<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 333-11905
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<CAPTION>
DELAWARE 56-1977928
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
1300 NATIONAL HIGHWAY 27360
THOMASVILLE, NC (Zip Code)
(Address of principal executive
offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (910) 476-4777
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A.
The registrant is a privately held corporation. As such, there is no
practicable method to determine the aggregate market value of the voting stock
held by non-affiliates of the registrant.
Number of shares outstanding of registrant's Common Stock as of March 31,
1997:
100 shares of Common Stock, par value $.01 per share.
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<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD. (the "Company") filed its Form 10-K
on March 31, 1997 (the "Form 10-K"). This amendment is being filed within 120
days of the end of the fiscal year covered by the Form 10-K with the information
required by Items 10, 11, 12 and 13 of Regulation S-K which was not included in
the Form 10-K.
The Company was incorporated in May 1996 for the purpose of acquiring the
Home Furnishings Group (the "Home Furnishings Group") of Masco Corporation
("Masco") in a series of transactions (collectively, the "Transactions"). As a
part of the Transactions, FURNISHINGS INTERNATIONAL INC. ("Holdings") subscribed
for 100 shares of the common stock, par value $.01 per share, of the Company
and, as a result, is the Company's sole stockholder. On August 5, 1996, Holdings
acquired the Home Furnishings Group from Masco pursuant to an acquisition
agreement (the "Acquisition Agreement") for a purchase price of approximately
$1.1 billion and contributed substantially all of the businesses acquired to the
Company as common equity. The purchase price was financed by: (i) senior bank
facilities ($325.0 million); (ii) $200.0 million principal amount 10 7/8 percent
senior subordinated notes due 2006 (the "Notes"); (iii) an equity contribution
($421.0 million); and (iv) proceeds from sale of accounts receivable ($155.0
million). Prior to the closing of the Transactions on August 5, 1996, the
Company conducted no business.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and offices held and a brief
description of the business experience during the preceding five years of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- ----- -------------------------------------------------
<S> <C> <C>
Wayne B. Lyon.................................... 64 Chairman of the Board, President and Chief
Executive Officer
Douglas C. Barnard............................... 38 Vice President, General Counsel and Secretary
Ronald J. Hoffman................................ 52 Vice President, Treasurer and Chief Financial
Officer
James R. Melton.................................. 54 Vice President and Controller
Ronnie R. Robbins, Jr. .......................... 50 Vice President--Taxes
Richard M. Cashin, Jr. .......................... 43 Director
Robert L. George................................. 49 Director
Robert C. Larson................................. 62 Director
David F. Thomas.................................. 47 Director
Martin D. Walker................................. 64 Director
</TABLE>
MR. LYON is Chairman of the Board, President and Chief Executive Officer of
the Company. Mr. Lyon has been a director of Masco for more than the past five
years, and was Masco's President and Chief Operating Officer until 1996. Mr.
Lyon is also a director of Comerica Incorporated, Payless Cashways, Inc. and
Emco Limited.
MR. BARNARD is Vice President, General Counsel and Secretary of the Company.
Mr. Barnard was an Associate Corporate Counsel of Masco from 1992 to 1996.
Previously, he was a partner at the law firm of Kirkland & Ellis in Chicago.
MR. HOFFMAN is Vice President, Treasurer and Chief Financial Officer of the
Company. Mr. Hoffman was Vice President and Group Controller of the Home
Furnishings Group from 1993 to 1996, and a Group Controller of Masco prior to
joining the Home Furnishings Group.
MR. MELTON is Vice President and Corporate Controller of the Company.
Previously, Mr. Melton was Vice President--Administration and Group Controller
of the Home Furnishings Group until 1996.
2
<PAGE>
MR. ROBBINS is Vice President--Taxes of the Company. Mr. Robbins was Vice
President--Taxes of the Home Furnishings Group from 1994 to 1996. Previously, he
was Vice President--Taxes and Assistant Secretary of Masco Building Products.
MR. CASHIN is a director of the Company. Mr. Cashin has been President since
1994, and a Managing Director for more than the past five years, of Citicorp
Venture Capital, Ltd. In addition, he serves as a director of Levitz Furniture
Incorporated and Titan Wheel International Inc.
MR. GEORGE is a director of the Company. Mr. George has been Executive Vice
President and a director of Holdings since 1995 and has been a Managing Partner
of Rosenthal & George, Inc., a management consulting firm, for more than the
past five years.
MR. LARSON is a director of the Company. Mr. Larson has been Chairman of the
Taubman Realty Group, which owns, develops and operates regional shopping
centers, for more than the past five years. In addition, Mr. Larson has been
Vice Chairman of the Board of Directors of Taubman Centers, Inc., which is the
managing partner of the Taubman Realty Group, since its inception in 1992. Mr.
Larson also serves as non-executive director of Bass PLC, the London based group
operating in hotel, leisure retailing and branded drinks.
MR. THOMAS is a director of the Company. Mr. Thomas has been President of
399 Ventures, Inc. since 1994 and has been a Managing Director of Citicorp
Venture Capital, Ltd. for more than the past five years. Mr. Thomas is a
director of Galey & Lord Incorporated.
MR WALKER is a director of the Company. Mr. Walker has been the Chairman of
M.A. Hanna Company, an international specialty chemicals company, for more than
the past five years and is the retired Chief Executive Officer. Mr. Walker is a
director of Comerica Incorporated, The Goodyear Tire & Rubber Company, Lexmark
International Group, Inc., The Reynolds & Reynolds Company, Textron Inc. and The
Timken Company.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables and notes summarize the annual and long-term
compensation of the Company's chief executive officer and the other four most
highly paid executive officers (collectively, the "named executive officers").
The following information relates to the period from August 6, 1996 to December
31, 1996. The named executive officers did not receive any compensation from the
Company prior to August 6, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION --------------------
NAME AND ---------------------- RESTRICTED STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (1) COMPENSATION (2)
- ----------------------------------------- --------- ---------- ---------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Wayne B. Lyon............................ 1996 $ 192,308 $ 380,000(3) $ 108,805 $ 14,838
Chairman of the Board,
President and Chief
Executive Officer
Douglas C. Barnard....................... 1996 63,462 40,000 10,880 40,901
Vice President,
General Counsel and
Secretary
Ronald J. Hoffman........................ 1996 65,385 45,000 13,600 6,301
Vice President,
Treasurer and
Chief Financial
Officer
James R. Melton.......................... 1996 65,385 41,000 13,600 6,301
Vice President and
Controller
Ronnie R. Robbins, Jr.................... 1996 57,592 30,000 5,440 12,900
Vice President--Taxes
</TABLE>
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(1) In connection with the consummation of the Transactions, members of
management received shares of common stock of Holdings ("Restricted Stock")
on August 5, 1996. The dollar amounts included in the table are based on an
assumed August 5, 1996 per share value of $5.44, which was the price per
share attributable to the common stock of Holdings issued in the
Transactions. The recipients of the Restricted Stock are parties to a
Stockholders Agreement which, among other things, provides that the
Restricted Stock will vest in increments of 20% per year so long as the
holder of such stock remains employed by the Company. In certain events, the
vesting will be accelerated. Dividends, if any, are payable to the holders
as and when declared and paid. Because Holdings does not have any capital
stock which is publicly-traded, there has not been any market determination
of the dollar value of the Restricted Stock as of December 31, 1996.
(2) This column includes Company contributions and allocations under the
Company's defined contribution retirement plans for the accounts of each of
the named executive officers (for 1996: Mr. Lyon--$13,200, Mr.
Barnard--$4,180, Mr. Hoffman--$4,314, Mr. Melton--$4,314 and Mr.
Robbins--$3,776). The column also includes Company contributions to the
group term life insurance plan for each of the named executive officers (for
1996: Mr. Lyon--$1,638, Mr. Barnard--$402, Mr. Hoffman--$1,987, Mr.
Melton--$1,987 and Mr. Robbins--$1,624). Mr. Barnard received $36,319 in
1996 as reimbursement in connection with his relocation, including a tax
gross up of $15,955. Mr. Robbins received $7,500 in 1996 as loan forgiveness
in connection with his 1994 relocation.
(3) This figure includes an amount Mr. Lyon received in connection with his
efforts in securing bank debt, subordinated debt and securitized receivables
financing for the Company's acquisition in August 1996 of the Home
Furnishings Group.
4
<PAGE>
PENSION PLAN TABLE
The named executive officers participate in pension plans maintained by the
Company for certain of its salaried employees. The following table shows
estimated annual retirement benefits payable for life at age 65 for various
levels of compensation and service under these plans.
YEARS OF SERVICE (1)
<TABLE>
<CAPTION>
REMUNERATION (2) 5 10 15 20 25 30
- ---------------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 5,645 $ 11,290 $ 16,935 $ 22,580 $ 28,225 $ 33,870
200,000 11,290 22,580 33,870 45,161 56,451 67,741
300,000 16,935 33,870 50,806 67,741 84,676 101,611
400,000 22,580 45,161 67,741 90,321 112,902 135,482
500,000 28,225 56,451 84,676 113,902 141,127 169,352
600,000 33,870 67,741 101,611 135,482 169,352 203,223
</TABLE>
- ------------------------
(1) The plans provide credit for employment with the Company and, except for Mr.
Lyon, for prior employment with any of Masco and certain affiliates of
Masco. Vesting occurs after five full years of employment or upon retirement
at or after attaining age 65. The benefit amounts set forth in the table
above have been converted from the plans' calculated five-year certain and
life benefit and are not subjected to reduction for social security benefits
or for other offsets, except to the extent that pension or equivalent
benefits are payable, other than to Mr. Lyon, under a Masco plan or a plan
of certain affiliates of Masco. The table does not depict Internal Revenue
Code ("Code") limitations on tax-qualified plans because one of the plans is
a non-qualified plan established by the Company to restore, for certain
salaried employees (including the named executive officers), benefits that
are otherwise limited by the Code. For each year of credited service prior
to July 1, 1971, there is an additional annual benefit equal to .2 of 1
percent of final average earnings in excess of $9,000. Approximate years of
credited service for the named executive officers participating in the plan
are: Mr. Lyon--0; Mr. Barnard--4; Mr. Hoffman--27; Mr. Melton--24; and Mr.
Robbins--28.
(2) For purposes of determining benefits payable, remuneration is equal to the
average of the highest five consecutive January 1 annual base salary rates
paid by the Company prior to retirement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a standing Compensation Committee. All decisions
respecting the compensation of executive officers are made by the Board of
Directors. Wayne B. Lyon, Chairman of the Board, President and Chief Executive
Officer, does not participate in board deliberations respecting his own
compensation.
DIRECTOR COMPENSATION
The directors of the Company who are officers, employees or otherwise
affiliates of Holdings or the Company do not presently receive compensation for
their services as directors. Directors of the Company are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the board of directors or
committees thereof. The directors of the Company who are not also officers,
employees or otherwise affiliates of Holdings or the Company receive an annual
fee of $25,000 plus $1,000 for each meeting attended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's authorized capital stock consists of 3,000 shares of common
stock, par value $.01 per share, 100 shares of which are issued and outstanding
and owned by Holdings.
Holdings' authorized capital stock consists of 6,000,000 shares of Class A
Common Stock, par value $.01 per share (the "Class A Common Stock") (consisting
of four series, 1,000,000 shares of Series A-1 Common Stock, 1,000,000 shares of
Series A-2 Common Stock, 1,000,000 shares of Series A-3 Common Stock and
3,000,000 shares of Series I Common Stock (which will only be issuable after the
occurrence of a public offering meeting certain criteria as set forth in the
Stockholders Agreement (as defined below) (a
5
<PAGE>
"Qualifying Offering"))), 6,000,000 shares of Class B Common Stock, par value
$.01 per share (the "Class B Common Stock") (consisting of four series,
1,000,000 shares of Series B-1 Common Stock, 1,000,000 shares of Series B-2
Common Stock, 1,000,000 shares of Series B-3 Common Stock and 3,000,000 shares
of Series II Common Stock (which will only be issuable after a Qualifying
Offering)), 116,100 shares of Class C Common Stock, par value $.01 per share
(the "Class C Common Stock," together with the Class A Common Stock and Class B
Common Stock, the "Holdings Common Stock"), 100,000 shares of Class D Common
Stock, par value $.01 per share, a special class designed to track the
performance of a subsidiary of Holdings that is not a subsidiary of the Company
(the "Class D Common Stock"), and 4,000,000 shares of Preferred Stock, par value
$.01 per share, of which the following series have been designated: 1,103,320
shares of Series A-1 Preferred Stock, stated value $100 per share (the "Series
A-1 Preferred Stock"), 96,681 shares of Series A-2 Preferred Stock, stated value
$100 per share (the "Series A-2 Preferred Stock" and, together with the Series
A-1 Preferred Stock, the "Senior Preferred Stock"), 303,503 shares of Series B
Convertible Preferred Stock, stated value $6.02 per share (the "Series B
Preferred Stock"), and 102,622 shares of Series C Convertible Preferred Stock,
stated value $6.02 per share (the "Series C Preferred Stock" and, together with
the Series B Preferred Stock, the "Convertible Preferred Stock"). There is no
established public trading market for these securities of Holdings.
The stockholders of Holdings are party to a Stockholders Agreement, dated as
of August 5, 1996, as amended (the "Stockholders Agreement"), pertaining to such
matters as (i) the composition of the board of directors of Holdings; (ii)
corporate governance; and (iii) restrictions on the transfer of such stock.
The table below sets forth certain information regarding the equity
ownership of Holdings as of March 31, 1997 by (i) each person or entity who
beneficially owns five percent or more of any class of voting capital stock;
(ii) each director of the Company; (iii) each named executive officer of the
Company; and (iv) the directors and named executive officers of the Company, as
a group. Each holder of Class A Common Stock and each holder of Class B Common
Stock holds an equal number of shares of each series thereof (other than Series
I or II). Certain of the securities of Holdings are convertible into other
securities. Except as noted in the footnotes to the table, the information in
the table below assumes no such conversion.
6
<PAGE>
CAPITALIZATION OF HOLDINGS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D SERIESA-1 SERIESA-2 SERIES B SERIES C
NAME AND ADDRESS COMMON COMMON COMMON COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
399 Venture Partners, Inc. 33,781 174,676 -- 6,158 436,252 -- -- 69,289
(1)....................... 33.8% 46.3% -- 65.3% 39.5% -- -- 67.5%
399 Park Avenue
New York, NY
Travelers Group Inc....... 4,905 23,385 -- 1,041 -- -- -- 12,050
(and certain affiliates)(2) 4.9% 6.2% -- 11.0% -- -- -- 11.7%
388 Greenwich Street
New York, NY
Masco Corporation (3)..... 15,000 71,490 -- 1,041 550,090 -- 303,503 --
21001 Van Born Road 15.0% 18.9% -- 11.0% 49.9% -- 100.0% --
Taylor, MI
CCT Partners III, L.P.(4). 5,961 30,825 -- -- 67,206 -- -- 12,227
399 Park Avenue 6.0% 8.2% -- -- 6.1% 11.9%
New York, NY
Wayne B. Lyon (5)......... 32,766 90,561 -- 1,041 550,090 23,085 303,503 --
1300 National Highway 32.8% 24.0% -- 11.0% 49.9% 24.0% 100.0% --
Thomasville, NC
Douglas C. Barnard........ 35,797 54,423 106,024 -- -- * -- --
individually and as 35.8% 14.4% 100.0% -- -- * -- --
voting trustee for the
Management Investors (6)
1300 National Highway
Thomasville, NC
Ronald J. Hoffman......... * * 2,500 -- -- * -- --
1300 National Highway * * 2.4% -- -- * -- --
Thomasville, NC
James R. Melton........... * * 2,500 -- -- * -- --
1300 National Highway * * 2.4% -- -- * -- --
Thomasville, NC
Ronnie R. Robbins, Jr..... * * * -- -- * -- --
1300 National Highway * * * -- -- * -- --
Thomasville, NC
Richard M. Cashin, Jr. 34,846 180,185 -- 6,317 448,262 -- -- 71,474
(7)....................... 34.9% 47.7% -- 67.0% 40.6% -- -- 69.6%
399 Venture Partners, Inc.
399 Park Avenue
New York, NY
Robert L. George.......... * * * -- -- -- -- --
200 South Hanley Road * * * -- -- -- -- --
Suite 300
St. Louis, MO
Robert C. Larson.......... -- -- -- -- -- -- -- --
Taubman Realty Group -- -- -- -- -- -- -- --
200 East Long Lake Road
Bloomfield Hills, MI
David F. Thomas (7)....... 34,846 180,185 -- 6,317 448,262 -- -- 71,474
399 Venture Partners, Inc. 34.9% 47.7% -- 67.0% 40.6% -- -- 69.6%
399 Park Avenue
New York, NY
Martin D. Walker.......... -- -- -- -- -- -- -- --
M.A. Hanna Company -- -- -- -- -- -- -- --
Suite 36-5000
200 Public Square
Cleveland, OH
Directors and named....... 86,708 311,606 106,024 7,326 1,010,363 25,393 303,503 73,659
executive officers of 86.8% 82.5% 100.0% 77.7% 91.6% 26.4% 100.0% 71.8%
the Company, as a group
(10 persons) (8)
</TABLE>
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* less than 1.0%
7
<PAGE>
(1) Amounts shown exclude the shares that could be obtained from Travelers Group
Inc. and certain affiliates ("Travelers") as described in note (2). In
connection with the Transactions, 399 Venture Partners, Inc. ("399
Ventures") granted to Travelers an option exercisable for one year to
acquire 55,419 shares of Series A-1 Preferred Stock at a price per share
equal to the stated value plus accrued but unpaid dividends. 399 Ventures'
fully-diluted (assuming conversion of all Convertible Preferred Stock)
ownership of Holdings Common Stock is 28.1%.
(2) Amounts shown exclude the shares that could be obtained from 399 Ventures as
described in note (1). In connection with the Transactions, Travelers
granted to 399 Ventures an option, exercisable for two years commencing on
the first anniversary of the consummation of the Transactions, in the event
the option described in note (1) is not exercised by Travelers, to acquire
all shares of Class A Common Stock, Class B Common Stock and Series C
Preferred Stock held by Travelers at a price per share equal to the lesser
of (x) fair market value or (y) the original cost thereof plus a compound
return of 8% per annum. Travelers' fully-diluted (assuming conversion of all
Convertible Preferred Stock) ownership of Holdings Common Stock, including
the shares subject to the option granted to 399 Ventures, is 4.1%.
(3) Masco's fully-diluted (assuming conversion of all Convertible Preferred
Stock) ownership of Holdings Common Stock is 39.4%. However, Masco is
restricted from holding more than 19.9% of the Holdings Common Stock.
(4) CCT Partners III, L.P. ("CCT") is a limited partnership, the partners of
which are certain employees of 339 Ventures. Shares held by CCT are not
included in the table as shares beneficially owned by 339 Ventures.
(5) Amounts shown consist of shares held by Masco and shares owned by an estate
planning trust for the benefit of Mr. Lyon's family members, all of which
shares may be deemed to be beneficially owned by Mr. Lyon. Mr. Lyon
disclaims beneficial ownership of all such shares.
(6) Amounts shown consist of shares held by Mr. Barnard individually and as
voting trustee for the Management Investors. Mr. Barnard has no pecuniary
interest in such shares other than 203 shares of Class A Common Stock, 218
shares of Class B Common Stock and 2,000 shares of Class C Common Stock. In
addition, Mr. Barnard holds less than 1.0% of the Series A-2 Preferred
Stock.
(7) Amounts shown include shares held by 399 Ventures, which may be deemed to be
beneficially owned by Messrs. Cashin and Thomas. Messrs. Cashin and Thomas
disclaim beneficial ownership of such shares. In addition, amounts shown for
Messrs. Cashin and Thomas include 1,065 shares of Class A Common Stock,
5,509 shares of Class B Common Stock, 160 shares of Class D Common Stock,
12,011 shares of Series A-1 Preferred Stock and 2,185 shares of Series C
Preferred Stock held directly by each. Amounts shown for Messrs. Cashin and
Thomas exclude shares held by CCT, a limited partnership in which each has
an indirect economic interest as a limited partner.
(8) Amounts shown include shares held by 399 Ventures, which may be deemed to be
beneficially owned by Messrs. Cashin and Thomas, shares held by Masco and by
an estate planning trust for the benefit of Mr. Lyon's family members, all
of which may be deemed to be beneficially owned by Mr. Lyon, and shares held
by Mr. Barnard, as voting trustee for the Management Investors, which may be
deemed to be beneficially owned by Mr. Barnard. Messrs. Cashin and Thomas
disclaim beneficial ownership of shares held by 399 Ventures, Mr. Lyon
disclaims beneficial ownership of shares held by Masco and of shares owned
by an estate planning trust for the benefit of Mr. Lyon's family members,
and Mr. Barnard disclaims beneficial ownership of shares held by him as
voting trustee for other Management Investors.
8
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BUSINESS ARRANGEMENTS WITH HOLDINGS
As a part of the Transactions, Holdings (i) acquired from Masco, by merger,
Lineage Home Furnishings, Inc. ("Lineage") and Masco Home Furnishings Inc.
("MHF"); (ii) contributed the Home Furnishings Group (other than Lineage and
MHF) to the Company and (iii) entered into leases with the Company providing for
the lease of certain of the assets to Holdings at rates the Company believes to
be comparable to rates that would be negotiated by unrelated parties in
arm's-length transactions. Lineage was established by Masco in 1991 as a
marketing division to provide a restricted distribution furniture product line.
A key element of the Lineage concept was to utilize existing but under-utilized
facilities. Thus, Holdings' production needs (as successor to Lineage) are
performed by the Company, and the Company is reimbursed by Holdings for such
services at rates the Company believes to be comparable to rates that would be
negotiated by unrelated parties in arm's-length transactions. MHF is a
distributor of furniture, accessories and fabrics to the contract industry.
Holdings (as successor to MHF) will purchase products from the Company, at
prices comparable to those charged by the Company to similarly situated
unrelated third parties.
As part of the Transactions, Holdings and the Company entered into a
Management Agreement (the "Holdings Management Agreement"), Agreement pursuant
to which Holdings provides to the Company certain management-related services.
The Company compensates Holdings pursuant to such agreement in an amount equal
to Holdings' actual cost of providing such services.
As part of the Transactions, Holdings entered into a Transition Services
Agreement with Masco (the "Transition Services Agreement"), pursuant to which
Masco will provide certain services for Holdings and the Company through April
30, 1997. As a result, certain services to be provided to the Company under the
Holdings Management Agreement have been provided by Masco. See "--Transition
Services Agreement."
ACQUISITION ARRANGEMENTS
As part of the Transactions, Masco received cash consideration, certain
common and preferred stock of Holdings (the "Masco Holdings Stock") and certain
senior pay-in-kind notes of Holdings (the "Holdings PIK Notes"). In addition,
approximately $705.3 million of indebtedness owed by the Home Furnishings Group
to Masco was repaid. On November 1, 1996, the purchase price was finalized
pursuant to the Acquisition Agreement based upon the net assets of the Home
Furnishings Group on August 5, 1996, with the result that Masco made a payment
of $41.3 million to the Company.
Certain provisions of the Acquisition Agreement survive the consummation of
the Transactions and continue for a period as contractual obligations between
Masco and Holdings. The following summarizes the provisions of the Acquisition
Agreement.
Masco has made various representations, warranties and covenants respecting
the Home Furnishings Group, and the Acquisition Agreement provides for
indemnification by Masco for periods of one to three years in the event of any
breach of such representations, warranties or covenants. With certain
exceptions, Masco will not be obligated to make payments for the first $15.0
million of indemnifiable claims nor be obligated to make payments of more than
$100.0 million. The Acquisition Agreement provides that Masco has the exclusive
right to undertake certain activities relating to environmental matters
pertaining to the Company for which Masco may be responsible under the
indemnification provisions with the prior written consent of Holdings, such
consent not to be unreasonably withheld. Holdings will cooperate with Masco
regarding these activities and, with certain exceptions, reimburse Masco for
reasonable costs and expenses until Holdings has incurred damages in specified
amounts.
9
<PAGE>
Masco has agreed to guarantee or provide up to $15.0 million in stand-by
letters of credit or comparable credit enhancement arrangements (collectively,
"Guaranteed LCs") in support of any obligation as to which the Company or a
subsidiary is a primary obligor or an account party. This obligation will
continue until the earlier of (i) the date on which the Holdings PIK Notes
become due and payable and (ii) any business day if on each business day of the
preceding 18-month period the aggregate amount of unused availability for
borrowings under credit lines available to the Company and its subsidiaries
equaled at least $75.0 million. The Company or a subsidiary will remain
primarily responsible for such obligations and Holdings will indemnify Masco (by
providing a promissory note having the same terms as the Holdings PIK Notes) for
any damages resulting from any breach of the Company's or such subsidiary's
obligations under such Guaranteed LCs.
Masco has agreed that it will not (i) on or prior to August 5, 2001 engage
in the design or manufacture or certain furniture and fabric products (the
"Restricted Activities") or acquire an interest in an entity that would result
in Masco having annual revenues from Restricted Activities that exceed certain
levels or (ii) on or prior to August 5, 1998 (a) cause or attempt to cause any
customer or supplier of the Company or its subsidiaries to terminate or
materially reduce its business with the Company or its subsidiaries or (b)
initiate contact (other than through general solicitation to the public) with
any officer of the Company or its subsidiaries for the purpose of offering
employment by Masco or any of its subsidiaries.
MANAGEMENT INVESTORS
As part of the Transactions, Masco acquired from Holdings, and sold to
certain members of management (the "Management Investors"), 15,993 shares of
Class B Common Stock (divided equally among the series thereof other than Series
II) at a price per share of $5.44 and 21,930 shares of Series A-2 Preferred
Stock at a price per share of $100. In addition, Wayne B. Lyon acquired from
Holdings 21,180 shares of Class A Common Stock (divided equally among the series
thereof other than Series I) at a price per share of $5.44, 9,645 shares of
Class A Common Stock (divided equally among the series thereof other than Series
I) for no cash consideration, 22,734 shares of Class B Common Stock (divided
equally among the series thereof other than Series II) at a price per share of
$5.44, 10,356 shares of Class B Common Stock (divided equally among the series
thereof other than Series II) for no cash consideration, and 60,212 shares of
Series A-2 Preferred Stock at a price per share of $100. Mr. Lyon sold to the
other Management Investors 13,059 shares of Class A Common Stock (divided
equally among the series thereof other than Series I) at a price per share of
$5.44, 14,019 shares of Class B Common Stock (divided equally among the series
thereof other than Series II) at a price per share of $5.44, and 37,127 shares
of Series A-2 Preferred Stock at a price per share of $100 per share. The
Management Investors received from Holdings for no cash consideration an
aggregate of 98,978 shares of Class C Common Stock. The Management Investors
deposited their shares (other than Series A-2 Preferred Stock) into a voting
trust, the trustee of which must be a senior member of management. The initial
voting trustee is Douglas C. Barnard, Vice President, General Counsel and
Secretary of Holdings and the Company. In March 1997, pursuant to an option
granted by 399 Ventures as part of the Transactions, Holdings acquired (i) 4,842
shares of Class A Common Stock (divided equally among the series thereof); (ii)
5,199 shares of Class B Common Stock (divided equally among the series thereof);
and (iii) 13,770 shares of Series A-2 Preferred Stock. Such shares were issued
to certain members of management pursuant to a Management Investment Plan.
TRANSITION SERVICES AGREEMENT
As part of the Transactions, Holdings and Masco entered into the Transition
Services Agreement under which, until April 30, 1997, Masco will perform certain
services for the Company similar to those provided by Masco to the Home
Furnishings Group prior to the Acquisition. Such services include assistance in
financial reporting, preparation of federal, state and local tax returns, human
resources, pension and payroll administration, assistance in compliance with
environmental laws and coordination of insurance. Holdings makes monthly
payments to Masco of $500,000, as reduced to take into account
10
<PAGE>
certain current Masco personnel and other personnel or third parties that are
employed or retained by Holdings, the Company or any of their subsidiaries after
the Acquisition. The Transition Services Agreement provides Masco with customary
exculpation, indemnification and other provisions.
TAX SHARING AGREEMENT
Holdings, the Company and its United States subsidiaries will be included in
the consolidated United States federal income tax return of Holdings. Holdings,
the Company and certain of the Company's United States subsidiaries have entered
into the Tax Sharing Agreement whereby the Company will pay Holdings (or
Holdings will pay the Company) its pro rata share of the total tax liability, as
set out in the Tax Sharing Agreement. In the event the Company is included in a
joint, combined, consolidated or unitary state or local income or franchise tax
return with Holdings, the Company shall make payments to Holdings, and Holdings
shall make payments to the Company, in a manner consistent with that described
above for federal tax purposes.
OTHER
Ronnie R. Robbins, Jr., Vice President--Taxes of the Company, was indebted
to the Company in the amount of $60,000 as of December 31, 1996 in connection
with a relocation loan originally provided to Mr. Robbins by the Home
Furnishings Group.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
By: /s/ WAYNE B. LYON
-----------------------------------------
Wayne B. Lyon
Chairman of the Board,
President and Chief Executive Officer
April 25, 1997
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
<S> <C> <C>
/s/ WAYNE B. LYON Chairman of the Board, President and April 25, 1997
- ------------------------------------------- Chief Executive Officer (principal
Wayne B. Lyon executive officer)
/s/ RONALD J. HOFFMAN Vice President, Treasurer and Chief April 25, 1997
- ------------------------------------------- Financial Officer (principal
Ronald J. Hoffman financial and accounting officer)
/s/ RICHARD M. CASHIN, JR. Director April 25, 1997
- -------------------------------------------
Richard M. Cashin, Jr.
/s/ ROBERT L. GEORGE Director April 25, 1997
- -------------------------------------------
Robert L. George
/s/ ROBERT C. LARSON Director April 25, 1997
- -------------------------------------------
Robert C. Larson
/s/ DAVID F. THOMAS Director April 25, 1997
- -------------------------------------------
David F. Thomas
/s/ MARTIN D. WALKER Director April 25, 1997
- -------------------------------------------
Martin D. Walker
</TABLE>
