49,973 6,710 1,108 -- 57,791
Prepaid expenses and other current
assets....................................... 8,020 966 146 -- 9,132
Deferred tax asset............................. 1,249 915 -- -- 2,164
---------- --------- ----------- ----------- ------------
Total current assets......................... 110,104 14,961 2,784 (1,168) 126,681
Property, plant and equipment, net............... 26,907 8,339 338 35,584
Goodwill, net.................................... 213,902 16,563 -- 57,244(b) 287,709
Deferred financing costs, net.................... 10,740 1,427 -- 4,673(c) 16,840
Other assets..................................... 5,113 673 33 1,739(d) 7,558
---------- --------- ----------- ----------- ------------
Total assets................................. $ 366,766 $ 41,963 $ 3,155 $ 62,488 $ 474,372
---------- --------- ----------- ----------- ------------
---------- --------- ----------- ----------- ------------
Current liabilities:
Current portion of notes payable............... $ 2,206 $ 3,568 $ 450 $ (4,018)(c) $ 2,206
Accounts payable............................... 23,703 1,775 941 -- 26,419
Accrued liabilities............................ 18,581 3,975 365 (1,287)(e) 21,634
---------- --------- ----------- ----------- ------------
Total current liabilities.................... 44,490 9,318 1,756 (5,305) 50,259
Long-term liabilities:
Notes payable.................................. 183,054 20,468 194 102,734(c) 306,450
Deferred tax liability......................... 1 468 -- -- 469
Other liabilities.............................. 5,968 309 -- 500(f) 6,777
---------- --------- ----------- ----------- ------------
Total long-term liabilities.................. 189,023 21,245 194 103,234 313,696
---------- --------- ----------- ----------- ------------
Total liabilities............................ 233,513 30,563 1,950 97,929 363,955
Stockholder's equity:
Common stock................................... -- 13 125 (138)(g) --
Paid-in-capital................................ 134,852 5,239 -- (5,239)(h) 134,852
Retained earnings (accumulated deficit)........ (1,630) 6,002 1,080 (29,918)(i) (24,466)
Accumulated other comprehensive income......... 31 -- -- -- 31
Outstanding warrants........................... -- 146 -- (146)(j) --
---------- --------- ----------- ----------- ------------
Total stockholder's equity................... 133,253 11,400 1,205 (35,441) 110,417
---------- --------- ----------- ----------- ------------
Total liabilities and stockholder's
equity..................................... $ 366,766 $ 41,963 $ 3,155 $ 62,488 $ 474,372
---------- --------- ----------- ----------- ------------
---------- --------- ----------- ----------- ------------
</TABLE>

38
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C> <C> <C>
(a) Represents adjustments to cash of $1,168 in connection with the acquisitions of Heat and
Champagne.

Cash not purchased in the acquisition of Champagne................. $ (25)

Cash purchased in the acquisition of Heat utilized to pay down a
portion of the revolving credit facility borrowed to purchase
such cash........................................................ (1,143)
---------
Net eliminated cash................................................ $ (1,168)
---------
---------
Represents the excess of cost over the fair value of the net assets in the acquisitions
(b) of Heat and Champagne.

Purchase price for Heat acquisition................................ $ 85,000
Book value of the net assets of Heat, which approximates fair value
(net assets excludes cash and deferred financing fees to be
retired and all current and long-term notes payable)............. 15,603
---------
Excess of cost over fair value of assets acquired.................. $ 69,397
Purchase price for Champagne acquisition (includes $0.5 million to
be paid upon achievement of certain operational targets)......... 4,144
Book value of the net assets of Champagne, which approximates fair
value (net assets excludes cash and all current and long-term
notes payable)................................................... 1,824
---------
Excess of cost over fair value of assets acquired.................. 2,320
Fees and expenses related to the Heat and Champagne acquisitions... 2,090
---------
Total excess of cost over fair value of assets acquired in the
acquisitions of Heat and Champagne............................... 73,807
Elimination of existing goodwill at Heat........................... (16,563)
---------
Net increase to goodwill........................................... $ 57,244
---------
---------
Represents the issuance of the outstanding notes, including related deferred financing
(c) costs, repayment of existing debt and the write-off of deferred financing costs.

Issuance of the outstanding notes, net of unamortized debt discount
of $2,632........................................................ $ 172,368
---------
LESS: EXISTING DEBT REPAYMENTS
Atrium's revolving credit facility................................. $ 5,602
Atrium's term loan B............................................... 15,000
Atrium's existing senior subordinated notes........................ 29,070
---------
(49,672)
</TABLE>

39
<PAGE>
<TABLE>
<S> <C> <C> <C>
ELIMINATION OF EXISTING INDEBTEDNESS OF ACQUIRED COMPANIES
(LONG-TERM PORTION ONLY)
Heat............................................................... 19,768
Champagne.......................................................... 194
---------
(19,962)
---------
Net increase to notes payable...................................... $ 102,734
---------
---------
ELIMINATION OF CURRENT PORTION OF INDEBTEDNESS OF ACQUIRED
COMPANIES
Heat............................................................... 3,568
Champagne.......................................................... 450
---------
Net decrease in current portion of notes payable................... $ 4,018
---------
---------
DEFERRED FINANCING COSTS
Financing cost related to this offering............................ $ 6,995
Write-off of financing costs and expenses related to debt to be
retired:
Atrium's pro rata portion of term loan B........................... (895)
Heat notes payable................................................. (1,427)
---------
(2,322)
---------
Net increase in deferred financing costs........................... $ 4,673
---------
---------
Represents the tax benefit of $1,739 resulting from (1) the accreted discount paid on the
Atrium Corporation discount debentures of $570, (2) the extraordinary charge related to
the repurchase premium on the existing senior subordinated notes of $828 and (3) the
(d) extraordinary charge related to the write-off of deferred financing costs of $341.
Represents the elimination of accrued interest related to the retirement of a portion of
(e) Atrium's term loan B and retirement of Atrium's existing senior subordinated notes.

Term loan B accrued interest....................................... $ 134
Existing senior subordinated notes accrued interest................ 1,153
---------
Net decrease to accrued interest................................... $ 1,287
---------
---------
Represents contingent portion of Champagne purchase price of $500, to be paid in 1999
(f) related to the achievement of certain operational targets.

(g) Represents the elimination of the historical common stock of Heat and Champagne of $138.

(h) Represents the elimination of the historical additional paid-in capital of Heat of
$5,239.

Represents the elimination of the historical retained earnings of Heat and Champagne, a
distribution to Atrium Corporation to repurchase $20,000 of the discount debentures,
elimination of deferred finance charges related to the repayment of existing debt and an
(i) extraordinary charge related to a repurchase premium on the retirement of existing senior
subordinated notes.

Heat retained earnings............................................. 6,002
Champagne retained earnings........................................ 1,080
---------
Total eliminated historical retained earnings...................... 7,082
</TABLE>

40
<PAGE>
<TABLE>
<S> <C> <C> <C>
Distribution to Atrium Corporation to repurchase a portion of
discount debentures.............................................. 20,000
Distribution to Atrium Corporation to pay accreted discount on
discount debentures (net of tax)................................. 930
Extraordinary charge related to a tender premium on retirement of
existing senior subordinated notes (net of tax).................. 1,352
---------
22,282
Write-off of financing costs and expenses related to a pro rata
portion of Atrium's term loan B (net of tax)..................... 554
---------
Net decrease to retained earnings.................................. $ 29,918
---------
---------
Represents the elimination of outstanding warrants at Heat retired in connection with the
(j)
acquisition of Heat.
</TABLE>

41
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREVIOUS
ATRIUM AS REGISTRANT
REPORTED ATRIUM MASTERVIEW DARBY
JAN. 1, JAN. 1, JAN. 1, 1998 JAN. 1, DELTA
1998 TO 1998 TO TO 1998 TO YEAR ENDED
DEC. 31, OCT. 2, MARCH 27, OCT. 2, DECEMBER 31, PRO FORMA PRO FORMA
1998 1998 1998 1998 1998 ADJUSTMENTS(1) ATRIUM(1)
----------- ----------- ------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 211,059 $ 167,418 $ 6,219 $ 16,081 $ 8,832 -- $ 409,609
Cost of goods sold........... 159,140 109,235 4,687 9,679 6,039 -- 288,780
----------- ----------- ------ ----------- ------ ------- -----------
Gross profit............... 51,919 58,183 1,532 6,402 2,793 -- 120,829
Operating expenses:
Selling, delivery, general
and administrative
expenses................. 39,754 36,310 646 2,430 2,539 (409)(a) 81,270
Amortization expense....... 2,133 1,394 188 586 -- 1,068(c) 5,369
Special charges............ -- 7,452 -- -- -- (7,452)(e) --
Stock option compensation
expense.................. 3,851 5,265 -- 141 -- -- 9,257
----------- ----------- ------ ----------- ------ ------- -----------
45,738 50,421 834 3,157 2,539 (6,793) 95,896
----------- ----------- ------ ----------- ------ ------- -----------
Income (loss) from
operations............. 6,181 7,762 698 3,245 254 6,793 24,933
Interest expense............. 9,081 9,545 158 1,277 155 (4,222)(f) 15,994
Other income (expense),
net........................ 571 (286) (173) 8 (108) 171(i) 183
----------- ----------- ------ ----------- ------ ------- -----------
Income before income
taxes.................. (2,329) (2,069) 367 1,976 (9) 11,186 9,122
Provision (benefit) for
income taxes............... (149) (732) -- 995 -- 4,529(j) 4,643
Extraordinary items.......... 639 3,525 -- 116 -- (4,280)(k) --
----------- ----------- ------ ----------- ------ ------- -----------
Net income (loss)............ $ (2,819) $ (4,862) $ 367 $ 865 $ (9) $ 10,937 $ 4,479
----------- ----------- ------ ----------- ------ ------- -----------
----------- ----------- ------ ----------- ------ ------- -----------

HEAT CHAMPAGNE
YEAR ENDED YEAR ENDED ATRIUM AFTER
DECEMBER 31, DECEMBER 31, PRO FORMA ATRIUM
1998 1998 ADJUSTMENTS TRANSACTIONS
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................... $ 73,458 10,012 -- $ 493,079
Cost of goods sold........... 41,780 6,152 -- 336,712
------------- ------------- ----------- ------------
Gross profit............... 31,678 3,860 -- 156,367
Operating expenses:
Selling, delivery, general
and administrative
expenses................. 21,680 3,295 200(b) 106,445
Amortization expense....... 685 -- 1,494(d) 7,548
Special charges............ -- -- -- --
Stock option compensation
expense.................. -- -- -- 9,257
------------- ------------- ----------- ------------
22,365 3,295 1,694 123,250
------------- ------------- ----------- ------------
Income (loss) from
operations............. 9,313 565 (1,694) 33,117
Interest expense............. 2,330 59 11,787(g) 31,902
1,732(h)
Other income (expense),
net........................ (415) -- -- (232)
------------- ------------- ----------- ------------
Income before income
taxes.................. 6,568 506 (15,213) 983
Provision (benefit) for
income taxes............... 2,519 173 (5,213)(j) 2,122
Extraordinary items.......... -- -- -- --
------------- ------------- ----------- ------------
Net income (loss)............ $ 4,049 $ 333 $ (10,000) $ (1,139)
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>

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

(1) Prior to the Heat and Champagne acquisitions and the offering of the
outstanding notes.

42
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1999

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ATRIUM HEAT
THREE THREE CHAMPAGNE
MONTHS DELTA MONTHS THREE MONTHS
ENDED FROM JANUARY 1, ENDED ENDED ATRIUM AFTER
MARCH 31, 1999 TO JANUARY MARCH 31, MARCH 31, PRO FORMA ATRIUM
1999(1) 27, 1999 1999 1999 ADJUSTMENTS TRANSACTIONS
----------- --------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 106,842 $ 508 $ 13,642 $ 2,295 $ -- $ 123,287
Cost of goods sold.................. 74,708 417 8,970 1,830 -- 85,925
----------- ----- ----------- ------ ------------- ------------
Gross profit...................... 32,134 91 4,672 465 -- 37,362
Operating expenses:
Selling, delivery, general and
administrative expenses......... 23,151 118 5,769 484 (16)(b) 29,506
Amortization expense.............. 1,889 -- 182 12 1,708(d) 3,791
Special charges................... 1,762 -- -- -- (1,762)(e) --
----------- ----- ----------- ------ ------------- ------------
26,802 118 5,951 496 (70) 33,297
----------- ----- ----------- ------ ------------- ------------
Income (loss) from operations... 5,332 (27) (1,279) (31) 70 4,065
Interest expense.................... 4,346 12 530 16 2,489(g) 7,870
477(h) --
Other income (expense), net......... 32 -- 29 8 -- 69
----------- ----- ----------- ------ ------------- ------------
Income before income taxes...... 1,018 (39) (1,780) (39) (2,896) (3,736)
Provision (benefit) for income
taxes............................. 828 -- (660) -- (451)(j) (283)
----------- ----- ----------- ------ ------------- ------------
Net income (loss)................... $ 190 $ (39) $ (1,120) $ (39) $ (2,445) $ (3,453)
----------- ----- ----------- ------ ------------- ------------
----------- ----- ----------- ------ ------------- ------------
</TABLE>

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

(1) Prior to the Heat and Champagne acquisitions and the offering of the
outstanding notes.

43
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C> <C> <C>
Represents the adjustment of $409 of certain general and administrative expenses that
were eliminated in connection with the 1998 recapitalization related to insurance,
(a) professional fees and transportation costs.

Represents the net change in management fees payable by Atrium as a result of the
(b) acquisition of Heat and Champagne.

Represents the net increase in amortization expense relating to goodwill for Atrium as
(c) a result of the 1998 recapitalization:

Amortization of $214,749 of goodwill being amortized over
40 years............................................... $ 5,369

Elimination of historical goodwill amortization:

Atrium................................................... $ 2,133

Atrium (previous registrant)............................. 1,394

Masterview............................................... 188

Darby.................................................... 586
-------

Total.................................................... (4,301)
-----------

Net increase in goodwill amortization expense as a result
of the 1998 recapitalization........................... $ 1,068
-----------
-----------

Represents increase in amortization expense on goodwill associated with the acquisition
(d) of Delta, Heat and Champagne.

THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
--------------- -----------

Amortization over 40 years of goodwill associated with
the Delta, Heat and Champagne acquisitions............. $ 1,903 $ 1,845

Elimination of historical goodwill amortization of
Heat................................................... (409) (137)
------- -----------

Net increase in amortization of goodwill................. $ 1,494 $ 1,708
------- -----------
------- -----------

Represents decrease in special charges from one-time expenses for management bonuses,
(e)
transaction expenses and non-compete fees as a result of the 1998 recapitalization, as
follows:

THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
--------------- -----------

Management bonuses....................................... $ 3,885 $ --

Transaction expenses..................................... 2,780 --

Write-off of non-compete fees............................ 787 --

Severance benefits....................................... -- 1,762
------- -----------

Net decrease in special charges.......................... $ 7,452 $ 1,762
------- -----------
------- -----------
</TABLE>

44
<PAGE>
<TABLE>
<S> <C> <C> <C>
Represents the adjustment to interest expense had Atrium's December 31, 1998 capital
structure been in place as of January 1, 1998, and the elimination of Darby, Delta and
(f) Masterview historical interest expense.

Interest expense resulting from the borrowing of $29,070
at 10.500% on Atrium's existing senior subordinated
notes.................................................. $ 3,052

Interest expense resulting from the borrowing of $4,118
at 9.125% on Atrium's revolving credit facility........ 376

Interest expense resulting from the borrowing of $74,750
at 8.499% on Atrium's term loan B...................... 6,353

Interest expense resulting from the borrowing of $70,680
at 8.708% on Atrium's term loan C...................... 6,155

Interest expense resulting from the borrowing of $609 at
9.500% on other notes payable.......................... 58
-------

Total pro forma interest expense on capital structure as
of December 31, 1998................................... $ 15,994

Elimination of historic interest expense of Atrium,
Darby, Delta and Masterview............................ (20,216)
-----------

Net decrease to interest expense as a result of the 1998
Recapitalization....................................... $ (4,222)
-----------
-----------

Represents net increase in interest expense resulting from the offering of the
(g) outstanding notes and the repayment of existing debt.
<CAPTION>

THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
--------------- -----------
<S> <C> <C> <C>

Interest expense resulting from the borrowing of $175,000
at 10.500% on the outstanding notes.................... $ 18,375 $ 4,594

Interest expense resulting from the borrowing of $59,750
and $59,500 at 8.624% and 8.085%, respectively, on
Atrium's term loan B................................... 5,152 1,202

Interest expense resulting from the borrowing of $70,680
and $70,430 at 8.833% and 8.345%, respectively, on
Atrium's term loan C................................... 6,243 1,469

Interest expense resulting from the borrowing of $1,309
and $6,358 at 9.500% and 8.053%, respectively, on other
notes payable.......................................... 124 128
------- -----------

Total pro forma interest expense......................... 29,894 7,393

Elimination of Atrium pro forma interest expense before
Atrium transactions.................................... (15,994) (4,346)

Elimination of historic interest expense of Delta, Heat
and Champagne.......................................... (2,113) (558)
------- -----------

Net increase in interest expense as a result of the
Atrium transactions.................................... $ 11,787 $ 2,489
------- -----------
------- -----------
</TABLE>

45
<PAGE>
<TABLE>
<S> <C> <C> <C>
Represents increase in amortization expense on deferred finance costs associated with
the acquisition of Heat and Champagne and the retirement of the existing senior
(h) subordinated notes and a portion of the term loan B.
<CAPTION>

THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
--------------- -----------
<S> <C> <C> <C>

Amortization of deferred finance costs associated with
the Heat and Champagne acquisitions.................... $ 700 $ 175

Amortization of unamortized debt discount on the
outstanding notes...................................... 157 39

Amortization of historical deferred finance costs not
written off............................................ 1,151 308

Amortization of historical Heat deferred finance costs... (276) (45)
------- -----------

Net increase in amortization expense of deferred finance
costs.................................................. $ 1,732 $ 477
------- -----------
------- -----------

Represents decrease in other expense through the elimination of one-time bonuses and
associated payroll taxes, totaling $171, paid to certain members of senior management
(i) of Masterview in connection with the Masterview acquisition on March 27, 1998.

Represents the income tax effect of the pro forma adjustments reflected above assuming
an effective income tax rate of 38%, adjusting for additional goodwill which is not
(j) deductible for tax purposes.

Represents the decrease in extraordinary credit charges incurred in connection with the
write-off of deferred finance costs on the retirement of certain credit facilities in
(k) the 1998 recapitalization as follows:

ATRIUM (PREVIOUS REGISTRANT)
Revolving credit facility and certain term loans
deferred finance costs............................... $ 955

Existing senior subordinated notes deferred finance
costs.................................................. 4,022

Repurchase premium on existing senior subordinated
notes.................................................. 709

Tax effect at 38%........................................ (2,161)
-------

$ 3,525

WING

Existing notes payable-deferred finance costs............ 1,031

Tax effect at 38%........................................ (392)
-------

639

DARBY
Existing notes payable deferred finance costs............ 190

Tax effect at 38%........................................ (74)
-------

116
-----------

Net decrease to extraordinary charges.................... $ 4,280
-----------
-----------
</TABLE>

46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

The following discussion and analysis should be read in conjunction with the
consolidated financial statements of Atrium (after the 1998 recapitalization)
and Atrium (previous registrant) which appear elsewhere in this prospectus.

OVERVIEW

GENERAL

Atrium's (after the 1998 recapitalization) results are generally impacted by
the level of activity in the residential new construction and repair and
remodeling market segments throughout the United States. This activity is
influenced by regional and national economic trends, such as availability of
consumer credit, interest rates, job formation, age of housing stock,
inter/intra U.S. migration and consumer confidence.

BACKGROUND

Atrium was formed through a series of transactions and acquisitions. The
following summary should be considered in conjunction with reading the
information presented below:

September 1, 1996--Atrium purchased certain assets of Keller Aluminum
Products of Texas, a division of Keller Building Products, which was owned by
Keller Industries, Inc. The assets were recorded at cost.

September 30, 1996--Atrium Corporation acquired Atrium Door and Window
Company of the Northeast, formerly known as Bishop Manufacturing Company,
Incorporated, a manufacturer of vinyl replacement windows and doors for the
residential market in the northeast region of the United States. Atrium
Corporation contributed the capital stock of Atrium Door and Window Company of
the Northeast to Atrium. The transaction was recorded under the purchase method
of accounting.

October 25, 1996--Wing Industries Holdings, Inc. acquired 100% of the
outstanding common stock of Wing Industries, Inc. and Wing Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Wing
Industries Holdings, was merged with and into Wing Industries, Inc. with Wing
Industries, Inc. being the surviving corporation. Wings Industries Holdings did
not have any significant activity prior to the acquisition of Wing. Wing
Industries, Inc. was founded in 1924 and incorporated in 1941. The acquisition
was accounted for under the purchase method of accounting.

November 27, 1996--Atrium was effectively recapitalized in a transaction in
which affiliates of Hicks Muse Tate & Furst Incorporated purchased approximately
82% of Atrium Corporation's newly issued common stock and redeemed the equity
interests of selling security holders of Atrium. The redemption payments were
funded through the issuance of the existing senior subordinated notes and the
other outstanding debt of Atrium was refinanced. The transaction was accounted
for as a recapitalization.

July 1, 1997--Atrium purchased the assets of the Western Window Division of
Gentek Building Products, Inc. Gentek, located in Anaheim, California is engaged
in the manufacture and sale of vinyl replacement windows to independent
remodelers and contractors. The acquisition was accounted for under the purchase
method of accounting.

November 10, 1997--Wing Industries Holdings purchased certain assets of the
Door Division of Super Millwork, Inc. in a transaction accounted for under the
purchase method of accounting. The Door Division of Super Millwork, located in
Melville, New York, is engaged in the distribution, manufacture and sale of
doors and other millwork.

47
<PAGE>
January 8, 1998--Door acquired all of the outstanding common stock of R.G.
Darby Company, Inc. in a transaction accounted for under the purchase method of
accounting.

March 27, 1998--Atrium purchased substantially all of the assets of
Masterview, a privately held window and door company located in Phoenix, Arizona
in a transaction accounted for under the purchase method of accounting.

October 2, 1998--GEIPPPII, which was formed by GE Investment Management
Incorporated, a wholly-owned subsidiary of General Electric Company, and
Ardshiel, a private equity firm, and certain of its affiliates, acquired Atrium
in a transaction valued at $225,000. In connection with the Atrium acquisition,
GEIPPPII and an affiliate of Ardshiel recapitalized Wing and Darby and combined
them with Atrium.

Prior to October 2, 1998, Atrium's historical financial statements as filed
with the Commission included its operations and the operations of its
subsidiaries. On October 2, 1998, pursuant to the 1998 recapitalization, the
stock of Wing and Darby were contributed to Atrium.

As Wing was determined to be the accounting acquiror in a "reverse
acquisition," the historical financial statements of Atrium, prior to October 3,
1998, were replaced with the historical financial statements of Wing. As a
result, the statement of operations for 1998 includes the operations of Wing
from January 1 through December 31 and the operations of Atrium and Darby from
October 3 through December 31. The statements of operations for the years ended
December 31, 1994, 1995 and 1997 and the periods ended October 25, 1996 and
December 31, 1996 only include the operations and accounts of Wing and its
predecessor. Wing was acquired by its present controlling shareholders on
October 25, 1996.

January 27, 1999--Atrium acquired certain assets of Delta, a privately held
door manufacturing and installation business located in Orlando, Florida. The
acquisition was accounted for under the purchase method of accounting.

May 17, 1999--Atrium acquired Heat for approximately $85,000, including $700
of assumed indebtedness and Champagne for approximately $3,500, excluding $500
to be paid upon the achievement of certain operational results. The acquisition
was accounted for under the purchase method of accounting. Additionally, a post
closing adjustment of $3.5 million was paid on May 17, 1999 related to working
capital delivered in excess of the target defined in the Heat stock purchase
agreement.

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, wood 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
and wood 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. For example, we enter into forward
commitments for aluminum billet to hedge against price changes. See the
footnotes to our consolidated financial statements for the year ended December
31, 1998. The primary raw materials used in the production of our windows and
doors are readily available and are procured from numerous suppliers. Currently,
wood is purchased through multiple sources from around the world, with little
dependence on one company or one country. See "Risk Factors--Fluctuations in Raw
Materials Costs and Supply; Reliance on Manufacturing Facilities and Suppliers."

48
<PAGE>
ATRIUM (AFTER THE 1998 RECAPITALIZATION)

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED DECEMBER 31
ENDED MARCH 31, ENDED MARCH 31, -------------------------------
1999 1998 1998 1997 1996
----------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 69.9 77.2 75.4 79.0 75.2
----- ----- --------- --------- ---------
Gross profit.................................... 30.1 22.8 24.6 21.0 24.8
Selling, delivery, general and administrative
expenses...................................... 21.7 16.7 18.8 15.8 20.4
Amortization expense............................ 1.8 0.4 1.0 0.8 0.2
Stock option compensation expense............... -- -- 1.8 -- --
Special charges................................. 1.6 -- -- -- --
----- ----- --------- --------- ---------
Income from operations.......................... 5.0 5.6 2.9 4.4 4.2
Interest expense................................ 4.1 2.5 4.3 3.0 1.2
Other income, net............................... 0.1 -- 0.3 -- --
----- ----- --------- --------- ---------
Income (loss) before income taxes and
extraordinary charge.......................... 1.0 3.1 (1.1) 1.4 3.1
Provision (benefit) for income taxes............ 0.8 1.4 (0.1) 0.7 1.2
----- ----- --------- --------- ---------
Income (loss) before extraordinary charge....... 0.2 1.7 (1.0) 0.7 1.9
Extraordinary charge, net of income tax
benefit....................................... -- -- 0.3 -- --
----- ----- --------- --------- ---------
Net income (loss)............................... 0.2% 1.7% (1.3)% 0.7% 1.9%
----- ----- --------- --------- ---------
----- ----- --------- --------- ---------
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

NET SALES. Net sales increased by $67,392 from $39,450 during the first
quarter of 1998 to $106,842 during the first quarter of 1999. The increase was
primarily due to a combined increase in net sales of $65,400 from the addition
of Atrium and Darby in connection with the 1998 recapitalization and the
acquisition of Delta Millwork, Inc.

COST OF GOODS SOLD. Cost of goods sold decreased from 77.2% of net sales
during the first quarter of 1998 to 69.9% of net sales during the first quarter
of 1999. The decrease was due largely to the addition of Atrium and Darby, as
these divisions operate at higher gross profit margins than Wing.

SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $16,545 from $6,606 (16.7% of net
sales during the first quarter of 1998) to $23,151 (21.7% of net sales during
the first quarter of 1999). The increase was primarily due to the inclusion of
selling, delivery, general and administrative expenses of Atrium and Darby.
Additionally, delivery and selling expenses increased due to the increase in
sales.

SPECIAL CHARGE. We recorded a one-time charge of $1,762 for severance
benefits incurred in connection with the separation agreement entered into by
Atrium and the former President and Chief Executive Officer.

INTEREST EXPENSE. Interest expense increased $3,354 from $992 during the
first quarter of 1998 to $4,346 during the first quarter of 1999. The increase
in interest expense was due primarily to an increase in

49
<PAGE>
average outstanding debt related to the issuance of term loan B and term loan C,
and the outstanding notes assumed in connection with the 1998 recapitalization.
In addition, interest expense included the amortization of deferred financing
costs recorded in connection with the 1998 recapitalization.

INCOME TAXES. Our 1998 effective tax rate increased from 44.8% to 81.3% due
largely to non-deductible goodwill amortization expense of approximately $1,150.
Excluding non-deductible amortization expense, our effective tax rate would have
been approximately 38.2%.

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

NET SALES. Net sales increased by $112,000 from $99,059 in 1997 to $211,059
in 1998. The increase was due primarily to a combined increase in net sales of
$87,909 from the addition of Atrium and Darby in connection with the 1998
recapitalization in October 1998 and the acquisition of Super Millwork in
November 1997. Additionally, net sales at Wing increased 24.3% due to an
increase in sales to home center retail chains.

COST OF GOODS SOLD. Cost of goods sold decreased from 79.0% of net sales
during 1997 to 75.4% of net sales during 1998. The decrease was due largely to
the addition of Atrium and Darby in the fourth quarter of 1998, as these
divisions operate at higher margins than Wing.

SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $24,083 from $15,671 (15.8% of net
sales during 1997) to $39,754 (18.8% of net sales during 1998). The increase was
primarily due to the inclusion of selling, delivery, general and administrative
expenses of Super Millwork for twelve months and Atrium and Darby for three
months. Additionally, selling and delivery expenses increased due to the
increase in net sales.

AMORTIZATION EXPENSE. Amortization expense increased $1,359 from $774
during 1997 to $2,133 during 1998. The increase was largely due to the
amortization of goodwill recorded in connection with the 1998 recapitalization.

STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $3,851 from $0 during 1997 to $3,851 during 1998. Stock option
compensation expense consisted of $2,813 representing the difference between the
fair market value of common stock of D and W Holdings and the exercise price
associated with a warrant granted to our executive in connection with the 1998
recapitalization, charges associated with previously issued stock options at
exercise prices below the fair value of the underlying common stock and charges
associated with certain variable options.

INTEREST EXPENSE. Interest expense increased $6,128 from $2,953 during 1997
to $9,081 during 1998. The increase in interest expense was due primarily to an
increase in average outstanding debt related to the loans issued and senior
subordinated notes assumed in connection with the 1998 recapitalization. In
addition, interest expense included the amortization of deferred financing costs
recorded in connection with the 1998 recapitalization.

EXTRAORDINARY CHARGE. Extraordinary charge increased $639 from $0 during
1997 to $639 during 1998. Extraordinary charge represents the write-off of
certain deferred financing costs incurred in the placement of Wing's debt, which
was repaid in connection with the 1998 recapitalization. This amount is net of
income tax benefit of $392.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET SALES. Net sales increased by $22,979 from $76,080 in 1996 to $99,059
in 1997. The increase was primarily due to the increase in sales to the large
home center retail chains. The two largest home center retailers, which are
Wing's top two customers, have experienced sales growth in excess of 25%.
Additionally, the increase included $4,140 from the Super Millwork acquisition
in November 1997.

50
<PAGE>
COST OF GOODS SOLD. Cost of goods sold increased from 75.2% of net sales
during 1996 to 79.0% of net sales during 1997. The increase is largely the
result of significant start-up costs incurred at the Cleveland prehanging
facility, the Allentown, Pennsylvania prehanging and hollow core manufacturing
facility and transition costs associated with moving a portion of the sales
volume attributable to the Super Millwork acquisition to the Allentown facility.

SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $158 from $15,513 (20.4% of sales
during 1996) to $15,671 (15.8% of sales during 1997). The decrease as a
percentage of sales is primarily attributable to lower freight costs per unit as
additional prehanging/distribution facilities are opened. Additionally, retail
store display expenses were reduced as a result of the implementation of a lower
cost display program.

AMORTIZATION EXPENSE. Amortization expense increased $649 from $125 during
1996 to $774 during 1997. The increase was due primarily to the amortization of
goodwill recorded in connection with the October 1996 acquisition of Wing.

INTEREST EXPENSE. Interest expense increased $2,070 from $883 during 1996
to $2,953 during 1997. The increase was due largely to an increase in average
outstanding debt which resulted from the incurrence of additional debt related
to the Wing acquisition in October 1996 and the Super Millwork acquisition in
November 1997, as well as borrowings under the Wing credit facility. Interest
expense during 1996 and 1997 includes amortization of related deferred financing
costs.

LIQUIDITY AND CAPITAL RESOURCES

Cash generated from operations and availability under the revolving facility
are our principal sources of liquidity. During 1998, cash was primarily used in
connection with the 1998 recapitalization and for capital expenditures. Net cash
used in operating activities was $8,024 during 1998 compared to cash provided by
operations of $1,148 during 1997. The increase in cash used in operations was
primarily attributable to a decrease in net income and an increase in
inventories. Cash used for investing activities increased from $11,763 in 1997
to $125,184 in 1998. This increase was primarily the result of $120,977 for the
acquisition of Atrium. Cash flows from financing activities increased from cash
provided of $10,609 during 1997 to $133,174 during 1998. The increase was due
primarily to borrowings and contributions from Atrium Corporation made in
connection with the 1998 recapitalization.

During the first quarter of 1999, cash was primarily used for increases in
working capital, capital expenditures and scheduled principal payments. Net cash
provided by operating activities was $680 during first quarter of 1999 compared
to cash used in operating activities of $486 during the first quarter of 1998.
The increase in cash provided by operating activities is largely due to an
increase in income before depreciation and amortization. Net cash used in
investing activities during the first quarter of 1999 was $3,363 compared to
$630 during the first quarter of 1998. The increase in cash used in investing
activities was due primarily to the acquisition of Delta and increased capital
expenditures. Cash provided by financing activities during the first quarter of
1999 and $2,683 compared to $1,363 during the first quarter of 1998, primarily
due to increased borrowings under the revolving credit facility.

OTHER CAPITAL RESOURCES

In connection with the 1998 recapitalization, we entered into a credit
facility providing for a revolving credit facility in the amount of $30,000, of
which $5,000 is available under a letter of credit sub-facility. The revolving
credit facility has a maturity date of June 30, 2004. At March 31, 1999, we had
$16,691 of availability under the revolving credit facility, net of borrowings
of $10,700 and outstanding letters of credit totaling $2,609. We used a portion
of the net proceeds of the offering of the outstanding notes to repay
approximately $8,100 outstanding under our revolving credit facility. In
connection with this offering, we increased the size of our revolving credit
facility from $30,000 to up to $40,000.

51
<PAGE>
CAPITAL EXPENDITURES

We had cash capital expenditures, exclusive of the 1998 recapitalization, of
$2,221 during 1998, compared to $1,355 and $1,083 during 1997 and 1996,
respectively. The increase is largely due to the addition of Atrium and Darby
for the last three months of 1998. We expect capital expenditures, exclusive of
acquisitions, in 1999 to be approximately $9,500, however, actual capital
requirements may change, particularly as a result of acquisitions we may make.
Capital expenditures exclude costs related to the implementation of our new
management information system which include internally capitalized costs.

We had cash capital expenditures of $1,059 during the first quarter of 1999
compared to $287 during the first quarter of 1998. The increase is largely due
to capital expenditures at Atrium and Darby. Actual capital expenditures during
the first quarter of 1999 exclude $158 in capitalized costs related to the
implementation of our new management information system.

Our ability to meet our debt service and working capital obligations and
capital expenditure requirements is dependent, however, upon our and our
subsidiaries' future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control. As of March 31, 1999, we had $16,691 available for
borrowings under the revolving facility, net of borrowings of $10,700 and
outstanding and undrawn letters of credit totaling $2,609.

AFTER THE ATRIUM TRANSACTIONS

Historically, we have utilized internally generated funds and borrowings
under credit facilities to meet ongoing working capital and capital expenditure
requirements. In connection with the offering of the outstanding notes, we
incurred new indebtedness aggregating $172,368, net of $2,632 of unamortized
debt discount. The net proceeds of such indebtedness were used to finance the
acquisitions of Heat and Champagne, repay certain of our borrowings under our
credit facility (including accrued interest through date of payment), retire our
remaining existing senior subordinated notes (including accrued interest through
the date of repayment and repurchase premium), fund a distribution to Atrium
Corporation to repurchase a portion of the discount debentures (including
accreted discount through the date of repurchase) held by GEIPPPII and an
affiliate of Ardshiel and pay transaction fees and expenses.

As a result of the Atrium transactions, we have significantly increased cash
requirements for debt service. We will rely on internally generated funds and,
to the extent necessary, on borrowings under our revolving credit facility to
meet our liquidity needs.

Management believes that based on the current level of operations and
anticipated internal growth, cash flow from operations, together with
availability under our revolving credit facility, will be adequate to make
required payments of principal and interest on our indebtedness and to fund
anticipated capital expenditures and working capital requirements. However,
actual capital requirements may change. We may in the future seek additional
financing through the issuance of debt or equity. We cannot assure you that
additional financing, if needed, will be available to us on favorable terms, if
at all. Our ability to meet our debt service obligations and reduce our total
debt will be dependent on 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. A portion of our debt bears interest at
floating rates; therefore, our financial condition is and will continue to be
affected by changes in prevailing interest rates. See "Risk Factors--Substantial
Leverage and Debt Service."

YEAR 2000

Many existing computer systems and applications and other control devices
are coded to use only two digits, rather than four, to identify a year in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. Many computer
programs and systems, including certain programs and systems utilized by us, are
highly dependent upon financial and

52
<PAGE>
other data that, based on the program's or system's inability to distinguish
between the Year 2000 and other century-end dates, could be misreported or
misinterpreted and cause significant errors. If not corrected, many computer
applications could fail when processing data related to the Year 2000. In
addition, two interacting systems, applications or devices, each of which has
individually been fixed so that it will individually handle the Year 2000 issue,
could nonetheless suffer integration failure because their method of dealing
with the problem is not compatible.

This Year 2000 issue impacts our owned or licensed computer systems and
equipment and the computer systems and equipment of third parties upon which we
rely. The Year 2000 problem could cause these systems to fail, err, and, in the
case of third party systems, become incompatible with our systems. Therefore, if
we, or a significant third party fail to become Year 2000 ready, or if the Year
2000 problem causes our systems to become internally incompatible or
incompatible with any key third party systems, our business could suffer
material disruptions.

We are assessing the impact of the Year 2000 problem and have or intend to
modify portions of our hardware and software so that our computer systems will
function properly with respect to date in the Year 2000 and thereafter. We have
reviewed and continue to review each operating unit for the appropriate
information system enhancements, with respect to both Year 2000 problem as well
as strategic system upgrade.

To achieve our overall operating strategy, we are enhancing our information
technology by installing new software to implement a fully integrated
manufacturing system for our operating units. This system has been certified by
the manufacturer as being Year 2000 compliant. Each operating unit was
prioritized for installation of the system based on any Year 2000 issues, with
the final phase of implementation and installation of this system scheduled to
be completed by the third quarter of 1999.

We have inquired of our major suppliers and customers as to their Year 2000
compliance. Substantially all of our major suppliers and customers have
indicated that their Year 2000 testing and remediation programs are complete or
will be complete by the end of the third quarter. We have not, however, tested
or independently verified the Year 2000 compliance of our major suppliers and
customers.

We face certain risks related to the Year 2000 problem including potential
disruptions in our operations due to Year 2000 problems with our systems,
potential disruptions in material supply due to Year 2000 problems with our
suppliers' systems and potential loss of sales or delayed cash collections in
the event of Year 2000 problems with our customers' systems. Although we have
not formalized a contingency plan to address the problems associated with these
risks, there are several factors that we believe may mitigate potential Year
2000 problems. Because our business has only recently been computerized, we
believe we can run our business without significant interruptions using manual
labor and "paper" systems in the event of a Year 2000 problem with our systems.
In addition, because we source our materials from several suppliers, we believe
we have decreased the likelihood that a Year 2000 disruption at one of our
suppliers will materially interrupt our material supply. Finally, because many
of our customers use "paper" systems, we believe a Year 2000 problem with a
customer's system would not materially impact our sales. Although we believe
these factors mitigate our Year 2000 risks, we cannot assure you that problems
arising from these risks will not have a material adverse effect on our
business, operating results or financial condition.

We believe that with our strategy and completed installations, the Year 2000
problem will not pose significant operational problems for us. We cannot assure
you, however, that our computer systems or the computer systems of companies we
acquire or the computer systems of other companies with whom we conduct business
will be Year 2000 compliant prior to December 31, 1999 or that the inability of
any such systems to process accurately Year 2000 data will not have a material
adverse effect on our business, operating results or financial condition.

53
<PAGE>
The total amount of costs to be incurred by us to address these system
enhancements is estimated at $1,500. We have expensed approximately $1,100
through March 31, 1999.

FINANCIAL ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("FAS 130") "Reporting Comprehensive
Income." FAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. FAS 130 is effective for financial statement periods
beginning after December 15, 1997. We adopted FAS 130 beginning January 1, 1998.
We had no comprehensive income for all periods presented prior to January 1,
1998.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants Issued Statement of Position 98-1
("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" that is effective for reporting periods beginning
after December 15, 1998, but provides for earlier application if certain
conditions are met. We have applied the provisions of SOP 98-1 in our financial
statements for the year ended December 31, 1998 and its adoption had no material
effect on our consolidated financial position or results of operations.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133") "Accounting for Derivative
Instruments and Hedging Activities" that is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. We will implement the provisions of
FAS 133 as required. The future adoption of FAS 133 in not expected to have a
material effect on our consolidated financial position or results of operations.

54
<PAGE>
ATRIUM (PREVIOUS REGISTRANT)

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER
-------------------------- 31
OCTOBER 2, SEPTEMBER 30, --------------------
1998 1997 1997 1996
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................ 65.2 64.1 65.0 65.5
----- ------ --------- ---------
Gross profit.............................................. 34.8 35.9 35.0 34.5
Selling, delivery, general and administrative expenses.... 22.5 23.7 23.8 22.3
Special charges........................................... 4.5 -- -- 1.9
Stock option compensation expense......................... 3.1 0.2 0.2 1.9
----- ------ --------- ---------
Income from operations.................................... 4.7 12.0 11.1 8.3
Interest expense.......................................... 5.7 6.1 6.2 3.1
Other income (expense), net............................... (0.2) 0.8 0.6 (0.1)
----- ------ --------- ---------
Income before income taxes and extraordinary charge....... (1.2) 6.7 5.5 5.2
Provision for income taxes................................ (0.4) 2.5 2.2 1.7
----- ------ --------- ---------
Income before extraordinary charge........................ (0.8) 4.2 3.3 3.4
Extraordinary charge, net of income tax benefit........... 2.1 -- -- 0.8
----- ------ --------- ---------
Net income................................................ (2.9)% 4.2% 3.3% 2.7%
----- ------ --------- ---------
----- ------ --------- ---------
</TABLE>

PERIOD ENDED OCTOBER 2, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997

NET SALES. Net sales increased by $27,625 from $139,793 during the first
nine months of 1997 to $167,418 during the period ended October 2, 1998. The
increase was primarily due to sales from Atrium Door and Window Company-West
Coast and Atrium Door and Window Company of Arizona (Masterview), acquired in
July of 1997 and March of 1998, respectively. Additionally, Atrium (1)
experienced growth at the Atrium Wood division, which was selected to be the
supplier in a national patio door sales program beginning the third quarter of
1997, (2) the addition of a significant customer at our Atrium Wood division,
and (3) continued growth at Kel-Star Building Products.

COST OF GOODS SOLD. Cost of goods sold increased from 64.1% of net sales
during the first nine months of 1997 to 65.2% during the period ended October 2,
1998. The increase in cost of goods sold as a percentage of net sales during the
period ended October 2, 1998 was primarily due to an increase in raw material
and direct labor costs, which offset material usage improvements at Atrium Wood.

SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $4,590 from $33,114 (23.7% of net
sales) during the first nine months of 1997 to $37,704 (22.5% of net sales)
during the period ended October 2, 1998. The increase was primarily due to the
inclusion of selling, delivery, general and administrative expenses of Atrium
Door and Window Company of Arizona and Atrium Door and Window Company-West
Coast, as well as an increase in amortization expense related to software
implementation costs, resulting from additional amounts capitalized during 1997.
Additionally, selling and delivery expenses increased due to the increase in
sales.

55
<PAGE>
SPECIAL CHARGES. Special charges of $7,452 during the period ended October
2, 1998 consisted of management bonuses, the write-off of certain covenants not
to compete and transaction expenses related to the 1998 recapitalization. There
were no special charges during the first nine months of 1997.

STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $5,010 from $255 during the first nine months of 1997 to $5,265 during
the period ended October 2, 1998. In 1998, stock option compensation expense
consisted of the amortization of deferred compensation charges related to
previously issued options, charges representing the increase in the underlying
stock value associated with certain variable options and the expense associated
with cash redemption of certain options resulting from the 1998
recapitalization. In 1997, stock option compensation expense related to
amortization of deferred compensation charges related to previously issued
options and the cash redemption of certain options issued to a former executive
of Atrium.

INTEREST EXPENSE. Interest expense increased $1,003 from $8,542 during the
first nine months of 1997 to $9,545 during the period ended October 2, 1998. The
increase was due to an increase in average outstanding debt related to the
$17,500 senior term loan issued in connection with the Masterview acquisition,
which took place on March 27, 1998.

OTHER INCOME (EXPENSE). Other income decreased $1,413 from other income of
$1,127 during the first nine months of 1997 to other expense of $286 during the
period ended October 2, 1998. The first nine months of 1997 includes an
insurance settlement of $1,193 from the business interruption portion of the
Company's insurance claim filed as a result of the January 1997 fire at the
Extruders facility.

EXTRAORDINARY CHARGES. Extraordinary charges of $3,525 during the period
ended October 2, 1998 represented the write-off of certain deferred financing
charges incurred in connection with the 1998 recapitalization. This amount is
net of income tax benefit of $2,164. There were no extraordinary charges during
the first nine months of 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET SALES. Net sales increased by $30,495 from $156,269 in 1996 to $186,764
in 1997. The increase was primarily due to the increase in sales of $19,708 at
our Atrium Door and Window of the Northeast, Kel-Star and Woodville Extruders
businesses, all of which were acquired during the second half of 1996, and
Atrium Door and Window-West Coast, acquired from Gentek, effective July 1, 1997.
Additionally, Atrium experienced slight growth at its distribution centers and
within its core manufacturing divisions, including significant growth at the
Atrium Wood division, which was awarded a national patio door sales contract
during the second quarter of 1997.

COST OF GOODS SOLD. Cost of goods sold decreased from 65.5% of net sales
during 1996 to 65.0% of net sales during 1997. The decrease was due largely to
on-going cost reductions at Atrium Wood, which were offset by start-up
inefficiencies at Kel-Star.

SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $9,671 from $34,815 (22.3% of
sales during 1996) to $44,486 (23.8% of sales during 1997). The increase was
largely due to the inclusion of twelve months of selling, delivery, general and
administrative expenses at the Atrium Door and Window Company of the Northeast,
Kel-Star, Woodville Extruders and Atrium Door and Window-West Coast businesses,
as well as amortization expense related to software implementation costs.
Additionally, delivery expenses were negatively affected during 1997 as a result
of a fire at the Woodville Extruders division in January.

SPECIAL CHARGES. Special charges during 1996 consisted of $3,044 in
management bonuses which were the result of the Hicks Muse transaction. There
were no special charges in 1997.

56
<PAGE>
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
decreased $2,716 from $3,023 during 1996 to $307 during 1997. In 1997, stock
option compensation expense related to amortization of deferred compensation
charges related to previously issued options and the cash redemption of certain
options issued to a former executive of Atrium. In 1996, stock option
compensation expense consisted of charges associated with the granting of new
stock options at exercise prices below the fair value of the underlying common
stock and the expense associated with the cash redemption of certain options,
both resulting from the Hicks Muse transaction, and amortization of deferred
compensation charges related to previously issued options. Included in stock
option compensation expense during 1996 is $1,320 representing the difference
between the fair market value of common stock of Atrium Corporation and the
exercise price associated with a warrant granted to an executive of Atrium in
connection with the Hicks Muse transaction.

INTEREST EXPENSE. Interest expense increased $6,736 from $4,786 during 1996
to $11,522 during 1997. The increase was due largely to an increase in average
outstanding debt which resulted from the issuance of our existing senior
subordinated notes, which were issued in connection with the Hicks Muse
transaction, as well as borrowing under our previous credit facility. Interest
expense during 1997 includes amortization of the related deferred financing
costs.

OTHER INCOME (EXPENSE), NET. Other income (expense), net increased $1,270
from other expense of $182 in 1996 to other income of $1,088 in 1997. Other
income in 1997 includes an insurance settlement of $1,193. This settlement with
Atrium's insurance carrier resulted from the business interruption portion of
Atrium's insurance claim filed as a result of a fire at the Woodville Extruders
division in January 1997.

EXTRAORDINARY CHARGE. Extraordinary charge of $1,176 during 1996 represents
the write-off of certain deferred financing charges incurred in connection with
the Hicks Muse transaction, as all then outstanding debt was retired with a
portion of the proceeds from the issuance of our existing senior subordinated
notes. This amount is net of income tax benefit of $720.

57
<PAGE>
BUSINESS

THE COMPANY

Our acquisitions of Heat and Champagne are a continuation of our strategy to
become the largest nationwide manufacturer and distributor of residential
windows and doors. Heat is a leading regional manufacturer of residential vinyl
windows and patio doors, with a strong presence in the eastern and midwestern
repair and remodeling market segments and the northwestern new construction
market segment. The Heat acquisition strengthens our vinyl product offering,
enhances our nationwide presence and provides access to a proprietary
distribution network of 22 distribution centers. Champagne is a regional vinyl
window manufacturer located in Denver, Colorado. The Champagne acquisition
enhances our presence in the vinyl markets of Colorado, Kansas and Nebraska.

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

<TABLE>
<CAPTION>
1998 PRO FORMA NET SALES
------------------------
(%)
($) ---
-------------
(IN
THOUSANDS)
<S> <C> <C>
Product Line
Windows............................................................... $ 271,899 55%
Doors................................................................. 194,892 40
Other................................................................. 26,288 5
---
100%
---
---

Market Segment
Repair and remodeling................................................. $ 285,798 58%
New construction...................................................... 207,281 42
---
100%
---
---

Material Type
Aluminum.............................................................. $ 178,806 36%
Wood.................................................................. 194,693 39
Vinyl................................................................. 119,580 25
---
100%
---
---
</TABLE>

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 64% of window and door
industry dollar sales in 1998.

58
<PAGE>
industry's most recognized brand names including ATRIUM and WING. Our full
product line of aluminum, vinyl and wood windows and 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, vinyl and wood
windows and 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.

Our company is 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 door units, including
pre-hanging of doors, and the sale of such units to wholesalers,
lumberyards, dealers, home centers and homebuilders;

- A turn-key installation program for builders in which we supply and
install many of our products, including windows and interior and exterior
doors; and

- The sale of finished products to homebuilders, remodelers and contractors
through company-owned distribution centers located across the country.

Our organic growth has exceeded growth rates for the window and door
industry by more than two times over the last three years in large part as a
result of our strategic positioning in such high growth markets as the southern
and western United States and our significant presence in the fast-growing home
center category. We have completed seven acquisitions since 1996 and we believe
that we are well-positioned to be a leader in the consolidation of the
residential window and 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 windows and doors in the United States with a domestic market
share of approximately 5%. We believe that we have a leading market
position in the following key products based on management estimates:

<TABLE>
<CAPTION>
RANK BASED ON
1998 PRO FORMA NATIONAL MARKET
PRODUCT NET SALES SHARE
- ---------------------------------------------- 1998 ATRIUM --------------- -----------------
PRO FORMA
NET SALES
-------------
(IN
THOUSANDS)
<S> <C> <C> <C>
Non-wood windows.............................. $ 271,000 1 or 2 9%
Interior pre-hung doors....................... 75,000 1 5%
Solid wood bifold doors....................... 30,000 1 40%
Solid wood interior passage doors............. 60,000 2 20%
</TABLE>

- 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 20
years and is recognized for its quality and value. In addition, we believe

59
<PAGE>
ATRIUM is among the most-recognized brand names in the aluminum and vinyl
window market segments. Our WING brand of wood passage and bi-fold doors
is highly recognized according to surveys of our home center customers. 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 windows and doors in the United
States. The ability to source windows and doors from a single supplier is
a cost-saving opportunity for national homebuilders and home centers. This
distribution flexibility and nationwide presence distinguishes as a
"one-stop" solution for customers' window and door needs. Examples of our
high quality and customer service standards include our approximately 99%
order fill rate and the recognition of our WING product line by Lowe's as
Millwork Supplier of the Year for 1997.

- MULTI-CHANNEL DISTRIBUTION NETWORK. We have a multi-channel distribution
network that includes direct, one-step and two-step distribution as well
as 30 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, Atrium has developed long-standing relationships with key
distributors in its 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.

- ESTABLISHED AND DIVERSIFIED CUSTOMER BASE. We have developed strong
relationships with our current customer base, which includes over 5,000
active accounts. We have strong relationships with some of the leading
companies in homebuilding, including D.R. Horton, Del Webb and Centex, and
home center retailing, including The Home Depot and Lowe's. Our customers
are geographically diversified and our sales are balanced between the
repair and remodeling (approximately 58%) and new construction
(approximately 42%) 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
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. For our wood door products, our
expertise in fabricating, pre-hanging and distributing wood doors provides
similar cost saving advantages and operating efficiencies.

BUSINESS STRATEGY

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

- ENHANCE NATIONWIDE PRESENCE. We will continue to focus our core efforts on
maintaining and developing our nationwide market share, including
enhancing our strong presence in our existing high growth markets such as
the southern and western United States. Our recent acquisitions have
helped to further our geographic coverage and, we believe, combined with
the implementation of cross-selling initiatives, will continue to
facilitate our growth. We will also seek to enhance our nationwide
capabilities by selectively starting or acquiring operations that
complement our geographic coverage and product offerings.

60
<PAGE>
- EXTEND AND CROSS-SELL PRODUCT OFFERINGS. We plan to take advantage of
cross-selling opportunities by marketing doors to our traditional window
customers and windows to our traditional door customers and adding
additional styles and designs to address specific regional product
preferences. In addition, we believe there are significant opportunities
to cross-sell products, such as our expanded vinyl and millwork offerings,
through our existing distribution channels. We also maintain training and
incentive programs in order to ensure that our divisional sales forces
market our complete product line of windows and 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 20 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 Atrium's 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 plan to analyze additional opportunities
to improve operational efficiencies, including integrating our wood
products manufacturing facilities and aluminum extrusion operations,
increasing capacity utilization at all our manufacturing facilities and
leveraging our size to realize purchasing savings.

- MAKE SELECTIVE STRATEGIC ACQUISITIONS. We have successfully consummated
and integrated seven acquisitions since 1996, in each case lowering
operating costs. We intend to take advantage of the fragmented market for
window and door manufacturers by acquiring companies that present
identifiable cost savings opportunities and add to our existing product
lines, market share and geographic coverage. As we continue our
acquisition program, we believe we can leverage our proven expertise 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.

INDUSTRY OVERVIEW

In 1998, new construction spending in the United States totaled over $657.0
billion. Of the total new construction spending amount, residential new housing
spending totaled approximately $212.0 billion. Additionally, residential repair
and remodeling expenditures approximated $140.0 billion in 1998. In 1998, new
housing starts in the United States ranged from approximately 1.0 million to
approximately 1.5 million, of which approximately 1.2 million were single-family
homes and approximately 0.3 million were multi-family homes. Historical
residential repair and remodeling expenditures have demonstrated consistent
growth dynamics increasing from approximately $15.0 billion to approximately
$125.3 billion during the period from 1970 to 1997 and averaging a compound
annual growth rate of 8.2%.

61
<PAGE>
HISTORICAL RESIDENTIAL REPAIR AND REMODEL EXPENDITURES

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
($ IN
BILLIONS)
<S> <C>
1970 15
17
1972 19
21
1974 24
26
1976 30
33
1978 36
39
1980 42
41.5
1982 45.3
49
1984 69.8
78
1986 91.3
92
1988 91
95
1990 97
97
1992 100
105
1994 110
115
1996 120
125.3
CAGR=8.2%
</TABLE>

- --------------------------------------------------------------------------------
Source: Census Bureau--Department of Commerce

We believe that, in 1998, United States residential window and door
expenditures were approximately $10.0 billion, of which we estimate new
construction and remodel and replacement expenditures represented approximately
$3.6 billion and $6.4 billion, respectively. The individual market segments for
windows and doors are as follows:

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
1998 NATIONAL WINDOW MARKET

<S> <C>
$6.5 BILLION MARKET(1)
New Construction 32%
Repair & Remodeling 68%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
1998 NATIONAL DOOR MARKET

<S> <C>
$3.5 BILLION MARKET(1)
New Construction 55%
Repair & Remodeling 45%
</TABLE>

- --------------------------------------------------------------------------------
(1) Based on management estimates.

WINDOWS. The domestic window market has grown to approximately 58.2 million
in unit sales in 1998, and has outpaced the growth in the domestic building
materials industry generally. The $6.5 billion residential window industry can
be divided into two end-use segments: new construction, an estimated 18.7
million windows shipped in 1998, and repair and remodeling, approximately 39.5
million windows sold in 1998. 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.

62
<PAGE>
DOORS. According to F.W. Dodge, the U.S. residential exterior and interior
door market, which we estimate to be $3.5 billion, represents more than 58.0
million units annually. The residential door industry can be divided into two
principal market segments: new construction and repair and remodeling. We
estimate that interior doors sold to the repair and remodeling segment
constitute at least one-third of all interior door units sold in the United
States in 1998.

We believe that we and four other market leaders represent approximately 44%
of window and door industry sales, while the remaining approximately 56% of
industry sales is comprised of over 600 smaller regional companies with average
annual sales of approximately $10.0 million to approximately $20.0 million. The
door and window industry has experienced significant consolidation in the last
24 months. We believe this consolidation trend favors companies like ours, with
nationwide capabilities to service large home centers and home builders, strong
brand names, the ability to provide a complete product line and economies of
scale in manufacturing, distributing and marketing. In addition to opportunities
presented by consolidation of the industry, industry growth has been driven by
the growth in the home center retailer category. The home center industry is one
of the fastest growing retail sectors in the United States. According to
National Home Center News, the U.S. retail home improvement market is expected
to grow from over $140.0 billion in 1998 to approximately $170.0 billion by the
year 2002.

PRODUCTS

We are one of a few window and door manufacturers that offer a complete
product line that consists of a full range of aluminum, vinyl and wood windows
and 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, vinyl and wood, a full
product line is important to serve a national customer base effectively. We
estimate that approximately 55% of our 1998 pro forma net sales were derived
from the sale of windows, approximately 40% from the sale of doors, and
approximately 5% from the sale of other products and services.

WINDOWS. We had $271.9 million in pro forma net sales from the sale of
windows in 1998, representing approximately 4% of the total U.S. window market.
We estimate that our pro forma net sales from the sales of windows in 1998 were
comprised of approximately 55% from the sale of aluminum products, approximately
44% from vinyl products and approximately 1% from wood products. Our window
products include sliders, double hung, and casement products and are sold under
the ATRIUM and HR WINDOWS-TM- brand names. We sell our windows primarily to
building contractors and lumberyards through direct and one-step distribution.

The demand for our aluminum, vinyl and wood 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 more 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.

63
<PAGE>
- VINYL--Demand for vinyl windows, particularly in colder climates, has
significantly increased over the last five years as vinyl windows have
gained acceptance as a substitute for wood windows. This trend has been
strengthened as prices for vinyl windows have become more competitive with
wood products and durability and energy efficiency have improved. We
entered the vinyl window market in mid-1995 and have increased sales of
vinyl windows by leveraging the ATRIUM brand name, leveraging our
distribution channels and through acquisitions. The Heat acquisition
increased our presence in the vinyl window business from approximately 9%
to 24% of our 1998 pro forma sales.

- WOOD--Wood windows have the highest thermal efficiency and highest cost
compared to aluminum and vinyl. Accordingly, wood windows are in demand in
colder regions and in higher end homes. The ATRIUM name gained wide
recognition in the 1970s and 1980s through the success of our line of wood
patio doors. In order to capitalize on this success, we added a wood
window line in 1991 including aluminum-clad and primed wood windows and
patio doors. We have made the strategic decision to minimize our
participation in the wood window business as it is concentrated on the
higher end of the wood window market which is not part of our core focus.

DOORS. We had $194.9 million in pro forma net sales from the sale of doors
in 1998, representing approximately 6% of the total U.S. door market. We
estimate that approximately 85% of our 1998 pro forma door sales were generated
from interior doors and 15% from exterior doors. Our door products are sold
under the ATRIUM, WING and SUPER MILLWORK-REGISTERED TRADEMARK- brand names. We
sell our doors primarily to home center retailers through one-step distribution.

- INTERIOR DOORS--There are two broad categories of interior doors: bi-fold
doors and passage doors. Bi-fold doors are hinged folding doors and
passage doors are the traditional doors used to connect rooms. There are
also two types of interior wood bi-fold doors and passage doors: solid
wood doors and hollow core doors. Solid doors are made completely of wood
while hollow core doors consist of two door facings glued to a wood frame
and are hollow on the inside. Both solid wood and hollow core passage
doors are sold one of two ways, either as slabs or as pre-hung units.
Slabs refer to the door itself and pre-hung units refer to slab doors
already hinged to a door frame at the factory.

- EXTERIOR DOORS--Our exterior door product offering consists primarily of
patio doors and pre-hung steel entry doors.

We estimate that approximately 45% of our 1998 door pro forma sales were
generated from the sale of pre-hung doors, 30% from solid wood doors, 10% from
hollow core doors and 15% from patio doors. We estimate that approximately 60%
of all passage doors sold through home center retailers in 1998 were sold as
pre-hung units, mainly because of the ease of installation for the
do-it-yourself consumer. We are one of the few vertically-integrated companies
that both manufactures and pre-hangs doors. We believe that sales of our
pre-hung door line will continue to grow and will represent a larger portion of
our total door sales in the future due to the increased demand from
do-it-yourself consumers.

OTHER PRODUCTS AND SERVICES. We had $26.3 million in pro forma net sales
from the sale of other products and services in 1998. Our other products include
cafe doors, columns and shutters. We manufacture two types of cafe doors as well
as louvered shutters. The shutters can be used both for interior and exterior
applications. Columns come in many styles and are purchased from domestic
suppliers.

64
<PAGE>
We also offer a turn-key total installation program for builders in which we
supply and install interior doors, exterior doors, mouldings, locks, hardware
and other products. This concept allows a developer to transfer the risk
associated with retaining reliable work crews and provides protection from cost
overruns. We believe that developers view this as a value added service and are
willing to pay a premium price for it.

As a part of the Heat operations, we began selling vinyl decking and patio
enclosures sun rooms. These products are sold through our existing distribution
channels and are manufactured similarly to our existing products. Demand for
both products is growing and we expect to expand the product line in the future.

SALES, MARKETING AND DISTRIBUTION

One of the key components of our marketing strategy is to capitalize on the
complementary nature of our distribution channels. Historically, the majority of
our window production has been sold to remodelers, homebuilders, lumberyards and
wholesalers, while home center retailers represented the primary distribution
channel for doors. We plan to broaden our product offerings principally by
marketing doors to our traditional window customers and windows to our
traditional door customers.

We have a multi-channel distribution network that includes direct, one-step
and two-step distribution as well as 30 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 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.

We also sell windows to major home center retailers and smaller
regional-based retail centers. Although home centers have become more important
to us because they target the repair and remodeling market segment, they still
accounted for less than 20% of our total window pro forma net sales in 1998.

We utilize the following distribution channels:

- DIRECT DISTRIBUTION (34% OF OUR PRO FORMA NET SALES IN 1998). We sell our
windows and doors directly to contractors, remodelers and other
homebuilders without the use of an intermediary. By selling directly to
builders, we are able to increase our gross profits while at the same time
offering builders more favorable pricing.

- ONE-STEP DISTRIBUTION (61% OF OUR PRO FORMA NET SALES IN 1998). We sell
our finished windows to lumberyards, building products distributors, home
centers, and company-owned distribution centers, which will then sell to
contractors, homebuilders or remodelers. While it is not required that
lumberyards or building products distributors carry our products on an
exclusive basis, it is not unusual for them to do so. In addition, they
generally purchase based on orders, keeping little or no inventory.
One-step distribution tends to be used most often in metropolitan areas.

We maintain company-owned distribution centers 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 (5% OF OUR PRO FORMA NET SALES IN 1998). Two-step
distribution is the selling of completed doors and windows to a wholesaler
or distributor who then sells the products to lumberyards, building
products retailers and home centers. These intermediaries will in turn
sell the windows and doors to the homebuilders, homeowners or remodelers.
The wholesalers and distributors tend to maintain product inventory in
order to service the needs of their client base for small quantities.
Essentially, these middlemen are more common in rural areas where
customers generally do not represent sufficient volume to purchase from us
directly.

To enhance our market coverage and leverage our brand equity, we currently
market our windows and patio doors under primarily two brand names, ATRIUM and
H-R WINDOWS. Due to the fact that we enjoy such significant national name
recognition at both the building trade and consumer levels, we have chosen

65
<PAGE>
to consolidate a significant portion of our product line under the ATRIUM name.
We have completed a phase out of our SKOTTY, BISHOP and GENTEK brands. We expect
to extend the ATRIUM brand to other products, as well as to appropriate product
lines acquired in the future.

Our promotional efforts to our door and window 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 showing operating door units and
photographs of in-room settings in order to generate sales once customers are in
the stores. Product knowledge classes are held to inform store employees about
the features and benefits of each product. Award winning packaging and in-store
signage are used to further general awareness within the stores. We also offer
retailers a video showing how quickly a homeowner can install a bi-fold door
using only basic hand tools.

WINDOWS. We market our window products through a sales force consisting of
approximately 75 company salaried and commissioned sales representatives and
approximately 100 independent commissioned sales representatives. Each of our
divisions is supported by a sales manager, direct sales representatives and
independent representatives. The sales managers coordinate marketing activities
among both company and independent representatives. Our sales representatives
focus primarily on direct sales to homebuilders, remodelers and contractors,
while independent sales representatives sell to home centers, lumberyards and
wholesalers. In general, independent sales representatives carry our window and
door products on an exclusive basis, although they may carry other building
products from other manufacturers.

DOORS. Our ability to supply home center retailers with a complete line of
wood doors positions us to provide superior service and convenience to our
customers. The "one-stop shopping" we provide enables retailers to reduce their
transaction costs, as they have to pay only one invoice, work with one sales
representative, and schedule the receipt of goods with only one company. Our
goal is to be the "preferred supplier" for the door aisle of home center
retailers.

For door sales we use an internal sales force. In addition, senior
executives are actively involved with both sales and customer service. This
group is segregated between national and regional accounts. Approximately 80% of
our 1998 pro forma net sales of doors are made to national retail home center
chains. The internal sales force was realigned in early 1995 reducing the sales
staff from 18 to 7 while increasing the number of merchandise managers. As a
result, we have a smaller, more focused sales force which is better structured
to give the home centers the attention required at the store level.

To assist our internal sales force of seven individuals and provide better
service to our customers, we have over 20 merchandising managers. The
merchandising managers provide home center retailers with in-store services such
as product knowledge seminars, store product resets to straighten stock and fix
displays, sales analysis and in-store merchandising. They also work with the
retailers to resolve claims issues and to handle product returns. This is a
significant advantage to us as it is a level of service that few suppliers can
offer.

OPERATIONS

We manufacture and sell our windows through a vertically integrated process
that includes:

- 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 door units, including
pre-hanging of doors, and the sale of such units to wholesalers,
lumberyards, dealers, home centers and homebuilders;

- A turn-key installation program for builders in which we supply and
install many of our products, including windows and interior and exterior
doors; and

- The sale of finished products to homebuilders, remodelers and contractors
through company-owned distribution centers located across the country.

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<PAGE>
We realize many operational and cost benefits from our vertically integrated
window operations. By extruding aluminum and vinyl components in-house, we are
able to secure a low-cost, reliable source of extrusions, control product
quality and reduce inventory levels. The integration of extrusion and
fabrication operations gives us more control over our manufacturing costs. We
continually work to achieve cost savings through increased capacity utilization
at our efficient facilities, adoption of best practices, reduction of cost of
materials, rationalization of product lines and reduction of inventory.

We continue to build on what we believe is our position as one of the
industry's lowest cost manufacturers. Because of the scale of our operations, we
are able to negotiate price concessions for our raw materials, including glass
and vinyl. This is an important consideration because, historically, total cost
of new materials typically comprises approximately 50% of our net sales.

We have been manufacturing wood products in Texas since 1953 and today have
three primary manufacturing facilities in the state. As home centers such as The
Home Depot and Lowe's have expanded throughout the country, we have
strategically established eight manufacturing operations nationwide in order to
serve these customers more efficiently. We believe we are one of the only door
suppliers which can service the home centers on a national basis. As the home
centers continue to expand into new markets, we will consider opening new
facilities to serve these regions.

As part of the integration of Wing and Atrium, the Atrium Wood patio door
division is merging its manufacturing, distribution and sales functions with
Wing. We are currently fitting a facility to locate all of Atrium Wood's and a
portion of Wing's manufacturing operations. Due to the fact that both divisions
sell over 80% of their products to the home centers, we believe significant
benefits can be realized from the synergies between the sales and distribution
functions of Atrium Wood and Wing. Both service the same customers and
distribute to the same retail locations. This integration is expected to be
completed during the fourth quarter of 1999.

COMPETITION

The residential window and door industry is highly fragmented. With few
exceptions, competitors are privately-owned, regional companies with sales under
$100.0 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.

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

- WINDOWS AND PATIO DOORS--WOOD. In the wood window and door market segment
of the industry, two large manufacturers, Andersen Corporation and Pella
Corporation, sell premium products on a national basis. Our wood windows
and doors are sold at a medium price point and primarily through home
centers throughout the United States and direct to builders. We have many
competitors at our price point in the wood window and door market segment,
including Kolbe & Kolbe Millwork Co. Inc. and Hurd Millwork Co. Inc.

- DOORS. We estimate that approximately 60% of all interior passage doors
sold through home centers are pre-hung. We expect this percentage to grow
due to the convenience and ease of installation of pre-hung doors. The
pre-hung door industry is very fragmented and consists primarily of
hundreds of small companies that engage primarily in the assembly of doors
and who have

67
<PAGE>
annual sales of $10.0 million to $30.0 million each. We believe that these
companies are finding it increasingly difficult to compete due to their
lack of manufacturing capability. Our key competitors are Premdor, Inc.
and Jeld Wen, both of which manufacture and pre-hang doors. Other
competitors include Steves and Sons and Haley Bros.

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. The market for interior repairs and
remodeling in northern climates tends to grow in the first and fourth quarters.
Although this results in seasonal fluctuations in the sales of certain of our
products, the complementary nature of our window and door business' selling
seasons helps mitigate this seasonality. See "Risk Factors--Seasonality."

CYCLICALITY

Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity. For the three months ended March
31, 1999, we estimate that approximately 42% of our pro forma 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. See "Risk Factors--Cyclicality."

EMPLOYEES

We employ approximately 4,350 people, of whom approximately 4,300 are
employed at our manufacturing facilities and distribution centers and
approximately 50 are employed at corporate headquarters. Approximately 1,580 of
our hourly employees are covered by collective bargaining agreements. We entered
into collective bargaining agreements in 1998 with the United Needle and
Industrial Trade Employee Union, SWRJB, ACTWU, AFL-CIO-CLC, covering certain
employees at the Atrium Aluminum, H-R Windows, Atrium Wood and Extruders
manufacturing facilities. All of these collective bargaining agreements expire
in May, 2001. In addition, we have collective bargaining agreements with The
Sheet Metal International Association Local Union No. 54, due to expire on
September 30, 2001, for our Kel-Star operations and Local Union 2743, Southern
Council of Industrial Workers, Chartered By United Brotherhood of Carpenters and
Joiners of America, AFL/CIO, due to expire on October 6, 2001, for our Woodville
Extruders operations. There are no union affiliations in connection with any of
our other divisions or subsidiaries. We believe that our relationship with our
employees is good.

PROPERTIES

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

<TABLE>
<CAPTION>
CAPACITY
LOCATION PRINCIPAL USE (SQUARE) FEET OWN/LEASE
- ---------------------------------- --------------------------------------------------- ------------- ----------
<S> <C> <C> <C>
Dallas, Texas*.................... Fabrication of aluminum windows 186,000 Lease
Fabrication of wood patio doors 266,000 Lease
Fabrication of vinyl windows 90,000 Lease
Irving, Texas..................... Fabrication of aluminum windows 147,218 Own
Extrusion die manufacturing 1,400 Own
Irving, Texas..................... Distribution of all window types 22,000 Own
Fabrication of aluminum patio doors 98,000 Own
Wylie, Texas...................... Extrusion of aluminum 100,000 Own
Carrollton, Texas................. Extrusion of vinyl 25,200 Lease
Phoenix, Arizona.................. Fabrication of aluminum windows 60,000 Own
</TABLE>

68
<PAGE>
<TABLE>
<CAPTION>
CAPACITY
LOCATION PRINCIPAL USE (SQUARE) FEET OWN/LEASE
- ---------------------------------- --------------------------------------------------- ------------- ----------
<S> <C> <C> <C>
Phoenix, Arizona.................. Distribution of aluminum windows 44,743 Lease
Las Vegas, Nevada................. Distribution of aluminum windows 30,400 Lease
Woodville, Texas.................. Fabrication of aluminum windows and storm doors 180,000 Lease
Extrusion of aluminum 120,000 Lease
San Antonio, Texas................ Distribution of aluminum windows 10,000 Lease
Anaheim, California............... Fabrication of vinyl windows 80,000 Lease
Union City, California............ Distribution of vinyl windows 10,000 Lease
Portland, Oregon.................. Distribution of vinyl windows 10,000 Lease
Salt Lake City, Utah.............. Distribution of vinyl windows 10,000 Lease
Clinton, Massachusetts............ Fabrication of vinyl windows 31,000 Own
Bridgeport, Connecticut........... Fabrication of vinyl windows 75,000 Lease
Farmingdale, New York............. Distribution of vinyl windows 6,000 Lease
Greenville, Texas................. Manufacture of solid wood and hollow core bi-fold
and passage doors; pre-hanging 180,000 Own
Greenville, Texas................. Door finishing operation; custom door manufacture 30,000 Lease
Greenville, Texas................. Fabrication of wood patio doors 300,000 Own
Hanover Park, Illinois............ Manufacture of hollow core bi-fold and passage
doors; pre-hanging; warehouse 73,000 Lease
Allentown, Pennsylvania........... Manufacture of hollow core bi-fold and passage
doors; door pre-hanging; warehouse 105,000 Lease
Mt. Pleasant, Texas............... Door manufacturing 110,000 Lease
Orlando, Florida.................. Door pre-hanging, warehouse 50,000 Lease
Denver, Colorado.................. Fabrication of vinyl windows 108,000 Lease
Cleveland, Ohio................... Door pre-hanging; warehouse 30,000 Lease
Charlotte, North Carolina......... Door pre-hanging; warehouse 40,000 Lease
Florence, Alabama*................ Door pre-hanging; warehouse 60,000 Lease
Murrysville, Pennsylvania......... Fabrication of vinyl windows 166,000 Own
Pittsburgh, Pennsylvania.......... Extrusion of vinyl 65,000 Lease
Yakima, Washington................ Fabrication of vinyl windows 58,000 Lease
</TABLE>

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

* Leased from affiliates of certain stockholders. See "Certain Relationships
and Related Transactions--Facility Leases."

Additionally, we lease 22 distribution warehouses in 14 states for vinyl
window distribution with sites averaging 8,000 square feet.

We maintain our corporate headquarters in Dallas, Texas. The facilities
provide approximately 11,000 square feet and are 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.

BACKLOG AND MATERIAL CUSTOMERS

We have no material long-term contracts. Orders are generally filled within
5 to 7 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.

Our sales are concentrated with one of the leading home center retailers,
The Home Depot. For the year ended December 31, 1998, The Home Depot accounted
for approximately 23% of our pro forma net sales. No other customer accounted
for more than 10% of our net 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

69
<PAGE>
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 may
change at any time.

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

Prior to 1993 we received correspondence in which we were named as
potentially responsible parties at two Superfund sites, pursuant to
Comprehensive Environmental Response, Compensation and Liability Act or
comparable state statutes. In one instance, we have entered into a settlement
and in the other instance, the group of potentially responsible parties has
negotiated a proposed redemption plan which has been approved by the relevant
state agency and is being reviewed by the United States Environmental Protection
Agency. Based on the actions taken to date, and our current insurance coverage,
we believe that any liability associated with the Superfund sites does not
currently have or will not have a material adverse effect on our financial
condition or the results of operations. However, because Comprehensive
Environmental Response, Compensation and Liability Act provides for strict and
sometimes joint and several liability, we cannot assure you that the liabilities
in question will not result in material expenditures in the future.

LEGAL PROCEEDINGS

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

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<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table provides information concerning our directors, executive
officers and certain key employees.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Jeff L. Hull....................... 33 Executive Vice President, Chief Financial Officer, Treasurer, Secretary
and Director

R.L. Gilmer........................ 45 Executive Vice President, Chief Operating Officer and Director

Louis W. Simi, Jr.................. 58 Executive Vice President of Operations

Michael Quadhamer.................. 35 President of Wing

Cliff Darby........................ 34 President of Darby

Eric W. Long....................... 31 Vice President, Corporate Controller and Assistant Secretary

Sam A. Wing, Jr.................... 75 Chairman Emeritus and Director

Daniel T. Morley................... 46 Chairman of the Board of Directors

James G. Turner.................... 30 Vice President and Director

Roger A. Knight.................... 39 Director

Andreas Hildebrand................. 31 Director

John Deterding..................... 67 Director

Nimrod Natan....................... 36 Director
</TABLE>

JEFF L. HULL has served as Executive Vice President of Atrium since April
1999 and as a Director of Atrium since October 1998. Mr. Hull has served as
Atrium's Chief Financial Officer since April 1996 and Secretary and Treasurer
since December 1996. Prior to that, Mr. Hull was Director of Asset/Liability
Management of AmVestors Financial Corporation (NYSE:AMV). From 1990 to 1995, he
was an audit manager with the accounting firm of Deloitte & Touche. Mr. Hull is
a certified public accountant.

R.L. GILMER has served as Executive Vice President of Atrium since April
1999 and as the Chief Operating Officer and Director of Atrium since October
1998. Prior to that, Mr. Gilmer served as President and Chief Executive Officer
of Wing from October 1996. From June 1993 to October 1996 he was Vice President
of Wing. Mr. Gilmer has served Wing in various capacities since 1986 including
as Controller and Manufacturing Manager. Prior to joining Wing, Mr. Gilmer was a
certified public accountant with the accounting firm of Arthur Andersen & Co.

LOUIS W. SIMI, JR. has served as Executive Vice President of Atrium since
1993 and prior thereto he served as the General Manager of the Atrium Aluminum
division. Mr. Simi also served as Director of Atrium from July 1995 to November
1996. He has served Atrium in other capacities since 1966.

MICHAEL QUADHAMER has served as President of Wing since October 1998. Prior
to that, he served as Vice President and Chief Financial Officer of Wing from
October 1996 until October 1998. Mr. Quadhamer has served Wing in various
capacities since 1991, including as Controller and as Director of Global
Operations. Prior to joining Wing, he worked for the accounting firm of Arthur
Andersen & Co. Mr. Quadhamer is a certified public accountant.

CLIFF DARBY has served as President of Darby since 1997. Mr. Darby has
worked for Darby since 1988. Mr. Darby has held numerous roles with Darby,
including managerial, sales and administrative positions.

ERIC W. LONG has served as Vice President of Atrium since April 1999 and as
Corporate Controller and Assistant Secretary of Atrium since April 1996. From
April 1995 to April 1996, Mr. Long was a financial

71
<PAGE>
analyst with Applebee's International, Inc. From 1991 to 1995, he was with the
accounting firm of Deloitte & Touche L.L.P. Mr. Long is a certified public
accountant.

SAM A. WING, JR. has served as Chairman Emeritus and Director of Atrium
since October 1998. Mr. Wing has served Wing in various capacities since 1946,
including as Chairman Emeritus from 1996 until October 1998, as Chairman and
Chief Executive Officer of Wing from 1995 until 1996 and as Chairman of Wing
from 1994 until 1995. Prior to that, Mr. Wing was Chairman and Chief Executive
Officer of Wing from 1969 to 1994.

DANIEL T. MORLEY has served as Chairman of the Board of Directors of Atrium
since October 1998. Mr. Morley has been a Managing Partner of Ardshiel since
1994. Mr. Morley has served as President of Ardshiel since 1997 and Chairman of
Wing since 1996 and Door since January 1998. Mr. Morley also serves as Chairman
of Astro Textiles, Inc. and a Director of Protein Genetics, Inc. and Avanti
Petroleum, Inc., and holds positions with several other privately held
companies.

JAMES G. TURNER has served as Vice President and Director of Atrium since
October 1998. Mr. Turner has been a principal of Ardshiel since June 1997. Mr.
Turner has also served as a Director of Wing since October 1997 and Door since
December 1997. From March 1994 until June 1997, Mr. Turner worked as an
associate for Ardshiel. Prior to joining Ardshiel, Mr. Turner worked as an
associate for Chemical Banking Corp. from 1991 to March 1994. Mr. Turner is also
a Director of Avanti Petroleum, Inc. and Protein Genetics, Inc., and serves as a
director of several other privately held companies.

ROGER A. KNIGHT has served as a Director of Atrium since October 1998. Mr.
Knight has been a principal of Ardshiel since May 1998. 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 HILDEBRAND has served as a Director of Atrium since October 1998.
Mr. Hildebrand is Vice President of GE Investments. Mr. Hildebrand also served
as a Director of Wing since October 1997 and of Door since January 1998. He has
served in other capacities with GE Investments during the past five years. Mr.
Hildebrand is also a Director of Eagle Family Foods Holdings, Inc. and several
other privately held companies.

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

NIMROD NATAN has served as a Director of Atrium since October 1998. Mr.
Natan has been a principal of Ardshiel since 1997. Mr. Natan also serves as a
director of Wing, Astro Holdings, Inc. and Protein Genetics, Inc., privately
held companies. Prior to joining Ardshiel in 1997, Mr. Natan was a management
consultant with Gemini Consulting for four years.

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, 1996, 1997
and 1998 concerning compensation paid or accrued by us to or on behalf of our
Chief Executive Officer and the four other most highly compensated

72
<PAGE>
persons, or the named executive officers, functioning effectively as our
executive officers whose individual combined salary and bonus exceeded $100,000
during such period:

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
--------------------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION($)
- ------------------------------------ --------- ----------- --------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
*Randall S. Fojtasek................ 1998 $ 350,000 $3,140,000 $ -- 5,735,369(2) $2,542,570(5)
President and Chief Executive 1997 350,000 125,000 -- -- 308,928(6)
Officer 1996 303,865 3,075,000 -- 2,195,222(3) 221,500(5)(7)

Jeff L. Hull........................ 1998 155,000 175,000 -- 1,308,842(2) --
Executive Vice President, Chief 1997 120,000 20,000 -- 5,000(3) 15,146(6)
Financial Officer, Secretary and 1996 100,000 -- -- 100,000(3) --
Treasurer

R.L. Gilmer......................... 1998 215,000 56,250 -- 1,723,524(2) --
Executive Vice President, Chief 1997 138,679 70,000 -- -- --
Operating Officer 1996 106,113 286,889 -- 2,957(4) --

Louis W. Simi, Jr................... 1998 170,000 185,000 -- 500,000(2) 662,923(5)
Executive Vice President of 1997 125,000 250,690 -- -- 106,025(6)
Operations 1996 125,000 270,681 -- 511,237(3) 282,886(5)(7)

Cliff Darby......................... 1998 150,000 76,450 -- 1,298,415(2) --
President, R.G. Darby Company, 1997 150,000 66,000 -- -- --
Inc. and Total Trim, Inc. 1996 150,000 66,000 -- -- --
</TABLE>

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

* Resigned effective March 31, 1999.

(1) Perquisites related to automobile and expense allowances are excluded since
the aggregated amounts are the lesser of $50,000 or 10% of the total annual
salary.

(2) Securities underlying options to purchase the common stock of D and W.
Holdings, Messrs. Hull's and Simi's amounts include 125,000 and 250,000
options, respectively, issued under the D and W Holdings Replacement Stock
Option Plan, and Mr. Gilmer's amount includes 539,682 options in replacement
of his options to purchase common stock of Wing.

(3) Securities underlying options to purchase common stock of Atrium
Corporation.

(4) Securities underlying options to purchase common stock of Wing.

(5) In connection with a change of control transaction, certain members of
management were granted options at below fair market prices. Accordingly,
compensation expense is being recognized for financial statement purposes.

(6) Amounts represent fees received in connection with the termination of the
purchase and sale agreement to acquire PlyGem Industries, Inc.

(7) Upon completion of the 1998 recapitalization and the exercise of these
options, the compensatory portion of the options were reflected in the
individual's wages and in our financial statements.

MANAGEMENT CHANGE. On April 9, 1999, we entered into a separation agreement
with Randall S. Fojtasek, President and Chief Executive Officer. Pursuant to the
separation agreement, Mr. Fojtasek resigned effective March 31, 1999. The Board
of Directors has appointed Jeff L. Hull, Executive Vice President and Chief
Financial Officer, and Ken L. Gilmer, Executive Vice President and Chief
Operating Officer, to oversee day-to-day operations and report directly to the
Executive Committee of the Board of Directors while we search for a new chief
executive officer. We have retained a nationally recognized executive search
firm to assist us in this process. We took a charge of approximately $1.8
million in the first quarter of fiscal year 1999 for severance benefits related
to this management change.

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<PAGE>
OPTION GRANTS DURING 1998. The following table sets forth option grants to
the named executive officers during the year ended December 31, 1998.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(2) POTENTIAL REALIZABLE VALUE
NUMBER OF ---------------------------------- AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------------- ------------- ------------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek......... 1,894,148 10 $ 1.00 10/02/08 $ 1,191,419 $ 3,019,272
2,841,221 15 .01 10/02/08 4,599,937 7,341,715
1,000,000 5 .01 10/02/18 2,643,298 6,717,500

Jeff L. Hull................ 1,183,842 6 1.00 10/02/08 744,637 1,887,044
125,000 * .01 10/02/08 202,362 322,968

R.L. Gilmer................. 1,183,842 6 1.00 10/02/08 744,637 1,887,044
231,136 * .01 10/02/08 374,209 597,255
154,273 * .72 10/02/08 140,234 289,108
154,273 * .82 10/02/08 124,807 273,680

Louis W. Simi, Jr........... 250,000 1 1.00 10/02/08 157,250 398,500
250,000 1 .01 10/02/08 404,750 646,000

Cliff Darby................. 466,101 2 1.00 10/02/08 293,178 742,965
832,314 4 .83 1/09/08 434,416 1,101,019
</TABLE>

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

* Less than 1%

(1) All options are for the common stock of D and W Holdings.

(2) Options vest ratably over the life of the respective employment contract,
except for Mr. Fojtasek, whose options are fully vested, and Messrs. Simi
and Darby, whose options vest ratably over five years.

(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, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FY-END (#) (3) MONEY OPTIONS AT FY-END
SHARES ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE(4) UNEXERCISABLE
- --------------------------------- ------------------ ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek.............. -- $4,096,156(2) 3,841,221 1,894,148 $ 3,802,808 $ --
Jeff L. Hull..................... -- 12,305(2) 125,000(5) 1,183,842 123,750(5) --
R.L. Gilmer...................... 883(1) 108,167 231,136 1,183,842 228,825 --
Louis W. Simi, Jr................ -- 779,770(2) 250,000(5) 250,000 247,500(5) --
Cliff Darby...................... -- -- 231,136 466,101 228,824 --
</TABLE>

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

(1) Represents options exercised to purchase common stock of Wing Industries
Holdings, Inc.

(2) Represents net cash proceeds received in connection with the 1998
recapitalization in respect of options to purchase common stock of Atrium
Corporation.

(3) Represents options held by the named individual to purchase common stock of
D and W Holdings.

(4) Based on the fair market value of the option shares at fiscal year end of
$1.00 per share less the exercise price per share payable for such shares.

(5) Although these options vest ratably over a period of five years, D and W has
the right to repurchase the options, without regard to vesting, upon the
occurrence of certain termination events. See "--Replacement Stock Option
Plan."

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<PAGE>
1998 STOCK OPTION PLAN

The D and W Holdings, Inc. 1998 Stock Option Plan, or the 1998 plan, which
provides for the grant of options to purchase common stock of D and W Holdings
to key employees and eligible non-employees of D and W Holdings and its
subsidiaries, was adopted by D and W Holdings in connection with the 1998
recapitalization. The 1998 plan provides for the grant of options to purchase up
to 11,991,142 shares of D and W Holdings common stock. In connection with the
1998 recapitalization, D and W Holdings granted options to purchase 3,582,353
shares of its common stock to management of Darby and Wing in exchange for
outstanding options to purchase Darby and Wing stock. Options to purchase an
additional 8,153,588 shares of D and W Holdings common stock were granted to
management of D and W Holdings and its subsidiaries contemporaneously with the
1998 recapitalization. The 1998 plan was amended, among other things, in
connection with the consummation of the Heat and Champagne acquisitions to
increase the number of shares of D and W Holdings common stock issuable upon the
exercise of options under the 1998 plan by up to an additional 3,000,000 shares.
Options to purchase 1,790,000 shares of D and W Holdings common stock have been
issued in connection with this amendment.

All options granted thus far are non-qualified options, which do not qualify
under Section 422. 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. Options granted upon consummation of the 1998
recapitalization in exchange for outstanding options of Darby and Wing continue
to vest on the schedule applicable to the exchanged options. Of the options
granted in connection with the 1998 recapitalization, options to purchase
993,115 shares of D and W Holdings common stock 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 will automatically expire.
Upon termination of employment for any other reason, the optionee will have the
right to exercise the vested portion of any option. Also, upon termination of an
optionee's employment for any reason, D and W Holdings will have the right to
purchase outstanding options and any shares of D and W Holdings 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, D and W Holdings adopted the D and W Holdings,
Inc. Replacement Stock Option Plan, or replacement plan, relating to certain
options to purchase D and W Holdings 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 an
aggregate of 1,575,000 shares of D and W Holdings common stock were granted in
exchange for outstanding options of Atrium Corporation which were not cashed out
in the 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 $0.01
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 D and
W Holdings common stock issuable upon the exercise of options under the
replacement plan by up to an additional 1,000,000 shares. Options to purchase
675,531 shares of D and W Holdings common stock were issued under the
replacement plan in exchange for outstanding options of Heat which were not
cashed out.

Upon termination of an optionee's employment, D and W Holdings shall have
the right to repurchase from the optionee all or any portion of their
replacement options. Upon exercise of any vested portion of a replacement
option, D and W Holdings may require the optionee to execute a buy-sell
agreement containing provisions similar to the repurchase provisions described
above, as a condition to such option exercise.

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.

75
<PAGE>
The replacement options have a term of 20 years from the date of grant subject
to early termination in connection with termination of employment. No option is
exercisable until it is vested. Replacement options are not transferable other
than in accordance with the laws of descent and distribution by an optionee,
except that options may be transferred to an optionee's family members or
personal representative.

BONUS PLAN

We maintain a bonus plan providing for annual bonus awards to certain key
employees. Such bonus amounts are based on Atrium and its divisions meeting
certain performance goals established by our board of directors.

OTHER BENEFIT PROGRAMS

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

EMPLOYMENT AGREEMENTS

MR. HULL

Mr. Hull entered into an employment agreement with D and W Holdings pursuant
to which he serves as Chief Financial Officer of D and W Holdings. Mr. Hull's
employment agreement has a four year term, which commenced in October 1998.
Under the terms of Mr. Hull's employment agreement, he is entitled to receive an
annual base salary, as adjusted, of $225,000, subject to increase at the
discretion of the board of directors. The agreement provides that Mr. Hull may
receive an annual bonus of up to approximately $125,000, as adjusted, based on
achieving certain performance targets.

Under the agreement, Mr. Hull received options to purchase 1,183,842 shares
of D and W Holdings common stock pursuant to the new plan. The options will vest
in equal installments over four years from the date of grant. The agreement also
provides that D and W Holdings will make certain payments to Mr. Hull in the
event

- Mr. Hull is terminated by D and W Holdings without cause,

- of a change of control of D and W Holdings, or

- Mr. Hull terminates his employment for good reason.

Under the agreement, Mr. Hull agrees not to compete with D and W Holdings
and its subsidiaries for certain specified periods.

MR. GILMER

Mr. Gilmer entered into an employment agreement with D and W Holdings
pursuant to which he serves as Chief Operating Officer of D and W Holdings. Mr.
Gilmer's employment agreement has a four year term, which commenced in October
1998. Under the terms of Mr. Gilmer's employment agreement, he is entitled to
receive an annual base salary of $225,000, as adjusted, subject to increase at
the discretion of the board of directors. The agreement provides that Mr. Gilmer
may receive an annual bonus of up to approximately $125,000, based on achieving
certain performance targets.

Under the agreement, Mr. Gilmer received options to purchase 1,183,842
shares of D and W Holdings common stock upon the same terms as the options
received by Mr. Hull. The agreement also provides that, D and W Holdings will
make certain payments to Mr. Gilmer in the event

- Mr. Gilmer is terminated by D and W Holdings without cause,

- of a change of control of D and W Holdings, or

76
<PAGE>
- Mr. Gilmer terminates his employment for good reason.

Mr. Gilmer agrees not to compete with D and W Holdings and its subsidiaries
for certain specified periods.

MR. SIMI

We entered into an employment agreement with Mr. Simi on January 1, 1998.
The compensation provided to Mr. Simi includes an annual base salary of
$170,000, subject to increases at the discretion of the board of directors.
Additionally, Mr. Simi is eligible for an incentive bonus based on certain
performance targets.

Mr. Simi's employment agreement terminates on December 31, 2000. If Mr.
Simi's employment is terminated by us for any reason other than for cause, we
will continue to pay his salary for 12 months, together with the annual
incentive bonus. Mr. Simi has agreed not to compete with us in certain
geographic areas for so long as we pay salary to him.

MR. DARBY

On January 9, 1998, Mr. Cliff Darby entered into an employment agreement
with Darby for a term which commenced in January, 1998. Under the terms of Mr.
Darby's employment agreement, he is entitled to receive an annual base salary of
$156,000, as adjusted, subject to increase at the discretion of the Board of
Directors of Darby. Mr. Darby is entitled to annual performance bonus payable
upon the achievement of Darby's EBITDA plan. The agreement also provides that
Darby will make certain payments to Mr. Darby in the event Mr. Darby is
terminated without cause.

Under the agreement, Mr. Darby has agreed not to compete with the business
of Darby for a period of five years from the date of the agreement. The
non-competition covenant shall apply for one year following termination without
cause by Darby regardless of the date of termination.

Upon consummation of the 1998 recapitalization, Mr. Darby received options
to purchase 466,101 shares of D and W Holdings common stock. Such options vest
over a five year period from the date of grant.

BOARD OF DIRECTORS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Daniel T. Morley and Andreas Hildebrand serve as our compensation committee.

AUDIT COMMITTEE

James G. Turner and Roger A. Knight serve as our audit committee.

EXECUTIVE COMMITTEE

James G. Turner, Roger A. Knight, Andreas Hildebrand, R.L. Gilmer 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.

77
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE STOCKHOLDERS AGREEMENT

GEIPPPII, Ardshiel, and certain major stockholders of D and W Holdings, have
entered into a stockholders agreement, dated as of October 2, 1998, which
affects their relative rights as stockholders of D and W Holdings.

Under the stockholders agreement, 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. Ardshiel and
its affiliates, shall be entitled to designate up to six directors.

Subject to certain exceptions, each of the major stockholders, except for
GEIPPPII has agreed not to sell, transfer or otherwise dispose of such
stockholder's equity securities of D and W Holdings and an affiliate of Ardshiel
has agreed not to sell, transfer or otherwise dispose of its discount
debentures. In the event that GEIPPPII intends to transfer its equity securities
or discount debentures, each of the other major stockholders or holders of
discount debentures will be entitled to purchase a pro rata portion of the
equity securities or discount debentures held by such major stockholder or
holder of discount debentures. However, in the event such sale, transfer or
disposition by GEIPPPII occurs within four years of the date of stockholders
agreement, the other major stockholders or holders of discount debentures, will
be obligated to sell all of their equity securities and/or all of their discount
debentures to the proposed transferee.

Subject to certain conditions, Ardshiel and its affiliates may require that
GEIPPPII (1) sell or otherwise dispose of its equity securities and discount
debentures to any person who is not an affiliate of Ardshiel or (2) purchase all
of the other major stockholders' equity securities and discount debentures. In
addition, subject to certain exceptions, GEIPPPII and/or D and W Holdings have
the right to purchase from any selling major stockholder any or all equity
securities proposed to be sold to a third party by such selling major
stockholder.

Pursuant to the terms of the stockholders agreement, D and W Holdings has
granted the major stockholders certain registration rights relating to any or
all shares of D and W Holdings common stock held by such major stockholder.

The stockholders agreement provides that the prior written consent of
GEIPPPII is required for D and W Holdings to take certain enumerated actions.

MANAGEMENT AGREEMENT

We are a party to a management agreement dated October 2, 1998, which was
amended on May 17, 1999 with D and W Holdings, Atrium Corporation and Ardshiel.
Under the management agreement, Ardshiel provides advisory services to D and W
Holdings and its subsidiaries 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 D and W
Holdings or its subsidiary must offer Ardshiel the opportunity to perform
investment banking services in connection with a sale or purchase of a business
or any financing prior to engaging another financial advisor. Ardshiel has the
right to receive a closing fee for its services in an amount not be greater than
2% of the total purchase or sale price for such business. The consent of
GEIPPPII is required prior to the payment by D and W Holdings or any of its
subsidiaries of any closing fees to Ardshiel where D and W Holdings or any of
its subsidiaries is paying similar fees to other entities for similar services.

D and W Holdings paid a closing fee of approximately $3.4 million, plus fees
and expenses, after the consummation of the 1998 Recapitalization in connection
therewith. In addition, Ardshiel received an aggregate of approximately $1.3
million in fees in connection with the Heat and Champagne acquisitions.

78
<PAGE>
The management agreement will remain in effect until October 2, 2008. The
agreement will be automatically renewed for one-year periods unless either party
gives written termination notice prior to the expiration of the initial or any
extended term.

BUY-SELL AGREEMENTS

D and W Holdings entered into buy-sell agreements with certain members of
its management under which D and W Holdings may repurchase from those persons
all or any portion of their shares of D and W Holdings 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 agreements entered into with Messrs. Gilmer and
Darby provide that they will have the right to require D and W Holdings to
repurchase their shares if they are terminated for any reason other than for
cause and D and W Holdings does not exercise its right to purchase the shares.

THE DISCOUNT DEBENTURES

In 1998, Atrium Corporation issued $80.6 million aggregate principal amount
at maturity of its discount debentures to GEIPPPII and an affiliate of Ardshiel
to fund a portion of the 1998 recapitalization. The issuance represented $45.0
million in gross proceeds to Atrium Corporation, See "Description of Certain
Indebtedness--Discount Debentures." We used a portion of the net proceeds of the
offering of the outstanding notes to fund a distribution of $20.6 million to
Atrium Corporation to repurchase a portion of the discount debentures, including
accreted discount, from GEIPPPII and an affiliate of Ardshiel.

D and W Holdings has agreed to cause

- us to make dividend payments to Atrium Corporation to enable it to make
interest and principal payments on, or to repurchase, redeem or prepay the
discount debentures, as long as we have funds legally available for the
payment of such dividends and we are not prohibited from making such
dividend payments by the terms of any contract to which we are a party,

- Atrium Corporation, as long as Atrium Corporation is not prohibited from
doing so by the terms of any contract to which it or D and W Holdings is a
party, to pay interest and principal on, or to repurchase, redeem or
repay, the discount debentures from the proceeds of any such dividend
payment.

GEIPPPII and an affiliate of Ardshiel that owns discount debentures may in
the future transfer discount debentures to third parties not affiliated with
Atrium Corporation.

INTERCOMPANY LOAN

In connection with the 1998 recapitalization, Atrium Corporation issued to
us a $24.0 million subordinated intercompany note and we, in turn, used a
portion of the proceeds from our term loan under our credit facility to fund the
intercompany loan to Atrium Corporation. The intercompany loan to Atrium
Corporation bore interest at a rate of 5.66% per annum computed semiannually.
The intercompany loan was repaid in November 1998 with proceeds from the
issuance of discount debentures.

INDEMNIFICATION AGREEMENTS

We entered into indemnification agreements with Jeff L. Hull and Louis W.
Simi, Jr. under which we agreed to indemnify them, if either 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. We expect to enter into similar
indemnification agreements with each of the remaining directors and executive
officers.

79
<PAGE>
FACILITY LEASES

On July 3, 1995, Fojtasek Industrial Properties, Ltd., a limited partnership
in which Randall S. Fojtasek owns an equity interest of approximately 10.2%,
executed leases with us with respect to our Atrium Wood's and Atrium Vinyl's
facility and our H-R Windows division's facility. Both leases are absolute net
leases. These leases were extended on October 1, 1997 for a period of ten years,
expiring on July 1, 2008. The amounts paid under these two leases totaled
$1,245,281, $753,000 and $605,338 in 1998, 1997 and 1996, respectively.
Additionally, Fojtasek Interests, a Texas corporation, in which Mr. Fojtasek
owns an interest, subleases approximately 1,500 square feet of office space at
our corporate headquarters. Amounts paid to us under this lease in 1998 were
$19,588.

Darby is a party to a facilities lease agreement with R.G. Darby, a former
stockholder of Darby and the father of Cliff Darby, President of Darby. Pursuant
to the terms of the lease, Darby pays rent to Mr. Darby of approximately $15,400
per month, adjusted annually for inflation. The term of the lease is fifteen
years with three extension terms of five years each. Rent expense paid to Mr.
Darby in 1998 was approximately $165,000.

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<PAGE>
BENEFICIAL OWNERSHIP

We are a wholly-owned subsidiary of Atrium Corporation, which in turn is a
wholly-owned subsidiary of D and W Holdings. The following table sets forth
certain information regarding the beneficial ownership of D and W Holdings
common stock as of June 30, 1999, by each person who beneficially owns more than
5% of the outstanding common stock of D and W Holdings and by the directors and
certain executive officers of D and W Holdings. Unless otherwise indicated
below, to our knowledge, all persons listed below have sole voting and
investment power with respect to their shares of common stock of D and W
Holdings.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENTAGE
- ---------------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
GE Investment Private Placement Partners II, a Limited Partnership................ 92,970,561 94.8%
3003 Summer Street
Stamford, CT 06984-7900
Ardshiel, Inc..................................................................... 6,643,600(1) 6.7%
230 Park Avenue, Suite 2527
New York, NY 10169
Jeff L. Hull...................................................................... -- --
R.L. Gilmer....................................................................... 490,159(2) *
Louis W. Simi, Jr................................................................. -- --
Sam A. Wing, Jr................................................................... -- --
Daniel T. Morley.................................................................. 6,643,600(3) 6.7%
James G. Turner................................................................... -- --
Roger A. Knight................................................................... -- --
Andreas Hildebrand................................................................ -- --
John Deterding.................................................................... -- --
Nimrod Natan...................................................................... -- --
All directors and executive officers as a group (11 persons)(4)................... 7,133,759 7.1%
</TABLE>

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

* Less than 1%.

(1) Includes (1) 1,040,748 shares of D and W Holdings common stock issuable upon
exercise of warrants that are currently exercisable; (2) 1,819,033 shares of
D and W Holdings 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 (3) 3,783,819 shares of Holdings common stock held by certain
other stockholders of D and W Holdings who have granted proxies to Ardshiel
or its affiliates to vote their shares.

(2) Includes 154,193 shares of D and W Holdings common stock issuable upon
exercise of options granted to Mr. Gilmer under the new plan. Such options
are currently exercisable.

(3) Represents shares beneficially owned by Ardshiel and its affiliates. Mr.
Morley is the 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. Accordingly, Mr. Morley may be deemed to be the
beneficial owner of these shares. Mr. Morley disclaims beneficial ownership
of these shares.

(4) The business address for these individuals is 1341 West Mockingbird Lane,
Suite 1200W, Dallas, Texas 75247.

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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS

CREDIT FACILITY, AS AMENDED

The following is a description of the general terms of the credit facility
that are included in the credit agreement, dated as of October 2, 1998 as
amended as of May 5, 1999 and as further amended as of June 11, 1999, among
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as lead
arranger, syndication agent and documentation agent, BankBoston, N.A., as
administrative agent, Atrium Corporation, Atrium, the lenders, D and W Holdings
and the subsidiaries of Atrium, as guarantors. The following description does
not purport to be complete and is subject to the credit agreement and the other
documents entered into in connection with the credit agreement.

The credit agreement provides for three separate facilities consisting of
two term loans referred to as term loan B and term loan C, and a revolving
credit facility with a letter of credit sub-facility. The revolving facility
together with the term loans are referred to in this prospectus as the credit
facility loans. Term loan B and term loan C are in the amount of $75.0 million
and $100.0 million, respectively, and have maturity dates of June 30, 2005 and
June 30, 2006, respectively. We used the term loans to finance the 1998
recapitalization. We repaid $29.1 million of the term loan C after the closing
of our credit facility and approximately $15.2 million of term loan B with a
portion of the net proceeds of the offering of the outstanding notes. Principal
payments of the term loans amortize on a quarterly basis, beginning in December
1998. The revolving facility is in the amount of $40.0 million, of which $7.5
million is available under a letter of credit sub-facility. The revolving
facility has a maturity date of June 30, 2004 and is available for working
capital purposes and permitted acquisitions.

The loans bear interest at either (a) a "base rate" equal to the higher of
(i) the federal funds rate plus 0.500% per annum or (ii) the administrative
agent's prime rate, plus (A) in the case of the term loan B, 2.00%, (B) in the
case of the term loan C, 2.250% and (C) in the case of the revolving facility
1.625%, or (b) LIBOR plus (A) in the case of the term loan B, 3.00%, (B) in the
case of the term loan C, 3.250% and (C) in the case of the revolving facility,
2.625%. Beginning June 30, 1999, the revolving facility bears interest at a
variable leverage-based rate ranging from the "base rate" plus 0.375% to 1.625%
or LIBOR plus 1.375% to 2.625%.

We pay a per annum commitment fee of 0.500% of the available unused
commitment under the revolving facility. Beginning June 30, 1999, the commitment
fee is calculated at a variable leveraged-based rate ranging from 0.250% to
0.500%. Such fees are payable quarterly in arrears and upon termination of the
revolving facility.

All amounts outstanding under the credit facility are secured by (1) a
pledge of all of our and our subsidiaries' capital stock and intercompany notes
and (2) a security interest in substantially all of our, Atrium Corporation's
and our subsidiaries' properties and assets. Atrium Corporation and each of our
subsidiaries have unconditionally guaranteed all of our obligations under the
credit agreement.

We are required to make a mandatory prepayment of the credit facility loans
in an amount equal to 75% of annual excess cash flow, which percentage may,
under certain circumstances, be reduced to 50%. In addition, subject to certain
exceptions, we are required to make a mandatory prepayment of the credit
facility loans in an amount equal to (1) 100% of the net proceeds of asset sales
and other asset dispositions, (2) 100% of the net proceeds of the issuance or
incurrence of debt or of any sale and leaseback for proceeds in excess of a
certain threshold, and (3) 50% of the net proceeds from any issuance of equity
securities in any public offering or private placement or from any capital
contribution. We are also required to make a mandatory prepayment of outstanding
amounts under the revolving facility when amounts exceed the commitment for the
revolving facility. We are permitted to make voluntary prepayments of all or any
portion of the credit facility loans in accordance with the terms of the credit
agreement, without penalty or premium. In addition, we may reduce the unutilized
portion of the commitments under the revolving facility in accordance with the
terms of the credit agreement, without penalty or premium.

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The credit agreement requires us to comply with certain covenants, which
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, amendment of
documents relating to other indebtedness and other material documents, creation
of subsidiaries, designation of designated senior indebtedness in respect of the
outstanding notes and the exchange notes, and prepayment or repurchase of other
indebtedness. The credit agreement requires us to meet certain financial tests
pertaining to interest coverage, fixed charge coverage and leverage.

DISCOUNT DEBENTURES

In 1998, Atrium Corporation issued approximately $80.6 million aggregate
principal amount at maturity of the discount debentures to GEIPPPII and an
affiliate of Ardshiel to finance in part the 1998 recapitalization. The issuance
represented $45.0 million in gross proceeds to Atrium Corporation. The following
is a summary of the principal terms of the discount debentures.

The discount debentures were issued under an indenture, dated as of October
2, 1998 between Atrium Corporation and United States Trust Company of New York,
as Trustee.

TERMS OF THE DISCOUNT DEBENTURES. The discount debentures were issued at an
original issue discount and are unsecured senior obligations of Atrium
Corporation limited to approximately $80.6 million aggregate principal amount at
maturity. The discount debentures rank equal in right of payment with other
senior unsecured indebtedness of Atrium Corporation and senior to any
subordinated obligations of Atrium Corporation. The discount debentures will
mature on October 1, 2010. No cash interest will accrue on the discount
debentures prior to October 1, 2003. After that date, cash interest will accrue
on the discount debentures at an annual rate of 12%, payable semiannually on
April 1 and October 1 of each year. Prior to October 1, 2003, Atrium Corporation
may elect to commence the accrual of cash interest from any interest payment
date. In such case, the principal amount at maturity will be reduced to the
accreted value of the discount debentures on such date, and cash interest will
then accrue and be payable.

REDEMPTION. The discount debentures will not be redeemable at the option of
Atrium Corporation prior to October 1, 2003. After that date, the discount
debentures will be redeemable, at Atrium Corporation's option, in whole or in
part, at 106% of the accreted value of the discount debentures so redeemed,
together with accrued and unpaid interest to the redemption date. In addition,
before October 1, 2001, Atrium Corporation may redeem all of the discount
debentures at 112% of accreted value plus accrued and unpaid interest to the
redemption date, with the net proceeds of one or more equity offerings.

CHANGE OF CONTROL. Upon the occurrence of a change of control each holder
of the discount debentures will have the right to require that Atrium
Corporation repurchase such holder's discount debentures at a purchase price in
cash equal to 101% of the accreted value plus accrued and unpaid interest to the
date of repurchase. In addition, at any time prior to October 2, 2003, Atrium
Corporation may redeem the discount debentures as a whole following a change of
control at a redemption price equal to 100% of the accreted value plus the
applicable premium and accrued and unpaid interest to the redemption date.

A portion of net proceeds of the offering of the outstanding notes was used
to distribute $20.6 million, including accreted discount, to Atrium Corporation
to repurchase a portion of the discount debentures.

GEIPPPII and an affiliate of Ardshiel that owns discount debentures may in
the future transfer discount debentures to third parties not affiliated with
Atrium Corporation.

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DESCRIPTION OF THE EXCHANGE NOTES

GENERAL

The outstanding notes were issued and the exchange notes will be issued
under an indenture, dated as of May 17, 1999, among Atrium, the subsidiaries of
Atrium, as guarantors and State Street Bank and Trust Company, as trustee. Upon
the issuance of the exchange notes, the indenture will be governed by the Trust
Indenture Act of 1939, as amended.

The following summary of certain provisions of the indenture and the
exchange notes is not complete and is subject to all the provisions of the
indenture and the exchange notes.

You can find the definition of certain terms used in the following summary
under the subheading "--Certain Definitions."

In this description of the exchange notes, references to Atrium refer to
Atrium Companies, Inc. and not to any of its subsidiaries.

Principal, premium, and interest on the exchange notes will be payable, and
the exchange notes may be exchanged or transferred, at the office or agency of
Atrium in the Borough of Manhattan, The City of New York, which initially shall
be the corporate trust office of the trustee in New York, New York. Payment of
interest may be made by check. Initially, the trustee will act as paying agent
and registrar for the exchange notes. The exchange notes may be presented for
registration of transfer and exchange at the offices of the registrar.

The exchange notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
exchange notes, but Atrium may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection with
such transfer or exchange.

TERMS OF EXCHANGE NOTES

The exchange notes will be unsecured, senior subordinated obligations of
Atrium, which are limited to $175,000,000 aggregate principal amount. The
exchange notes will mature on May 1, 2009. Each exchange note will bear interest
at the rate of 10 1/2% per annum from May 17, 1999, and will be payable
semiannually on May 1 and November 1 of each year, commencing on November 1,
1999. The exchange notes will not be entitled to the benefit of any mandatory
sinking fund.

OPTIONAL REDEMPTION

OPTIONAL REDEMPTION. The exchange notes are not redeemable prior to May 1,
2004.

The exchange notes will be redeemable at the option of Atrium, in whole or
in part, at any time on or after May 1, 2004, at the redemption prices,
expressed as percentages of the principal amount set forth below, plus accrued
and unpaid interest thereon, if any, to the date of redemption, if redeemed
during the 12-month period beginning on May 1 of the years indicated:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- -----------
<S> <C>
2004................................................................... 105.250%
2005................................................................... 103.500%
2006................................................................... 101.750%
2007 and following years............................................... 100.000%
</TABLE>

OPTIONAL REDEMPTION UPON EQUITY OFFERING. On or prior to May 1, 2002,
Atrium may, at its option, use the net proceeds of one or more Equity Offerings
following which there is a Public Market to redeem up to

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35% of the originally issued aggregate principal amount of the exchange notes,
at a redemption price in cash equal to 110.5% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of redemption;
PROVIDED that

- at least 65% of the originally issued aggregate principal amount of
exchange notes is outstanding following such redemption; and

- notice of such redemption must be given not later than 60 days after the
consummation of any such Equity Offering.

OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. At any time on or prior to May
1, 2004, the exchange notes may be redeemed as a whole and not in part at the
option of Atrium upon the occurrence of a Change of Control, at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
and accrued and unpaid interest, if any, to, the date of redemption. Notice of
such redemption must be given not later than 90 days after the occurrence of
such Change of Control.

SELECTION AND NOTICE. In the event that less than all of the exchange notes
are to be redeemed selection of exchange notes for redemption will be made by
the trustee in compliance with the requirements of the principal national
securities exchange on which the exchange notes as follows are listed; or if the
exchange notes are not listed on a national securities exchange, selection will
be made on a PRO RATA basis or by such method as the trustee will deem fair and
appropriate.

No exchange notes of a principal amount of $1,000 or less shall be redeemed
in part. Any redemption made with the net proceeds of an Equity Offering will be
made on a PRO RATA basis or on as nearly a PRO RATA basis as practicable.

Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of exchange notes to
be redeemed at its registered address.

If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that exchange note will state the portion of the
principal amount to be redeemed. A new exchange note in a principal amount equal
to the unredeemed portion of the original exchange note will be issued in the
name of the holder thereof upon cancellation of their original exchange note. On
and after the redemption date, interest will cease to accrue on exchange notes
or portions called for redemption.

RANKING AND SUBORDINATION

The payment of the principal, premium and interest on the exchange notes is
subordinated in right of payment to the payment of all Senior Indebtedness of
Atrium. However, payment of Permitted Junior Securities and payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "--Defeasance" below is not subordinate to any Senior
Indebtedness. Assuming that the Atrium transactions occurred on March 31, 1999,
Atrium would have had approximately $136.6 million of Senior Indebtedness
outstanding, exclusive of unused commitments under our revolving credit
facility, and the Guarantors would have had approximately $1.3 million of Senior
Indebtedness outstanding, exclusive of their guarantee of approximately $135.3
million of our Senior Indebtedness.

Only Indebtedness of Atrium that is Senior Indebtedness will rank senior to
the exchange notes in accordance with the provisions of the indenture. The
exchange notes will in all respects rank equally with all other Senior
Subordinated Indebtedness of Atrium. The exchange notes will rank senior to all
Subordinated Obligations of Atrium.

Atrium may not pay principal, premium or interest on the exchange notes or
make any deposit pursuant to the provisions described under "--Defeasance" and
may not otherwise purchase or retire any exchange notes (collectively, "pay the
exchange notes") if

(1) any Designated Senior Indebtedness is not paid when due or

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(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated, unless the
default has been cured or waived and/or any such acceleration has been
rescinded or such Designated Senior Indebtedness has been paid in full;

PROVIDED, HOWEVER, Atrium may pay the exchange notes if Atrium and the
trustee receive written notice approving such payment from the Representative of
such Designated Senior Indebtedness.

During the continuance of any default, with the exception of a default
described in clause (1) or (2) of the preceding sentence, with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately or the expiration of any applicable grace periods,
Atrium may not pay the exchange notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the trustee of written notice (a "Blockage
Notice") of such default from the Representative of the holders of such
Designated Senior Indebtedness. Such Blockage Notice should specify an election
to effect a Payment Blockage Period and ending 179 days thereafter or earlier if
such Payment Blockage Period is terminated;

(1) by written notice to the trustee and Atrium from the Person or
Persons who gave such Blockage Notice,

(2) because the default giving rise to such Blockage Notice is no longer
continuing, or

(3) because such Designated Senior Indebtedness has been repaid in full.

Atrium may resume payments on the exchange notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period and there shall be a period of at least 180
consecutive days in each 360-day period when no Payment Blockage Period is in
effect.

Upon a total or partial liquidation or dissolution or reorganization or
bankruptcy of or similar proceeding relating to Atrium or its property, the
holders of Senior Indebtedness will be entitled to receive payment in full of
the Senior Indebtedness before the holders of the exchange notes. If a
distribution is made to holders of the exchange notes that, due to the
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear. In the event of insolvency,
creditors of Atrium who are holders of Senior Indebtedness may recover more,
ratably, than the holders of exchange notes, and creditors of Atrium who are not
holders of Senior Indebtedness, including holders of the exchange notes.

GUARANTEES

Each Guarantor fully and unconditionally guarantees, jointly and severally,
to each holder and the trustee, on a senior subordinated basis, the full and
prompt payment of principal of, premium, if any, and interest on the exchange
notes, and of all other obligations of Atrium under the indenture.

The Indebtedness evidenced by each Guarantee, including the payment of
principal of, premium, if any, and interest on the exchange notes, will be
subordinated to Senior Indebtedness of each such Guarantor on substantially the
same basis as the exchange notes are subordinated to Senior Indebtedness of the
Guarantor. As of March 31, 1999, on a pro forma basis after giving effect to the
Atrium transactions, the Guarantors would have had approximately $135.3 million
of Senior Indebtedness outstanding exclusive of the guarantees of the Guarantors
under the Credit Facility.

The obligations of each Guarantor are limited to the maximum amount as will
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to contribution from each other Guarantor in a PRO RATA amount based on
the Adjusted Net Assets of each Guarantor.

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Subject to the requirements described under "--Certain
Covenants--Consolidation, Merger, Sale of Assets, Etc.," any Guarantee by a
Restricted Subsidiary of the exchange notes shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer to any Person not an Affiliate of Atrium of all of
Atrium's Capital Stock or all or substantially all the assets of such Restricted
Subsidiary, which transaction is in compliance with the terms of the indenture.
Such Guarantee will be released and discharged so long as such Restricted
Subsidiary has been or simultaneous with its release under the Guarantee will be
unconditionally released from all guarantees by it of other Indebtedness of
Atrium or any Restricted Subsidiary. Atrium may, at any time, cause a Subsidiary
to become a Guarantor by executing and delivering a supplemental indenture
providing for the guarantee of payment of the exchange notes by such Subsidiary.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each holder will have the right
to require Atrium to repurchase all or any part of such holder's exchange notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.

Within 30 days following any Change of Control Atrium shall mail a notice
(the "Change of Control Offer") to each holder with a copy to the trustee
stating:

(1) that a Change of Control has occurred and that such holder has the
right to require Atrium to purchase such holder's exchange notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase;

(2) the repurchase date, which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed; and

(3) the procedures determined by Atrium, consistent with the indenture,
that a holder must follow in order to have its exchange notes purchased. The
Change of Control Offer needs not to be mailed if Atrium has mailed a
redemption notice with respect to all the outstanding exchange notes in
connection with such Change of Control,

Atrium will comply to the extent with the applicable requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of exchange notes pursuant to this covenant.

The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of Atrium and
its Subsidiaries. In certain circumstances there may be a degree of uncertainty
in ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the property or assets of a Person, and it may be
unclear as to whether a Change of Control has occurred and whether Atrium is
required to make an offer to repurchase the exchange notes.

The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the credit facility. Future Senior
Indebtedness of Atrium and its Subsidiaries may also contain prohibitions of
certain events that would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require Atrium to repurchase the exchange notes
could cause a default under such Senior Indebtedness. Furthermore, Atrium's
ability to pay cash to the holders upon a repurchase may be limited by Atrium's
then existing financial resources. Finally, if Atrium is not able to prepay the
Indebtedness under the Credit Facility and any other Senior Indebtedness
containing similar restrictions or obtain requisite consents Atrium will be
unable to fulfill its repurchase obligations if holders of exchange notes
exercise their repurchase rights following a Change of Control, thereby
resulting in a default under the indenture.

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CERTAIN COVENANTS

The indenture contains, among others, the following covenants:

LIMITATION ON INDEBTEDNESS. Atrium will not, and will not permit any of the
Restricted Subsidiaries to incur any Indebtedness or issue Disqualified Stock
and will not permit any of the Restricted Subsidiaries to issue Preferred Stock
to a Person other than Atrium or a Wholly-Owned Subsidiary; PROVIDED, HOWEVER,
that Atrium and a Guarantor may Incur Indebtedness and Atrium may issue
Disqualified Stock after giving PRO FORMA effect thereto and the use of the
proceeds thereof, the Consolidated Coverage Ratio is at least equal to (1)
2.00:1.00 on or prior to May 1, 2001 and (2) 2.25:1.00 after May 1, 2001.

Notwithstanding the foregoing, each and all of the following shall be
permitted:

(1) Indebtedness Incurred by Atrium or any Guarantor pursuant to the
credit facility, so long as the aggregate principal amount of all
Indebtedness Incurred does not exceed $175.0 million at any time
outstanding, less the aggregate principal amount required to be repaid with
the net proceeds of Asset Dispositions;

(2) Indebtedness in the amount of up to $10.0 million Incurred by Atrium
or any Guarantor represented by Capitalized Lease Obligations, mortgage
financing or purchase money obligations, in each case Incurred

-for the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property used in a Related
Business or Incurred to refinance any such purchase price or cost of
construction or improvement,

-no later than 365 days after the date of such acquisition or the date of
completion of such construction or improvement;

(3) Permitted Indebtedness;

(4) Indebtedness Incurred by Atrium or any Guarantor in a principal
amount outstanding which, when taken together with the principal amount of
all other Indebtedness Incurred pursuant to this clause (4) and then
outstanding, will not exceed $20.0 million.

Atrium will not permit any Unrestricted Subsidiary to Incur any Indebtedness
other than Non-Recourse Debt.

For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness permitted by this covenant, Atrium in its sole discretion shall
classify, such item of Indebtedness.

LIMITATION ON INCURRENCE OF SENIOR SUBORDINATED INDEBTEDNESS. Atrium will
not Incur any Indebtedness if such Indebtedness is subordinate or junior in
ranking to any Senior Indebtedness unless

-such Indebtedness is Senior Subordinated Indebtedness, or

-is contractually subordinated in right of payment to all Senior
Subordinated Indebtedness, including the exchange notes, to the same
extent as the exchange notes are subordinated in right of payment to
Senior Indebtedness.

No Guarantor shall Incur any Indebtedness if such Indebtedness is
contractually subordinate or junior in ranking in any respect to any Senior
Indebtedness of such Guarantor unless

-such Indebtedness is Senior Subordinated Indebtedness of such Guarantor,

-or is contractually subordinated in right of payment to all Senior
Subordinated Indebtedness of such Guarantor, including its Guarantee of
the exchange notes, to the same extent as its Guarantee is subordinated
in right of payment to Senior Indebtedness of such Guarantor.

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LIMITATION ON RESTRICTED PAYMENTS. Atrium will not, and will not permit any
of the Restricted Subsidiaries to, directly or indirectly:

(1) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock, except

(A) dividends or distributions payable in its Capital Stock or in
options, warrants or other rights to purchase such Capital Stock, and

(B) dividends or distributions by a Restricted Subsidiary paid (i)
to Atrium or a Restricted Subsidiary of Atrium and (ii) if such
Restricted Subsidiary paying the dividend or making the distribution is
not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a
PRO RATA basis; or

(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Atrium held by Persons other than a Restricted Subsidiary of Atrium
or any Capital Stock of a Restricted Subsidiary of Atrium held by Persons
other than Atrium or another Restricted Subsidiary; or

(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations; or

(4) make any Investment, other than a Permitted Investment, in any
Person

(any of the actions described in clauses (1) through (4) are collectively
referred to as, "Restricted Payments"), unless at the time Atrium or such
Restricted Subsidiary makes such Restricted Payment:

(1) no Default shall have occurred and be continuing, or would result
from such Restricted Payment;

(2) immediately after giving PRO FORMA effect to such Restricted
Payment, Atrium would have been able to Incur an additional $1.00 of
Indebtedness pursuant to the covenant described in under "--Limitation on
Indebtedness"; and

(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would not
exceed the sum of:

(A) 50% of the Consolidated Net Income accrued during the period from
the first day of the fiscal quarter beginning on or after the Issue Date
to the end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment as to which financial results are available; plus

(B) the aggregate net cash proceeds received by Atrium from the
issue or sale of its Capital Stock or other common equity capital
contributions on and subsequent to the Recapitalization Date, less all
Restricted Payments made on the Recapitalization Date; plus

(C) the amount by which Indebtedness of Atrium or a Restricted
Subsidiary that is a Guarantor is reduced on Atrium's balance sheet upon
the conversion or exchange subsequent to the Issue Date of any
Indebtedness of Atrium or a Restricted Subsidiary that is a Guarantor
into or for Capital Stock of Atrium, less the amount of any cash, or
other property, distributed by Atrium or such Restricted Subsidiary that
is a Guarantor upon such conversion or exchange to the holders of such
Indebtedness on account of such Indebtedness; plus

(D) the amount equal to the net reduction in Investments, other than
Permitted Investments or Investments made pursuant to clause (9) of the
following paragraph, made after the Issue Date by Atrium or any of its
Restricted Subsidiaries in any Person resulting from

(1) repurchases or redemptions of such Investments by such Person,
proceeds realized upon the sale of such Investment to a purchaser who is not
an Affiliate of Atrium and repayments of loans or

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advances or other transfers of assets by such Person to Atrium or any
Restricted Subsidiary of Atrium or

(2) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously included in the calculation of the amount
of Restricted Payments; PROVIDED, HOWEVER, that no amount shall be included
under this clause (D) to the extent it is already included in Consolidated
Net Income.

The foregoing provisions shall not prohibit the following actions:

(1) dividends paid within 60 days after the date of declaration if at
such date of declaration such dividend would have complied with this
covenant;

(2) any purchase or redemption of Capital Stock or Subordinated
Obligations of Atrium made in exchange for or out of the proceeds of the
substantially concurrent sale of Capital Stock of Atrium with the exception
of Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan; PROVIDED, HOWEVER, that the net cash proceeds from such sale
shall be excluded from clause (3)(B) of the preceding paragraph;

(3) any purchase or redemption of Subordinated Obligations of Atrium
made in exchange for or out of the proceeds of the substantially concurrent
sale of Subordinated Obligations of Atrium; PROVIDED, HOWEVER, that such new
Subordinated Obligations

-do not have a Stated Maturity earlier than the earlier of (x) the Stated
Maturity for the exchange notes and (y) the Stated Maturity for the
Subordinated Obligations being purchased or redeemed, and

-are expressly subordinated in right of payment to the exchange notes at
least to the same extent as the Subordinated Obligations being purchased
or redeemed;

(4) dividends, distributions or loans by Atrium to Atrium Holdings

-to fund the payment of audit, accounting, legal or other similar
expenses of Atrium Holdings and Parent,

-to pay franchise or other similar taxes of Atrium Holdings and Parent
and

-to pay other corporate overhead expenses of Atrium Holdings and Parent,

so long as such dividends, distributions or loans are paid when needed by
Atrium Holdings or Parent and so long as the aggregate amount of payments
pursuant to this clause (4) does not in any calendar year exceed $1.0 million;

(5) payments to Parent pursuant to the Tax Sharing Agreement;

(6) payments of dividends on Atrium's common stock after an initial
public offering of common stock of Atrium, Atrium Holdings or Parent in an
annual amount not to exceed 6.0% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of the
offering) received by Atrium from shares of common stock sold for the
account of Atrium, Atrium Holdings or Parent as the case may be (and not for
the account of any stockholder), in such initial public offering, so long as
no Default has occurred and is continuing or would result therefrom,

(7) in any fiscal year and $10.0 million in the aggregate after the
Issue Date, the payment of dividends or distributions to Atrium Holdings in
the amount not to exceed $5.0 million (A) necessary to permit Parent to
purchase, redeem, acquire, cancel or otherwise retire for value Capital
Stock of Parent, in each case held by officers, directors or employees of
Parent, Atrium Holdings, Atrium or any of Atrium's Subsidiaries in
connection with death, disability, retirement, severance or termination of
employment or service or pursuant to any agreement under which such Capital
Stock was issued, (B) to enable Parent to redeem or repurchase stock
purchase or similar rights in respect of its Capital

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Stock or (C) to enable Parent to make cash payments to holders of its
Capital Stock in lieu of the issuance of fractional shares of its Capital
Stock so long as no Default has occurred and is continuing or would result
therefrom;

(8) the payment of dividends to Atrium Holdings after September 30, 2003
in an amount not to exceed the interest then unpaid and accrued on the
Atrium Holdings Discount exchange notes and, so long as (A) no Default has
occurred and is continuing or would result therefrom and (B) Atrium is able
to Incur an additional $1.00 of Indebtedness pursuant to the first paragraph
under "--Limitation on Indebtedness",

(9) Restricted Payments, in addition to those otherwise permitted in
clauses (1) through (8) above, in an aggregate amount not to exceed $5.0
million so long as no Default has occurred and is continuing or would result
therefrom, so long as no Default has occurred and is continuing or would
result therefrom,

In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (3) of the first paragraph of this
covenant, amounts expended pursuant to clauses (6), (7) and (8) of the
immediately preceding paragraph shall be included in such calculation, and
amounts expended pursuant to clauses (1), (2), (3), (4), (5) and (9) of the
immediately preceding paragraph shall be excluded in such calculation.

The amount of any non-cash Restricted Payment shall be the fair market
value, as determined in good faith by the board of directors, of the assets or
securities proposed to be transferred or issued by Atrium or such Restricted
Subsidiary, pursuant to such Restricted Payment.

LIMITATION ON TRANSACTIONS WITH AFFILIATES. Atrium will not, and will not
permit any of the Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction or series of related transactions with or for the
benefit of any Affiliate of Atrium or of a Restricted Subsidiary (an "Affiliate
Transaction") unless

(a) the terms of such Affiliate Transaction are no less favorable to
Atrium or such Restricted Subsidiary, than those that could be obtained in
arm's-length dealings with a Person who is not such an Affiliate,

(b) in the event such Affiliate Transaction involves an aggregate amount
in excess of $2.5 million, the terms of such transaction have been approved
by at least a majority of the members of the board of directors of Atrium,

(c) in the event such Affiliate Transaction or series of related
Affiliate Transactions involves an aggregate amount in excess of $7.5
million, Atrium has received a written opinion from an independent
investment banking firm of nationally recognized standing that such
Affiliate Transaction is fair to Atrium or such Restricted Subsidiary from a
financial point of view.

The requirements of this covenant shall not apply to

(1) any Restricted Payment or other payment or Investment permitted to
be made pursuant to the covenant described under "--Limitation on Restricted
Payments,"

(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to employment arrangements, or any
stock options and stock ownership plans for the benefit of employees,
officers and directors, consultants and advisors approved by the board of
directors of Atrium,

(3) loans or advances to employees in the ordinary course of business of
Atrium or any of the Restricted Subsidiaries,

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(4) any transaction between or among Atrium and any Restricted
Subsidiary or between Restricted Subsidiaries, so long as no Person, other
than a Restricted Subsidiary, that is an Affiliate of Atrium has any direct
or indirect interest in such Restricted Subsidiary.

(5) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of Atrium and its
Restricted Subsidiaries, in each case in the ordinary course of business,

(6) transactions pursuant to agreements as in existence on the Issue
Date,

(7) any employment, noncompetition or confidentiality agreements entered
into by Atrium or any of the Restricted Subsidiaries with its employees in
the ordinary course of business,

(8) the issuance of Capital Stock of Atrium,

(9) amounts paid by Atrium to Ardshiel on the Issue Date in connection
with the Atrium transactions and

(10) any obligations of Atrium in respect of management fees payable to
Ardshiel pursuant to agreements as in effect on the Issue Date.

LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. Atrium will not
permit any of the Restricted Subsidiaries to issue any Capital Stock to any
Person, or permit any Person, except for Atrium to own any Capital Stock of a
Restricted Subsidiary of Atrium except for Atrium or a Wholly-Owned Subsidiary
of Atrium, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of Atrium. This provision does not
prohibit (1) Atrium or any of the Restricted Subsidiaries from selling,
transferring or otherwise disposing of all of the Capital Stock of any
Restricted Subsidiary or (2) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary in compliance with the indenture.

LIMITATION ON LIENS. Atrium will not, and will not cause or permit the
Restricted Subsidiaries to, directly or indirectly, Incur any Liens of any kind
securing any Senior Subordinated Indebtedness or Subordinated Obligations
against any of their respective properties or assets now owned or hereafter
acquired, or any proceeds income or profits therefrom, unless the exchange notes
are, or in the case of a Restricted Subsidiary that is a Guarantor, the
Guarantee of such Guarantor is, equally and ratably secured with such Senior
Subordinated Indebtedness or, in the case of Subordinated Obligations, prior to
such Subordinated Obligations, with a Lien on the same properties and assets
securing such Senior Subordinated Indebtedness or Subordinated Obligations, for
so long as such Senior Subordinated Indebtedness or Subordinated Obligations are
secured by such Lien, except for Permitted Liens.

LIMITATION ON SALE OF ASSETS. Atrium will not, and will not cause or permit
any of the Restricted Subsidiaries to, directly or indirectly, make any Asset
Disposition, unless (1) Atrium or such Restricted Subsidiary, receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by Atrium's board of directors, of the
assets sold or otherwise disposed of and (2) at least 75% of such consideration
consists of cash or Cash Equivalents.

Atrium or Restricted Subsidiary may apply the Net Available Cash of any
Asset Disposition to acquire Additional Assets within 360 days after the receipt
thereof,

-if the Net Available Cash is not required to be applied to repay
permanently any Senior Indebtedness outstanding as required by the terms
thereof,

-or Atrium determines not to apply such Net Available Cash to the
permanent repayment of the Senior Indebtedness,

-or if no Senior Indebtedness is outstanding,

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If the Net Available Cash of any Asset Disposition is not applied within 360
days of the applicable Asset Disposition (such Net Available Cash, the
"Unutilized Net Available Cash"), Atrium will, within 20 days after the date
that is 360 days from the receipt of such Net Available Cash, make an offer to
purchase (the "Net Available Cash Offer") all outstanding exchange notes up to a
maximum principal amount of exchange notes equal to the exchange notes Portion
of Unutilized Net Available Cash, at a purchase price in cash equal to 100%
thereof, plus accrued and unpaid interest thereon, if any, to the purchase date.
The Net Available Cash Offer may be deferred until there is aggregate Unutilized
Net Available Cash equal to or in excess of $10.0 million, at which time the
entire amount of such Unutilized Net Available Cash, shall be applied.

Atrium may apply the Unutilized Net Available Cash otherwise required to be
applied to a Net Available Cash Offer to offer to purchase

-and any other Indebtedness of Atrium which ranks equally with the
exchange notes (the "Other Indebtedness") requiring that an offer to
repurchase such Indebtedness be made upon the consummation of any Asset
Disposition,

-to a Net Available Cash Offer,

so long as the amount of such Unutilized Net Available Cash applied to
repurchase the exchange notes is not less than the exchange notes Portion of
Unutilized Net Available Cash. Atrium shall make the Net Available Cash Offer in
respect to any Unutilized Net Available Cash, at the same time as the analogous
offer to purchase is made under any Other Indebtedness and the purchase date
shall be the same under the Net Available Cash Offer as the purchase date
pursuant to any Other Indebtedness.

For purposes of this covenant, "Exchange Notes Portion of Unutilized Net
Available Cash" in respect of a Net Available Cash Offer means (a) if no Other
Indebtedness is concurrently being offered to be purchased, the amount of the
Unutilized Net Available Cash in respect of such Net Available Cash Offer and
(b) if Other Indebtedness is concurrently being offered to be purchased, an
amount equal to the product of (x) the Unutilized Net Available Cash in respect
of such Net Available Cash Offer and (y) a fraction the numerator of which is
the principal amount of all exchange notes tendered pursuant to the Net
Available Cash Offer related to such Unutilized Net Available Cash (the
"Exchange Notes Amount") and the denominator of which is the sum of the Exchange
Notes Amount and the lesser of the aggregate principal face amount or accreted
value as of the relevant purchase date of all Other Indebtedness tendered
pursuant to a concurrent offer to purchase such Other Indebtedness made at the
time of such Net Available Cash Offer.

With respect to any Net Available Cash Offer effected pursuant to this
covenant, to the extent that the principal amount of the exchange notes tendered
pursuant to such Net Available Cash Offer exceeds the Exchange Notes Portion of
Unutilized Net Available Cash with respect thereto, the exchange notes shall be
purchased PRO RATA based on the principal amount of the exchange notes tendered
by each Holder. Holders whose exchange notes are purchased only in part will be
issued new exchange notes equal in principal amount to the unpurchased portion
of the exchange notes surrendered.

To the extent the Exchange Notes Portion of Unutilized Net Available Cash
available for any Net Available Cash Offer effected pursuant to this covenant
exceeds the aggregate purchase price for the exchange notes validly tendered and
purchased by Atrium pursuant thereto, such excess shall no longer be deemed
Unutilized Net Available Cash and shall be available to Atrium and its
Restricted Subsidiaries for any purpose not prohibited under the indenture.

For the purposes of this covenant, the following will be deemed to be cash,
but not Net Available Cash: (x) the assumption by the transferee of
Indebtedness, other than Subordinated Obligations, of Atrium or any Guarantor
and the release of Atrium or such Guarantor from all liability on such
Indebtedness in connection with such Asset Disposition, in which case Atrium
shall, without further action, be deemed to have applied such assumed
Indebtedness in accordance with the second paragraph under

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this covenant, and (y) securities received by Atrium or any Restricted
Subsidiary of Atrium from the transferee that are promptly converted, but in no
event later than 30 days after the relevant Asset Disposition, by Atrium or such
Restricted Subsidiary into cash.

Atrium will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other applicable securities laws or
regulations in connection with the repurchase of exchange notes pursuant to a
Net Available Cash Offer, and any violation of the provisions of the Indenture
relating to such Net Available Cash Offer occurring as a result of such
compliance shall not be deemed a Default.

LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The indenture will provide that Atrium will not, and will not
cause or permit any of the Restricted Subsidiaries to, directly or indirectly,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (1) pay dividends or
make any other distributions on its Capital Stock to Atrium or any other
Restricted Subsidiary or pay any Indebtedness or other obligation owed to Atrium
or any other Restricted Subsidiary, (2) make any loans or advances to Atrium or
to any other Restricted Subsidiary which directly or indirectly owns the Capital
Stock of such Restricted Subsidiary or (3) transfer any of its property or
assets to Atrium or to any other Restricted Subsidiary which directly or
indirectly owns the Capital Stock of such Restricted Subsidiary, except for:

(a) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date, including, without limitation, the Credit
Facility and the indenture;

(b) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness issued by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by Atrium and outstanding on such date, other than
Indebtedness issued as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary of Atrium or was acquired by Atrium;

(c) any encumbrance or restriction with respect to such a Restricted
Subsidiary (A) pursuant to an agreement evidencing Indebtedness Incurred
without violation of the Indenture or (B) effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in clause (a) or
(b) above or this clause (c) or contained in any amendment to an agreement
referred to in clause (a) or (b) above or this clause (c); PROVIDED,
HOWEVER, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any of such agreement, refinancing
agreement or amendment, taken as a whole, are no less favorable to the
holders of the exchange notes in any material respect, as determined in good
faith by the board of directors of Atrium, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in, in the
case of (A) above, the Credit Facility, and in the case of (B) above, the
agreement being refinanced or amended;

(d) in the case of clause (iii) above, any encumbrance or restriction
(A) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of Atrium or any Restricted Subsidiary not otherwise
prohibited by the Indenture, (C) that is included in a licensing agreement
to the extent such restrictions limit the transfer of the property subject
to such licensing agreement or (D) arising or agreed to in the ordinary
course of business and that does not, individually or in the aggregate,
detract from the value of property or assets of Atrium or any of its
Subsidiaries in any manner material to Atrium or any such Restricted
Subsidiary;

(e) in the case of clause (iii) above, restrictions contained in
security agreements, mortgages or similar documents securing Indebtedness of
a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements; PROVIDED, that
such Indebtedness and such Lien is permitted by the Indenture;

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(f) any restriction with respect to such a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and

(g) encumbrances or restrictions arising or existing by reason of
applicable law.

LIMITATIONS ON GUARANTEES BY RESTRICTED SUBSIDIARIES. Atrium will permit
any of the Restricted Subsidiaries, directly or indirectly, to guarantee the
payment of any Indebtedness of Atrium ("Other Guaranteed Indebtedness") unless
such Restricted Subsidiary

(A) is a Guarantor, or

(B) simultaneously executes and delivers a supplemental indenture pursuant
to which it will become a Guarantor.

However, if such Other Guaranteed Indebtedness is (A) Senior Subordinated
Indebtedness, the Guarantee of such Restricted Subsidiary shall be rank equally
in right of payment with the guarantee of the Other Guaranteed Indebtedness; or
(B) Subordinated Obligations, the Guarantee of such Restricted Subsidiary shall
be senior in right of payment to the guarantee of the Other Guaranteed
Indebtedness, which guarantee of such Subordinated Obligations shall provide
that such guarantee is subordinated to the Guarantee of such Restricted
Subsidiary to the same extent and in the same manner as the Other Guaranteed
Indebtedness is subordinated to the exchange notes.

Furthermore, each Restricted Subsidiary issuing a Guarantee will be
automatically and unconditionally released and discharged from its obligations
under such Guarantee upon the release or discharge of the guarantee of the Other
Guaranteed Indebtedness that resulted in the creation of such Guarantee, except
a discharge or release by, or as a result of, any payment under the guarantee of
such Other Guaranteed Indebtedness by such Restricted Subsidiary. In addition,
Atrium may, at any time, cause a Restricted Subsidiary to become a Guarantor by
executing and delivering a supplemental indenture providing for the guarantee of
payments of the exchange notes by such Restricted Subsidiary on the basis
provided in the Indenture.

PROVISION OF FINANCIAL STATEMENTS. For so long as the exchange notes are
outstanding, Atrium will, to the extent permitted by SEC practice and applicable
law and regulations, file with the SEC the annual reports, quarterly reports and
other documents which Atrium would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d), if Atrium was so subject, such
documents to be filed with the SEC on or prior to the date (the "Required Filing
Dates") by which Atrium would have been required so to file such documents if
Atrium was so subject.

Atrium will also in any event within 15 days of each Required Filing Date,
whether or not permitted or required to be filed with the SEC, (1) transmit or
cause to be transmitted by mail to all holders of exchange notes, as their names
and addresses appear in the security register, without cost to such holders and
(2) file with the Trustee, copies of the annual reports, quarterly reports and
other documents which Atrium would have been required to file with the SEC
pursuant to Section 13(a) or 15(d) of the Exchange Act, or any successor
provision thereto, if Atrium were subject to either of such Sections.

In addition, for so long as any exchange notes remain outstanding, Atrium
will furnish

- to the holders of exchange notes and prospective investors, at their
request, the information required to be delivered pursuant to Rule
144(d)(4) under the Securities Act, and,

- to any beneficial holder of exchange notes known to Atrium, information of
the type that would be filed with the SEC pursuant to the provisions
described above if not obtainable from the SEC.

CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Atrium will not

- consolidate with or merge with or into, or

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- sell, convey, transfer or lease all or substantially all its assets to,
any Person,

- or permit any of its Restricted Subsidiaries to enter into any such
transaction if such transaction would result in the sale, conveyance,
transfer or lease of all or substantially all of the assets of Atrium and
the Restricted Subsidiaries on a consolidated basis, unless:

(1) the Surviving Person shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia and the Surviving Person shall expressly assume by a
supplemental indenture executed and delivered to the trustee, in form
satisfactory to the trustee, all the obligations of Atrium under the
exchange notes and the indenture and the registration rights agreement;

(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and

(3) immediately after giving effect to such transaction, the Surviving
Person would be able to Incur an additional $1.00 of Indebtedness pursuant
to the first paragraph under the covenant described under "--Certain
Covenants--Limitation on Indebtedness."

Notwithstanding clauses (2) and (3) above:

(1) any Restricted Subsidiary of Atrium may consolidate with, merge into
or transfer all or part of its properties and assets to Atrium or any
Wholly Owned Subsidiary that is a Guarantor; and

(2) Atrium may merge with an Affiliate incorporated solely for the
purpose of reincorporating Atrium in another jurisdiction to realize
tax or other benefits.

No Guarantor will in any transaction or series of related transactions,
consolidate with or merge with or into another Person, whether or not such
Person is affiliated with such Guarantor and whether or not such Guarantor is
the Surviving Person, unless

(1) the Surviving Person shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia;

(2) the Surviving Person expressly assumes by a supplemental indenture
all the obligations of such Guarantor under its Guarantee and the
performance and observance of every covenant of the indenture and the
registration rights agreement to be performed or observed by such Guarantor;
and

(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing.

After any consolidation or merger of Atrium or any Guarantor or any transfer
of all or substantially all of the assets of Atrium in which Atrium or a
Guarantor is not the Surviving Person, the Surviving Person shall succeed to,
every right and power of Atrium under the indenture, the exchange notes and the
registration rights agreement or such Guarantor under the indenture, the
Guarantee of such Guarantor and the registration rights agreement as the case
may be, with the same effect as if such successor corporation had been named as
Atrium or such, except in the case of

(a) a lease, or

(b) any sale, assignment, conveyance, transfer or other disposition to a
Restricted Subsidiary of Atrium or such Guarantor,

Atrium shall be discharged from all obligations and covenants under the
indenture, the exchange notes and the registration rights agreement and such
Guarantor shall be discharged from all obligations and covenants under the
indenture, the registration rights agreement and the Guarantee of such
Guarantor.

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For all purposes of the indenture and the exchange notes, Subsidiaries of
any Surviving Person shall upon such transaction or series of related
transactions become Restricted Subsidiaries unless designated as Unrestricted
Subsidiaries pursuant to and in accordance with the terms of the indenture. All
Indebtedness and all Liens on property or assets of Atrium and the Restricted
Subsidiaries in existence immediately prior to such transaction or series of
related transactions will be deemed to have been incurred upon such transaction
or series of related transactions.

EVENTS OF DEFAULT

The following will be "Events of Default" under the indenture:

(1) default in any payment of interest on any note when the same becomes
due and payable, and such default continues for a period of 30 days; or

(2) default in the payment of the principal of any note when the same
becomes due and payable; or

(3) Atrium or any Guarantor fails to comply with any of its obligations
described under the option "--Certain Covenants--Consolidation, Merger, Sale
of Assets, Etc."; or

(4) Atrium or any Guarantor fails to comply with any of its obligations
described under the option "Change of Control" and "Certain Covenants" and
such failure continues for 30 days after written notice of such failure
requiring Atrium to remedy the failure shall have been given

(x) to Atrium by the trustee, or

(y) to Atrium and the trustee by the holders of at least 25% in aggregate
principal amount of the exchange notes then outstanding; or

(5) Atrium or any Guarantor fails to comply with any of its obligations
in the exchange notes, the Guarantees or the indenture and such failure
continues for 60 days after written notice of such failure requiring Atrium
to remedy the failure shall have been given

(x) to Atrium by the trustee or

(y) to Atrium and the trustee by the holders of at least 25% in aggregate
principal amount of the exchange notes then outstanding; or

(6) Indebtedness of Atrium or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by
its holders because of a default and the total amount of such Indebtedness
in the aggregate exceeds $10.0 million at the time and such default have not
been cured or acceleration rescinded within a 30 day period; or

(7) one or more judgments or decrees for the payment of money in excess
of $10.0 million in the aggregate is entered against Atrium or any
Significant Subsidiary and such judgment or decree remains undischarged or
unstayed for a period of 60 days after it becomes final and non-appealable;
or

(8) (a) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or is declared null and void or (b) any Guarantor that is a
Significant Subsidiary denies that it has any further liability under any
Guarantee, or gives notice to such effect; or

(9) certain events of bankruptcy, insolvency or reorganization with
respect to Atrium or any Significant Subsidiary shall have occurred.

If an Event of Default, other than as specified in clause (g) with respect
to Atrium, occurs and is continuing, the trustee or the holders of at least 25%
in principal amount of the outstanding exchange notes by notice to Atrium may
declare the principal of and accrued and unpaid interest, if any, on all the
exchange notes to be due and payable.

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Upon such a declaration, such principal and accrued and unpaid interest
shall be due and payable immediately. However, so long as the Credit Facility
shall be in force and effect, if an Event of Default have occurred and is
continuing, any such acceleration shall not be effective until the earlier to
occur of

(x) five business days following delivery of a notice of such
acceleration to the Representative under the Credit Facility and

(y) the acceleration of any Indebtedness under the Credit Facility.

If an Event of Default under clause (g) relating to certain events of
bankruptcy, insolvency or reorganization of Atrium occurs, the principal of and
accrued and unpaid interest on all the exchange notes will become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holders. Under certain circumstances, the holders of a
majority in principal amount of the outstanding exchange notes may rescind any
such acceleration with respect to the exchange notes and its consequences.

If an Event of Default occurs and is continuing, the Trustee will be under
no obligation to exercise any of the rights or powers under the indenture at the
request or direction of any of the holders unless such holders have offered to
the trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium,
if any, or interest when due, no holder may pursue any remedy with respect to
the indenture or the exchange notes unless

(1) such holder has previously given the trustee notice that an Event
of Default is continuing,

(2) holders of at least 25% in principal amount of the outstanding
exchange notes have requested the trustee to pursue the remedy,

(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense,

(4) the trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or
indemnity and

(5) the holders of a majority in principal amount of the outstanding
exchange notes have not given the trustee a direction that, in
the opinion of the trustee, is inconsistent with such request
within such 60-day period.

The holders of a majority in principal amount of the outstanding exchange
notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or of exercising any trust or
power conferred on the trustee. The trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the trustee in personal liability. Prior to taking any action under the
Indenture, the trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.

If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of, premium,
if any, or interest on any note, the trustee may withhold notice if and so long
as its board of directors, a committee of its board of directors or a committee
of its trust officers in good faith determines that withholding notice is in the
interests of the holders of exchange notes. In addition, Atrium is required to
deliver to the trustee, written notice of any events which would constitute
certain Defaults within 30 days after the occurrence of such events.

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AMENDMENTS AND WAIVERS

The Indenture may be amended with the consent of the holders of a majority
in principal amount of the exchange notes then outstanding and any past default
or compliance with any provisions may be waived with the consent of the holders
of a majority in principal amount of the exchange notes then outstanding.
However, without the consent of each holder of an outstanding note affected, no
amendment may, among other things:

(1) reduce the amount of exchange notes whose holders must consent to an
amendment;

(2) reduce the stated rate of or extend the stated time for payment of
interest on any note;

(3) reduce the principal of or change the stated maturity of any note;

(4) reduce the premium payable upon the redemption or repurchase of any
note or change the time at which any note may be redeemed;

(5) make any note payable in money other than that stated in the note;

(6) impair the right of any holder to receive payment of principal of
and interest on such holder's exchange notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's exchange notes;

(7) modify the ranking or priority of any note or the Guarantee of any
Guarantor in any adverse manner;

(8) following the occurrence of a Change of Control or an Asset
Disposition, modify in a manner materially adverse to the holders of
exchange notes affected thereby the provisions of any covenant in the
indenture requiring Atrium to make and consummate an offer to purchase with
respect to such Change of Control or a Net Available Cash Offer with respect
to such Asset Disposition;

(9) release any Guarantor that is a Significant Subsidiary from any of
its obligations under its Guarantee or the Indenture otherwise than in
accordance with the indenture; or

(10) make any change in the amendment or waiver provisions which require
each affected holder's consent.

Without the consent of any holder, Atrium, the Guarantors and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of Atrium under the Indenture, to add further Guarantees with
respect to the exchange notes, to secure the exchange notes, to add to the
covenants of Atrium for the benefit of the holders, to make any change that does
not adversely affect the rights of any holder or to comply with any requirement
of the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, any amendment made to the subordination provisions of
the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding shall not be effective as to the holders of such
outstanding Senior Indebtedness unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent to
such change.

The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.

After an amendment under the Indenture becomes effective, Atrium is required
to mail to the holders a notice briefly describing such amendment. However, the
failure to give such notice to all the holders or any defect therein will not
impair or affect the validity of the amendment.

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DEFEASANCE

Atrium at any time may terminate all its and the Guarantors' obligations
under the exchange notes and the Indenture ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligations to register the transfer or exchange of the exchange notes, to
replace mutilated, destroyed, lost or stolen exchange notes and to maintain a
registrar and paying agent in respect of the exchange notes. Atrium at any time
may terminate its and the Guarantors' obligations under covenants described
under "Certain Covenants" (other than clause (i) of the first and second
paragraphs under "Certain Covenants--Consolidation, Merger, Sale of Assets,
etc."), the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries, the judgment default
provision and the Guarantee provision described under "Events of Default"
("covenant defeasance").

Atrium may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Atrium exercises its legal
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default with respect thereto. If Atrium exercises its covenant
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default specified in clause (iv), (vi), (vii), (viii) or (ix)
(with respect only to Significant Subsidiaries) under "Events of Default" above
or because of the failure of Atrium to comply with clause (ii) or (iii) in the
first paragraph and clause (iii) in the second paragraph under "Certain
Covenants--Consolidation, Merger, Sale of Assets, etc." above.

In order to exercise either defeasance option, Atrium must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the exchange notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that holders of the exchange notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).

CONCERNING THE TRUSTEE

State Street Bank and Trust Company is to be the Trustee under the Indenture
and has been appointed by Atrium as Registrar and Paying Agent with regard to
the exchange notes.

The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Atrium, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.

The holders of a majority in aggregate principal amount of the then
outstanding exchange notes issued under the Indenture will have the right to
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee. The Indenture provides that in case an
Event of Default shall occur (which shall not be cured) the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the exchange notes issued
thereunder, unless they shall have offered to the Trustee security and indemnity
satisfactory to it.

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GOVERNING LAW

The Indenture provides that it, the exchange notes and the Guarantees will
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflict of laws to the
extent that the application of the law of another jurisdiction would be required
thereby.

CERTAIN DEFINITIONS

"Additional Assets" means (1) any property or assets, other than
Indebtedness and Capital Stock, in a Related Business; (2) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Atrium or a Restricted Subsidiary of Atrium; (3) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of Atrium; or (4) Permitted Investments described in
clause (8) of the definition thereof; PROVIDED, HOWEVER, that, in the case of
clauses (2) and (3), such Restricted Subsidiary is primarily engaged in a
Related Business.

"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which

(x) the fair value of the property of such Guarantor exceeds the total
amount of liabilities, including the probable liability of such Guarantor with
respect to its contingent liabilities, but excluding liabilities under the
Guarantee of such Guarantor at such date, and

(y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts, excluding debt in respect of the Guarantee, as they
become absolute and matured.

"Affiliate" of any specified Person means

(1) any other Person, directly or indirectly, controlling or controlled by
or under direct or indirect common control with such specified Person, or

(2) any other Person that owns 10.0% or more of any class of Capital Stock
of the specified Person.

For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

Ardshiel is an "Affiliate" of Atrium on the Issue Date based on its
contractual rights to direct the management and policies of Atrium.

"Affiliate Transaction" has the meaning set forth under subheading
"--Certain Covenants-- Limitation on Transactions with Affiliates."

"Ardshiel" means Ardshiel, Inc.

"Asset Acquisition" means (1) an Investment by Atrium or any Restricted
Subsidiary in any other Person pursuant to which such Person will become a
Restricted Subsidiary or will be merged or consolidated with or into Atrium or
any Restricted Subsidiary or (2) the acquisition by Atrium or any Restricted
Subsidiary of the assets of any Person which constitute substantially all of the
assets of such Person or any division or line of business of such Person.

"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition of shares of Capital Stock of, or other equity interests in, a
Restricted Subsidiary, other than directors' qualifying shares, or of any other
property or other assets (each referred to for the purposes of this definition
as a "disposition") by Atrium or any of its Restricted Subsidiaries other than

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(1) a disposition by a Restricted Subsidiary to Atrium or by Atrium or a
Restricted Subsidiary to a Restricted Subsidiary,

(2) a disposition of inventory in the ordinary course of business,

(3) a disposition of obsolete or worn out equipment or equipment that is no
longer used or useful in the conduct of the business of Atrium and its
Restricted Subsidiaries and that is disposed of in each case in the ordinary
course of business,

(4) dispositions of property for net proceeds which, when taken collectively
with the net proceeds of any other such dispositions under this clause (4) that
were consummated since the beginning of the fiscal year in which such
disposition is consummated, do not exceed $1.0 million, and

(5) transactions permitted by the covenant described under subheading
"--Certain Covenants-- Consolidation, Merger, Sale of Assets, Etc." and the
creation of any Lien not prohibited by the covenant described under "--Certain
Covenants--Limitation on Liens."

A Restricted Payment or other payment or Investment made in compliance with
the covenant described under subheading "--Certain Covenants--Limitation on
Restricted Payments" shall not constitute an Asset Disposition except for
purposes of determination of the Consolidated Coverage Ratio.

"Atrium Holdings" means Atrium Corporation, a Delaware corporation and the
owner on the date hereof of all the outstanding capital stock of Atrium, and its
successors.

"Atrium Holdings Discount Exchange Notes" means the 12% senior discount
debentures due 2010 of Atrium Holdings, having an aggregate principal amount at
maturity of $80,562,000 as of the Issue Date.

"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the exchange notes, compounded annually, of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction, including any period for
which such lease has been extended.

"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing

(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption multiplied by the amount of such payment by

(2) the sum of all such payments.

"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.

"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.

"Cash Equivalents" means any of the following:

(1) any Investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America or
any agency thereof,

(2) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized

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under the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital surplus and
undivided profits aggregating in excess of $250 million, or the foreign currency
equivalent thereof, and whose long-term debt, or whose parent holding company's
long term debt, is rated "A", or such similar equivalent rating, or higher by at
least one nationally recognized statistical rating organization, as defined in
Rule 436 under the Securities Act,

(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered into
with a bank meeting the qualifications described in clause (2) above,

(4) Investments in commercial paper, maturing not more than 180 days after
the date of acquisition, issued by a corporation, other than an Affiliate of
Atrium, organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1", or
higher, according to Moody's Investors Service, Inc. or "A-1", or higher,
according to Standard and Poor's Ratings Group,

(5) Investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A-2" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc., and

(6) Investments in mutual funds whose investment guidelines restrict such
funds' investments to those satisfying the provisions of any or all of clauses
(1) through (5) above.

"Change of Control"means the occurrence of any of the following events:

(1) Atrium consolidates with, or merges with or into, another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, in any such event pursuant to
a transaction in which the outstanding Voting Stock of Atrium is converted
into or exchanged for cash, securities or other property, other than any
such transaction where

(a) the outstanding Voting Stock of Atrium is converted into or exchanged
for (1) Voting Stock of the surviving or transferee corporation or its parent
corporation and/or (2) cash, securities and other property in an amount which
could be paid by Atrium as a Restricted Payment under the applicable indenture,
and

(b) immediately after such transaction no "person" or "group", as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act, excluding Permitted
Holders, is the "beneficial owner", as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, directly or indirectly, of more than 50% of the total voting
power of the then outstanding Voting Stock of the surviving or transferee
corporation, as applicable;

(2) a majority of the board of directors of Atrium shall consist of
Persons who are not Continuing Directors of Atrium; or

(3)

(a) prior to the consummation of an Initial Public Offering, the Permitted
Holders fail to collectively beneficially own, within the meaning of Rules 13d-3
and 13d-5 under the Exchange Act, directly or indirectly, at least a majority of
the total voting power of then outstanding Voting Stock of Atrium or fail to
have the ability to appoint a majority of the board of directors of Atrium, or

(b) at or after the consummation of an Initial Public Offering, (1) any
Person or Group, other than the Permitted Holders, shall (A) beneficially own,
within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, directly or
indirectly, more than 50% of the total voting power of the then outstanding
Voting Stock of Atrium or (B) have the right or power to appoint, directly or
indirectly, a majority of the board of directors of Atrium.

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PROVIDED that any Person or group shall be deemed to beneficially own any
Voting Stock beneficially owned by any other Person (the "parent entity") so
long as such Person or group beneficially owns, directly or indirectly, a
majority of the then outstanding Voting Stock of the parent entity and no other
Person or group has the right to designate or appoint a majority of the
directors of such parent entity.

"Commodity Agreement"means any commodity future contract, commodity option
or other similar agreement or arrangement entered into by Atrium or any
Restricted Subsidiary that is designed to protect Atrium or any Restricted
Subsidiary against fluctuations in the price of commodities used by Atrium or a
Restricted Subsidiary as raw materials in the ordinary course of business.

"Consolidated Cash Flow"for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income:

(1) income tax expense,

(2) Consolidated Interest Expense,

(3) depreciation expense,

(4) amortization expense,

(5) exchange or translation losses on foreign currencies, and

(6) all other noncash items reducing Consolidated Net Income, excluding any
noncash item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
exchange notes, and less, to the extent added in calculating Consolidated Net
Income, (x) exchange or translation gains on foreign currencies, (y) noncash
items, excluding such noncash items to the extent they represent an accrual for
cash receipts reasonably expected to be received prior to the Stated Maturity of
the exchange notes, and (z) dividends or distributions paid pursuant to clause
(4) under the second paragraph in the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," in each case for such period.

Notwithstanding the foregoing, the income tax expense, depreciation expense
and amortization expense of a Subsidiary of Atrium shall be included in
Consolidated Cash Flow only to the extent, and in the same proportion, that the
net income of such Subsidiary was included in calculating Consolidated Net
Income. For any period for which Consolidated Cash Flow is being measured that
includes the fiscal quarter ended March 31, 1999, severance payments made during
such fiscal quarter in an amount not to exceed $1.8 million shall be added back
to Consolidated Cash Flow to the extent deducted in the calculation thereof.
"Consolidated Coverage Ratio"as of any date of determination means the ratio of
(i) the aggregate amount of Consolidated Cash Flow for the period of the most
recent four consecutive fiscal quarters ending prior to the date of such
determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER,
that

(1) if Atrium or any of the Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a PRO FORMA basis to

(A) such Indebtedness, other than Indebtedness incurred pursuant to the
second paragraph under the covenant described under subheading "--Certain
Covenants--Limitation on Indebtedness" on the date of determination, as if such
Indebtedness had been Incurred on the first day of such period, PROVIDED that,
if such Indebtedness is Incurred under a revolving credit facility or similar
arrangement or under any predecessor revolving credit or similar arrangement,
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness shall be deemed outstanding for purposes of
this calculation, and

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(B) the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,

(2) if since the beginning of such period any Indebtedness of Atrium or any
of the Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged, other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced, Consolidated Interest Expense for
such period shall be calculated after giving PRO FORMA effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period,

(3) if since the beginning of such period Atrium or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow, if positive, attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow, if negative,
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be

(a) reduced by an amount equal to the Consolidated Interest Expense
attributable to any Indebtedness of Atrium or any of the Restricted Subsidiaries
repaid, repurchased, defeased or otherwise discharged with respect to Atrium and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period or, if the Capital Stock of any Restricted Subsidiary of Atrium
is sold, transferred or otherwise disposed of, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent Atrium and the continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale, transfer or other
disposition, and

(b) increased by interest income attributable to the assets which are the
subject of such Asset Disposition for such period,

(4) if since the beginning of such period Atrium or any of its Restricted
Subsidiaries shall have made an Asset Acquisition, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
PRO FORMA effect thereto, including the incurrence of any Indebtedness, as if
such Asset Acquisition occurred on the first day of such period, and (5) if
since the beginning of such period any Person that subsequently became a
Restricted Subsidiary of Atrium or was merged with or into Atrium or any
Restricted Subsidiary of Atrium since the beginning of such period shall have
made any Asset Disposition or Asset Acquisition that would have required an
adjustment pursuant to clause (3) or (4) above if made by Atrium or a Restricted
Subsidiary of Atrium during such period, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving PRO FORMA
effect thereto as if such Asset Disposition or Asset Acquisition occurred on the
first day of such period.

For purposes of this definition, whenever PRO FORMA effect is to be given to
an Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the PRO FORMA calculations shall be determined
in accordance with GAAP and Regulation S-X under the Securities Act, to the
extent applicable, in good faith by a responsible financial or accounting
officer of Atrium. If any Indebtedness bears a floating rate of interest and is
being given PRO FORMA effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period, taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term that extends at least until the end of such period.

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"Consolidated Interest Expense"means, for any period, the total interest
expense of Atrium and the Restricted Subsidiaries for such period as determined
on a consolidated basis in accordance with GAAP, plus, to the extent not
included in such interest expense,

(1) interest expense attributable to capital leases,

(2) amortization of debt discount,

(3) capitalized interest,

(4) noncash interest expense,

(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers acceptance financing,

(6) interest actually paid by Atrium or any such Restricted Subsidiary under
any guarantee of Indebtedness or other obligation of any other Person,

(7) net payments pursuant to Interest Rate Agreements, and

(8) the product of (x) all cash and Disqualified Stock dividends in respect
of all Preferred Stock of Subsidiaries and Disqualified Stock of Atrium held by
Persons other than Atrium or a Wholly-Owned Subsidiary times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal, and less, to the extent included in such interest
expense, the amortization of capitalized debt issuance costs.

"Consolidated Net Income" means, for any period, the net income (loss) of
Atrium and the consolidated Restricted Subsidiaries for such period determined
in accordance with GAAP; PROVIDED, HOWEVER, that there shall not be included in
such Consolidated Net Income:

(1) any net income (loss) of any person acquired by Atrium or any of its
Restricted Subsidiaries in a pooling of interests transaction for any period
prior to the date of such acquisition,

(2) any net income of any Restricted Subsidiary of Atrium to the extent
that the payment of dividends or the making of distributions by such
Restricted Subsidiary is prohibited, directly or indirectly, by contract,
operation of law or otherwise,

(3) any gain or loss realized upon the sale or other disposition of any
assets of Atrium or its consolidated Restricted Subsidiaries which are not
sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person,

(4) any extraordinary gain or loss, including non-recurring expenses
related to the Atrium transactions,

(5) the cumulative effect of a change in accounting principles,

(6) noncash restructuring charges or writeoffs in connection with or
related to the Atrium transactions recorded before or within the one year
period following the Issue Date,

(7) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of the lesser of (A) dividends or distributions paid to
Atrium or any of its Restricted Subsidiaries, unless and to the extent such
Restricted Subsidiary is subject to clause (2) above, by such Person and (B)
the net income of such Person, but in no event less than zero, and the net
loss of such Person, other than an Unrestricted Subsidiary, the net income
and net loss of which will not be included, shall be included only to the
extent of the aggregate Investment of Atrium or any of its Restricted
Subsidiaries in such Person, and

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(8) any noncash expenses attributable to grants or exercises of employee
stock options.

Notwithstanding the foregoing, for the purpose of the covenant described
under subheading "--Certain Covenants--Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to Atrium or to a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (3)(D) under the first paragraph thereof.

"Continuing Director" means, as of the date of determination, any Person who

(1) was a member of the board of directors of such Person on the date of
the Indenture,

(2) was nominated for election or elected to the board of directors of
such Person with the affirmative vote of a majority of the Continuing
Directors who were members of such board of directors at the time of such
nomination or election, or

(3) is a representative of a Permitted Holder. "covenant defeasance"has
the meaning set forth under "--Defeasance."

"Credit Facility" means the Credit Agreement, dated as of October 2, 1998,
as amended, among Atrium, Atrium Holdings, Parent, the guarantors named therein,
Merrill Lynch Capital Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Lead Arranger, Syndication Agent and Documentation Agent, and
BankBoston, N.A., as Administrative Agent, and any other financial institutions
from time to time party thereto, together with the related documents thereto, in
each case as such agreements may be amended, supplemented or otherwise modified
from time to time, including any agreement extending the maturity of,
refinancing, replacing, increasing the total commitment of, or otherwise
restructuring all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.

"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"Defeasance" has the meaning set forth under "--Defeasance."

"Designated Senior Indebtedness" means

(a) all Senior Indebtedness, liquidated or contingent, outstanding under
the Credit Facility, and

(b) any other Senior Indebtedness of Atrium which, at the time of
determination, is in an aggregate principal amount outstanding or committed
for of at least $30.0 million and is specifically designated in the
instrument governing such Senior Indebtedness as "Designated Senior
Indebtedness" by Atrium.

"Disqualified Stock" means any Capital Stock which, by its terms, or by the
terms of any security into which it is convertible or for which it is
exchangeable, or upon the happening of any event

(1) matures, excluding any maturity as the result of an optional
redemption by the issuer thereof, or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise or is redeemable at the option of the
holder thereof, except upon the occurrence of a Change of Control or Asset
Disposition if such Capital Stock requires that the Change of Control Offer
or Net Available Cash Offer, with respect to the exchange notes be completed
prior to any similar offer being made with respect to such Capital Stock, in
whole or in part, on or prior to the final stated maturity of the exchange
notes, or

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(2) is convertible into or exchangeable, unless at the sole option of
the issuer thereof, for (a) debt securities or (b) any Capital Stock
referred to in (1) above, in each case at any time prior to the final stated
maturity of the exchange notes.

"Event of Default" has the meaning set forth under "--Events of Default."

"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair market value shall be determined
by the board of directors of Atrium acting in good faith evidenced by a board
resolution thereof delivered to the trustee.

"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date hereof, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations contained in the indenture shall be computed in
conformity with GAAP.

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person

(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness of such other Person, whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise, or

(2) entered into for purposes of assuring in any other manner the
obligee to such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof, in whole or in part,

PROVIDED, HOWEVER, that the term "guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
The term "guarantee" used as a verb has a corresponding meaning.

"Guarantee" means the guarantee by any Guarantor of Atrium's obligations
under the indenture and the exchange notes pursuant to a guarantee given in
accordance with the indenture.

"Guarantor" means the Subsidiaries listed as guarantors in the indenture and
any other Subsidiary which is a guarantor of the exchange notes, including any
Person that executes or is required after the date of the indenture to execute a
guarantee of the exchange notes as described in "--Guarantees" and "--Certain
Covenants--Limitation on Guarantees by Restricted Subsidiaries," until a
successor replaces such party pursuant to the applicable provisions of the
indenture and, thereafter, shall mean such successor; PROVIDED, that for
purposes hereof the term "Guarantor" shall not include any Unrestricted
Subsidiary unless specifically provided otherwise or any Person that has been
released from its Guarantee in accordance with the terms of the Indenture. As of
the Issue Date, all of Atrium's Restricted Subsidiaries will be Guarantors.

"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary shall be deemed
to be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.

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"Indebtedness" means, with respect to any Person on any date of
determination,

(1) the principal of and premium, if any, in respect of indebtedness of
such Person for borrowed money,

(2) the principal of and premium, if any, in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments,

(3) all obligations of such Person in respect of letters of credit or
other similar instruments, including reimbursement obligations with respect
thereto, other than obligations with respect to letters of credit securing
obligations, entered into in the ordinary course of business of such Person
to the extent that such letters of credit are not drawn upon or, if and to
the extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit,

(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses incurred in the ordinary course of business payable in accordance
with industry practices,

(5) all Capitalized Lease Obligations and all Attributable Indebtedness
of such Person,

(6) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of such Indebtedness shall be the lesser
of the fair market value of such asset at such date of determination and the
amount of such Indebtedness of such other Person,

(7) all Indebtedness of other Persons to the extent guaranteed by such
Person,

(8) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Restricted Subsidiary of Atrium, any Preferred Stock of such
Restricted Subsidiary to the extent such obligation arises on or before the
Stated Maturity of the exchange notes, but excluding any accrued dividends,
and

(9) to the extent not otherwise included in this definition, net
obligations under Currency Agreements, Interest Rate Agreements and
Commodity Agreements.

"Initial Public Offering" means a primary underwritten public offering of
the common stock of Parent, Atrium Holdings or Atrium or any other direct or
indirect holding company thereof, other than any public offering or sale
pursuant to a registration statement on Form S-8 or a comparable form.

"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.

"Investment" in any Person means any direct or indirect advance, loan, other
than advances to customers in the ordinary course of business that are recorded
as accounts payable on the balance sheet of such Person, or other extension of
credit, including by way of guarantee or similar arrangement, but excluding any
debt or extension of credit represented by a bank deposit other than a time
deposit, or capital contribution to, by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others, or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the covenant
described under subheading "--Certain Covenants--Limitation on Restricted
Payments,"

(1) "Investment" shall include the portion, proportionate to Atrium
equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary, of the fair market value of the net assets of such
Restricted Subsidiary of Atrium at the time that such Restricted Subsidiary
is

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designated an Unrestricted Subsidiary and shall exclude the portion,
proportionate to Atrium's equity interest in an Unrestricted Subsidiary to
be redesignated as a Restricted Subsidiary, of the fair market value of the
net assets of such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is redesignated as a Restricted Subsidiary,

(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, and

(3) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by Atrium or any of
its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment.

"Issue Date" means the original issue date of the exchange notes under the
indenture.

"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature thereof,

"Net Available Cash"from an Asset Disposition means cash payments received,
including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition, therefrom, in
each case net of

(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition,

(2) all payments made on any Indebtedness that is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid
out of the proceeds from such Asset Disposition,

(3) all distributions and other payments required to be made to any
Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition,

(4) the deduction of appropriate amounts to be provided by the seller as
a reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition; PROVIDED, HOWEVER, that
upon any reduction in such reserves, other than to the extent resulting from
payments of the respective reserved liabilities, Net Available Cash shall be
increased by the amount of such reduction to reserves and retained by Atrium
or any Restricted Subsidiary of Atrium after such Asset Disposition, and

(5) any portion of the purchase price from an Asset Disposition placed
in escrow, whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or
otherwise in connection with such Asset Disposition; PROVIDED, HOWEVER, that
upon the termination of such escrow, Net Available Cash shall be increased
by any portion of funds therein released to Atrium or any Restricted
Subsidiary. "Net Available Cash Offer"has the meaning set forth under
"--Certain Covenants--Limitation on Sale of Assets." "Non-Recourse
Debt"means Indebtedness as to which neither Atrium nor any Restricted
Subsidiary

(a) provides any guarantee or credit support of any kind, including
any undertaking, guarantee, indemnity, agreement or instrument that would
constitute Indebtedness, other than a non-recourse pledge of the Capital
Stock of an Unrestricted Subsidiary securing Indebtedness of such
Unrestricted Subsidiary or

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(b) is directly or indirectly liable as a guarantor or otherwise.

"Exchange Notes Amount" has the meaning set forth under "--Certain
Covenants--Limitation on Sale of Assets."

"Exchange Notes Portion of Unutilized Net Available Cash" has the meaning
set forth under subheading "--Certain Covenants--Limitation on Sale of Assets."

"Other Guaranteed Indebtedness"has the meaning set forth under subheading
"--Certain Covenants--Limitation on Guarantees by Restricted Subsidiaries."

"Other Indebtedness" has the meaning set forth under subheading "--Certain
Covenants--Limitation on Sale of Assets."

"Parent" means D and W Holdings, Inc., a Delaware corporation and the owner
on the date hereof of all the outstanding capital stock of Atrium Holdings, and
its successors.

"Permitted Holder"means (1) GE Investment Private Placement Partners II, a
Limited Partnership, (2) Ardshiel, or (3) any of their Affiliates.

"PERMITTED INDEBTEDNESS" means

(1) (A) Indebtedness of Atrium owing to and held by any Restricted
Subsidiary so long as such Indebtedness is subordinated to the
exchange notes to the same extent that the exchange notes are
subordinated to Senior Indebtedness or

(B) Indebtedness of a Restricted Subsidiary owing to and held by
Atrium or any Restricted Subsidiary;

PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of any such
Indebtedness, except, in the case of subclause (A), to a Restricted Subsidiary
or, in the case of subclause (B), to Atrium or a Restricted Subsidiary), shall
be deemed, in each case to constitute the Incurrence of such Indebtedness by the
issuer thereof;

(2) Indebtedness represented by (x) the exchange notes, (y) any
Indebtedness, other than the Indebtedness described in subclauses (1), (2)
and (4) of the second paragraph under subheading "--Certain
Covenants--Limitation on Indebtedness" and other than Indebtedness Incurred
pursuant to clause (1) above or clauses (4), (5), (6) or (7) below)
outstanding on the Issue Date and (z) any Refinancing Indebtedness Incurred
in respect of any Indebtedness described in this clause (2) or Incurred as
described in the first paragraph under subheading "--Certain
Covenants--Limitation on Indebtedness";

(3) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on the date on which such Restricted Subsidiary was acquired by Atrium,
other than Indebtedness Incurred as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary or was otherwise acquired by
Atrium; PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by Atrium, Atrium would have been able to Incur $1.00 of additional
Indebtedness as described in the first paragraph under subheading "--Certain
Covenants--Limitation on Indebtedness" after giving effect to the Incurrence
of such Indebtedness pursuant to this clause (3) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (3);

(4) Indebtedness of Atrium or any Restricted Subsidiary's

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(A) in respect of performance bonds, bankers' acceptances and surety
or appeal bonds provided by Atrium or any of the Restricted Subsidiaries
to their customers in the ordinary course of their business and not for
money borrowed,

(B) in respect of performance bonds or similar obligations of Atrium
or any of the Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business and
not for money borrowed in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health,
safety or environmental obligations,

(C) arising from guarantees to suppliers, lessors, licensees,
contractors, franchises or customers of obligations, other than
Indebtedness, incurred in the ordinary course of business and not for
money borrowed, and

(D) under Currency Agreements, Interest Rate Agreements and Commodity
Agreements;

PROVIDED, HOWEVER, that in the case of subclause (D), such agreements are
entered into for bona fide hedging purposes of Atrium or its Restricted
Subsidiaries and, in the case of Currency Agreements and Interest Rate
Agreements, such Currency Agreements and Interest Rate Agreements correspond in
terms of notional amount, duration, currencies and interest rates, as
applicable, to Indebtedness of Atrium or its Restricted Subsidiaries Incurred
without violation of the indenture or the business transactions of Atrium or the
Restricted Subsidiaries on customary terms entered into in the ordinary course
of business and otherwise in compliance with the indenture, as applicable;

(5) Indebtedness of Atrium or any Restricted Subsidiary's arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of Atrium or any of the
Restricted Subsidiaries pursuant to such agreements, in each case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of Atrium, other than guarantees of Indebtedness or other
obligations Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of Atrium for the purpose of
financing such acquisition, in a principal amount not to exceed the gross
proceeds actually received by Atrium or any of the Restricted Subsidiaries
in connection with such disposition;

(6) Indebtedness consisting of

(A) guarantees by Atrium or any Restricted Subsidiary of Indebtedness
Incurred by a Restricted Subsidiary that is a Guarantor without violation
of the Indenture, and

(B) guarantees by a Restricted Subsidiary of Indebtedness Incurred by
Atrium without violation of the indenture, so long as such Restricted
Subsidiary could have Incurred such Indebtedness directly without
violation of the indenture; and

(7) Indebtedness of Atrium or any Restricted Subsidiary arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course
of business; PROVIDED that such Indebtedness is extinguished within two
Business Days of its incurrence.

"PERMITTED INVESTMENT" means an Investment by Atrium or any of the
Restricted Subsidiaries in:

(1) Atrium or a Restricted Subsidiary of Atrium; PROVIDED, HOWEVER, that
the primary business of such Restricted Subsidiary is a Related Business;

(2) another Person if as a result of such Investment such other Person
becomes a Restricted Subsidiary of Atrium or is merged or consolidated with
or into, or transfers or conveys all or substantially all its assets to,
Atrium or a Restricted Subsidiary of Atrium; PROVIDED, HOWEVER, that in each
case such Person's primary business is a Related Business;

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(3) Cash Equivalents;

(4) receivables owing to Atrium or any of the Restricted Subsidiaries,
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;

(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;

(6)

(a) loans or advances by Atrium or a Restricted Subsidiary to
employees of Parent, Atrium Corporation, Atrium or any Subsidiary of
Atrium for purposes of purchasing Atrium's, Atrium Corporation's or
Parent's common stock in an aggregate amount outstanding at any one time
not to exceed $5.0 million, and

(b) other loans and advances by Atrium or a Restricted Subsidiary to
employees of Parent, Atrium Corporation, Atrium or any Subsidiary of
Atrium made in the ordinary course of business of Atrium or such
Restricted Subsidiary;

(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Atrium or any of the
Restricted Subsidiaries or in satisfaction of judgments or claims;

(8) a Person engaged in a Related Business or a loan or advance to
Atrium the proceeds of which are used solely to make an Investment in a
Person engaged in a Related Business or a guarantee by Atrium of
Indebtedness of any Person in which such Investment has been made; PROVIDED,
HOWEVER, that no Permitted Investments may be made pursuant to this clause
(8) to the extent the amount thereof would, when taken together with all
other Permitted Investments made pursuant to this clause (8), exceed $5.0
million in the aggregate, plus, to the extent not previously reinvested, any
return of capital realized on Permitted Investments made pursuant to this
clause (8), or any release or other cancellation of any guarantee
constituting such Permitted Investment;

(9) Persons to the extent such Investment is received by Atrium or any
Restricted Subsidiary as consideration for asset dispositions effected in
compliance with the covenant described under subheading "--Certain
Covenants--Limitation on Sale of Assets";

(10) prepayments and other credits to suppliers made in the ordinary
course of business of Atrium and the Restricted Subsidiaries; and

(11) Investments in connection with pledges, deposits, payments or
performance bonds made or given in the ordinary course of business and not
for money borrowed in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or
environmental obligations.

"PERMITTED JUNIOR SECURITIES" means,

(1) Capital Stock, other than Disqualified Stock, issued by Atrium to
pay interest on the exchange notes or issued in exchange for the exchange
notes,

(2) securities substantially identical to the exchange notes issued by
Atrium in payment of interest accrued thereon or

(3) securities issued by Atrium which are subordinated to the Senior
Indebtedness at least to the same extent as the exchange notes and having an
Average Life at least equal to the remaining Average Life of the exchange
notes.

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"PERMITTED LIENS" means:

(1) Liens on property or shares of Capital Stock of a Person existing at
the time such Person is merged into or consolidated with Atrium or any
Restricted Subsidiary; PROVIDED, HOWEVER, that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not secure any property or assets of Atrium or any
Restricted Subsidiary other than the property or assets subject to the Liens
prior to such merger or consolidation;

(2) Liens on a property existing at the time of acquisition thereof by
Atrium or any Restricted Subsidiary; PROVIDED that such Liens were not
created, incurred or assumed in connection with such acquisition;

(3) Liens existing on the Issue Date;

(4) Liens in favor of Atrium or any Restricted Subsidiary so long as
held by Atrium or any Restricted Subsidiary;

(5) Liens securing Indebtedness consisting of Capitalized Lease
Obligations, purchase money obligations, mortgage financings, industrial
revenue bonds or other monetary obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of Atrium or the
Restricted Subsidiaries or in a Related Business, or repairs, additions or
improvements to such assets; PROVIDED, HOWEVER, that any such Lien encumbers
only the assets so financed, purchased, constructed or improved;

(6) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing"), in whole or in
part, of any Indebtedness secured by Liens referred to in the clauses above
so long as such Lien does not extend to any other property, other than
improvements thereto;

(7) Liens securing letters of credit or surety bonds entered into in the
ordinary course of business and consistent with past business practice and
not for money borrowed; and

(8) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary.

"EQUITY OFFERING" means any public offering registered with the SEC for cash
by Atrium Holdings or Parent, to the extent the net cash proceeds thereof are
contributed to the common equity capital of Atrium, or Atrium of its Capital
Stock, other than Disqualified Capital Stock.

"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.

"PREFERRED STOCK", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes which is preferred as to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such corporation, over shares of Capital Stock of
any other class of such corporation.

"APPLICABLE PREMIUM" means, with respect to a note at any redemption date,
the greater of

(a) 1.0% of the principal amount of such note on such redemption date,
and

(b) the excess of (A) the present value at such time of (1) the
redemption price of such Note on May 1, 2004 (as described above under
subheading "--Optional Redemption") plus (2) all required interest payments
due on such note through May 1, 2004, computed using a discount rate equal
to the Treasury Rate plus 50 basis points, over (B) the principal amount of
such note on such redemption date.

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"QUALIFIED CAPITAL STOCK" of any Person shall mean any Capital Stock of such
Person which is not Disqualified Stock.

"RECAPITALIZATION DATE" means October 2, 1998.

"REFINANCING INDEBTEDNESS" means Indebtedness, including Disqualified Stock,
that refunds, refinances, replaces, renews, repays or extends, including
pursuant to any defeasance or discharge mechanism, (collectively, "refinances,"
and "refinanced" shall have a correlative meaning) any Indebtedness existing on
the date of the Indenture or Incurred in compliance with the indenture,
including Indebtedness of Atrium that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary, including Indebtedness that
refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that

(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the earlier of (A) the Stated Maturity of the exchange notes and (B) the
Stated Maturity of the Indebtedness being refinanced,

(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
lesser of (A) the Average Life of the exchange notes and (B) the Average
Life of the Indebtedness being refinanced, and

(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount, or if issued with original issue discount, an aggregate issue price,
that is equal to or less than the sum of the aggregate principal amount, or
if issued with original issue discount, the aggregate accreted value, then
outstanding of the Indebtedness being refinanced, plus the amount of any
accrued or unpaid interest thereon, plus the amount of any stated or
reasonably determined prepayment premium paid in connection with such
refinancing, plus the amount of expenses of Atrium or a Restricted
Subsidiary incurred in connection with such refinancing.

"RELATED BUSINESS" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Atrium and its Restricted
Subsidiaries on the Issue Date, as reasonably determined by Atrium's board of
directors.

"REPRESENTATIVE" means any trustee, agent or representative of an issue of
Senior Indebtedness.

"RESTRICTED PAYMENTS" has the meaning set forth under subheading "--Certain
Covenants--Limitation on Restricted Payments."

"RESTRICTED SUBSIDIARY" means any Subsidiary of Atrium other than an
Unrestricted Subsidiary.

"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby Atrium or a Restricted Subsidiary transfers
such property to a Person and Atrium or a Subsidiary leases it from such Person.

"SENIOR INDEBTEDNESS" means, with respect to Atrium or any Guarantor, as
applicable, the principal of, premium, if any, and interest, including interest
that would accrue but for the filing of a petition initiating any proceeding
under any state or federal bankruptcy laws, whether or not such claim is
allowable in such proceeding, on any Indebtedness of Atrium or such Guarantor
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to any Indebtedness of Atrium or such Guarantor,

"Senior Indebtedness" will include the principal of, premium, if any, and
interest, including interest that would accrue but for the filing of a petition
initiating any proceeding under any state or federal bankruptcy laws, whether or
not such claim is allowable in such proceeding, and all indemnity, fees,
expenses and other payment obligations from time to time owed to the lenders
under the Credit Facility.

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"Senior Indebtedness" shall not include, to the extent constituting
Indebtedness,

(1) Indebtedness evidenced by the exchange notes or the Guarantees,

(2) Indebtedness that is expressly subordinate or junior in right of
payment to any Indebtedness of Atrium or any Guarantor,

(3) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to Atrium or any Guarantor,

(4) Indebtedness which is represented by Disqualified Capital Stock,

(5) Indebtedness for goods, materials or services purchased in the
ordinary course of business or Indebtedness consisting of trade payables or
other current liabilities, other than any current liabilities owing under
the Credit Facility or the current portion of any long-term Indebtedness
which would constitute Senior Indebtedness but for the operation of this
clause (5),

(6) Indebtedness or other obligations of or amounts owed by Atrium or
any Guarantor for compensation to employees or for services rendered to
Atrium or such Guarantor,

(7) any liability for federal, state, local or other taxes owed or owing
by Atrium or any Guarantor,

(8) Indebtedness of Atrium or any Guarantor to a Subsidiary of Atrium
and

(9) that portion of any Indebtedness which at the time of issuance is
issued in violation of the Indenture, but, as to any such Indebtedness, no
such violation shall be deemed to exist for purposes of this clause (9) if
the holder(s) of such Indebtedness or their representative and the trustee
shall have received an Officers' Certificate of Atrium to the effect that
the incurrence of such Indebtedness does not violate the indenture.

"SENIOR SUBORDINATED INDEBTEDNESS" means the exchange notes, the Guarantees
and any other Indebtedness of Atrium or a Guarantor that either (x) specifically
provides that such Indebtedness ranks equally with the exchange notes or the
Guarantee of such Guarantor, in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or other obligation of Atrium or a
Guarantor, which is not Senior Indebtedness or (y) is otherwise deemed not to be
Senior Indebtedness pursuant to the definition thereof unless it meets the
definition of Subordinated Obligations.

"SIGNIFICANT SUBSIDIARY" means

(1) any Restricted Subsidiary that, together with its Restricted
Subsidiaries, would be a "Significant Subsidiary" of Atrium within the
meaning of Rule 1-02 under Regulation S-X promulgated by the SEC, and

(2) for purposes of "Events of Default," any other Restricted Subsidiary
that when aggregated with all other Restricted Subsidiaries that are not
Significant Subsidiaries as to which an event described under clauses (8) or
(9) under "Events of Default" has occurred, together with their Restricted
Subsidiaries, would constitute a Significant Subsidiary pursuant to clause
(1) above.

"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.

"SUBORDINATED OBLIGATION" means any Indebtedness of Atrium or a Guarantor,
whether outstanding on the Issue Date or thereafter Incurred, which is
subordinate or junior in right of payment to the exchange notes or the Guarantee
of such Guarantor, as applicable, pursuant to a written agreement or by law,
including, without limitation, Disqualified Capital Stock.

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"SUBSIDIARY" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests, including partnership interests,
entitled to vote in the election of directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by

(1) such Person,

(2) such Person and one or more Subsidiaries of such Person or

(3) one or more Subsidiaries of such Person. Unless otherwise specified
herein, each reference to a Subsidiary shall refer to a Subsidiary of Atrium.

"SURVIVING PERSON" means, with respect to any Person involved in any
consolidation or merger, or any sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of its properties and assets as an
entirety, the Person formed by or surviving such merger or consolidation or the
Person to which such sale, assignment, conveyance, transfer or lease is made.

"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated as of October
2, 1998, as amended on the Issue Date, by and among Parent and its subsidiaries
named therein, as the same may be amended from time to time in accordance with
its terms and the terms of the Credit Facility after the Issue Date so long as
such agreement as so amended is no less favorable to Atrium or the holders of
the exchange notes in any material respect than the Tax Sharing Agreement as
amended and in effect on the Issue Date.

"ATRIUM TRANSACTIONS" means (1) the recapitalization of Atrium that occurred
on the Recapitalization Date and (2) the acquisition by Atrium of all the
outstanding Capital Stock of Heat, Inc., H.I.G. Vinyl, Inc. and Champagne
Industries, Inc. on the Issue Date.

"UNRESTRICTED SUBSIDIARY" means

(1) any Subsidiary of Atrium that at the time of determination shall be
designated an Unrestricted Subsidiary by the board of directors in the manner
provided below and

(2) any Subsidiary of an Unrestricted Subsidiary.

The board of directors may designate any Subsidiary of Atrium to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, Atrium or any Restricted Subsidiary of Atrium that is not a Subsidiary of
the Subsidiary to be so designated; PROVIDED, HOWEVER, that either

(A) the Subsidiary to be so designated has consolidated total assets of
$10,000 or less, or

(B) if such Subsidiary has consolidated total assets greater than $10,000,
then such designation would be permitted under the covenant described under
subheading "--Certain Covenants--Limitation on Restricted Payments."

The board of directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that

(x) immediately after giving effect to such designation no Default shall
have occurred and be continuing and

(y) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such designation, if incurred at such time, would have
been permitted to be incurred for all purposes of the Indenture.

Any such designation by the board of directors shall be evidenced to the
holders of the exchange notes by promptly delivering to the Trustee a copy of
the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.

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"UNUTILIZED NET AVAILABLE CASH" has the meaning set forth under subheading
"--Certain Covenants-- Limitation on Sale of Assets."

"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged and which are not callable or redeemable at the
issuer's option.

"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.

"WHOLLY-OWNED SUBSIDIARY" means a Restricted Subsidiary of Atrium, at least
99% of the Capital Stock of which, other than directors' qualifying shares, is
owned by Atrium or another Wholly-Owned Subsidiary.

A "Public Market" exists at any time with respect to the common stock of
Atrium Holdings, Parent or Atrium if

(a) the common stock of Atrium Holdings, Parent or Atrium, as applicable, is
then registered with the SEC pursuant to Section 12(b) or 12(g) of the Exchange
Act and traded either on a national securities exchange or in the National
Association of Securities Dealers Automated Quotation System, and

(b) at least $50.0 million in gross proceeds from the sale of common stock
of Atrium Holdings, Parent or Atrium, as applicable, by means of an effective
registration statement under the Securities Act has been raised prior to such
time.

BOOK-ENTRY; DELIVERY AND FORM

The exchange notes will be represented by one or more, permanent global
notes in definitive, fully registered book-entry form of the global securities,
which will be registered in the name of a nominee of The Depositary Trust
Company and deposited on behalf of purchasers of the exchange notes represented
thereby with a custodian for DTC for credit to the respective accounts of the
purchasers, or to such other accounts as they may direct, at DTC.

THE GLOBAL SECURITIES. Atrium expects that pursuant to procedures
established by DTC

(a) upon deposit of the Global Securities, DTC or its custodian will credit
on its internal system portions of the Global Securities which shall be
comprised of the corresponding respective amount of the Global Securities to the
respective accounts of persons who have accounts with such depositary; and

(b) ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC or
its nominee, with respect to interests of participants, as defined below, and
the records of participants, with respect to interests of persons other than
Participants.

Such accounts initially will be designated by or on behalf of the initial
purchaser and ownership of beneficial interests in the global securities will be
limited to persons who have accounts with DTC or participants or persons who
hold interests through participants. Noteholders may hold their interests in a
global security directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.

So long as DTC or its nominee is the registered owner or holder of any of
the exchange notes, DTC or such nominee will be considered the sole owner or
holder of such exchange notes represented by such global securities for all
purposes under the indenture and under the exchange notes represented thereby.
No beneficial owner of an interest in the global securities will be able to
transfer such interest except in accordance with the applicable procedures of
DTC in addition to those provided for under the indenture.

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Payments of the principal, premium, interest and other amounts on the
exchange notes represented by the global securities will be made to DTC or its
nominee as the registered owner thereof. None of Atrium, the trustee or any
paying agent under the indenture will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the global securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.

Atrium expects that DTC or its nominee, upon receipt of any payment of the
principal, premium, interest or other amounts on the exchange notes represented
by the global securities, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the global
securities as shown on the records of DTC or its nominee. Atrium also expects
that payments by participants to owners of beneficial interests in the global
securities held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payment will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with DTC
rules and will be settled in immediately available funds.

DTC has advised Atrium that DTC will take any action permitted to be taken
by a holder of exchange notes, including the presentation of exchange notes for
exchange as described below, only at the direction of one or more participants
to whose account the DTC interests in the Global Securities are credited and
only in respect of the aggregate principal amount of as to which such
Participant or participants has or have given such direction.

DTC has advised Atrium as follows:

- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
clearing agency registered pursuant to the provisions of Section 17A of
the Exchange Act.

- DTC was created to hold securities for its Participants and facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants,
thereby eliminating the need for physical movement of certificates.

Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and certain other organizations. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and trust
companies or indirect participants that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.

Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the global securities among participants of
DTC, DTC is under no obligation to perform such procedures, and such procedures
may be discontinued at any time. None of Atrium, the trustee or the paying agent
will have any responsibility for the performance by DTC or its direct or
indirect participants of their respective obligations under the rules and
procedures governing their operations.

CERTIFICATED SECURITIES. Interests in the global securities will be
exchanged for physical delivery of certificates or Certificated Securities only
if

(1) DTC is at any time unwilling or unable to continue as depositary for the
Global Securities, or DTC ceases to be a clearing agency registered under the
Exchange Act, and a successor depositary is not appointed by Atrium within 90
days, or

(2) an event of default under the Indenture has occurred and is continuing
with respect to the exchange notes.

119
<PAGE>
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity, as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
applicable redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar market data), most nearly
equal to the period from such redemption date to May 1, 2004; PROVIDED, HOWEVER,
that if the period from such redemption date to May 1, 2004 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from such redemption date to May 1, 2004 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

120
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general discussion of the material United States federal
income tax consequences of the exchange offer and the acquisition, ownership and
disposition of the notes and exchange notes to U.S. Holders and non-U.S.
Holders, as defined below. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly on a retroactive basis.

This discussion applies only to initial beneficial owners that purchased the
notes upon original issuance at the initial offering price thereof, and is
limited to initial beneficial owners that hold the outstanding notes and
exchange notes as capital assets. Moreover, this discussion does not address all
of the United States federal income tax consequences that may be relevant to
particular beneficial owners in light of their personal circumstances, or to
certain types of beneficial owners. Such beneficial owners may include, for
example, pass-through entities (E.G., partnerships) or persons who hold the
outstanding notes or exchange notes through pass-through entities, banks and
other financial institutions, insurance companies, tax-exempt entities, dealers
in securities, certain former citizens or former long-term residents of the
United States, hybrid entities, persons holding the exchange notes or Exchange
exchange notes as part of a hedging or conversion transaction or a straddle or
U.S. Holders that have a functional currency other than the U.S. dollar.

This discussion does not address the tax consequences to Non-U.S. Holders
that are subject to U.S. federal income tax on a net basis on income realized
with respect to a note or exchange note because such income is effectively
connected with the conduct of a U.S. trade or business. Such holders are
generally taxed in a similar manner to U.S. Holders; however, certain special
rules apply. In addition, this discussion does not include any description of
the tax laws of any state, local or foreign government that may be applicable to
a particular beneficial owner.

As used herein, the term "U.S. Holder" means a beneficial owner of a note or
exchange note that is, for U.S. federal income tax purposes,

(1) a citizen or resident of the United States,

(2) a corporation (including an entity treated a corporation for United
States federal income tax purposes) or partnership created or organized in
or under the laws of the United States or any political subdivision thereof,

(3) an estate, the income of which is subject to United States federal
income tax regardless of its source, or

(4) a trust if a United States court can exercise primary supervision
over the administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the trust, or if
the trust was in existence on August 20, 1996 and has properly elected to
continue to be treated as a United States person.

The term "Non-U.S. Holder" means a beneficial owner of a note or exchange
Note that is not a U.S. Holder.

Prospective purchasers are urged to consult their own tax advisors as to the
particular United States federal income and other tax consequences to them of
the acquisition, ownership and disposition of the notes and exchange notes, as
well as the tax consequences under state, local and foreign tax laws, and the
possible effects of changes in tax laws.

121
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS

PAYMENTS OF INTEREST.

In general, interest on a note or exchange note will be taxable to a U.S.
Holder as ordinary income at the time it accrues, or is actually or
constructively received, in accordance with the U.S. Holder's method of
accounting for United States federal income tax purposes. The Company
anticipates that the exchange notes will be issued without original issue
discount within the meaning of Section 1273 of the Internal Revenue Code and the
following discussion so assumes.

SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES OR EXCHANGE EXCHANGE
NOTES.

Upon the sale, exchange, redemption, retirement at maturity or other taxable
disposition of a note or exchange note, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between

(1) the sum of cash plus the fair market value of all other property
received on such disposition, except to the extent such cash or property is
attributable to accrued but unpaid interest which will be taxable as
ordinary income, and

(2) such U.S. Holder's adjusted tax basis in the note or exchange note.

Gain or loss recognized on the disposition of a note or exchange note generally
will be capital gain or loss. Capital gains of individuals derived in respect of
capital assets held for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.

EXCHANGE OFFER.

The exchange of notes for the exchange notes pursuant to the exchange offer
will not constitute a taxable exchange for U.S. federal income tax purposes. As
a result,

(1) a U.S. Holder will not recognize taxable gain or loss as a result of
exchanging notes for exchange notes pursuant to the exchange offer,

(2) the holding period of the exchange notes will include the holding
period of the notes exchanged therefor, and

(3) the adjusted tax basis of the exchange notes will be the same as the
adjusted tax basis of the notes exchanged therefor immediately before such
exchange.

The filing of a shelf registration statement should not result in a taxable
exchange to us or any holder of a note.

BACKUP WITHHOLDING AND INFORMATION REPORTING.

In general, a U.S. Holder will be subject to backup withholding at the rate
of 31.0% with respect to interest, principal and premium, if any, paid on a note
or exchange note, and the proceeds of a sale of a note or exchange note, unless
the U.S. Holder

(1) is an entity that is exempt from withholding, including corporations
and tax-exempt organizations, and, when required, demonstrates this fact, or

(2) provides the payor with its taxpayer identification number ("TIN")
which for an individual would be the holder's social security number,
certifies that the TIN provided to the payor is correct and that the holder
has not been notified by the IRS that it is subject to backup withholding
due to underreporting of interest or dividends, and otherwise complies with
applicable requirements of the backup withholding rules.

122
<PAGE>
In addition, such payments of principal, premium and interest to, and the
proceeds of a sale of a note or exchange note by, U.S. Holders that are not
exempt entities will generally be subject to information reporting requirements.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's United States federal income tax
liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the IRS.

UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS

PAYMENTS OF INTEREST.

In general, payments of interest on the notes or exchange notes by us or our
agent to a Non-U.S. Holder will not be subject to United States federal income
tax, or any withholding thereof except as described below under "--Backup
Withholding and Information Reporting," provided that either,

(1) (a) the Non-U.S. Holder does not actually or constructively own
10.0% or more of the total combined voting power of all classes of our stock
entitled to vote,

(b) the Non-U.S. Holder is not a controlled foreign corporation that
is related to us, actually or constructively, through stock ownership,

(d) either

(x) the Non-U.S. Holder certifies to us or our agent on IRS Form
W-8 or a suitable substitute form, under penalties of perjury, that
it is not a "United States person," as defined in the Internal
Revenue Code, and provides its name and address, or

(y) a financial institution such as a securities clearing
organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
and holds the notes or exchange notes on behalf of the Non-U.S.
Holder certifies to us or our agent under penalties of perjury that
such statement has been received from the Non-U.S. Holder by it or by
a financial institution between it and the Non-U.S. Holder and
furnishes us or our agent with a copy thereof, or

(2) (a) the Non-U.S. Holder is entitled to the benefits of an income tax
treaty under which interest on the notes or exchange notes is exempt from
United States federal withholding tax and provides us or our paying agent
with a properly executed IRS Form 1001 or successor form claiming the
exemption, or

(b) the interest paid on the note is not subject to withholding tax
because it is effectively connected with the beneficial owner's conduct of a
trade or business in the United States and the beneficial owner provides us
or our paying agent with a properly executed IRS Form 4224, or successor
form.

Treasury regulations issued on October 6, 1997 and revised on December 31,
1998 (the "New Withholding Regulations") alter the rules described above in
certain respects. The New Withholding Regulations generally will be effective
with respect to payments made after December 31, 2000, regardless of the issue
date of the instrument with respect to which such payments are made. The New
Withholding Regulations generally will not materially alter the certification
rules described in (1)(d) of the preceding paragraph, but will provide
alternative methods for satisfying such requirements.

In addition, the New Withholding Regulations may require that a Non-U.S.
Holder obtain a United States taxpayer identification number and make certain
certifications if the Non-U.S. Holder wishes to claim exemption from, or a
reduced rate of, withholding under an income tax treaty. Each Non-U.S. Holder
should consult its own tax advisor regarding the application to such holder of
the New Withholding Regulations.

123
<PAGE>
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES OR EXCHANGE EXCHANGE
NOTES.

A Non-U.S. Holder generally will not be subject to United States federal
income tax, or any withholding thereof except as described below under "--Backup
Withholding and Information Reporting," on gain realized on the sale, exchange,
redemption, retirement at maturity or other disposition of a note or exchange
note unless

(1) such gain is effectively connected with the conduct by such holder
of a trade or business in the United States,

(2) in the case of gains derived by an individual, such individual is
present in the United States for 183 days or more in the taxable year of the
disposition and certain other conditions are met and

(3) the Non-U.S. Holder is subject to tax according to the provisions of
United States federal income tax law applicable to certain expatriates.

EXCHANGE OFFER.

The exchange of notes for the exchange notes pursuant to the exchange offer
will not be treated as a taxable exchange for United States federal income tax
purposes. As a result, there will be no U.S. federal income tax consequences to
Non-U.S. Holders exchanging the notes for the exchange notes pursuant to the
exchange offer.

BACKUP WITHHOLDING AND INFORMATION REPORTING.

Under current Treasury regulations, backup withholding and information
reporting do not apply to payments made by us or our paying agent to Non- U.S.
Holders if the certification described in (1)(d) under "--Payments of Interest"
above is received, provided that the payor does not have actual knowledge that
the holder is a United States person.

In addition, backup withholding and information reporting generally will not
apply if payments on a note or exchange note are made to a Non-U.S. Holder by or
through

(1) the foreign office of a custodian, nominee or other agent of such
Non-U.S. Holder, or

(2) if the foreign office of a "broker," as defined in applicable
Treasury regulations, pays the proceeds of the sale of a note or exchange
note to the seller thereof.

Information reporting requirements, but, currently, not backup withholding,
will apply, however, to a payment by or through a foreign office of a custodian,
nominee, agent or broker that is, for United States federal income tax purposes:

(1) a United States person;

(2) a controlled foreign corporation; or

(3) a foreign person that derives 50.0% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States, unless such custodian, nominee, agent or broker has documentary
evidence in its records that the holder is a non-U.S. person and certain
other conditions are met, or the holder otherwise establishes an exemption.
Payment by a U.S. office of a custodian, nominee, agent or broker is subject
to both backup withholding at a rate of 31.0% and information reporting
unless the holder certifies, under penalties of perjury, that it is not a
United States person and the payor does not have actual knowledge to the
contrary, or the holder otherwise establishes an exemption. A Non-U.S.
Holder may obtain a refund or a credit against such Non-U.S. Holder's United
States federal income tax liability of any amounts withheld under the backup
withholding rules, provided the required information is furnished to the
IRS.

124
<PAGE>
The New Withholding Regulations revise, substantially in certain respects,
the procedures that withholding agents and payees must follow to comply with, or
to establish an exemption from, the information reporting and backup withholding
provisions for payments after December 31, 2000. Each Non-U.S. Holder should
consult its own tax advisor regarding the application to such holder of the New
Withholding Regulations.

ESTATE TAX.

Notes or exchange notes held at the time of death, or theretofore
transferred subject to certain retained rights or powers, by an individual who
at the time of death is a Non-U.S. Holder will not be included in such holder's
gross estate for U.S. federal estate tax purposes, provided that,

(1) the individual does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled to
vote, and

(2) the income on the exchange notes or exchange notes is not
effectively connected with the conduct of a United States trade or business
by the individual.

PLAN OF DISTRIBUTION

Any broker-dealer that acquired outstanding notes for its own account as a
result of market-making activities or other trading activities may be deemed to
be an "underwriter" under the Securities Act. Each broker-dealer that receives
exchange notes for its own account in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such outstanding notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with any resale of
the exchange notes received in exchange for outstanding notes where such
outstanding notes were acquired by such broker-dealer as a result of
market-making or other trading activities. We agreed that, for a period of 180
days after the expiration date, we will make this prospectus available to any
broker-dealer for use in connection with any such resale. A broker-dealer which
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the registration rights agreement
(including certain indemnification rights and obligations).

We will not receive any proceeds from any sale of exchange notes by
broker-dealers or others. Exchange notes received by broker-dealers for their
own account pursuant to the exchange offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through broker-dealers and/ or
purchasers of any such exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of such
exchange notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of exchange notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.

For a period of 180 days from the expiration date, we will send a reasonable
number of additional copies of this prospectus and any amendment or supplement
to this prospectus to any broker-dealer that

125
<PAGE>
requests such documents in the letter of transmittal. We will pay all the
expenses incident to the exchange offer (which shall not include the expenses of
any holder in connection with resales of the exchange notes). We have agreed to
indemnify the initial purchasers and any broker-dealers participating in the
exchange offer against certain liabilities, including liabilities under the
Securities Act.

LEGAL MATTERS

Certain legal matters relating to the validity of the exchange notes offered
hereby will be passed upon on behalf of the Company by Paul, Hastings, Janofsky
& Walker LLP, New York, New York.

EXPERTS

The consolidated financial statements of Atrium and subsidiaries (after the
1998 recapitalization), Atrium Companies, Inc. and subsidiaries (previous
registrant), the combined financial statements of R.G. Darby Company, Inc. and
Total Trim, Inc. and the consolidated financial statements of Heat, Inc.
included in this registration statement have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, to the extent
and for the periods indicated in their reports thereon, given on the authority
of said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

We are subject to the information requirements of the Securities Exchange
Act and in accordance with the Securities Exchange Act we file reports, proxy
statements and other information with the Commission. You may read and copy any
of such information on file with the Commission at the Commission's public
reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices located at Seven World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 140, Chicago, Illinois 60661-2511. Copies of filed
documents can be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by telephone at 1-800-SEC-0330, or electronically
through the Commission's Electronic Data Gathering, Analysis and Retrieval
system at the Commission's Web site (http://www.sec.gov).

We have filed with the Commission a registration statement on Form S-4 under
the Securities Act, with respect to the exchange notes offered by this
prospectus. As permitted by the rules and regulations of the Commission, this
prospectus omits certain information contained in the registration statement.
For further information with respect to Atrium and the exchange notes, reference
is made to the registration statement, including its exhibits and the financial
statements, notes and schedules filed as a part of it, which you may read and
copy at the public reference facilities of the Commission referred to above.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the full text of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.

126
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ATRIUM COMPANIES, INC.
Report of Independent Accountants........................................................................ F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997........................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and the periods ended
December 31, 1996 and October 25, 1996............................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and the
periods ended December 31, 1996 and October 25, 1996................................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and the periods ended
December 31, 1996 and October 25, 1996............................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998..................... F-30
Consolidated Statements of Income (unaudited) for the Quarters Ended March 31, 1999 and 1998........... F-31
Consolidated Statements of Comprehensive Income (unaudited) for the Quarters Ended March 31, 1999 and
1998................................................................................................. F-32
Consolidated Statement of Stockholder's Equity (unaudited) for the Quarter Ended March 31, 1999........ F-33
Consolidated Statements of Cash Flows (unaudited) for the Quarters Ended March 31, 1999 and 1998....... F-34
Notes to Consolidated Financial Statements (unaudited)................................................... F-35

ATRIUM COMPANIES, INC. (PREVIOUS REGISTRANT)
Report of Independent Accountants........................................................................ F-41
Consolidated Balance Sheets as of December 31, 1997 and 1996........................................... F-42
Consolidated Statements of Income for the periods ended October 2, 1998 and September 30, 1997
(Unaudited) and for the years ended December 31, 1997 and 1996....................................... F-43
Consolidated Statements of Stockholders' Equity (Deficit) for the periods ended October 2, 1998 and
September 30, 1997 (Unaudited) and for the years ended December 31, 1997 and 1996.................... F-44
Consolidated Statements of Cash Flows for the periods ended October 2, 1998 and September 30, 1997
(Unaudited) and for the years ended December 31, 1997 and 1996....................................... F-45
Notes to Consolidated Financial Statements............................................................... F-46
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
Report of Independent Accountants........................................................................ F-65
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1997 and 1996............................................... F-66
Combined Statements of Income for the years ended December 31, 1997 and 1996........................... F-67
Combined Statements of Stockholder's Equity for the years ended
December 31, 1997 and 1996........................................................................... F-68
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996....................... F-69
Notes to Combined Financial Statements................................................................... F-70

DOOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheet as of September 30, 1998.................................................... F-74
Consolidated Statements of Income for the nine months ended September 30, 1998 and 1997................ F-75
Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1998............ F-76
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997............ F-77
Notes to Consolidated Financial Statements............................................................... F-78
</TABLE>

F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HEAT, INC.
Report of Independent Public Accountants................................................................. F-82
Consolidated Balance Sheet as of March 31, 1999 (unaudited) and as of December 31, 1998
and 1997............................................................................................. F-83
Consolidated Statements of Operations for the periods ended March 31, 1999 and 1998 (unaudited) and the
year ended December 31, 1998, the seven month period ended December 31, 1997, the five month period
ended May 30, 1997 and the year ended December 31, 1996.............................................. F-84
Consolidated Statements of Shareholders' Equity for the period ended March 31, 1999 (unaudited) and the
year ended December 31, 1998, the seven month period ended December 31, 1997, the five month period
ended May 30, 1997, and the year ended December 31, 1996............................................. F-85
Consolidated Statements of Cash Flows for the periods ended March 31, 1999 and 1998 (unaudited) and the
year ended December 31, 1998, the seven month period ended December 31, 1997, the five month period
ended May 30, 1997, and the year ended December 31, 1996............................................. F-86
Notes to Consolidated Financial Statements............................................................. F-87

INDEX TO FINANCIAL STATEMENT SCHEDULES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Report of Independent Accountants........................................................................ F-98
Atrium Companies, Inc.................................................................................. F-99
Atrium Companies, Inc. (previous registrant)........................................................... F-100
R.G. Darby Company, Inc. and Total Trim, Inc........................................................... F-101
Door Holdings, Inc. and Subsidiaries................................................................... F-101
Heat, Inc.............................................................................................. F-102
</TABLE>

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

F-2
<PAGE>
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 of cash flows
present fairly, in all material respects, the financial position of Atrium
Companies, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended and
each of the two periods ended December 31, 1996 and October 25, 1996, in
conformity with generally accepted accounting principles. 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
generally accepted auditing standards 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 the opinion expressed
above.

PricewaterhouseCoopers LLP
Dallas, Texas
April 4, 1999, except for Note 18, which is as of May 17, 1999.

F-3
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ -- $ 34
Equity securities--available for sale........................................................... 137 --
Accounts receivable, net of allowance of $778 and $725, respectively............................ 46,466 9,187
Inventories..................................................................................... 46,289 13,557
Prepaid expenses and other current assets....................................................... 7,756 832
Deferred tax asset.............................................................................. 1,249 --
--------- ---------
Total current assets............................................................................ 101,897 23,610
PROPERTY, PLANT AND EQUIPMENT, net................................................................ 26,760 7,553
GOODWILL, net of amortization of $2,354 and $471, respectively.................................... 214,749 22,394
DEFERRED FINANCING COSTS, net of amortization of $379 and $420, respectively...................... 11,058 1,374
OTHER ASSETS...................................................................................... 5,405 452
--------- ---------
Total assets.................................................................................... $ 359,869 $ 55,383
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Current portion of notes payable................................................................ $ 2,209 $ 3,364
Accounts payable................................................................................ 25,353 6,438
Accrued liabilities............................................................................. 15,432 2,517
Deferred tax liability.......................................................................... -- 566
--------- ---------
Total current liabilities....................................................................... 42,994 12,885
LONG-TERM LIABILITIES:
Notes payable................................................................................... 177,018 28,874
Deferred tax liability.......................................................................... 1 449
Other long-term liabilities..................................................................... 6,800 2,500
--------- ---------
Total long-term liabilities..................................................................... 183,819 31,823
--------- ---------
Total liabilities............................................................................... 226,813 44,708
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding......... -- --
Class A voting common stock $.01 par value, 225,000 authorized; 25,501 issued and retired....... -- --
Class B nonvoting common stock $.01 par value, 100,000 authorized; 54,500 issued and retired.... -- 1
Paid-in capital................................................................................. 134,852 9,675
Retained earnings (accumulated deficit)......................................................... (1,820) 999
Accumulated other comprehensive income.......................................................... 24 --
--------- ---------
Total stockholder's equity...................................................................... 133,056 10,675
--------- ---------
Total liabilities and stockholder's equity.................................................... $ 359,869 $ 55,383
--------- ---------
--------- ---------
</TABLE>

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

F-4
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIODS ENDED DECEMBER 31, 1996 AND OCTOBER 25, 1996

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
---------------------------------------- ------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 211,059 $ 99,059 $ 13,200 $ 62,880
COST OF GOODS SOLD..................................... 159,140 78,270 9,927 47,311
------------ ------------ ------------ ------------
Gross profit......................................... 51,919 20,789 3,273 15,569
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, delivery, general and administrative
expenses............................................. 39,754 15,671 2,242 13,271
Amortization expense................................. 2,133 774 125 --
Stock option compensation expense.................... 3,851 -- -- --
------------ ------------ ------------ ------------
45,738 16,445 2,367 13,271
------------ ------------ ------------ ------------
Income from operations............................. 6,181 4,344 906 2,298
INTEREST EXPENSE....................................... 9,081 2,953 374 509
OTHER INCOME, net...................................... 571 -- -- --
------------ ------------ ------------ ------------
Income (loss) before income taxes and extraordinary
charge............................................... (2,329) 1,391 532 1,789
PROVISION (BENEFIT) FOR INCOME TAXES................... (149) 695 229 670
------------ ------------ ------------ ------------
Income (loss) before extraordinary charge............ (2,180) 696 303 1,119
EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT (net
of income tax benefit of $392)....................... 639 -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS)...................................... $ (2,819) $ 696 $ 303 $ 1,119
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

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

F-5
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIODS ENDED DECEMBER
31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CLASS A CLASS B
-------------------------- ------------------------ -------------------------- TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK
----------- ------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995....... -- $ -- 512 $ 263 -- $ -- $ (156)
Net income....................... -- -- -- -- -- -- --
Exercise of stock options........ -- -- 59 30 -- -- --
Tax benefit related to option
exercises...................... -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, October 25, 1996........ -- $ -- 571 $ 293 -- $ -- $ (156)
--- --- --- ----- --- --- -----------
--- --- --- ----- --- --- -----------
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
THE COMPANY
Balance, October 26, 1996........ -- $ -- -- $ -- -- $ -- $ --
Net income....................... -- -- -- -- -- -- --
Initial issuance of common
stock.......................... -- -- 26 -- 55 1 --
Issuance of warrants............. -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, December 31, 1996....... -- -- 26 -- 55 1 --
Net income....................... -- -- -- -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, December 31, 1997....... -- -- 26 -- 55 1 --
Conversion of Wing's common stock
to Atrium's common stock....... 100 -- (26) -- (55) (1) --
Conversion of exchangeable
subordinated note payable...... -- -- -- -- -- -- --
Step-up of Wing's assets due to
purchase of minority
interest....................... -- -- -- -- -- -- --
Contribution of assets of Darby.. -- -- -- -- -- -- --
Capital contribution from Atrium
Corp........................... -- -- -- -- -- -- --
Stock option compensation
expense........................ -- -- -- -- -- -- --
Exercise of stock options........ -- -- -- -- -- -- --
Comprehensive loss:
Net loss....................... -- -- -- -- -- -- --
Unrealized gain on equity
securities................... -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Total comprehensive loss.........
--- --- --- ----- --- --- -----------
Balance, December 31, 1998....... 100 $ -- -- $ -- -- $ -- $ --
--- --- --- ----- --- --- -----------
--- --- --- ----- --- --- -----------

<CAPTION>
RETAINED
EARNINGS TOTAL
ACCUMULATED OTHER PAID-IN (ACCUMULATED STOCKHOLDER'S
COMPREHENSIVE INCOME CAPITAL DEFICIT) EQUITY
------------------------- --------- --------------- -------------
<S> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995....... $ -- $ 233 $ 4,171 $ 4,511
Net income....................... -- -- 1,119 1,119
Exercise of stock options........ -- 409 -- 439
Tax benefit related to option
exercises...................... -- 253 -- 253
--- --------- ------- -------------
Balance, October 25, 1996........ $ $ 895 $ 5,290 $ 6,322
--- --------- ------- -------------
--- --------- ------- -------------

THE COMPANY
Balance, October 26, 1996........ $ -- $ -- $ -- $ --
Net income....................... -- -- 303 303
Initial issuance of common
stock.......................... -- 7,999 -- 8,000
Issuance of warrants............. -- 1,327 -- 1,327
--- --------- ------- -------------
Balance, December 31, 1996....... -- 9,326 303 9,630
Net income....................... -- -- 696 696
Issuance of warrants............. -- 349 -- 349
--- --------- ------- -------------
Balance, December 31, 1997....... -- 9,675 999 10,675
Conversion of Wing's common stock
to Atrium's common stock....... -- 1 -- --
Conversion of exchangeable
subordinated note payable...... -- 11,375 -- 11,375
Step-up of Wing's assets due to
purchase of minority
interest....................... -- 1,247 -- 1,247
Contribution of assets of Darby.. -- 13,147 -- 13,147
Capital contribution from Atrium
Corp........................... -- 95,340 -- 95,340
Stock option compensation
expense........................ -- 3,851 -- 3,851
Exercise of stock options........ -- 216 -- 216
Comprehensive loss:
Net loss....................... -- -- (2,819) (2,819)
Unrealized gain on equity
securities................... 24 -- -- 24
--- --------- ------- -------------
Total comprehensive loss......... 24 (2,819) (2,795)
--- --------- ------- -------------
Balance, December 31, 1998....... $ 24 $ 134,852 $ (1,820) $ 133,056
--- --------- ------- -------------
--- --------- ------- -------------
</TABLE>

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

F-6
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIODS ENDED DECEMBER 31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (2,819) $ 696 $ 303
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary charge, net of income tax benefit.......................... 639 -- --
Depreciation and amortization............................................ 4,158 1,492 260
Stock option compensation expense........................................ 3,851 -- --
Amortization of deferred financing costs................................. 732 390 30
Accretion of discount on exchangeable subordinated notes payable......... 105 113 33
Provision for bad debts.................................................. 227 1,791 287
Gain on sale of assets................................................... (12) -- --
Deferred tax provision (benefit)......................................... 358 184 60
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (1,751) (1,949) 582
Inventories............................................................ (12,297) (2,990) (229)
Prepaid expenses and other current assets.............................. (2,142) (166) 93
Accounts payable....................................................... 4,859 354 (462)
Accrued liabilities.................................................... (3,932) 1,233 155
------------- ------------- -------------
Net cash provided by (used in) operating activities.................. (8,024) 1,148 1,112
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................... (2,221) (1,355) (122)
Proceeds from sales of assets............................................ 12 -- --
Acquisition of Atrium, net of cash acquired and debt and accrued interest
assumed................................................................ (120,977) -- --
Acquisition of the Door Division of Super Millwork....................... -- (10,408) --
Acquisition of Wing, net of cash acquired................................ -- -- (29,143)
Other assets............................................................. (1,998) -- --
------------- ------------- -------------
Net cash used in investing activities................................ (125,184) (11,763) (29,265)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under term notes................................ 145,930 -- --
Payment of notes payable................................................. (29,563) (1,032) --
Payment of senior subordinated notes..................................... (70,930) (70) --
Net borrowings under revolving credit facility........................... 4,118 1,497 2,951
Proceeds from issuance of exchangeable subordinated notes................ -- 3,960 --
Proceeds from issuance of notes payable.................................. -- 6,790 18,500
Deferred financing costs................................................. (11,437) (536) (1,258)
Capital contributions.................................................... -- -- 8,000
Scheduled principal payments on term notes............................... (500) -- --
Contributions from Atrium Corp........................................... 95,340 -- --
Exercise of stock options................................................ 216 -- --
------------- ------------- -------------
Net cash provided by financing activities............................ 133,174 10,609 28,193
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (34) (6) 40
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 34 40 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ -- $ 34 $ 40
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................... $ 11,765 $ 2,620 $ 167
Income taxes, net of refunds........................................... 536 550 --
Noncash investing and financing activities:
Conversion of exchangeable subordinated notes payable.................. 11,375 -- --
Contribution of Darby's assets......................................... 13,147 -- --
Step-up of Wing's assets due to purchase of minority interest.......... 1,247 -- --
Purchase of equipment under capital leases............................. 20 840 --
Payable to seller...................................................... -- 2,500 --
Issuance of common stock warrants...................................... -- -- 332
Tax benefit related to option exercises................................ -- -- --

<CAPTION>
PREDECESSOR
-------------
PERIOD ENDED
OCTOBER 25,
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 1,119
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary charge, net of income tax benefit.......................... --
Depreciation and amortization............................................ 716
Stock option compensation expense........................................ --
Amortization of deferred financing costs................................. --
Accretion of discount on exchangeable subordinated notes payable......... --
Provision for bad debts.................................................. 1,274
Gain on sale of assets................................................... --
Deferred tax provision (benefit)......................................... (71)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (2,116)
Inventories............................................................ (621)
Prepaid expenses and other current assets.............................. 219
Accounts payable....................................................... 253
Accrued liabilities.................................................... (69)
-------------
Net cash provided by (used in) operating activities.................. 704
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................... (962)
Proceeds from sales of assets............................................ --
Acquisition of Atrium, net of cash acquired and debt and accrued interest
assumed................................................................ --
Acquisition of the Door Division of Super Millwork....................... --
Acquisition of Wing, net of cash acquired................................ --
Other assets............................................................. 28
-------------
Net cash used in investing activities................................ (934)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under term notes................................ --
Payment of notes payable................................................. (2,492)
Payment of senior subordinated notes..................................... --
Net borrowings under revolving credit facility........................... 2,122
Proceeds from issuance of exchangeable subordinated notes................ --
Proceeds from issuance of notes payable.................................. --
Deferred financing costs................................................. --
Capital contributions.................................................... 439
Scheduled principal payments on term notes............................... --
Contributions from Atrium Corp........................................... --
Exercise of stock options................................................ --
-------------
Net cash provided by financing activities............................ 69
-------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (161)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 161
-------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ --
-------------
-------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................... $ 510
Income taxes, net of refunds........................................... 927
Noncash investing and financing activities:
Conversion of exchangeable subordinated notes payable.................. --
Contribution of Darby's assets......................................... --
Step-up of Wing's assets due to purchase of minority interest.......... --
Purchase of equipment under capital leases............................. --
Payable to seller...................................................... --
Issuance of common stock warrants...................................... --
Tax benefit related to option exercises................................ 253
</TABLE>

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

F-7
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION:

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

Prior to October 2, 1998, the Company's historical financial statements as
previously filed with the Securities and Exchange Commission included its
operations and the operations of its wholly-owned subsidiaries, Atrium Door and
Window Company of the Northeast, Atrium Door and Window Company of New England,
Atrium Door and Window Company of New York (collectively "ADW--Northeast"),
Atrium Door and Window Company--West Coast ("ADW--West Coast") and Atrium Door
and Window Company of Arizona ("ADW--Arizona"). On October 2, 1998, pursuant to
an acquisition and merger (the "Recapitalization" or "reverse acquisition") as
more fully described in Note 3, the Company's indirect Parent (D and W)
contributed the assets of Wing Industries Holdings, Inc. and its subsidiary Wing
Industries, Inc. (collectively "Wing") and Door Holdings, Inc. and its
subsidiaries R.G. Darby Company, Inc. and Total Trim, Inc. (collectively
"Darby") to the Company.

As Wing was determined to be the acquiror in the reverse acquisition, the
historical financial statements of the Company (prior to October 3, 1998) 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 through December 31. The statements of operations for the
year ended December 31, 1997, the periods ended December 31, 1996 and October
25, 1996 only include the operations and accounts of Wing and its predecessor.
Wing was acquired by the current controlling shareholders on October 25, 1996.
The December 31, 1998 balance sheet includes the accounts of the Company, Wing,
Darby and each of their respective subsidiaries. The December 31, 1997 balance
sheet only includes the accounts of Wing.

Following is a comparison of the actual results for the Company, Wing and
Darby prior to October 3, 1998, to unaudited pro forma information for the same
period assuming the reverse acquisition had taken place as of January 1, 1997:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997
------------------------ ------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 211,059 $ 400,777 $ 99,059 $ 357,870
Income (loss) before income taxes and
extraordinary charge....................... (2,329) 7,464 1,391 5,827
Income (loss) before extraordinary charge.... (2,180) 2,821 696 1,844
Net income (loss)............................ (2,819) 2,821 696 1,844

Depreciation, amortization and stock option
compensation expense....................... 8,009 18,632 1,492 11,026
Interest expense............................. 9,081 17,506 2,953 23,963
</TABLE>

The references to the periods ended December 31, 1996 and October 25, 1996
used throughout these consolidated financial statements, refer to the periods
October 26, 1996 through December 31, 1996 and January 1, 1996 through October
25, 1996, respectively.

F-8
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF CONSOLIDATION

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

INDUSTRY SEGMENT

The Company operates in a single industry segment, the fabrication,
distribution and installation of doors and windows and related components.

REVENUE RECOGNITION

Revenue from the sale of doors and windows and related components is
recorded at the time of delivery to the customer. Allowances are established to
recognize the risk of sales returns from customers and estimates of warranty
costs.

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, 1998, the
Company had $4,012 of bank overdrafts that were reclassified into Accounts
Payable.

EQUITY SECURITIES--AVAILABLE FOR SALE

Investments in equity securities--available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded in
stockholder's equity.

CONCENTRATIONS OF CREDIT RISK

Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company's customers are located in all 50 states and in 6 different
countries. 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.
Two customers accounted for approximately 58% and 65% of gross sales for 1998
and 1997 and 55% for the periods ended December 31, 1996 and October 25, 1996,
respectively.

INVENTORIES

Inventories are valued at the lower of cost (last-in, first-out or "LIFO")
or market. Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead. Inventory costs include direct materials,
labor and manufacturing overhead. Management believes that the LIFO method
results in a better matching of current costs with current revenues.

F-9
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Buildings and improvements................................................... 5-40 years
Machinery and equipment...................................................... 3-12 years
</TABLE>

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

GOODWILL

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

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 capitalized include direct
expenses related to consulting and other professional fees consumed 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 when the software is
put into place 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 assets, carrying value will be adjusted to the lower of cost or
fair value.

Unamortized capitalized software costs at December 31, 1998 and 1997 were
$3,665 and $0, respectively. Amortization expense for 1998 was $304.

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

F-10
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
income taxes to recognize the tax effects of temporary differences between
financial statement and income tax accounting.

FORWARD COMMITMENTS

The Company periodically enters into forward commitments to hedge price
variances in 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.

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. Actual results could differ from these estimates. Significant
estimates are used in calculating bad debt, workers' compensation and warranty
accruals, and in recognizing deferred tax assets and liabilities.

ADVERTISING COSTS

Advertising costs are expensed when incurred and were $2,841, $1,800, $128
and $1,222 for 1998 and 1997 and the periods ended December 31, 1996 and October
25, 1996, respectively. These costs are reflected in "selling, delivery, general
and administrative" in the consolidated statements of operations.

OTHER COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130") "Reporting
Comprehensive Income." FAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. FAS 130 is effective for financial statement periods
beginning after December 15, 1997. The Company adopted FAS 130 beginning January
1, 1998. The Company had no comprehensive income for all periods presented prior
to January 1, 1998.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") Issued Statement of Position
98-1 ("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" that is effective for reporting periods beginning
after December 15, 1998, but provides for earlier application if certain
conditions are met. The Company has applied the provisions of SOP 98-1 in its
financial statements for the year ended December 31, 1998 and its adoption had
no material effect on the Company's consolidated financial position or results
of operations.

F-11
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
required. The future adoption of FAS 133 in not expected to have a material
effect on the Company's consolidated financial position or results of
operations.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1997 and 1996 balances to
conform to the 1998 presentation.

3. THE REVERSE ACQUISITION (RECAPITALIZATION):

On August 3, 1998, D and W ("Parent"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Atrium Corporation ("Corp"), the parent
company of the Company and other necessary parties to acquire all of the
outstanding capital stock of Corp for $225.0 million, through a series of
transactions (the "Recapitalization") described below. Corp owned 100% of the
outstanding capital stock of the Company prior to the Merger discussed below. GE
Investment Private Placement Partners II, a limited partnership ("GEIPPPII"),
and Ardatrium L.L.C. ("Ardatrium") formed Parent by acquiring all of its
outstanding common stock for an aggregate purchase price of $50.0 million.
GEIPPPII is a private equity partnership affiliated with GE Investments, a
wholly-owned investment management subsidiary of General Electric Company.
Ardatrium is an affiliate of Ardshiel, Inc. ("Ardshiel"), a private equity
investment firm based in New York.

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

Prior to the Merger, GEIPPPII and Ardshiel held investments in debt and
equity securities of Wing and Darby. Immediately prior to the consummation of
the Merger, all of the outstanding subordinated debt and associated warrants to
purchase common stock of Wing and Darby were converted into common stock of Wing
and Darby, respectively. The stockholders of Wing and Darby contributed their
common stock in Wing and Darby to Parent in exchange for common stock of Parent.
Immediately after the consummation of the Merger, Parent contributed all of the
common stock of Wing and Darby to Corp, which in turn contributed such stock to
the Company.

Upon completion of the Recapitalization, GEIPPPII and Ardshiel and its
affiliates beneficially owned approximately 96.7% of the outstanding common
stock of Parent with management owning the remaining 3.3%.

Pursuant to the terms of the Merger Agreement, all of the outstanding equity
securities of Corp were converted into the right to receive the merger
consideration of $94.2 million (the "Merger Consideration") in cash, net of
transaction costs of $5.4 million, outstanding indebtedness of $122.7 million
and $2.7 million of equity securities of Corp, owned by certain members of
management of Corp, which were converted into comparable equity securities of
Parent. The Merger Consideration was funded with (i) the $50.0 million in cash
that became an asset of Corp in the Merger, (ii) $20.0 million in cash proceeds
from the issuance of Senior Discount Debentures due 2010 by Corp. to GEIPPPII
and Ardatrium (the "Discount Debentures"), (iii) approximately $24.0 million in
cash proceeds from a loan from the Company (the

F-12
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

3. THE REVERSE ACQUISITION (RECAPITALIZATION): (CONTINUED)
"Intercompany Loan") which was funded by a portion of the proceeds of a term
loan to the Company under the Credit Facility (see Note 9), and (iv) $0.2
million in cash proceeds from the issuance of common stock of Parent to certain
members of management of Corp followed by a capital contribution of such
proceeds by Parent to Corp.

The acquisition of Corp by Parent and the Merger was accounted for as a
reverse acquisition. As Wing's shareholder group received the largest ownership
interest in Parent, Wing was determined to be the "accounting acquiror" in the
reverse acquisition. As a result, purchase accounting was applied to the assets
and liabilities of the Company. The purchase price was allocated to the
Company's assets and liabilities as follows:

<TABLE>
<S> <C>
Equity securities available for sale...................... $ 113
Accounts receivable....................................... 32,097
Inventories............................................... 18,766
Prepaid expenses and other current assets................. 4,506
Deferred tax asset........................................ 2,268
Property, plant and equipment............................. 18,391
Other noncurrent assets................................... 3,326
Goodwill.................................................. 170,447
Current liabilities....................................... (24,614)
Other long-term liabilities............................... (300)
---------
Total purchase price...................................... $ 225,000
---------
---------
</TABLE>

The purchase price includes cash paid of $120,977, including the retirement
of certain indebtedness, and the assumption of debt and accrued interest
$104,023

The purchase method of accounting was also applied to the net assets of Wing
and Darby to the extent minority interest was acquired. Goodwill was increased
by $1,247 and $242 for Wing and Darby, respectively.

4. ACQUISITION OF DOOR DIVISION OF SUPER MILLWORK, INC.

On November 10, 1997, Wing purchased certain assets of the Door Division of
Super Millwork, Inc. (SMI), a New York corporation for $12,500, including
contingent payments of $2,500 based on future operating results. The total cost
of the acquisition including transaction costs incurred aggregated $13,444. The
purchase price was funded with borrowings under a line of credit of
approximately $194, term loan borrowings of $6,750 and the issuance of
exchangeable subordinated notes of $4,000 with warrants.

F-13
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

4. ACQUISITION OF DOOR DIVISION OF SUPER MILLWORK, INC. (CONTINUED)
The purchase price allocation is as follows:

<TABLE>
<S> <C>
Accounts receivable........................................ $ 1,791
Inventories................................................ 2,540
Other current assets....................................... 31
Property, plant and equipment.............................. 215
Other noncurrent assets.................................... 300
Deferred financing costs................................... 536
Goodwill................................................... 9,945
Current liabilities........................................ (1,914)
---------
Total purchase price....................................... $ 13,444
---------
---------
</TABLE>

5. FAIR VALUE OF FINANCIAL INSTRUMENTS:

In accordance with Statement of Financial Accounting Standards No. 107 ("FAS
107") "Disclosures About Fair Value of Financial Instruments," the following
methods have been used in estimating fair value disclosures for significant
financial instruments of the Company.

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

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

Equity securities--available for sale--The carrying amounts that are
reported in the balance sheet approximate the fair value based on quoted
market prices.

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
exchangeable subordinated notes and the senior subordinated notes,
approximate fair value due to the floating nature of the interest rates.
Management estimates that the effective interest rate for the exchangeable
subordinated note approximates market for similar instruments with
comparable maturities. The senior subordinated notes of $29,070 are valued
at $29,361 as of December 31, 1998 based on quoted market prices.

Interest Rate Swaps--The Company has entered into two 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

F-14
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
interest rate swap agreements is the amount at which they could be settled,
based on estimates obtained from lenders. Swaps consisted of the following
at December 31:

<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Swap #1
Notional Amount............................................................ $ 1,406 $ 2,531
Fixed Interest Rate........................................................ 6.50% 6.50%
Termination Date........................................................... 3/31/00 3/31/00
Unrealized Gain/(Loss)..................................................... $ (15) --

Swap #2
Notional Amount............................................................ $ 2,827 --
Fixed Interest Rate........................................................ 6.25% --
Termination Date........................................................... 11/6/03 --
Unrealized Gain/(Loss)..................................................... $ (87) --
</TABLE>

Forward aluminum contracts--The unrealized gains and losses are based on
quotes for aluminum as reported on the London Metal Exchange. As of December
31, 1998, the Company had forward contracts with fixed rate prices totaling
$2,623 with an unrealized loss of $199.

6. INVENTORIES:

Inventories consisted of the following at December 31:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 27,362 $ 6,816
Work-in-process......................................................... 4,129 1,591
Finished goods.......................................................... 13,486 5,247
--------- ---------
44,977 13,654
LIFO reserve............................................................ 1,312 (97)
--------- ---------
$ 46,289 $ 13,557
--------- ---------
--------- ---------
</TABLE>

The change in the LIFO reserve for 1998 and 1997, resulted in a decrease in
cost of sales of $1,409 and an increase in cost of sales of $95, respectively
and a decrease in cost of sales for the periods ended December 31, 1996 and
October 26, 1996 of $2 and $360, respectively.

F-15
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

7. PROPERTY, PLANT AND EQUIPMENT:

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

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land.................................................................... $ 1,303 $ 40
Buildings and improvements.............................................. 8,671 1,812
Machinery and equipment................................................. 19,311 6,974
Construction-in-process................................................. 722 --
--------- ---------
Total................................................................. 30,007 8,826
Less accumulated depreciation and amortization.......................... (3,247) (1,273)
--------- ---------
$ 26,760 $ 7,553
--------- ---------
--------- ---------
</TABLE>

Depreciation expense was $1,996, $1,180, $165 and $716 for 1998 and 1997,
and the periods ended December 31, 1996 and October 25, 1996, respectively.

8. DEFERRED FINANCING COSTS:

The deferred financing costs relate to costs incurred in the placement of
the Company's debt and are being amortized using the effective interest method
over the terms of the related debt, which range from five to ten years.
Amortization expense for 1998 and 1997 and for the period ended December 31,
1996 was $732, $390 and $30, respectively and was recorded as interest expense
in the accompanying consolidated statements of operations. No amortization
expense was recorded for the period ended October 25, 1996.

The Company wrote off deferred financing costs of $639, net of income tax
benefit of $392, in connection with the Recapitalization.

F-16
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

9. NOTES PAYABLE:

Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
$100,000 Senior Subordinated Notes, due November 15, 2006, with semiannual
interest payments of 10 1/2% due May 15 and November 15........................ $ 29,070 $ --
Revolving credit facility........................................................ 4,118
$75,000 Term Loan B, due June 30, 2005 with $250 quarterly payments, interest at
either the administrative agent's base rate plus an applicable margin or LIBOR
plus an applicable margin (9.625% at December 31, 1998)........................ 74,750 --
$70,930 Term Loan C, due June 30, 2006, with $250 quarterly payments, interest at
either the administrative agent's base rate plus an applicable margin or LIBOR
plus an applicable margin (9.875% at December 31, 1998)........................ 70,680 --
Other notes payable.............................................................. 609 770
$14,500 revolving line of credit with BHF-Bank, bearing interest at bank's base
rate (which approximate prime) plus one and one-half percent (10% at December
31, 1997)...................................................................... -- 4,448
$6,750 note payable to BHF-Bank, due in quarterly installments of $219 through
September 30, 2002 and $591 through maturity, November 6, 2003, plus interest
at the base rate (which approximates prime) plus one and one-half percent (10%
at December 31, 1997).......................................................... -- 6,750
$4,000 exchangeable subordinated note payable to GEIPPPII and Ardwing L.L.C.,
payable interest only in quarterly installments at 11%, due November 10, 2004,
exchangeable into approximately 22,126 shares of common stock.................. -- 4,000
$10,000 note payable to BHF-Bank, due in quarterly installments of $250 through
September 30, 1997 and $562 through maturity, October 25, 2001, plus interest
at the base rate (which approximates prime) plus one and one-half percent (10%
at December 31, 1997).......................................................... -- 9,000
$8,500 exchangeable subordinated note payable to GEIPPPII, payable interest only
in quarterly installments at 11%, due October 25, 2003, exchangeable into
approximately 46,669 shares of common stock.................................... -- 8,500
---------- ---------
179,227 33,468
Less:
Unamortized discount on exchangeable subordinated notes payable................ -- (1,230)
Current maturities of long-term debt........................................... (2,209) (3,364)
---------- ---------
Long-term debt............................................................... $ 177,018 $ 28,874
---------- ---------
---------- ---------
</TABLE>

The Company's exchangeable subordinated notes payable, notes payable to
banks and revolving line of credit existing at December 31, 1997 and through
October 2, 1998, were repaid or converted in connection with the
Recapitalization.

The note agreements existing prior to the merger contained certain
covenants, including, among others, requirements that the Company comply with
certain financial and operational results and ratios. In addition, the loan
agreements placed certain limitations on the ability to pay dividends, to incur
indebtedness, to change its present method of doing business, to make certain
investments (including capital expenditures) or to sell assets. Substantially
all of Wing's assets and capital stock were collateralized under

F-17
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

9. NOTES PAYABLE: (CONTINUED)
the BHF-Bank agreements. The $10,000 and $6,750 term loans contained "excess
cash flow" provisions mandating additional principal payments if certain cash
flow targets were met during each fiscal year. No additional principal payments
were required as of December 31, 1997.

The Company entered into a Credit Agreement (the "Credit Agreement"), dated
as of October 2, 1998 with Bank Boston, as administrative agent (the
"Administrative Agent") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as lead arranger, syndication agent and documentation agent.

The Credit Agreement provides for three separate facilities (the
"Facilities") consisting of two term loans (referred to individually as "Term
Loan B" and "Term Loan C", and collectively as the "Term Loans") and a revolving
credit facility with a letter of credit sub-facility (the "Revolving Facility",
together with the Term Loans, the "Loans"). The Revolving Facility is in the
amount of $30,000, of which $5,000 is available under a letter of credit
sub-facility. The Revolving Facility has a maturity date of June 30, 2004.

All amounts outstanding under the Credit Agreement are secured 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
Corp, the Company and their respective direct and indirect domestic subsidiaries
existing on the October 2, 1998 or thereafter created or acquired (the "Domestic
Subsidiaries"). Corp 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. No
additional principal payments are required as of December 31, 1998 related to
this provision.

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 Credit Agreement requires 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. The Credit Agreement requires the Company to
meet certain financial tests pertaining to, interest coverage, fixed charge
coverage and leverage.

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.

F-18
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

9. NOTES PAYABLE: (CONTINUED)
Principal payments due during the next five years on long-term notes payable
as of December 31, 1998 are as follows:

<TABLE>
<S> <C>
1999.............................................. $ 2,209
2000.............................................. 2,260
2001.............................................. 2,140
2002.............................................. 2,000
2003.............................................. 2,000
Thereafter........................................ 168,618
---------
$ 179,227
---------
---------
</TABLE>

10. FEDERAL INCOME TAX:

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

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Stock option compensation.............................................. $ 2,486 $ --
Transaction costs...................................................... 1,341 --
Allowance for doubtful accounts........................................ 380 52
Inventory cost capitalization and valuation............................ 648 72
Accrued vacation and bonus............................................. 608 80
Warranty reserve....................................................... 135 --
Workers' compensation reserve.......................................... 431 --
Other.................................................................. 130 59
--------- ---------
6,159 263
Deferred income tax liabilities:
Depreciation........................................................... (1,861) (449)
LIFO reserve........................................................... (1,505) (829)
Capitalized software costs............................................. (1,039) --
Amortization of goodwill............................................... (506) --
--------- ---------
(4,911) (1,278)
--------- ---------
Net deferred income tax asset asset (liability).......................... 1,248 (1,015)
Less-current deferred tax asset (liability).............................. 1,249 (566)
--------- ---------
Long-term deferred tax liability......................................... $ (1) $ (449)
--------- ---------
--------- ---------
</TABLE>

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. As of December 31, 1998 and
1997, no valuation reserve was required.

F-19
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

10. FEDERAL INCOME TAX: (CONTINUED)
The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------- ------------- ------------- -------------
Current federal income tax provision
(benefit).......................... $ (467) $ 462 $ 153 $ 441
<S> <C> <C> <C> <C>
Deferred federal income tax
provision.......................... 330 184 60 182
State income tax provision
(benefit).......................... (12) 49 16 47
----- ----- ----- -----
Provision (benefit) for income
taxes.............................. $ (149) $ 695 $ 229 $ 670
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

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

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------- ------------- ------------- -------------
Tax computed at statutory rate...... $ (815) $ 473 $ 181 $ 606
<S> <C> <C> <C> <C>
State taxes, net of federal
benefit........................... (12) 67 22 40
Amortization of goodwill............ 495 110 18 --
Other............................... 183 45 8 24
----- ----- ----- -----
Provision (benefit) for income
taxes............................. $ (149) $ 695 $ 229 $ 670
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

11. PREFERRED STOCK:

Wing was authorized to issue 2,000 shares, $.01 par value of preferred stock
and at December 31, 1997 there were no shares outstanding. Concurrent with the
Recapitalization discussed in Note 3, all of Wing's authorized preferred stock
was canceled.

12. RELATED PARTIES:

MANAGEMENT AND INVESTMENT BANKING AGREEMENT

In November 1997, Wing amended its ten-year Management and Investment
Banking Agreement (the "Old Management Agreement") with Ardshiel. Pursuant
thereto, Wing agreed to pay Ardshiel an annual fee of $375 plus expenses for
ongoing management advisory services to Wing. In 1998, 1997 and 1996, $368, $485
and $72, respectively, was paid to Ardshiel under this agreement. The Old
Management Agreement was terminated in connection with the Recapitalization on
October 2, 1998.

FINANCIAL ADVISORY FEE

Ardshiel received a financial advisory fee of $600 plus expenses on the
closing date of the October 26, 1996 transaction as compensation for its
services as financial advisor to Wing. In addition, Ardshiel received warrants
to obtain 5,714 shares of Class A voting common stock at no additional cost.
Such warrants can be converted into Class A voting common stock at any time. The
warrants were valued at $332 and were included in the total purchase price of
Wing.

Ardshiel received an investment banking fee of $250 plus expenses on the
closing date of the acquisition of the of the Door Division of Super Millwork,
Inc. acquisition as compensation for its services to Wing in connection with
this acquisition.

F-20
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

12. RELATED PARTIES: (CONTINUED)
SHAREHOLDER AGREEMENT

GEIPPPII, Ardatrium and certain of its affiliates, and certain other
shareholders of Parent have entered into a Shareholder Agreement (the
"Shareholder Agreement"), dated as of October 2, 1998, which affect their
relative rights as shareholders of Parent.

MANAGEMENT AGREEMENT

Parent is a party to a Management Agreement (the "Management Agreement")
dated October 2, 1998 with Ardshiel. Pursuant to the Management Agreement,
Ardshiel provides advice to Parent and its subsidiaries with respect to business
strategy, operations and budgeting and financial controls ("Management
Services") in exchange for an annual fee of $1,300 plus expenses. Additionally,
the Management Agreement provides that, prior to entering into any transaction
that involves engaging a financial advisor to perform services in connection
with a sale or purchase of a business or entity or any financing including,
Parent or its subsidiaries must offer Ardshiel the opportunity to perform such
investment banking services, unless in the reasonable exercise of the business
judgment of the Board of Directors of Parent such engagement would result in a
conflict of interest or would otherwise be adverse to the interests of Parent or
such subsidiaries. Ardshiel shall receive a fee for any such services rendered
by Ardshiel to Parent or its subsidiaries which fee shall not be greater than 2%
of the total purchase or sale price for such business or entity and shall be
payable upon consummation of such sale or purchase. The consent of GEIPPPII is
required prior to the payment by Parent or any of its subsidiaries in paying
similar fees to other entities for similar services. Parent paid a closing fee
of approximately $3,375 upon the consummation of the Merger and paid Ardshiel's
fees and expenses in connection therewith. The Management Agreement will remain
in effect until October 2, 2008 and will automatically be renewed for one-year
periods unless either party gives written notice to the contrary at least 30
days prior to the expiration of the initial or any extended 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:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Receivables from officers..................................................... $ 123 $ --
Receivables from employees.................................................... $ 211 $ --
</TABLE>

13. 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,
its Chief Financial Officer and Chief Operating Officer and several Divisional
Presidents, Vice Presidents, General Managers and Sales Managers of the
Company's divisions. The agreements generally provide for terms of employment,
annual salaries, bonuses, and eligibility for option awards and severance
benefits.

F-21
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)

OPERATING LEASES

The Company has entered into operating lease agreements for office and
manufacturing space, automobiles, and machinery and equipment with unrelated
third parties, affiliates of certain stockholders and certain stockholders of
the Company. Total rent expense for 1998, 1997 and for the periods ended
December 31, 1996 and October 25, 1996 was $2,862, $1,189, $172 and $691,
respectively. Of these totals, amounts paid to related parties was $398 for 1998
and $0 for 1997 and the periods ended December 31, 1996 and October 25, 1996.
Future minimum rents due under operating leases with initial or remaining terms
greater than twelve months are as follows:

<TABLE>
<CAPTION>
RELATED OTHER
PARTIES PARTIES TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1999......................................................... $ 1,317 $ 3,898 $ 5,215
2000......................................................... 1,317 3,348 4,665
2001......................................................... 1,317 2,779 4,096
2002......................................................... 1,180 1,989 3,169
2003......................................................... 1,272 1,407 2,679
Thereafter................................................... 14,001 3,627 17,628
--------- --------- ---------
$ 20,404 $ 17,048 $ 37,452
--------- --------- ---------
--------- --------- ---------
</TABLE>

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,
1998, the Company had forward commitments totaling $2,623 for delivery through
December 1999 for 21.1 million pounds of aluminum, of which 3.6 million pounds
were at fixed prices, respectively. No amounts were outstanding as of December
31, 1997.

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.

During 1993, factory employees voted to unionize and become members of
Amalgamated Clothing and Textile Workers Union. A three-year union contract was
executed during 1995 and extended for three additional years in 1998. In
addition, in connection with its Woodville, Texas operations, the Company is
party to collective bargaining arrangements due to expire in 2001.

F-22
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 Chemical Recycling, Inc.
site in Wylie, Texas, and the Diaz Refinery site in Little Rock, Arkansas). 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.

14. OTHER INCOME, NET:

Other income, net consists of the following for the year ended December 31,
1998:

<TABLE>
<S> <C>
Rental, interest and other income.................... $ 556
Gain on sale of assets............................... 12
Other................................................ 3
---------
$ 571
---------
---------
</TABLE>

15. STOCK OPTIONS:

The Wing Industries Holdings, Inc. Stock Option Plan (the "Plan") was
adopted on October 25, 1996 and amended on November 17, 1997 to provide certain
employees, officers and directors of Wing an opportunity to purchase Class A
voting common stock of Wing. Options available for grant under the Plan included
(1) "Incentive Stock Options" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended and (2) Nonqualified Stock Options which were options
that did not constitute Incentive Stock Options.

At December 31, 1997, Nonqualified Stock Options for a total of 14,483
shares of Wing's Class A voting common stock had been granted. During 1998, and
prior to the Recapitalization, 1,766 options were exercised. The remaining
12,717 options were exchanged for 2,528,314 options in the D and W Holdings,
Inc. 1998 Stock Option Plan (the "New Plan"). The Plan was terminated in
connection with the Recapitalization. No compensation expense was recorded
during 1997 or 1996.

THE NEW PLAN

In connection with the Recapitalization, the Board of Directors adopted the
New Plan authorizing the issuance of 11,991,142 options to acquire common stock
of the Company. Through December 31, 1998, the Board of Directors granted
11,735,941 options under the New Plan. All options granted under the New Plan
expire ten years from the date of grant, October 2, 1998.

As of December 31, 1998, 1,756,924 options had been granted in three
tranches under the New Plan in replacement of certain of the options granted
under the Plan. These options consist of (a) options to purchase 692,861 shares
of common stock at an exercise price of $0.01 per share; (b) options to purchase
539,135 shares of common stock at an exercise price of $0.72 per share until
December 1, 1999, and then increasing 15% per year thereafter, until and
including December 1, 2000; and (c) options to purchase 524,928 shares of common
stock at an exercise price of $0.82 per share until December 1, 1999, and then

F-23
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

15. STOCK OPTIONS: (CONTINUED)
increasing 30% per year thereafter, until and including December 1, 2000. As of
December 31, 1998, 1,064,030 of these options were fully vested. The remaining
options vest on October 25, 1999, subject to accelerated vesting in the event
(a) the Company sells common stock in an offering registered with the Securities
and Exchange Commission which results in a Change of Control (as defined in the
New Plan); (b) the Company is merged or consolidated with another corporation in
a merger in which the surviving corporation has freely tradeable common stock;
(c) substantially all of the assets of the Company and its subsidiaries, taken
as a whole, are sold or otherwise transferred; or (iv) a plan of liquidation of
the Company of the optionee's employer is adopted.

As of December 31, 1998, options of 771,390 with an exercise price of $1.25
had been granted under the New Plan that become exercisable only as such time at
(each such event, a "Value Event") (a) the Company sells common stock in an
offering registered with the Securities and Exchange Commission, which
constitutes a Qualifying Public Offering (as defined in the New Plan); (b) the
Company is merged or consolidated with another corporation in a merger in which
the surviving corporation has freely tradeable common stock; or (c)
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, are sold or otherwise transferred.

As of December 31, 1998, options of 832,314 had been granted that consisted
of two tranches: (a) - options to purchase 277,438 shares with an exercise price
of $0.83 per share to March 31, 1999 and then increasing 15% per year thereafter
and (b) - options to purchase 554,876 shares with an exercise price of $0.83 per
share to March 31, 1999 and then increasing 30% per year thereafter. For the 15%
and the 30% options, if the holder chooses not to exercise at time of vesting,
the strike price increases annually to the next level until expiration. At
December 31, 1998 none of these options were vested. The options vest equally in
one-third increments on January 9, 1999, 2000 and 2001, respectively.

As of December 31, 1998, options of 221,725 with an exercise price of $1.65
had been granted that are exercisable only upon the occurrence of a Value Event.
These options vest at such time of occurrence of a value event.

As of December 31, 1998, options of 8,153,588 options had been granted with
an exercise price of $1.00. On the anniversary of the grant date and prior to
termination of employment, 3,551,526 options will vest 25% and shall continue to
vest ratably as of and after the fourth anniversary date of grant. The remaining
4,602,062 options will vest 20% and shall continue to vest ratably as of and
after the fifth anniversary date of grant. The options expire ten years from the
date of grant.

The Company recorded non cash stock option compensation expense of $1,038 in
1998 in connection with the difference between the fair value of the stock at
the date of issuance ($1.00) and the respective exercise prices of each of the
above grants.

THE REPLACEMENT PLAN

In addition to the New Plan, the Board of Directors adopted the D and W
Holdings, Inc. Replacement Stock Option Plan (the "Replacement Plan") to govern
the terms of certain options to purchase the Company's common stock which were
granted in replacement of outstanding options of Atrium Corp. in connection with
the Recapitalization. Under the Replacement Plan, options to purchase in
aggregate of 1,575,000 shares of the Company's common stock were granted in
exchange for outstanding options of Atrium Corp. which were not cashed out
pursuant to the Merger Agreement. The options granted

F-24
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

15. STOCK OPTIONS: (CONTINUED)
pursuant to the Replacement Plan vest ratably over a period of five years on
each anniversary date of the grant. The replacement options have an exercise
price of $0.01 per share.

Upon termination of the optionee's employment, the Company shall have the
right to repurchase the options. In the event termination was for cause, the
price per option repurchased will be equal to the lesser of $1.00 per underlying
share and the market value per share of the Company's common stock, in either
case, minus $0.01 per share. If termination is for other than cause, the
repurchase price will differ for the vested and unvested portions. The unvested
portion will be reacquired at a purchase price equal to the lesser of the market
value per share and $1.00 per share, in each case, minus $0.01 per share and the
vested portion may be reacquired at a purchase price equal to the greater of the
market value per share or $1.00 per share, in each case, minus $0.01 per share.

On October 2, 1998, the Company issued a warrant (the "Warrant") to the
President and Chief Executive Officer (the "Executive") of the Company. Pursuant
to the terms of the Warrant, the Executive is entitled to purchase 2,841,221
shares of common stock at any time subsequent to the Recapitalization. The
exercise price of the Warrant is $.01 per share. An additional 1,894,148 shares
may be purchased under the Warrant at an exercise price of $1.00, representing
the fair market value on the date of grant upon the realization of an 8.0%
internal rate of return. The 1,894,148 options vest ratably each day for three
years. The Warrant will terminate on October 2, 2008. The Company recorded non
cash compensation expense of $2,813 for 1998 in connection with the difference
between the fair market value of the stock at the date of issuance ($1.00) and
the exercise price ($.01).

In addition, in exchange for certain warrants to purchase common stock of
Atrium Corp, the Executive received a warrant to purchase 1,000,000 shares of
the Company's common stock at a price of $.01 per share with a term of twenty
years.

The following table summarizes the transactions of the New Plan and the
Replacement Plan for the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996 (all outstanding options were granted to management of
the Company):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Outstanding options, beginning of period......... 2,849,863 2,078,473 --
Granted.......................................... 13,310,941 771,390 2,078,473
Canceled or expired.............................. -- -- --
Exchanged........................................ (2,528,314) -- --
Exercised........................................ (321,549) -- --
------------- ------------- ------------
Outstanding options, end of year................. 13,310,941 2,849,863 2,078,473
------------- ------------- ------------
------------- ------------- ------------
Weighted average exercise price of options
exercised...................................... $ .84 $ -- $ --
Weighted average exercise price of options
granted........................................ $ .82 $ 1.25 $ .42
Weighted average exercise price, end of period... $ .85 $ 0.74 $ .42
Options exercisable, end of period............... 1,064,030 461,937 --
</TABLE>

F-25
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

15. STOCK OPTIONS: (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Options available for future grant............... 255,201 731,415 834,837
</TABLE>

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 1998 and 1997: dividend yield of
0.0%; risk-free interest rate of 7.0%; and the expected life of 10 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).

If an event or value event as previously defined were to become probable,
the difference between the option price and the then fair market value would be
charged to earnings at that time.

The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (MONTHS) PRICE EXERCISABLE PRICE
- ------------------ ------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Options:
$ .01 2,267,861 117 $ .01 461,906 $ .01
$.83 - 1.00 9,525,037 117 $ .98 308,150 $ .79
$1.21 - 1.65 1,518,043 117 $ 1.29 293,974 $ 1.07
------------ ----------
13,310,941 1,064,030
Warrants:
$ .01 2,841,221 117 $ .01 2,841,221 $ .01
$1.00 1,894,148 117 $ 1.00 155,541 $ 1.00
------------ ----------
4,735,369 2,996,762
</TABLE>

In 1995, the FASB issued FASB Statement No. 123 ("FAS 123") "Accounting for
Stock-Based Compensation" 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 FAS 123 is optional and
the Company has decided not to elect the provisions of FAS 123. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
FAS 123 are required by FAS 123; however, there is no pro forma effect of
adopting the cost provisions of FAS 123 for the years ended December 31, 1998
and 1997 and the periods ended December 31, 1996 and October 25, 1996. In 1998,
1997 and 1996, the Company granted only nonqualified stock options and warrants
under the plans.

Had the compensation cost for the Company's stock-based compensation plans
and warrants been determined consistent with FAS 123, the Company's net income
(loss) for 1998, 1997 and 1996 would have been ($3,122), $440 and $224,
respectively.

The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. FAS 123 does not apply to awards prior to 1995.

F-26
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

16. EMPLOYEE BENEFIT PLANS:

Prior to the formation of Wing, management announced the curtailment of the
defined benefit pension plan covering substantially all employees. Upon receipt
of a favorable tax determination letter from the Internal Revenue Service,
settlement of the plan occurred during the period ended October 25, 1996, at
which time a liquidating distribution of $2,789 was made to the eligible
employees based on years of service and the employee's compensation during the
five consecutive years of employment in which compensation was the highest. In
addition, management retired the two nonqualified, unfunded and noncontributory
plans for the directors. Settlement of the plans occurred during the period
ended October 25, 1996 at which time a lump-sum payout of $801 was made to the
directors.

The Company maintains an employees' savings plan under Section 401(k) of the
Internal Revenue Code (the "Code"). The Company makes discretionary matching
contributions equal to 50% of the first 4% of the employee's contribution. The
Company contributed $101, $85, $78 during 1998 and 1997 and the period ended
December 31, 1996, respectively.

In connection with the Recapitalization, the Company maintains two
additional plans under Section 401(k) and 401 of the Code. Each plan provides
for discretionary contributions by the employer. The Plan covered by Section 401
of the Code does not provide for employee contributions. The Company contributed
$57 to the plans during the period from October 3, 1998 to December 31, 1998.

17. SUBSIDIARY GUARANTORS:

In connection with the Company's Senior Subordinated Notes, the Company's
payment obligations under the Notes are fully and unconditionally guaranteed,
jointly and severally (collectively, the Subsidiary Guarantees) on a senior
subordinated basis by its wholly-owned subsidiaries: ADW-Northeast, ADW-Arizona,
ADW-West Coast, Wing and Darby (collectively, the Subsidiary Guarantors). The
Company has no non-guarantor direct or indirect subsidiaries. The operations
related to the assets of ADW-Northeast ADW-Arizona ADW-West Coast and Darby are
included since the reverse acquisition on October 2, 1998. The operations of
Wing are presented for all periods covered. The balance sheet information
includes all subsidiaries as of December 31, 1998 and only Wing as of December
31, 1997. In the opinion of management, separate financial statements of the
respective Subsidiary Guarantors would not provide additional material
information, which would be useful in assessing the financial composition of the
Subsidiary Guarantors. No single Subsidiary Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness.

Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets................................................... $ 42,887 $ 23,610
Noncurrent assets................................................ 157,678 31,773
Current liabilities.............................................. 16,666 12,885
Noncurrent liabilities........................................... 123,049 31,823
</TABLE>

F-27
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

17. SUBSIDIARY GUARANTORS: (CONTINUED)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales........................................................ $ 165,333 $ 99,059
Gross profit..................................................... 37,340 20,789
Net income from continuing operations............................ 503 696
Net income....................................................... 503 696
</TABLE>

18. SUBSEQUENT EVENTS:

DELTA ACQUISITION

On January 27, 1999, the Company acquired certain assets of Delta Millwork,
Inc., a privately held door pre-hanger located in Orlando, Florida, for $1,300.
The Company financed the acquisition through its revolving credit facility.

The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16").
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, with the remainder allocated to goodwill. Based on preliminary
estimates which will be finalized at a later date, the excess of purchase price
over the fair value of the net assets acquired ("goodwill") was approximately
$100, which will be amortized over 40 years. The results of operations for the
acquired business will be included in the Company's consolidated financial
statements beginning January 27, 1999.

MANAGEMENT CHANGE

On April 9, 1999, the Company completed a separation agreement with Randall
S. Fojtasek, President and Chief Executive Officer, whereby Mr. Fojtasek
resigned from the Company effective March 31, 1999. The Board of Directors has
nominated Jeff L. Hull, Executive Vice President and Chief Financial Officer,
and Ken L. Gilmer, Executive Vice President and Chief Operating Officer, to
oversee day-to-day operations and report directly to the Executive Committee of
the Board of Directors. The Company expects to take a charge of approximately
$1,750 in the first quarter of fiscal year 1999 for severance benefits related
to this management change.

$175,000 SENIOR SUBORDINATED NOTES

On May 10, 1999, the Company issued $175,000 of senior subordinated notes
due May 1, 2009. The notes are non-callable for five years, have a 10.50% stated
rate paid semi-annually and were issued at a discount of 98.496 to yield 10.75%
to maturity. The proceeds were used to fund the acquisitions of Heat, Inc. and
Champagne Industries, Inc., refinance certain indebtedness and pay fees and
expenses.

F-28
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

18. SUBSEQUENT EVENTS: (CONTINUED)
HEAT ACQUISITION

On May 17, 1999, the Company acquired Heat, Inc., a privately held vinyl
window and door company located in Pittsburgh, Pennsylvania, for approximately
$85,000. The Company financed the acquisition with a portion of the proceeds
from the issuance of $175,000 of senior subordinated notes.

The acquisition was accounted for as a purchase in accordance with APB 16.
The aggregate purchase price was 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 was $69,400, which is being amortized over 40 years.

CHAMPAGNE ACQUISITION

On May 17, 1999, the Company acquired Champagne Industries, Inc., a
privately held vinyl window and door company located in Denver, Colorado for
$3,600, excluding $500 to be paid upon achievement of certain operational
targets. The Company financed the acquisition with a portion of the proceeds
from the issuance of $175,000 of senior subordinated notes.

F-29
<PAGE>
ATRIUM COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
1998
MARCH 31, ------------
1999
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ -- $ --
Equity securities--available for sale............................................... 144 137
Accounts receivable, net............................................................ 50,718 46,466
Inventories......................................................................... 49,973 46,289
Prepaid expenses and other current assets........................................... 8,020 7,756
Deferred tax asset.................................................................. 1,249 1,249
----------- ------------
Total current assets.............................................................. 110,104 101,897

PROPERTY, PLANT, AND EQUIPMENT, net................................................... 26,907 26,760
GOODWILL, net......................................................................... 213,902 214,749
DEFERRED FINANCING COSTS, net......................................................... 10,740 11,058
OTHER ASSETS.......................................................................... 5,113 5,405
----------- ------------
Total assets...................................................................... $ 366,766 $ 359,869
----------- ------------
----------- ------------

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Current portion of notes payable.................................................... $ 2,206 $ 2,209
Accounts payable.................................................................... 23,703 25,353
Accrued liabilities................................................................. 18,581 15,432
----------- ------------
Total current liabilities......................................................... 44,490 42,994

LONG-TERM LIABILITIES:
Notes payable....................................................................... 183,054 177,018
Deferred tax liability.............................................................. 1 1
Other long-term liabilities......................................................... 5,968 6,800
----------- ------------
Total long-term liabilities..................................................... 189,023 183,819
----------- ------------
Total liabilities............................................................... 233,513 226,813

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY:
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and
outstanding....................................................................... -- --
Paid-in capital..................................................................... 134,852 134,852
Accumulated deficit................................................................. (1,630) (1,820)
Accumulated other comprehensive income.............................................. 31 24
----------- ------------
Total stockholder's equity...................................................... 133,253 133,056
----------- ------------
Total liabilities and stockholder's equity.................................... $ 366,766 $ 359,869
----------- ------------
----------- ------------
</TABLE>

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

F-30
<PAGE>
ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
NET SALES.................................................................................. $ 106,842 $ 39,450
COST OF GOODS SOLD......................................................................... 74,708 30,464
---------- ---------
Gross profit............................................................................. 32,134 8,986

OPERATING EXPENSES:
Selling, delivery, general and administrative expenses................................... 23,151 6,606
Amortization expense..................................................................... 1,889 146
Special charge........................................................................... 1,762 --
---------- ---------
26,802 6,752
---------- ---------
Income from operations................................................................. 5,332 2,234

INTEREST EXPENSE........................................................................... 4,346 992
OTHER INCOME, net.......................................................................... 32 --
---------- ---------
Income before income taxes............................................................. 1,018 1,242

PROVISION FOR INCOME TAXES................................................................. 828 556
---------- ---------
NET INCOME................................................................................. $ 190 $ 686
---------- ---------
---------- ---------
</TABLE>

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

F-31
<PAGE>
ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net income........................................................................................ $ 190 $ 686
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during the period............................................ 7 --
--------- ---------
Comprehensive income............................................................................ $ 197 $ 686
--------- ---------
--------- ---------
</TABLE>

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

F-32
<PAGE>
ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENT OF
STOCKHOLDER'S EQUITY

FOR THE QUARTER ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT INCOME EQUITY
----------- ----------- --------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998............. 100 $ -- $ 134,852 $ (1,820) $ 24 $ 133,056
Other comprehensive income......... -- -- -- -- 7 7
Net income......................... -- -- -- 190 -- 190
--- ----- --------- ------------- --- ------------
Balance, March 31, 1999................ 100 $ -- $ 134,852 $ (1,630) $ 31 $ 133,253
--- ----- --------- ------------- --- ------------
--- ----- --------- ------------- --- ------------
</TABLE>

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

F-33
<PAGE>
ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 190 $ 686
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................ 2,937 468
Amortization of deferred financing costs................................................. 381 111
Gain on sale of assets................................................................... (31) --
Changes in assets and liabilities, net of acquisition in 1999:
Accounts receivable, net............................................................... (3,073) (4,539)
Inventories............................................................................ (2,735) (45)
Prepaid expenses and other current assets.............................................. (225) 62
Accounts payable....................................................................... (29) (2,756)
Accrued liabilities.................................................................... 3,265 5,527
--------- ---------
Net cash provided by (used in) operating activities.................................. 680 (486)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................................. (1,059) (287)
Proceeds from sale of assets............................................................... 32 --
Payment for acquisition, net of cash acquired.............................................. (1,737) --
Increase in other assets................................................................... (599) (343)
--------- ---------
Net cash used in investing activities................................................ (3,363) (630)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility............................................. 6,582 1,928
Scheduled principal payments on term notes................................................. (500) (782)
Payment of capital lease obligations....................................................... (49) --
Payment of other long-term liabilities..................................................... (1,032) --
Checks drawn in excess of bank balances.................................................... (2,255) --
Deferred financing costs................................................................... (63) --
Proceeds from exercise of stock options.................................................... -- 216
--------- ---------
Net cash provided by financing activities............................................ 2,683 1,362
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................................... -- 246
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................... -- 34
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................... $ -- $ 280
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE:
Cash paid (received) during the period for:
Interest................................................................................. $ 1,222 $ 881
Income taxes, net of refunds............................................................. (502) 400
</TABLE>

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

F-34
<PAGE>
ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

1. BASIS OF PRESENTATION:

The unaudited consolidated financial statements of Atrium Companies, Inc.
(the "Company") for the quarters ended March 31, 1999 and 1998, and as of March
31, 1999 and December 31, 1998 have been prepared in accordance with generally
accepted accounting principles for interim financial reporting, the instructions
to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

These consolidated financial statements and footnotes should be read in
conjunction with the Company's audited financial statements for the fiscal years
ended December 31, 1998, 1997 and 1996 included in the Company's Form 10-K as
filed with the Securities and Exchange Commission on April 15, 1999. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the interim
financial information have been included. The results of operations for any
interim period are not necessarily indicative of the results of operations for a
full year. Certain prior period amounts have been reclassified to conform to the
current period presentation.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging
Activities" that is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will implement the provisions of FAS 133 as
required. The future adoption of FAS 133 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.

Prior to October 2, 1998, the Company's historical financial statements as
previously filed with the Securities and Exchange Commission included its
operations and the operations of its wholly-owned subsidiaries, Atrium Door and
Window Company of the Northeast, Atrium Door and Window Company of New England,
Atrium Door and Window Company of New York (collectively, "ADW-Northeast"),
Atrium Door and Window Company--West Coast ("ADW-West Coast) and Atrium Door and
Window Company of Arizona ("ADW-Arizona"). On October 2, 1998, pursuant to an
acquisition and merger (the "Recapitalization" or "reverse acquisition") as more
fully described in the Company's Form 10-K as filed with the Securities and
Exchange Commission on April 15, 1999, the Company's indirect Parent (D and W
Holdings, Inc.) contributed the stock of Wing Industries Holdings, Inc. and its
subsidiary Wing Industries, Inc. (collectively "Wing") and Door Holdings, Inc.
and its subsidiaries R.G. Darby Company, Inc. and Total Trim, Inc. (collectively
"Darby") to the Company.

As Wing was determined to be the acquiror in a "reverse acquisition", the
historical financial statements of the Company (prior to October 3, 1998) were
replaced with the historical financial statements of Wing. As a result, the
statement of income for 1998 only includes the operations of the Company and
Darby from October 3, 1998 through December 31, 1998. The statements of income
for all periods prior to October 3, 1998 only include the operations and
accounts of Wing. Additionally, the operations of Delta Millwork, Inc. (renamed
R.G. Darby Company-South and Total Trim-South, collectively "Darby-South") are
included since the date of acquisition, January 27, 1999. The March 31, 1999
balance sheet includes the accounts of the Company, Wing, Darby, Darby-South and
each of their respective subsidiaries, while the December 31, 1999 balance sheet
includes the accounts of the Company, Wing, Darby and each of their respective
subsidiaries.

F-35
<PAGE>
ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

1. BASIS OF PRESENTATION: (CONTINUED)
The following unaudited pro forma information presents consolidated
operating results as though the Recapitalization and the acquisition of Delta
Millwork, Inc. (see Note 6) had occurred at the beginning of the periods
presented:

<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, QUARTER ENDED MARCH
1999 31, 1998
----------------------- ----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales..................................... $ 106,842 $ 107,350 $ 39,450 $ 95,192
Gross profit.................................. 32,134 32,225 8,986 26,833
Operating expenses............................ 25,040 25,158 6,752 21,588
Special charge................................ 1,762 1,762 -- --
Income from operations........................ 5,332 5,305 2,234 5,245
Net income from continuing operations......... 190 152 686 236

Depreciation and amortization................. 2,937 2,946 468 3,226
Interest expense.............................. 4,346 4,358 992 4,381
</TABLE>

2. EQUITY SECURITIES--AVAILABLE FOR SALE:

Investments in equity securities--available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded as other
comprehensive income in stockholder's equity.

3. INVENTORIES:

Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Work-in-process and finished goods
inventories consist of materials, labor, and manufacturing overhead. Inventories
consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Raw materials....................................................... $ 27,461 $ 27,362
Work-in-process..................................................... 4,680 4,129
Finished goods...................................................... 17,068 14,686
----------- ------------
49,209 46,177
LIFO reserve........................................................ 764 112
----------- ------------
$ 49,973 $ 46,289
----------- ------------
----------- ------------
</TABLE>

F-36
<PAGE>
ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

4. NOTES PAYABLE:

Notes payable consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Revolving credit facility......................................... $ 10,700 $ 4,118
Term loan B....................................................... 74,500 74,750
Term loan C....................................................... 70,430 70,680
Senior subordinated notes......................................... 29,070 29,070
Other............................................................. 560 609
----------- ------------
185,260 179,227
Current portion of notes payable.................................. (2,206) (2,209)
----------- ------------
$ 183,054 $ 177,018
----------- ------------
----------- ------------
</TABLE>

5. 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 adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.

During 1993, factory employees voted to unionize and become members of the
Amalgamated Clothing and Textile Workers Union. A three-year union contract was
executed during 1995 and extended for three additional years in 1998. In
addition, in connection with its Woodville, Texas operations, the Company is
party to collective bargaining arrangements due to expire in 2001.

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 Chemical
Recycling, Inc. site in Wylie, Texas, and the Diaz Refinery site in Little Rock,
Arkansas). 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
financial position, results of operations or liquidity.

F-37
<PAGE>
ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

6. ACQUISITION:

DELTA ASSET PURCHASE:

On January 27, 1999, the Company acquired certain assets of Delta Millwork,
Inc., a privately held door pre-hanger located in Orlando, Florida, for
approximately $1,737 including fees and other transaction expenses. The Company
financed the acquisition through its revolving credit facility.

The acquisition of Delta Millwork, Inc. has been accounted for as a purchase
in accordance with 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, with the remainder allocated to
goodwill, which will be amortized over 40 years. The results of operations for
the acquired business are included in the Company's consolidated financial
statements beginning January 27, 1999. The purchase price allocation,
preliminary in nature and subject to change, is as follows:

<TABLE>
<S> <C>
Accounts receivable, net............................................ $ 1,178
Inventories......................................................... 949
Prepaid expenses and other current assets........................... 40
Property, plant and equipment, net.................................. 137
Other noncurrent assets............................................. 5
Goodwill............................................................ 145
Current liabilities................................................. (717)
---------
Total purchase price............................................ $ 1,737
---------
---------
</TABLE>

7. SUBSIDIARY GUARANTORS:

In connection with the issuance of the Senior Subordinated Notes (the
"Notes"), the Company's payment obligations under the Notes are fully and
unconditionally guaranteed, jointly and severally (collectively, the Subsidiary
Guarantees) on a senior subordinated basis by its wholly-owned subsidiaries:
ADW-Northeast, ADW-West Coast, ADW-Arizona, Wing, Darby and Darby-South
(collectively, the Subsidiary Guarantors). The Company has no non-guarantor
direct or indirect subsidiaries. The operations related to the assets of
ADW-Northeast, ADW-West Coast, ADW-Arizona and Darby are included since the
reverse acquisition on October 2, 1998. The operations of Darby-South are
included since the date of acquisition, January 27, 1999. The operations of Wing
are presented for all periods covered. The balance sheet information includes
all subsidiaries as of March 31, 1999 and ADW-Northeast, ADW-West Coast,
ADW-Arizona and Darby as of December 31, 1998. In the opinion of management,
separate financial statements of the respective Subsidiary Guarantors would not
provide additional material information, which would be useful in assessing the
financial composition of the Subsidiary Guarantors. No single Subsidiary
Guarantor has any significant legal restrictions on the ability of investors or
creditors to obtain access to its assets in event of default on the Subsidiary
Guarantee other than its subordination to senior indebtedness.

F-38
<PAGE>
ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

7. SUBSIDIARY GUARANTORS: (CONTINUED)
Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Current assets..................................................... $ 43,320 $ 42,887
Noncurrent assets.................................................. 106,324 106,684
Current liabilities................................................ 16,375 16,666
Noncurrent liabilities............................................. 79,445 76,826
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Net sales.......................................................... $ 59,279 $ 39,450
Gross profit....................................................... 15,601 8,986
Net income from continuing operations.............................. 295 686
</TABLE>

8. SUBSEQUENT EVENTS:

HEAT ACQUISITION

On April 20, 1999, the Company entered into a stock purchase agreement to
acquire Heat, Inc., a privately held vinyl window and door company located in
Pittsburgh, Pennsylvania, for approximately $85,000. The Company expects to
finance the acquisition with a portion of the proceeds from the issuance of
$175,000 of senior subordinated notes (see below).

The acquisition will be accounted for as a purchase in accordance with APB
16. 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. Based on preliminary estimates which will be finalized at a
later date, the excess of purchase price over the fair value of the net assets
acquired ("goodwill") will be approximately $72,000, which will be amortized
over 40 years. The results of operations for the acquired business will be
included in the Company's operations subsequent to the completion of the
transaction, which is expected to be on or about May 17, 1999.

CHAMPAGNE ACQUISITION

On May 10, 1999, the Company entered into a stock purchase agreement to
acquire Champagne Industries, Inc., a privately held vinyl window and door
company located in Denver, Colorado for approximately $3,500, excluding $500 to
be paid upon achievement of certain operational targets. The Company expects to
finance the acquisition with a portion of the proceeds from the issuance of
$175,000 of senior subordinated notes (see below).

F-39
<PAGE>
ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

8. SUBSEQUENT EVENTS: (CONTINUED)
The acquisition will be accounted for as a purchase in accordance with APB
16. 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. Based on preliminary estimates which will be finalized at a
later date, the excess of purchase price over the fair value of the net assets
acquired ("goodwill") will be approximately $2,300, which will be amortized over
40 years. The results of operations for the acquired business will be included
in the Company's operations subsequent to the completion of the transaction,
which is expected to be on or about May 17, 1999.

$175,000 SENIOR SUBORDINATED NOTES

On May 10, 1999, the Company entered into an agreement to issue $175,000 of
senior subordinated notes due May 1, 2009. The notes are non-callable for five
years, have a 10.50% stated rate paid semi-annually and were issued at a
discount of 98.496 to yield 10.75% to maturity. The proceeds will be used to
fund the acquisitions of Heat, Inc. and Champagne Industries, Inc., refinance
certain indebtedness and pay fees and expenses.

F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder of
Atrium Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), of stockholder's equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Atrium Companies, Inc. and its subsidiaries (a wholly-owned subsidiary of
Atrium Corporation) at December 31, 1997 and 1996, and the results of their
operations and their cash flows for the period from January 1, 1998 to October
2, 1998 and the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards, 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 the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
June 25, 1999

F-41
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents....................... $ 1 $ 617
Equity securities--available for sale........... 27 --
Accounts receivable, net........................ 24,376 21,975
Inventories..................................... 16,534 13,474
Prepaid expenses and other current assets....... 1,608 1,765
Deferred tax asset.............................. 692 2,555
------------ ------------
Total current assets............................ 43,238 40,386
PROPERTY, PLANT AND EQUIPMENT, net................ 16,388 13,970
GOODWILL, net..................................... 14,884 11,963
DEFERRED FINANCING COSTS, net..................... 4,961 5,173
OTHER ASSETS...................................... 3,904 3,258
------------ ------------
Total assets.................................... $ 83,375 $ 74,750
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable................................ $ 10,007 $ 8,528
Accrued liabilities............................. 7,102 6,580
------------ ------------
Total current liabilities....................... 17,109 15,108
LONG-TERM LIABILITIES:
Notes payable................................... 100,000 100,000
Deferred tax liability.......................... 1,058 818
------------ ------------
Total long-term liabilities..................... 101,058 100,818
------------ ------------
Total liabilities............................... 118,167 115,926
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares
authorized, 100 shares issued and
outstanding................................... -- --
Paid-in capital................................. 32,790 31,936
Accumulated deficit............................. (67,503) (73,112)
Unrealized loss on equity securities--available
for sale...................................... (79) --
------------ ------------
Total stockholder's deficit..................... (34,792) (41,176)
------------ ------------
Total liabilities and stockholder's deficit... $ 83,375 $ 74,750
------------ ------------
------------ ------------
</TABLE>

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

F-42
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
PERIOD ENDED ----------------------
OCTOBER 2, 1998 1997 1996
--------------- PERIOD ENDED ---------- ----------
SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................................... $ 167,418 $ 139,793 $ 186,764 $ 156,269
COST OF GOODS SOLD...................................... 109,235 89,656 121,301 102,341
--------------- --------------- ---------- ----------
Gross profit.......................................... 58,183 50,137 65,463 53,928
--------------- --------------- ---------- ----------

OPERATING EXPENSES:
Selling, delivery, general and administrative
expenses............................................ 37,704 33,114 44,486 34,815
Special charges....................................... 7,452 -- -- 3,044
Stock option compensation expense..................... 5,265 255 307 3,023
--------------- --------------- ---------- ----------
50,421 33,369 44,793 40,882
--------------- --------------- ---------- ----------
Income from operations.............................. 7,762 16,768 20,670 13,046

INTEREST EXPENSE........................................ 9,545 8,542 11,523 4,786
OTHER INCOME (EXPENSE), net............................. (286) 1,127 1,088 (182)
--------------- --------------- ---------- ----------
Income (loss) before income taxes and extraordinary
charge............................................ (2,069) 9,353 10,235 8,078

PROVISION (BENEFIT) FOR INCOME TAXES.................... (732) 3,485 4,068 2,699
--------------- --------------- ---------- ----------
Income (loss) before extraordinary charge........... (1,337) 5,868 6,167 5,379

EXTRAORDINARY CHARGES ON EARLY RETIREMENT OF DEBT (NET
OF INCOME TAX BENEFIT OF $2,164 AND $720,
RESPECTIVELY)......................................... 3,525 -- -- 1,176
--------------- --------------- ---------- ----------
NET INCOME (LOSS)....................................... $ (4,862) $ 5,868 $ 6,167 $ 4,203
--------------- --------------- ---------- ----------
--------------- --------------- ---------- ----------
</TABLE>

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

F-43
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

STOCKHOLDER'S EQUITY (DEFICIT)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER RETAINED EARNINGS
---------------------------- COMPREHENSIVE PAID-IN (ACCUMULATED
SHARES AMOUNT INCOME (LOSS) CAPITAL DEFICIT)
------------- ------------- --------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995...................... 100 $ -- $ -- $ 23,467 $ (38,011)
Capital contributions..... -- -- -- 5,025 --
Net distributions to
Holding................. -- -- -- -- (39,304)
Stock option compensation
expense................. -- -- -- 3,023 --
Income tax benefit upon
exercise of Holding's
stock options........... -- -- -- 421 --
Net income................ -- -- -- -- 4,203
--- ----- --- ----------- --------
BALANCE, December 31,
1996...................... 100 -- -- 31,936 (73,112)
Capital contributions..... -- -- -- 476 --
Net distributions to
Holding................. -- -- -- -- (558)
Stock option compensation
expense................. -- -- -- 307 --
Income tax benefit upon
exercise of Holding's
stock options........... -- -- -- 71 --
Comprehensive loss:
Net income................ -- -- -- -- 6,167
Unrealized loss on equity
securities available for
sale.................... -- -- (79) -- --
--- ----- --- ----------- --------
BALANCE, December 31,
1997...................... 100 -- (79) 32,790 (67,503)
Contributions from
Holding................. -- -- -- 275 --
Distributions to Holding.. -- -- -- -- (570)
Stock option compensation
expense................. -- -- -- 5,265 --
Income tax benefit upon
exercise of Holding's
stock options........... -- -- -- 1,008 --
Comprehensive loss:
Net loss.................. -- -- -- -- (4,862)
Unrealized gain........... -- -- 86 -- --
--- ----- --- ----------- --------
BALANCE, October 2, 1998.... 100 $ -- $ 7 $ 39,338 $ (72,935)
--- ----- --- ----------- --------
--- ----- --- ----------- --------

TOTAL
STOCKHOLDER'S
EQUITY (DEFICIT)
------------------
<S> <C>
BALANCE, December 31,
1995...................... $ (14,544)
Capital contributions..... 5,025
Net distributions to
Holding................. (39,304)
Stock option compensation
expense................. 3,023
Income tax benefit upon
exercise of Holding's
stock options........... 421
Net income................ 4,203
--------
BALANCE, December 31,
1996...................... (41,176)
Capital contributions..... 476
Net distributions to
Holding................. (558)
Stock option compensation
expense................. 307
Income tax benefit upon
exercise of Holding's
stock options........... 71
Comprehensive loss:
Net income................ 6,167
Unrealized loss on equity
securities available for
sale.................... (79)
--------
BALANCE, December 31,
1997...................... (34,792)
Contributions from
Holding................. 275
Distributions to Holding.. (570)
Stock option compensation
expense................. 5,265
Income tax benefit upon
exercise of Holding's
stock options........... 1,008
Comprehensive loss:
Net loss.................. (4,862)
Unrealized gain........... 86
--------
BALANCE, October 2, 1998.... $ (33,590)
--------
--------
</TABLE>

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

F-44
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
PERIOD ENDED 31,
OCTOBER 2, --------------------
1998 1997 1996
------------- PERIOD ENDED --------- ---------
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $ (4,862) $ 5,868 $ 6,167 $ 4,203
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge, net of income tax benefit................ 3,525 -- -- 1,176
Depreciation and amortization.................................. 3,246 2,384 3,278 2,205
Amortization of deferred financing costs....................... 493 482 642 279
Gain on retirement of assets................................... (41) (9) (38) (10)
Gain on sale of equity securities.............................. -- (2) (2) --
Stock option compensation expense.............................. 5,265 255 307 3,023
Changes in assets and liabilities:
Deferred tax provision (benefit)............................... (840) 214 2,102 (1,303)
Accounts receivable, net..................................... (5,363) (4,773) (640) (3,056)
Inventories.................................................. (2,654) (5,761) (1,688) 2,252
Prepaid expenses and other current assets.................... 795 1,020 197 (730)
Accounts payable............................................. 4,182 2,004 (1,165) 815
Accrued liabilities.......................................... 6,004 3,056 (57) (87)
------------- ------------- --------- ---------
Net cash provided by operating activities.................. 9,750 4,738 9,103 8,767
------------- ------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment..................... (1,376) (2,326) (3,438) (3,380)
Proceeds from sales of assets.................................. 95 15 68 25
Purchases of equity securities................................. -- (480) (480) --
Proceeds from sales of equity securities....................... -- 375 375 --
Increase in other assets....................................... (475) (807) (1,377) (1,134)
Payment for acquisition, net of cash acquired.................. (26,831) (6,505) (6,561) (10,243)
------------- ------------- --------- ---------
Net cash used in investing activities........................ (28,587) (9,728) (11,413) (14,732)
------------- ------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable....................................... (800) -- -- (62,928)
Net borrowings under revolving credit facility................. 2,285 2,961 -- 7,740
Proceeds from issuance of senior subordinated notes............ -- -- -- 100,000
Proceeds from issuance of notes payable........................ 17,500 -- -- 6,000
Checks drawn in excess of bank balances........................ (352) 1,752 2,135 --
Deferred financing costs....................................... (509) (425) (430) (5,457)
Capital contributions.......................................... -- -- -- 25
Contributions from Holding..................................... 275 196 476 --
Net distributions to Holding................................... (570) (110) (558) (39,304)
Income tax benefit upon exercise of Holding's stock options.... 1,008 -- 71 421
------------- ------------- --------- ---------
Net cash provided by financing activities.................... 18,837 4,374 1,694 6,497
------------- ------------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. -- (616) (616) 532
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 1 617 617 85
------------- ------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 1 $ 1 $ 1 $ 617
------------- ------------- --------- ---------
------------- ------------- --------- ---------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest..................................................... $ 6,314 $ 5,069 $ 10,393 $ 3,699
Income taxes, net of refunds................................. (141) 1,512 2,737 4,514
Noncash contribution from Holding............................ -- -- -- 5,000
</TABLE>

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

F-45
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

Atrium Companies, Inc. (the "Company"), (formerly Fojtasek Companies, Inc.,
a Texas corporation), is engaged in the manufacture and sale of doors, windows
and various building materials throughout the United States. A significant
portion of the Company's sales relates to new home construction activity, which
is cyclical in nature.

On July 3, 1995, the stockholders of Fojtasek Companies, Inc. ("Fojtasek")
executed a stock purchase agreement (the "Heritage Transaction") whereby all of
Fojtasek's common stock was acquired by FCI Holding Corp. ("FCI Holding"), a
Delaware holding company which was established in connection with the Heritage
Transaction. On September 30, 1996, Atrium Corporation ("Holding"), a Delaware
company which owned 100% of FCI Holding (which owned 100% of Fojtasek) acquired
Atrium Door and Window Company of the Northeast ("ADW--Northeast," formerly
Bishop), a manufacturer of vinyl replacement windows and doors and contributed
the capital stock of ADW--Northeast to Fojtasek (Note 15). On November 8, 1996,
in connection with the Hicks Muse Transaction (the "Hicks Muse Transaction"),
Fojtasek, which was a Texas corporation, was merged with and into FCI Holding.
The two companies were merged to achieve certain business objectives related to
brand-name recognition. The surviving Delaware corporation was renamed "Atrium
Companies, Inc.," (the "Company") which is a direct, wholly-owned subsidiary of
Holding. The merger was accounted for as a merger of companies under common
control and the assets were valued at historical cost.

BASIS OF CONSOLIDATION AND PRESENTATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, ADW--Northeast, acquired in September 1996,
and Atrium Door and Window Company-- West Coast ("ADW--West Coast," formerly H-R
Window Supply, Inc). ADW--Northeast refers to the combined consolidated results
of Atrium Door and Window Company of the Northeast (the merged companies
formerly named Vinyl Building Specialties of Connecticut, Inc. and Bishop
Manufacturing Company, Incorporated), its subsidiary Atrium Door and Window
Company of New England ("ADW-- New England" formerly Bishop Manufacturing
Company of New England, Inc.), and Atrium Door and Window Company of New York
("ADW--New York" formerly Bishop Manufacturing Co. of New York, Inc.) All
significant intercompany transactions and balances have been eliminated in
consolidation.

The consolidated financial information for the nine months ended September
30, 1997 is unaudited. In the opinion of management, the accompanying unaudited
consolidated financial information and related notes thereto contain all
adjustments consisting only of normal, recurring adjustments, necessary to
present fairly the consolidated financial information as of September 30, 1997
and the operating results and cash flows for the nine months ended September 30,
1997. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year.

References to amounts used throughout these consolidated financial
statements for the period ended September 30, 1997 are unaudited.

F-46
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INDUSTRY SEGMENT

The Company operates in a single industry segment, the fabrication and
distribution of doors and windows and related components.

REVENUE RECOGNITION

Revenue from the sale of doors and windows and related components is
recorded at the time of delivery and billing to the customer. Allowances are
established to recognize the risk of sales returns from customers.

CASH AND CASH EQUIVALENTS

The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents.

EQUITY SECURITIES--AVAILABLE FOR SALE

Investments in equity securities--available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded in
stockholder's equity.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are net of allowances for doubtful accounts of $608 and
$1,497 as of December 31, 1997 and 1996, respectively.

PROVISION FOR WARRANTY CLAIMS

Estimated warranty costs are provided at the time of the sale of the
warranted product.

CONCENTRATIONS OF CREDIT RISK

Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company's customers are concentrated in the southern regions of the U.S. and
focus upon the distribution and sale of building products. Sales in the state of
Texas accounted for approximately 38.3% of revenue in 1997. 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 does not believe it is
dependent upon any single customer. No single customer accounted for more than
10% of sales in 1998, 1997 or 1996.

INVENTORIES

Inventories are valued at the lower of cost (last-in, first-out or "LIFO")
or market. Management believes that the LIFO method results in a better matching
of current costs with current revenues.

F-47
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated
depreciation. Prior to January 1, 1997 the Company provided for depreciation and
amortization using straight-line and accelerated methods. For all assets
acquired subsequent to January 1, 1997 the Company depreciates the assets on a
straight-line basis over their estimated useful lives, as follows:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
Buildings and improvements..................................... 5-40 years
<S> <C>
Machinery and equipment........................................ 3-12 years
</TABLE>

GOODWILL

Goodwill represents the excess of cost over fair market value of net assets
acquired. Goodwill is being amortized over 40 years on a straight-line basis.
Amortization expense of $655, $340 and $75 was recorded for the period ended
October 2, 1998 and for the years ended December 31, 1997 and 1996,
respectively. Accumulated amortization at December 31, 1997 and 1996 was $415
and $75, respectively. Management continually reviews the carrying value of
goodwill for recoverability based on anticipated undiscounted cash flows of the
assets to which it relates. The Company considers operating results, trends and
prospects of the Company, as well as competitive comparisons. The Company also
takes into consideration competition within the building materials industry and
any other events or circumstances which might indicate potential impairment.
When goodwill is determined not to be recoverable, an impairment is recognized
as a charge to operations to the extent the carrying value of related assets
(including goodwill) exceeds the fair value of the related assets.

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 consumed 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 when the software is put into place and is
calculated on a straight-line basis over five 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 assets
carrying value will be adjusted to the lower of cost or fair value.

F-48
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.

FORWARD COMMITMENTS

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. Actual results could differ from these estimates. Significant
estimates are used in calculating allowance for bad debt, workers' compensation
and warranty accruals, and deferred tax assets and liabilities.

2. FAIR VALUE OF FINANCIAL INSTRUMENTS:

In accordance with Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments," the following
methods have been used in estimating fair value disclosures for significant
financial instruments of the Company.

Estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. Since
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.

Equity securities--available for sale--The carrying amounts that are
reported in the balance sheet approximate the fair value based on quoted
market prices.

Notes payable--The fair value of the Company's notes is based on quoted
market prices.

Forward aluminum contracts--The unrealized gains and losses are based on
quotes for aluminum as reported on the London Metal Exchange.

F-49
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents...................................... $ 1 $ 1 $ 617 $ 617
Equity securities--available for sale.......................... $ 27 $ 27 $ -- $ --

LIABILITIES:
Notes payable.................................................. $ 100,000 $ 106,000 $ 100,000 $ 102,000

NOTIONAL UNREALIZED NOTIONAL UNREALIZED
OFF BALANCE SHEET: AMOUNT GAIN/(LOSS) AMOUNT GAIN/(LOSS)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Forward aluminum contracts..................................... $ 24,960 $ (21) $ 21,656 $ 519
</TABLE>

3. INVENTORIES:

Inventories are valued at the lower of cost or market using the LIFO method
of accounting. Work-in-process and finished goods inventories consist of
materials, labor and manufacturing overhead. Inventories consisted of the
following at December 31:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 13,653 $ 11,765
Work-in-process......................................................... 705 563
Finished goods.......................................................... 4,056 2,526
--------- ---------
18,414 14,854
LIFO reserve............................................................ (1,880) (1,380)
--------- ---------
$ 16,534 $ 13,474
--------- ---------
--------- ---------
</TABLE>

The change in the LIFO reserve for the periods ended October 2, 1998 and
September 30, 1997 and for the years ended December 31, 1997 and 1996 resulted
in a decrease in cost of sales of $1,469 in 1998, a decrease in cost of sales of
$267 for the period ended September 30, 1997, an increase in cost of sales of
$500 in 1997 and a decrease in cost of sales by $491 in 1996.

F-50
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

4. PROPERTY, PLANT AND EQUIPMENT:

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

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land.................................................................... $ 682 $ 682
Buildings and improvements.............................................. 7,596 7,139
Machinery and equipment................................................. 16,238 11,970
Construction-in-process................................................. 434 705
--------- ---------
Total................................................................. 24,950 20,496

Less accumulated depreciation and amortization.......................... (8,562) (6,526)
--------- ---------
$ 16,388 $ 13,970
--------- ---------
--------- ---------
</TABLE>

Depreciation expense was $1,852, $2,217 and $1,681 for the period ended
October 2, 1998 and for the years ended December 31, 1997 and 1996,
respectively.

5. OTHER ASSETS:

Other assets consisted of the following at December 31:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Capitalized software costs, net............................................ $ 2,406 $ 1,355
Non-compete agreements, net................................................ 1,125 1,575
Deposits, notes receivable and other....................................... 373 328
--------- ---------
$ 3,904 $ 3,258
--------- ---------
--------- ---------
</TABLE>

The costs of the non-compete agreements are being amortized over the terms
of the related agreements, which are five years. Amortization expense for the
period ended October 2, 1998 and for the years ended December 31, 1997 and 1996
was $338, $450 and $450, respectively, resulting in accumulated amortization at
December 31, 1997 and 1996 of $1,125 and $675, respectively. Amortization
expense of $401, $271, and $0 was recorded for the period ended October 2, 1998
and for the years ended December 31, 1997 and 1996 for costs related to
capitalized software costs.

6. DEFERRED FINANCING COSTS:

The deferred financing costs relate to costs incurred in the placement of
the Company's debt and are being amortized using the effective interest method
over the terms of the related debt, which range from five to ten years.
Amortization expense for the period ended October 2, 1998 and for the years
ended December 31, 1997 and 1996 was $493, $642 and $279, respectively and was
included in interest expense in the accompanying Consolidated Statements of
Income (Loss).

F-51
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

7. ACCRUED LIABILITIES:

Accrued liabilities include the following at December 31:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accrued salaries and wages................................................. $ 2,627 $ 2,100
Accrued interest........................................................... 1,358 1,003
Accrued taxes payable...................................................... 1,263 601
Contingent payable related to
ADW-Northeast acquisition.............................................. -- 1,000
Warranty and litigation reserve............................................ 781 961
Workers' compensation reserve.............................................. 250 500
Other...................................................................... 823 415
--------- ---------
$ 7,102 $ 6,580
--------- ---------
--------- ---------
</TABLE>

8. NOTES PAYABLE:

Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Senior subordinated notes............................................. $ 100,000 $ 100,000
Less current maturities............................................. -- --
---------- ----------
$ 100,000 $ 100,000
---------- ----------
---------- ----------
</TABLE>

In November 1996, the Company issued $100,000 aggregate principal amount of
10 1/2% Senior Subordinated Notes (the "Notes") due November 15, 2006 under the
Indenture dated as of November 27, 1996. Interest on the Notes is payable
semiannually on May 15 and November 15 of each year, commencing on May 15, 1997.
The Notes mature on November 15, 2006. The Company may redeem the Notes based on
certain triggering events. In addition, under certain circumstances the Company
will be obligated to make an offer to repurchase the Notes at 100% of the
principal amount, plus accrued and unpaid interest to the date of repurchase,
with the net cash proceeds of certain sales or other dispositions of assets.

The Notes are fully and unconditionally guaranteed, jointly and severally,
on an unsecured, senior subordinated basis, by each of the Company's
subsidiaries (see Note 18). The Indenture permits the Company to incur
additional indebtedness (including Senior Indebtedness) of up to $45,000 as of
December 31, 1997, subject to certain limitations. The Indenture restricts the
Company's ability to pay dividends or make certain other restricted payments,
consummate certain asset sales, or otherwise dispose of all or substantially all
of the assets of the Company and its subsidiaries.

The Company has also entered into a Credit Agreement providing for a
revolving credit facility (the "Credit Facility"). The Credit Facility enables
the Company to borrow up to $20,000. The revolving credit loans bear interest at
a rate based upon the lender's prime rate plus a borrowing margin of 1.5% or a
LIBOR-based rate plus a borrowing margin of 2.5%. The Company pays a commitment
fee of .5% based on the unused portion of the Credit Facility. The Credit
Facility terminates in March 2002. The Company had $19,191 of availability under
the Credit Facility as of December 31, 1997, net of outstanding letters of

F-52
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

8. NOTES PAYABLE: (CONTINUED)
credit totaling $809. The Credit Facility contains various covenants that
restrict the Company from taking various actions and requires the Company to
achieve and maintain certain financial covenants.

Principal payments due during the next five years on long-term notes payable
as of December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998.............................................................. $ --
1999.............................................................. --
2000.............................................................. --
2001.............................................................. --
2002.............................................................. --
Thereafter........................................................ 100,000
---------
$ 100,000
---------
---------
</TABLE>

9. FEDERAL INCOME TAX:

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred income tax expenses
be provided based upon the liability method.

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

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts......................................... $ -- $ 495
Deferred stock compensation............................................. 572 501
Inventory cost capitalization and valuation............................. 331 660
Non-compete agreement................................................... 277 167
Accrued vacation........................................................ 178 173
Warranty and litigation................................................. 90 357
Workers' compensation................................................... 92 185
Other................................................................... -- 17
--------- ---------
1,540 2,555
Deferred income tax liabilities:
Depreciation............................................................ (1,050) (811)
Capitalized software costs.............................................. (830) --
Other................................................................... (26) (7)
--------- ---------
(1,906) (818)
--------- ---------
Net deferred income tax asset (liability)................................. (366) 1,737
Less-current deferred tax asset........................................... 692 2,555
--------- ---------
Long-term deferred tax liability.......................................... $ (1,058) $ (818)
--------- ---------
--------- ---------
</TABLE>

F-53
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

9. FEDERAL INCOME TAX: (CONTINUED)
SFAS 109 requires a valuation allowance 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. As of December 31,
1997 and 1996, no valuation reserve was recorded.

The components of the provision for income taxes are as follows for the
periods ended October 2, 1998 and September 30, 1997 and for the years ended
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- SEPTEMBER 30, --------- ---------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current federal income tax provision........... $ 159 $ 2,663 $ 1,543 $ 3,388
Deferred federal income tax
provision (benefit)........................ (840) 534 2,103 (930)
State income tax provision (benefit)........... (51) 288 422 241
----------- ------ --------- ---------
Provision (benefit) for income taxes....... $ (732) $ 3,485 $ 4,068 $ 2,699
----------- ------ --------- ---------
----------- ------ --------- ---------
</TABLE>

The Company recognized a tax benefit in 1998, 1997 and 1996 of $1,008, $71
and $421, respectively, related to Holding's stock options. This benefit was
recorded directly to paid-in capital.

Reconciliation of the federal statutory income tax rate to the effective tax
rate, was as follows for the periods ended October 2, 1998 and September 30,
1997 and for the years ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- SEPTEMBER 30, --------- ---------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax computed at statutory rate................. $ (724) $ 3,180 $ 3,482 $ 2,777
State taxes.................................... (51) 288 423 241
Prior year return to accrual differences....... -- -- -- (352)
Non deductible goodwill and other.............. 43 17 163 33
----------- ------ --------- ---------
Provision for income taxes..................... $ (732) $ 3,485 $ 4,068 $ 2,699
----------- ------ --------- ---------
----------- ------ --------- ---------
</TABLE>

10. RELATED PARTIES:

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

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Receivables from stockholders.............................................. $ 19 $ 82
Receivables from officers.................................................. $ 20 $ 5
Receivables from employees................................................. $ 64 $ 80
</TABLE>

F-54
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

10. RELATED PARTIES: (CONTINUED)
MONITORING AND OVERSIGHT AGREEMENT

Holding and the Company have entered into a ten-year monitoring and
oversight agreement with Hicks Muse. Pursuant thereto, Holding and the Company
have agreed to pay to Hicks Muse a minimum annual fee of $320 for ongoing
financial oversight and monitoring services to the Company. The annual fee is
adjustable upward or downward on January 1 of each calendar year to an amount
equal to 0.2% of the budgeted consolidated annual net sales of the Company and
its subsidiaries for the then-current fiscal year, provided that such fee shall
at no time be less than $320 per year. In the period ended October 2, 1998 and
the year ended December 31, 1997, $405 and $437 was paid to Hicks Muse under
this agreement, respectively. This agreement was terminated in connection with
the Recapitalization as defined in Note 19.

FINANCIAL ADVISORY AGREEMENT

Holding and the Company are parties to a ten-year financial advisory
agreement (the "Financial Advisory Agreement") with Hicks Muse pursuant to which
Hicks Muse received a financial advisory fee of $2,000 on the closing date of
the Hicks Muse Transaction as compensation for its services as financial advisor
to the Company in connection with the Hicks Muse Transaction. Pursuant to the
Financial Advisory Agreement, Hicks Muse is also entitled to receive a fee equal
to 1.5% of the transaction value (as defined in the Financial Advisory
Agreement) for each add-on transaction in which the Company or any of its
subsidiaries is involved. In connection with the ADW-West Coast asset
acquisition (see Note 15), the Company paid $92 to Hicks Muse. This agreement
was terminated in connection with the Recapitalization as defined in Note 19.

11. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company has entered into operating lease agreements for office and
manufacturing space with unrelated third parties and with certain affiliates of
certain stockholders of the Company. Total rent expense for the period ended
October 2, 1998 and for the years ended December 31, 1997 and 1996 was $2,515,
$4,339 and $2,012, respectively. Of these totals, amounts paid to related
parties were $946, $753 and $605 in the period ended October 2, 1998 and for the
years ended December 31, 1997 and 1996, respectively. Future minimum rents due
under operating leases with initial or remaining terms greater than twelve
months as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
RELATED OTHER
PARTIES PARTIES TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1998........................................................ $ 1,030 $ 1,768 $ 2,798
1999........................................................ 1,180 1,371 2,551
2000........................................................ 1,180 1,111 2,291
2001........................................................ 1,245 828 2,073
2002........................................................ 1,311 409 1,720
Thereafter.................................................. 7,603 174 7,777
----------- ----------- ---------
$ 13,549 $ 5,661 $ 19,210
----------- ----------- ---------
----------- ----------- ---------
</TABLE>

F-55
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 and fixed and floating prices. As of December 31,
1997 and 1996, the Company had forward commitments totaling $24,960 and $21,656
for delivery through December 1998 and 1997 for 28.6 and 28.7 million pounds of
aluminum, of which 14.3 and 10.0 million pounds were at fixed prices,
respectively.

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

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 financial
position, results of operations or liquidity of the Company.

The Company is involved in various stages of investigation and cleanup
relative 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 Chemical
Recycling, Inc. site in Wylie, Texas, and the Diaz Refinery site in Little Rock,
Arkansas). 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
financial position, results of operations or liquidity.

12. STOCK PURCHASE AGREEMENT:

HICKS MUSE TRANSACTION

The Hicks Muse Transaction refers to a recapitalization transaction that
closed concurrent with the closing of the issuance of the Notes in which
affiliates of Hicks Muse purchased a number of newly issued shares of Holding's
Common Stock for $32,000 pursuant to a Stock Purchase Agreement dated November
7, 1996, and certain outstanding shares, and certain options and warrants to
acquire shares of Holding's Common Stock and all outstanding shares of preferred
stock of Holding were redeemed.

This transaction, which was completed on November 27, 1996, required
approximately $134,500 to complete, consisting of $59,417 in redemption payments
to the Selling Securityholders, $54,369 representing all outstanding
indebtedness under the Old Credit Facility and debt assumed in connection with
its acquisition of ADW--Northeast, $12,472 in redemption payments to preferred
stockholders of Holding

F-56
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

12. STOCK PURCHASE AGREEMENT: (CONTINUED)
(including cumulative dividends in arrears) and approximately $8,242 of fees and
expenses. The funds required to consummate the Hicks Muse Transaction were
provided by (i) the proceeds of the issuance of the Notes, (ii) $32,000 in
equity financing, (iii) drawings of $2,000 under the Company's Credit Facility,
and (iv) other cash provided by the Company of $500. The shares issued to Hicks
Muse, after giving effect to the other elements of the Hicks Muse Transaction,
represent approximately 82.0% of the outstanding common stock of Holding. The
Hicks Muse Transaction has been accounted for as a recapitalization.

13. SPECIAL CHARGES AND STOCK OPTION COMPENSATION EXPENSE

Included in special charges in the 1996 Consolidated Statement of Income are
officer bonuses of $3,044 incurred in connection with the Hicks Muse
Transaction.

Included in special charges in the 1998 Consolidated Statement of Loss are
officer bonuses of $3,885, transaction expenses of $2,780 and other costs of
$787 incurred in connection with the Recapitalization (see Note 19).

Included in stock option compensation expense are charges associated with
the issuance of new stock options at exercise prices below the fair value of the
underlying common stock, the expense associated with the cash redemption of
certain options, and amortization of deferred compensation expense related to
previously issued options.

14. OTHER INCOME (EXPENSE), NET:

Other income (expense), net consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Insurance settlement............................................................... $ -- $ 1,193 $ --
Rental, interest, and other income................................................. (25) 65 49
Legal expense relating to labor negotiations....................................... (239) -- --
Gain on sale of assets............................................................. 41 38 10
Other.............................................................................. (63) (208) (241)
----------- --------- ---------
$ (286) $ 1,088 $ (182)
----------- --------- ---------
----------- --------- ---------
</TABLE>

15. ACQUISITIONS:

MASTERVIEW ASSET PURCHASE:

On March 27, 1998, through its newly-formed subsidiary, Atrium Door and
Window Company of Arizona ("ADW-Arizona"), the Company acquired substantially
all of the assets of Masterview Window Company, LLC ("Masterview"), a privately
held window and door company located in Phoenix, Arizona, for approximately
$26,800 including fees and other transaction expenses. The Company financed the

F-57
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

15. ACQUISITIONS: (CONTINUED)
Acquisition through its Credit Facility, which included a $17,500 senior term
loan with the remainder of the purchase price of approximately $9,300 being
drawn from the $20,000 revolving credit facility.

<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 3
Accounts receivable, net........................................... 3,099
Inventories........................................................ 1,635
Prepaid expenses and other current assets.......................... 251
Property, plant and equipment, net................................. 2,700
Goodwill........................................................... 22,797
Current liabilities................................................ (3,354)
Long-term liabilities.............................................. (300)
---------
Total purchase price........................................... $ 26,831
---------
---------
</TABLE>

ADW--WEST COAST (FORMERLY GENTEK) ASSET PURCHASE:

On July 1, 1997, the Company purchased through its wholly-owned subsidiary,
ADW--West Coast (formerly H-R Window Supply, Inc.), the assets of the Western
Window Division of Gentek Building Products, Inc., located in Anaheim,
California. The purchase price (including transactions expenses) was $6,561 and
was funded from borrowings under the Company's revolving credit facility. The
transaction was accounted for under the purchase method of accounting. The
purchase allocation, preliminary in nature and subject to change, is as follows:

<TABLE>
<S> <C>
Cash and advances to the Company................................... $ 1
Accounts receivable, net........................................... 1,760
Inventories........................................................ 1,372
Other current assets............................................... 39
Property, plant and equipment, net................................. 1,131
Other noncurrent assets............................................ 28
Goodwill........................................................... 3,320
Current liabilities................................................ (1,090)
---------
Total purchase price........................................... $ 6,561
---------
---------
</TABLE>

ADW--NORTHEAST (FORMERLY BISHOP):

Effective September 30, 1996, the Company acquired the capital stock of
ADW--Northeast, a manufacturer of vinyl replacement windows and doors for the
residential market in the northeast region of the United States, for $19,531. To
consummate the acquisition, the Company paid $13,531 to ADW-- Northeast's
shareholders (the "Sellers"), agreed to a $1,000 payable to the Sellers to be
paid if certain earnings targets are met, and issued $5,000 of Holding common
stock in exchange for all of ADW-- Northeast's capital stock. The $1,000 was
recorded as an accrued liability in the Company's financial statements at
December 31, 1996. During 1997, the Company paid $500 of the amount and adjusted
the purchase price by the remaining balance (this amount was recorded as a
reduction in goodwill). Holding subsequently contributed the ADW--Northeast
capital stock to the Company. Consequently, as of

F-58
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

15. ACQUISITIONS: (CONTINUED)
September 30, 1996, ADW--Northeast became a wholly-owned subsidiary of the
Company. The ADW-- Northeast acquisition has been accounted for under the
purchase method of accounting. Accordingly, the purchase price has been
allocated to the assets and liabilities based upon their estimated fair values
at the date of acquisition as follows:

<TABLE>
<S> <C>
Cash and advances to the Company................................... $ 3,288
Accounts receivable, net........................................... 2,073
Inventories........................................................ 1,774
Other current assets............................................... 256
Property, plant and equipment, net................................. 1,206
Other noncurrent assets............................................ 70
Goodwill........................................................... 12,038
Current liabilities................................................ (986)
Other noncurrent liabilities....................................... (188)
---------
Total purchase price............................................... $ 19,531
---------
---------
</TABLE>

The acquisitions of Masterview, ADW--West Coast and ADW--Northeast were
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations." The aggregate purchase price has been
allocated to the underlying assets and liabilities based upon their respective
estimated fair market values at the date of acquisition, with the remainder
allocated to goodwill.

The Company's Consolidated Statements of Income for the period ended October
2, 1998 and the years ended December 31, 1997 and 1996 include Masterview's,
ADW--West Coast's and ADW-- Northeast's operations from the dates of
acquisition, March 27, 1998, July 1, 1997 and September 30, 1996, respectively.
The following table presents the historical consolidated operating results of
the Company for the period ended October 2, 1998 and the years ended December
31, 1997 and 1996 compared to pro forma operating results for such periods. The
following unaudited pro forma information presents consolidated operating
results as though the acquisitions of Masterview, ADW--West Coast and ADW--
Northeast had occurred at the beginning of the periods presented:

<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 2, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996
-------------------------- -------------------------- --------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 167,418 $ 173,638 $ 186,764 $ 218,574 $ 156,269 $ 182,099
Income (loss) before extraordinary
charge.................................. (1,337) (1,207) 6,167 8,605 5,379 6,358
Net income (loss)......................... (4,862) (4,732) 6,167 8,605 4,203 5,182
</TABLE>

KELLER ASSET PURCHASE:

In June 1996, the Company purchased certain assets from a division of Keller
Building Products for $1,150. In September 1996, the Company purchased the
division's inventory for $500. These asset purchases were recorded at cost.

F-59
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

16. STOCK OPTIONS:

In connection with the Heritage Transaction, FCI Holding issued options (the
"Substitute Options") to certain members of Fojtasek management to purchase FCI
Holding's nonvoting common stock. The options vested ratably over five years or
immediately upon a public offering or a sale of substantially all the assets of
FCI Holding or a subsidiary. In connection with this issuance, $1,350 in
compensation expense representing the difference between the market value of the
underlying common stock and the exercise price of the option was deferred and
amortized over the vesting period. To effect the acquisition of ADW--Northeast,
FCI Holding formed Holding. The Substitute Option holders exchanged 2,875,922
options for equivalent nonvoting common stock options (the "Replacement
Options") in Holding's 1996 Original Stock Option Plan (the "Original Plan"). In
conjunction with the Hicks Muse Transaction, 2,875,922 options of Holding were
tendered at an exercise price of $.01, of which 1,050,000 were exchanged for
Replacement Options of Holding. In connection with the exchanged options, $1,040
was deferred and is being amortized over the new 5 year vesting period. Under
certain circumstances, if the option holders terminate employment prior to the
exercise of such option, they have the right to receive $1.00 per option (net of
the exercise price). Compensation expense of approximately $5,265, $1,384, $307
and $926 related to the options was recognized by the Company for the periods
ended October 2, 1998 and September 30, 1997 and for the years ended December
31, 1997 and 1996, respectively.

FCI Holding also issued stock options (the "Disposition Options") to certain
members of Fojtasek management. Value was recognized on these options based on
the market value of the Company, which became exercisable upon a public offering
or a sale of substantially all the assets of FCI Holding or a subsidiary of FCI
Holding. In connection with the Hicks Muse Transaction, the options vested and
were redeemed and the resultant compensation expense of $743 was recorded in
stock option compensation expense in the 1996 Consolidated Statement of Income.

Upon completion of the Hicks Muse Transaction, Holding adopted the 1996
Stock Option Plan (the "New Plan") authorizing the issuance of 3,500,000 options
to acquire common stock. Holding's New Plan gives certain individuals and key
employees of Holding and any subsidiary corporation thereof who are responsible
for the continued growth of Holding an opportunity to acquire a proprietary
interest in Holding and thus to create in such persons an increased interest in
and a greater concern for the welfare of Holding or any subsidiary. Through
December 31, 1997 and 1996, the Board of Directors of Holding has granted
2,185,390 and 1,910,390 options, respectively, under the New Plan at a weighted
average price of $1.00 per share which represented fair market value on the
dates of grant. The Company applies APB Opinion 25 and related interpretations
in accounting for the Plan.

F-60
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

16. STOCK OPTIONS: (CONTINUED)
The following table summarizes the transactions of the Original Plan and the
New Plan for the period ended October 2, 1998 and for the years ended December
31, 1997 and 1996 (all outstanding options were granted to management of the
Company):

<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Outstanding options, beginning of period.............................. 2,375,037 2,960,390 2,875,922
Granted............................................................... 497,500 275,000 2,960,390
Canceled or expired................................................... (40,000) (504,645) --
Exchanged............................................................. (1,330,207) -- (1,050,000)
Exercised............................................................. (1,502,330) (355,708) (1,825,922)
------------ ------------- ------------
Outstanding options, end of period.................................... -- 2,375,037 2,960,390
------------ ------------- ------------
------------ ------------- ------------
Weighted average exercise price of options exercised.................. $ .46 $ .72 $ .01
Weighted average exercise price of options granted.................... $ 1.75 $ 1.00 $ .62
Weighted average exercise price, end of period........................ $ -- $ .60 $ .65
Options exercisable, end of period.................................... -- 420,007 24,500
Options available for future grant.................................... -- 1,819,255 1,589,610
</TABLE>

The options vest over periods ranging from three to five years.

In connection with the Recapitalization (Note 19), options outstanding were
exchanged for options in the D&W Holdings Inc. Replacement Stock Option Plan.

On November 27, 1996, Holding issued a warrant (the "Warrant") to the
President and Chief Executive Officer (the "Executive") of the Company. Pursuant
to the terms of the Warrant, the Executive is entitled to purchase 1,333,333
shares of Holding common stock at any time subsequent to the Hicks Muse
Transaction. The exercise price of the Warrant is $.01 per share. An additional
861,889 shares may be purchased under the Warrant at an exercise price of $1.00,
representing the fair market value on the date of grant upon the realization of
an 8.0% internal rate of return. The 861,889 options vest ratably each day for
three years. The Warrant will terminate on November 27, 2006. The Company
recorded non cash compensation expense of $1,320 for the period ended December
31, 1996 in connection with the difference between the fair market value of the
stock at the date of issuance ($1.00) and the exercise price ($.01).

F-61
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

16. STOCK OPTIONS: (CONTINUED)
The following table summarizes information about stock options and warrants
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
- -------------- ----------- ---------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Options:
$.01 950,000 107 $ .01 190,000 $ .01
$1.00 1,425,037 107 $ 1.00 230,007 $ 1.00
Warrants:
$.01 1,333,333 107 $ .01 1,333,333 $ .01
$1.00 861,889 107 $ 1.00 314,058 $ 1.00
</TABLE>

In 1995, the FASB issued FASB Statement No. 123 "Accounting for Stock-Based
Compensation" ("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 decided not to elect these provisions of SFAS 123. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
SFAS 123 in 1995 are required by SFAS 123 and are presented below. In 1998, 1997
and 1996, the Company granted only nonqualified stock options 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 1997 and 1996: dividend yield of
0.0%; risk-free interest rate of 7.0%; and the expected life of 10 years. (In
determining the "minimum value" SFAS 123 does not require the volatility of the
Company's common stock underlying the options to be calculated or considered
because the Company was not publicly-traded when the options were granted).

Had the compensation cost for the Company's stock-based compensation plans
and warrants been determined consistent with SFAS 123, the Company's net income
(loss) for the period ended October 2, 1998 and the years ended December 31,
1997 and 1996 would have been $(4,880), $6,105 and $3,934, respectively.

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.

17. EMPLOYEE BENEFIT PLANS:

STOCK PURCHASE PLAN

Holding's 1996 Stock Purchase Plan gives certain key employees of Holding or
related entities who are expected to contribute materially to the success of
Holding or related entities an opportunity to acquire a proprietary interest in
Holding, and thus to retain such persons and create in such persons an increased
interest in and a greater concern for the welfare of Holding and any Related
Entities. The Board of

F-62
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

17. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Directors is authorized to offer 500,000 shares for purchase. As of December 31,
1997 and 1996, 425,000 and 375,000 shares, respectively, have been purchased
under the plan.

401(K)

During 1996, the Company established an employee benefit plan in accordance
with Section 401(k) of the Internal Revenue Code for all employees not covered
under a collective bargaining agreement. The Company may at its discretion match
employee contributions. During the period ended October 2, 1998 and the years
ended December 31, 1997 and 1996, the Company incurred no expense.

18. SUBSIDIARY GUARANTORS:

In connection with the Note offering, 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: ADW--Northeast and ADW--West Coast (collectively, the
Subsidiary Guarantors). The Company has no non-guarantor direct or indirect
subsidiaries. The operations related to the assets of ADW--Northeast and
ADW--West Coast are included since September 30, 1996 and July 1, 1997,
respectively, the dates of acquisition. In the opinion of management, separate
financial statements of the respective Subsidiary Guarantors would not provide
additional material information, which would be useful in assessing the
financial composition of the Subsidiary Guarantors. No single Subsidiary
Guarantor has any significant legal restrictions on the ability of investors or
creditors to obtain access to its assets in event of default on the Subsidiary
Guarantee other than its subordination to senior indebtedness.

Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets................................................... $ 12,399 $ 7,939
Noncurrent assets................................................ 17,148 13,242
Current liabilities.............................................. 1,906 1,135
Noncurrent liabilities........................................... -- --
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Net sales................................................... $ 30,232 $ 20,162 $ 5,020
Gross profit................................................ 10,797 8,374 2,289
Net income from continuing operations....................... 2,054 1,495 561
</TABLE>

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. As of December 31, 1997, the maximum
amount of Senior Indebtedness the Company and its Subsidiary Guarantors
collectively, and in the aggregate, could incur was $45,000.

F-63
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

19. SUBSEQUENT EVENTS:

F-64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Door Holdings, Inc.

In our opinion, the accompanying combined balance sheets and the related
combined statements of income, stockholder's equity and of cash flows present
fairly, in all material respects, the financial position of R. G. Darby Company,
Inc. and Total Trim, Inc. (the "Companies") at December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles. These combined financial statements are the responsibility of the
Companies' management: our responsibility is to express an opinion on these
combined financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards 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 the opinion expressed above.

PricewaterhouseCoopers LLP

Birmingham, Alabama
September 24, 1998

F-65
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $ 722 $ 1,650
Accounts receivable, net..................................................................... 1,807 1,744
Inventories.................................................................................. 1,275 947
Prepaid expenses and other current assets.................................................... 23 397
--------- ---------
Total current assets......................................................................... 3,827 4,738

PROPERTY AND EQUIPMENT, net.................................................................... 451 587
--------- ---------
Total assets................................................................................. $ 4,278 $ 5,325
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit............................................................................... $ 6 $ 690
Current portion of notes payable............................................................. -- 91
Accounts payable............................................................................. 684 569
Accrued liabilities.......................................................................... 874 832
--------- ---------
Total current liabilities.................................................................... 1,564 2,182

LONG-TERM LIABILITIES:
Notes payable................................................................................ -- 153
--------- ---------
Total liabilities............................................................................ 1,564 2,335

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY:
Common stock, R.G. Darby Company, Inc.
(1,000 shares at $1 par value authorized and issued)....................................... 1 1
Common stock, Total Trim, Inc. (1,000 shares at $.01 par value authorized, issued and
outstanding)............................................................................... -- --
Retained earnings............................................................................ 2,813 3,089
R.G. Darby Company, Inc. treasury stock (125 shares at cost)................................. (100) (100)
--------- ---------
Total stockholder's equity................................................................... 2,714 2,990
--------- ---------
Total liabilities and stockholder's equity................................................... $ 4,278 $ 5,325
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-66
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 16,956 $ 15,777
COST OF GOODS SOLD.......................................................................... 10,227 9,561
--------- ---------
Gross profit.............................................................................. 6,729 6,216

OPERATING EXPENSES:
Selling, delivery, general and administrative expense..................................... 4,707 4,071
--------- ---------
Income from operations.................................................................... 2,022 2,145
--------- ---------
INTEREST INCOME............................................................................. 61 58
INTEREST EXPENSE............................................................................ (61) (78)
OTHER INCOME (EXPENSE), net................................................................. 29 9
--------- ---------
NET INCOME.................................................................................. $ 2,051 $ 2,134
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-67
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
R.G. DARBY COMPANY
TOTAL TRIM TOTAL
---------------------- ------------------------ RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK EQUITY
----------- --------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995............... 1,000 $ 1 1,000 $ -- $ 2,685 $ (100) $ 2,586
Stockholder distributions,
Total Trim, Inc........................ (506) (506)

Stockholder distributions,
R.G. Darby Company, Inc................ (1,224) (1,224)
Net income............................... 2,134 2,134
----- --------- ----- ----- ----------- ----- ------------
BALANCE, December 31, 1996............... 1,000 1 1,000 -- 3,089 (100) 2,990

Stockholder distributions,
Total Trim, Inc........................ (1,008) (1,008)

Stockholder distributions,
R.G. Darby Company, Inc................ (1,319) (1,319)
Net income............................... 2,051 2,051
----- --------- ----- ----- ----------- ----- ------------
BALANCE, December 31, 1997............... 1,000 $ 1 1,000 $ -- $ 2,813 $ (100) $ 2,714
----- --------- ----- ----- ----------- ----- ------------
----- --------- ----- ----- ----------- ----- ------------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-68
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 2,051 $ 2,134
Adjustments to reconcile net income to net cash provided by operating activities:.......
Depreciation.......................................................................... 154 189
Loss on disposal of equipment......................................................... 21 --
Change in assets and liabilities:
Accounts receivable, net.............................................................. (63) 78
Inventories........................................................................... (328) (232)
Prepaid expenses and other current assets............................................. 374 (28)
Accounts payable...................................................................... 115 (105)
Accrued liabilities................................................................... 42 123
---------- ----------
Net cash provided by operating activities......................................... 2,366 2,159
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................................................... (133) (136)
Proceeds from disposal of property and equipment........................................ 94 --
---------- ----------
Net cash used in investing activities............................................. (39) (136)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement............................................. 15,784 15,264
Repayments under revolving credit agreement............................................. (16,468) (15,416)
Proceeds from the issuance of long term debt............................................ -- 32
Repayment of long-term debt............................................................. (244) (141)
Stockholder distributions............................................................... (2,327) (1,730)
---------- ----------
Net cash used in financing activities............................................. (3,255) (1,991)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................................... (928) 32
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............................................. 1,650 1,618
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................................................... $ 722 $ 1,650
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest.................................................. $ 67 $ 78
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-69
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. ORGANIZATION:

DESCRIPTION OF THE COMPANY AND REPORTING ENTITY

R. G. Darby Company, Inc. ("R. G. Darby Company") and Total Trim, Inc.
("Total Trim") (the "Companies"), founded in 1983, provide interior and exterior
doors, vanity mirrors, door knobs and locks, shelving, molding, and related
installation to contractors of apartment buildings and hotels. The Companies are
based in Florence, Alabama and operate out of one facility. The Companies supply
materials and/ or provide contract labor to install purchased materials.
Material requirements, with the exception of doors, are shipped directly from
the manufacturer to the contractor's location. Doors are assembled and shipped
from the Companies' production facility. The Companies consist of three
entities--R. G. Darby Company is the sales company for materials; Darby Doors, a
division of R. G. Darby Company, is the manufacturing division that produces the
doors that are sold through R. G. Darby Company; and Total Trim is responsible
for contracting labor for any installation work. These entities perform work in
approximately 28 states, mainly in the South, Mid-Atlantic and Northeast.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF COMBINATION

The combined financial statements include the accounts of R. G. Darby
Company and Total Trim after elimination of all significant intercompany
accounts and transactions. Combined financial statements are presented as the
Companies are under the common control of their sole stockholder, R. G. Darby.
See Note 9.

CASH AND CASH EQUIVALENTS

The Companies consider all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Companies hold
cash and cash equivalents primarily in one major banking institution.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are net of allowances for doubtful accounts of $175 and
$66 as of December 31, 1997 and 1996, respectively.

REVENUE RECOGNITION

The Companies record sales of materials upon delivery of the materials to
the contractor's location. Revenue relating to the installation services is
recorded as the services are provided.

INVENTORIES

Inventories are stated at the lower of cost ( first-in, first-out or "FIFO")
or market and consist primarily of raw materials. Finished goods include direct
materials, labor and manufacturing overhead.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Major renewals and betterments
are capitalized, while maintenance and repairs are expensed as incurred. Upon
disposition of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is included in income.

F-70
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Depreciation is provided principally on the straight-line method for financial
reporting purposes, using the following estimated useful lives of the respective
assets:

<TABLE>
<S> <C>
Furniture and fixtures.................. 7 - 10 years
Vehicles................................ 3 - 5 years
Machinery and equipment................. 7 - 10 years
</TABLE>

INCOME TAXES

The combined financial statements reflect the Companies' S corporation
income tax status. Their taxable income or loss and tax credits are included in
the personal income tax returns of their stockholder and the resulting tax
liabilities or benefits are those of the stockholder.

ACCOUNTING ESTIMATES

The preparation of combined 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

3. INVENTORIES:

The inventories for R. G. Darby Company at December 31, 1997 and 1996,
respectively, consisted of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials.............................................................. $ 1,146 $ 900
Finished goods............................................................. 129 47
--------- ---------
$ 1,275 $ 947
--------- ---------
--------- ---------
</TABLE>

4. PROPERTY AND EQUIPMENT:

The property and equipment for R.G. Darby Company at December 31, 1997 and
1996, respectively, consisted of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Furniture and fixtures..................................................... $ 118 $ 138
Vehicles................................................................... 559 670
Machinery and equipment.................................................... 428 470
--------- ---------
Total.................................................................... 1,105 1,278
Less accumulated depreciation.............................................. (654) (691)
--------- ---------
$ 451 $ 587
--------- ---------
--------- ---------
</TABLE>

Depreciation expense was $154 and $189 for the years ended December 31, 1997
and 1996, respectively.

F-71
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

5. LINE OF CREDIT AND NOTES PAYABLE:

Under R. G. Darby Company's credit facility, which expires in June 1998,
available borrowings are determined by the amounts of eligible assets of R. G.
Darby Company, as defined in the agreement, including accounts receivable and
inventories, with maximum borrowings of $2,000. The interest rate is based upon
the lender's prime rate plus 1% (9.5% and 9.25% at December 31, 1997 and 1996,
respectively). As of December 31, 1997 and 1996, R. G. Darby Company had $6 and
$690, respectively, outstanding under the credit facility. The credit facility
was terminated in connection with the transaction discussed in Note 9.

At December 31, 1996, the Companies had certain notes payable to banks as
follows:

<TABLE>
<S> <C>
Note payable for various loans collateralized by vehicles with
monthly payments of $6, interest rates from 7.9% to 9%, due
April 1997 through March 1998................................... $ 44

Note payable collateralized by plant equipment with annual
payments of $50, interest rate of 9.08%, due May 2000........... 200
---------
$ 244
---------
---------
</TABLE>

Each of the notes payable were repaid in full by R.G. Darby Company in 1997.
As of December 31, 1997, the Company had no other outstanding indebtedness.

6. RELATED PARTY TRANSACTIONS:

The Companies lease their facilities directly from their stockholder. The
lease agreement, as amended on January 8, 1998, requires annual payments of $137
through December 31, 2011. The Companies have the option to extend the lease
agreement for up to three additional five year terms. In addition, the lease
agreement was subsequently amended effective June 1, 1998 to increase the annual
payments to $185 in connection with the lease of additional warehouse and office
space by the Companies. Facility lease payments to the stockholder amounted to
$137 during 1997 and 1996.

The stockholder was paid bonuses of $1,356 and $1,063 from R. G. Darby
Company for the years ended December 31, 1997 and 1996, respectively.

7. COMMITMENTS AND CONTINGENCIES:

LITIGATION

The Companies are 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 a kind, or involve such amounts
that an unfavorable disposition would not have a material effect on the combined
financial position or results of operations of the Companies.

F-72
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
OPERATING LEASES

The Companies lease automobiles, trucks, and office equipment under
noncancelable operating leases which expire at various times through 2001.
Future minimum lease payments under operating leases having noncancelable terms
of more than one year at December 31, 1997 are as follows:

Rental expense for all operating leases was approximately $83 and $61 for
the years ended December 31, 1997 and 1996, respectively. See Note 6 for
discussion of the Companies' related party operating lease agreement.

8. RETIREMENT PLAN:

The Companies maintain an Integrated Profit Sharing Plan (the Plan) under
Section 401 of the Internal Revenue Code. All employees are eligible to
participate in the Plan after six months of service and may enter the Plan after
such time on the annual enrollment date of January 1st. Under the Plan, the
Companies will contribute to the Plan an amount determined at their discretion
and may choose not to contribute to the Plan for a particular plan year. The
Plan does not permit employees to make contributions. The Companies'
contribution to the Plan was approximately $58 for each of the years ended
December 31, 1997 and 1996, respectively.

9. SUBSEQUENT EVENTS:

Effective January 8, 1998, the Companies were sold to Door Holdings, Inc.
("Door"). As specified in the agreement, the sales price was $24,000 plus or
minus any adjustment resulting from the Companies' combined working capital, as
defined in the sale agreement, being above or below $2,323 as of the closing
date. Included in the $24,000 is a contingent payment of $4,000 to be paid to
the former stockholder based on future operating results. An additional $2,000
payment, which has not been recorded in the purchase price, may be paid to the
Seller if these financial targets are substantially exceeded. The purchase price
was funded primarily with $5,700 equity contributions, $16,000 of long-term
debt, and accrual of the deferred payment. Door did not have any significant
activity prior to this transaction.

Pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 3, 1998, Door will become a wholly-owned
subsidiary of Atrium Companies, Inc. and an indirect wholly owned subsidiary of
D and W Holdings, Inc. ("D&W") (the "Merger"). D&W was formed to effect the
Merger by the principal equity holders of Door and Wing Industries Holdings,
Inc., an affiliate of Door. Pursuant to the terms of the Merger Agreement, D&W
is also acquiring Atrium Companies, Inc. Transactions contemplated pursuant to
the Merger Agreement are expected to be consummated no later than September 30,
1998.

F-73
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................ $ 611
Accounts receivable, net......................................................................... 3,596
Inventories...................................................................................... 1,669
Prepaid expenses and other current assets........................................................ 224
-------------
Total current assets............................................................................. 6,100

PROPERTY AND EQUIPMENT, net........................................................................ 571
GOODWILL, net...................................................................................... 22,081
DEFERRED FINANCING COSTS........................................................................... 190
OTHER ASSETS....................................................................................... 25
-------------
Total assets..................................................................................... $ 28,967
-------------
-------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of note payable.................................................................. $ 1,150
Accounts payable................................................................................. 1,173
Accrued liabilities.............................................................................. 1,390
-------------
Total current liabilities........................................................................ 3,713

LONG-TERM LIABILITIES:
Notes payable.................................................................................... 13,663
Other long-term liabilities...................................................................... 4,000
-------------
Total liabilities................................................................................ 21,376

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000 shares authorized, 58,952 issued and outstanding........... 1
Paid-in capital.................................................................................. 6,609
Retained earnings................................................................................ 981
-------------
Total stockholders' equity....................................................................... 7,591
-------------
Total liabilities and stockholders' equity....................................................... $ 28,967
-------------
-------------
</TABLE>

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

F-74
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1998 1997
----------- -----------
<S> <C> <C>
NET SALES........................................................... $ 16,081 $ 13,077
COST OF GOODS SOLD.................................................. 9,679 7,960
----------- -----------
Gross profit...................................................... 6,402 5,117

OPERATING EXPENSES:
Selling, delivery, general and administrative expenses............ 3,157 3,256
----------- -----------

Income from operations.......................................... 3,245 1,861

INTEREST EXPENSE.................................................... (1,277) (23)
OTHER INCOME (EXPENSE), net......................................... 8 (32)
----------- -----------
Income before income taxes...................................... 1,976 1,806

PROVISION FOR INCOME TAXES.......................................... 995 --
----------- -----------

NET INCOME.......................................................... $ 981 $ 1,806
----------- -----------
----------- -----------
</TABLE>

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

F-75
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998................................... -- $ -- $ -- $ -- $ --
Initial issuance of common stock......................... 58,952 1 5,699 5,700
Issuance of warrants..................................... -- -- 769 -- 769
Stock option compensation expense........................ -- -- 141 -- 141
Net income............................................... -- -- -- 981 981
--------- ----- --------- ----- ------
Balance, September 30, 1998................................ 58,952 $ 1 $ 6,609 $ 981 $ 7,591
--------- ----- --------- ----- ------
--------- ----- --------- ----- ------
</TABLE>

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

F-76
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 981 $ 1,806
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:........................................
Depreciation.................................................... 72 108
Amortization of deferred financing costs........................ 23 --
Amortization of goodwill........................................ 422 --
Amortization of discount of note payable........................ 82 --
Stock compensation expense...................................... 141 --
Loss on retirement of assets.................................... -- 29
Changes in assets and liabilities:................................
Accounts receivable, net........................................ (2,007) (937)
Inventories..................................................... (372) (288)
Prepaid expenses, deferred taxes, and other assets.............. (88) 31
Accounts payable................................................ 345 282
Accrued liabilities............................................. 151 733
----------- -----------
Net cash (used in) provided by operating activities......... (250) 1,764
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired................... (19,945) --
Purchases of property and equipment............................... (181) (103)
Proceeds from sale of assets...................................... -- 94
----------- -----------
Net cash (used in) provided by investing activities............. (20,126) (9)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable............................ 16,000 27
Payment on note payable........................................... (85)
Borrowings under revolving credit facility........................ 1,300 11,332
Payments on revolving credit facility............................. (1,300) (11,820)
Payments on short term debt....................................... (500) --
Stockholder distributions......................................... -- (1,228)
Proceeds from issuance of common stock............................ 5,700 --
Cash paid for financing costs..................................... (213) --
----------- -----------
Net cash (used in) provided by financing activities............. 20,987 (1,774)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 611 (19)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... -- 1,650
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $ 611 $ 1,631
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest........................................................ $ 1,194 $ 50
Payable to Seller............................................... 4,000 --
</TABLE>

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

F-77
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

1. BASIS OF PRESENTATION:

The unaudited consolidated results of operations and cash flow of Door
Holdings, Inc. (formerly known as R.G. Darby Company, Inc. and Total Trim, Inc.
See Note 2.) for the nine months ended September 30, 1998 and 1997, and
financial position as of September 30, 1998 have been prepared in accordance
with generally accepted accounting principles for interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.

These consolidated financial statements and footnotes should be read in
conjunction with the audited combined financial statements of R.G. Darby
Company, Inc. and Total Trim, Inc. for the years ended December 31, 1997 and
1996 included herein. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. The results of operations
for any interim period are not necessarily indicative of the results of
operations for a full year.

2. BASIS OF ACCOUNTING AND CHANGE IN OWNERSHIP:

R.G. Darby Company, Inc. ("R.G. Darby Company") and Total Trim, Inc. ("Total
Trim") (the "Companies") (the "Predecessor"), founded in 1983, provide interior
and exterior doors, vanity mirrors, door knobs and locks, shelving, molding, and
related installation to contractors of apartment buildings and hotels. The
Companies are based in Florence, Alabama and operate out of one facility. The
Companies supply materials and/or provide contract labor to install purchased
materials. Material requirements, with the exception of doors, are shipped
directly from the manufacturer to the contractor's location. Doors are assembled
and shipped from the Companies' production facility. The Companies consist of
three entities-- R.G. Darby Company is the sales company for materials; Darby
Doors, a division of R.G. Darby Company, is the manufacturing division that
produces the doors that are sold through R.G. Darby Company; and Total Trim is
responsible for contracting labor for any installation work. These entities
perform work in approximately 28 states, mainly in the South, Mid-Atlantic and
Northeast.

Effective January 8, 1998, the Companies were sold to Door Holdings, Inc.
("Door"). As specified in the agreement, the sales price was $24,000 plus or
minus any adjustments resulting from the Companies' combined working capital, as
defined in the sale agreement, being above or below $2,323 as of the closing
date. Included in the $24,000 is a contingent payment of $4,000 to be paid to
the former stockholder based on future operating results. An additional $2,000
which has not been recorded in the purchase price may be paid to the seller if
these financial targets are substantially exceeded. The purchase price was
funded primarily with $5,700 equity contributions, $16,000 of long-term debt,
and accrual of the deferred payment. Door did not have any significant activity
prior to this transaction. For the purpose of financial statement presentation,
the change in ownership occurring on January 8, 1998 was considered effective
January 1, 1998.

The Acquisition has been accounted for under the purchase method of
accounting. The aggregate purchase price of $24,520, (which includes $520 of
transaction related expenses) has been allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the date
of

F-78
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

2. BASIS OF ACCOUNTING AND CHANGE IN OWNERSHIP: (CONTINUED)
acquisition, with the remainder allocated to goodwill, being amortized on a
straight line basis over forty years. The preliminary purchase price allocation
is as follows:

<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 575
Accounts receivable, net........................................... 1,651
Inventories........................................................ 1,297
Prepaid expenses and other assets.................................. 101
Property and equipment, net........................................ 462
Goodwill........................................................... 22,503
Accounts payable and accrued liabilities........................... (2,069)
---------
Total purchase price............................................. $ 24,520
---------
---------
</TABLE>

The financial statements for the nine months ended September 30, 1997 were
prepared for the Companies on their predecessor basis. No tax provision was
recorded for the nine months ended September 30, 1997 as the Companies were S
corporations for income tax purposes. The financial statements for the nine
months ended September 30, 1998 reflect the purchase adjustments discussed
above. Door is a C corporation for income tax purposes and therefore an income
tax provision has been recorded for the 1998 period. The primary differences
between the 1998 presentation and the 1997 presentation are the additional
amortization expense, interest expense, and income tax expense reflected in 1998
due to the purchase transaction discussed above.

3. INVENTORIES:

Inventories, which are valued at the lower of cost or market using the
first-in, first-out (FIFO) method of accounting consisted of the following at
September 30, 1998:

<TABLE>
<S> <C>
Raw materials................................................... $ 1,502
Finished goods.................................................. 167
------
$ 1,669
------
------
</TABLE>

4. NOTES PAYABLE:

In connection with the acquisition discussed in Note 2 above, Door entered
into a $6,000 subordinated note payable to GE Investment Private Placement
Partners II ("GEIPPPII"), payable interest only in quarterly installments at
11.5% on the unpaid face amount, due January 9, 2004. The valuation assigned to
common stock warrants of 11,712 issued in conjunction with this note resulted in
a discount of $769 and an effective interest of approximately 16.78%. The
unamortized discount at September 30, 1998 was $687.

Also, in connection with the acquisition discussed in Note 2 above, Door
entered into a Credit Agreement providing for a $5,000 revolving credit facility
(the "Revolving Credit Facility") and a $10,000 Senior secured term loan
facility (the "Term Loan"). The Revolving Credit Facility and the Term Loan bear
interest at a rate based upon the lender's prime rate plus a borrowing margin of
1.5% or a EURO-based rate plus a borrowing margin of 2.5%. Door pays a
commitment fee of .375% based on the unused portion of both credit facilities.
The Revolving Credit Facility terminates on January 7, 2003. Door had

F-79
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

4. NOTES PAYABLE: (CONTINUED)
$5,000 of availability under the Revolving Credit Facility as of September 30,
1998. In connection with the acquisition discussed in Note 2 above, Door
borrowed $10,000 under the Term Loan. Principal payments on the Term Loan are
due quarterly at amounts ranging from $250 to $400 through December 31, 2004.
Outstanding borrowings on the Term Loan at September 30, 1998 were $9,500 at an
approximate interest rate of 8.0%. The Credit Agreement contains various
covenants that restrict Door from taking various actions and requires Door to
achieve and maintain certain financial covenants. All tangible and intangible
assets of Door collateralize these credit facilities.

Principal payments due during the next fiscal five years on notes payable as
of September 30, 1998 are as follows:

<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 1,150
2000............................................................................... 1,350
2001............................................................................... 1,550
2002............................................................................... 1,600
2003............................................................................... 1,600
Thereafter......................................................................... 8,250
---------
15,500
Less unamortized discount.......................................................... (687)
---------
$ 14,813
---------
---------
</TABLE>

5. CONTINGENCIES:

Door 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 adverse effect on the
consolidated financial position, results of operations or liquidity of Door.

6. COMMON STOCK PLAN:

Effective January 9, 1998, the Board of Directors of Door approved the Door
Stock Option Plan (the Plan) that provides for the grant of incentive stock
options and nonqualified stock options to certain employees, officers and
directors of Door and its affiliates, as defined in the Plan. Under the Plan,
10,000 shares of Door's common stock have been reserved for issuance. Incentive
stock options granted under the Plan provide for the purchase of Door's common
stock at not less than fair value on the date the option is granted. However,
incentive stock options granted to any employee owning stock possessing more
than 10% of the total combined voting power of all classes of stock of Door
shall be at least 110% of the fair market value of Door's common stock on the
date the option is granted. Nonqualified stock options granted under the Plan
provide for the purchase of Door's common stock at a price specified by the
Stock Option Committee, which may be less than, equal to, or greater than the
fair market value of the common stock on the date such option is granted.

As of September 30, 1998, incentive stock options for approximately 5,900
shares of common stock were granted at approximately $117 per share. The option
price of $117 per share will increase annually by 15% for 2,000 shares and 30%
for 3,900 shares as defined by the Plan. These options become exercisable

F-80
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

6. COMMON STOCK PLAN: (CONTINUED)
over a three-year period and expire in January 2008. In addition, nonqualified
stock options for approximately 1,600 shares of common stock were granted at
approximately $235 per share. These options become exercisable upon the
happening of a "Value Event" as described in the Plan and expire in January
2008. As of September 30, 1998, there has been no Value Event.

7. RELATED PARTIES:

On January 9, 1998, Door entered into a ten-year Management and Investment
Banking Agreement (the "Management Agreement") with Ardshiel, Inc., ("Ardshiel")
a related party of Arddoor, L.L.C., an equityholder of Door Holdings, Inc.
Pursuant thereto, Door has agreed to pay Ardshiel an annual fee of $200 plus
expenses for on-going management advisory services to Door. The management
agreement also gives Ardshiel the first opportunity, in most instances, to
perform investment banking services for Door, for a fee equal to 2% of the total
transaction price related to any such sale/acquisition under the services
provided. The agreement is terminated in the event Ardshiel and Arddoor, L.L.C.
cease to be affiliates of Door.

8. SUBSEQUENT EVENTS:

Pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 3, 1998, Door became a wholly-owned subsidiary
of Atrium Companies, Inc. and an indirect wholly owned subsidiary of D and W
Holdings, Inc. ("D&W") (the "Merger"). D&W was formed to effect the Merger by
the principal equity holders of Door and Wing Industries Holdings, Inc., an
affiliate. Pursuant to the terms of the Merger Agreement, D&W is also acquiring
Atrium Companies, Inc. Transactions contemplated pursuant to the Merger
Agreement were consummated October 2, 1998.

Immediately prior to the merger, the subordinated note payable and related
warrants were converted into common stock of Door.

In connection with the Merger, management exchanged all options in Door for
options to purchase stock in D&W. It is expected that the management agreement
will be terminated and replaced by a new agreement with D&W upon consummation
with the Merger.

As a part of the Merger, the notes payable remaining after conversion were
repaid and the deferred financing cost was expensed.

F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Heat, Inc. and Subsidiaries:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Heat, Inc.
and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the year ended December 31,
1998, the periods ended December 31, 1997 and May 30, 1997 and the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
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
generally accepted auditing standards, 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 the opinion expressed
above.

PricewaterhouseCoopers LLP
Dallas, Texas
July 9, 1999

F-82
<PAGE>
HEAT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
MARCH 31, --------- ---------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 1,143 $ 4,178 $ 1,708
Cash held in escrow.......................................................... -- -- 2,167
Accounts receivable, net of allowance of $221, $343 and $231, respectively... 5,227 6,176 5,109
Inventories.................................................................. 6,710 6,017 5,630
Prepaid expenses and other current assets.................................... 966 1,085 1,998
Deferred tax asset........................................................... 915 915 905
----------- --------- ---------
Total current assets....................................................... 14,961 18,371 17,517
PROPERTY, PLANT AND EQUIPMENT, net............................................. 8,339 8,407 7,747
GOODWILL, net.................................................................. 16,563 16,645 15,228
OTHER ASSETS................................................................... 673 760 1,024
DEFERRED FINANCING COSTS AND OTHER INTANGIBLES, net............................ 1,427 1,499 1,756
----------- --------- ---------
Total assets............................................................. $ 41,963 $ 45,682 $ 43,272
----------- --------- ---------
----------- --------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $ 3,568 $ 2,239 $ 1,624
Accounts payable............................................................. 1,775 843 892
Accrued liabilities.......................................................... 3,975 8,655 7,213
----------- --------- ---------
Total current liabilities.................................................. 9,318 11,737 9,729
Long-term debt................................................................. 20,468 20,805 24,869
Deferred tax liability......................................................... 468 468 203
Other long-term liabilities.................................................... 309 152 --
----------- --------- ---------
Total liabilities.......................................................... 30,563 33,162 34,801
----------- --------- ---------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock--authorized 5,000,000 shares at $.01 par value; issued
and outstanding 1,312,500 shares........................................... 13 13 13
Class B common stock--authorized 1,000,000 shares at $.01 par value; no
shares issued and outstanding.............................................. -- -- --
Warrants outstanding......................................................... 146 146 146
Paid-in capital.............................................................. 5,239 5,239 5,239
Retained earnings............................................................ 6,002 7,122 3,073
----------- --------- ---------
Total stockholders' equity................................................. 11,400 12,520 8,471
----------- --------- ---------
Total liabilities and stockholders' equity............................... $ 41,963 $ 45,682 $ 43,272
----------- --------- ---------
----------- --------- ---------
</TABLE>

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

F-83
<PAGE>
HEAT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
THE COMPANY THE COMPANY PREDECESSOR
---------------------------- ---------------------------- ----------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MAY 30, DECEMBER 31,
1999 1998 1998 1997 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES........................ $ 13,642 $ 12,841 $ 73,458 $ 45,549 $ 16,970 $ 45,459
COST OF GOODS SOLD............... 8,970 7,587 41,780 26,501 10,345 25,959
------------- ------------- ------------- ------------- ------------- -------------
Gross profit................. 4,672 5,254 31,678 19,048 6,625 19,500
------------- ------------- ------------- ------------- ------------- -------------

OPERATING EXPENSES:
Selling, delivery, general and
administrative............... 5,769 4,895 21,680 12,352 6,595 15,682
Special charges................ -- -- -- -- 785 --
Amortization expense........... 182 162 685 391 -- --
------------- ------------- ------------- ------------- ------------- -------------
Total operating expenses..... 5,951 5,057 22,365 12,743 7,380 15,682
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from
operations................. (1,279) 197 9,313 6,305 (755) 3,818

INTEREST EXPENSE, net............ 530 645 2,330 1,039 92 84
OTHER INCOME (EXPENSE)........... 29 52 (415) (176) 166 446
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income
taxes...................... (1,780) (396) 6,568 5,090 (681) 4,180

Provision (benefit) for
income taxes............... (660) (120) 2,519 2,017 (298) 1,634
------------- ------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS)................ $ (1,120) $ (276) $ 4,049 $ 3,073 $ (383) $ 2,546
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>

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

F-84
<PAGE>
HEAT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ISSUED(A)
TREASURY STOCK
---------------------- PAID-IN ------------------------ WARRANTS RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT OUTSTANDING EARNINGS
--------- ----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE, December 31, 1995........ 2,011,088 $ 41 $ 430 57,876 $ (25) $ -- $ 17,684
Stock options exercised......... -- -- -- (5,300) 2 -- --
Net income...................... -- -- -- -- -- -- 2,546
--------- --- ----------- ----------- --- ----- -----------
BALANCE, December 31, 1996........ 2,011,088 41 430 52,576 (23) -- 20,230
Stock options exercised......... -- -- -- (4,463) 2 --
Net loss........................ -- -- -- -- -- -- (383)
--------- --- ----------- ----------- --- ----- -----------
BALANCE, May 30, 1997............. 2,011,088 $ 41 $ 430 48,113 $ (21) $ -- $ 19,847
--------- --- ----------- ----------- --- ----- -----------
--------- --- ----------- ----------- --- ----- -----------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
THE COMPANY
BALANCE, May 31, 1997............. -- $ -- $ -- -- $ -- $ -- $ --
Issuance of common stock........ 1,312,500 13 5,239 -- -- -- --
Issuance of warrants............ -- -- -- -- -- 146 --
Net income...................... -- -- -- -- -- -- 3,073
--------- --- ----------- ----------- --- ----- -----------
BALANCE, December 31, 1997........ 1,312,500 13 5,239 -- -- 146 3,073
Net income...................... 4,049
--------- --- ----------- ----------- --- ----- -----------
Balance, December 31, 1998........ 1,312,500 13 5,239 -- -- 146 7,122
Net loss (unaudited)............ -- -- -- -- -- -- (1,120)
--------- --- ----------- ----------- --- ----- -----------
Balance, March 31, 1999
(unaudited)..................... 1,312,500 $ 13 $ 5,239 -- $ -- $ 146 $ 6,002
--------- --- ----------- ----------- --- ----- -----------
--------- --- ----------- ----------- --- ----- -----------

TOTAL
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
PREDECESSOR
BALANCE, December 31, 1995........ $ 18,130
Stock options exercised......... 2
Net income...................... 2,546
-------------
BALANCE, December 31, 1996........ 20,678
Stock options exercised......... 2
Net loss........................ (383)
-------------
BALANCE, May 30, 1997............. $ 20,297
-------------
-------------
- ----------------------------------
- ----------------------------------
THE COMPANY
BALANCE, May 31, 1997............. $ --
Issuance of common stock........ 5,252
Issuance of warrants............ 146
Net income...................... 3,073
-------------
BALANCE, December 31, 1997........ 8,471
Net income...................... 4,049
-------------
Balance, December 31, 1998........ 12,520
Net loss (unaudited)............ (1,120)
-------------
Balance, March 31, 1999
(unaudited)..................... $ 11,400
-------------
-------------
</TABLE>

F-85
<PAGE>
HEAT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THE COMPANY THE COMPANY PREDECESSOR
---------------------------- ---------------------------- ------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MAY 30, DECEMBER 31,
1999 1998 1998 1997 1997 1996
------------- ------------- ------------- ------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (1,120) $ (276) $ 4,049 $ 3,073 $ (383) $ 2,546
Depreciation and amortization...... 519 482 2,008 1,057 703 1,782
Amortization of deferred debt
discount......................... 5 5 21 12 -- --
Loss/(gain) on disposal of
property, plant and equipment.... -- 5 31 -- 44 (14)
Changes in assets and liabilities:
Accounts receivable.............. 949 (60) (1,067) 1,003 (391) (272)
Inventories...................... (694) (990) (387) 1,814 (784) (740)
Prepaid expenses and other
current assets................. 119 110 1,177 (1,115) (355) (341)
Deferred taxes, net.............. -- -- 255 (21)
Investments...................... -- -- -- -- 5,393 (251)
Other noncurrent assets.......... 65 -- -- -- (122) (391)
Accounts payable................. 932 521 (50) (1,405) 411 507
Accrued liabilities.............. (4,679) (400) 294 (67) 431 440
Other, net....................... (2) (70) (29) (22) --
------------- ------------- ------------- ------------- ------------- ------
Net cash (used in) provided by
operating activities......... (3,906) (673) 6,302 4,329 4,947 3,266
------------- ------------- ------------- ------------- ------------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment, net................... (271) (365) (1,700) (992) (683) (1,696)
Acquisition of Thermal and Best
Built............................ -- -- -- (30,122) -- --
Additional payment to seller....... -- (830) -- -- --
------------- ------------- ------------- ------------- ------------- ------
Net cash used in investing
activities................... (271) (365) (2,530) (31,114) (683) (1,696)
------------- ------------- ------------- ------------- ------------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Liquidation of consolidated escrow
balances......................... -- 2,167 2,167 -- -- --
Proceeds from borrowings in
connection with acquisition of
Thermal and Best Built........... -- -- -- 24,870 -- --
Borrowing/(repayment) of debt...... 1,142 (308) (3,469) (2,883) (28) (172)
Issuance of common stock........... -- -- -- 5,252 -- --
------------- ------------- ------------- ------------- ------------- ------
Net cash (used in) provided by
financing activities......... 1,142 1,859 (1,302) 27,239 (28) (172)
------------- ------------- ------------- ------------- ------------- ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (3,035) 821 2,470 454 4,236 1,398
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 4,178 1,708 1,708 1,254 5,070 3,672
------------- ------------- ------------- ------------- ------------- ------
END OF PERIOD...................... $ 1,143 $ 2,529 $ 4,178 $ 1,708 $ 9,306 5,070
------------- ------------- ------------- ------------- ------------- ------
------------- ------------- ------------- ------------- ------------- ------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for--
Interest......................... 532 595 $ 2,325 $ 1,574 $ 40 $ 84
Income taxes..................... $ 921 $ 112 $ 1,282 $ 2,202 $ 404 $ 1,255
Noncash investing and financing
activities--
Capital expenditures included in
accrued expenses............... -- $ 312 $ -- $ $ --
</TABLE>

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

F-86
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION:

Heat, Inc. (the "Company"), a Delaware corporation, was incorporated on
January 2, 1997 by HIG Capital Management and affiliated companies ("HIG") for
the purpose of acquiring and owning Thermal Industries, Inc. ("Thermal"), based
in Pittsburgh, Pennsylvania, and Best Built, Inc. ("Best Built"), based in Union
Gap, Washington. The acquisitions were consummated effective May 30, 1997. The
statements of operations for the period from January 1, 1997 to May 30, 1997 and
the year ended December 31, 1996 only include the operations of Thermal as
Thermal was deemed to be the predecessor company. The Company is engaged in the
manufacture of vinyl-framed, made-to-order windows, replacement sliding doors,
patio enclosures, vinyl porch decks and boat docks. The products are primarily
sold to remodeling or home improvement contractors for use in residential
remodeling through the Company's twenty-one branch locations. In addition,
products are also sold to wholesale distributors for use in new construction.

The purchase price of the acquisitions exceeded the fair value of the net
assets acquired by approximately $17,273. Pursuant to the terms of the Best
Built purchase agreement, the Company made an additional payment of $830 during
1998. In addition, in January 1999, the Company reached a settlement with
shareholders dissenting to the merger. The settlement amount exceeded the
previously recorded liability by approximately $673. Refer to Note 9 for further
discussion.

2. SIGNIFICANT ACCOUNTING POLICIES:

The preparation of 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. Actual results may differ from previously estimated amounts.

The consolidated financial information as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999 is unaudited. In the opinion of
management, the accompanying unaudited consolidated financial information and
related notes thereto contain all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
information as of March 31, 1999 and the operating results and cash flows for
the three months ended March 31, 1999 and 1998. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.

BASIS OF CONSOLIDATION

The accounts of the Company and its wholly-owned subsidiaries are included
in the consolidated financial statements. All significant intercompany accounts
and transactions have been eliminated in consolidation. The reference to the
periods ended December 31, 1997 and May 30, 1997 used throughout these
consolidated financial statements, refer to the periods May 31, 1997 through
December 31, 1997 and January 1, 1997 through May 30, 1997, respectively.

F-87
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INDUSTRY SEGMENT

The Company operates in a single industry segment, the fabrication and
distribution windows and related components.

REVENUE RECOGNITION

The Company manufactures the products noted above and provides separate
installation services for customers that request such services under sales
contracts that may require cash deposits. The Company records the sale of
products upon transfer of title to the customer, which typically occurs upon
shipment, and records revenue from installation projects when the projects are
complete.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
ninety days or less when purchased to be cash equivalents.

ADVERTISING COSTS

Advertising costs are expensed when incurred and were $185, $68, $61, and
$80 for the year ended December 98, the periods ended December 31, 1997 and May
30, 1997, and the year ended December 31, 1996, respectively.

CONCENTRATIONS OF CREDIT RISK

Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company's customers are located in various regions of the United States. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information. No customers
accounted for approximately 10% of gross sales for the year ended December 31,
1998, the periods ended December 31, 1997 and May 30, 1997 and the year ended
December 31, 1996.

INVENTORIES

Inventories are carried at the lower of first-in, first-out (FIFO) cost or
market and consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
MARCH 31, --------- ---------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................................ $ 4,012 $ 3,948 $ 3,586
Work-in-process.............................................. 69 69 73
Finished goods............................................... 2,629 2,000 1,971
----------- --------- ---------
$ 6,710 $ 6,017 $ 5,630
----------- --------- ---------
----------- --------- ---------
</TABLE>

F-88
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
MARCH 31, --------- ---------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and benefits................................. $ 2,125 $ 2,339 $ 1,781
Accrued income taxes......................................... 92 900 56
Reserve for litigation settlement............................ -- 2,840 2,167
Other accrued liabilities.................................... 1,758 2,576 3,209
----------- --------- ---------
$ 3,975 $ 8,655 $ 7,213
----------- --------- ---------
----------- --------- ---------
</TABLE>

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Additions and improvements
of significant items are capitalized while expenditures for maintenance and
repairs are charged to operations as incurred. Provisions for depreciation are
computed principally by the straight-line method based upon the estimated useful
lives of the assets. Property, plant and equipment balances and useful lives are
as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIATION --------------------
PERIOD 1998 1997
-------------- --------- ---------
<S> <C> <C> <C>
Land...................................................... N/A $ 334 $ 334
Buildings and improvements................................ 39.5 years 1,522 1,522
Furniture and office equipment............................ 3-7 years 643 471
Machinery and equipment................................... 5-20 years 5,170 4,055
Autos and trucks.......................................... 3-10 years 1,082 934
Leasehold improvements.................................... Life of lease 703 634
Construction-in-progress.................................. N/A 912 459
--------- ---------
10,366 8,409
Less accumulated depreciation............................. (1,959) (662)
--------- ---------
Property, plant and equipment, net........................ $ 8,407 $ 7,747
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the year ended December 31, 1998, the periods ended
December 31, 1997 and May 30, 1997, and the year ended December 31, 1996 was
$1,321, $662, $703 and $1,782, respectively.

NONCOMPETE AND CONSULTING AGREEMENTS

In connection with the acquisition of Best Built, the seller agreed not to
compete with the Company for a period of five years in exchange for an initial
payment of $150 and an additional payment of $125 during 1998. The cost of this
agreement is being amortized using the straight-line method over its five-year
contractual life. Additionally, the seller is being retained as a consultant for
the Company through May 29, 1999, subject to extension upon mutual agreement of
the Company and the seller.

F-89
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
GOODWILL

Goodwill is being amortized over forty years on a straight-line basis.
Accumulated amortization was approximately $628 and $229 at December 31, 1998
and 1997, respectively. It is the Company's policy to review goodwill (and other
intangible assets) for possible impairment on the basis of whether the carrying
amount of such assets is fully recoverable from projected undiscounted net cash
flows from the related business. If such review indicates that the carrying
amount of goodwill and other intangible assets is not recoverable, then the
Company's policy is to reduce the carrying amount of such assets to fair value.

FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with Statement of Financial Accounting Standards (SFAS) No.
107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, the following
methods have been used in estimating fair value disclosures for significant
financial instruments of the Company.

Cash and cash equivalents, accounts receivable, accounts payable, and other
current liabilities--The carrying amounts reported in the balance sheet for
these accounts approximate the fair value due to their short maturities.

Long-term debt--The fair value of the Company's debt approximates the
carrying value since interest rates are variable for the maturity of the
debt. Management believes the fixed rate debt is consistent with other
financial instruments of similar rating and risk.

TREASURY STOCK

Treasury stock represents stock held principally for sale and issuance to
employees. Purchases of treasury stock are recorded at cost. Sales of treasury
stock are valued using the weighted average method. All treasury stock was
eliminated as part of the acquisition of Thermal and Best Built by the Company.

F-90
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

3. LONG-TERM DEBT:

Long-term debt outstanding consisted of the following at December 31:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Unsecured note payable, 8.00% interest, principal payable in its entirety on
May 29, 2000.............................................................. $ 1,500 $ 1,500

Pennsylvania Economic Development Financing Authority ("PEDFA") bonds,
variable interest rate (recent interest rates ranging from 2.40% to
3.15%), principal payable $100 annually through November 2004, with a $500
payment due November 2005................................................. 1,100 1,200

Pennsylvania Industrial Development Authority ("PIDA") mortgage note, 3%
interest, principal and interest payable in monthly installments of $8
through July 2006......................................................... 653 723

Nations Credit Term Loan A, variable interest rate of 4.25% plus the
Commercial Paper Rate (total rate of 9.17% at December 31, 1998),
principal payable in quarterly installments through May 30, 2003.......... 14,941 18,212

Nations Credit Term Loan B, variable interest rate of 6.50% plus the
Commercial Paper Rate (total rate of 11.42% at December 31, 1998),
principal payable in its entirety throughout the 12 months ended May 30,
2004...................................................................... 4,700 4,700

Various capital lease obligations at interest rates ranging from 10.91% to
24.20% due in installments through 2003................................... 263 292
--------- ---------

23,157 26,627

Less--

Deferred debt discount.................................................... (113) (134)

Current portion of long-term debt......................................... (2,239) (1,624)
--------- ---------

$ 20,805 $ 24,869
--------- ---------
--------- ---------
</TABLE>

Annual principal payments required under long-term debt obligations are as
follows:

<TABLE>
<S> <C>
1999............................................................... $ 2,239
2000............................................................... 4,266
2001............................................................... 3,426
2002............................................................... 4,124
2003............................................................... 4,163
Thereafter......................................................... 4,939
---------
$ 23,157
---------
---------
</TABLE>

Debt issuance costs of approximately $1,204 were incurred in 1997 in
connection with the Nations Credit agreement. In connection with the borrowings,
warrants were issued to the lender to purchase 98,790 shares. The estimated
value of those warrants of approximately $146 has been recorded as deferred debt
discount and warrants outstanding. Amortization of the Nations Credit deferred
financing costs and other intangible assets approximated $286 and $165 for the
year ended December 31, 1998 and the period ended December 31, 1997,
respectively.

F-91
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

3. LONG-TERM DEBT: (CONTINUED)
The Company maintains a $1,300 letter of credit and a $7,500 working capital
facility with Nations Credit. At December 31, 1998 and 1997, no amounts were
outstanding under these facilities.

The Company is required to meet certain financial and other covenants in
connection with the above obligations, including, among others, restrictions on
new indebtedness, liens, minimum earnings before interest, taxes, depreciation
and amortization, debt coverage and capital expenditures. The Company was in
compliance with all of these covenants as of December 31, 1998. In addition, the
obligations contain mandatory incremental prepayments if certain conditions are
met such as, excess cash flow requirements (as defined), an equity transaction,
or an asset sale. In connection therewith, the company paid $0, $1,853, $0 and
$0 under these provisions for the year ended December 31, 1998, the periods
ended December 31, 1997 and May 30, 1997 and the year ended December 31, 1996,
respectively.

4. EMPLOYEE BENEFIT PLAN:

Thermal maintains a qualified 401(k) and profit-sharing plan covering
substantially all of its employees. Under the terms of the plan, the Company may
contribute up to 25% of the first 8% of each employee's compensation contributed
and may also make discretionary contributions to the plan. Total expense
recorded by the Company was approximately $710, $687, $278 and $534 for the year
ended December 31, 1998, the periods ended December 31, 1997 and May 30, 1997
and the year ended December 31, 1996, respectively.

During 1998, Best Built implemented a qualified 401(k) plan. Under the terms
of the plan, the Company may contribute up to 25% of the first 8% of each
employee's compensation contributed. The total expense recorded by Best Built
was $8 for the year ended December 31, 1998.

5. INCOME TAXES:

The Company records the effect of income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS No.
109), ACCOUNTING FOR INCOME TAXES. Taxes on income, as shown in the accompanying
consolidated statements of operations, include the following components:

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------ --------------------------
PERIOD
YEAR ENDED ENDED YEAR ENDED
DECEMBER DECEMBER PERIOD ENDED DECEMBER
31, 31, MAY 30, 31,
1998 1997 1997 1996
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Current provision (benefit):
Federal.................................. $ 2,202 $ 1,765 $ 15 $ 1,403
State.................................... 254 273 95 227
----------- ----------- ----- -----------
Total current provision................ 2,456 2,038 110 1,630
Deferred provision (benefit)............... 63 (21) (408) 4
----------- ----------- ----- -----------
Total provision (benefit).............. $ 2,519 $ 2,017 $ (298) $ 1,634
----------- ----------- ----- -----------
----------- ----------- ----- -----------
</TABLE>

F-92
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

5. INCOME TAXES: (CONTINUED)
The income tax rate on income before taxes differs from the federal
statutory rate for the following reasons:

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------ ------------------------
PERIOD
YEAR ENDED ENDED PERIOD YEAR ENDED
DECEMBER DECEMBER ENDED DECEMBER
31, 31, MAY 30, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax provision based on the federal
statutory rate........................... $ 2,235 $ 1,715 $ (231) $ 1,421
State income taxes, net of federal
benefit.................................. 168 232 (27) 150
Nondeductible goodwill..................... 101 58 -- --
Other...................................... 15 12 (40) 63
----------- ----------- ----------- -----------
Total provision........................ $ 2,519 $ 2,017 (298) $ 1,634
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

The components of the Company's deferred tax accounts are as follows at
December 31:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Depreciation................................................................. $ (368) $ (163)
Vacation accrual............................................................. 318 151
Accrued bonuses.............................................................. 75 136
Warranty accrual............................................................. 257 225
Inventory and bad debt reserve............................................... 199 143
Amortization of goodwill..................................................... (100) (40)
Other nondeductible accruals................................................. 66 250
--------- ---------
Net deferred tax asset....................................................... $ 447 $ 702
--------- ---------
--------- ---------
Deferred tax asset, current.................................................. $ 915 $ 905
Deferred tax liability, long-term............................................ (468) (203)
--------- ---------
$ 447 $ 702
--------- ---------
--------- ---------
</TABLE>

6. STOCKHOLDERS' EQUITY:

VOTING RIGHTS

The holders of the Class A Common Stock are entitled to one vote for each
share of stock held. The holders of Class B Common Stock are not entitled to
vote, except as otherwise required by applicable law, in which case holders of
Class B Common Stock shall vote as a single class.

DIVIDENDS AND LIQUIDATION RIGHTS

The Board of Directors of the Company may pay dividends to both the Class A
and Class B holders out of funds legally available for payments of dividends. In
the event of liquidation, the holders of Class A and Class B stock shall be
entitled to share ratably, according to the number of shares of Common Stock
held by them, in all assets of the Company available for distribution to its
stockholders.

F-93
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

6. STOCKHOLDERS' EQUITY: (CONTINUED)
CONVERSION

Each share of Class A Common Stock is convertible into one share of Class B
Common Stock, and vice versa.

7. STOCK OPTION PLANS:

In October 1984, Thermal adopted an incentive stock option plan (the "Old
Plan") for its key employees. Options granted under the Old Plan were granted
with an exercise price that equaled or exceeded fair market value of Thermal's
common stock at the date of grant.

Ten years from the date the Old Plan was adopted, the Old Plan was
terminated. However, all rights created under options granted continued until
such options were excercised or expired. In connection with acquisition of
Thermal and Best Built by the Company, all options under the Old Plan were
exercised.

On May 30, 1997, the Company adopted a stock option plan pursuant to the
Heat, Inc. 1997 Stock Purchase and Option Plan (the "Plan") for its key
employees, directors, consultants and advisers. The option plan provides for the
grant of up to 250,000 shares of common stock. Under the Plan, certain employees
have received incentive options under the Internal Revenue Service Code Section
422, while others have received nonqualified stock options in accordance with
the Plan.

Generally, all options issued under the Plan vest equally in 25% annual
increments over the four-year period subsequent to the grant date. All options
become fully vested upon a sale of the Company and must be exercised in
connection with the sale of the Company or they shall be forfeited. Options were
granted with an exercise price that equalled or exceed fair value of the
Company's common stock. Options for 22,500 shares were granted at the time of
acquisition, which vest between 1998 and 2005 based upon the Company's future
operating results. The outstanding stock options under the Plan have an average
remaining contractual life of ten years at December 31, 1998.

Stock option transactions are summarized as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THE COMPANY PREDECESSOR
------------------------ ------------------------
PERIOD PERIOD
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER DECEMBER MAY 30, DECEMBER
31, 1998 31, 1997 1997 31, 1996
----------- ----------- ----------- -----------
Outstanding options, beginning of period... 86,555 -- 35,500 15,900
Granted.................................... 17,500 86,555 -- 20,000
Exercised.................................. -- -- (800) (400)
----------- ----------- ----------- -----------
Outstanding options, end of period......... 104,055 86,555 34,700 35,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Weighted average exercise price of options
exercised................................ $ -- $ -- $ 3.00 $ 3.00
Weighted average exercise price of options
granted.................................. $ 18.29 $ 4.64 $ -- $ 8.75
Weighted average exercise price, end of
period................................... $ 6.93 $ 4.64 $ 6.31 $ 6.24
Options exercisable, end of period......... 21,639 -- 28,434 29,234
Options available for future grant......... 145,945 163,445 -- --
</TABLE>

F-94
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

7. STOCK OPTION PLANS: (CONTINUED)
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following range of assumptions
used for option grants occurring during the year ended December 31, 1998 and the
period ended December 31, 1997:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Volatility..................................................................................... 0% 0%
Risk-free interest rate........................................................................ 5.27% 5.81%
Expected life in years......................................................................... 5.0 5.0
Dividend yield................................................................................. 0% 0%
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$4.00 79,055 101 $ 4.00 19,764 $ 4.00
$10.00-$12.00 17,500 107-119 $ 11.71 750 $ 11.33
$20.00 2,500 119 $ 20.00 -- --
$30.00 5,000 116 $ 30.00 -- --
-----------
104,055
</TABLE>

In October 1995, the Financial Accounting Standards Board issued STATEMENT
OF FINANCIAL ACCOUNTING STANDARD ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 encourages a fair-value based method of accounting
for employee stock options and similar equity instruments. SFAS No. 123 also
allows an entity to continue to account for stock-based employee compensation
using the intrinsic value for equity instruments using APB Opinion No. 25. As
provided for in SFAS No. 123, the Company elected to continue the intrinsic
value method of expense recognition. Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation expense for the stock
option plans been determined consistent with the provisions of SFAS No. 123, the
Company's net income for the year ended December 31, 1998, the periods ended
December 31, 1997 and May , 1997 and the year ended December , 1996 would not
have been materially different.

In connection with acquisition transactions discussed in Note 1, the Company
also sold 45,000 shares (Class A) to certain employees, at the fair market value
as determined by management and based on the value of the merger transaction.
These shares and any shares issued under the stock option plan, as described
above, are subject to certain terms and conditions including, among others,
restrictions on transfer, repurchase rights and a put feature.

In connection with the sale of the Company (see Note ), all options
outstanding under the Plan were exercised and the Plan was terminated.

8. RELATED PARTY TRANSACTIONS:

In connection with the merger, the Company agreed to pay a management fee to
HIG. These fees totaled approximately $400 and $239 for the year ended December
31, 1998 and the period ended

F-95
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

8. RELATED PARTY TRANSACTIONS: (CONTINUED)
December 31, 1997, respectively, and are classified as management fees in the
accompanying consolidated statements of operations.

The Company leases certain facilities in Pittsburgh, Pennsylvania from two
members of the board of directors of the Company. Rental expense for these
facilities totaled approximately $137, $78, $56 and $134 for the year ended
December 31, 1998, the periods ended December 31, 1997 and May 30, 1997 and the
year ended December 31, 1996, respectively.

9. FUTURE LEASE OBLIGATIONS:

Future minimum lease payments under operating leases for the Company's main
locations and twenty-one branch locations that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1998 are:

<TABLE>
<S> <C>
1999................................................................ $ 1,399
2000................................................................ 1,329
2001................................................................ 766
2002................................................................ 528
2003................................................................ 350
Thereafter.......................................................... 725
---------
$ 5,097
---------
---------
</TABLE>

Rental expense amounted to approximately $1,523, $685, $426 and $867 for the
year ended December 31, 1998, the periods ended December 31, 1997 and May 30,
1997 and the year ended December 31, 1996, respectively.

10. COMMITMENTS AND CONTINGENCIES:

The Company is currently a defendant in a lawsuit claiming that the Company
is liable and negligent in the design and manufacture of windows installed in a
large condominium project. The case is currently in mediation with a scheduled
trial date of May 1999. Management is of the opinion that the ultimate
resolution of this matter, after considering its insurance coverage and based on
discussions with outside legal counsel, will not have a material adverse effect
on the Company's financial condition or its results of operation.

The Company is involved in various other claims and litigation incidental to
the conduct of its business. Based on consultation with legal counsel,
management does not believe that any claims or litigation to which the Company
is a party will have a material adverse effect on the Company" financial
condition or results of operations.

11. SPECIAL CHARGES:

Included in special charges in the Consolidated Statement of Operations for
the period ended May , 1997 are transportation expenses (primarily consisting of
legal and investment banker fees) paid by Thermal totaling $785.

F-96
<PAGE>
HEAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

12. THERMAL AND BEST BUILT TRANSACTIONS:

On May 30, 1997, the Company acquired all of the common stock of Thermal and
Best Built. The components of the purchase price are as follows:

<TABLE>
<S> <C>
Cash and cash equivalents.......................................................... $ 1,254
Accounts receivable, net........................................................... 6,212
Inventories........................................................................ 7,344
Prepaid expenses and other current assets.......................................... 1,542
Property, plant and equipment...................................................... 7,050
Goodwill........................................................................... 15,960
Other long term assets............................................................. 1,301
Current liabilities................................................................ (7,467)
Long-term liabilities.............................................................. (3,074)
---------
Total purchase price............................................................. $ 30,122
---------
---------
</TABLE>

The purchase price of $30,122 was financed with net debt proceeds of
$24,870.

13. SUBSEQUENT EVENT:

In connection with the acquisition of Thermal by the Company, certain
shareholders of Thermal exercised their rights to dissent from the merger and to
demand payment of the fair value of their shares. Pursuant to the terms of the
merger, each share of Thermal stock was converted into the right to receive a
cash payment per share, based on the price per share accepted by the
nondissenting shareholders. The dissenting shareholders asserted that they have
certain rights to seek appraisals of the fair value of their shares. In the
aggregate, the dissenting shareholders were the beneficial owners of 144,186
shares of Thermal. On January 22, 1999, the Company entered into a Settlement
and Release Agreement with the dissenting shareholders to pay $2,840 in exchange
for all their shares held. A liability for $2,167 reflecting the anticipated
settlement amount had been previously recorded in the accompanying consolidated
balance sheet at December 31, 1997. As a result of the final settlement of this
matter, the liability was increased to $2,840 and was paid out in January 1999.
This additional amount was reflected as an increase to goodwill.

In connection with the Best Built acquisition, the Company paid the seller
an additional $830 in 1998 as a result of Best Built achieving a defined gross
profit level for the 12-month period ended May 31, 1998. This additional amount
was reflected as an increase to goodwill.

On April 20, 1999, the Company was acquired by Atrium Companies, Inc., a
company engaged in the manufacture and sales of doors, windows, and various
building materials throughout the United States, for approximately $85,000.

F-97
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Directors

of Atrium Companies, Inc.

Our audits of the financial statements of Atrium Companies, Inc. and
subsidiaries, Atrium Companies, Inc. and subsidiaries (previous registrant),
R.G. Darby Company, Inc. and Total Trim, Inc. and Heat, Inc. referred to in our
reports dated April 4, 1999 (except for Note 18 which is as of May 17, 1999),
June 25, 1999, September 24, 1998, and July 9, 1999, respectively, appearing in
this Registration Statement also included an audit of the related financial
statement schedules. In our opinion, these financial statement schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.

PricewaterhouseCoopers LLP
Dallas, Texas
April 4, 1999 (except for Note 18 is as of May 17, 1999),
June 25, 1999, September 24, 1998 and July 9, 1999

F-98
<PAGE>
ATRIUM COMPANIES, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1)
BALANCE AT CHARGED TO COLUMN D - COLUMN E -
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS(A) END OF PERIOD
- --------------------------------------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................................. $ 0 $ 1,561 $ (731) $ 830
Year ended December 31, 1997................................. $ 830 $ 1,791 $ (1,896) $ 725
Year ended December 31, 1998................................. $ 725 $ 227 $ (174) $ 778
</TABLE>

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

(a) net of recoveries

F-99
<PAGE>
ATRIUM COMPANIES, INC. (PREVIOUS REGISTRANT)

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
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
- ---------------------------------------------------- ------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995...................... $ 1,300 $ 486 $ -- $ (631) $ 1,155
Year ended December 31, 1996...................... $ 1,155 $ 49 $ 237 $ 56 $ 1,497
Year ended December 31, 1997...................... $ 1,497 $ 480 $ 250 $ (1,619) $ 608
Period ended October 2, 1998...................... $ 608 $ 195 $ -- $ (12) $ 791
</TABLE>

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

(a) net of recoveries

F-100
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1)
BALANCE AT CHARGED TO COLUMN D - COLUMN E -
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS(A) END OF PERIOD
- --------------------------------------------------------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................................. $ 0 $ 183 $ (117) $ 66
Year ended December 31, 1997................................. $ 66 $ 154 $ (45) $ 175
</TABLE>

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

(a) net of recoveries

F-101
<PAGE>
HEAT, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1)
BALANCE AT CHARGED TO COLUMN D - COLUMN E -
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS(A) END OF PERIOD
- --------------------------------------------------------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................................. $ 101 $ 133 $ (51) $ 183
Period ended May 30, 1997.................................... $ 183 $ 119 $ (173) $ 129
Period ended December 31, 1997............................... $ 129 $ 105 $ (3) $ 231
Year ended December 31, 1998................................. $ 231 $ 123 $ (11) $ 343
</TABLE>

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

(a) net of recoveries

F-102
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS EXCHANGE
OFFER OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

[LOGO]

ATRIUM COMPANIES, INC.
OFFER TO EXCHANGE
10 1/2% SENIOR SUBORDINATED NOTES DUE
2009, SERIES A
FOR ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE
2009, SERIES B
---------------------

PROSPECTUS

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

AUGUST 12, 1999

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