FURNISHINGS INTERNATIONAL INC, S-1/A, 1998-08-27

FURNISHINGS INTERNATIONAL INC
S-1/A, 1998-08-27
WOOD HOUSEHOLD FURNITURE, (NO UPHOLSTERED)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1998

REGISTRATION NO. 333-58655
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

LIFESTYLE FURNISHINGS
INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(KNOWN AS "FURNISHINGS INTERNATIONAL INC." PRIOR TO THE MERGER DESCRIBED IN THE
PROSPECTUS CONTAINED HEREIN)

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<S> <C> <C>
43-1724507
DELAWARE 2511 56-1977928
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

4000 LIFESTYLE COURT
HIGH POINT, NORTH CAROLINA 27265
(336) 878-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

DOUGLAS C. BARNARD
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
4000 LIFESTYLE COURT
HIGH POINT, NORTH CAROLINA 27265
(336) 878-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

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DAVID W. FERGUSON MICHAEL W. BLAIR
SARAH BESHAR PETER J. LOUGHRAN
DAVIS POLK & WARDWELL DEBEVOISE & PLIMPTON
450 LEXINGTON AVENUE 875 THIRD AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 450-4000 (212) 909-6000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.

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EXPLANATORY NOTE

This registration statement contains two forms of Prospectus: one to be
used in connection with a U.S. and Canadian offering of the registrant's Class A
Common Stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Class A Common Stock (the
"International Prospectus"). The International Prospectus will be identical to
the U.S. Prospectus except that it will have a different front cover page,
underwriting section and back cover page. The U.S. Prospectus is included herein
and is followed by the alternate pages to be used in the International
Prospectus. The front cover page, underwriting section and back cover page for
the International Prospectus included herein have all been labeled "Alternate
Page for International Prospectus."
<PAGE> 3

The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED AUGUST 27, 1998

PROSPECTUS
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LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

CLASS A COMMON STOCK
------------------------
This is our initial public offering. The U.S. Underwriters will offer
shares in the United States and Canada and the International
Managers will offer shares outside the United States and Canada.
This is a firm commitment underwriting.

We expect the public offering price to be between $ and
$ per share. No public market currently exists for the shares. We
intend to apply to list the Class A Common Stock on the New York Stock Exchange
under the symbol "LFI." After completion of the Offerings, 399 Venture Partners,
Inc., an affiliate of Citicorp, Masco Corporation, members of management and
certain other investors will together own % of the outstanding Class A
Common Stock, or % on a diluted basis.

INVESTING IN THE CLASS A COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 15.

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Per Share Total
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Public Offering Price................................ $ $
Underwriting Discount................................ $ $
Proceeds to LifeStyle................................ $ $
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The Underwriters may also purchase up to an additional
shares from us at the public offering price within 30 days of the date hereof in
order to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

We expect that the shares of Class A Common Stock will be ready for
delivery on or about , 1998.
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MERRILL LYNCH & CO. SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON WHEAT FIRST UNION
------------------------
, 1998
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[Photo A]

HENREDON'S VISAGE COLLECTION. For generations, Henredon has set the standard in
furniture craftsmanship. Wonderfully rich finishes, detailed carvings and
intricately inlaid woods are a Henredon(R) signature. In upholstery, luscious
fabrics, opulent leathers and the highest upholstering standards provide the
epitome of elegant comfort.

[Photo B]

MAITLAND-SMITH(TM). Employing some unusual materials from eggshell to seashells
to stone, metals and leathers, the Maitland-Smith artisans create exquisite
statement furniture pieces, beautiful objets d'art, lighting and accessories.
Extensive hand-crafting is a signature of Maitland-Smith, and the designers'
creativity with a truly unique mix of materials makes the line a must-have for
collectors and antique aficionados.

[Photo C]

RALPH LAUREN COLLECTION(TM).

[Photo D]

HENREDON'S REGISTRY(TM) COLLECTION. Gorgeous yet simple designs crafted in
solid hardwoods. Decorative hardware that perfectly complements each door,
drawer or crown where it is placed. Registry speaks to those who value the
ultimate in understated elegance.

[Photo E]

PINEHURST FROM DREXEL HERITAGE(R). Pinehurst, heaven for many of the world's
golfers, also offered exceptional design inspiration for Drexel Heritage's
Pinehurst Collection(TM). Unique architectural details from Pinehurst homes and
the simplicity of this casual way of life translate into remarkable furnishings
capturing much of Pinehurst's magic.

[Photo F]

DREXEL HERITAGE(R). A rich legacy of beautiful designs crafted in fine woods,
metals and stone is the heart of Drexel Heritage Furnishings. The Drexel
Heritage(R) brand is an icon for those who yearn for design elements from the
classics, yesteryear, the future or from faraway places.

[Photo G]

DREXEL STUDIO(TM). Upbeat, unpretentious, functional furniture for a myriad of
lifestyles from a loft in SoHo to a beach home in Malibu encapsulates the
collections that comprise Drexel Studio(TM).

[Photo H]

ROBERT ALLEN(TM) DECORATIVE FABRICS. Every color that can be imagined, a
plethora of prints and woven fabrics, stunning trimmings and innovative designs
by Robert Allen(TM) have made this resource a legend with designers and
manufacturers.

[Photo I]

BEACON HILL(R) SHOWROOMS. Catering to interior designers, architects,
decorators and their clients, Beacon Hill(R) Showrooms showcase the finest home
furnishings lines for the world's premier homes.

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[Photo J]

BETSY CAMERON(TM) BY LEXINGTON. Youth furniture, one of Lexington's strengths,
is imaginative and created with practicality in mind. Noted photographer and
mother, Betsy Cameron has worked with Lexington's designers to bring delightful
children's collections to appreciative children, their parents and grandparents.

[Photo K]

THE WORLD OF BOB TIMBERLAKE(R) BY LEXINGTON(R). Each of the collections created
by Lexington in collaboration with Bob Timberlake has struck a chord with
consumers from countries all over the world. The furniture collections may be
inspired by Bob's antiques, a historic Moravian Village or the simplicity of the
Arts & Crafts movement. Timberlake's interpretations of American Realism have
catapulted these collections into record-breaking introductions within the home
furnishings industry.

[Photo L]

NAUTICA HOME BY LEXINGTON(R). Each of the pieces in the Nautica Home Collection
reveals a marriage between English or French antiques and unique materials and
designs found in parts of the Caribbean. Drawing upon the design freshness that
is the Nautica look, this collection brings a casual, island attitude to
old-world design.

[Photo M]

LEXINGTON(R). Successful lifestyle collections crafted from natural materials
are the crown jewels within the Lexington(R) Furniture collection.

3
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TABLE OF CONTENTS

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Summary..................................................... 5
Risk Factors................................................ 15
Use of Proceeds............................................. 20
Dilution.................................................... 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Unaudited Pro Forma Financial Information................... 22
Selected Historical and Unaudited Pro Forma Financial
Information............................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Business.................................................... 40
Management.................................................. 54
Executive Compensation...................................... 57
Certain Relationships and Related Transactions.............. 61
Shares Eligible for Future Sale............................. 63
Security Ownership of Certain Beneficial Owners and
Management................................................ 64
Description of Capital Stock................................ 66
Certain U.S. Federal Tax Considerations for Non-U.S. Holders
of Class A Common Stock................................... 70
Underwriting................................................ 72
Legal Matters............................................... 75
Experts..................................................... 75
Available Information....................................... 75
Index to Financial Statements............................... F-1
</TABLE>

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References in this Prospectus to "LifeStyle" are to the Home Furnishings
Group of Masco Corporation (the "Predecessor") prior to its acquisition by
Furnishings International Inc. on August 5, 1996; to Furnishings International
Inc. and its subsidiaries following such acquisition and prior to the planned
merger of its wholly owned operating subsidiary, currently named LifeStyle
Furnishings International Ltd., with and into Furnishings International Inc.,
which will be renamed LifeStyle Furnishings International Ltd.; and to LifeStyle
Furnishings International Ltd. and its subsidiaries following such merger. The
"Stockholders Agreement" refers to an agreement dated August 5, 1996, as
amended, among 399 Venture Partners, Inc. ("399," an affiliate of Citicorp),
Masco Corporation ("Masco") and certain other parties. "Class A Common Stock"
means the Class A Common Stock of LifeStyle, par value $.01 per share, and
"Class B Common Stock" refers to the Class B Common Stock of LifeStyle, par
value $.01 per share. Class A Common Stock and Class B Common Stock are together
referred to as "Common Stock." "Series A-1 Preferred Stock" means the Series A-1
mandatorily redeemable preferred stock of LifeStyle, par value $.01 per share,
and "Series A-2 Preferred Stock" means the Series A-2 mandatorily redeemable
preferred stock of LifeStyle, par value $.01 per share. "Series B Convertible
Preferred Stock" means the Series B convertible preferred stock of LifeStyle,
par value $.01 per share, and "Series C Convertible Preferred Stock" means the
Series C convertible preferred stock of LifeStyle, par value $.01 per share.
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment options.
------------------------

LifeStyle Furnishings International Ltd. is a corporation organized under
the laws of Delaware. Our principal executive offices are located at 4000
Lifestyle Court, High Point, North Carolina 27265, and our telephone number is
(336) 878-7000.

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SUMMARY

You should read the following summary together with the more detailed
information regarding our company and the Class A Common Stock being sold in the
Offerings, our financial statements and the notes thereto included elsewhere
herein. The following summary of our business assumes that we have completed the
Reorganization discussed below.

LIFESTYLE

We are the largest manufacturer and marketer of home furnishings (fine
furniture, including decorative accessories, and decorative home furnishings
fabrics) in the U.S., with 1997 net sales of nearly $2.0 billion. Fine furniture
represented approximately 86% of our net sales in 1997 and decorative home
furnishing fabrics represented approximately 14%. We attribute our market
leadership position to the following key factors:

- Fashionable and innovative product designs with an emphasis on style,
quality and value

- Comprehensive product offerings that provide retailers and consumers with
a broad range of price points and styles

- Multi-channel distribution to a customer base of over 50,000 accounts,
providing our products to consumers wherever they choose to shop

- Established brand names, such as HENREDON(R) and DREXEL HERITAGE(R), as
well as partnerships with leading fashion designers, brands and artists,
such as RALPH LAUREN, NAUTICA and BOB TIMBERLAKE

- Commitment to improving retailer and consumer satisfaction levels with
the home furnishings buying experience

- An experienced and innovative management team with significant equity
ownership and a commitment to continuous improvement

We are restructuring our manufacturing base, reengineering our
manufacturing processes and incorporating technology into our product design and
business processes in order to achieve sustainable operating efficiencies,
dramatically shorten order-to-ship times and enhance our ability to satisfy our
customers and consumers. Once implemented, we expect these restructuring and
reengineering initiatives to increase operating margins, reduce working capital,
increase market share and strengthen our leadership position in the home
furnishings industry.

INDUSTRY OVERVIEW

The U.S. residential furniture industry has grown at a compound annual rate
of 4.9% over the last 20 years to $21.2 billion in shipments in 1997 from $8.2
billion in 1977, with shipments declining in only two years, according to the
American Furniture Manufacturers Association (an industry trade association). We
expect favorable industry trends over the next few years due to improving
demographic, macroeconomic and other factors, including:

- The segment of the U.S. population between the ages of 35 and 54 is
growing according to the U.S. Bureau of the Census as the "baby boom"
generation ages. This age group has historically had the highest levels
of discretionary income and consumer spending, and it represents the
largest number of consumers of residential furniture.

- Average new home size grew from approximately 1,645 square feet in 1975
to nearly 2,150 square feet in 1997, according to the U.S. Bureau of the
Census. In addition, the average number of bedrooms per new home has
increased. Not only do larger homes with more bedrooms require more home
furnishings because of their size, but the owners of such homes also tend
to spend dramatically more money per square foot on home furnishings.

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- New housing starts have recently risen as have existing home sales and
remodeling activity. These factors, together with increased housing
affordability and low interest rates, comprise leading economic
indicators for home furnishings purchases.

- Consumers, responding to increasing in-home entertainment options and the
"cocooning" trend, are placing greater emphasis on home-related
activities. In addition, an increasing number of Americans work at home
and require home office furniture.

COMPETITIVE ADVANTAGES

The following characteristics distinguish us from other companies in our
industry:

Leveraging Our Leadership Position. By leveraging our shared knowledge,
assets and scale, we gain several important competitive advantages, including
the ability to:

- Command a significant share of retail floor space

- Achieve economies of scale in purchasing and in technology infrastructure
development

- Source and manufacture globally

- Share operating and marketing "best practices"

- Cross-market and manufacture products among our various divisions

Design and Style Leadership and Product Innovation. We believe that we
have established ourselves as the design and style leader for the industry
through our new product offerings and creative marketing strategies. We
pioneered the marketing of products in collections tailored to suit particular
"lifestyle" or design themes. Our RALPH LAUREN HOME COLLECTION(TM), THE WORLD OF
BOB TIMBERLAKE(R), THE PALMER HOME COLLECTION(TM), ALEXANDER JULIAN HOME
COLOURS(R) and NAUTICA HOME collection are among the industry's best sellers. We
believe that we have developed more "mega-collections" (selling three to ten
times more per year as compared with typical industry collections) than any
other company. Further, product innovation in BERKLINE(R) and BENCHCRAFT(R)
motion furniture (sofas that incline and recline) has enabled us to achieve a
leadership position in this important and growing category.

Established, Well Known Brand Names. We market our products under some of
the most established and well known brand names in our business, including
HENREDON(R), DREXEL HERITAGE(R), LEXINGTON(R), UNIVERSAL(R), BERKLINE(R),
BENCHCRAFT(R), MAITLAND-SMITH(TM) and LA BARGE(R) in fine furniture and BEACON
HILL(R), SUNBURY(TM) and ROBERT ALLEN(TM) in decorative home furnishings
fabrics. We consider brand name recognition to be an important competitive
advantage, and we believe that retailers and consumers associate our brands with
a high degree of quality, craftsmanship, style and value.

Comprehensive Product Lines. We believe that we are the most comprehensive
resource in the home furnishings industry, providing more product alternatives
than any of our competitors. We offer products across all price categories, with
an emphasis on "good," "better" and "best," and in all major consumer desired
styles. These include American Traditional, Country, Eighteenth Century,
European Country, European Traditional, Transitional, Casual, Mission, Arts and
Crafts, Contemporary, Oriental, Home Office, Youth and Outdoor. By offering such
a broad product line, we can supply up to 75% of the product demands of many
furniture retailers which, as the retail furniture industry consolidates,
increasingly prefer to buy from a smaller number of large furniture
manufacturers.

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Extensive and Diverse Distribution Network. We believe that we have more
active accounts than any other manufacturer in the home furnishings industry. We
distribute our fine furniture products through an extensive distribution network
including:

- More than 22,000 independent retail locations, including national and
regional chains

- Department stores

- Specialty stores and more than 1,500 galleries (LifeStyle-dedicated floor
space) within retail stores

- Over 80 independent stores selling our products exclusively

- Hospitality, government, model home and other contract distribution
channels

- 14 of our own BEACON HILL(R) designer-exclusive showrooms

We distribute our decorative home furnishings fabrics through numerous channels,
including our own showrooms, to an extensive customer base consisting of over
30,000 retailers, decorators and designers worldwide. Our broad distribution
network permits us to offer home furnishings products to consumers wherever they
choose to shop.

Global Manufacturing Capabilities. We operate 79 strategically located,
well equipped facilities in North America, Asia and Europe, with over 23 million
square feet of manufacturing and distribution space. During the past five years,
we invested approximately $268 million in our facilities in order to meet
anticipated demand, reduce operating costs and maximize operating flexibility.
As the largest U.S. furniture manufacturer in Asia, we also have access to a
highly skilled, low-cost workforce, expert in such areas as intricate veneering
and hand carving, and to scarce raw materials such as Chinese oak, wicker,
rattan and certain exotic woods. We believe that our global facilities enable us
to serve our worldwide customer base efficiently and to allocate capacity to
best meet our manufacturing requirements. Because of our recent modernization,
and the productivity enhancements that we are currently implementing, we expect
to make only modest capital expenditures over the next several years.

Experienced Management Team with a Significant Ownership Stake. We believe
our management team -- which is committed to continuous improvement -- is the
best in our industry. This team has significantly reduced debt, improved
profitability and reduced working capital since taking responsibility in 1996,
and is currently reengineering our manufacturing and business processes. Recent
management additions have provided new skill sets and diverse non-furniture
expertise to complement our experienced home furnishings professionals. Over 200
of our senior managers currently own a total of approximately 21% of our Common
Stock on a diluted basis (assuming conversion of all convertible stock and
vesting of all management stock), or % after giving effect to the Offerings
and the Reorganization described below.

PLATFORM FOR GROWTH

At the time of our acquisition from Masco in August 1996, we embraced a
strategic vision designed to dramatically improve the satisfaction of our
customers and consumers with their home furnishings buying experience. We also
recognized that there were significant opportunities to improve our performance
by rationalizing our substantial asset base and by making major improvements in
our business processes. We redirected our previous financial objective of
maximizing sales growth to focus on enhancing our cash flow, reducing our
operating costs and increasing our profitability.

We adopted at the time of the acquisition an initial $28.3 million
restructuring plan. This plan, which was substantially implemented in 1997,
included the reduction of our manufacturing and distribution facilities from 89
to 82, provisions for severance costs associated with the closure of these
facilities and the elimination of certain product lines that had not met
performance targets. We also introduced coordinated, company-wide purchasing
practices, improved our working capital management and reduced capital
expenditure levels in light of our significant previous investments. Principally
as a result of these actions, since August 1996, we have improved our EBITDA
margin (adjusted to exclude restructuring charges) from 8.0% in 1995 to 9.0% in
1996 and to 10.1% in 1997. In addition, from August 1996 through December 31,
1997, we reduced working capital by $81.0 million to $450.0 million primarily
through improved management of our inventories and

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accounts payable. This reduction in working capital, together with our operating
cash flow, enabled us to reduce long-term debt by $198.8 million (offset by the
accretion of $49.1 million on the PIK Debt owed to Masco discussed below).
Moreover, in the first six months of 1998, we reduced working capital by an
additional $42.0 million to $408.0 million and reduced long-term debt by $42.5
million (offset by the accretion of $20.0 million on the PIK Debt).

At the end of 1997, we completed an in-depth evaluation of our global
manufacturing and distribution base, and recorded a $58.5 million charge to
rationalize and restructure our worldwide operations, focusing principally on
our Universal Furniture business unit. The majority of Universal Furniture's
restructuring activity is taking place in Asia, where facilities with 1.4
million square feet of manufacturing and distribution space will be eliminated
by December 31, 1998, as production is consolidated into existing, lower-cost
Asian facilities and as distribution facilities are rationalized. Implementation
of this restructuring effort began in the first quarter of 1998, and by June 30,
1998, facilities with 1.0 million square feet had been eliminated.

Finally, in pursuit of our strategic vision and our goal of becoming our
customers' and consumers' "favorite" home furnishings company, we have
undertaken a comprehensive reexamination of our methods of production,
marketing, distribution and customer fulfillment with the objective of
fundamentally improving the way orders are processed and goods are manufactured
and delivered to customers. The key focus of these reengineering initiatives
involves converting the furniture industry's historic "cuttings" or batch
processing methodology into the more efficient assemble-to-order (or "Pull")
methodology. Overall, these reengineering initiatives are designed to cut
order-to-ship cycles dramatically -- with a goal of shipping all furniture in
two weeks or less -- as well as to reduce inventory, eliminate waste (add value)
and improve product quality. We have also implemented enhanced coordination
across business units, including purchasing, manufacturing and marketing.

In the first six months of 1998, we significantly ramped-up the
reengineering conversion of our manufacturing processes, which necessarily
caused some disruption at certain plants and resulted in additional costs.
Despite order growth of approximately 7.3% in the first six months of 1998, our
net sales increased by only 1.0% and our EBITDA margin declined from 10.2% to
8.2% as compared with the first six months of 1997, principally as a result of
the reengineering initiatives described above.

Across all of our furniture companies, approximately 20% of our products
are currently shipped in two to three weeks, and the majority of all
order-to-ship times are expected to attain these levels over the next 24 months.
More than 30% of our plants are now implementing short-cycle management
methodologies, and these "best practices" will be implemented enterprise-wide.
We believe that, once implemented, these reengineering initiatives will reduce
manufacturing costs, significantly increase customer satisfaction and result in
higher market share, sales and margins.

GROWTH STRATEGIES

Pursue Product Excellence with Consumer Desired Designs. We intend to
continue developing fashion-forward products with a high degree of value and
quality that consumers can buy with confidence and display with pride. We are
committed to heightening brand awareness and the perceived quality of our
products through marketing and merchandising in both traditional and
non-traditional ways, from print and TV advertising and dealer co-op support to
informational web sites on the Internet. We also expect to capitalize on our
proven record of building profitable sales through design partnerships and
co-branding. We expect to expand our licensing arrangements, which have included
recognized designers and artists such as RALPH LAUREN, ALEXANDER JULIAN, BOB
TIMBERLAKE, LILLIAN AUGUST, LYNN HOLLYN, BETSY CAMERON and WARREN KIMBLE,
prestigious brands such as NAUTICA and ROYAL DOULTON, renowned organizations and
institutions such as WIMBLEDON, the SMITHSONIAN INSTITUTION, and CARE and
celebrities such as ARNOLD PALMER and JACK NICKLAUS.

order-to-ship cycle across our furniture companies of two weeks or less. One of
the early successes in our reengineering conversion efforts has been in the
production of BERKLINE(R) motion furniture. Implementation of short-cycle
management methodologies has resulted in a 29% improvement in inventory turns, a
26% reduction in order-to-ship times and an approximately 40% increase in
customer commitments for BERKLINE COMFORT GALLERIES(TM) since August 5, 1996, a
period in which Berkline also achieved above average sales growth for the motion
furniture category. Similarly, customers for Lexington's home entertainment
centers and home office case goods are benefitting from two-week order-to-ship
cycles. At BenchCraft, more than 50% of the upholstered furniture is being
produced utilizing short-cycle management methodologies, which we believe has
accounted for a dramatic increase in orders at BenchCraft during the first half
of 1998.

Technology -- a Growth Enabler. We are currently implementing an
enterprise-wide, Oracle-based software platform that will permit us to
coordinate and control a broad range of business processes, such as procurement,
order entry, inventory management, manufacturing planning and electronic data
interchange (EDI) with our customers and vendors. We plan to install this
software on a division-by-division basis over the next few years, and expect
that this will enable us to become "easy to do business with" from the
perspective of customers, consumers and suppliers and to become their "favorite"
home furnishings company. Further, we are adopting computer-aided design (CAD)
software to enhance and streamline product development activities, from design
inspiration through manufacturing, thereby accelerating our time from conception
to market.

Expand Retailer and Supplier Alliances and Partnerships. We have been
forming mutually beneficial partnership arrangements with selected retailers for
several years. We anticipate that the increasing concentration of the retailer
distribution base and the growth of large regional and national retailers will
accelerate this growth opportunity, as major retailers seek to concentrate their
supplier base, achieve linkages designed to simplify the purchasing process,
reduce inventory and increase their profitability. We are uniquely positioned to
benefit from this trend, as our comprehensive product lines, styles and price
points distinguish us as the industry's best "one-stop-shopping" resource. We
are also actively pursuing partnership arrangements with our suppliers, such as
fabric vendors, in order to reduce long lead times and ultimately improve
customer satisfaction levels.

Expand into New Markets and Distribution Channels. We believe that
significant growth opportunities exist outside of our traditional U.S. retailer
distribution base, including contract sales to hospitality markets, such as
hotels, motels and destination entertainment resorts, as well as government
sales. We have recently (i) received hospitality orders for several large Las
Vegas hotels, as well as for certain assisted senior-living facilities, (ii)
signed a five-year, worldwide contract with the U.S. Department of State,
expected to generate orders for over $75 million in fine furniture, and (iii)
contracted with a number of the nation's top home builders to furnish model
homes. Additionally, through our 14 BEACON HILL(R) designer-exclusive showrooms,
we are well positioned to serve the premium home furnishings market segment, a
segment where Beacon Hill has been growing more than twice as fast as the
overall home furnishings market.

Make Selected Complementary Acquisitions. The home furnishings industry
continues to be highly fragmented, and industry observers expect it to
consolidate significantly at both the manufacturer and retailer levels. With our
considerable acquisition expertise, financial flexibility and experienced
management team, we expect to capitalize on this trend and to complement our
internal growth by pursuing a disciplined acquisition program. We intend to
focus on companies that have product categories and participate in market
segments which are complementary to our own, that have a proven management team
and that provide an enhancement of our core capabilities.

PRINCIPAL STOCKHOLDERS

Our company is currently owned by 399, Masco, members of management and
certain other institutional investors. After completion of the Offerings and the
Reorganization discussed below, 399, Masco, members of management and the
institutional investors will together own approximately % of our
outstanding Class A Common Stock, or % on a diluted basis (assuming
conversion of all convertible stock and vesting of all management stock). See
"Security Ownership of Certain Beneficial Owners and Management."

9
<PAGE> 12

THE REORGANIZATION

Concurrently with the Offerings, we are entering into the following series
of reorganization transactions designed to simplify our corporate and capital
structure: (i) the outstanding capital stock will be reclassified and split such
that our capital stock outstanding upon consummation of the Offerings, and after
giving effect to the exchange described in (iii) below, will be as described
below under "Description of Capital Stock" and the ownership of such stock will
be as described below under "Security Ownership of Certain Beneficial Owners and
Management," (ii) our operating subsidiary, LifeStyle Furnishings International
Ltd. (LFI), will be merged with and into our holding company, Furnishings
International Inc. (FII), which will change its name to LifeStyle Furnishings
International Ltd., (iii) we will exchange shares of Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock for all of the
outstanding shares of Series A-1 Preferred Stock (approximately 1,103,320 shares
as of June 30, 1998) on the basis of shares of Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock for each share of Series
A-1 Preferred Stock (whereas shares of Series A-2 Preferred Stock will remain
outstanding), having first paid in cash the accrued but unpaid dividends on both
the Series A-1 and the Series A-2 Preferred Stock ($7.8 million as of June 30,
1998) and (iv) we will use the net proceeds of the Offerings to redeem all of
the outstanding PIK Debt owed to Masco ($355.9 million in principal and interest
as of June 30, 1998) (the "PIK Debt Repayment").

We have outstanding $200.0 million principal amount of 10 7/8% senior
subordinated notes due 2006 (the "Subordinated Notes"). We have commenced a cash
tender offer to acquire all of the outstanding Subordinated Notes (the "Tender
Offer") and, as of August 25, 1998, had received tenders from 100% of the
holders of the Subordinated Notes. In connection with the Tender Offer, we also
solicited and received consents to adopt amendments to the indenture under which
the Subordinated Notes were issued to eliminate substantially all of the
covenants and restrictive provisions in the indenture governing the Subordinated
Notes. The purchase price to be paid for each Subordinated Note tendered will be
based upon a blended price, two-thirds of which will be based on a spread of 50
basis points over the yield of the 6 5/8% U.S. Treasury Notes due July 31, 2001
and one-third of which will be based on the redemption price at which we could
redeem that portion of the Subordinated Notes upon completion of the Offerings.
A portion of the total consideration will consist of a consent payment equal to
$25 per $1,000 principal amount of the Subordinated Notes purchased that will be
paid in consideration of the holders' consent to the requested amendments to the
indenture under which the Subordinated Notes were issued. The Tender Offer is
subject to certain conditions, including a requirement that the Offerings be
completed substantially concurrently with the expiration of the Tender Offer, a
requirement that there have been validly tendered (and not withdrawn) prior to
the expiration of the Tender Offer not less than a majority in aggregate
principal amount of the Subordinated Notes and a requirement that we receive the
valid consent of holders of at least majority in aggregate principal amount of
the Subordinated Notes. The Offerings are conditioned on our purchase of the
Subordinated Notes pursuant to the Tender Offer, and any such purchase will
occur at substantially the same time as the consummation of the Offerings. We
expect to incur bank indebtedness to finance the purchase of the Subordinated
Notes in the Tender Offer.

The reorganization transactions and the Tender Offer and consent
solicitation described above are together referred to as the "Reorganization."

10
<PAGE> 13

THE OFFERINGS

Class A Common Stock offered:
U.S. Offering.................... shares
International Offering........... shares
Total(a)......................... shares

Common Stock to be outstanding
after the Offerings:(b)(c)
Class A Common Stock............. shares
Class B Common Stock............. shares
Total(a)......................... shares

Common Stock issuable upon
conversion of Series B Convertible
Preferred Stock and Series C
Convertible Preferred Stock(d)... shares

Diluted Common Stock to be
outstanding after the
Offerings(e)..................... shares

Use of Proceeds.................... The net proceeds of the Offerings will be
approximately $ million. We will use
the net proceeds to repay the PIK Debt
owed to Masco together with accrued
interest. If there are any remaining
proceeds, we will use them for other
corporate purposes. See "Use of
Proceeds."

Dividend Policy.................... We currently intend to retain all future
earnings to fund the development and
growth of our business. Therefore, we do
not currently anticipate paying cash
dividends. See "Dividend Policy."

New York Stock Exchange Symbol..... LFI
- ---------------
(a) If the Underwriters exercise their over-allotment options in full, the total
number of shares offered would increase by shares.

(b) Class A Common Stock and Class B Common Stock have substantially the same
rights under our certificate of incorporation, except that Class B Common
Stock has no voting rights other than those required by law. Any holder of
Class A Common Stock may convert each share of its Class A Common Stock into
one share of Class B Common Stock at any time if the holder has determined
that it or one of its affiliates might be subject to certain regulatory or
accounting problems described in our certificate of incorporation due to its
holding Class A Common Stock. Any holder of Class B Common Stock may convert
each share of its Class B Common Stock into one share of Class A Common
Stock at any time, subject to certain restrictions.

(c) On June 30, 1998, on a pro forma basis after giving effect to the
Reorganization, there would have been approximately shares of
Common Stock outstanding.

(d) The Series B Convertible Preferred Stock and the Series C Convertible
Preferred Stock vote on an as-if-converted basis (subject to certain
exceptions). See "Description of Capital Stock."

(e) Diluted share amounts refer to the amount of Common Stock that would be
outstanding upon conversion of all shares of convertible stock into shares
of Class A Common Stock and vesting of all management stock. See
"Description of Capital Stock."

RISK FACTORS

You should carefully consider all of the information in this Prospectus
and, in particular, the specific risk factors set forth beginning on page 15
under "Risk Factors."

11
<PAGE> 14

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)

The following table presents as of the dates and for the periods indicated
(i) summary historical financial information of LifeStyle and (ii) pro forma
financial information of LifeStyle, after giving effect to the spin-off on June
30, 1998 (the "Simmons Spin-off") of Simmons Upholstered Furniture Corporation
("Simmons"), the Reorganization, the Offerings and the application of the net
proceeds therefrom. You should read the summary historical and unaudited pro
forma financial data with the "Unaudited Pro Forma Financial Information,"
"Selected Historical and Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the related notes thereto (the "Financial
Statements") included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR(1) LIFESTYLE
------------------------------------------ ------------------------------------------
SIX MONTHS
PERIOD PERIOD YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, FROM FROM DECEMBER 31, JUNE 30,
------------------------------ 1/1/96 TO 8/6/96 TO ------------ ---------------
1993 1994 1995 8/5/96 12/31/96 1997 1997 1998
-------- -------- -------- --------- --------- ------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $1,763.5 $1,897.5 $1,992.6 $1,147.9 $849.5 $1,968.8 $970.8 $980.5
Cost of sales.......................... 1,326.8 1,434.0 1,501.0 870.7 629.4 1,458.2 715.6 737.6
Restructuring charge(2)................ -- -- -- -- -- 14.5 -- --
-------- -------- -------- -------- ------ -------- ------ ------
Gross profit......................... 436.7 463.5 491.6 277.2 220.1 496.1 255.2 242.9
Selling, general and administrative
expenses(3).......................... 368.5 386.8 397.8 222.2 147.4 350.9 174.8 181.6
Restructuring charge(2)................ -- -- -- -- -- 44.0 -- --
-------- -------- -------- -------- ------ -------- ------ ------
Operating profit..................... 68.2 76.7 93.8 55.0 72.7 101.2 80.4 61.3
Interest expense....................... 82.7 87.1 94.8 52.7 34.2 78.8 40.2 36.5
Other, net(4).......................... 3.2 7.3 8.2 3.5 7.8 19.4 9.5 8.0
-------- -------- -------- -------- ------ -------- ------ ------
Income (loss) before income taxes and
extraordinary item................. (17.7) (17.7) (9.2) (1.2) 30.7 3.0 30.7 16.8
Income taxes........................... 8.0 6.1 7.0 6.8 16.2 13.8 17.8 6.9
-------- -------- -------- -------- ------ -------- ------ ------
Income (loss) before extraordinary
item............................... (25.7) (23.8) (16.2) (8.0) 14.5 (10.8) 12.9 9.9
Extraordinary item(5).................. -- -- -- -- -- (11.6) -- --
-------- -------- -------- -------- ------ -------- ------ ------
Net income (loss).................... (25.7) (23.8) (16.2) (8.0) 14.5 (22.4) 12.9 9.9
Preferred dividends.................... -- -- -- -- (6.6) (17.2) (8.2) (7.8)
-------- -------- -------- -------- ------ -------- ------ ------
Net income (loss) available to common
stockholders....................... $ (25.7) $ (23.8) $ (16.2) $ (8.0) $ 7.9 $ (39.6) $ 4.7 $ 2.1
======== ======== ======== ======== ====== ======== ====== ======
PRO FORMA STATEMENT OF OPERATIONS DATA
(UNAUDITED)(6):
Interest expense....................... $ 34.7 $ 12.6
Other, net............................. 13.8 5.3
Net income............................. 22.7 27.7
Basic income per common share..........
Weighted average shares outstanding....
Diluted income per common share(7).....
Weighted average shares outstanding,
assuming dilution(7).................
</TABLE>

12
<PAGE> 15

<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
AS OF JUNE 30, AS OF JUNE 30,
---------------------- --------------
1997 1998 1998(6)
-------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (UNAUDITED):
Working capital(11)............. $ 480.2 $ 408.0 $ 434.4
Total assets.................... 1,210.2 1,114.5 1,099.6
Total debt...................... 740.6 666.2 336.8
Total liabilities............... 1,056.9 1,016.8 661.0
Mandatorily redeemable preferred
stock......................... 134.8 126.3 8.2
Stockholders' equity............ 18.5 (28.6) 430.4
</TABLE>

- ---------------
1. Furnishings International Inc. acquired the Masco Home Furnishings Group,
the Predecessor, as of August 5, 1996.

2. As a result of LifeStyle's evaluation of its global manufacturing and
distribution base, LifeStyle incurred a $58.5 million charge in 1997 to
rationalize and restructure its worldwide operations principally focusing on
its Universal business unit. See Note 7 to the Financial Statements.

3. Included in selling, general and administrative expenses of the Predecessor
are general corporate expenses which represent certain corporate staff
support and administrative services provided by Masco. These expenses, which
were charged to the Predecessor by Masco, consisted of $10.5 million, $12.7
million and $16.0 million in 1993 through 1995, respectively, and $9.4
million for the period January 1, 1996 to August 5, 1996.

4. Other, net includes receivables securitization costs of $4.4 million, $9.8
million, $5.0 million and $4.5 million and amortization of deferred
financing costs of $1.7 million, $3.9 million, $2.4 million and $1.1 million
for the period from August 6 through December 31, 1996, the year ended
December 31, 1997, the six months ended June 30, 1997, and the six months
ended June 30, 1998, respectively. Other, net also includes the losses of
Simmons, a separately managed, operated and financed business which was spun
off from LifeStyle on June 30, 1998. See Note 15 to the Financial
Statements.

5. An extraordinary loss of $19.4 million ($11.6 million net of tax) was
recorded in connection with the August 1997 replacement of LifeStyle's
former revolving credit facility, Tranche A term loan and Tranche B term
loan with LifeStyle's current $400.0 million senior secured revolving credit
facility (the "Credit Facility"). The loss consisted of the write-off of
unamortized deferred financing costs related to the early extinguishment of
debt.

6. The Pro Forma Statement of Operations and Pro Forma As Adjusted Balance
Sheet data include adjustments giving effect to the Simmons Spin-off, the
Reorganization, (including the for 1 stock split), the Offerings and the
application of the net proceeds therefrom as if each such transaction had
occurred on January 1, 1997, in the case of the pro forma statement of
operations data, and June 30, 1998,

(footnotes continued on following page)
13
<PAGE> 16

in the case of the pro forma balance sheet data. For additional information
related to the pro forma adjustments and underlying assumptions, see the
notes to the Unaudited Pro Forma Financial Information.

7. The Series B and Series C Convertible Preferred Stock and unvested
management stock are considered common stock equivalents for purposes of
computing diluted income per common share.

8. EBITDA is defined as net income (loss) before interest expense, receivables
securitization costs, income taxes, depreciation and amortization expense
(including amortization of fabric sample book expenditures), extraordinary
items, losses of Simmons, and certain other non-cash charges and is computed
as follows:

<TABLE>
<CAPTION>
LIFESTYLE
PREDECESSOR ------------------------------------------
------------------------------------ SIX MONTHS
PERIOD PERIOD YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, FROM FROM DECEMBER 31, JUNE 30,
------------------------ 1/1/96 TO 8/6/96 TO ------------ --------------
1993 1994 1995 8/5/96 12/31/96 1997 1997 1998
------ ------ ------ --------- --------- ------------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).................... $(25.7) $(23.8) $(16.2) $(8.0) $14.5 $(22.4) $12.9 $ 9.9
Interest expense..................... 82.7 87.1 94.8 52.7 34.2 78.8 40.2 36.5
Income taxes......................... 8.0 6.1 7.0 6.8 16.2 13.8 17.8 6.9
Depreciation and amortization........ 66.8 66.4 67.9 39.3 15.5 38.4 20.9 19.9
Extraordinary item................... -- -- -- -- -- 11.6 -- --
Receivables securitization costs..... -- -- -- -- 4.4 9.8 5.0 4.5
Losses of Simmons.................... -- -- -- -- 1.5 3.4 2.7 1.6
Other non-cash....................... 0.8 3.7 6.6 1.0 1.4 44.7(a) (0.7) 0.8
------ ------ ------ ----- ----- ------ ----- -----
EBITDA........................... $132.6 $139.5 $160.1 $91.8 $87.7 $178.1 $98.8 $80.1
====== ====== ====== ===== ===== ====== ===== =====
</TABLE>

- ---------------
(a) The $44.7 million non-cash item in 1997 includes a non-cash
restructuring charge of $38.1 million, a non-cash loss on foreign
currency remeasurement of $7.0 million and certain other non-cash items.

LifeStyle believes that EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and EBITDA does not necessarily indicate whether cash flow will
be sufficient for cash requirements. Not every company calculates EBITDA in
exactly the same fashion. As a result, EBITDA as presented above may not
necessarily be comparable to similarly titled measures of other companies.

9. Adjusted EBITDA for 1997 excludes the $20.4 million cash portion of the
restructuring charges and adjusted operating profit for 1997 excludes the
$58.5 million of restructuring charges. Adjusted EBITDA and adjusted
operating profit for the six months ended June 30, 1998 exclude $18.0
million of transition costs related to the restructuring and reengineering
initiatives and $2.5 million of costs related to the computer system
implementation at The Robert Allen Group. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." LifeStyle
utilizes adjusted EBITDA and adjusted operating profit when interpreting
operating trends and results of operations of its core business operations.
Accordingly, LifeStyle believes that these measures provide additional
information for understanding and evaluating our financial condition,
results of operations and cash flows. However, adjusted EBITDA and adjusted
operating profit do not represent, and should not be considered as
alternatives to, net income, cash flow from operations or operating profit
as determined by generally accepted accounting principles, and do not
necessarily indicate whether cash flow will be sufficient to meet cash
requirements. Not every company calculates adjusted EBITDA or adjusted
operating profit in exactly the same fashion. As a result, adjusted EBITDA
and adjusted operating profit as presented above may not necessarily be
comparable to similarly titled measures of other companies.

10. Depreciation and amortization includes depreciation of property and
equipment, amortization of fabric sample books and amortization of deferred
financing costs.

11. Working capital is defined as total current assets (excluding cash and cash
investments and deferred taxes) less total current liabilities (excluding
current maturities of long-term debt).

14
<PAGE> 17

RISK FACTORS

You should carefully consider the following factors and other information
in this Prospectus before deciding to invest in shares of Class A Common Stock.

HIGHLY COMPETITIVE INDUSTRY

The home furnishings industry is highly competitive and includes a large
number of domestic and foreign manufacturers. No company has a dominant position
in the industry. Competition in our industry is generally based on product
quality, brand name recognition, price, timeliness of delivery and service.
Companies in our industry are increasingly importing lower priced, foreign-made
home furnishings for sale in the U.S. In addition, certain of our competitors
may have greater financial and other resources than we do and may have greater
sales or brand recognition than we do in particular industry segments. See
"Business -- Competition."

ECONOMIC AND INDUSTRY CONDITIONS

Our sales could be adversely affected by unfavorable economic conditions.
We believe that our industry is significantly influenced by economic conditions
generally, and particularly by consumer behavior and confidence, personal
discretionary spending, housing activity, interest rates, credit availability
and demographics. Purchases of home furnishings and home furnishing fabrics may
decline during recessionary periods. In addition, prices that consumers are
willing to pay for our products will likely be lower during economic downturns.
A deterioration in existing economic conditions could therefore have a material
adverse effect on our business.

Likewise, if any of our major retail customers discontinued its purchases
of or failed to make payments for our products, this could negatively affect our
business. In addition, our retail customers operate in a highly competitive
environment and could face financial difficulties in the event of, for example,
a downturn in general economic conditions.

Our success also depends on our ability to anticipate and respond to
consumer demand. We must identify and respond to changing consumer preferences
with respect to home furnishings and home furnishing fabrics. If we were to
misjudge either the market for our merchandise or our customers' purchasing
needs, we would be compelled to reduce prices on our inventory or, in the worst
case, would be left with unsold inventory. Either of these developments could
have a material adverse effect on our company.

IMPLEMENTATION OF BUSINESS STRATEGY

In addition to rationalizing our existing production capacities, we are in
the early stages of implementing "short-cycle" management methodologies, which
includes reengineering manufacturing processes and incorporating technology into
product design and business processes. Our business strategy targets extensive
improvement in efficiency throughout our company. This reengineering conversion
of our manufacturing processes necessarily causes dislocations in production at
our plants during the transition period. We expect the benefits of our
reengineering strategy to outweigh these shorter term costs, but investors
should note that our recent financial performance has been adversely affected by
these interruptions and recognize that we expect production inefficiencies to
continue during the remainder of the reengineering implementation period. If we
are unable to implement short-cycle management according to our current
timetable, or if these methodologies do not yield the anticipated benefits, this
could have a material adverse effect on our business.

As part of our reengineering efforts, we are incorporating software systems
into product design and business systems. This could cause interruptions in our
production processes or result in delays which adversely affect our business.

FOREIGN OPERATIONS

We conduct an important part of our manufacturing operations in Canada,
China, Hong Kong, Indonesia, Malaysia, the Philippines, Taiwan, Thailand and
several European countries. Changes in currency values,

15
<PAGE> 18

inflation, the prevailing political and economic climate, relations with the
U.S., tariffs and other trade barriers and the general economic climate in these
countries may adversely affect our results.

PRICE OF AND ACCESS TO RAW MATERIALS

The principal raw materials we use in manufacturing and distributing our
products include lumber, finishing products (stains, sealants and lacquers),
glue, steel, leather, cotton, wool, synthetic and vinyl fabrics, polyester
batting and polyurethane foam. We purchase our raw materials from a number of
domestic and foreign suppliers. Although we believe that there is an adequate
number of alternative suppliers available, and we have ongoing relationships
with numerous suppliers of raw materials, we cannot be sure that we will
continue to have available necessary raw materials at current prices. If the
prices of raw materials increase, or if their availability is restricted, either
of these developments could have a material adverse effect on our business. If
the price of raw materials increases, we cannot be sure that market and
competitive conditions will allow us to increase prices for our products on a
timely basis. See "Business -- Raw Materials and Suppliers."

DEPENDENCE ON KEY PERSONNEL

We believe that our ability to successfully implement our business strategy
and to operate profitably depends on the continued employment of our senior
management team. If key members of our senior management team become unable or
unwilling to continue in their present positions, our company's financial
results could be adversely affected. We do not currently maintain "key person"
life insurance coverage on our executive officers and directors. We believe that
the future success of our company will depend, in large part, on our continued
ability to attract and retain highly skilled and qualified personnel. See
"Management."

LABOR

Very few of our employees are currently members of labor unions. Although
we do not anticipate a rise in labor union participation at our production
facilities, increased labor organization activities or increased labor union
participation could adversely affect our business.

Due to the complex workmanship required to produce quality home
furnishings, we rely upon the work product of more than 30,000 employees
worldwide. Labor costs are a significant element of the total expenditure
involved in our manufacturing process. An increase in the costs of labor could
therefore have a material adverse effect on our business.

ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATIONS

Our business is subject to comprehensive and frequently changing federal,
state, local and foreign environmental and worker health and safety laws and
regulations. Breaches of such laws or regulations can result in the imposition
of fines and penalties (any of which may be material) or the cessation of
operations of the affected facility. We expect that we will have to spend money
in the future to comply with current and future such laws and regulations.

Environmental laws and regulations govern the storage, handling,
generation, treatment, emission, release, discharge and disposal of certain
substances and wastes and the clean-up of contamination in soil or groundwater.
Under such laws and regulations, current and prior owners of property or
businesses may be liable without regard to fault or knowledge about the cause of
the liability. We have been and will continue to be required to spend money to
investigate and remedy environmental issues at properties which we now own or
operate or at which we dispose of hazardous waste. In addition, we may have to
spend money for investigating and remedying environmental conditions at
properties which we owned or operated or at which we disposed of hazardous waste
in the past. Environmental conditions at these properties could also lead to
claims for personal injury, property damage or damages to natural resources.

Based on currently available information, we believe that our expenditures
related to environmental matters will not have a material adverse effect on our
earnings, operating expenses or financial position.

16
<PAGE> 19

However, we cannot be sure that material costs or liabilities related to
environmental matters will not arise for our business in the future. See
"Business -- Environmental Matters and Governmental Regulations."

CONTROL BY PRINCIPAL STOCKHOLDERS

399, Masco, the management stockholders and certain other institutional
investors and related individuals are parties to the Stockholders Agreement.
After the Offerings, the parties to the Stockholders Agreement will together own
approximately % of the Class A Common Stock (or % on a diluted basis
assuming the conversion of all convertible stock and vesting of all management
stock). After the Offerings, the parties to the Stockholders Agreement will
likely have the power to control our Board of Directors and thereby determine
our company's policies. The interests of the stockholders that are party to the
Stockholders Agreement may conflict with the interests of certain other of our
stockholders. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions -- Stockholders
Agreement."

Initially, four of our seven directors will be elected by the holders of
our Class A Common Stock and Series C Convertible Preferred Stock, voting
together as a single class. The holders of our Series C Convertible Preferred
Stock are also entitled to elect two of our directors (three, if we have nine or
more directors) voting as a single class and holders of our Series B Convertible
Preferred Stock have the right to elect one director voting as a single class.
Shares of Class A Common Stock, Series B Convertible Preferred Stock and Series
C Convertible Preferred Stock have voting rights with respect to all other
matters presented to our stockholders for resolution, voting as a single class.
In addition, each share of Class B Common Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock is convertible at any time,
subject to certain restrictions, into one share of Class A Common Stock. If any
of the shares of Class B Common Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock outstanding were converted to shares of
Class A Common Stock, the voting power of any Class A Common Stock you purchase
in the Offerings would decrease. If all currently outstanding shares of Class B
Common Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock were converted to Class A Common Stock immediately after the
Offerings, the parties to the Stockholders Agreement would control approximately
% of the total voting power exercisable by the aggregate outstanding shares of
Class A Common, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Class A Common Stock could drop as a result of
sales of a large number of shares of Class A Common Stock in the market after
the Offerings, or the perception that such sales could occur. These factors also
could make it more difficult for us to raise funds through future offerings of
Class A Common Stock.

After the Reorganization and the Offerings, there will be outstanding
shares of Class A Common Stock, shares of Class B
Common Stock, shares of Series B Convertible Preferred Stock and
shares of Series C Convertible Preferred Stock. The shares of
Class A Common Stock sold in the Offerings will be freely transferable without
restriction, except for any shares acquired by an "affiliate" of LifeStyle. Of
the remaining shares of Class A Common Stock outstanding or issuable upon
conversion of Class B Common Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock, only those shares held for less than two
years or held by "affiliates" will be "restricted securities" as defined in Rule
144 under the Securities Act of 1933. These shares may be sold in the future
without registration under the Securities Act to the extent permitted by Rule
144 or an exemption under the Securities Act of 1933. See "Shares Eligible for
Future Sale."

Investors who have signed the Stockholders Agreement have certain
registration rights with respect to their Common Stock. See "Certain
Relationships and Related Transactions -- Registration Rights Agreement." If
these investors should sell a substantial amount of their Common Stock, the
market price of the Class A Common Stock could drop. We, our executive officers
and directors and our other current

17
<PAGE> 20

stockholders have agreed not to sell, subject to certain limited exceptions, any
shares of the Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). See "Shares Eligible for Future Sale."

POSSIBLE VOLATILITY OF STOCK PRICE

The price at which the Class A Common Stock will trade will depend upon a
number of factors, including, but not limited to, our historical and anticipated
quarterly and annual operating results, variations between such results and
analyst and investor expectations, announcements by our company or others and
developments affecting our business, investor perceptions of our company and
comparable public companies, changes in the industries in which we operate or in
the industries of our significant customers, and general market and economic
conditions. Some of these factors are beyond our control. Investors in the Class
A Common Stock should be aware that the stock market has from time to time
experienced extreme price and volume fluctuations.

ABSENCE OF DIVIDENDS

We do not expect to pay any cash dividends in the near term. Our current
financing documents contain provisions which restrict the payment of dividends.
See "Dividend Policy."

NO PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE

Before the Offerings, there has not been a public market for the Class A
Common Stock. We will apply to the New York Stock Exchange to list the Class A
Common Stock on such exchange, but we do not know whether active trading in the
Class A Common Stock will develop and continue after the Offerings. We will
determine the initial public offering price for the shares of Class A Common
Stock through negotiations with the Underwriters. You may not be able to resell
your shares at or above the initial public offering price. See "Underwriting."

ANTI-TAKEOVER PROVISIONS

Certain provisions of our certificate of incorporation and by-laws may make
it more difficult for an outside party to take control of our company, even if
the change of control would be favorable for stockholders. Under our certificate
of incorporation, we may issue preferred stock without the approval of
stockholders. Such an issuance could have a dilutive effect on stockholders'
equity. Our certificate of incorporation divides our company's directors into
three classes. The directors in each class serve three-year terms until their
successors are elected. The initial terms of the directors in office at the time
of the Offerings will expire at the 1999, 2000 and 2001 annual stockholders
meetings, depending upon the particular class in which each director is placed.
Our certificate of incorporation also provides that only the Chairman of the
Board, a majority of the total number of directors then in office, the holders
of a majority of our Series B Convertible Preferred Stock and the holders of a
majority of our Series C Convertible Preferred Stock may call a special
stockholders meeting. Directors elected by the holders of Class A Common Stock
and the Series C Convertible Preferred Stock, voting together as a single class,
may only be removed for cause by an affirmative vote of 66 2/3% of the
outstanding shares of Class A Common Stock and Series C Convertible Preferred
Stock, voting together as a single class. Subject to certain exceptions, the
board of directors may postpone and reschedule any previously scheduled special
meeting of stockholders. These provisions of our certificate of incorporation
could make it more difficult for a third party to take control of our company.
See "Description of Capital Stock -- Certain Corporate Governance Matters."

DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding Common Stock immediately after
the Offerings. Accordingly, if you purchase Class A Common

18
<PAGE> 21

Stock in the Offerings, you will incur immediate dilution of $ in the
net tangible book value per share of the Common Stock from the price you pay for
Class A Common Stock.

YEAR 2000 ISSUES

Year 2000 issues are the result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other material adverse
consequences, a temporary inability to process transactions or engage in similar
normal business activities.

Each of our subsidiaries is in the process of evaluating its computerized
systems on an internal basis, and is making corrective plans where required.
Such evaluations are designed to cover all financial and operational systems,
and we have begun to make the necessary changes. We have hired a Year 2000
Project Director who is charged with Year 2000 planning and remediation, and we
have established a committee comprised of senior managers to review our Year
2000 implementation strategy and to oversee Year 2000 compliance measures. We
have also contracted with a computer systems consulting firm to conduct a review
of all of our computer systems and to issue a report on the necessary compliance
measures. In order to determine the effect on our company if a supplier or
customer failed to resolve its own Year 2000 issues, we are communicating with
our suppliers and customers about the compliance of their own systems. We cannot
be sure that the failure of a customer or supplier to be Year 2000 compliant
will not have a material adverse effect on our own business. We intend to
complete the final assessment and development of the corrective action plans
during 1998, and our conversion efforts, which began in 1997, are expected to
continue during 1998 and 1999. We currently anticipate that the development and
implementation of Year 2000 compliance measures will cost approximately $5
million, all of which will be expensed. In addition, during 1997, we began
implementing a company-wide, Oracle-based software platform that is designed to
be Year 2000 compliant.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Prospectus under "Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," in addition to certain statements contained
elsewhere in this Prospectus, are forward-looking statements and are thus
prospective. Our actual results could differ materially from those anticipated
by any such forward-looking statements as a result of certain factors, including
matters discussed in this "Risk Factors" section. We cannot be sure that the
future results covered by forward-looking statements will be achieved.

19
<PAGE> 22

USE OF PROCEEDS

The net proceeds to LifeStyle from the U.S. Offering and the International
Offering (together, the "Offerings") are estimated to be approximately
$ million, based on an assumed initial offering price of $ per
share (the midpoint of the range of the initial public offering price set forth
on the cover page of this Prospectus) (approximately $ million if the
Underwriters' over-allotment options are exercised in full), after deducting
underwriting discounts and estimated expenses payable by LifeStyle. The net
proceeds from the Offerings will be used to repay the payment-in-kind debt owed
to Masco incurred in connection with the acquisition of the Predecessor in
August 1996 (the "PIK Debt"), in an aggregate principal amount of $354.1 million
plus accrued interest of $1.8 million, as of June 30, 1998. The PIK Debt bears
interest at the rate of 12% per annum and matures on August 5, 2008. The
remaining proceeds from the Offerings, if any, will be used for other corporate
purposes.

DILUTION

As of June 30, 1998, the net tangible book value of LifeStyle adjusted for
the Reorganization (other than the PIK Debt Repayment and the Tender Offer) was
$66.8 million, or $ per share of Common Stock on a diluted basis (assuming
conversion of all convertible stock and vesting of all management stock). Net
tangible book value per share represents LifeStyle's net worth less intangible
assets of $14.9 million, divided by the total number of diluted shares of Common
Stock outstanding. After giving effect to the sale by LifeStyle of
shares of Class A Common Stock pursuant to the Offerings and
giving effect to the application of the estimated net proceeds therefrom, the
pro forma net tangible book value of LifeStyle as of June 30, 1998 would have
been $430.4 million, or $ per share of Common Stock on a diluted basis. Such
amount represents an immediate increase in pro forma net tangible book value of
$ per share to LifeStyle's existing stockholders and immediate dilution
to new investors of $ per share of Class A Common Stock. The following table
illustrates the dilution per share to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at June 30, 1998........ $
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
Offerings.................................................
------
Dilution per share to new investors......................... $
======
</TABLE>

The following table sets forth on a diluted basis, as of June 30, 1998 and
after giving effect to the Reorganization, the number and percentage of total
outstanding shares of Class A Common Stock purchased, the total consideration
and percentage of total consideration paid and the weighted average price paid
per share by existing stockholders and by purchasers of the Class A Common Stock
offered hereby. The calculations in this table with respect to Class A Common
Stock to be purchased by new investors in the Offerings reflect an assumed
initial public offering price of $ per share (the midpoint of the range of
the initial public offering price set forth on the cover page of this
Prospectus).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... % $ % $
New investors............................
-------- --- -------- ---
Total.......................... % $ %
======== === ======== ===
</TABLE>

DIVIDEND POLICY

LifeStyle currently intends to retain future earnings for the development
of its business, and does not anticipate paying cash dividends on its Common
Stock in the near term. LifeStyle's future dividend policy will be determined by
its Board of Directors on the basis of various factors, including LifeStyle's
results of operations, financial condition, capital requirements and investment
opportunities. In addition, LifeStyle's current financing documents restrict the
payment of cash dividends.

20
<PAGE> 23

CAPITALIZATION

The following table sets forth the consolidated capitalization of LifeStyle
as of June 30, 1998 (i) as adjusted for the Reorganization (except for the PIK
Debt Repayment and the Tender Offer) and (ii) on a pro forma basis, as adjusted,
after giving effect to (A) the Reorganization (including the PIK Debt Repayment
and the Tender Offer) and (B) the Offerings and the application of the net
proceeds therefrom. This table should be read in conjunction with the "Selected
Historical and Unaudited Pro Forma Financial Data," "Unaudited Pro Forma
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
PRO FORMA
AS ADJUSTED AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Long-term debt, current..................................... $ 0.5 $ 0.5
====== ======
LONG-TERM DEBT (EXCLUDING CURRENT PORTION THEREOF):
Credit Facility(1)(2)..................................... $117.8 $334.7
Subordinated Notes(1)..................................... 200.0 --
PIK Debt.................................................. 354.1 --
Other borrowings.......................................... 1.6 1.6
------ ------
Total long-term debt.............................. 673.5 336.3
Series A-2 Preferred Stock(3)............................... 8.2 8.2
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, consisting of:
Class A Common Stock; authorized shares;
issued, as adjusted; issued, pro forma as
adjusted.............................................. -- --
Class B Common Stock; authorized shares;
issued................................................ -- --
Preferred Stock $.01 par value, consisting of:
Series B Convertible Preferred Stock; authorized
shares; issued(4)................................ -- --
Series C Convertible Preferred Stock; authorized
shares; issued(4)................................ -- --
Additional paid-in capital................................ 115.9 493.4
Retained deficit.......................................... (23.1) (51.9)
Foreign currency translation.............................. (11.1) (11.1)
------ ------
Total stockholders' equity........................ 81.7 430.4
------ ------
Total capitalization(5)........................... $763.4 $774.9
====== ======
</TABLE>

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

(1) Pro forma as adjusted amounts for the Credit Facility and the Subordinated
Notes assume that all of the Subordinated Notes are repurchased by LifeStyle
in connection with the Tender Offer using borrowings under the Credit
Facility.

(2) On a pro forma as adjusted basis as of June 30, 1998, LifeStyle had $47.2
million of additional borrowings available under the Credit Facility. As of
August 25, 1998, such available borrowings would have been $36.2 million on
a pro forma as adjusted basis.

(3) The Series A-2 Preferred Stock has a stated value of $100 per share and
accrues cumulative, quarterly dividends at a compound rate of 13.5% per
annum.

(4) Holders of Series B and Series C Convertible Preferred Stock participate in
dividends or distributions paid to holders of Class A and Class B Common
Stock to the same extent as if they had converted such preferred stock into
shares of Common Stock. LifeStyle does not anticipate paying cash dividends
on its Common Stock in the near term.

(5) LifeStyle also maintains a receivables facility pursuant to which a
syndicate of banks and other financial institutions purchases senior
interests in the assets of a master trust. The assets of the master trust
consist of substantially all domestic trade receivables generated by
LifeStyle. As of June 30, 1998, $150.0 million of senior interests in the
master trust had been sold to the participants in the facility.

21
<PAGE> 24

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated balance sheet of LifeStyle
as of June 30, 1998 gives effect to the Reorganization, including the for 1
stock split, the Offerings and the application of the net proceeds therefrom as
if they had occurred on such date. The unaudited pro forma consolidated
statements of operations for the year ended December 31, 1997 and for the six
months ended June 30, 1998 give effect to such transactions and the Simmons
Spin-off as if they had occurred on January 1, 1997.

The unaudited pro forma consolidated balance sheet and statements of
operations are based on the historical consolidated financial statements of
LifeStyle and the assumptions and adjustments described in the accompanying
notes. The unaudited pro forma consolidated statements of operations do not
purport to represent what LifeStyle's results of operations would have been if
the transactions described above had occurred as of the dates indicated or what
results will be for any future periods. The unaudited pro forma financial
information is based upon assumptions that LifeStyle believes are reasonable and
should be read in conjunction with the Financial Statements included elsewhere
in this Prospectus.

22
<PAGE> 25

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(IN MILLIONS)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED(1) ADJUSTMENTS AS ADJUSTED(2)
---------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
investments............. $ 11.5 $ -- $ 11.5 $ -- $ 11.5
Trade receivables.......... 59.9 -- 59.9 -- 59.9
Investment in receivables
trust................... 61.6 -- 61.6 -- 61.6
Other accounts
receivable.............. 14.5 -- 14.5 -- 14.5
Inventories................ 501.3 -- 501.3 -- 501.3
Prepaid expenses........... 36.0 -- 36.0 -- 36.0
Deferred income taxes...... 38.5 -- 38.5 -- 38.5
-------- ------- -------- ------- --------
Total current
assets........... 723.3 -- 723.3 -- 723.3
Property and equipment,
net........................ 344.1 -- 344.1 -- 344.1
Other assets................. 47.1 -- 47.1 (14.9)(c) 32.2
-------- ------- -------- ------- --------
Total assets....... $1,114.5 $ -- $1,114.5 $ (14.9) $1,099.6
======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT):
Current liabilities:
Long-term debt, current.... $ 0.5 $ -- $ 0.5 $ -- $ 0.5
Accounts payable........... 129.3 -- 129.3 -- 129.3
Accrued liabilities........ 136.0 -- 136.0 (26.4)(d) 109.6
-------- ------- -------- ------- --------
Total current
liabilities...... 265.8 -- 265.8 (26.4) 239.4
Long-term debt............... 665.7 7.8(a) 673.5 (337.2)(e)(f) 336.3
Deferred income taxes........ 31.3 -- 31.3 -- 31.3
Other long-term
liabilities................ 54.0 -- 54.0 -- 54.0
-------- ------- -------- ------- --------
Total
liabilities...... 1,016.8 7.8 1,024.6 (363.6) 661.0
-------- ------- -------- ------- --------
Mandatorily redeemable
preferred stock............ 126.3 (118.1)(a) 8.2 -- 8.2
Stockholders' equity
(deficit).................. (28.6) 110.3(b) 81.7 348.7(g) 430.4
-------- ------- -------- ------- --------
Total liabilities
and stockholders'
equity
(deficit)........ $1,114.5 $ -- $1,114.5 $ (14.9) $1,099.6
======== ======= ======== ======= ========
</TABLE>

- ---------------
(1) "As Adjusted" gives effect to the payment of dividends on the Series A-1 and
A-2 Preferred Stock and the exchange of Series A-1 Preferred Stock for
shares of Series B and Series C Convertible Preferred Stock as if they had
occurred on June 30, 1998.

(2) "Pro Forma As Adjusted" gives effect to the Reorganization, the Offerings
and the application of the net proceeds therefrom as if they had occurred on
June 30, 1998.

23
<PAGE> 26

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

(a) As part of the Reorganization, the Series A-1 Preferred Stock will be
exchanged for shares of Series B and Series C Convertible Preferred Stock,
and LifeStyle will pay accrued and unpaid dividends of $7.8 million on both
the Series A-1 and Series A-2 Preferred Stock using borrowings available
under the Credit Facility. As of June 30, 1998, Series A-1 Preferred Stock
with a liquidation preference of $110.3 million (plus accrued dividends) was
outstanding.

(b) The increase in as adjusted stockholders' equity (deficit) results from the
exchange of Series A-1 Preferred Stock.

(c) Reflects the elimination of unamortized deferred financing costs related to
the repurchase of the Subordinated Notes in the Tender Offer.

(d) The reduction in accrued liabilities reflects the payment of accrued
interest on the PIK Debt ($1.8 million) and Subordinated Notes ($9.1
million), combined with the tax benefit associated with the extraordinary
loss to be recognized in connection with the Tender Offer.

(e) In connection with the Offerings, LifeStyle has commenced the Tender Offer
to repurchase all of the $200.0 million principal amount of the Subordinated
Notes, using borrowings available under the Credit Facility. LifeStyle will
incur a redemption premium of approximately $29.4 million, assuming that
100% of the Subordinated Notes are tendered by the respective holders.

(f) The net decrease in long-term debt results from the use of the net proceeds
of the Offerings ($377.5 million) to repay the PIK Debt (outstanding
principal of $354.1 million), offset by additional borrowings under the
Credit Facility to pay interest on the PIK Debt ($1.8 million), as well as
interest ($9.1 million) and Tender Offer premiums ($29.4 million) on the
Subordinated Notes.

(g) The increase in pro forma stockholders' equity (deficit) results from the
application of net proceeds from the offerings offset by the extraordinary
loss to be recognized in connection with the Tender Offer.

24
<PAGE> 27

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1998

(IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................. $ 980.5 $ -- $ 980.5
Cost of sales............................................. 737.6 -- 737.6
-------- ------- -------
Gross profit............................................ 242.9 -- 242.9
Selling, general and administrative expenses.............. 181.6 -- 181.6
-------- ------- -------
Operating profit........................................ 61.3 -- 61.3
Other expense, net:
Interest expense........................................ 36.5 (23.9)(a) 12.6
Other, net.............................................. 8.0 (2.7)(b) 5.3
-------- ------- -------
44.5 (26.6) 17.9
-------- ------- -------
Income before income taxes................................ 16.8 26.6 43.4
Income taxes.............................................. 6.9 8.8(c) 15.7
-------- ------- -------
Net income.............................................. $ 9.9 $ 17.8 $ 27.7
======== ======= =======

Basic income per common share(d).......................... $
Weighted average common shares(d).........................
Diluted income per common share(d)........................ $
Weighted average common shares, assuming dilution(d)......
</TABLE>

25
<PAGE> 28

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................. $1,968.8 $ -- $1,968.8
Cost of sales............................................. 1,458.2 -- 1,458.2
Restructuring charge...................................... 14.5 -- 14.5
-------- -------- --------
Gross profit............................................ 496.1 -- 496.1
Selling, general and administrative expenses.............. 350.9 -- 350.9
Restructuring charge...................................... 44.0 -- 44.0
-------- -------- --------
Operating profit........................................ 101.2 -- 101.2
Other expense, net:
Interest expense........................................ 78.8 (44.1)(a) 34.7
Other, net.............................................. 19.4 (5.6)(b) 13.8
-------- -------- --------
98.2 (49.7) 48.5
-------- -------- --------
Income before income taxes and extraordinary item......... 3.0 49.7 52.7
Income taxes.............................................. 13.8 16.2(c) 30.0
-------- -------- --------
Income (loss) before extraordinary item................. $ (10.8) $ 33.5 $ 22.7
======== ======== ========

Basic income (loss) per common share before extraordinary
item(d)................................................. $
Weighted average common shares(d).........................
Diluted income (loss) per common share before
extraordinary item(d)................................... $
Weighted average common shares, assuming dilution(d)......
</TABLE>

26
<PAGE> 29

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(a) Represents elimination of interest expense related to the PIK Debt and the
Subordinated Notes, partially offset by interest expense on increased
borrowings under LifeStyle's Credit Facility. The pro forma impact on
interest expense is as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
<S> <C> <C>
Elimination of PIK Debt interest............ $(36.5) $(20.1)
Elimination of interest on the Subordinated
Notes..................................... (21.8) (10.9)
Increase in interest on Credit Facility..... 14.2 7.1
------ ------
$(44.1) $(23.9)
====== ======
</TABLE>

(b) Reflects elimination of amortization of deferred financing costs related to
the Subordinated Notes to be repurchased in the Tender Offer ($2.2 million
for the year ended December 31, 1997 and $1.1 million for the six months
ended June 30, 1998) and the elimination of the net loss of Simmons which
was spun off on June 30, 1998 ($3.4 million for the year ended December 31,
1997 and $1.6 million for the six months ended June 30, 1998.)

(c) Reflects tax effect of pro forma adjustments, excluding the net loss of
Simmons, calculated using the federal statutory tax rate of 35%.

(d) Basic and diluted pro forma income per share, after giving effect to the
for 1 stock split, were determined as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
<S> <C> <C>
Income before extraordinary item................ $22,700 $ 27,700
Basic income per share of Common Stock:
Weighted average shares.......................
------- --------
Basic income per share before extraordinary
item....................................... $ $
======= ========
Diluted income per share of Common Stock:
Weighted average shares.......................
Effect of dilutive securities:
Convertible Preferred Stock................
Restricted stock...........................
------- --------
Weighted average shares, assuming dilution....
------- --------
Diluted income per share before extraordinary
item....................................... $ $
======= ========
</TABLE>

27
<PAGE> 30

SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)

The following table presents as of the dates and for the periods indicated
(i) selected historical financial information of LifeStyle and (ii) pro forma
financial information of LifeStyle, after giving effect to the Simmons Spin-off,
the Reorganization, the Offerings and the application of the net proceeds
therefrom. The historical financial information for each of the three years in
the period ended December 31, 1995 and the period January 1, 1996 to August 5,
1996 has been derived from the audited combined financial statements of the
Predecessor. The historical financial information for the period August 6, 1996
to December 31, 1996 and the year ended December 31, 1997 has been derived from
the audited consolidated financial statements of LifeStyle. Such combined
financial statements for the three years in the period ended December 31, 1995
and the period January 1, 1996 to August 5, 1996, as well as the consolidated
financial statements for the period August 6, 1996 to December 31, 1996 and the
year ended December 31, 1997 have been audited by PricewaterhouseCoopers LLP.
The historical information for the six month periods ended June 30, 1997 and
1998 has been derived from the unaudited consolidated financial statements of
LifeStyle included herein. In the opinion of management, the information for the
six month periods ended June 30, 1997 and 1998 includes all material adjustments
(consisting only of adjustments of a normal and recurring nature) necessary for
a fair presentation of the results for such periods. The results of operations
for any interim period are not necessarily indicative of the results of
operations for a full year. The pro forma information does not purport to
represent what LifeStyle's results actually would have been if the Simmons
Spin-off, the Reorganization and the Offerings had occurred at the dates
indicated, nor does such information purport to project the results of LifeStyle
for any future period. The selected historical and unaudited pro forma financial
data should be read in conjunction with "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR(1) LIFESTYLE
------------------------------------------ ------------------------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED SIX MONTHS
DECEMBER 31, FROM FROM DECEMBER 31, ENDED JUNE 30,
------------------------------ 1/1/96 TO 8/6/96 TO ------------ ---------------------
1993 1994 1995 8/5/96 12/31/96 1997 1997 1998
-------- -------- -------- --------- --------- ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $1,763.5 $1,897.5 $1,992.6 $1,147.9 $ 849.5 $1,968.8 $ 970.8 $ 980.5
Cost of sales.................... 1,326.8 1,434.0 1,501.0 870.7 629.4 1,458.2 715.6 737.6
Restructuring charge(2).......... -- -- -- -- -- 14.5 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit................... 436.7 463.5 491.6 277.2 220.1 496.1 255.2 242.9
Selling, general and
administrative expenses(3)..... 368.5 386.8 397.8 222.2 147.4 350.9 174.8 181.6
Restructuring charge(2).......... -- -- -- -- -- 44.0 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit............... 68.2 76.7 93.8 55.0 72.7 101.2 80.4 61.3
Interest expense................. 82.7 87.1 94.8 52.7 34.2 78.8 40.2 36.5
Other, net(4).................... 3.2 7.3 8.2 3.5 7.8 19.4 9.5 8.0
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item......................... (17.7) (17.7) (9.2) (1.2) 30.7 3.0 30.7 16.8
Income taxes..................... 8.0 6.1 7.0 6.8 16.2 13.8 17.8 6.9
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........... (25.7) (23.8) (16.2) (8.0) 14.5 (10.8) 12.9 9.9
Extraordinary item(5)............ -- -- -- -- -- (11.6) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)................ (25.7) (23.8) (16.2) (8.0) 14.5 (22.4) 12.9 9.9
Preferred dividends.............. -- -- -- -- (6.6) (17.2) (8.2) (7.8)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) available to
common stockholders............ $ (25.7) $ (23.8) $ (16.2) $ (8.0) $ 7.9 $ (39.6) $ 4.7 $ 2.1
======== ======== ======== ======== ======== ======== ======== ========
Basic income (loss) per common
share before extraordinary
item, excluding Class D common
shares......................... $ 20.47 $ (52.86) $ 16.22 $ 7.84
Weighted average shares
outstanding, excluding Class D
common shares.................. 457,777 465,372 457,443 477,038
Diluted income (loss) per common
share before extraordinary
item, excluding Class D common
shares(6)...................... $ 10.75 $ (52.86) $ 8.43 $ 4.11
Weighted average shares
outstanding, assuming dilution,
excluding Class D common
shares(6)...................... 871,916 465,372 880,370 910,445
Basic and diluted loss per Class
D common share(6).............. $ 153.62 $(360.73) $(289.35) $(178.81)
Weighted average Class D shares
outstanding(6)................. 9,439 9,370 9,435 9,116
</TABLE>

28
<PAGE> 31

<TABLE>
<CAPTION>
PREDECESSOR(1) LIFESTYLE
--------------------------------------- ----------------------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED SIX MONTHS
DECEMBER 31, FROM FROM DECEMBER 31, ENDED JUNE 30,
-------------------------- 1/1/96 TO 8/6/96 TO ------------ -----------------
1993 1994 1995 8/5/96 12/31/96 1997 1997 1998
------ ------ ------ --------- --------- ------------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA
(UNAUDITED)(7):
Interest expense...................... $ 34.7 $ 12.6
Other, net............................ 13.8 5.3
Net income............................ 22.7 27.7
Basic income per common share.........
Weighted average shares outstanding...
Diluted income per common share(6)....
Weighted average shares outstanding,
assuming dilution(6)................
OTHER FINANCIAL DATA:
EBITDA, as defined(8)................. $132.6 $139.5 $160.1 $91.8 $ 87.7 $178.1 $98.8 $ 80.1
EBITDA margin......................... 7.5% 7.4% 8.0% 8.0% 10.3% 9.0% 10.2% 8.2%
Adjusted EBITDA, as defined(9)........ $132.6 $139.5 $160.1 $91.8 $ 87.7 $198.5 $98.8 $100.6
Adjusted EBITDA margin................ 7.5% 7.4% 8.0% 8.0% 10.3% 10.1% 10.2% 10.3%
Adjusted operating profit(9).......... $ 68.2 $ 76.7 $ 93.8 $55.0 $ 72.7 $159.7 $80.4 $ 81.8
Adjusted operating profit margin...... 3.9% 4.0% 4.7% 4.8% 8.6% 8.1% 8.3% 8.3%
Depreciation and amortization(10)..... $ 66.8 $ 66.4 $ 67.9 $39.3 $ 15.5 $ 38.4 $20.9 $ 19.9
Capital expenditures.................. 75.1 68.8 61.0 16.5 14.1 33.0 17.2 17.2
Fabric sample book expenditures....... 14.2 14.1 15.0 9.2 3.3 14.3 6.8 6.1
Cash provided by (used for) operating
activities.......................... (28.7) 13.4 49.3 48.8 119.6 139.7 44.8 93.1
Cash used for investing activities.... (92.1) (67.2) (72.5) (25.6) (708.9) (50.6) (16.5) (19.4)
Cash provided by (used for) financing
activities.......................... 129.9 53.1 15.8 (21.9) 611.7 (107.9) (26.2) (65.9)
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR(1) LIFESTYLE
------------------------------ ------------------------------------------------------------------
PRO FORMA
AS ADJUSTED
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF JUNE 30, AS OF JUNE 30,
------------------------------ ------------------------ --------------------- ---------------
1993 1994 1995 1996 1997 1997 1998 1998(7)
-------- -------- -------- --------- ------------ -------- -------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(11)........ $ 724.0 $ 723.4 $ 732.1 $ 467.8 $ 450.0 $ 480.2 $ 408.0 $ 434.4
Total assets............... 1,853.5 1,907.5 1,903.9 1,185.5 1,138.8 1,210.2 1,114.5 1,099.6
Total debt................. 61.9 15.2 27.7 742.2 688.7 740.6 666.2 336.8
Total liabilities.......... 295.9 274.4 282.9 1,042.9 1,029.8 1,056.9 1,016.8 661.0
Mandatorily redeemable
preferred stock.......... -- -- -- 126.6 142.8 134.8 126.3 8.2
Masco net investment and
advances................. 1,557.6 1,633.1 1,621.0 -- -- -- -- --
Stockholders' equity....... -- -- -- 16.0 (33.8) 18.5 (28.6) 430.4
</TABLE>

- ---------------
1. Furnishings International Inc. acquired the Masco Home Furnishings Group,
the Predecessor, as of August 5, 1996.

4. Other, net includes receivables securitization costs of $4.4 million, $9.8
million, $5.0 million and $4.5 million and amortization of deferred
financing costs of $1.7 million, $3.9 million, $2.4 million and $1.1 million
for the period August 6, 1996 to December 31, 1996, the year ended December
31, 1997, the six months ended June 30, 1997, and the six months ended June
30, 1998, respectively. Other, net also includes the losses of Simmons, a
separately managed, operated and financed business which was spun off from
LifeStyle on June 30, 1998. See Note 15 to the Financial Statements.

5. An extraordinary loss of $19.4 million ($11.6 million net of tax) was
recorded in connection with the August 1997 replacement of LifeStyle's
former revolving credit facility, Tranche A term loan and Tranche B term
loan with LifeStyle's current $400.0 million senior secured revolving credit
facility. The loss consisted of the write-off of unamortized deferred
financing costs related to the early extinguishment of debt.

6. The Series B and Series C Convertible Preferred Stock and unvested
management stock are considered common stock equivalents for purposes of
computing diluted income per common share. The Class D common stock was
designed to specifically track the performance of Simmons. On June 30, 1998,
the common stock of Simmons was distributed, on a pro-rata basis, to the
holders of the Class D common stock.

(footnotes continued on following page)
29
<PAGE> 32

7. The Pro Forma Statement of Operations and Pro Forma As Adjusted Balance
Sheet data include adjustments giving effect to the Simmons Spin-off, the
Reorganization including the for 1 stock split, the Offerings and the
application of the net proceeds therefrom as if each such transaction had
occurred on January 1, 1997, in the case of the pro forma statement of
operations data, and June 30, 1998, in the case of the pro forma balance
sheet data. For additional information related to the pro forma adjustments
and underlying assumptions, see the notes to the Unaudited Pro Forma
Financial Information.

<TABLE>
<CAPTION>
LIFESTYLE
PREDECESSOR ------------------------------------------
------------------------------------ SIX MONTHS
PERIOD PERIOD YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, FROM FROM DECEMBER 31, JUNE 30,
------------------------ 1/1/96 TO 8/6/96 TO ------------ --------------
1993 1994 1995 8/5/96 12/31/96 1997 1997 1998
------ ------ ------ --------- --------- ------------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)...................... $(25.7) $(23.8) $(16.2) $(8.0) $14.5 $(22.4) $12.9 $ 9.9
Interest expense....................... 82.7 87.1 94.8 52.7 34.2 78.8 40.2 36.5
Income taxes........................... 8.0 6.1 7.0 6.8 16.2 13.8 17.8 6.9
Depreciation and amortization.......... 66.8 66.4 67.9 39.3 15.5 38.4 20.9 19.9
Extraordinary item..................... -- -- -- -- -- 11.6 -- --
Receivables securitization costs....... -- -- -- -- 4.4 9.8 5.0 4.5
Losses of Simmons...................... -- -- -- -- 1.5 3.4 2.7 1.6
Other non-cash......................... 0.8 3.7 6.6 1.0 1.4 44.7(a) (0.7) 0.8
------ ------ ------ ----- ----- ------ ----- -----
EBITDA............................. $132.6 $139.5 $160.1 $91.8 $87.7 $178.1 $98.8 $80.1
====== ====== ====== ===== ===== ====== ===== =====
</TABLE>

9. Adjusted EBITDA for 1997 excludes the $20.4 million cash portion of the
restructuring charges and adjusted operating profit for 1997 excludes the
$58.5 million of restructuring charges. Adjusted EBITDA and adjusted
operating profit for the six months ended June 30, 1998 exclude $18.0
million of transition costs related to the restructuring and reengineering
initiatives and $2.5 million of costs related to the computer system
implementation at The Robert Allen Group. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." LifeStyle
utilizes adjusted EBITDA and adjusted operating profit when interpreting
operating trends and results of operations of its core business operations.
Accordingly, LifeStyle believes that these measures provide additional
information for understanding and evaluating our financial condition,
results of operations and cash flows. However, adjusted EBITDA and adjusted
operating profit do not represent, and should not be considered as
alternatives to, net income, cash flow from operations or operating profit
as determined by generally accepted accounting principles, and does not
necessarily indicate whether cash flow will be sufficient to meet cash
requirements. Not every company calculates adjusted EBITDA or adjusted
operating profit in exactly the same fashion. As a result, adjusted EBITDA
and adjusted operating profit as presented above may not necessarily be
comparable to similarly titled measures of other companies.

10. Depreciation and amortization includes depreciation of property and
equipment, amortization of fabric sample books and amortization of deferred
financing costs.

11. Working capital is defined as total current assets (excluding cash and cash
investments and deferred taxes) less total current liabilities (excluding
current maturities of long-term debt).

30
<PAGE> 33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Prospectus are forward-looking
statements and are thus prospective. LifeStyle's actual results could differ
materially from those anticipated by any such forward-looking statements as a
result of certain factors described herein, including matters discussed above
under "Risk Factors." No assurance can be given that the future results covered
by the forward looking statements will be achieved. The following discussion and
analysis of the consolidated financial condition and results of operations
should be read in conjunction with the Financial Statements.

GENERAL

LifeStyle is the largest manufacturer and marketer of home furnishings
(fine furniture, including decorative accessories, and decorative home
furnishing fabrics) in the U.S., with 1997 net sales of nearly $2.0 billion.
Fine furniture represented approximately 86% of LifeStyle's net sales in 1997
and decorative home furnishing fabrics represented approximately 14%.

On August 5, 1996, LifeStyle acquired the Predecessor from Masco for
approximately $1.1 billion. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
acquired assets and assumed liabilities based upon estimated fair values as of
the closing date of the acquisition. This allocation resulted in a reduction of
non-current assets, principally property and equipment. As a result of the
acquisition and new basis of accounting, LifeStyle's financial statements for
periods subsequent to the acquisition are not comparable to the Predecessor's
financial statements for periods prior to the acquisition. See Note 2 to the
Financial Statements.

At the time of LifeStyle's acquisition from Masco, LifeStyle embraced a
strategic vision designed to dramatically improve the satisfaction of its
customers and consumers with their home furnishings buying experience. LifeStyle
also recognized that there were significant opportunities to improve its
performance by rationalizing its substantial asset base and by making major
improvements in its business processes. LifeStyle redirected its previous
financial objective of maximizing sales growth to focus on enhancing cash flow,
reducing operating costs and increasing profitability. LifeStyle also added
senior managers with diverse manufacturing, marketing and other relevant
expertise, including a number from outside the furniture industry to complement
LifeStyle's industry-experienced management team.

LifeStyle adopted at the time of the acquisition an initial $28.3 million
restructuring plan. This plan, which was substantially implemented in 1997,
included the reduction of LifeStyle's manufacturing and distribution facilities
from 89 to 82, provisions for severance costs associated with the closure of
these facilities and the elimination of certain product lines that did not meet
performance targets. As permitted by Emerging Issues Task Force ("EITF") Issue
95-3 "Recognition of Liabilities in Connection with a Purchase Business
Combination," the total cost of the plan of approximately $28.3 million was
included as part of the purchase price allocation for LifeStyle's acquisition.
LifeStyle also introduced coordinated, company-wide purchasing practices,
improved its working capital management and reduced capital expenditure levels
in light of significant previous investments. Principally as a result of these
actions, since August 1996, LifeStyle has improved its EBITDA margin (adjusted
to exclude restructuring charges) from 8.0% in 1995 to 9.0% in 1996 and to 10.1%
in 1997. In addition, from August 1996 through December 31, 1997, LifeStyle
reduced working capital by $81.0 million to $450.0 million primarily through
improved management of its inventories and accounts payable. This reduction in
working capital, together with operating cash flow, enabled LifeStyle to reduce
long-term debt by $198.8 million (offset by the accretion of $49.1 million on
the PIK Debt). Moreover, in the first six months of 1998, LifeStyle reduced
working capital by an additional $42.0 million to $408.0 million and reduced
long-term debt by $42.5 million (offset by the accretion of $20.0 million on the
PIK Debt).

31
<PAGE> 34

manufacturing and distribution space will be eliminated by December 31, 1998, as
production is consolidated into existing, lower-cost Asian facilities and as
distribution facilities are rationalized. Implementation of this restructuring
effort began in the first quarter of 1998, and by June 30, 1998, facilities with
1.0 million square feet had been eliminated. As a result of the restructuring,
non-recurring costs will be incurred to sever lease obligations, provide for
employee severance, and provide for the impairment of inventory and fixed
assets. The restructuring initiatives include a reduction in workforce,
eliminating approximately 5,000 positions by the end of 1998. The positions to
be eliminated consist of production and supervisory personnel.

The activities that will be discontinued consist of furniture and component
parts manufacturing plants that supply other manufacturing operations. The
activities previously performed at these facilities are being shifted to other
facilities where existing production capacity can be more efficiently utilized.
As such, the operations being discontinued do not have separately identifiable
revenues or operating income.

As a result of the restructuring, inventory with a carrying value of $14.5
million has been written-off. Property and equipment, consisting primarily of
real property, machinery and equipment at facilities to be closed, have been
written down, resulting in an impairment loss of $17.6 million. The fair value
of these assets was determined based upon independent appraisals and analysis of
comparable sales in the affected regions.

This restructuring is expected to provide cost savings in future periods
through reduced employee compensation and other operating costs, although no
assurances can be given with regard to financial performance in any future
period. These savings will continue to be offset for the next several quarters
by production inefficiencies and other costs related to the restructuring and
reengineering initiatives.

Operating profit for 1997 includes total non-recurring charges of $58.5
million, including the $14.5 million of inventory write-offs referred to above
which are included in gross profit, comprised of the following components:

<TABLE>
<CAPTION>
CASH NON-CASH TOTAL
----- -------- -----
(IN MILLIONS)
<S> <C> <C> <C>
Asset write-downs................................. -- $38.1 $38.1
Contractual obligations........................... $ 9.8 -- 9.8
Employee severance................................ 8.8 -- 8.8
Other............................................. 1.8 -- 1.8
----- ----- -----
Total................................... $20.4 $38.1 $58.5
===== ===== =====
</TABLE>

Finally, in pursuit of LifeStyle's strategic vision and its goal of
becoming its customers' and consumers' "favorite" home furnishings company,
LifeStyle has undertaken a comprehensive reexamination of its methods of
production, marketing, distribution and customer fulfillment with the objective
of fundamentally improving the way orders are processed and goods are
manufactured and delivered to customers. The key focus of these reengineering
initiatives involves converting the furniture industry's historic "cuttings" or
batch processing methodology into the more efficient assemble-to-order (or
"Pull") methodology. Overall, these reengineering initiatives are designed to
cut order-to-ship cycles dramatically -- with a goal of shipping all furniture
in two weeks or less -- as well as to reduce inventory, eliminate waste (add
value) and improve product quality. LifeStyle has also implemented enhanced
coordination across business units, including purchasing, manufacturing and
marketing.

In the first six months of 1998, LifeStyle significantly ramped-up the
reengineering conversion of its manufacturing processes, which necessarily
caused some disruption at certain plants and resulted in additional costs.
Despite order growth of approximately 7.3% in the first six months of 1998,
LifeStyle's net sales increased by only 1.0% and its EBITDA margin declined from
10.2% to 8.2% as compared with the first six months of 1997, principally as a
result of the reengineering initiatives described above.

32
<PAGE> 35

Across all of LifeStyle's furniture companies, more than 20% of its
products are currently shipped in two to three weeks, and the majority of all
order-to-ship times are expected to attain these levels over the next 24 months.
More than 30% of LifeStyle's plants are now implementing short-cycle management
methodologies, and these "best practices" will be implemented enterprise-wide.
LifeStyle believes that, once implemented, these reengineering initiatives will
reduce manufacturing costs, significantly increase customer satisfaction and
result in higher market share, sales and margins.

During the implementation period, this reengineering of LifeStyle's
manufacturing processes necessarily results in both reduced production and
additional costs in its plants. The total of these transition costs related to
restructuring and reengineering conversion initiatives is anticipated to be
approximately $36 million, of which $18.0 million was incurred in the first six
months of 1998.

RESULTS OF OPERATIONS

The following table has been prepared to set forth certain results of
operations and other data as a percentage of net sales:

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
-------------------- --------------------------------------
SIX MONTHS
YEAR PERIOD FROM PERIOD FROM YEAR ENDED JUNE 30,
ENDED 1/1/96 TO 8/6/96 TO ENDED ---------------
1995 8/5/96 12/31/96 1997 1997 1998
------ ----------- ----------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit margin................. 24.7% 24.1% 25.9% 25.2% 26.3% 24.8%
Selling, general and administrative
expenses.......................... 20.0% 19.4% 17.4% 17.8% 18.0% 18.5%
Operating profit margin............. 4.7% 4.8% 8.6% 5.1% 8.3% 6.3%
Interest expense.................... 4.8% 4.6% 4.0% 4.0% 4.1% 3.7%
Net income (loss)................... (0.8)% (0.7)% 1.7% (1.1)% 1.3% 1.0%
OTHER FINANCIAL DATA:
Adjusted operating profit (1)....... 4.7% 4.8% 8.6% 8.1% 8.3% 8.3%
Adjusted EBITDA (1)................. 8.0% 8.0% 10.3% 10.1% 10.2% 10.3%
</TABLE>

- ---------------
(1) Adjusted operating profit and adjusted EBITDA for 1997 exclude restructuring
charges. Adjusted operating profit and adjusted EBITDA for the six months
ended June 30, 1998 exclude the transition costs related to the
restructuring and reengineering initiatives and costs related to the
computer system implementation at The Robert Allen Group. LifeStyle utilizes
adjusted EBITDA and adjusted operating profit when interpreting operating
trends and results of operations of its core business operations.
Accordingly, LifeStyle believes that these measures provide additional
information for understanding and evaluating our financial condition,
results of operations and cash flows. However, adjusted EBITDA and adjusted
operating profit do not represent, and should not be considered as
alternatives to, net income, cash flow from operations or operating profit
as determined by generally accepted accounting principles, and do not
necessarily indicate whether cash flow will be sufficient to meet cash
requirements. Not every company calculates adjusted EBITDA or adjusted
operating profit in exactly the same fashion. As a result, adjusted EBITDA
and adjusted operating profit as presented above may not necessarily be
comparable to similarly titled measures of other companies.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED JUNE
30, 1997

Net sales were $980.5 million for the six months ended June 30, 1998, an
increase of $9.7 million, or 1.0%, from $970.8 million for the comparable period
of 1997. Net sales of fine furniture increased 1.7% to $849.9 million for the
six months ended June 30, 1998 from $835.6 million for the comparable period of
1997.

33
<PAGE> 36

Fine furniture orders for the first six months of 1998 increased 8.8% over the
comparable period of 1997, reflecting strong demand. However, LifeStyle's net
sales of fine furniture were handicapped by a ramp-up in the implementation of
its reengineering efforts. Net sales of decorative home furnishing fabrics
decreased 3.4% to $130.6 million for the six months ended June 30, 1998 from
$135.2 million for the comparable period of 1997. Decorative home furnishing
fabric sales were lost due to shipping delays incurred during the implementation
of a new computer system at The Robert Allen Group. Now that this computer
system has been successfully implemented, 24 hour order-to-ship schedules are
being achieved.

Gross profit was $242.9 million for the six months ended June 30, 1998, a
decrease of $12.3 million, or 4.8%, from $255.2 million for the comparable
period of 1997. Gross profit margins decreased to 24.8% for the six months ended
June 30, 1998 from 26.3% for the comparable period of 1997. This decline in
gross profit margin was primarily attributable to transition costs related to
LifeStyle's restructuring and reengineering initiatives associated with
implementation of "Pull" manufacturing processes. This decline was also due to
temporary production inefficiencies, increased overhead expenses associated with
the successful introduction of an unusually large number of new products,
inventory reduction programs and the costs related to the computer system
implementation at The Robert Allen Group. LifeStyle is reengineering its
manufacturing processes in order to reduce order-to-ship cycles, improve product
quality and value, reduce inventories and broadly improve LifeStyle's
responsiveness to customers and consumers. Gross profit is expected to be
unfavorably impacted, although at a reduced rate, through the next several
quarters as additional costs continue as a result of these restructuring and
reengineering initiatives.

Selling, general and administrative expenses were $181.6 million for the
six months ended June 30, 1998, an increase of $6.8 million, or 3.9%, from
$174.8 million for the comparable period of 1997. As a percentage of net sales,
selling, general and administrative expenses increased to 18.5% for the six
months ended June 30, 1998 from 18.0% for the comparable period of 1997. Selling
expense was 11.4% of net sales as compared to 11.2% for 1997, and general and
administrative expenses were 7.1% of net sales compared to 6.8% in 1997. The
increase in selling expenses reflects increased spending on sales catalogs and
other promotional materials. General and administrative expenses increased due
to higher consulting fees and other administrative costs.

Operating profit decreased to $61.3 million for the six months ended June
30, 1998, a decrease of $19.1 million, or 23.8%, from $80.4 million for the
comparable period of 1997. As a percentage of net sales, operating profit margin
decreased to 6.3% for the six months ended June 30, 1998 from 8.3% for the
comparable period of 1997. The decline in operating profit is directly
attributable to the ramp-up of the restructuring and reengineering initiatives,
which necessarily caused some disruption at certain plants and resulted in
additional costs. In addition, LifeStyle incurred costs related to the computer
system implementation at The Robert Allen Group. Operating profit is expected to
be unfavorably impacted, although at a reduced rate, through the next several
quarters as additional costs continue as a result of these restructuring and
reengineering initiatives.

Exclusive of transition costs related to LifeStyle's restructuring and
reengineering initiatives and costs related to the computer system
implementation at The Robert Allen Group, adjusted or "core" operating profit
was $81.8 million, an increase of $1.4 million, or 1.7%, as compared to the six
months ended June 30, 1997.

Interest expense was $36.5 million for the six months ended June 30, 1998,
a decrease of $3.7 million, or 9.2%, from the comparable period of 1997. This
decrease was a result of lower average debt outstanding during the six months
ended June 30, 1998 and reduced interest rates obtained when LifeStyle
refinanced its revolving credit facility in August 1997.

COMPARISON OF THE RESULTS OF OPERATIONS OF LIFESTYLE AND THE PREDECESSOR

As a result of LifeStyle's acquisition from Masco and resulting new basis
of accounting, the results of operations of LifeStyle are not directly
comparable to those of the Predecessor. However, LifeStyle believes it is
beneficial to analyze the results of operations for periods with a consistent
number of months because the business continued to be operated by substantially
the same management team as the Predecessor and the principal effects were the
reduction in the carrying value of assets and the corresponding reduction in
post-
34
<PAGE> 37

acquisition depreciation. For purposes of the discussion regarding net sales,
gross profit and selling, general and administrative expenses that follow, we
have combined the results of LifeStyle with those of the Predecessor to present
a 12 month period ended December 31, 1996.

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

Net sales were $1,968.8 million for the year ended December 31, 1997, a
decrease of $28.6 million, or 1.4%, from $1,997.4 million for the year ended
December 31, 1996. Net sales of fine furniture decreased 1.3% to $1,702.6
million for the year ended December 31, 1997 from $1,725.3 million for the year
ended December 31, 1996. Fine furniture sales were negatively impacted by
LifeStyle's strategy of exiting less profitable products and by relatively soft
major retailer sales, including reduced shipments to two large customers which
filed for protection under Chapter 11 of the United States Bankruptcy Code. Net
sales of decorative home furnishing fabrics decreased 2.2% to $266.2 million for
the year ended December 31, 1997 from $272.1 million for the year ended December
31, 1996, as the continuing growth of leather as a replacement for fabric in
upholstered furniture negatively impacted fabric sales. LifeStyle believes that
reduced shipments to the two large customers that filed for protection under
Chapter 11 and the elimination of less profitable products will, in the short
term, have a negative impact on sales volume. However, LifeStyle believes it
will eventually replace the lost sales volume with product sales to other retail
customers. In addition, new fabric product introductions are expected to
increase fabric sales and recover some of the lost volume that has migrated to
leather.

Gross profit was $496.1 million for the year ended December 31, 1997, a
decrease of $1.2 million, or 0.2%, from $497.3 million for the year ended
December 31, 1996. Excluding the non-recurring restructuring charge of $14.5
million, gross profit increased by $13.3 million or 2.7% to $510.6 million.
Gross profit margin, excluding this restructuring charge, increased to 25.9% in
1997 from 24.9% in 1996. This increase in gross profit margin was primarily
attributable to LifeStyle's continuous improvement initiatives and the benefit
of lower depreciation expense, partially offset by the impact of lower sales
volume.

Selling, general and administrative expenses were $350.9 million for the
year ended December 31, 1997, a decrease of $18.7 million, or 5.1%, from $369.6
million for the year ended December 31, 1996. The decrease in general and
administrative expenses reflects the benefits of LifeStyle's cost reduction
initiatives, elimination of goodwill amortization, and the net decrease in
general and administrative expenses that LifeStyle has incurred on a stand-alone
basis compared to the management fees previously charged by Masco. These
reductions were partially offset by higher bad debt expenses resulting from the
bankruptcy filings previously mentioned. As a percentage of net sales, selling,
general and administrative expenses improved to 17.8% for the year ended
December 31, 1997 from 18.5% for the year ended December 31, 1996. Selling
expense was 11.0% of net sales as compared to 11.2% for 1996, and general and
administrative expenses decreased to 6.8% of net sales from 7.3% in 1996.

Operating profit margin was 5.1% for the year ended December 31, 1997,
compared with 8.6% for the period from August 6 through December 31, 1996. The
decrease occurred for the reasons described in the two preceding paragraphs.

Interest expense was $78.8 million for the year ended December 31, 1997, a
decrease of $8.1 million, or 9.3%, from the year ended December 31, 1996. This
decrease was a result of lower average debt outstanding during the year and
reduced interest rates obtained when LifeStyle refinanced its revolving credit
facility in August 1997.

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995

Net sales were $1,997.4 million for the year ended December 31, 1996, an
increase of $4.8 million, or 0.2%, from $1,992.6 million for the year ended
December 31, 1995. Net sales of fine furniture increased 0.2% to $1,725.3
million for the year ended December 31, 1996 from $1,721.2 million for the year
ended December 31, 1995. Net sales of fine furniture grew primarily due to new
product introductions and modest increased industry demand, offset by the
elimination of less profitable product lines. Net sales of decorative home
furnishing fabrics increased 0.3% to $272.1 million for the year ended December
31, 1996 from $271.4
35
<PAGE> 38

million for the year ended December 31, 1995, primarily due to strength in the
woven segment of the market and improved business conditions, largely offset by
lower demand for printed fabrics and reduced demand as leather increased its
market share.

Gross profit was $497.3 million for the year ended December 31, 1996, an
increase of $5.7 million, or 1.2%, from $491.6 million for the year ended
December 31, 1995. Gross profit was enhanced from August 6, 1996 to December 31,
1996 by reduced depreciation expense, but this improvement was offset by
increased expenditures which were primarily the result of temporary plant
closings due to bad weather and start-up costs related to substantial new
product introductions. Overall, gross profit margins increased from 24.7% in
1995 to 24.9% in 1996.

Selling, general and administrative expenses were $369.6 million for the
year ended December 31, 1996, a decrease of $28.2 million, or 7.1%, from $397.8
million for the year ended December 31, 1995. As a percentage of net sales,
selling, general and administrative expenses improved to 18.5% for the year
ended December 31, 1996 from 20.0% for the year ended December 31, 1995. Selling
expense was 11.2% of net sales as compared to 11.8% for 1995, and general and
administrative expenses decreased to 7.3% of net sales from 8.2% in 1995. The
decrease in general and administrative expenses reflects the benefits of
LifeStyle's cost reduction initiatives implemented in late 1995, combined with
the net decrease in general and administrative expenses incurred since August 6,
1996 as a stand alone company when compared to the management fees previously
charged to the Predecessor by Masco.

Operating profit margin increased to 4.8% for the period from January 1
through August 5, 1996, compared with 4.7% for the year ended December 31, 1995.
This improvement was achieved primarily for the reasons discussed in the two
preceding paragraphs.

Interest expense was $86.9 million for the year ended December 31, 1996, a
decrease of $7.9 million, or 8.3%, from the year ended December 31, 1995. This
decrease was a result of lower average debt outstanding during the period from
August 6 through December 31, 1996. Proceeds from debt issued in connection with
the acquisition were used to repay, in part, the funds previously advanced by
Masco. The decrease in interest expense as a result of the lower average debt
outstanding was partially offset by higher average borrowing rates from August 6
through December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

LifeStyle's liquidity needs arise primarily from debt service, working
capital needs and the funding of capital expenditures. LifeStyle's principal
source of cash to fund its liquidity needs is its net cash from operating
activities and availability of borrowings under its current $400.0 million
Credit Facility.

LifeStyle had outstanding, as of June 30, 1998, $354.1 million of 12% PIK
Debt plus accrued interest of $1.8 million. LifeStyle will use the net proceeds
from the Offerings to retire the PIK Debt.

LifeStyle currently has outstanding $200.0 million principal amount of
Subordinated Notes. In connection with the Offerings, LifeStyle has commenced a
cash tender offer to acquire all the Subordinated Notes and, as of August 25,
1998, had received tenders from 100% of the holders of the Subordinated Notes.
The acquisition of the Subordinated Notes pursuant to the Tender Offer is
expected to occur at substantially the same time as the consummation of the
Offerings. LifeStyle will incur indebtedness under the Credit Facility to
finance the Tender Offer. As part of the Tender Offer, LifeStyle also solicited
and received consents from the holders of a majority in aggregate principal
amount of the Subordinated Notes to remove substantially all of the covenants
from the indenture governing the Subordinated Notes. In connection with the
repurchase of the Subordinated Notes, LifeStyle expects to incur an
extraordinary charge of $29.2 million after tax.

At June 30, 1998, LifeStyle's consolidated indebtedness was $666.2 million
and, after giving effect to the Reorganization and the Offerings, would have
been $336.8 million. In addition to the Credit Facility, LifeStyle maintains a
receivables facility pursuant to which a syndicate of banks and other financial
institutions purchases senior interests in the assets of a master trust. The
assets of the master trust consist of substantially all domestic trade
receivables generated by LifeStyle. As of June 30, 1998, $150.0 million of
senior interests in the master trust had been sold to the participants in the
facility.
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<PAGE> 39

During the six months ended June 30, 1998, net cash from operating
activities totaled $93.1 million, net cash used for investing activities totaled
$19.4 million, and net cash used for financing activities totaled $65.9 million.
For the year ended December 31, 1997, net cash from operating activities totaled
$139.7 million, net cash used for investing activities totaled $50.6 million,
and net cash used for financing activities totaled $107.9 million. A $23.3
million cash dividend to holders of mandatorily redeemable Series A-1 and A-2
Preferred Stock was paid during January 1998.

Capital expenditures totaled $17.2 million for the six months ended June
30, 1998, the same as for the comparable period of 1997. LifeStyle made capital
expenditures of $33.0 million for the year ended December 31, 1997. LifeStyle
believes that no significant increase in capital expenditure levels will be
required during the next several years. Fabric sample book expenditures totaled
$6.1 million for the six months ended June 30, 1998, a decrease of $0.7 million
over the comparable period of 1997. In addition, LifeStyle made fabric sample
book expenditures of $14.3 million for the year ended December 31, 1997.

LifeStyle made net principal payments on its long-term debt of $42.5
million during the six months ended June 30, 1998 and $90.1 million during the
year ended December 31, 1997. Total long-term debt decreased to $666.2 million
as of June 30, 1998 as compared to $688.7 million at December 31, 1997. As of
August 25, 1998, total long-term debt increased to $677.2 million, and the
amount available under the Credit Facility was $260.9 million (net of face
amount of existing letters of credit of $18.1 million). As of June 30, 1998,
after giving effect to the Reorganization and the Offerings, the amount
available under the Credit Facility would have been $47.2 million. As of August
25, 1998, such available borrowings would have been $36.2 million.

LifeStyle believes that cash generated from operations, together with the
amounts available under the Credit Facility, will be adequate to fund its debt
service requirements, working capital needs and capital expenditures for the
foreseeable future, although no assurance can be given in this regard.

On August 15, 1997, LifeStyle replaced the former revolving credit
facility, Tranche A term loan and Tranche B term loan with its current Credit
Facility. The Credit Facility provides LifeStyle with increased financial
flexibility by eliminating quarterly principal payment requirements, reducing
financing costs and reducing the number of restrictive covenants. In connection
with the repayment of the former revolving credit and term loan facilities,
LifeStyle recorded an extraordinary non-cash charge of $19.4 million ($11.6
million net of tax), consisting of the write-off of unamortized deferred
financing costs.

Following the consummation of the Tender Offer and the Offerings, there
will be no restrictions under LifeStyle's financing arrangements on the ability
of LifeStyle's subsidiaries to distribute funds to LifeStyle in the form of cash
dividends, loans or advances.

YEAR 2000 ISSUES

Each of LifeStyle's subsidiaries is in the process of evaluating its
computerized systems on an internal basis, and is making corrective plans where
required. Such evaluations are designed to cover all financial and operational
systems, and LifeStyle has begun to make the necessary changes. LifeStyle has
hired a Year 2000 Project Director who is charged with Year 2000 planning and
remediation and has established a committee comprised of senior managers to
review LifeStyle's Year 2000 implementation strategy and to oversee its Year
2000 compliance measures. LifeStyle has also contracted with a computer systems
consulting firm to conduct a review of all of its computer systems and to issue
a report on the necessary compliance measures. In order to determine the effect
on LifeStyle if a supplier or customer failed to resolve its own Year 2000
issues, LifeStyle is communicating with its suppliers and customers about the
compliance of their own systems. LifeStyle cannot be sure that the failure of a
customer or supplier to be Year 2000 compliant will not have a material adverse
effect on LifeStyle's own business. LifeStyle intends to complete the final
assessment and develop-

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<PAGE> 40

ment of the corrective action plans during 1998, and our conversion efforts,
which began in 1997, are expected to continue during 1998 and 1999. LifeStyle
currently anticipates that the development and implementation of Year 2000
compliance measures will cost approximately $5 million, all of which will be
expensed. In addition, during 1997, LifeStyle began implementing a company-wide,
Oracle-based software platform that is designed to be Year 2000 compliant.

INTERNATIONAL OPERATIONS

LifeStyle conducts operations in a number of foreign countries including
Canada, China, Hong Kong, Indonesia, Malaysia, the Philippines, Taiwan, Thailand
and several European countries.

LifeStyle's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. The financial position and results of operations
of LifeStyle's foreign subsidiaries are remeasured using the U.S. dollar or
translated using the local currency as the functional currency depending on the
nature of the operations. During 1997, LifeStyle recorded a $7.0 million loss on
remeasurement and a $10.2 million translation adjustment to stockholders' equity
because of the devaluation of certain Asian currencies against the U.S. dollar.
LifeStyle does not currently engage in foreign currency hedging. Through the
first half of 1998, the devaluation of Asian currencies has continued, albeit at
a much more moderate pace than in 1997. Through June 30, 1998, LifeStyle
recorded a $0.9 million loss on remeasurement and a $1.9 million translation
adjustment to stockholders' equity. LifeStyle's revenue is generated primarily
in the United States and, accordingly, is not significantly impacted by the
Asian devaluation. We do not expect this devaluation to have a significant
effect on future results of operations or liquidity.

Financial information concerning LifeStyle's export sales and foreign
operations, including the net sales, operating profit and assets that are
attributable to LifeStyle's operations in the United States and in foreign
countries, are set forth in Note 16 to the Financial Statements.

INFLATION

LifeStyle does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
Financial Statements.

SEASONALITY

LifeStyle does not believe that its results of operations fluctuate
materially due to seasonality.

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ("SFAS")

SFAS No. 129, "Disclosure of Information about Capital Structure," will
become effective in 1998 and will not have a material effect on the information
currently reported by LifeStyle. LifeStyle will adopt the provisions of SFAS No.
129 effective December 31, 1998.

SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," will become effective in 1998. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. This Statement requires that LifeStyle report financial and
descriptive information about its reportable operating segments on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments. Comparative disclosures which include prior
period information will be restated to conform with the provisions of SFAS No.
131. LifeStyle will adopt the provisions of SFAS No. 131 effective December 31,
1998.

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<PAGE> 41

SFAS No. 132 "Employers' Disclosure about Pensions and Other Postretirement
Benefits," will become effective in 1998. This Statement standardizes the
disclosure requirements for pensions and postretirement benefits and will
require changes in disclosures of benefit obligations and fair values of plan
assets. Comparative disclosures which include prior period information will be
restated to conform with the provisions of SFAS No. 132. LifeStyle will adopt
the provisions of SFAS No. 132 effective December 31, 1998.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will become effective for fiscal years beginning after June 15,
1999. This Statement standardizes the disclosure requirements for derivative
instruments and requires that all derivatives be recognized as assets or
liabilities and measured at fair value. LifeStyle does not believe its adoption
will have a material impact on its financial statements.

OTHER INFORMATION -- QUARTERLY DATA

The following table sets forth certain unaudited summary historical
information on a quarterly basis for LifeStyle.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- ------------- ------------ --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $491.2 $479.6 $487.6 $510.4 $500.8 $479.7

Operating profit......... 40.2 40.2 36.8 (16.0) 31.0 30.3

Adjusted operating
profit(1).............. 40.2 40.2 36.8 42.5 42.5 39.3

EBITDA................... 49.8 49.0 44.1 35.2 40.3 39.8

Adjusted EBITDA(1)....... 49.8 49.0 44.1 55.6 51.8 48.8
</TABLE>

- ---------------
(1) For a description of the adjustments, see "Selected Historical and Unaudited
Pro Forma Financial Data."

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<PAGE> 42

BUSINESS

OVERVIEW

LifeStyle is the largest manufacturer and marketer of home furnishings
(fine furniture, including decorative accessories, and decorative home
furnishings fabrics) in the U.S., with 1997 net sales of nearly $2.0 billion.
Fine furniture represented approximately 86% of LifeStyle's net sales in 1997
and decorative home furnishing fabrics represented approximately 14%. LifeStyle
attributes its market leadership position to the following key factors:

- Fashionable and innovative product designs with an emphasis on style,
quality and value

- Comprehensive product offerings that provide retailers and consumers with
a broad range of price points and styles

- Multi-channel distribution to a customer base of over 50,000 accounts,
providing LifeStyle's products to consumers wherever they choose to shop

- Established brand names, such as HENREDON(R) and DREXEL HERITAGE(R), as
well as partnerships with leading fashion designers, brands and artists,
such as RALPH LAUREN, NAUTICA and BOB TIMBERLAKE

- Commitment to improving retailer and consumer satisfaction levels with
the home furnishings buying experience

- An experienced and innovative management team with significant equity
ownership and a commitment to continuous improvement

LifeStyle is restructuring its manufacturing base, reengineering its
manufacturing processes and incorporating technology into its product design and
business processes in order to achieve sustainable operating efficiencies,
dramatically shorten order-to-ship times and enhance LifeStyle's ability to
satisfy its customers and consumers. Once implemented, LifeStyle expects these
restructuring and reengineering initiatives to increase operating margins,
reduce working capital, increase market share and strengthen LifeStyle's
leadership position in the home furnishings industry.

INDUSTRY OVERVIEW

The U.S. residential furniture industry has grown at a compound annual rate
of 4.9% over the last 20 years to $21.2 billion in shipments in 1997 from $8.2
billion 1977, with shipments declining in only two years, according to the
American Furniture Manufacturers Association. LifeStyle expects favorable
industry trends over the next few years due to improving demographic,
macroeconomic and other factors, including:

- The segment of the U.S. population between the ages of 35 and 54 is
growing according to the U.S. Bureau of the Census (the "Census Bureau")
as the "baby boom" generation ages. This age group has historically had
the highest levels of discretionary income and consumer spending, and it
represents the largest number of consumers of residential furniture.

- Average new home size grew from approximately 1,645 square feet in 1975
to nearly 2,150 square feet in 1997, according to the Census Bureau. In
addition, the average number of bedrooms per new home has increased. Not
only do larger homes with more bedrooms require more home furnishings
because of their size, but the owners of such homes also tend to spend
dramatically more money per square foot on home furnishings.

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<PAGE> 43

The domestic residential furniture production industry consists of an
estimated 600 manufacturers. Although relatively fragmented, the industry is
beginning to consolidate, with the top 10 manufacturers accounting for
approximately 33% of industry sales in 1997, up from 23% in 1985, according to
Furniture Today, a leading industry publication. The retail domestic furniture
industry is also experiencing consolidation, with the top 10 furniture retailers
representing a 14% market share in 1996 versus 10% in 1985, according to
Furniture Today.

COMPETITIVE ADVANTAGES

The following characteristics distinguish LifeStyle from other companies in
the industry:

Leveraging LifeStyle's Leadership Position. By leveraging its shared
knowledge, assets and scale, LifeStyle gains several important competitive
advantages, including the ability to:

- Command a significant share of retail floor space

- Achieve economies of scale in purchasing and in technology infrastructure
development

- Source and manufacture globally

- Share operating and marketing "best practices"

- Cross-market and manufacture products among LifeStyle's various divisions

Design and Style Leadership and Product Innovation. LifeStyle believes
that it has established itself as the design and style leader for the industry
through new product offerings and creative marketing strategies. LifeStyle
pioneered the marketing of products in collections tailored to suit particular
"lifestyle" or design themes. LifeStyle's RALPH LAUREN HOME COLLECTION(TM), THE
WORLD OF BOB TIMBERLAKE(R), PALMER HOME COLLECTION(TM), ALEXANDER JULIAN HOME
COLOURS(R) and NAUTICA HOME collection are among the industry's best sellers.
LifeStyle believes that it has developed more "mega-collections" (selling three
to ten times more per year as compared with typical industry collections) than
any other company. Further, product innovation in BERKLINE(R) and BENCHCRAFT(R)
motion furniture (sofas that incline and recline) has enabled LifeStyle to
achieve a leadership position in this important and growing category.

Established, Well Known Brand Names. LifeStyle markets its products under
some of the most established and well known brand names in the home furnishings
business, including HENREDON(R), DREXEL HERITAGE(R), LEXINGTON(R), UNIVERSAL(R),
BERKLINE(R), BENCHCRAFT(R), MAITLAND-SMITH(TM) and LA BARGE(R) in fine furniture
and BEACON HILL(R), SUNBURY(TM) and ROBERT ALLEN(TM) in decorative home
furnishings fabrics. LifeStyle considers brand name recognition to be an
important competitive advantage, and believes that retailers and consumers
associate its brands with a high degree of quality, craftsmanship, style and
value.

Comprehensive Product Lines. LifeStyle believes that it is the most
comprehensive resource in the home furnishings industry, providing more product
alternatives than any of its competitors. LifeStyle offers products across all
price categories, with an emphasis on "good," "better" and "best," and in all
major consumer desired styles. These include American Traditional, Country,
Eighteenth Century, European Country, European Traditional, Transitional,
Casual, Mission, Arts and Crafts, Contemporary, Oriental, Home Office, Youth and
Outdoor. By offering such a broad product line, LifeStyle can supply up to 75%
of the product demands of many furniture retailers which, as the retail
furniture industry consolidates, increasingly prefer to buy from a smaller
number of large furniture manufacturers.

Extensive and Diverse Distribution Network. LifeStyle believes that it has
more active accounts than any other manufacturer in the home furnishings
industry. LifeStyle distributes its fine furniture products through an extensive
distribution network including:

- More than 22,000 independent retail locations, including national and
regional chains

- Department stores

- Specialty stores and more than 1,500 galleries (LifeStyle-dedicated floor
space) within retail stores

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- Over 80 independent stores selling LifeStyle products exclusively

- Hospitality, government, model home and other contract distribution
channels

- 14 of our own BEACON HILL(R) designer-exclusive showrooms

LifeStyle distributes its decorative home furnishing fabrics through numerous
channels, including its own showrooms, to an extensive customer base consisting
of over 30,000 retailers, decorators and designers worldwide. LifeStyle's broad
distribution network permits it to offer home furnishings products to consumers
wherever they choose to shop.

Global Manufacturing Capabilities. LifeStyle operates 79 strategically
located, well equipped facilities in North America, Asia and Europe, with over
23 million square feet of manufacturing and distribution space. During the past
five years, LifeStyle invested approximately $268 million in its facilities in
order to meet anticipated demand, reduce operating costs and maximize operating
flexibility. As the largest U.S. furniture manufacturer in Asia, LifeStyle also
has access to a highly skilled, low-cost workforce, expert in such areas as
intricate veneering and hand carving, and to scarce raw materials such as
Chinese oak, wicker, rattan and certain exotic woods. LifeStyle believes that
its global facilities enable it to serve its worldwide customer base efficiently
and to allocate capacity to best meet its manufacturing requirements. Because of
LifeStyle's recent modernization, and the productivity enhancements that
LifeStyle is currently implementing, LifeStyle expects to make only modest
capital expenditures over the next several years.

Experienced Management Team with a Significant Ownership Stake. LifeStyle
believes its management team -- which is committed to continuous
improvement -- is the best in the industry. This team has significantly reduced
debt, improved profitability and reduced working capital since taking
responsibility in 1996, and is currently reengineering LifeStyle's manufacturing
and business processes. Recent management additions have provided new skill sets
and diverse non-furniture expertise to complement LifeStyle's experienced home
furnishings professionals. Over 200 of LifeStyle's senior managers currently own
a total of approximately 21% of LifeStyle's Common Stock on a diluted basis
(assuming conversion of all convertible stock and vesting of all management
stock), or % after giving effect to the Offerings and the Reorganization.

PLATFORM FOR GROWTH

At the time of the acquisition from Masco in August 1996, LifeStyle's
management embraced a strategic vision designed to dramatically improve the
satisfaction of its customers and consumers with their home furnishings buying
experience. LifeStyle also recognized that there were significant opportunities
to improve its performance by rationalizing its substantial asset base and by
making major improvements in its business processes. LifeStyle redirected its
previous financial objective of maximizing sales growth to focus on enhancing
cash flow, reducing operating costs and increasing profitability. LifeStyle also
added senior managers with diverse manufacturing, marketing and other relevant
expertise, including a number from outside the furniture industry to complement
its industry-experienced management team.

LifeStyle adopted at the time of the acquisition an initial $28.3 million
restructuring plan. This plan, which was substantially implemented in 1997,
included the reduction of LifeStyle's manufacturing and distribution facilities
from 89 to 82, provisions for severance costs associated with the closure of
these facilities and the elimination of certain product lines that had not met
performance targets. LifeStyle also introduced coordinated, company-wide
purchasing practices, improved its working capital management and reduced
capital expenditure levels in light of significant previous investments.
Principally as a result of these actions, since August 1996, LifeStyle has
improved its EBITDA margin (adjusted to exclude restructuring charges) from 8.0%
in 1995 to 9.0% in 1996 and to 10.1% in 1997. In addition, from August 1996
through December 31, 1997, LifeStyle reduced working capital by approximately
$81.0 million to $450.0 million, primarily through improved management of its
inventories and accounts payable. This reduction in working capital, together
with operating cash flow, enabled LifeStyle to reduce long-term debt by $198.8
million (offset by the accretion of $49.1 million on the PIK Debt). Moreover, in
the first six months of 1998, we reduced working capital by

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<PAGE> 45

an additional $42.0 million to $408.0 million and reduced long-term debt by
$42.5 million (offset by the accretion of $20.0 million in the PIK Debt).

At the end of 1997, LifeStyle completed an in-depth evaluation of its
global manufacturing and distribution base, and recorded a $58.5 million charge
to rationalize and restructure its worldwide operations, focusing principally on
its Universal Furniture business unit. The majority of Universal Furniture's
restructuring activity is taking place in Asia, where facilities with 1.4
million square feet of manufacturing and distribution space will be eliminated
by December 31, 1998, as production is consolidated into existing, lower-cost
Asian facilities and as distribution facilities are rationalized. Implementation
of this restructuring effort began in the first quarter of 1998, and by June 30,
1998, facilities with 1.0 million square feet had been eliminated.

In the first six months of 1998, LifeStyle significantly ramped-up the
reengineering conversion of its manufacturing processes, which necessarily
caused some disruption at certain plants and resulted in additional costs.
Despite order growth of approximately 7.3% in the first half of 1998,
LifeStyle's net sales increased by only 1.0% and its EBITDA margin declined from
10.2% to 8.2% as compared with the first six months of 1997, principally as a
result of the reengineering initiatives described above.

Across all of LifeStyle's furniture companies, approximately 20% of the
products are currently shipped in two to three weeks, and the majority of all
order-to-ship times are expected to attain these levels over the next 24 months.
More than 30% of LifeStyle's plants are now implementing short-cycle management
methodologies, and these "best practices" will be implemented enterprise-wide.
LifeStyle believes that, once fully implemented, these reengineering initiatives
will reduce manufacturing costs, significantly increase customer satisfaction
and result in higher market share, sales and margins.

GROWTH STRATEGIES

Pursue Product Excellence with Consumer Desired Designs. LifeStyle intends
to continue developing fashion-forward products with a high degree of value and
quality that consumers can buy with confidence and display with pride. LifeStyle
is committed to heightening brand awareness and the perceived quality of its
brands through marketing and merchandising in both traditional and
non-traditional ways, from print and TV advertising and dealer co-op support to
informational web sites on the Internet. LifeStyle also expects to capitalize on
its proven record of building profitable sales through design partnerships and
co-branding. LifeStyle expects to expand its licensing arrangements, which have
included recognized designers and artists such as RALPH LAUREN, ALEXANDER
JULIAN, BOB TIMBERLAKE, LILLIAN AUGUST, LYNN HOLLYN, BETSY CAMERON and WARREN
KIMBLE, prestigious brands such as NAUTICA and ROYAL DOULTON, renowned
organizations and institutions such as WIMBLEDON, the SMITHSONIAN INSTITUTION,
and CARE and celebrities such as ARNOLD PALMER and JACK NICKLAUS.

Implement Enterprise-wide Short-Cycle Management Methodologies. Consumers
are too often disappointed in their furniture buying experience, and are
frustrated with the retailer and the manufacturer alike, largely as a result of
the six to eight week or longer delivery periods that are customary in the home
furnishing industry. In addition to LifeStyle's overall goal of being the most
efficient home furnishings manufacturer, LifeStyle has targeted an order-to-ship
cycle across its furniture companies of two weeks or less. One of the early
successes in LifeStyle's reengineering conversion efforts has been in the
production of BERKLINE(R) motion
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<PAGE> 46

furniture. Implementation of short-cycle management methodologies has resulted
in a 29% improvement in inventory turns, a 26% reduction in order-to-ship times
and an approximately 40% increase in customer commitments for BERKLINE COMFORT
GALLERIES(TM) since August 5, 1996, a period in which Berkline also achieved
above average sales growth for the motion furniture category. Similarly,
customers for Lexington's home entertainment centers and home office case goods
are benefitting from two-week order-to-ship cycles. At BenchCraft, more than 50%
of the upholstered furniture is being produced utilizing short-cycle management
methodologies, which management believes has accounted for a dramatic increase
in orders at BenchCraft during the first half of 1998.

Technology -- a Growth Enabler. LifeStyle is currently implementing an
enterprise-wide, Oracle-based software platform that will permit it to
coordinate and control a broad range of business processes such as procurement,
order entry, inventory management, manufacturing planning and electronic data
interchange (EDI) with its customers and vendors. LifeStyle plans to install
this software on a division-by-division basis over the next few years, and
expects that this will enable it to become "easy to do business with" from the
perspective of customers, consumers and suppliers and to become their "favorite"
home furnishings company. Further, LifeStyle is adopting computer-aided design
(CAD) software to enhance and streamline product development activities, from
design inspiration through manufacturing, thereby accelerating LifeStyle's time
from conception to market.

Expand Retailer and Supplier Alliances and Partnerships. LifeStyle has
been forming mutually beneficial partnership arrangements with selected
retailers for several years. LifeStyle anticipates that the increasing
concentration of the retailer distribution base and the growth of large regional
and national retailers will accelerate this growth opportunity, as major
retailers seek to concentrate their supplier base, achieve linkages designed to
simplify the purchasing process, reduce inventory and increase their
profitability. LifeStyle is uniquely positioned to benefit from this trend, as
its comprehensive product lines, styles and price points distinguish it as the
industry's best "one-stop-shopping" resource. LifeStyle is also actively
pursuing partnership arrangements with its suppliers, such as fabric vendors, in
order to reduce long lead times and ultimately improve customer satisfaction
levels.

Expand into New Markets and Distribution Channels. LifeStyle believes that
significant growth opportunities exist outside of its traditional U.S. retailer
distribution base, including contract sales to hospitality markets, such as
hotels, motels and destination entertainment resorts, as well as government
sales. LifeStyle has recently (i) received hospitality orders for several large
Las Vegas hotels, as well as for certain assisted senior-living facilities, (ii)
signed a five-year, worldwide contract with the U.S. Department of State,
expected to generate orders for over $75 million in fine furniture, and (iii)
contracted with a number of the nation's top home builders to furnish model
homes. Additionally, through its 14 BEACON HILL(R) designer-exclusive showrooms,
LifeStyle is well positioned to serve the premium home furnishings market
segment, a segment where Beacon Hill has been growing more than twice as fast as
the overall home furnishings market.

Make Selected Complementary Acquisitions. The home furnishings industry
continues to be highly fragmented, and industry observers expect it to
consolidate significantly at both the manufacturer and retailer levels. With its
considerable acquisition expertise, financial flexibility and experienced
management team, LifeStyle expects to capitalize on this trend and to complement
its internal growth by pursuing a disciplined acquisition program. LifeStyle
intends to focus on companies that have product categories and participate in
market segments which are complementary to its own, that have a proven
management team and that provide an enhancement of LifeStyle's core
capabilities.

PRODUCTS

LifeStyle believes it offers the most comprehensive product line in the
home furnishings industry, including bedroom, dining room, living room, family
room and home-office case goods; stationary upholstered products such as sofas,
love seats, sectionals and chairs; upholstered recliners, motion furniture and
sleep sofas; occasional furniture such as home entertainment centers, lamps,
chairs, tables, mirrors and other accent items; outdoor furniture; and
decorative home furnishing fabrics.

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FINE FURNITURE

The product category "Fine Furniture" includes wood and upholstered
residential furniture (other than "ready-to-assemble" products), as well as
occasional tables, decorative mirrors, lighting and other related furnishings.
LifeStyle designs, manufactures and markets a full range of quality wood and
upholstered furniture to furnish any room of a home in virtually any style,
under such well-known brand names as HENREDON(R), DREXEL HERITAGE(R),
LEXINGTON(R), UNIVERSAL(R), BERKLINE(R) and BENCHCRAFT(R), and a wide range of
specialty furniture and accessories under the MAITLAND-SMITH(TM) and LA BARGE(R)
brand names. LifeStyle offers these products across all major price categories,
from "promotional" to "premium," and in every major style category, including
American Traditional, Country, Eighteenth Century, European Country, European
Traditional, Transitional, Casual, Mission, Arts and Crafts, Contemporary,
Oriental, Home Office, Youth and Outdoor.

The following table illustrates the product and price category coverage of
LifeStyle's fine furniture brands. The residential furniture industry generally
classifies its products by several price categories ranging from "promotional"
to "premium." Products in successively higher price categories are made using
more expensive raw materials, have higher quality finishes, and often involve
higher labor costs.

<TABLE>
<CAPTION>
PRICE CATEGORY PRODUCT CATEGORY
- --------------------- ------------------------------------------------------------------------------
CASE GOODS STATIONARY UPHOLSTERY MOTION/RECLINER OCCASIONAL
--------------- --------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Premium Henredon(R) Beacon Hill(R) * Henredon(R)
Maitland-Smith(TM) Henredon(R) La Barge(R)
Maitland-Smith(TM)
Best Drexel-Heritage(R) Beacon Hill(R) Drexel Drexel
Henredon(R) Drexel Heritage(R) Heritage(R) Heritage(R)
Maitland-Smith(TM) Henredon(R) Henredon(R)
La Barge(R)
Maitland-Smith(TM)
Better Drexel BenchCraft(R) BenchCraft(R) Drexel
Heritage(R) Drexel Heritage(R) Berkline(R) Heritage(R)
Lexington(R) Lexington(R) Drexel Lexington(R)
Universal(R) Universal(R) Heritage(R)
Good Lexington(R) BenchCraft(R) BenchCraft(R) Universal(R)
Universal(R) Universal(R) Berkline(R)
Promotional Universal(R) BenchCraft(R) BenchCraft(R) Universal(R)
Berkline(R)
</TABLE>

- ---------------
* Product category does not exist.

Henredon(R)

Henredon designs and manufactures wood, upholstered and occasional
furniture for the bedroom, dining room, living room, family room and home
office. Its products are in the "best" and "premium" price categories.
Henredon's product line is designed to appeal largely to the "replacement"
market, where customers typically trade up in price as they seek top quality
materials and craftsmanship. Product design and development represent an
important element of Henredon's success, and its name is considered to be one of
the premier brands in the industry. Henredon currently markets 18 collections
(including the RALPH LAUREN FURNITURE COLLECTION(TM) and HENREDON REGISTRY(TM)),
each aimed at a specific segment of the upper end market. In order to stay
current with developing lifestyles, Henredon introduces approximately four new
collections each year. Current product offerings cover all major categories,
including Anglo Traditional, European Traditional, Contemporary, Transitional
and Casual. Since 1993, Henredon has manufactured and marketed a line of
products for the RALPH LAUREN HOME COLLECTION(TM) under an exclusive licensing
arrangement with The Ralph Lauren Home Collection, Inc. This comprehensive
collection provides an excellent complement to the

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<PAGE> 48

regular Henredon line. Recent successful new introductions include ALFRESCO
(Euro traditional), CARLYLE(TM) (Anglo traditional) and the launch of the
HENREDON LEATHER COMPANY.

Drexel Heritage(R)

Drexel Heritage designs and manufactures wood, upholstered, motion and
occasional furniture for the bedroom, dining room, living room, family room and
home office in the "better" and "best" price categories. DREXEL HERITAGE(R)
products are primarily marketed and distributed through dedicated, independently
owned DREXEL HOME INSPIRATIONS(R) stores and Drexel Heritage Galleries. Drexel
Heritage currently produces 26 collections of wood and upholstered furniture.
Approximately four to six new collections are offered each year. Drexel
Heritage's product styles include American Traditional, Country, Eighteenth
Century, European Traditional, Mission, Contemporary and Transitional. Drexel
Heritage licenses two branded collections -- the PINEHURST COLLECTION(TM) (case
goods and upholstery) and LILLIAN AUGUST(R) (upholstery) -- and has an exclusive
endorsement agreement with Golden Bear Golf, Inc. to furnish all country club
and resort developments associated with Nicklaus Design. Drexel Heritage also
produces furniture for sale to the hospitality and government markets. Recent
successful new introductions include the comprehensive PINEHURST COLLECTION(TM)
(sophisticated yet casual -- a lifestyle collection) and SOLUTIONS
CONTEMPORARY(TM) and SOLUTIONS CASUAL(TM) (contemporary, casual, functional,
youth-oriented with a point of view).

Lexington(R)

Lexington designs and manufactures wood, upholstered, occasional, wicker
and metal furniture for the bedroom, dining room, living room, family room, home
entertainment, home office, youth and casual dining market segments. Lexington's
product line provides a comprehensive diversified assortment of furniture in the
"good" and "better" price categories. LifeStyle believes that Lexington's
marketing and design teams, which consistently win industry awards, represent an
integral part of Lexington's success. With the introduction of LYNN HOLLYN AT
HOME(TM) in 1989, Lexington pioneered "lifestyle" and designer
collections -- full-line collections of eclectic (rather than matching) designs
that draw inspiration from a recognized brand name or lifestyle theme. Current
lifestyle collections include THE WORLD OF BOB TIMBERLAKE(R), THE PALMER HOME
COLLECTION(TM), WEEKEND RETREAT(TM) and SEASIDE RETREAT(TM), VESTIGES(TM),
ATLANTIC OVERTURES(TM), AMERICAN MIX(TM), NAUTICA HOME collection, WARREN
KIMBLE'S AMERICA(TM), and Bob Timberlake's newest success story, AN ARTS AND
CRAFTS COLLECTION(TM) FROM BOB TIMBERLAKE(TM). Style categories include American
and European Traditional, Eighteenth Century, Transitional and both
Sophisticated and Relaxed Country and Casual. Lexington's line of approximately
50 collections includes lifestyle collections, youth collections and several
home entertainment and home office programs. Recent successful new introductions
include NAUTICA HOME (contemporary, Caribbean-inspired, featuring mixed
materials), BETSY CAMERON'S STORYBOOK (female youth), and SEASIDE RETREAT
(casual, coastal-inspired).

Universal(R)

Universal's products include dining room, bedroom, upholstered and
occasional furniture in the "promotional," "good" and "better" price categories.
A substantial portion of Universal products are manufactured in Asia, where
LifeStyle is the only U.S.-based manufacturer with significant manufacturing
operations. Universal also has access to a highly skilled, low-cost work force,
expert in such areas as intricate veneering and hand carving, and to scarce raw
materials such as Chinese oak, wicker, rattan and certain exotic woods.
Universal currently sells approximately 60 collections of furniture, including
styles such as Eighteenth Century, Traditional, Transitional, Oriental and
Country, and introduces approximately four to six new collections a year.
Universal's ALEXANDER JULIAN HOME COLOURS(R) and AMERICAN GENERATIONS(R)
collections are among the industry's best selling "mega collections." Recent
successful new introductions include HABITAT(TM) (functional, decorative kitchen
and bedroom products), DECORUM(TM) (Regency-influenced traditional) and AMERICAN
HEIRLOOMS(TM) (innovative transitional dining room and bedroom).

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<PAGE> 49

Berkline(R)

A specialist in "motion" products, Berkline designs and manufactures a wide
range of reclining chairs, reclining sofas and loveseats, reclining sectionals
and modular seating and sleep sofas, primarily in the "good" and "better" price
categories. Berkline is an industry leader and the BERKLINE(R) brand name is
well known in the growing market for upholstered modular and motion furniture
and freestanding recliners. Berkline offers a wide range of styles, fabrics and
leathers for these products, as well as popular innovative features such as
massage mechanisms, hidden cup holders and built-in tables. Successful new
product introductions include ROOM SOLUTIONS(TM) (motion upholstery and
correlated occasional tables); sleeker, smaller scale recliners; and innovative
"shiatsu" and "whisper quiet" massage recliners.

BenchCraft(R)

BenchCraft designs and manufactures a comprehensive line of upholstered
furniture, including leather, stationary, motion, wicker and rattan products.
BenchCraft competes in the "promotional," "good" and "better" price categories,
and its products are marketed as fashionable, affordable furniture for "casual
living." Successful new product introductions include new leather styles and
contemporary lifestyle sofas as well as more fashionable new motion sofas and
table correlates.

Maitland-Smith(TM)

Maitland-Smith is the leading designer and manufacturer of an innovative
line of "best" and "premium" hand-crafted, antique-inspired furniture,
accessories and lighting, utilizing a wide range of unique materials, including
distinctive leather, fancy faced veneer, stone and hand-painted metal.
Maitland-Smith also manufactures signature pieces and intricately carved chairs
for other LifeStyle divisions at its factories in the Philippines and Indonesia.
Successful new introductions include more than 500 product additions across
Maitland-Smith's eclectic lines, including the LONDON EXPLORER CLUB(TM)
collection featuring British expatriate design inspiration.

La Barge(R)

La Barge designs and sells decorative mirrors, occasional tables, bedroom
and dining room statement pieces, decorative lighting and related accessories in
the "best" and "premium" price categories under four brand names: LA BARGE(R),
MARBRO(TM), ENTREE(TM) and MAGELLAN(TM). La Barge designs its products, and
contracts their manufacture with highly skilled artisans around the world who
produce high quality, specialty decorative products.

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<PAGE> 50

DECORATIVE HOME FURNISHING FABRICS

LifeStyle designs, manufactures, sources, markets and sells a comprehensive
range of decorative fabrics to a broad array of customers under the well-known
industry brands of BEACON HILL(R), RAMM, SON & CROCKER(TM), SUNBURY(TM), ROBERT
ALLEN(TM) and AMETEX(TM). The fabrics group consists of The Robert Allen Group,
Sunbury, and LifeStyle Fabrics Europe, each creating exclusive fabric designs
for targeted segments of the market. The following table illustrates the price
category coverage of LifeStyle's decorative home furnishing fabric brands:

<TABLE>
<CAPTION>
PRICE CATEGORY BRAND
- -------------- -----
<S> <C>
Premium Beacon Hill(R)
Ramm, Son & Crocker(TM)
Best Beacon Hill(R)
Ramm, Son & Crocker(TM)
Robert Allen(TM)
Sunbury(TM)
Better Ametex(TM)
Robert Allen(TM)
Sunbury(TM)
Good Ametex(TM)
</TABLE>

The Robert Allen Group

The Robert Allen Group is the largest designer and marketer of home
furnishing fabrics to the North American design community. The Robert Allen
Group designs, markets and sells a wide range of textiles under the BEACON
HILL(R), ROBERT ALLEN(TM) and AMETEX(TM) brands.

BEACON HILL(R) is a classic, stylish line of luxurious fabrics, using the
finest quality materials and advanced manufacturing techniques. Fabrics are
organized in collections by color or fabric type. Many of the BEACON HILL(R)
fabrics are sourced overseas, offering distinctive looks to the U. S. market.
The BEACON HILL(R) collections are sold exclusively through high-end interior
designers, architects and LifeStyle's own BEACON HILL(R) showrooms. Combined
marketing programs for BEACON HILL(R) fabrics and furniture have made the brand
a powerful name in the high-end design community.

The ROBERT ALLEN(R) line includes an extensive collection of home
furnishings fabrics cut to order on a just-in-time basis for designers,
decorators and speciality retailers. Robert Allen markets its over 24,000
fabrics to more than 30,000 customers in four key collections: COLOR
LIBRARY(TM), ESSENTIALS(TM), EDITIONS and PASSEMENTERIE(TM). COLOR LIBRARY(TM)
is a color coordinated collection of upholstery and multi-purpose fabrics that
create a total look for the home, updated each spring and fall with the latest
colors and constructions. ESSENTIALS(TM) delivers fabric basics such as sheers,
velvets and stripes in fashionable and affordable collections. EDITIONS(TM)
arranges print and woven fabrics into lifestyle collections. PASSEMENTERIE(TM)
is an extensive collection of decorative trim products used to accessorize
upholstery and drapery.

The AMETEX(TM) product line includes a broad array of printed and woven
fabrics in the "good" and "better" price points. These designs are developed in
Ametex's in-house design studio, and manufactured by a global network of
contractors. Ametex sells its products to furniture manufacturers, window and
bedding product manufacturers, fabric retailers and ancillary industries. Ametex
employs a computer-aided design system to customize fabrics to customer needs.
Over the past year, Ametex has repositioned its product line to focus on
lifestyle collections in the "better" price points.

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<PAGE> 51

Sunbury(TM)

Sunbury designs, manufactures and markets a comprehensive line of
proprietary decorative upholstery fabrics in the "better" and "best" price
categories. It is recognized as a leader in quality, service and design. Sunbury
sells fabrics principally to furniture manufacturers and fabrics distributors.
Sunbury's jacquard weaving operation employs advanced computer-aided design and
manufacturing equipment. All of Sunbury's products are woven to customer order,
which allows it to maintain smaller inventories and reduce obsolescence costs.
In addition, Sunbury's ability to create exclusive designs for sale in small
quantities sets it apart from the competition.

LifeStyle Fabrics Europe

LifeStyle Fabrics Europe, based in the United Kingdom, is the European
distribution network for the BEACON HILL(R), ROBERT ALLEN(TM) and AMETEX(TM)
brands. In addition, it utilizes its own design studio and extensive fabric
archive to create upper-end products under the RAMM, SON & CROCKER(TM) name
tailored to the European marketplace.

DISTRIBUTION

LifeStyle distributes its fine furniture products through an extensive
worldwide distribution network that includes (i) more than 22,000 independent
retail locations, including national and regional chains; (ii) department
stores; (iii) specialty stores and more than 1,500 galleries
(LifeStyle-dedicated floor space) within retail stores; (iv) more than 80
independent stores selling LifeStyle products exclusively; (v) hospitality,
government, model home and other contract distribution channels; and (vi) 14
LifeStyle-operated BEACON HILL(R) designer-exclusive showrooms. Worldwide,
LifeStyle sells its fine furniture products primarily through approximately 580
commissioned independent representatives. LifeStyle has recently begun offering
product information through non-traditional channels such as the Internet. In
addition, LifeStyle is participating in the non-traditional direct mail channel
with Sharper Image Home Collection(TM), Neiman-Marcus(R) and Horchow(R).

LifeStyle distributes over 25,000 different decorative home furnishing
fabrics through numerous distribution channels, including its BEACON HILL(R)
showrooms, to an extensive customer base consisting of over 30,000 retailers,
decorators and designers worldwide. LifeStyle also sells decorative home
furnishing fabrics to furniture manufacturers.

LifeStyle's extensive distribution network permits it to offer home
furnishings products to consumers wherever they choose to shop.

LifeStyle has also been actively pursuing mutually beneficial partnership
arrangements with selected retailers for several years. LifeStyle expects that
these arrangements will permit it to capitalize on the ongoing concentration of
the retailer distribution base and the growth of large regional and national
furniture retailers.

In 1997, LifeStyle's 20 largest customers represented approximately 20% of
net sales, with no single customer representing more than 3.5%. LifeStyle
believes it has more active accounts than any other manufacturer in the home
furnishings industry.

FINE FURNITURE

LifeStyle believes that it is the most comprehensive and complete resource
in the residential furniture industry, capable of supplying up to 75% of the
product demands of many furniture retailers, whether local, regional or national
in scope. This, in turn, enables LifeStyle to secure additional display space
from retailers, who increasingly are relying on a smaller number of larger
suppliers. LifeStyle offers substantial services to retailers to support their
marketing efforts, including national advertising, merchandising and display
programs. LifeStyle also displays its fine furniture products at the semi-annual
International Home Furnishings Market in High Point, North Carolina.

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<PAGE> 52

The following table illustrates the distribution of LifeStyle's fine
furniture products by brand:

<TABLE>
<CAPTION>
DISTRIBUTION CHANNEL
- ---------------------------------------------------------------------------------------
INDEPENDENT RETAILERS GALLERIES DEDICATED STORES DESIGNER SHOWROOMS
- --------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
BenchCraft(R) Berkline(R) Drexel Heritage(R) Beacon Hill(R)
Berkline(R) Drexel Heritage(R) Drexel Heritage(R)
Drexel Heritage(R) Henredon(R) Henredon(R)
Henredon(R) La Barge(R) La Barge(R)
La Barge(R) Lexington(R) Lexington(R)
Lexington(R) Maitland-Smith(TM) Maitland-Smith(TM)
Maitland-Smith(TM)
Universal(R)
</TABLE>

Furniture retailers remain the most significant distribution channel in the
industry, and LifeStyle is committed to maintaining these important
relationships. LifeStyle's diverse product offerings and national distribution
enable it to effectively service national retailers such as Federated Department
Stores, Heilig-Meyers, J.C. Penney, Rhodes and Sears Homelife, and large
regional retailers such as Baers Furniture, Breuners, Homestead House, Kittles
Furniture and Art Van, as well as independent single store retailers nationwide.
As the furniture retailing industry consolidates, large retailers are an
increasing presence, and management believes that LifeStyle is better positioned
than its competitors to meet their needs.

LifeStyle has developed gallery programs for its HENREDON(R), DREXEL
HERITAGE(R), LEXINGTON(R), BERKLINE(R), MAITLAND-SMITH(TM) and LA BARGE(R)
product lines, and has approximately 1,500 galleries in total. Galleries are
dedicated space within a larger retail store that display products in complete
and fully accessorized room settings instead of as individual pieces. This
presentation format encourages consumers to purchase an entire room of furniture
instead of individual pieces from different manufacturers. LifeStyle believes
that stores with galleries result in higher sales per square foot than furniture
stores without galleries.

LifeStyle also sells its products through more than 80 independently owned
and operated stores that offer LifeStyle's products exclusively. DREXEL
HERITAGE(R) products are sold through DREXEL HERITAGE(R) showcase stores and
DREXEL HERITAGE HOME INSPIRATIONS(TM) stores. Each store employs a consistent,
but not identical, lifestyle concept, with products displayed in complete rooms
and eclectic settings, which include furnishings, wall decor, window treatments
and accessories. Henredon's RALPH LAUREN HOME COLLECTION(TM) products are sold
through specialty retail stores owned or licensed by the Polo Ralph Lauren
Corporation.

BEACON HILL(R) showrooms comprise a national network of 14 showrooms,
principally in design centers in major U.S. cities, dedicated to marketing and
selling furniture, accessories and fabric exclusively to interior designers and
architects, primarily in the "best" and "premium" price categories. BEACON HILL
is one of only two national networks of designer-exclusive furniture showrooms,
and has approximately 225,000 square feet of space dedicated to furniture and
accessories, and 80,000 square feet dedicated to fabrics. Approximately 45% of
furniture sales at the showrooms consist of LifeStyle products, principally
HENREDON(R), MAITLAND-SMITH(TM), LA BARGE(R) and DREXEL HERITAGE(R). The balance
is from other well respected companies in the upper-end of the market, including
Kindel, John Widdicomb and Guy Chaddock. In 1998, Beacon Hill added furniture
from the RALPH LAUREN HOME COLLECTION(TM).

Decorative Home Furnishing Fabrics

LifeStyle distributes its ROBERT ALLEN(TM) products through numerous
distribution channels, including its own showroom and more than 70 commissioned
independent representatives, to over 30,000 retailers, decorators and designers
worldwide. LifeStyle sells its AMETEX(TM) products through over 10 commissioned
independent representatives, primarily to furniture manufacturers, bedding and
drapery manufacturers and contract purchasing agents. SUNBURY(TM) products are
sold to furniture manufacturers and distributors of decorative home furnishing
fabrics in the U.S. and Canada by eight commissioned sales representatives.
LifeStyle's decorative home furnishing fabrics are also sold to decorators and
designers through LifeStyle's BEACON HILL(R) Showrooms, which offer ROBERT
ALLEN(TM) and RAMM, SON & CROCKER(TM) fabrics on a commission
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<PAGE> 53

basis. Fabrics Europe, based in the United Kingdom, is the European distribution
network for the BEACON HILL(R), ROBERT ALLEN(TM) and AMETEX(TM) brands.

MARKETING AND ADVERTISING

In partnership with its selected retailers, LifeStyle works to strengthen
its brand equity with consumers and increase their purchases of LifeStyle
products. These consumers are carefully profiled through marketing research and
are then targeted through advertising programs on the national and local levels,
comprehensive cataloging, education through focused marketing events and
selected promotional programs. Retailers are also carefully selected to market
LifeStyle's products to a wide range of consumers. These retailers, in turn, are
supported with innovative training for their sales people, design assistance for
their retail displays of LifeStyle products, noted speakers and planning support
for their focused marketing events, visually stimulating point of purchase
materials, catalogs and sales materials, direct communications linkage to the
manufacturers for timely stock and status information and promotional support.

Architects, designers and decorators who specify and sell LifeStyle
products receive exclusive sales support through BEACON HILL(R) showrooms. Value
added services such as continuing education and special events with shelter
publications draw new designers into the showrooms and build designer loyalty.

LifeStyle builds brand equity and increases awareness among consumers and
designers through television advertising, advertising in newspapers and leading
shelter magazines, as well as editorial coverage. Targeting specific consumer
demographics, advertisements are placed in publications that include
Architectural Digest, Country Home, Country Living, Elle Decor, House Beautiful,
House & Garden, Martha Stewart Living, Metropolitan Home, Traditional Home,
Southern Accents and Victoria. The combined volume of advertising from all
product lines gives LifeStyle leverage in purchasing advertising. Innovative
products continue to draw the attention of editors for major shelter magazines.
Their valuable editorial coverage favorably positions products with consumers
and designers at no cost to LifeStyle.

Responding to consumers' desire for home furnishings information, LifeStyle
has created interactive sites on the Internet which allow users to browse its
product lines, learn more about LifeStyle and be directed to local retailers.
Purchasing and design professionals in the hospitality, government, model home
and other contract markets receive specialized services through LifeStyle's
Contract division. From initial presentation through project completion,
LifeStyle's Contract division supports these customers with a global sales and
marketing network, extensive cataloging, customized products and specialized
delivery services.

MANUFACTURING

LifeStyle operates 79 strategically located, well equipped facilities in
North America, Asia, and Europe, with over 23 million square feet of
manufacturing and distribution space. During the past five years, LifeStyle
invested approximately $268 million in LifeStyle's facilities in order to meet
anticipated demand, reduce operating costs and maximize operating flexibility.
As the largest U.S. furniture manufacturer in Asia, LifeStyle also has access to
a highly skilled, low-cost workforce, expert in such areas as intricate
veneering and hand carving, and to scarce raw materials such as Chinese oak,
wicker, rattan and certain exotic woods. LifeStyle believes that its global
facilities enable it to serve its worldwide customer base efficiently and to
allocate capacity to best meet its manufacturing requirements. Because of
LifeStyle's recent modernization, and the productivity enhancements that
LifeStyle is currently implementing, LifeStyle expects to make only modest
capital expenditures over the next several years.

LifeStyle is implementing "short-cycle" management methodologies and is
committed to a continuous improvement work ethic enterprise-wide. Implementation
of short-cycle management methodologies requires a reexamination,
rationalization and reengineering of LifeStyle's operations and business
systems, with a focus on eliminating non-value-added activities. Across all of
LifeStyle's furniture companies, approximately 20% of the products are currently
shipped in two to three weeks, and the majority of all order-to-ship times are
expected to attain these levels over the next 24 months. More than 30% of
LifeStyle's plants are now implementing short-cycle management methodologies,
and these "best practices" will be implemented enterprise-wide. When
implemented, these methodologies are expected to dramatically reduce
manufacturing
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<PAGE> 54

and administrative throughput times, resulting in efficient order-to-ship
cycles, quality enhancements and a better value for LifeStyle's customers.
LifeStyle's continuous improvement initiatives are multi-faceted, and include:

- Process mapping and re-layout

- Quick change tooling and setups

- Converting from "push," or batch manufacturing, to more efficient "pull,"
or assemble-to-order processing

- Implementation of "cellular" manufacturing, "just-in-time" logistics and
other modern production methods

- Company-wide product design and development software

- Enterprise-wide, Oracle-based software platform

LifeStyle utilizes certain specialized facilities dedicated to
manufacturing a limited number of products, as well as carefully selected
sub-contract manufacturing facilities. LifeStyle also promotes inter-company
sourcing of products and components. These steps help LifeStyle balance its
global manufacturing capacity and increase its operating efficiency.

LifeStyle's fine furniture lines are produced and distributed in domestic
manufacturing and distribution facilities located in North Carolina, Tennessee,
Mississippi, Massachusetts, South Carolina, Michigan and California, and
internationally in facilities located in Canada, China, Hong Kong, Indonesia,
Malaysia, the Philippines, Taiwan, Thailand and several European countries.
Substantially all of LifeStyle's ROBERT ALLEN(TM) and RAMM, SON & CROCKER(TM)
decorative home furnishing fabrics are manufactured for LifeStyle by third
parties.

At the end of 1997, LifeStyle completed an in-depth evaluation of its
global manufacturing and distribution base, and recorded a $58.5 million charge
to rationalize and restructure its worldwide operations, focusing principally on
LifeStyle's Universal Furniture business unit. The majority of Universal
Furniture's restructuring activity is taking place in Asia, where facilities
with approximately 1.4 million square feet of manufacturing and distribution
space will be eliminated by December 31, 1998, as production is consolidated
into existing, lower-cost Asian facilities and as distribution facilities are
rationalized. Implementation of this restructuring effort began in the first
quarter of 1998, and by June 30, 1998, facilities with approximately 1.0 million
square feet had been eliminated. As a result of the restructuring, significant
non-recurring costs will be incurred to sever lease obligations, provide for
employee severance, and provide for the impairment of inventory and fixed
assets.

RAW MATERIALS AND SUPPLIERS

LifeStyle sources globally, and the principal raw materials used by
LifeStyle in the manufacture of its products include lumber, finishing products
(stains, sealants and lacquers), glue, steel, leather, cotton, wool, synthetic
and vinyl fabrics, polyester batting and polyurethane foam. The various types of
wood used in LifeStyle's products are purchased both domestically and
internationally. Management believes that its supply sources of those materials
are adequate. LifeStyle has ongoing relationships with numerous suppliers of raw
materials, and believes that there are a number of reliable vendors available,
contributing to its ability to obtain competitive pricing for raw materials.
LifeStyle is also actively pursuing partnership arrangements with suppliers in
order to reduce long lead times and ultimately to improve customer satisfaction
levels.

COMPETITION

The furniture and home furnishing fabrics industries are highly
competitive, and include a large number of domestic and foreign manufacturers.
These industries are highly fragmented, and no one company is dominant.
Competition is generally based on product quality, brand name recognition,
price, timeliness of delivery and service. LifeStyle's furniture products
compete with products made by a number of furniture

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<PAGE> 55

manufacturers, including Furniture Brands International, Inc., La-Z-Boy
Incorporated, Klaussner Furniture Industries Inc., Ethan Allen, Ashley, LADD
Furniture, Inc. and Bassett Furniture Industries, Inc., as well as numerous
smaller producers. In decorative home furnishing fabrics, competition is based
upon design, price, style, timeliness of delivery and quality, and competitors
include Schumacher/Waverly, P/Kaufmann, Richloom and Mastercraft.

EMPLOYEES

As of June 30, 1998, LifeStyle employed over 30,000 persons. Virtually all
are non-union, although approximately 30%, most of whom are employed in Asia,
are subject to certain government-mandated terms of employment. LifeStyle
believes it has good relations with its employees.

INTELLECTUAL PROPERTY

LifeStyle considers its intellectual property rights to be among its most
valuable assets. These rights include trademarks, trade names, copyrights,
patents and rights licensed from third parties. LifeStyle believes that these
intellectual property rights are important to LifeStyle because they are well
recognized and associated with quality and value in the home furnishings
industry. LifeStyle aggressively protects its intellectual property rights.

ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATIONS

LifeStyle is subject to a wide and frequently changing range of federal,
state, local and foreign environmental and worker health and safety laws and
regulations, including those relating to the storage, handling, generation,
treatment, emission, release, discharge and disposal of certain substances and
wastes and the clean up of contamination in soil or groundwater. Breaches of
such laws or regulations can result in the imposition of fines and penalties
(any of which may be material) or the cessation of operations of the affected
facility. Based on currently available information, LifeStyle does not
anticipate making any material capital expenditures for environmental control
facilities in the reasonably foreseeable future.

LifeStyle may also be subject to liability, due to its current or past
ownership or operation of real property or disposal of hazardous waste, for the
cost of cleaning up or removing contamination caused by hazardous or toxic
materials. Such liability may be imposed without regard to fault or the legality
of the original actions, and may be joint and several with other parties.

As a result of historical operations, spills and releases of hazardous
substances may have occurred at or near several of LifeStyle's sites and
facilities. These sites and facilities may in the future undergo investigation,
including soil and groundwater sampling, to determine if there are any hazardous
substances in the soil or groundwater which LifeStyle could be required to
investigate and remediate. Based on currently available information, LifeStyle
does not believe that the costs associated with investigating or remediating
these releases will have a material adverse effect on LifeStyle's financial
condition, operating expenses or earnings. There can be no assurance, however,
that material costs relating to these matters will not be incurred in the
future.

LifeStyle has been named as a potentially responsible party at a number of
non-owned contaminated sites, including Superfund sites. LifeStyle presently
believes that any potential liability relating to these sites will not have a
material adverse effect on LifeStyle's earnings, capital expenditures or
competitive position. However, there can be no assurance that material
liabilities or costs relating to such matters will not be incurred in the
future.

LEGAL MATTERS

LifeStyle is involved in various routine legal proceedings incident to the
ordinary course of its business. LifeStyle believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on the consolidated financial condition or results of operations of
LifeStyle.

BACKLOG

The combined backlog of LifeStyle as of June 30, 1998 aggregated
approximately $344 million, compared to approximately $285 million as of June
30, 1997.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information as of June 30, 1998
concerning the directors and executive officers of LifeStyle:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Wayne B. Lyon........................ 65 Chairman of the Board, President and Chief Executive
Officer
Donald L. Barefoot................... 43 Executive Vice President -- Operations
Douglas C. Barnard................... 39 Vice President, General Counsel and Secretary
Alan D. Cole......................... 48 Executive Vice President
Ronald J. Hoffman.................... 54 Vice President, Treasurer and Chief Financial Officer
Richard M. Cashin, Jr. .............. 44 Director
David L. Johnston.................... 57 Director
Robert C. Larson..................... 63 Director
John A. Morgan....................... 67 Director
David F. Thomas...................... 48 Director
Martin D. Walker..................... 66 Director
</TABLE>

Mr. Lyon has been Chairman of the Board, President and Chief Executive
Officer of LifeStyle since 1996. He has been a director of Masco for more than
the past five years, and was Masco's President and Chief Operating Officer until
retiring in 1996. Mr. Lyon is also a director of Comerica Incorporated and Emco
Limited.

Mr. Barefoot has been Executive Vice President -- Operations of LifeStyle
since 1997. He was President and Chief Executive Officer of ASC Incorporated
from 1994 to 1997. Previously, Mr. Barefoot was President of the Wiegand
Industrial Division of Emerson Electric Company from 1991 to 1994.

Mr. Barnard has been Vice President, General Counsel and Secretary of
LifeStyle since 1996. He was an Associate Corporate Counsel of Masco from 1992
to 1996. Previously, Mr. Barnard was a partner at the law firm of Kirkland &
Ellis in Chicago.

Mr. Cole has been Executive Vice President of LifeStyle since 1997. He was
Group Vice President of LifeStyle's Berkline and BenchCraft units from 1994 to
1997, and President of Berkline from 1991 to 1997. Mr. Cole has served in
various executive marketing and general management positions in the furniture
industry since 1972.

Mr. Hoffman has been Vice President, Treasurer and Chief Financial Officer
of LifeStyle since 1996. Mr. Hoffman was Vice President and Group Controller of
Masco's Home Furnishings Group from 1993 to 1996, and a Group Controller of
Masco prior to joining the Home Furnishings Group.

Mr. Cashin has been a Director of LifeStyle since 1996. He has been
President since 1994, and a Managing Director for more than the past five years,
of Citicorp Venture Capital, Ltd. In addition, Mr. Cashin serves as a director
of Cable Systems International, Delco Remy International, Euramax International
plc, Fairchild Semiconductor, Freedom Forge, Gerber Childrenswear, Hoover Group,
Levitz Furniture Incorporated, MSX International, Thermal Engineering and Titan
Wheel International Inc.

Mr. Johnston has been a Director of LifeStyle since 1997. He has been a
professor of law at McGill University, Montreal, Canada, since 1979, and was the
Principal of McGill from 1979 to 1994. Mr. Johnston is a director of Seagram
Company, Canada Trust, Emco Limited and CGI Ltd.

Mr. Larson has been a Director of LifeStyle since 1997. He 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., 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 hotels, leisure retailing and branded drinks.

Mr. Morgan has been a Director of LifeStyle since 1996. He has been a
partner in the investment banking firm of Morgan, Lewis, Githens & Ahn since
founding that firm in 1982. Mr. Morgan is a director of Allied Digital
Technologies Corp., Masco and MascoTech, Inc., and also serves as a trustee of
the Provident Loan Society of New York.

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<PAGE> 57

Mr. Thomas has been a Director of LifeStyle since 1996. He has been
President of 399 Venture Partners, 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 American Commercial Lines, L.L.C., Anvil Knitwear,
Inc., Galey & Lord Incorporated, Neenah Corporation, Plainwell Inc. and Stage
Stores, Inc.

Mr. Walker has been a Director of LifeStyle since 1996. He is Principal of
MORWAL Investments, a private investment firm. Mr. Walker was the Chairman and
Chief Executive Officer of M.A. Hanna Company from 1986 until his retirement in
1997. He is a director of Comerica Incorporated, The Goodyear Tire & Rubber
Company, M.A. Hanna Company, Lexmark International Group, Inc., Meritor
Automotive, Inc., The Reynolds & Reynolds Company, Textron Inc. and The Timken
Company.

Classes and Terms. The Certificate of Incorporation (the "Charter") and
By-Laws (the "By-Laws") to be adopted by LifeStyle in the merger of LFI with and
into FII (the "Merger") provide that initially, four of LifeStyle's seven
directors (the "Common Directors") will be elected by the holders of the Class A
Common Stock and Series C Convertible Preferred Stock, voting together as a
single class. The holders of the Series C Convertible Preferred Stock are also
entitled to elect two directors (three, if LifeStyle has nine or more directors)
voting as a single class (the "Series C Directors") and holders of the Series B
Convertible Preferred Stock have the right to elect one director voting as a
single class (the "Series B Director"). In matters submitted to a vote of the
Board of Directors, each director has one vote, except that the Series B
Director has a reduced vote whenever another director concurrently serves on the
board of directors of Masco. The Charter and By-Laws also provide that the
directors of LifeStyle will be classified into three classes, with the directors
in each class serving for three-year terms and until their successors are
elected, except that the initial terms of the current directors of LifeStyle
will expire at the 1999, 2000 and 2001 annual meetings of the stockholders of
LifeStyle, depending upon the particular class in which each such director is
placed. The classification of the persons presently serving on the Board of
Directors has not yet been determined. Any additional persons elected to the
Board of Directors will be added to a particular class of directors to be
determined at the time of such election, although in accordance with the Charter
and By-Laws, the number of directors in each class will be as nearly equal as
practicable based on the total number of directors then serving. Officers serve
at the pleasure of the Board of Directors.

Board Committees. It is contemplated that three committees of the Board of
Directors will be established: the Executive Committee, the Compensation and
Benefits Committee (the "Compensation Committee") and the Audit Review
Committee. The composition of such committees has not yet been determined.
Members of the Compensation Committee will be persons who are not full-time
employees of LifeStyle or any of its subsidiaries. A majority of the members of
the Audit Review Committee will be unaffiliated directors.

The Executive Committee will have all authority, consistent with the
Delaware General Corporation Law (the "DGCL"), as may be granted to it by the
Board of Directors. Accordingly, the Executive Committee may have and may
exercise all the powers and authority of the Board of Directors in the oversight
of the management of the business and affairs of LifeStyle, to the extent
permitted by the DGCL.

The Compensation Committee will review executive salaries, administer the
bonus, incentive compensation and management stock plans of LifeStyle, and
approve the salaries and other benefits of the executive officers of LifeStyle.
In addition, this Committee will consult with LifeStyle's management regarding
pension and other benefit plans and compensation policies and practices of
LifeStyle.

The Audit Review Committee will review the professional services to be
provided by LifeStyle's independent auditors and the independence of such
auditors from the management of LifeStyle. This Committee will also review the
scope of the audit by LifeStyle's independent auditors, the annual financial
statements of LifeStyle, LifeStyle's system of internal accounting controls and
such other matters with respect to the accounting, auditing and financial
reporting practices and procedures of LifeStyle as it may find appropriate or as
may be brought to its attention.

Director Nomination Procedures. The By-Laws will provide that nominations
for election of the Common Directors will be made by the Board of Directors or
by any stockholder entitled to vote in the

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<PAGE> 58

election the Common Directors. The By-Laws will require that stockholders
intending to nominate candidates for election as the Common Directors deliver
written notice thereof to the Secretary of LifeStyle not later than 90 days in
advance of the meeting of stockholders (or in certain circumstances not later
than the close of business on the tenth day following the day of announcement of
the date of the meeting). The notice will be required to set forth certain
information concerning such stockholder and the stockholder's nominees.

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<PAGE> 59

EXECUTIVE COMPENSATION

The following tables and notes summarize the annual and long-term
compensation of LifeStyle's chief executive officer and the other four most
highly paid executive officers (collectively, the "named executive officers")
for the year ended December 31, 1997 and the period from August 6, 1996 to
December 31, 1996. The named executive officers did not receive any compensation
from LifeStyle prior to August 6, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------- ----------------------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPENSATION STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) AWARDS(2) (3)
- --------------------------- ---- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wayne B. Lyon.................... 1997 $500,000 $125,000 $107,661 -- $27,370
Chairman of the Board, 1996 192,308 380,000(4) -- $108,805 14,838
President and Chief Executive
Officer
Donald L. Barefoot(5)............ 1997 148,077 180,000 -- 21,760 2,457
Executive Vice President --
Operations
Douglas C. Barnard............... 1997 172,150 27,000 -- -- 24,509
Vice President, General Counsel 1996 63,462 40,000 15,955 10,880 24,946
and Secretary
Alan D. Cole(6).................. 1997 324,635 225,000 -- 5,440 47,764
Executive Vice President
Ronald J. Hoffman................ 1997 177,200 27,750 -- -- 11,228
Vice President, Treasurer and 1996 65,385 45,000 -- 13,600 6,301
Chief Financial Officer
</TABLE>

- ---------------
(1) This column includes the following: (i) tax reimbursement payments; (ii)
personal use of the LifeStyle airplane (for 1997: Mr. Lyon -- $56,746) and
(iii) personal use of a LifeStyle automobile.

(2) The dollar amounts included in the table are based on an assumed value of
$ per share, which was the book value per share attributable to the
Common Stock on August 5, 1996. The recipients of the Restricted Stock are
parties to the 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 LifeStyle. In certain events,
the vesting will be accelerated. Dividends, if any, are payable to the
holders as and when declared and paid. Because LifeStyle had no
publicly-traded capital stock prior to the Offerings, there has not been any
market determination of the dollar value of the Restricted Stock as of
December 31, 1997.

(3) This column includes the following: (i) LifeStyle contributions and
allocations under LifeStyle's defined contribution retirement plans for the
accounts of each of the named executive officers (for 1997: Mr.
Lyon -- $3,092, Mr. Barefoot -- $0, Mr. Barnard -- $3,092, Mr.
Cole -- $3,092, Mr. Hoffman -- $3,092); (ii) LifeStyle contributions to the
group term life insurance plan for each of the named executive officers (for
1997: Mr. Lyon -- $2,640, Mr. Barefoot -- $1,249, Mr. Barnard -- $2,421, Mr.
Cole -- $2,640, Mr. Hoffman -- $2,640); (iii) LifeStyle's cash payments in
lieu of contributions under LifeStyle's defined contribution plans for each
of the named executive officers (for 1997: Mr. Lyon -- $4,638, Mr.
Barefoot -- $0, Mr. Barnard -- $4,638, Mr. Cole -- $4,638, Mr. Hoffman --
$4,638); (iv) LifeStyle contributions and allocations under LifeStyle's
Benefit Restoration Plan (for 1997: Mr. Lyon -- $17,000, Mr. Barefoot -- $0,
Mr. Barnard -- $608, Mr. Cole -- $6,313 and Mr. Hoffman -- $858); (v) in the
case of Messrs. Barefoot, Barnard and Cole, $1,208, $13,750 and $30,653,
respectively, received in 1997 as reimbursement in connection with their
relocations; and (vi) in the case of Mr. Cole, a company matching
contribution from Berkline in the amount of $428.

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<PAGE> 60

(4) This figure includes an amount Mr. Lyon received in connection with his
efforts in securing bank debt, subordinated debt and securitized receivables
financing for LifeStyle's acquisition in August 1996 of the Predecessor.

(5) Includes amounts since Mr. Barefoot joined LifeStyle on July 21, 1997.

(6) Includes amounts Mr. Cole received from LifeStyle's Berkline subsidiary
prior to his joining LifeStyle in his present capacity on February 17, 1997.
In connection with Mr. Cole's relocation to LifeStyle, LifeStyle made a loan
to Mr. Cole in the principal amount of $160,000, payable on demand; such
loan bears interest at a rate of 6.0% per annum.

MANAGEMENT STOCK OWNERSHIP

Over 200 of our senior managers currently own approximately 21% of
LifeStyle's Common Stock on a diluted basis (assuming conversion of all
convertible stock and vesting of all management stock), or % after giving
effect to the Offerings and the Reorganization.

PENSION PLAN TABLE

The named executive officers participate in pension plans maintained by
LifeStyle 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.

<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
-------------------------------------------------------------
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 LifeStyle and, except for Mr.
Lyon, for prior employment with 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 subject 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 limitations under the
Internal Revenue Code of 1986, as amended (the "Code"), on tax-qualified
plans because one of the plans is a non-qualified plan established by
LifeStyle 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 0.2% 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 -- 2; Mr. Barefoot -- 1; Mr.
Barnard -- 6; Mr. Cole -- 9 and Mr. Hoffman -- 29.

(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 LifeStyle prior to retirement.

LIFESTYLE FURNISHINGS INTERNATIONAL LTD. 1998 EQUITY INCENTIVE PLAN

LifeStyle's Board of Directors has adopted, and LifeStyle's stockholders
have approved, the LifeStyle Furnishings International Ltd. 1998 Equity
Incentive Plan (the "1998 Plan").

The purpose of the 1998 Plan is to promote the interests of LifeStyle and
its stockholders by (i) attracting and retaining exceptional officers,
employees, directors and consultants of LifeStyle and its affiliates; (ii)
motivating such officers, employees, directors and consultants by means of
performance-related incentives

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<PAGE> 61

to achieve longer-range performance goals; and (iii) enabling such officers,
employees, directors and consultants to participate in the long-term growth and
financial success of LifeStyle.

The 1998 Plan is administered by the Compensation Committee, which has
broad discretion as to the specific terms and conditions of each award,
including the exercise price of options, the vesting of awards and the effect on
an award of the death, retirement, or other termination of employment of the
participant. The Board of Directors may generally amend, alter or terminate the
1998 Plan at any time. The Compensation Committee may amend or modify the terms
of any outstanding award, but only with the consent of the participant if that
amendment would impair his or her rights. If certain corporate transactions or
events affecting shares of Class A Common Stock or the structure of LifeStyle
occur, the Compensation Committee may make certain adjustments as set forth in
the 1998 Plan.

Under the 1998 Plan, shares of Class A Common Stock will be
available for awards. If any shares of Class A Common Stock covered by an award
granted under the Plan are forfeited, an award is settled for cash or otherwise
terminates or is canceled without the delivery of shares of Class A Common
Stock, then the shares of Class A Common Stock covered by such award will again
become shares of Class A Common Stock with respect to which awards may be
granted.

Eligibility to participate in the 1998 Plan is limited to officers,
employees, consultants and other representatives of LifeStyle and its
subsidiaries, who are selected by the Compensation Committee, and members of
LifeStyle's Board of Directors. Participation in the 1998 Plan is at the
discretion of the Compensation Committee. No officer or employee may be granted
awards covering more than shares of Class A Common Stock in any calendar
year.

The 1998 Plan permits the granting of (i) stock options that qualify as
"Incentive Stock Options" under the Code, (ii) options other than Incentive
Stock Options, (iii) stock appreciation rights granted either alone or in tandem
with other awards under the 1998 Plan, (iv) restricted share awards and
restricted share units, (v) performance awards and (vi) other stock-based
awards.

Unless earlier terminated by LifeStyle's Board of Directors, the 1998 Plan
will terminate on the tenth anniversary of the date of this Prospectus.

DIRECTOR COMPENSATION

The directors of LifeStyle who are officers or employees of LifeStyle do
not presently receive compensation for their services as directors. Directors of
LifeStyle 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 LifeStyle who are not
also officers or employees of LifeStyle receive an annual fee of $25,000, a
portion of which may be paid in Class A Common Stock as described below, plus
$1,000 for each meeting attended. In addition, directors will be granted options
relating to Class A Common Stock as described below.

1998 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS

LifeStyle's Board of Directors has adopted, and LifeStyle's stockholders
have approved, LifeStyle's 1998 Non-Employee Director Stock Plan (the "Director
Stock Plan"). The purpose of the Director Stock Plan is to promote the interests
of LifeStyle and its stockholders by increasing the proprietary interest of non-
employee directors in the growth and performance of LifeStyle. Directors of
LifeStyle who are not officers or employees of LifeStyle ("Eligible Directors")
are eligible to participate in the Director Stock Plan.

The Director Stock Plan will be administered by the Board of Directors.
Subject to the provisions of the Director Stock Plan, the Board of Directors
shall be authorized to interpret the Director Stock Plan, to establish, amend,
and rescind any rules and regulations relating to it and to make all other
determinations necessary or advisable for its administration. The Director Stock
Plan may be amended by LifeStyle's Board of Directors subject, in certain cases,
to the authorization and approval of LifeStyle's stockholders.

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<PAGE> 62

Pursuant to the Director Stock Plan, upon their initial election to the
Board of Directors (or in the case of Eligible Directors first elected to the
Board of Directors prior to the consummation of the Offerings, on the effective
date of the Offerings), each new Eligible Director is granted options to acquire
shares of Class A Common Stock at a price equal to the then fair market
value of such shares. On the first business day of each fiscal year of LifeStyle
commencing thereafter, each Eligible Director will be granted an option to
purchase additional shares of Class A Common Stock at a per share
exercise price equal to the fair market value of a share of Class A Common Stock
on that date. Each option will: (i) vest in annual 20% increments commencing on
the first anniversary of the grant date; and (ii) expire on the earlier of the
tenth anniversary of the date of grant and one year from the date on which the
grantee of an option ceases to be an Eligible Director.

In addition, the Director Stock Plan provides that each Eligible Director
may elect to receive up to 100% of such Eligible Director's annual fee in
unrestricted shares of Class A Common Stock. The maximum number of shares of
Class A Common Stock in respect of which options may be granted and shares
awarded in lieu of annual fees under the Director Stock Plan is shares of
Class A Common Stock, except that any options that are forfeited, terminated or
canceled will again be available for awards.

No option may be granted or shares awarded under the Director Stock Plan
after the tenth anniversary of the date of this Prospectus.

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<PAGE> 63

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS AGREEMENT

LifeStyle and its current stockholders, including 399 and certain other
institutions and individuals (the "Institutional Stockholders"), Masco and
certain management investors (the "Management Stockholders") (collectively, the
"Stockholders"), are parties to a Stockholders Agreement containing certain
agreements among the Stockholders with respect to the capital stock and
corporate governance of LifeStyle. The following is a summary description of the
principal terms of the Stockholders Agreement and is subject to and qualified in
its entirety by reference to the Stockholders Agreement, which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.

The Stockholders Agreement also provides for certain restrictions on
transfer by Management Stockholders, including, subject to certain exceptions,
the right of LifeStyle to repurchase shares held by Management Stockholders upon
termination of employment at a formula price. In addition, the Institutional
Stockholders and Masco have rights to participate on a pro-rata basis in certain
privately negotiated sales of capital stock by the other, and the Management
Stockholders have rights to participate on a pro-rata basis in certain privately
negotiated sales of capital stock by the Institutional Stockholders.

REGISTRATION RIGHTS AGREEMENT

LifeStyle has entered into a Registration Rights Agreement with the
Stockholders covering all of their Common Stock (the "Registration Rights
Agreement"), representing shares as of June 30, 1998. The following
description of the Registration Rights Agreement is subject to and qualified in
its entirety by reference to the Registration Rights Agreement, which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Institutional Stockholders, Masco and their permitted transferees have
been granted the right on one or more occasions to require LifeStyle to file up
to a specified number of registration statements with the Securities and
Exchange Commission (the "Commission") registering the shares held by them,
subject to certain limited exceptions. In addition, the Stockholders and their
permitted transferees have been granted the right, subject to certain
restrictions, to require LifeStyle to include shares held by the Stockholders in
any registration statements filed by LifeStyle with the Commission. LifeStyle
has agreed to pay certain expenses relating to any registration of shares
effected pursuant to the Registration Rights Agreement and to indemnify the
Stockholders against certain liabilities in connection with any such
registration.

ACQUISITION ARRANGEMENTS

LifeStyle acquired the Predecessor from Masco on August 5, 1996 pursuant to
an Acquisition Agreement (the "Acquisition Agreement") for a purchase price of
approximately $1.1 billion. Certain provisions of the Acquisition Agreement
remain in effect for a specified period following the acquisition as contractual
obligations between Masco and LifeStyle. The following summarizes these
provisions of the Acquisition Agreement, and is subject to and qualified in its
entirety by references to the Acquisition Agreement, which has been filed as an
Exhibit to the Registration Statement of which this Prospectus is a part.

Masco has made various representations, warranties and covenants respecting
the Predecessor, and the Acquisition Agreement provides for indemnification by
Masco in the event of any breach of such representations, warranties or
covenants. Other than with respect to certain tax, environmental, employee
benefits and other specified liabilities, as of the date of the Offerings, Masco
has no continuing indemnification obligations to LifeStyle. With respect to such
remaining obligations, 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 LifeStyle for which
Masco may be responsible under the indemnification provisions with the prior
written consent of LifeStyle, such consent not to be unreasonably withheld.
LifeStyle will cooperate with Masco regarding these activities and, with certain

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<PAGE> 64

exceptions, reimburse Masco for reasonable costs and expenses until LifeStyle
has incurred damages in specified amounts.

Masco has agreed that it will not on or prior to August 5, 2001 engage in
the design or manufacture of 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.

As part of the acquisition of the Predecessor, LifeStyle entered into a
Transition Services Agreement, effective as of August 5, 1996, pursuant to which
Masco provided to LifeStyle certain corporate support, administrative, data
processing, legal, environmental and other services through April 1997. Masco
continues to provide certain such services on a limited basis. See Note 14 to
the Financial Statements.

PURCHASE OF STOCK FROM 399

In March 1997, pursuant to an option granted earlier by 399, LifeStyle
acquired from 399 (i) shares of Common Stock at $ per
share and (ii) 13,770 shares of Series A-2 Preferred Stock at $100 per share
plus accreted dividends. Such shares were reissued to certain members of
management (but not to any of the named executive officers).

SIMMONS SPIN-OFF

On June 30, 1998, LifeStyle distributed the stock of its Simmons
subsidiary, on a pro-rata basis, to the holders of LifeStyle's Class D Common
Stock, par value $.01 per share (the "Class D Common Stock"), in exchange for
their Class D Common Stock. Prior to the spin-off, Simmons was a separately
managed, operated and financed business.

THE REORGANIZATION

Concurrently with the Offerings, LifeStyle is entering into the following
series of reorganization transactions designed to simplify its corporate and
capital structure: (i) the outstanding capital stock will be reclassified and
split such that LifeStyle's capital stock outstanding upon consummation of the
Offerings, and after giving effect to the exchange described in (iii) below,
will be as described below under "Description of Capital Stock" and the
ownership of such stock will be as described below under "Security Ownership of
Certain Beneficial Owners and Management," (ii) LFI will be merged with and into
FII, which will change its name to LifeStyle Furnishings International Ltd.,
(iii) LifeStyle will exchange shares of Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock for all of the outstanding shares of Series
A-1 Preferred Stock (approximately 1,103,320 shares as of June 30, 1998) on the
basis of shares of Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock for each share of Series A-1 Preferred Stock
(whereas shares of Series A-2 Preferred Stock will remain outstanding), having
first paid in cash the accrued but unpaid dividends on both the Series A-1 and
the Series A-2 Preferred Stock ($7.8 million as of June 30, 1998), and (iv)
LifeStyle will use the net proceeds of the Offerings to redeem all of the
outstanding PIK Debt ($355.9 million in principal and interest as of June 30,
1998). Each of the Tender Offer, the Reorganization and the Offerings is
conditioned upon the substantially contemporaneous completion of each such other
transaction or series of transactions.

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<PAGE> 65

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Reorganization and the Offerings, there will be
shares of Class A Common Stock outstanding (assuming that the Underwriters'
do not exercise their over-allotment options), of which the shares sold in
the Offerings will be tradeable without restriction by persons other than
"affiliates" of LifeStyle. In addition, upon completion of the Reorganization
and the Offerings, there will be shares of Class B Common Stock,
shares of Series B Convertible Preferred Stock and shares of Series C
Convertible Preferred Stock outstanding, each of which is convertible, subject
to certain ownership and regulatory restrictions, at the option of the holder
into an equal number of shares of Class A Common Stock. Shares of Class A Common
Stock, other than the shares sold in the Offerings and approximately
shares that have been held for more than two years (except those held by
"affiliates"), may be deemed "restricted" securities within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and, as such, may not
be sold in the absence of registration under the Securities Act, or an exemption
therefrom, including the exemptions contained in Rule 144 under the Securities
Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who is deemed to have beneficially
owned shares of an issuer for at least one year, including an "affiliate," is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding number of shares of such
class or the average weekly trading volume in composite trading of all such
shares on all national securities exchanges during the four calendar weeks
preceding the filing of the required notice of such sale, provided that the
issuer has been a reporting company for at least ninety days. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about LifeStyle. A person (or
persons whose shares are required to be aggregated) who is not deemed an
affiliate of an issuer and who has beneficially owned shares for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume, manner of sale and notice restrictions described above. Affiliates
continue to be subject to such restrictions. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, such issuer. Certain parties to the Stockholders Agreement have the right,
subject to certain limitations, to require LifeStyle to file a specified number
of registration statements with the Commission registering the shares held by
them. See "Certain Relationships and Related Transactions -- Registration Rights
Agreement."

LifeStyle, its executive officers and directors and its other current
stockholders have agreed, subject to certain limited exceptions, not to directly
or indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warranty for the sale of or otherwise dispose of or transfer any shares
of Class A Common Stock or securities convertible into or exchangeable or
exercisable for Class A Common Stock whether now owned or thereafter acquired by
the person executing the agreement or with respect to which the person executing
the agreement thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the foregoing,
or (ii) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the Class A Common Stock whether
any such swap or transaction is to be settled by delivery of Class A Common
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days
after the date of this Prospectus.

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<PAGE> 66

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth certain information as of June 30, 1998,
after giving effect to the Reorganization, regarding beneficial ownership of
Class A Common Stock, Class B Common Stock, Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock (i) by each person known by LifeStyle
to own beneficially more than 5% of the outstanding Class A Common Stock, Class
B Common Stock, Series B Convertible Preferred Stock or Series C Convertible
Preferred Stock, (ii) by each director of LifeStyle, (iii) by each of the named
executive officers of LifeStyle, and (iv) by all executive officers and
directors of LifeStyle as a group. Except as otherwise indicated, each named
person has voting and investment power over the listed shares held by such
person, and such voting and investment power is exercised solely by the named
person or shared with a spouse.

<TABLE>
<CAPTION>
SERIES B CONVERTIBLE SERIES C CONVERTIBLE
CLASS A COMMON CLASS B COMMON PREFERRED PREFERRED
--------------------- --------------------- --------------------- ---------------------
OWNED TO BE OWNED TO BE OWNED TO BE OWNED TO BE
PRIOR TO OWNED PRIOR TO OWNED PRIOR TO OWNED PRIOR TO OWNED
THE AFTER THE THE AFTER THE THE AFTER THE THE AFTER THE
NAME AND ADDRESS OFFERINGS OFFERINGS OFFERINGS OFFERINGS OFFERINGS OFFERINGS OFFERINGS OFFERINGS
---------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
399 Venture Partners,
Inc.(1)(2)......................
Travelers Group Inc.
(and certain
affiliates)(2)(3)...............
Masco Corporation(4)..............
CCT Partners III, L.P.(1)(5)......
Wayne B. Lyon(6)(7)...............
Donald L. Barefoot(7).............
Douglas C. Barnard individually
and as voting trustee for the
management investors(7)(8)......
Alan D. Cole(7)...................
Ronald J. Hoffman(7)..............
Richard M. Cashin, Jr.(1)(9)......
David L. Johnston(10).............
Robert C. Larson(11)..............
John A. Morgan(12)................
David F. Thomas(1)(9).............
Martin D. Walker(13)..............
All directors and executive
officers as a group (eleven
persons)(14)....................
</TABLE>

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<PAGE> 67

- ---------------
* Less than 1.0%.

(1) Address is 399 Park Avenue, New York, NY. 399 is a wholly owned subsidiary
of Citicorp.

(2) Citicorp and Travelers Group, Inc. have announced that the companies will
merge to form Citigroup Inc.

(3) Address is 388 Greenwich Street, New York, NY.

(4) Masco has advised LifeStyle that Masco is restricted from holding more than
19.9% of the Common Stock. Masco's address is 21001 Van Born Road, Taylor,
MI.

(5) CCT Partners III, L.P. ("CCT") is a limited partnership, the partners of
which consist of Messrs. Cashin and Thomas and other officers and key
employees of Citicorp and its subsidiaries, including 399. Shares held by
CCT are not included in the table as shares beneficially owned by 399.

(6) Amounts shown consist of shares of Class A Common Stock and Class B Common
Stock held 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.

(7) Address is 4000 Lifestyle Court, High Point, NC.

(8) Amounts shown consist of shares held by Mr. Barnard individually and as
voting trustee for management stockholders. Mr. Barnard has no pecuniary
interest in such shares other than shares of Class A Common Stock and
shares of Class B Common Stock. Mr. Barnard disclaims beneficial ownership
of shares held by himself as voting trustee for other management
stockholders.

(9) Amounts shown include shares held by 399, 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 shares of Class A Common Stock,
shares of Class B Common Stock and shares of Series C Convertible
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.

(10) Address is 3690 Peel Street, Montreal, Quebec, Canada.

(11) Amounts shown consist of shares held by a limited partnership for the
benefit of Mr. Larson's family members. Address is 200 East Long Lake Road,
Bloomfield Hills, MI.

(12) Address is 767 Fifth Avenue, New York, NY.

(13) Address is 24500 Center Ridge Rd., Suite 275, Westlake, OH.

(14) Amounts shown include: shares held by 399, which may be deemed to be
beneficially owned by Messrs. Cashin and Thomas; shares held by an estate
planning trust for the benefit of Mr. Lyon's family members, 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; Mr. Lyon disclaims beneficial
ownership 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 himself as voting trustee for other management investors.

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<PAGE> 68

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following summary of LifeStyle's capital stock does not purport to be
complete and is subject to and qualified in its entirety by LifeStyle's Charter
and By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part, and the laws of the State of
Delaware. The Charter and By-Laws will take effect upon the consummation of the
Merger, which will take place concurrently with the consummation of the
Offerings.

The Charter authorizes the issuance of shares of capital
stock, consisting of shares of Class A Common Stock,
shares of Class B Common Stock and shares of preferred stock. As
of June 30, 1998, after giving effect to the Reorganization, shares of
Class A Common Stock were outstanding, shares of Class B Common Stock
were outstanding, shares of Series A-2 Preferred Stock were
outstanding, shares of Series B Convertible Preferred Stock were
outstanding and shares of Series C Convertible Preferred Stock
were outstanding. As of June 30, 1998, after giving effect to the
Reorganization, there were holders of Class A Common Stock and
holders of Class B Common Stock. As of June 30, 1998, on a pro
forma basis giving effect to the Reorganization, shares of Class A
Common Stock were reserved for issuance upon conversion of the Class B Common
Stock and the Series B and Series C Convertible Preferred Stock.

COMMON STOCK

Class A Common Stock. Holders of Class A Common Stock are entitled to one
vote for each share of Class A Common Stock held on each matter submitted to a
vote of stockholders, other than the election of the directors elected by the
Series B Convertible Preferred Stock (the "Series B Director") and the directors
elected by the Series C Convertible Preferred Stock (the "Series C Directors").
Holders of Class A Common Stock are not entitled to cumulative voting. Shares of
Class A Common Stock have no preemptive or other subscription rights and are
convertible by any holder of Class A Common Stock into an equal number of shares
of Class B Common Stock at any time if the holder has determined that it or one
of its affiliates might be subject to certain regulatory or accounting problems
defined in the Charter due to its holding Class A Common Stock.

Class B Common Stock. Holders of the Class B Common Stock have no right to
vote on matters submitted to a vote of stockholders, except as otherwise
required by law. Shares of Class B Common Stock have no preemptive or other
subscription rights and are convertible by any holder of Class B Common Stock
into an equal number of Class A Common Stock at any time, subject to certain
restrictions.

Conversion of the Class B Common Stock into shares of Class A Common Stock
would result in a decrease in the voting power of the holders of the previously
outstanding Class A Common Stock and the holders of the Class A Common Stock
offered hereby.

Dividends. All holders of Common Stock are entitled to receive such
dividends or other distributions, if any, as may be declared from time to time
by the Board of Directors in its discretion out of funds legally available
therefor, subject to the prior rights of any preferred stock then outstanding,
and to share equally, share for share, in such dividends or other distributions
as if all shares of Common Stock were of a single class. Dividends or other
distributions declared or paid in shares of Common Stock, or options, warrants
or rights to acquire such stock or securities convertible into or exchangeable
for shares of such stock, are payable to all of the holders of Common Stock
ratably according to the number of shares held by them, denominated in shares of
Class A Common Stock to holders of that class of stock and shares of Class B
Common Stock to holders of that class of stock.

Liquidation. Subject to the prior rights of holders of all classes of
stock outstanding having prior rights with respect to the assets of LifeStyle,
upon the liquidation or dissolution of LifeStyle, the holders of Common

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<PAGE> 69

Stock are entitled to share ratably according to the number of shares held by
them in all assets remaining available for distribution to stockholders.

Full Payment and Non-Assessability. All outstanding shares of Common Stock
are, and the shares to be issued by LifeStyle pursuant to the Offerings will be,
fully paid and non-assessable.

PREFERRED STOCK

Series A-2 Preferred Stock. Each share of Series A-2 Preferred Stock has a
stated value of $100 per share and accrues cumulative, quarterly dividends at a
compound rate of 13.5% per annum. Shares of Series A-2 Preferred Stock are
non-voting, with the exception of certain specified matters affecting the senior
ranking of the shares. Shares of Series A-2 Preferred Stock are mandatorily
redeemable on the earlier of February 5, 2009 or the date on which a change of
control occurs. A change of control is deemed to occur upon (i) a sale in one or
more transactions of more than 66 2/3% of the consolidated assets of the Company
and its subsidiaries; (ii) any transaction as a result of which 399 ceases to
own at least 10% of the Common Stock on a fully diluted basis; (iii) any
transaction as a result of which any person other than 399, an Institutional
Stockholder, Masco or a Management Stockholder has the power to designate and
elect a majority of the members of the Board of Directors; or (iv) 399 has sold
in one or more transactions to persons other than permitted transferees under
the Stockholders Agreement shares in excess of 66 2/3% of the Common Stock owned
by 399 as of August 5, 1996 and, following such sale (or sales), the percentage
of Common Stock owned by 399 on the date of the last of such sales is less than
the percentage thereof owned by Masco as of the same date.

Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock. Each share of Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock (together, the "Convertible Preferred") is
convertible, at the holder's election, into one share of either Class A or Class
B Common Stock. Shares of Convertible Preferred are only convertible, however,
by a holder that has determined that it can effect such conversion without
giving rise to certain accounting or regulatory problems for itself or one of
its affiliates. Shares of Convertible Preferred that are transferred to any
third party (other than to certain permitted transferees) automatically convert
into shares of Class A Common Stock.

Series B Convertible Preferred Stock has exclusive voting rights with
respect to the election of the Series B Director. Series B Convertible Preferred
Stock also has voting rights on an as-if-converted basis, subject to certain
limitations, with respect to all matters presented to stockholders, other than
with respect to the election of the Series C Directors and the Common Directors.
All of the Series B Convertible Preferred Stock will automatically convert into
Class A Common Stock in the event Masco ceases to own at least 5% of LifeStyle's
common equity on a fully diluted basis.

Series C Convertible Preferred Stock has exclusive voting rights with
respect to the election of the Series C Directors. Series C Convertible
Preferred Stock also has voting rights on an as-if-converted basis, subject to
certain limitations, with respect to all matters presented to stockholders,
other than with respect to the election of the Series B Director. All of the
Series C Convertible Preferred Stock will automatically convert into Class A
Common Stock in the event the Institutional Stockholders cease to own at least
5% of LifeStyle's common equity on a fully diluted basis.

Holders of Convertible Preferred participate in dividends or distributions
paid to holders of Class A and Class B Common Stock to the same extent as if
they had converted their Convertible Preferred into shares of Common Stock. Both
classes of Convertible Preferred rank pari passu with respect to participations
in dividends and distributions, and both classes of Convertible Preferred rank
senior to Common Stock.

Upon the dissolution, liquidation or winding-up of the Company, the holders
of issued and outstanding shares of Convertible Preferred shall be entitled to
receive for each such share, out of the assets of the Company available for
distribution to stockholders, before any payment or distribution shall be made
to the holders of Common Stock, an amount per share of Convertible Preferred in
cash equal to the greater of (i) for each such share of Convertible
Preferred and (ii) the amount per share that would be received by a holder of
the number of shares of Common Stock into which such share of Convertible
Preferred is

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<PAGE> 70

convertible on the record date for such distribution (such amount to be
determined based on the number of shares of Common Stock issued and outstanding
on a fully-diluted basis and assuming conversion of all shares of Convertible
Preferred).

Additional Series. The Board of Directors, without further stockholder
authorization, is authorized to issue additional shares of preferred stock in
one or more classes or series and to fix the rights, preferences and privileges
of each additional class or series, including dividend rights and preferences
over dividends on the Common Stock, conversion rights, voting rights (in
addition to those provided by law) and the terms of any sinking fund therefor,
and rights upon liquidation, including preferences over the Common Stock. The
issuance of any such preferred stock may have the effect of delaying or
preventing transactions involving a change of control of LifeStyle, including
transactions in which stockholders might otherwise receive a substantial premium
for their shares over then current market prices, and may limit the ability of
the stockholders to approve transactions that they deem to be in their best
interests.

LIMITATION ON DIRECTORS' LIABILITY

The Charter excuses LifeStyle's directors to the fullest extent permitted
by Delaware law from any liability to LifeStyle or its stockholders for monetary
damages for breach of their fiduciary duties. Under existing Delaware law,
directors would not be liable except under certain circumstances, including
breach of the director's duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law or any
transaction from which the director derived improper personal benefit. The
inclusion of this provision in the Charter may have the effect of reducing the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or LifeStyle from bringing a lawsuit against directors of
LifeStyle for breach of their duty of care. However, the provision does not
affect the availability of equitable remedies such as an injunction or
rescission.

REGISTRAR AND TRANSFER AGENT

is the Registrar and Transfer Agent for LifeStyle's Class A
Common Stock.

CERTAIN CORPORATE GOVERNANCE MATTERS

In addition to the provisions relating to the classification of the Board
of Directors and the nomination procedures described in "Management -- Executive
Officers and Directors," LifeStyle's Charter and By-Laws provide, in general,
that (i) the number of directors of LifeStyle will be fixed within a specified
range by a majority of the total number of LifeStyle directors then in office,
(ii) the directors of LifeStyle in office from time to time (with certain
exceptions) will fill any vacancy or newly created directorship involving one or
more of the Common Directors with any new director to serve in the class of
directors to which he or she is so elected, (iii) Common Directors of LifeStyle
may only be removed for cause by the holders of at least 66 2/3% of LifeStyle's
outstanding Shares of Class A Common Stock and Series C Convertible Preferred
Stock, (iv) stockholder action can be taken only at an annual or special meeting
of stockholders and not by written consent in lieu of a meeting, (v) special
meetings of stockholders may be called only by the Chairman of the Board of
Directors, by a majority of the total number of directors of LifeStyle then in
office, the holders of a majority of the Series B Convertible Preferred Stock
and the holders of a majority of the Series C Convertible Preferred Stock and
the business permitted to be conducted at any such meeting is limited to that
brought before the meeting by LifeStyle's Chairman of the Board of Directors or
his specific designee, by a majority of the total number of directors of
LifeStyle then in office, or by the holders of a majority of the Series B
Convertible Preferred Stock or the holders of a majority of the Series C
Convertible Preferred Stock and (vi) subject to certain exceptions, the Board of
Directors may postpone and reschedule any previously scheduled annual or special
meeting of stockholders. The By-Laws also require that stockholders desiring to
bring any business before an annual meeting of stockholders deliver written
notice thereof to the Secretary of LifeStyle not later than 90 days in advance
of the meeting of stockholders; provided, however, that in the event that the
date of the meeting is not publicly announced by LifeStyle by press release or
inclusion in a report filed with the Commission or furnished to stockholders
more than 100 days prior to the meeting, notice by the stockholder to be timely
must be delivered to the Secretary of LifeStyle not later than the close of
business on the 10th day following the day on which such announcement of the
date of the meeting was so communicated. The By-Laws further require that the
notice by the stockholder set forth a description of the business to be brought
before the meeting and the reasons for conducting such business at the meeting
and certain

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<PAGE> 71

information concerning the stockholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is made, including their
names and addresses, the class and number of shares of LifeStyle that are owned
beneficially and of record by each of them, and any material interest of each of
them in the business proposed to be brought before the meeting.

Under applicable provisions of Delaware law, the approval of a Delaware
company's board of directors, in addition to stockholder approval, is required
to adopt any amendment to the company's certificate of incorporation, but a
company's by-laws may be amended either by action of its stockholders or, if the
company's certificate of incorporation so provides, its board of directors.
However, LifeStyle's Charter and By-Laws provide that the provisions summarized
above and certain other provisions, including those relating to the
classification of the Board of Directors and nominating procedures, may not be
amended by the stockholders, nor may any provision inconsistent therewith be
adopted by the stockholders, without the affirmative vote of the holders of at
least 80% of LifeStyle's voting stock, voting together as a single class.
LifeStyle's Charter authorizes the Board of Directors to approve amendments to
the By-Laws.

The foregoing provisions of LifeStyle's Charter and the provisions of the
By-Laws relating to advance notice of stockholder nominations may discourage or
make more difficult the acquisition of control of LifeStyle by means of a tender
offer, open market purchase, proxy contest or otherwise. These provisions are
intended to discourage, or may have the effect of discouraging, certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of LifeStyle first to negotiate with
LifeStyle. LifeStyle's management believes that the foregoing measures provide
benefits by enhancing LifeStyle's potential ability to negotiate with the
proponent of any unfriendly or unsolicited proposal to take over or restructure
LifeStyle that outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.

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<PAGE> 72

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S.
HOLDERS OF CLASS A COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a foreign
estate or trust.

This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of Common Stock, including the consequences under the laws
of any state, local or foreign jurisdiction.

DIVIDENDS

Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced rate
as specified by an income tax treaty, LifeStyle ordinarily will presume that
dividends paid on or before December 31, 1999 to an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption is
not warranted.

Under United States Treasury Regulations issued on October 6, 1997, which
are applicable to dividends paid after December 31, 1999 (the "New
Regulations"), to obtain a reduced rate of withholding under a treaty, a
Non-U.S. Holder will generally be required to provide an Internal Revenue
Service Form W-8 certifying such Non-U.S. Holder's entitlement to benefits under
a treaty. The New Regulations also provide special rules to determine whether,
for purposes of determining the applicability of a tax treaty, dividends paid to
a Non-U.S. Holder that is an entity should be treated as paid to the entity or
those holding an interest in that entity.

There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with LifeStyle. Instead, the effectively connected
dividends will be subject to regular U.S. income tax in the same manner as if
the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation receiving
effectively connected dividends may also be subject to an additional "branch
profits tax" that is imposed, under certain circumstances, at a rate of 30% (or
such lower rate as may be specified by an applicable treaty) of the non-U.S.
corporation's effectively connected earnings and profits, subject to certain
adjustments. Under the New Regulations, Form W-8 will replace Form 4224.

Generally, LifeStyle must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.

Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information.

Under current United States federal income tax law, backup withholding
imposed at a rate of 31% generally will not apply to dividends paid on or before
December 31, 1999 to a Non-U.S. Holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. Person). Under the New
Regulations, however, a Non-U.S. Holder will be subject to backup withholding
unless applicable certification requirements are met.

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<PAGE> 73

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of such
holder in the United States, (ii) in the case of certain Non-U.S. Holders who
are non-resident alien individuals and hold the Common Stock as a capital asset,
such individuals are present in the United States for 183 or more days in the
taxable year of the disposition, (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) LifeStyle is or has been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. LifeStyle is not, and does not anticipate becoming, a
U.S. real property holding corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK

Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Common Stock effected by or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the United States by or through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes or (iv) in
the case of payments made after December 31, 1999, a foreign partnership with
certain connections to the United States, unless such broker has documentary
evidence in its files of the holder's non-U.S. status and has no actual
knowledge to the contrary or unless the holder establishes an exemption.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Common Stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.

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UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney
Inc., Credit Suisse First Boston Corporation and Wheat First Union, a division
of Wheat First Securities, Inc., are acting as representatives (the "U.S.
Representatives") of each of the Underwriters named below (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S. purchase
agreement (the "U.S. Purchase Agreement") between LifeStyle and the U.S.
Underwriters, and concurrently with the sale of shares of Class A
Common Stock to the International Managers (as defined below), LifeStyle has
agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters
severally and not jointly has agreed to purchase from LifeStyle, the number of
shares of Class A Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
U.S. UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Salomon Smith Barney Inc....................................
Credit Suisse First Boston Corporation......................
Wheat First Securities, Inc.................................

--------
Total..........................................
========
</TABLE>

LifeStyle has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the United
States and Canada (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters") for whom Salomon Brothers International
Limited, Merrill Lynch International, Credit Suisse First Boston (Europe)
Limited and Wheat First Union are acting as lead managers (the "Lead Managers").
Subject to the terms and conditions set forth in the International Purchase
Agreement, and concurrently with the sale of shares of Class A
Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
LifeStyle has agreed to sell to the International Managers, and the
International Managers severally have agreed to purchase from LifeStyle, an
aggregate of shares of Class A Common Stock. The initial public
offering price per share and the total underwriting discount per share of Class
A Common Stock are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.

In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Class A Common Stock being sold
pursuant to each such agreement if any of the shares of Class A Common Stock
being sold pursuant to such agreement are purchased. Under certain
circumstances, under the U.S. Purchase Agreement and the International Purchase
Agreement, the commitments of non-defaulting Underwriters may be increased. The
closings with respect to the sale of shares of Class A Common Stock to be
purchased by the U.S. Underwriters and the International Managers are
conditioned upon one another.

The U.S. Representatives have advised LifeStyle that the U.S. Underwriters
propose initially to offer the shares of Class A Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Class A Common Stock. The U.S. Underwriters may allow, and
such dealers may re-allow, a discount not in excess of $ per share of Class
A Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.

LifeStyle has granted options to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at
72
<PAGE> 75

the initial public offering price set forth on the cover page of this
Prospectus, less the underwriting discount. The U.S. Underwriters may exercise
these options solely to cover over-allotments, if any, made on the sale of the
Class A Common Stock offered hereby. To the extent that the U.S. Underwriters
exercise these options, each U.S. Underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares of Class A Common
Stock proportionate to such U.S. Underwriter's initial amount reflected in the
foregoing table. LifeStyle has also granted options to the International
Managers, exercisable for 30 days after the date of this Prospectus, to purchase
up to an aggregate of additional shares of Class A Common Stock at the initial
public offering price set forth on the cover page of this Prospectus, less the
underwriting discount.

At the request of LifeStyle, the U.S. Underwriters have reserved up to
shares of Class A Common Stock for sale at the initial public
offering price to certain employees of LifeStyle and other persons. The number
of shares of Class A Common Stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the U.S.
Underwriters to the general public on the same basis as the other shares offered
hereby.

LifeStyle, its executive officers and directors and its other current
stockholders have agreed, subject to certain limited exceptions, not to directly
or indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warranty for the sale of or otherwise dispose of or transfer any shares
of Class A Common Stock or securities convertible into or exchangeable or
exercisable for Class A Common Stock, whether now owned or thereafter acquired
by the person executing the agreement or with respect to which the person
executing the agreement thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the foregoing or
(ii) enter into any swap or other agreement that transfers, in whole or in part,
the economic consequence of ownership of the Class A Common Stock whether any
such swap or transaction is to be settled by delivery of Class A Common Stock or
other securities, in cash or otherwise, without the prior written consent of
Merrill Lynch on behalf of the Underwriters for a period of 180 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
Class A Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Class A Common Stock will not offer to sell or sell
shares of Class A Common Stock to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, and the International Managers and any dealer to whom
they sell shares of Class A Common Stock will not offer to sell or sell shares
of Class A Common Stock to U.S. persons or to Canadian persons or to persons
they believe intend to resell to U.S. or Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.

Prior to the Offerings, there has been no public market for the Class A
Common Stock of LifeStyle. The initial public offering price will be determined
through negotiations between LifeStyle and the U.S. Representatives and the Lead
Managers. The factors considered in determining the initial public offering
price, in addition to prevailing market conditions, are price-earnings ratios of
publicly traded companies that the U.S. Representatives and the Lead Managers
believe to be comparable to LifeStyle, certain financial information of
LifeStyle, the history of, and the prospects for, LifeStyle and the industry in
which it competes, and an assessment of LifeStyle's management, its past and
present operations, the prospects for, and timing of, future revenues of
LifeStyle, the present state of LifeStyle's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to LifeStyle. There can be no assurance that an
active trading market will develop for the Class A Common Stock or that the
Class A Common Stock will trade in the public market subsequent to the Offerings
at or above the initial public offering price.

Application will be made to have the Class A Common Stock listed on the New
York Stock Exchange, subject to notice of issuance, under the symbol "LFI." In
order to meet the requirements for listing of the

73
<PAGE> 76

Class A Common Stock on that exchange, the U.S. Underwriters and the
International Managers have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial owners.

The Underwriters do not expect sales of the Class A Common Stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.

LifeStyle has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act, or to contribute to payments the U.S.
Underwriters and International Managers may be required to make in respect
thereof.

Affiliates of Smith Barney Inc. are expected to own in excess of 10% of the
outstanding Common Stock of LifeStyle. See "Security Ownership of Certain
Beneficial Owners and Management." Consequently, the Offerings are being made
pursuant to the provisions of Section 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc. Pursuant to such provisions, the public
offering price of an equity security can be no higher than the price recommended
by a "qualified independent underwriter" meeting certain standards. In
accordance with this requirement, Merrill Lynch will serve in such role, and the
price of the Class A Common Stock will be no higher than that recommended by
Merrill Lynch in its capacity as the qualified independent underwriter. In such
capacity and in its capacity as one of the Underwriters, Merrill Lynch has
participated in the preparation of the Registration Statement of which this
Prospectus is a part and has performed due diligence with respect thereto.
LifeStyle has agreed to indemnify Merrill Lynch, in its capacity as the
qualified independent underwriter, against certain liabilities, including
liabilities under the Securities Act.

Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Class A Common
Stock. As an exception to these rules, the U.S. Representatives are permitted to
engage in certain transactions that stabilize the price of the Class A Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A Common Stock.

If one of the Underwriters creates a short position in the Class A Common
Stock in connection with the Offerings, i.e., if they sell more shares of Class
A Common Stock than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The U.S. Representatives may also elect to reduce any
short position by exercising all or part of the over-allotment options described
above.

The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Class A Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of Class A
Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.

In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Class A Common Stock to the extent
that it discourages resales of the Class A Common Stock.

Neither LifeStyle nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither LifeStyle nor any of the Underwriters makes any representation that the
U.S. Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

Merrill Lynch has in the past provided investment banking advisory services
to LifeStyle and may continue to do so in the future. First Union National Bank,
an affiliate of Wheat First Securities, Inc., is a lender under LifeStyle's
Credit Facility.

74
<PAGE> 77

LEGAL MATTERS

Certain legal matters with respect to the validity of the Class A Common
Stock offered hereby will be passed upon for LifeStyle by Davis Polk & Wardwell,
New York, New York. Debevoise & Plimpton, New York, New York has acted as
counsel for the Underwriters with respect to certain legal matters relating to
the Offerings.

EXPERTS

The consolidated balance sheets of LifeStyle as of December 31, 1996 and
1997 and the consolidated statements of operations, comprehensive income and
cash flows for the period from August 6, 1996 to December 31, 1996 and the year
ended December 31, 1997 and the combined statements of operations, comprehensive
income and cash flows of the Predecessor for the year ended December 31, 1995
and the period from January 1, 1996 to August 5, 1996, included in this
Prospectus and Registration Statement, have been included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.

AVAILABLE INFORMATION

LifeStyle has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to LifeStyle and the Class A Common Stock, reference is
hereby made to such Registration Statement and the exhibits and schedules
thereto. 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 copy of such contract or document filed as exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement may be inspected without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained by mail from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, including LifeStyle, that file
electronically with the Commission.

75
<PAGE> 78

INDEX TO FINANCIAL STATEMENTS

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets at December 31, 1996 and 1997, June 30, 1997
(unaudited) and 1998 (unaudited).......................... F-3
Statements of Operations for the year ended December 31,
1995, for the period January 1, 1996 to August 5, 1996,
for the period August 6, 1996 to December 31, 1996, for
the year ended December 31, 1997 and for the six months
ended June 30, 1997 (unaudited) and 1998 (unaudited)...... F-4
Statements of Comprehensive Income for the year ended
December 31, 1995, for the period January 1, 1996 to
August 5, 1996, for the period August 6, 1996 to December
31, 1996, for the year ended December 31, 1997 and for the
six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................... F-5
Statements of Cash Flows for the year ended December 31,
1995, for the period January 1, 1996 to August 5, 1996,
for the period August 6, 1996 to December 31, 1996, for
the year ended December 31, 1997 and for the six months
ended June 30, 1997 (unaudited) and 1998 (unaudited)...... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 79

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
LifeStyle Furnishings International Ltd.

We have audited the accompanying consolidated balance sheets of LifeStyle
Furnishings International Ltd. and subsidiaries ("LifeStyle," formerly
Furnishings International Inc.) as of December 31, 1996 and 1997 and the related
consolidated statements of operations, comprehensive income and cash flows for
the period August 6, 1996 to December 31, 1996 and for the year ended December
31, 1997. We have also audited the combined statements of operations,
comprehensive income and cash flows of the Masco Home Furnishings Group (certain
subsidiaries of Masco Corporation, as described in Note 2, and LifeStyle's
predecessor) for the year ended December 31, 1995 and for the period January 1,
1996 to August 5, 1996. These financial statements are the responsibility of
LifeStyle's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LifeStyle
Furnishings International Ltd. and subsidiaries as of December 31, 1996 and
1997, and the consolidated results of their operations and their cash flows for
the period August 6, 1996 to December 31, 1996 and the year ended December 31,
1997 and the combined results of operations and cash flows of the Masco Home
Furnishings Group for the year ended December 31, 1995 and the period January 1,
1996 to August 5, 1996, in conformity with generally accepted accounting
principles.

The combined financial statements for the periods ended prior to August 6,
1996 do not reflect the new basis of accounting established by the acquisition
of the Masco Home Furnishings Group as described in Note 1, and are presented on
the historical cost basis existing prior to the acquisition period.

/s/ PRICEWATERHOUSECOOPERS LLP

Coopers & Lybrand L.L.P.
Greensboro, North Carolina

February 25, 1998 except for

Note 15 for which the date is

June 30, 1998

F-2
<PAGE> 80

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
LIFESTYLE
--------------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash investments.............. $ 22,410 $ 3,670 $ 24,550 $ 11,470
Trade receivables...................... 82,860 66,360 66,980 59,940
Investment in receivables trust........ 51,120 64,010 53,990 61,590
Other receivables...................... 32,740 25,860 32,990 14,510
Inventories............................ 531,870 513,420 569,230 501,320
Prepaid expenses....................... 23,380 36,200 27,520 35,940
Deferred income taxes.................. 14,080 38,530 14,080 38,530
---------- ---------- ---------- ----------
Total current assets........... 758,460 748,050 789,340 723,300
Property and equipment, net.............. 349,650 337,770 354,270 344,130
Other assets............................. 77,390 53,010 66,570 47,100
---------- ---------- ---------- ----------
Total assets................... $1,185,500 $1,138,830 $1,210,180 $1,114,530
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Long-term debt, current................ $ 18,970 $ 2,970 $ 18,840 $ 460
Accounts payable....................... 95,470 124,540 124,100 129,350
Accrued liabilities.................... 158,670 131,310 146,460 136,000
---------- ---------- ---------- ----------
Total current liabilities...... 273,110 258,820 289,400 265,810
Long-term debt........................... 723,200 685,700 721,780 665,750
Deferred income taxes.................... 2,220 31,250 2,220 31,250
Other long-term liabilities.............. 44,370 54,080 43,500 53,960
---------- ---------- ---------- ----------
Total liabilities.............. 1,042,900 1,029,850 1,056,900 1,016,770
Mandatorily redeemable preferred stock... 126,560 142,780 134,780 126,350
Stockholders' equity (deficit):
Common stock, $.01 par value........... 6 6 6 6
Preferred stock, $.01 par value........ 4 4 4 4
Additional paid-in capital............. 8,610 8,580 8,610 5,570
Retained earnings (deficit)............ 6,380 (33,220) 11,070 (23,120)
Foreign currency translation........... 1,040 (9,170) (1,190) (11,050)
---------- ---------- ---------- ----------
Total stockholders' equity
(deficit).................... 16,040 (33,800) 18,500 (28,590)
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity
(deficit).................... $1,185,500 $1,138,830 $1,210,180 $1,114,530
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 81

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
---------------------------- -------------------------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
JAN. 1, 1995 JAN. 1, 1996 AUG. 6, 1996 JAN. 1, 1997 JAN. 1, 1997 JAN. 1, 1998
TO TO TO TO TO TO
DEC. 31, 1995 AUG. 5, 1996 DEC. 31, 1996 DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------ ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $1,992,610 $1,147,890 $849,520 $1,968,820 $970,790 $980,490
Cost of sales................. 1,500,990 870,650 629,430 1,458,190 715,620 737,560
Restructuring charge.......... -- -- -- 14,480 -- --
---------- ---------- -------- ---------- -------- --------
Gross profit................ 491,620 277,240 220,090 496,150 255,170 242,930
Selling, general and
administrative expenses..... 397,790 222,230 147,430 350,850 174,820 181,660
Restructuring charge.......... -- -- -- 44,020 -- --
---------- ---------- -------- ---------- -------- --------
Operating profit............ 93,830 55,010 72,660 101,280 80,350 61,270
---------- ---------- -------- ---------- -------- --------
Other expense, net:
Interest expense............ 2,360 970 34,160 78,840 40,200 36,460
Interest expense, Masco..... 92,470 51,720 -- -- -- --
Other, net.................. 8,260 3,480 7,800 19,440 9,460 8,000
---------- ---------- -------- ---------- -------- --------
103,090 56,170 41,960 98,280 49,660 44,460
---------- ---------- -------- ---------- -------- --------
Income (loss) before income
taxes and extraordinary
item........................ (9,260) (1,160) 30,700 3,000 30,690 16,810
Income taxes.................. 6,980 6,830 16,220 13,750 17,780 6,890
---------- ---------- -------- ---------- -------- --------
Income (loss) before
extraordinary item........ (16,240) (7,990) 14,480 (10,750) 12,910 9,920
Extraordinary item -- early
extinguishment of debt (net
of income taxes of
$7,750)..................... -- -- -- (11,620) -- --
---------- ---------- -------- ---------- -------- --------
Net income (loss)........... (16,240) (7,990) 14,480 (22,370) 12,910 9,920
Preferred dividends........... -- -- (6,560) (17,230) (8,220) (7,810)
---------- ---------- -------- ---------- -------- --------
Net income (loss) available
to common stockholders.... $ (16,240) $ (7,990) $ 7,920 $ (39,600) $ 4,690 $ 2,110
========== ========== ======== ========== ======== ========
Basic income (loss) per common
share, excluding Class D
common shares:
Income (loss) before
extraordinary item........ N/A N/A $ 20.47 $ (52.86) $ 16.22 $ 7.84
Extraordinary item.......... N/A N/A -- (24.97) -- --
-------- ---------- -------- --------
Net income (loss)........... N/A N/A $ 20.47 $ (77.83) $ 16.22 $ 7.84
======== ========== ======== ========
Diluted income (loss) per
common share, excluding
Class D common shares:
Income (loss) before
extraordinary item........ N/A N/A $ 10.75 $ (52.86) $ 8.43 $ 4.11
Extraordinary item.......... N/A N/A -- (24.97) -- --
-------- ---------- -------- --------
Net income (loss)........... N/A N/A $ 10.75 $ (77.83) $ 8.43 $ 4.11
======== ========== ======== ========
Basic and diluted loss per
Class D common share........ N/A N/A $(153.62) $ (360.73) $(289.35) $(178.81)
======== ========== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 82

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 83

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
--------------------------- ---------------------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
JAN. 1, 1995 JAN. 1, 1996 AUG. 6, 1996 JAN. 1, 1997 JAN. 1, 1997 JAN. 1, 1998
TO DEC. 31, TO AUG. 5, TO DEC. 31, TO DEC. 31, TO JUNE 30, TO JUNE 30,
1995 1996 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................... $(16,240) $ (7,990) $ 14,480 $(22,370) $ 12,910 $ 9,920
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 50,770 29,790 9,650 24,160 12,830 12,750
Fabric sample book amortization..... 17,150 9,470 5,820 14,250 8,110 7,180
Bad debt provision.................. 6,620 2,250 2,360 6,140 2,350 1,140
Deferred income taxes............... 4,560 (2,610) (5,880) (6,680) -- --
Non-cash interest expense........... -- -- 14,230 36,940 17,930 20,150
Extraordinary loss, net of tax...... -- -- -- 11,620 -- --
Restructuring charge................ -- -- -- 58,500 -- --
Changes in operating assets and
liabilities:
Receivables......................... (19,120) 39,550 13,450 16,360 7,820 16,200
Inventories......................... 10,390 (17,480) 32,200 3,970 (37,360) 12,100
Prepaid expenses and other assets... 260 2,470 (9,850) (1,200) 4,270 3,560
Accounts payable.................... 2,110 (1,890) 11,070 29,070 28,630 4,810
Other liabilities................... (7,180) (4,720) 32,050 (31,030) (12,710) 5,270
-------- -------- --------- -------- -------- --------
Net cash provided by operating
activities........................ 49,320 48,840 119,580 139,730 44,780 93,080
-------- -------- --------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures.................. (61,030) (16,520) (14,140) (33,020) (17,210) (17,230)
Fabric sample book expenditures....... (15,000) (9,190) (3,260) (14,280) (6,840) (6,060)
Net investments in receivables
trust............................... -- -- (51,120) (12,890) (2,870) 2,420
Issuance of notes receivable.......... (10,260) -- -- (3,990) -- (580)
Collection of notes receivable........ 5,020 2,790 1,670 16,650 10,530 4,790
Acquisition of businesses, net of cash
acquired............................ -- -- (645,430) -- -- --
Other, net............................ 8,790 (2,640) 3,380 (3,090) (60) (2,770)
-------- -------- --------- -------- -------- --------
Net cash used for investing
activities........................ (72,480) (25,560) (708,900) (50,620) (16,450) (19,430)
-------- -------- --------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt.......... 16,200 87,760 525,000 234,000 -- 32,000
Repayments of long-term debt.......... (3,720) (87,090) (108,690) (325,000) (20,040) (74,000)
Net proceeds (repayments) of other
debt................................ -- -- -- 940 850 (510)
Net proceeds (repayments) of accounts
receivable transactions............. -- -- 167,000 (17,000) -- --
Capital contribution.................. -- -- 66,010 -- -- --
Deferred financing costs.............. -- -- (37,590) (790) (7,000) --
Increase (decrease) in Masco net
investment and advances............. 3,280 (22,600) -- -- -- --
Dividends paid........................ -- -- -- -- -- (23,340)
-------- -------- --------- -------- -------- --------
Net cash provided by (used for)
financing activities.............. 15,760 (21,930) 611,730 (107,850) (26,190) (65,850)
-------- -------- --------- -------- -------- --------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period.... (7,400) 1,350 22,410 (18,740) 2,140 7,800
Balance, beginning of period.......... 24,710 17,310 -- 22,410 22,410 3,670
-------- -------- --------- -------- -------- --------
Balance, end of period................ $ 17,310 $ 18,660 $ 22,410 $ 3,670 $ 24,550 $ 11,470
======== ======== ========= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest.............................. $ 94,700 $ 52,700 $ 6,200 $ 44,450
======== ======== ========= ========
Income taxes.......................... $ 2,000 $ 10,000 $ 7,000 $ 28,300
======== ======== ========= ========
</TABLE>

Non-cash transactions

On December 12, 1997, LifeStyle declared a cash dividend, payable January
1998, of $23.3 million to holders of mandatorily redeemable preferred stock.

In addition to the acquisition consideration reflected above, LifeStyle
issued $285.0 million in payment-in-kind notes and $60.0 million in equity
securities to Masco during 1996.

The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 84

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY

Furnishings International Inc. ("FII") acquired certain assets and assumed
certain liabilities of the Masco Home Furnishings Group (the "Predecessor") from
Masco Corporation ("Masco") as of August 5, 1996 for approximately $1.1 billion
and contributed substantially all of the businesses acquired to LifeStyle
Furnishings International Ltd. ("LFI"), its wholly owned subsidiary. The
purchase price of $1.1 billion was financed by: (i) senior bank facilities
($325.0 million); (ii) the Subordinated Notes ($200.0 million); (iii) the
payment-in-kind note ($285.0 million); (iv) common and convertible preferred
stock ($5.0 million); (v) mandatorily redeemable preferred stock ($120.0
million); and (vi) proceeds from sale of accounts receivable ($155.0 million).
(See Note 8 Receivables Facility and Note 9 Long-Term Debt).

The acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price, which was $650 million less than the
historical carrying amount of the net assets of the Predecessor, was allocated
to the acquired assets and assumed liabilities based upon estimated fair values
as of the closing of the acquisition. This allocation resulted in the
elimination of goodwill and a reduction of non-current assets, principally
property and equipment.

As a result of the acquisition and new basis of accounting, LifeStyle's
financial statements for the periods subsequent to the acquisition are not
comparable to the Predecessor's financial statements for the periods prior to
the acquisition.

In 1998, in connection with the Offerings, LifeStyle Furnishings
International Ltd. will be merged with and into Furnishings International Inc.,
which will then change its name to LifeStyle Furnishings International Ltd.
("LifeStyle"). References to LifeStyle refer to Furnishings International Inc.
and its subsidiaries.

2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation. LifeStyle is engaged in the business of
manufacturing and marketing home furnishings, including fine furniture and
decorative home furnishing fabrics. Revenue is recognized when products are
shipped to customers. The Financial Statements include the accounts of LifeStyle
and its subsidiary companies. The Financial Statements presented herein include
those of the Predecessor for all periods prior to August 6, 1996 and LifeStyle
subsequent to that date. Intercompany accounts and transactions are eliminated.
In the Notes to the Financial Statements, all dollar amounts are shown in
thousands, except per share amounts, unless otherwise stated.

The financial information for the periods ended on or prior to August 5,
1996 refers to the Predecessor as it existed prior to the acquisition. The
Predecessor was not a legal entity and included certain Masco subsidiaries whose
operations consisted of the manufacture and sale of home furnishings, including
fine furniture and decorative home furnishing fabrics. The results of operations
of the Predecessor, as presented herein, may not be the same as would have
occurred had the Predecessor been an entity independent of Masco.

In connection with the acquisition, the purchase price allocation resulted
in the elimination of historical goodwill and a reduction of non-current assets,
principally property and equipment. This allocation was a result of the
historical carrying amount of the net assets of the Predecessor being in excess
of the purchase price paid by LifeStyle. Prior to the acquisition and in
accordance with Masco's accounting policy note, Masco periodically assessed
whether there had been an impairment of assets primarily by comparing current
and projected annual sales, operating income and annual cash flows on an
undiscounted basis with the related annual amortization expense. As of December
31, 1995 and through the date of the acquisition by LifeStyle, the goodwill and
property and equipment of the Predecessor had been subjected to an evaluation
for impairment based on this policy. The results of these cash flow tests
indicated that there was no impairment.

F-7
<PAGE> 85
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Included in selling, general and administrative expenses of the Predecessor
are general corporate expenses which represent certain corporate staff support
and administrative services previously provided by Masco. These expenses were
charged to the Predecessor by Masco based upon approximately 1 percent of sales
of most domestic Predecessor operations. Because these services were never
contracted with outsiders nor bids obtained, it is not practical to disclose
estimates of what the cost would have been on a stand alone basis. In addition,
the Predecessor participated in certain programs provided by Masco including
various insurance programs and incentive compensation plans; related costs of
these programs that exceed amounts included in general corporate expenses were
separately charged to the Predecessor by Masco.

Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires LifeStyle to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent 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 such estimates and assumptions.

Cash and Cash Investments. LifeStyle considers all highly liquid
investments with an original maturity of three months or less to be cash and
cash investments.

Receivables. Trade and other receivables are presented net of aggregate
allowances for doubtful accounts of $4.8 million at December 31, 1996 and $3.9
million at December 31, 1997.

Deferred Charges. Deferred charges, which consist primarily of debt
issuance costs associated with the acquisition from Masco are amortized over the
terms of the related debt using the effective interest method. Deferred charges
totaling $38.3 million, net of accumulated amortization of $1.7 million, and
$16.0 million, net of accumulated amortization of $3.0 million, were included in
Other Assets in the accompanying balance sheets as of December 31, 1996 and
1997, respectively. In August 1997, LifeStyle wrote off $19.4 million of
unamortized deferred financing costs related to the early extinguishment of
debt.

Property and Equipment. Property and equipment are stated at acquisition
cost as determined under APB Opinion No. 16 "Business Combinations." Assets
acquired subsequent to the acquisition, including significant betterments to
existing facilities, are recorded at cost. Upon retirement or disposal, the cost
and accumulated depreciation are removed from the accounts and any gain or loss
is included in income. LifeStyle reviews property and equipment for impairment
and write down to fair value whenever events or circumstances indicate that the
carrying value may not be recoverable through undiscounted cash flows. Fair
value is determined based on comparable market values, when available, or
discounted cash flows.

Depreciation and Amortization. Depreciation is computed principally using
the straight line method over the estimated useful lives of the assets.
LifeStyle generally uses estimated useful lives ranging from 15 to 40 years for
buildings and land improvements, and 3 to 8 years for machinery and equipment.
Purchased software and direct external costs related to the implementation of
the software are capitalized and amortized over a range of three to six years.
Depreciation expense was $36.0 million during 1995, $21.5 million for the period
January 1, 1996 to August 5, 1996, $7.6 million for the period August 6, 1996 to
December 31, 1996 and $20.2 million during 1997.

LifeStyle produces fabric sample books which are used to market some of its
products. LifeStyle capitalizes the cost of these sample books and amortizes
their cost over three years as a selling expense. The unamortized net cost of
the sample books is included in other assets and prepaid expenses and at
December 31, 1996 and 1997 aggregated $20.8 million and $18.8 million,
respectively, and the related amounts charged to selling expense were $17.2
million in 1995, $9.5 million for the period January 1, 1996 to August 5, 1996,
$5.8 million for the period August 6, 1996 to December 31, 1996 and $14.3
million during 1997.

F-8
<PAGE> 86
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Joint Ventures. LifeStyle has investments in several fifty-fifty joint
ventures in Asia which are accounted for on the equity method. At December 31,
1996 and 1997, LifeStyle's investment in these joint ventures totaled $9.4
million and $7.3 million, respectively, and is included in other assets. In
connection with certain of these investments, LifeStyle has guaranteed a minimum
return on investment to its joint venture partners if certain annual financial
targets are not achieved. LifeStyle records a liability for these guarantees
when payment is both probable and estimable.

Receivables Facility. Effective January 1, 1997, LifeStyle adopted
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
to account for its receivables facility. SFAS No. 125 allows LifeStyle to
derecognize the trade receivables transferred to LFI Receivables Corporation
(Note 8). Its adoption did not have a material effect on the results of
operations or financial position of LifeStyle.

Fair Value of Financial Instruments and Concentrations of Credit Risk. The
carrying value of financial instruments reported in the balance sheets for
current assets and current liabilities approximates fair value. The carrying
values of notes receivable, revolving credit facilities, investment in
receivables trust and the forward contract to sell accounts receivable
approximate fair value as the floating rates inherent in the related financial
instruments reflect changes in overall market interest rates. The fair value of
the payment-in-kind notes approximates carrying value. The fair value of the
Subordinated Notes was approximately $215 million and $222 million as of
December 31, 1996 and 1997, respectively, based on quoted market values,
compared to a carrying value of $200.0 million. LifeStyle's residual interest
retained in securitized receivables is presented at cost, which equals the face
amount of the underlying securitized receivables. The fair value of the
investment in receivables trust, representing LifeStyle's residual interest
retained in securitized receivables, approximates cost due to the current nature
of the underlying accounts. The estimated fair value of LifeStyle's investment
in Simmons approximates $0.1 million based upon management's estimate and the
discounted cash flows of expected future earnings.

LifeStyle's interest rate collar arrangements, which result in $250.0
million of LifeStyle's long-term debt being subject to a LIBOR ceiling of 8.0%
and a LIBOR floor of 5.45%, had a fair value of approximately $(0.8) and $(0.4)
million at December 31, 1996 and 1997, respectively, with a carrying value of
zero. Subsequent to December 31, 1997, LifeStyle renegotiated these interest
rate collar arrangements, lowering the LIBOR ceiling to 6.75% and the LIBOR
floor to 5.35%.

Foreign Currency Translation. Assets and liabilities of LifeStyle's
foreign subsidiaries, where the local currency is the functional currency, are
translated at the balance sheet date exchange rates and statement of operations
accounts are translated at the average rates prevailing during the year.
Adjustments resulting from the translation are recorded as a separate component
of stockholders' equity.

The following table reconciles the changes from period to period:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------ --------
<S> <C> <C>
Balance, beginning of period................................ $ -- $ 1,040
Translation adjustment...................................... 1,040 (10,210)
Income tax effect........................................... -- --
------ --------
Balance, end of period...................................... $1,040 $ (9,170)
====== ========
</TABLE>

Assets and liabilities of LifeStyle's foreign subsidiaries, where the U.S.
dollar is the functional currency, are remeasured at balance sheet date exchange
rates, except for non-monetary assets and liabilities, which are remeasured
using historical exchange rates. The resulting gains and losses are included in
the statements of operations. During the year ended December 31, 1995, the
period January 1, 1996 to August 5, 1996 and the period August 6, 1996 to
December 31, 1996, LifeStyle recognized $(0.6) million, $(0.5) million and $0.2

F-9
<PAGE> 87
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

million, respectively, in remeasurement gains (losses). Due to significant
devaluation of Asian currencies during 1997, LifeStyle recognized a $7.0 million
loss on remeasurement for the year ended December 31, 1997. The resulting gains
and losses are included in "Other, net" in the accompanying statements of
operations.

Reclassifications. Certain prior period amounts have been reclassified to
conform with current period presentation.

Recently Issued Accounting Standards. SFAS No. 129, "Disclosure of
Information about Capital Structure," will become effective in 1998 and will not
have a material effect on the information currently reported by LifeStyle.
LifeStyle will adopt the provisions of SFAS No. 129 effective December 31, 1998.

SFAS No. 130, "Reporting Comprehensive Income," became effective in 1998.
This Statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. Under the provision of
SFAS No. 130, LifeStyle elected to report comprehensive income in a separate
statement of comprehensive income that begins with net income. Comparative
disclosures which include prior period information have been restated to conform
with the provisions of this Statement.

SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," will become effective in 1998. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. This Statement requires that LifeStyle report financial and
descriptive information about its reportable operating segments on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments. Comparative disclosures which include prior
period information will be restated to conform with the provisions of this
Statement. LifeStyle will adopt the provisions of SFAS No. 131 effective
December 31, 1998.

SFAS No. 132 "Employers' Disclosure about Pensions and Other Postretirement
Benefits," will become effective in 1998. This Statement standardizes the
disclosure requirements for pensions and postretirement benefits and will
require changes in disclosures of benefit obligations and fair values of plan
assets. Comparative disclosures which include prior period information will be
restated to conform with the provisions of this Statement. LifeStyle will adopt
the provisions of SFAS No. 132 effective December 31, 1998.

3. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Finished goods......................................... $229,180 $219,820
Raw material........................................... 216,250 212,640
Work in process........................................ 86,440 80,960
-------- --------
$531,870 $513,420
======== ========
</TABLE>

Inventories are stated at the lower of cost or net realizable value, with
cost determined principally by use of the first-in, first-out method.

F-10
<PAGE> 88
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Land and improvements.................................. $ 37,330 $ 32,600
Buildings.............................................. 206,380 204,920
Machinery and equipment................................ 113,570 121,930
-------- --------
357,280 359,450
Less accumulated depreciation.......................... 7,630 21,680
-------- --------
$349,650 $337,770
======== ========
</TABLE>

LifeStyle leases various facilities and equipment under non-cancelable
lease arrangements. Rent expense was $21.5 million during 1995, $12.3 million
for the period January 1, 1996 to August 5, 1996, $8.4 million for the period
August 6, 1996 to December 31, 1996 and $19.7 million during 1997.

At December 31, 1997, future minimum rental commitments for operating
leases with non-cancelable terms in excess of one year are as follows:
1998-$15.3 million; 1999-$13.2 million; 2000-$11.4 million; 2001-$6.8 million;
2002-$4.2 million; and thereafter-$5.2 million.

5. NOTES RECEIVABLE

LifeStyle has notes receivable from certain of its customers which are
included in Other Receivables and Other Assets in the accompanying balance
sheets. Generally, these notes require periodic payments of principal and
interest and are collateralized by inventory and personal guarantees of the
customers. These notes bear interest based predominantly on the prevailing prime
rate. Approximately $7.6 million of these notes are due from one customer at
December 31, 1997. Although LifeStyle does not currently foresee a material
credit risk associated with this receivable, repayment is dependent upon the
financial stability of this customer.

6. ACCRUED LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Salaries, wages and commissions............................. $ 32,890 $ 28,330
Employee retirement plans................................... 8,270 8,840
Interest.................................................... 15,410 12,840
Advertising and sales promotion............................. 10,380 9,720
Insurance................................................... 7,710 7,200
Warranty reserve............................................ 2,500 2,500
Income taxes................................................ 15,140 --
Property, payroll and other taxes........................... 4,090 3,140
Restructuring............................................... 27,950 28,510
Other....................................................... 34,330 30,230
-------- --------
$158,670 $131,310
======== ========
</TABLE>

7. RESTRUCTURING INITIATIVES

F-11
<PAGE> 89
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

restructuring activity is taking place in Asia, where facilities with 1.4
million square feet of manufacturing and distribution space will be eliminated
by December 31, 1998, as production is consolidated into existing, lower-cost
Asian facilities and as distribution facilities are rationalized. Implementation
of this restructuring effort began in the first quarter of 1998, and by June 30,
1998, facilities with approximately 1.0 million square feet will be eliminated.
As a result of the restructuring, significant non-recurring costs will be
incurred to sever lease obligations, provide for employee severance, and provide
for the impairment of inventory and property and equipment. The restructuring
initiatives include a reduction in workforce, eliminating approximately 5,000
positions by the end of 1998. The positions to be eliminated consist of
production and supervisory personnel.

<TABLE>
<CAPTION>
NON-
CASH CASH TOTAL
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Asset write-downs........................................... $ -- $38.1 $38.1
Contractual obligations..................................... 9.8 -- 9.8
Employee severance.......................................... 8.8 -- 8.8
Other....................................................... 1.8 -- 1.8
----- ----- -----
$20.4 $38.1 $58.5
===== ===== =====
</TABLE>

In connection with the August 5, 1996 acquisition of the Predecessor,
management developed a restructuring plan. As permitted by EITF 95-3
"Recognition of Liabilities in Connection with a Purchase Business Combination,"
the total cost of the plan of approximately $28.3 million was included as part
of the purchase price allocation. This restructuring plan which provided for
severance costs associated with the closure of various facilities, costs
associated with the relocation of equipment and office facilities and other
closure related expenses was completed in early 1998.

8. RECEIVABLES FACILITY

In connection with LifeStyle's $200.0 million Receivables Facility, LFI
Receivables Corporation (the "Receivables Subsidiary"), a special-purpose,
bankruptcy remote subsidiary of LifeStyle, purchases, on a revolving basis,
substantially all domestic trade receivables generated by LifeStyle. The
Receivables Subsidiary transfers and assigns all its rights in substantially all
those receivables to the LFI Receivables Master Trust (the "Master Trust").
LifeStyle continues to service the receivables. The servicing assets and
liabilities related to this arrangement are not significant.

A syndicate of banks and other financial institutions (the "Participants")
may purchase investor certificates representing fractional undivided senior
interests in the assets of the Master Trust ("Senior Investor Certificates").
The Receivables Subsidiary also retains an investment in the Master Trust equal
to the face value of receivables transferred to the Master Trust, but not sold
to the Participants, comprised of:

F-12
<PAGE> 90
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

i) a fractional, undivided senior interest in trade receivables; and ii) a
fractional, undivided subordinated interest in trade receivables.

As of December 31, the balance of trade receivables and cash held by the
Master Trust, as well as the fractional, undivided senior and subordinated
interests in the assets of the Master Trust, were as follows:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Senior interests sold to Participants....................... $167,000 $150,000
Senior interests retained by the Receivables Subsidiary..... 4,950 --
Subordinated interests retained by the Receivables
Subsidiary................................................ 46,170 64,010
-------- --------
Balance of trade receivables and cash held by the Master
Trust..................................................... $218,120 $214,010
======== ========
</TABLE>

The Senior Investor Certificates bear interest at LIBOR plus .125% to .625%
and there is a commitment fee of .175% per annum on the unused commitment under
the facility. The cost of this facility amounted to $4.4 million for the period
August 6, 1996 to December 31, 1996 and $9.8 million during 1997, and is
included in "Other, net" in the accompanying Statements of Operations.

This arrangement places certain restrictions on LifeStyle and the
Receivables Subsidiary, including placing liens on LifeStyle's trade
receivables. At December 31, 1997, LifeStyle was in compliance with these
covenants.

9. LONG-TERM DEBT

As of December 31, the outstanding balances of long-term debt were as
follows:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Revolving credit facility................................... $ -- $152,000
Tranche A term loan......................................... 100,420 --
Tranche B term loan......................................... 140,580 --
Subordinated Notes.......................................... 200,000 200,000
Payment-in-kind note........................................ 297,540 334,100
Other borrowings............................................ 3,630 2,570
-------- --------
742,170 688,670
Less current portion........................................ 18,970 2,970
-------- --------
$723,200 $685,700
======== ========
</TABLE>

LifeStyle may periodically guarantee loans, leases or other credit
facilities for its customers and joint venture partners. At December 31, 1997,
the outstanding balance of these guarantees approximated $5.2 million. In
addition, LifeStyle has guaranteed to certain joint venture partners a minimum
return on investment. Future guarantees under these arrangements aggregated
approximately $4.3 million at December 31, 1997.

At December 31, 1997, the maturities of long-term debt during each of the
next five years were approximately as follows: 1998-$3.0 million; 1999-$1.6
million; and $684.1 million subsequent to 2002.

Revolving Credit Facility. On August 15, 1997, LifeStyle replaced the
former revolving credit facility, Tranche A term loan and Tranche B term loan
with a six-year $400.0 million senior secured revolving credit facility. The
revolving credit facility provides LifeStyle with increased financial
flexibility by eliminating quarterly principal payment requirements, reducing
financing costs and reducing the number of restrictive covenants. The revolving
credit facility bears interest at a floating rate equal to LIBOR plus an
applicable percentage based upon LifeStyle's debt coverage ratio at the end of
each quarter. In connection with the
F-13
<PAGE> 91
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

repayment of the former revolving credit and term loan facilities, LifeStyle
recorded an extraordinary loss of $19,370 ($11,620 net of tax), consisting of
the write-off of unamortized deferred financing costs related to the early
extinguishment of debt.

The obligation under the revolving credit facility is unconditionally
guaranteed, jointly and severally, by substantially all domestic subsidiaries of
LifeStyle, and is collateralized by substantially all the fixed assets of the
guarantors. The revolving credit facility contains restrictive covenants
including minimum interest coverage ratios, maximum leverage ratios, and annual
capital expenditure limitations. At December 31, 1997, LifeStyle was in
compliance with these covenants.

Subordinated Notes. In connection with the acquisition of the Predecessor,
LifeStyle issued, in a private placement, $200.0 million unsecured senior
subordinated notes maturing August 1, 2006 ("Notes"). Interest on the Notes is
payable semiannually at 10 7/8% per annum commencing on February 1, 1997. On
November 8, 1996, LifeStyle's registration statement on Form S-4 (No. 333-11905)
became effective under the Securities Act of 1933, providing for the exchange of
the Notes for new Notes. All old Notes were exchanged for new Notes on December
13, 1996. The new Notes are identical in all material respects to the Notes
issued through the private placement except that they are registered under the
Securities Act, thus allowing, subject to certain limitations, transfer pursuant
to the Securities Act.

The Notes may be redeemed by LifeStyle subsequent to August 1, 2001 at
premiums which begin at 5.438% and decline each year to 0% for redemptions
taking place after August 1, 2004. In addition, at any time prior to August 1,
1999, LifeStyle may redeem up to 33.33% of the original aggregate principal
amount of the Notes with the proceeds of one or more public equity offerings at
a redemption price of 110.875%. Also, upon a qualifying change of control, the
Notes may be redeemed at the option of LifeStyle at the Applicable Premium (as
defined), or in certain instances at the option of the Note holders at a premium
of 1%. The Notes contain certain restrictive covenants which, among others,
limit the incurrence of additional indebtedness and restrict capital
transactions, distributions, and asset dispositions of certain subsidiaries. At
December 31, 1997, LifeStyle was in compliance with these covenants.

LifeStyle's domestic operating subsidiaries fully and unconditionally
guarantee LifeStyle's performance under the Notes on a joint and several basis.

Payment-In-Kind Note. LifeStyle issued a $285.0 million payment-in-kind
note ("PIK Note") to Masco in connection with the acquisition. The PIK Note
bears interest at 12% per annum which is payable semi-annually, and may be paid
in kind until and including the eighth anniversary of the original date of
issuance, except that after the fifth anniversary and until and including the
eighth anniversary of the original date of issuance, current interest will be
payable in cash in an amount up to LifeStyle's Excess Cash Flow (as defined),
provided such cash payments are then permitted under the terms of LifeStyle's
and its subsidiaries' other indebtedness. The PIK Note, together with the
accrued interest thereon, will be prepaid with the net proceeds from the
Offerings.

10. EMPLOYEE RETIREMENT PLANS

LifeStyle sponsors qualified defined benefit and defined contribution
retirement plans for most of its employees. LifeStyle also maintains a
non-qualified, defined benefit retirement plan for certain key executives.
LifeStyle's funding policy with respect to the qualified defined benefit plans
is to contribute amounts to the plan sufficient to meet minimum funding
requirements as set by law. Plan assets consist primarily of interests in index
funds holding debt and equity securities. The non-qualified plan is unfunded.
LifeStyle's defined contribution plans, available to most domestic employees,
contain a savings provision that permits pre-tax employee contributions and, at
certain locations, a limited employer match. Aggregate charges to income under
these plans were $7.1 million during 1995, $4.0 million for the period January
1, 1996 to August 5, 1996, $4.4 million for the period August 6, 1996 to
December 31, 1996 and $11.1 million during 1997.

F-14
<PAGE> 92
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Net periodic pension cost for LifeStyle's pension plans includes the
following components:

Major assumptions used in accounting for LifeStyle's pension plans are as
follows:

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
----------- ------------
1995 1996 1997
----------- ---- ----
<S> <C> <C> <C>
Weighted average discount rate for obligations............. 7.3% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets........... 11.0% 10.0% 10.0%
</TABLE>

The funded status of LifeStyle's pension plans at December 31 is summarized
as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED EXCEED
ASSETS ASSETS
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $150,770 $157,130
======== ========
Accumulated benefit obligation.............................. $153,360 $161,880
======== ========
Projected benefit obligation................................ $184,940 $191,000
Assets at fair value........................................ 134,820 141,660
-------- --------
Projected benefit obligation in excess of plan assets....... (50,120) (49,340)
Reconciling items:
Unrecognized net loss..................................... 22,340 20,410
Unrecognized prior service cost........................... 360 330
Unrecognized net asset at transition...................... (1,310) (1,120)
Requirement to recognize minimum liability................ (4,720) (6,930)
Contribution made after measurement date.................. -- 670
-------- --------
Accrued pension cost........................................ $(33,450) $(35,980)
======== ========
</TABLE>

F-15
<PAGE> 93
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED CUMULATIVE STOCKHOLDERS'
COMMON PREFERRED PAID-IN EARNINGS TRANSLATION EQUITY
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENTS (DEFICIT)
------ --------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 5, 1996..... $-- $-- $2,960 $ (1,540) $ -- $ 1,420
Issuance of stock........... 6 4 5,650 -- -- 5,660
Dividends accrued on
mandatorily redeemable
preferred stock.......... -- -- -- (6,560) -- (6,560)
Currency translation........ -- -- -- -- 1,040 1,040
Net income.................. -- -- -- 14,480 -- 14,480
-- -- ------ -------- -------- --------
Balance at December 31,
1996........................ 6 4 8,610 6,380 1,040 16,040
Stock repurchases, net...... -- -- (30) -- -- (30)
Dividends accrued on
mandatorily redeemable
preferred stock.......... -- -- -- (17,230) -- (17,230)
Currency translation........ -- -- -- -- (10,210) (10,210)
Net loss.................... -- -- -- (22,370) -- (22,370)
-- -- ------ -------- -------- --------
Balance at December 31,
1997........................ $6 $4 $8,580 $(33,220) $ (9,170) $(33,800)
== == ====== ======== ======== ========
</TABLE>

On December 12, 1997, LifeStyle declared a cash dividend, payable January
1998, of $23.3 million to holders of mandatorily redeemable preferred stock.

Common Stock. As of December 31, 1997, LifeStyle's authorized common stock
has a par value of $0.01 and consists of 6 million shares of Class A Common
Stock, 6 million shares of Class B Common Stock, 116,100 shares of Class C
Common Stock, and 100,000 shares of Class D Common Stock. As of December 31,
1997, there were 98,776, 374,860, 114,184, and 9,269 shares of Class A, B, C,
and D common stock issued and outstanding, respectively. As of December 31,
1996, there were 99,999, 377,778, 101,924, and 9,435 shares of Class A, B, C,
and D common stock issued and outstanding, respectively. The Class D common
stock was designed to specifically track the performance of Simmons.

Preferred Stock. As of December 31, 1997, LifeStyle's preferred stock
consists of 4 million authorized shares with a par value of $0.01 per share. As
of December 31, 1997, there were 406,125 shares of Series B and Series C
Convertible Preferred Stock and 1,194,350 shares of Series A-1 and Series A-2
Mandatorily Redeemable Preferred Stock issued and outstanding, respectively.

The Convertible Preferred Stock is non-voting and has a stated value and
liquidation preference of $6.02 per share. Each share of Convertible Preferred
Stock is convertible, on a share-for-share basis, into shares of Class A or
Class B Common Stock.

The Series A-1 Mandatorily Redeemable Preferred Stock has a stated value of
$100 per share and accrues cumulative, quarterly dividends at a compound rate of
13% per annum. The Series A-2 Mandatorily Redeemable Preferred Stock has a
stated value of $100 per share and accrues cumulative, quarterly dividends at a
compound rate of 13.5% per annum. These shares have a liquidation preference of
$100 per share, plus accrued and unpaid dividends, and are non-voting, with the
exception of certain specified matters impacting the senior ranking of the
shares. Shares of Series A-1 Preferred Stock will be exchanged for shares of
Series B and Series C Convertible Preferred Stock in connection with the
Offerings.

Shares of Series A-2 Preferred Stock are subject to mandatory redemption
upon the earlier of: (i) a change of control (as defined) or (ii) February 5,
2009. LifeStyle may, in certain circumstances, exchange the

F-16
<PAGE> 94
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

shares of Series A-2 Preferred Stock for 13% junior subordinated debentures on a
dollar-for-dollar stated value basis plus accrued and unpaid dividends.

Management Stock. LifeStyle's Restricted Stock Plan covers 206,608 shares
of Common Stock in the aggregate, reduced by the total number of shares of
Common Stock held from time-to-time by employees and consultants of LifeStyle
and its subsidiaries that were not issued under the Plan. On August 5, 1996,
LifeStyle issued 118,979 shares of Common Stock to management for no
consideration. During the period August 6, 1996 to December 31, 1996 and the
year ended December 31, 1997, LifeStyle issued 3,071 and 17,275 shares of Common
Stock to management for no consideration under the Plan. The stock vests in
annual increments over five years. LifeStyle recorded compensation expense based
on the fair value of the shares of $5.44 and $5.92 per share for shares issued
through September 30, 1997 and December 31, 1997, respectively. Approximately
19,174 shares became available for issuance under the Plan in 1997.

As of December 31, 1997, there were 16,365 shares of Common Stock reserved
for future issuance under the Plan.

12. INCOME (LOSS) PER SHARE

Basic and diluted income (loss) per share, excluding Class D common shares,
were determined as follows:

<TABLE>
<CAPTION>
AUG. 6, 1996 JAN. 1, 1997
TO TO
DEC. 31, 1996 DEC. 31, 1997
------------- -------------
<S> <C> <C>
Basic income (loss) per common share:
Income (loss) before extraordinary item................... $ 14,480 $(10,750)
Less: Loss applicable to Class D common stock............. (1,450) (3,380)
Less: Preferred dividends................................. 6,560 17,230
-------- --------
Income (loss) available to common stockholders............ $ 9,370 $(24,600)
Weighted average shares................................... 457,777 465,372
-------- --------
Basic income (loss) per share before extraordinary item... $ 20.47 $ (52.86)
======== ========
Diluted income (loss) per common share:
Weighted average shares................................... 457,777 465,372
Effect of dilutive securities:
Convertible preferred stock............................ 406,125 --
Management stock....................................... 8,014 --
-------- --------
Weighted average shares, assuming dilution................ 871,916 465,372
-------- --------
Diluted income (loss) per share before extraordinary
item................................................... $ 10.75 $ (52.86)
======== ========
</TABLE>

F-17
<PAGE> 95
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Basic and diluted loss per Class D common share, were determined as follows:

<TABLE>
<CAPTION>
AUG. 6, 1996 JAN. 1, 1997
TO TO
DEC. 31, 1996 DEC. 31, 1997
------------- -------------
<S> <C> <C>
Basic and diluted loss per Class D common share:
Loss applicable to Class D common stockholders............ $ (1,450) $ (3,380)
Weighted average shares................................... 9,439 9,370
-------- --------
Basic and diluted loss per Class D common share........... $(153.62) $(360.73)
======== ========
</TABLE>

13. INCOME TAXES

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
----------------------------- ------------------------------
JAN. 1, 1995 JAN. 1, 1996 AUG. 6, 1996 JAN. 1, 1997
TO TO TO TO
DEC. 31, 1995 AUG. 5, 1996 DEC. 31, 1996 DEC. 31, 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item:
Domestic............................... $(9,410) $ (350) $31,230 $ 36,360
Foreign................................ 150 (810) (530) (33,360)
------- ------- ------- --------
$(9,260) $(1,160) $30,700 $ 3,000
======= ======= ======= ========
Provision (credit) for income taxes:
Currently payable (refundable):
Federal -- U.S. income (losses)..... $(4,820) $ 3,680 $15,620 $ 4,820
-- Certain foreign
earnings.................. 3,030 2,510 1,640 3,360
State and local..................... 3,200 1,950 3,840 3,650
Foreign............................. 1,010 1,300 1,010 1,110
Deferred:
Domestic............................ 4,560 (2,600) (5,890) 9,190
Foreign............................. -- (10) -- (8,380)
------- ------- ------- --------
$ 6,980 $ 6,830 $16,220 $ 13,750
======= ======= ======= ========
</TABLE>

F-18
<PAGE> 96
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventories............................................... $ 7,830 $ 8,850
Accrued liabilities....................................... 37,260 40,930
------- -------
Gross deferred tax assets.............................. 45,090 49,780
------- -------
Deferred tax liabilities:
Property and equipment.................................... 23,560 29,960
Other..................................................... 1,280 1,290
------- -------
Gross deferred tax liabilities......................... 24,840 31,250
------- -------
Net deferred tax asset before valuation allowance........... 20,250 18,530
Valuation allowance......................................... (8,390) --
------- -------
Net deferred tax asset...................................... $11,860 $18,530
======= =======
</TABLE>

The following is a reconciliation of tax computed at the U.S. federal
statutory rate to the provision for income taxes allocated to income (loss)
before income taxes and extraordinary item.

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
----------------------------- -----------------------------
JAN. 1, 1995 JAN. 1, 1996 AUG. 6, 1996 JAN. 1, 1997
TO TO TO TO
DEC. 31, 1995 AUG. 5, 1996 DEC. 31, 1996 DEC. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. federal statutory rate..................... 35% 35% 35% 35%
Tax (credit) at U.S. federal statutory rate..... $(3,240) $ (410) $10,750 $ 1,050
Higher taxes on foreign earnings................ 4,050 4,080 2,870 7,560
Amortization in excess of tax................... 4,460 2,620 140 --
State and local taxes, net of federal tax
benefit....................................... 2,080 1,270 1,820 3,470
Other........................................... (370) (730) 640 1,670
------- ------ ------- -------
Income taxes.................................. $ 6,980 $6,830 $16,220 $13,750
======= ====== ======= =======
</TABLE>

LifeStyle and its subsidiaries file a consolidated federal tax return and
have entered into a tax sharing agreement.

Under SFAS No. 109, deferred income taxes are provided to recognize the
effect of temporary differences between financial reporting and income tax
reporting. Realization of deferred tax assets is dependent upon the ability to
carryback reversing deductible temporary differences to offset actual taxable
income in the carryback period or to offset taxable temporary differences as
scheduled reversals are projected to occur. Management established a partial
valuation allowance relating to deferred tax assets existing at December 31,
1996. No valuation allowance was required at December 31, 1997.

F-19
<PAGE> 97
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

14. RELATED PARTY TRANSACTIONS

As part of the acquisition of the Predecessor, LifeStyle entered into a
Transition Services Agreement pursuant to which Masco provided LifeStyle certain
corporate support, administrative, data processing, legal, environmental and
other services through April 1997. Since April, 1997, Masco has continued to
provide certain services on a limited basis. Costs incurred under this agreement
approximated $2.1 million and $1.7 million in 1996 and 1997, respectively, of
which approximately $0.7 million was included in accrued liabilities at December
31, 1996.

15. SIMMONS UPHOLSTERED FURNITURE CORPORATION ("SIMMONS")

On June 30, 1998, the common stock of Simmons, a wholly-owned subsidiary
that is separately managed, operated and financed, was distributed, on a
pro-rata basis, to the holders of the Class D common stock in exchange for all
of their shares of Class D common stock. The spin-off was recorded at historical
cost as the Class D common stock was targeted stock (as defined in Emerging
Issues Task Force ("EITF") Issue 96-4 "Accounting for Reorganizations Involving
a Non Pro-Rata Split-off of Certain Non-Monetary Assets to Owners") and was not
created in contemplation of the spin-off. LifeStyle and Simmons have no
financial commitments, guarantees or contingent arrangements to or with each
other either before or after the spin-off.

The assets and liabilities of Simmons have been presented in Other Assets
in the accompanying balance sheets and the losses of Simmons have been presented
in Other, net in the accompanying statements of operations. Inclusion of the
separate components of assets, liabilities and losses in the accompanying
balance sheets and statements of operations would not result in a materially
different presentation. The following represents summarized financial
information for Simmons:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Assets...................................................... $12,400 $12,070 $21,480
Liabilities................................................. 10,980 12,090 25,120
Net sales................................................... 31,530 91,800 81,540
Operating profit (loss)..................................... (860) 300 (2,740)
Loss........................................................ (1,540) (1,450) (3,380)
</TABLE>

16. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, LifeStyle may become exposed to
potential liabilities resulting from spills and releases of hazardous substances
at its sites and facilities. LifeStyle also has been named as a potentially
responsible party at a number of non-owned contaminated sites, including
Superfund sites. LifeStyle does not believe that costs associated with
investigating or remediating these releases or costs related to these sites will
have a material adverse effect on LifeStyle's financial condition, cash flows,
operating expenses or earnings. However, there can be no assurance that material
costs relating to these matters will not be incurred in the future.

From time to time, LifeStyle is a party to various legal actions in the
normal course of its business. LifeStyle is not currently a party to any
litigation which, if adversely determined, would have a material adverse effect
on the liquidity or results of operations of LifeStyle.

17. GEOGRAPHIC INFORMATION

LifeStyle is engaged principally in one line of business: the manufacturing
and marketing of home furnishings, including fine furniture and decorative home
furnishing fabrics.

F-20
<PAGE> 98
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present information about LifeStyle by geographic
area:

<TABLE>
<CAPTION>
NET SALES(1)
---------------------------------------------------------------
PREDECESSOR LIFESTYLE
----------------------------- ------------------------------
JAN. 1, 1995 JAN. 1, 1996 AUG. 6, 1996 JAN. 1, 1997
TO TO TO TO
DEC. 31, 1995 AUG. 5, 1996 DEC. 31, 1996 DEC. 31, 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
United States............................ $1,761,000 $1,030,000 $762,000 $1,779,000
Pacific Rim.............................. 141,000 76,000 58,000 115,000
European Union and other foreign
countries.............................. 91,000 42,000 30,000 75,000
---------- ---------- -------- ----------
Total.......................... $1,993,000 $1,148,000 $850,000 $1,969,000
========== ========== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
OPERATING PROFIT
---------------------------------------------------------------
PREDECESSOR LIFESTYLE
----------------------------- ------------------------------
JAN. 1, 1995 JAN. 1, 1996 AUG. 6, 1996 JAN. 1, 1997
TO TO TO TO
DEC. 31, 1995 AUG. 5, 1996 DEC. 31, 1996 DEC. 31, 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
United States............................ $ 91,000 $ 55,000 $ 65,000 $146,000
Pacific Rim.............................. 22,000 12,000 13,000 (28,000)
European Union and other foreign
countries.............................. (3,000) (3,000) 1,000 (1,000)
--------- -------- -------- --------
Total.......................... 110,000 64,000 79,000 117,000
--------- -------- -------- --------
Other expense, net....................... (103,000) (56,000) (42,000) (98,000)
General corporate expense................ (16,000) (9,000) (6,000) (16,000)
--------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item......................... $ (9,000) $ (1,000) $ 31,000 $ 3,000
========= ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
ASSETS AT DECEMBER 31
------------------------
LIFESTYLE LIFESTYLE
---------- ----------
1996 1997
---------- ----------
<S> <C> <C>
United States............................................... $ 916,000 $ 894,000
Pacific Rim................................................. 212,000 193,000
European Union and other foreign countries.................. 58,000 52,000
---------- ----------
Total............................................. $1,186,000 $1,139,000
========== ==========
</TABLE>

- ---------------
(1) After elimination of intracompany sales between geographic areas of:

18. SUBSEQUENT EVENTS (UNAUDITED)

(1) The financial information for June 30, 1997 and 1998 included herein is
unaudited. In the opinion of management, the June 30, 1997 and 1998 financial
information reflects all of the adjustments necessary, consisting only of normal
recurring adjustments, for a fair presentation of such financial statements.

F-21
<PAGE> 99
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) As of June 30, 1997 and 1998, inventory balances were as follows:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Finished goods......................................... $254,020 $228,320
Raw materials.......................................... 230,960 200,290
Work in process........................................ 84,250 72,710
-------- --------
$569,230 $501,320
======== ========
</TABLE>

(3) As of June 30, 1997 and 1998, the outstanding balances of long-term
debt were as follows:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revolving credit facility.............................. $ -- $110,000
Tranche A term loan.................................... 87,820 --
Tranche B term loan.................................... 133,140 --
Subordinated Notes..................................... 200,000 200,000
PIK Note............................................... 315,190 354,150
Other borrowings....................................... 4,470 2,060
-------- --------
740,620 666,210
Less current portion................................... 18,840 460
-------- --------
$721,780 $665,750
======== ========
</TABLE>

(4) The following represents summarized financial information for Simmons
as of June 30:

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Assets................................................... $16,520 $ --
Liabilities.............................................. 19,270 --
Net sales................................................ 40,290 30,300
Operating profit (loss).................................. (1,450) 120
Loss..................................................... $(2,730) $(1,630)
</TABLE>

F-22
<PAGE> 100
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) Basic and diluted income per share, excluding Class D common shares,
were determined as follows:

<TABLE>
<CAPTION>
JAN. 1, 1997 JAN. 1, 1998
TO TO
JUNE 30, 1997 JUNE 30, 1998
-------------- --------------
<S> <C> <C>
Basic income per common share:
Net income...................................... $ 12,910 $ 9,920
Less: Loss applicable to Class D common
shares....................................... (2,730) (1,630)
Less: Preferred dividends....................... 8,220 7,810
-------- --------
Income available to common stockholders......... $ 7,420 $ 3,740
Weighted average shares......................... 457,443 477,038
-------- --------
Basic income per share.......................... $ 16.22 $ 7.84
======== ========
Diluted income per common share:
Weighted average shares......................... 457,443 477,038
Effect of dilutive securities:
Convertible preferred stock.................. 406,125 406,125
Management stock............................. 16,802 27,282
-------- --------
Weighted average shares, assuming dilution...... 880,370 910,445
-------- --------
Diluted income per share before extraordinary
item......................................... $ 8.43 $ 4.11
======== ========
</TABLE>

(6) Basic and diluted loss per Class D common share were determined as
follows:

<TABLE>
<CAPTION>
JAN. 1, 1997 JAN. 1, 1998
TO TO
JUNE 30, 1997 JUNE 30, 1998
-------------- --------------
<S> <C> <C>
Basic and diluted loss per Class D common share:
Loss applicable to Class D common shares........ $ (2,730) $ (1,630)
Weighted average shares......................... 9,435 9,116
--------- ---------
Basic and diluted loss per Class D common
share........................................ $ (289.35) $ (178.81)
========= =========
</TABLE>

F-23
<PAGE> 101

[GRAPHICS: INSIDE BACK COVER]

[Photo N]

BERKLINE(R). The world's largest motion furniture company brings style,
functionality, practicality and fun to the home furnishings marketplace.
Berkline's reclining furniture is a perfect fit for today's more relaxed
lifestyles.

[Photo O]

UNIVERSAL(R)'S HABITAT. Encompassing a most comprehensive assortment of
furniture styles designed for the less formal mood of today's homes.

[Photo P]

ALEXANDER JULIAN HOME COLOURS(R) BY UNIVERSAL(R). Revered clothing and home
textile designer Alexander Julian and Universal designers have fashioned three
furniture collections that capture the tailoring nuances present in men's
clothing.

[Photo Q]

BENCHCRAFT(R). Continuing to build its reputation as the "casual living"
resources for upholstery, BenchCraft offers tight tailoring detail and
fashionable fabric for consumers seeking easy comfort and affordable style.
<PAGE> 102

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

UNTIL , 1998, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

LIFESTYLE FURNISHINGS

INTERNATIONAL LTD.

CLASS A COMMON STOCK

[LOGO]

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

PROSPECTUS
------------------------

MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
WHEAT FIRST UNION

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 103

The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement that has
been filed with the Securities and Exchange Commission is effective. This
Prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

SUBJECT TO COMPLETION, DATED AUGUST 27, 1998

PROSPECTUS

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

CLASS A COMMON STOCK
------------------------
This is our initial public offering. The International Managers will offer
shares outside the United States and Canada and the U.S.
Underwriters will offer shares in the United States and Canada.
This is a firm commitment underwriting.

We expect the public offering price to be between $________ and $________
per share. No public market currently exists for the shares. We intend to apply
to list the Class A Common Stock on the New York Stock Exchange under the symbol
"LFI." After completion of the Offerings, 399 Venture Partners, Inc., an
affiliate of Citicorp, Masco Corporation, members of management and certain
other investors will together own % of the outstanding Class A Common
Stock, or % on a diluted basis.

INVESTING IN THE CLASS A COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 15.
------------------------

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

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PER SHARE TOTAL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Public Offering Price $ $
- -------------------------------------------------------------------------------------------------------
Underwriting Discounts $ $
- -------------------------------------------------------------------------------------------------------
Proceeds to LifeStyle(1) $ $
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Underwriters may also purchase up to an additional shares
from us at the public offering price within 30 days of the date hereof in
order to cover over-allotments.

------------------------
We expect that the shares of Class A Common Stock will be ready for
delivery on or about , 1998.
------------------------
SALOMON SMITH BARNEY INTERNATIONAL MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON WHEAT FIRST UNION
, 1998.

X-1
<PAGE> 104
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

UNDERWRITING

Salomon Brothers International Limited, Merrill Lynch International, Credit
Suisse First Boston (Europe) Limited and Wheat First Union, a division of Wheat
First Securities, Inc., are acting as lead managers (the "Lead Managers") for
each of the International Managers named below (the "International Managers").
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") between LifeStyle and the
International Managers, and concurrently with the sale of shares of
Class A Common Stock to the U.S. Underwriters (as defined below), LifeStyle has
agreed to sell to the International Managers, and each of the International
Managers severally and not jointly has agreed to purchase from LifeStyle, the
number of shares of Class A Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
INTERNATIONAL MANAGERS ---------
<S> <C>
Salomon Brothers International Limited......................
Merrill Lynch International.................................
Credit Suisse First Boston (Europe) Limited.................
Wheat First Securities, Inc.................................

--------
Total.............................................
========
</TABLE>

LifeStyle has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney Inc., Credit Suisse First Boston Corporation and Wheat
First Union are acting as representatives (the "U.S. Representatives"). Subject
to the terms and conditions set forth in the U.S. Purchase Agreement, and
concurrently with the sale of shares of Class A Common Stock to
the International Managers pursuant to the International Purchase Agreement,
LifeStyle has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters
severally have agreed to purchase from LifeStyle, an aggregate of shares of
Class A Common Stock. The initial public offering price per share and the total
underwriting discount per share of Class A Common Stock are identical under the
International Purchase Agreement and the U.S. Purchase Agreement.

In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Class A Common Stock being sold
pursuant to each such agreement if any of the shares of Class A Common Stock
being sold pursuant to such agreement are purchased. Under certain
circumstances, under the International Purchase Agreement and the U.S. Purchase
Agreement, the commitments of non-defaulting Underwriters may be increased. The
closings with respect to the sale of shares of Class A Common Stock to be
purchased by the International Managers and the U.S. Underwriters are
conditioned upon one another.

The Lead Managers have advised LifeStyle that the International Managers
propose initially to offer the shares of Class A Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Class A Common Stock. The International Managers may
allow, and such dealers may re-allow, a discount not in excess of $ per
share of Class A Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.

LifeStyle has granted options to the International Managers, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The

X-2
<PAGE> 105
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

International Managers may exercise these options solely to cover
over-allotments, if any, made on the sale of the Class A Common Stock offered
hereby. To the extent that the International Managers exercise these options,
each International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Class A Common Stock proportionate to
such International Manager's initial amount reflected in the foregoing table.
LifeStyle has also granted options to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount.

LifeStyle, its executive officers and directors and its other current
stockholders have agreed, subject to certain limited exceptions, not to directly
or indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warranty for the sale of or otherwise dispose of or transfer any shares
of Class A Common Stock or securities convertible into or exchangeable or
exercisable for Class A Common Stock whether now owned or thereafter acquired by
the person executing the agreement or with respect to which the person executing
the agreement thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the foregoing or
(ii) enter into any swap or other agreement that transfers, in whole or in part,
the economic consequence of ownership of the Class A Common Stock whether any
such swap or transaction is to be settled by delivery of Class A Common Stock or
other securities, in cash or otherwise, without the prior written consent of
Merrill Lynch on behalf of the Underwriters for a period of 180 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."

The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Class A Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the International Managers and any
dealer to whom they sell shares of Class A Common Stock will not offer to sell
or sell shares of Class A Common Stock to U.S. persons or to Canadian persons or
to persons they believe intend to resell to U.S. or Canadian persons, and the
U.S. Underwriters and any dealer to whom they sell shares of Class A Common
Stock will not offer to sell or sell shares of Class A Common Stock to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, except in the case
of transactions pursuant to the Intersyndicate Agreement.

Prior to the Offerings, there has been no public market for the Class A
Common Stock of LifeStyle. The initial public offering price will be determined
through negotiations between LifeStyle and the Lead Managers and the U.S.
Representatives. The factors considered in determining the initial public
offering price, in addition to prevailing market conditions, are price-earnings
ratios of publicly traded companies that the Lead Managers and the U.S.
Representatives believe to be comparable to LifeStyle, certain financial
information of LifeStyle, the history of, and the prospects for, LifeStyle and
the industry in which it competes, and an assessment of LifeStyle's management,
its past and present operations, the prospects for, and timing of, future
revenues of LifeStyle, the present state of LifeStyle's development, and the
above factors in relation to market values and various valuation measures of
other companies engaged in activities similar to LifeStyle. There can be no
assurance that an active trading market will develop for the Class A Common
Stock or that the Class A Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price.

X-3
<PAGE> 106
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

Class A Common Stock on that exchange, the International Managers and the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.

The Underwriters do not expect sales of the Class A Common Stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.

LifeStyle has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the International Managers and
the U.S. Underwriters may be required to make in respect thereof.

Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration period of six months from the Closing Date, will
not offer or sell any shares of Class A Common Stock to persons in the United
Kingdom, except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their business or otherwise in circumstances which do not constitute
an offer to the public in the United Kingdom within the meaning of the

X-4
<PAGE> 107
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Class A Common Stock in, from
or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of Class A Common Stock to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom such document may otherwise lawfully be issued or passed on.

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Class A
Common Stock, or the possession, circulation or distribution of this Prospectus
or any other material relating to LifeStyle or shares of Class A Common Stock in
any jurisdiction where action for the purpose is required. Accordingly, the
shares of Class A Common Stock may not be offered or sold, directly or
indirectly, and neither this Prospectus nor any other offering material or
advertisements in connection with the shares of Class A Common Stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.

Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.

X-5
<PAGE> 108
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER LIFESTYLE NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. NEITHER LIFESTYLE NOR ANY UNDERWRITER IS MAKING AN OFFER
TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.

YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF THIS
PROSPECTUS.

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

UNTIL , 1998 ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE OFFERINGS, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTION.

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

LIFESTYLE FURNISHINGS
INTERNATIONAL LTD.

CLASS A COMMON STOCK
[LFI'S LOGOTYPE]
------------

PROSPECTUS

, 1998

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

SALOMON SMITH BARNEY INTERNATIONAL

MERRILL LYNCH INTERNATIONAL

CREDIT SUISSE FIRST BOSTON

WHEAT FIRST UNION
- ------------------------------------------------------
- ------------------------------------------------------
X-6
<PAGE> 109

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses in connection with the issuance
and distribution of the Class A Common Stock being registered, other than the
underwriting discount. All of the amounts shown are estimates, except the SEC
and National Association of Securities Dealers, Inc. fees.

<TABLE>
<S> <C>
SEC registration fee........................................ $135,700
National Association of Securities Dealers, Inc.
registration fee.......................................... 30,500
New York Stock Exchange listing fee......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar expenses....................... *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>

- ---------------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the DCGL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.

In accordance with the DGCL, the By-Laws of LifeStyle contain a provision
to limit the personal liability of the directors of LifeStyle for violations of
their fiduciary duty. This provision eliminates each director's liability to
LifeStyle or its stockholders for monetary damages except (i) for any breach of
the director's duty of loyalty to LifeStyle or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors for monetary damages for actions
involving a breach of their fiduciary duty of care, including any such actions
involving gross negligence.

Article Tenth of LifeStyle's Charter provides for indemnification of the
officers and directors of LifeStyle to the fullest extent permitted by
applicable law.

II-1
<PAGE> 110

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

LifeStyle has issued the following securities in unregistered transactions
as described below.

I. In connection with the formation of LifeStyle in the fall of 1995,
LifeStyle issued approximately 10,000 shares of Class A Common Stock, par
value $.01 per share (the "Old Class A Common"), approximately 1,000 shares
of Class B Common Stock, par value $.01 per share (the "Old Class B
Common"), warrants to purchase approximately 40,000 shares of Old Class A
Common and Old Class B Common (the "Old Warrants") and approximately 30,000
shares of 12% Preferred Stock, par value $.01 per share due September 20,
2007 (the "Old Preferred").

II. In connection with the acquisition of the Predecessor in August
1996, LifeStyle issued the following securities to the class of purchasers
identified. Share numbers have been adjusted to reflect the stock split
being effected in connection with the Offerings:

(A) shares of Class A Common Stock to the Institutional
Stockholders, Masco and certain of the Management Stockholders
( shares of which were issued to certain of the Management
Stockholders in March 1997);

(B) shares of Class B Common Stock to the Institutional
Stockholders, Masco and certain of the Management Stockholders
( shares of which were issued to certain of the Management
Stockholders in March 1997);

(D) approximately 10,000 shares of Class D Common Stock to the
holders of the Old Class A Common, the Old Class B Common, the Old
Warrants and the Old Preferred in exchange for all of such securities.

(E) 1,103,320 shares of Series A-1 Preferred Stock to the
Institutional Stockholders and Masco;

(F) 111,148 shares of Series A-2 Preferred Stock to the
Institutional Stockholders and certain of the Management Stockholders
( shares of which were issued to certain of the Management
Stockholders in March 1997);

(G) shares of Series B Convertible Preferred Stock to
Masco;

(H) shares of Series C Convertible Preferred Stock to the
Institutional Stockholders; and

(I) $285.0 million in initial principal amount of payment-in-kind
indebtedness owed to Masco (and subsequent accretions of indebtedness on
such indebtedness);

Each such sale, other than as described in paragraph II(D) above, was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof or, in a limited number of cases involving Management Stockholders
resident outside the U.S., Regulation S promulgated thereunder. In making such
sales of unregistered securities under Section 4(2) of the Securities Act, the
Company relied on the following facts: the issuances were of a limited number of
securities that did not involve an offer or distribution to the public and
complied with the limitations of Regulation D of the Securities Act with respect
to the permitted number and type of offerees and purchasers; each purchaser
represented that it was an "accredited investor" or had been advised by a
"purchaser representative," each as defined under Regulation D; and each such
purchaser also represented as to its investment intent and agreed to
restrictions on transfer consistent with those utilized in private placements
under Section 4(2) of the Securities Act. In making such sales of unregistered
securities under Regulation S, the Company relied on the following facts: no
directed selling efforts were made in connection with such placement, such
securities were sold in an offshore offering and each purchaser agreed to
restrictions on transfer consistent with those utilized in placements under
Regulation S under the Securities Act. The issuance described in paragraph II(D)
above was exempt from registration pursuant to Section 3(a)(9) of the Securities
Act of 1933.

II-2
<PAGE> 111

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
1.1 Form of Underwriting Agreement (U.S. Version).+
2.1 Form of Merger Agreement between LifeStyle Furnishings
International Ltd. and Furnishings International Inc.+
3.1 Form of Certificate of Incorporation of LifeStyle
Furnishings International Ltd. to be adopted in connection
with the Merger (as defined in the Prospectus)+
3.2 Form of By-Laws of LifeStyle Furnishings International Ltd.
to be adopted in connection with the Merger (as defined in
the Prospectus)+
4.1 Specimen Certificate of Class A Common Stock of LifeStyle
Furnishings International Ltd.+
4.2 Indenture between LFI and IBJ Schroder Bank & Trust Company,
as Trustee, dated August 5, 1996(1)
4.3 Supplemental Indenture dated December 20, 1996(2)
4.4 Supplemental Indenture dated August 26, 1998+
5.1 Opinion of Davis Polk & Wardwell regarding the legality of
the securities being registered.+
10.1 Acquisition Agreement between Furnishings International Inc.
and Masco Corporation dated as of March 29, 1996(1)
10.2 Amendment No. 1 to Acquisition Agreement dated as of June
21, 1996(1)
10.3 Amendment No. 2 to Acquisition Agreement dated as of August
5, 1996(1)
10.4 Restated Credit Agreement dated as of August 15, 1997 among
Furnishings International Inc., LifeStyle Furnishings
International Ltd., the subsidiary borrowers named therein,
the lenders named therein and The Chase Manhattan Bank, as
Swingline Lender, Administrative Agent and Collateral Agent,
The First National Bank of Chicago as Issuing Bank and
Co-Agent and CIBC, as Co-Agent (the "Credit Agreement")(4)
and First Amendment to Restated Credit Agreement dated as of
September 15, 1997(5)
10.5 Purchase Agreement, dated as of January 29, 1997, with
respect to Series 1997-1 Term Certificates(2)
10.6 Amended and Restated Pooling Agreement, dated as of February
4, 1997, among LFI Receivables Corporation, LFI Servicing
Corporation and The Chase Manhattan Bank, as Trustee(2)
10.7 Series 1997-1 Supplement to the Amended and Restated Pooling
Agreement, dated as of February 4, 1997, among LFI
Receivables Corporation, LFI Servicing Corporation, and The
Chase Manhattan Bank, as Trustee(2)
10.8 Series 1997-2 Supplement to the Amended and Restated Pooling
Agreement, dated as of February 4, 1997, among LFI
Receivables Corporation, LFI Servicing Corporation, The
Chase Manhattan Bank as Agent and as Initial Purchaser and
The Chase Manhattan Bank as Trustee(2)
10.9 Amended and Restated Servicing Agreement, dated as of
February 4, 1997, among LFI Receivables Corporation, LFI
Servicing Corporation, as Master Servicer, each of the
Servicers party thereto and The Chase Manhattan Bank, as
Trustee(2)
10.10 Amended and Restated Receivables Sale Agreement, dated as of
February 4, 1997, among LFI Receivables Corporation, the
Sellers named therein and the Servicers named therein(2)
10.11 Stockholders Agreement, dated as of August 5, 1996, among
Masco Corporation, Furnishings International Inc., 399
Venture Partners, Inc., Associated Madison Companies, Inc.,
and the other stockholders named therein (the "Stockholders
Agreement")(1)
</TABLE>

II-3
<PAGE> 112

<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.12 Amendment No. 1 to the Stockholders Agreement dated as of
December 17, 1996(2)
10.13 Amendment No. 2 to the Stockholders Agreement dated as of
March 26, 1997(2)
10.14 Amendment No. 3 to the Stockholders Agreement dated as of
July 15, 1997(3)
10.15 Amendment No. 4 to the Stockholders Agreement dated as of
July 7, 1998+
10.16 Amended Stockholders Agreement+
10.17 Registration Rights Agreement, dated as of August 5, 1996,
among Masco Corporation, Furnishings International Inc., 399
Venture Partners, Inc., Associated Madison Companies, Inc.,
and the other stockholders named therein(1)
10.18 Management Agreement, dated as of August 5, 1996, by and
between Furnishings International Inc. and LifeStyle
Furnishings International Ltd.(1)
10.19 Tax Sharing Agreement, dated as of the 5th day of August
1996, by and between Furnishings International Inc.,
LifeStyle Furnishings International Ltd. and LFI Receivables
Corporation(1)
10.20 Letter Agreement, dated as of April 28, 1997, by and between
Furnishings International Inc. and Masco Corporation(1)
10.21 12.0% Senior Payment-in-Kind Note of Furnishings
International Inc. dated August 5, 1996(1)
10.22 Purchase Agreement dated July 31, 1996 between LifeStyle
Furnishings International Ltd., Chase Securities Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and the
Guarantors named therein(1)
10.23 LifeStyle's Retirement Benefit Restoration Plan(2)
10.24 Restricted Stock Plan(5)
10.25 Management Investment Plan(5)
10.26 Director Investment Plan(5)
10.27 LifeStyle Furnishings International Ltd. 1998 Equity
Incentive Plan+
10.28 LifeStyle Furnishings International Ltd. 1998 Non-Employee
Director Stock Plan+
11.1 Statements re computation of per share earnings+
21.1 Subsidiaries of LifeStyle Furnishings International Ltd.+
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)+
24.1 Power of Attorney (included on the signature pages of this
Registration Statement)*
27 Financial Data Schedule*
</TABLE>

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

+ To be filed by amendment.

(1) Incorporated by reference to the Registration Statement of LifeStyle
Furnishings International Ltd. on Form S-4 (No. 333-11905)

(2) Incorporated by reference to the Annual Report of LifeStyle Furnishings
International Ltd. on Form 10-K for the year ended December 31, 1996

(3) Incorporated by reference to the Form 10-Q of LifeStyle Furnishings
International Ltd. for the quarter ended June 30, 1997.

(4) Incorporated by reference to the Form 10-Q of LifeStyle Furnishings
International Ltd. for the quarter ended September 30, 1997.

(5) Incorporated by reference to the Annual Report of LifeStyle Furnishings
International on Form 10-K for the year ended December 31, 1997.

(b) Financial Statement Schedules

II-4
<PAGE> 113

Schedule I -- Condensed Financial Information of Parent Company.

Schedule II -- Valuation and Qualifying Accounts.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) To provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.

(b) (1) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or(4) under the Securities Act of 1933 shall be deemed to be part of
this Registration Statement as of the time it was declared effective.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.

II-5
<PAGE> 114

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of High Point, State of North Carolina,
August 27, 1998.

FURNISHINGS INTERNATIONAL INC.
(to be known as "LifeStyle
Furnishings International Ltd."
after the Merger described herein)

By: /s/ WAYNE B. LYON
------------------------------------
Name: Wayne B. Lyon

Title: Chairman of the Board,

President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WAYNE B. LYON Chairman of the Board, August 27, 1998
- --------------------------------------------------- President and Chief
Wayne B. Lyon Executive Officer

/s/ RONALD J. HOFFMAN August 27, 1998
- --------------------------------------------------- Vice President, Treasurer
Ronald J. Hoffman and Chief Financial Officer

* August 27, 1998
- ---------------------------------------------------
Richard M. Cashin, Jr. Director

* August 27, 1998
- ---------------------------------------------------
David L. Johnston Director

* August 27, 1998
- ---------------------------------------------------
Robert C. Larson Director

* August 27, 1998
- ---------------------------------------------------
John A. Morgan Director

* August 27, 1998
- ---------------------------------------------------
David F. Thomas Director

* August 27, 1998
- ---------------------------------------------------
Martin D. Walker Director

*By: /s/ RONALD J. HOFFMAN
- ---------------------------------------------------
Attorney-in-fact
</TABLE>

II-6
<PAGE> 115

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
LifeStyle Furnishings International Ltd.:

In connection with our audits of the consolidated financial statements of
LifeStyle Furnishings International Ltd. and subsidiaries as of December 31,
1996 and 1997 and for the period August 6, 1996 to December 31, 1996 and for the
year ended December 31, 1997 and our audits of the combined financial statements
of the Masco Home Furnishings Group for the year ended December 31, 1995 and for
the period from January 1, 1996 to August 5, 1996, which financial statements
are included in the Prospectus, we have also audited the financial statement
schedules listed in Item 16 herein.

In our opinion, the financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.

/s/ PricewaterhouseCoopers LLP

Coopers & Lybrand L.L.P.
Greensboro, North Carolina
February 25, 1998

S-1
<PAGE> 116

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(PARENT COMPANY ONLY)

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

CONDENSED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DEC. 31, 1996 DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash investments............. $ 10 $ (470) $ -- $ (170)
Trade and other receivables........... 2,054 2,098 2,817 2,199
Dividends receivable from
subsidiary......................... -- 23,340 -- --
Inventories........................... 6,341 3,459 2,673 2,782
Prepaid expenses...................... 690 760 1,270 2,550
-------- -------- -------- --------
Total current assets.......... 9,095 29,187 6,760 7,361
Investment in subsidiary................ 453,330 433,980 481,390 462,310
Property & equipment, net............... 320 380 40 830
Other assets............................ 600 -- 660 39
-------- -------- -------- --------
Total assets.................. $463,345 $463,547 $488,850 $470,540
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT):
Current liabilities:
Intercompany payable, net............. 13,609 15,067 14,447 16,266
Accounts payable...................... 2,440 540 1,420 270
Accrued liabilities................... 7,146 4,860 4,513 2,094
-------- -------- -------- --------
Total current liabilities..... 23,195 20,467 20,380 18,630
Long-term debt.......................... 297,550 334,100 315,190 354,150
-------- -------- -------- --------
Total liabilities............. 320,745 354,567 335,570 372,780
-------- -------- -------- --------
Mandatorily redeemable preferred
stock................................. 126,560 142,780 134,780 126,350
-------- -------- -------- --------
Stockholders' equity (deficit)
Common stock.......................... 6 6 6 6
Preferred stock....................... 4 4 4 4
Additional paid-in capital............ 8,610 8,580 8,610 5,570
Retained earnings (deficit)........... 7,420 (42,390) 9,880 (34,170)
-------- -------- -------- --------
Total stockholders' equity
(deficit).......................... 16,040 (33,800) 18,500 (28,590)
-------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit)................... $463,345 $463,547 $488,850 $470,540
======== ======== ======== ========
</TABLE>

S-2
<PAGE> 117

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(PARENT COMPANY ONLY)

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY -- (CONTINUED)

CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
AUG. 6, 1996 JAN. 1, 1997 JAN. 1, 1997 JAN. 1, 1998
TO TO TO TO
DEC. 31, 1996 DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................... $ 21,916 $ 47,631 $ 26,280 $ 18,542
Cost of sales........................... 19,470 43,642 23,847 17,369
-------- -------- -------- --------
Gross profit.......................... 2,446 3,989 2,433 1,173
Selling, general and administrative
expenses.............................. 9,069 20,515 10,444 11,695
-------- -------- -------- --------
Operating loss........................ (6,623) (16,526) (8,011) (10,522)
Other income (expense), net:
Equity in earnings of wholly-owned
subsidiary............................ 34,343 15,745 31,117 26,772
Interest expense........................ (14,230) (36,960) (17,930) (20,140)
Other, net.............................. 370 15,371 7,734 8,650
-------- -------- -------- --------
20,483 (5,844) 20,921 15,282
-------- -------- -------- --------
Income (loss) before income taxes..... 13,860 22,370 12,910 4,760
Income taxes............................ (620) -- -- (5,160)
-------- -------- -------- --------
Net income (loss)..................... 14,480 (22,370) 12,910 9,920
Preferred dividends..................... (6,560) (17,230) (8,220) (7,810)
-------- -------- -------- --------
Net income (loss) available to common
shareholders....................... $ 7,920 $(39,600) $ 4,690 $ 2,110
======== ======== ======== ========
</TABLE>

S-3
<PAGE> 118

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(PARENT COMPANY ONLY)

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY -- (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
AUG. 6, 1996 JAN. 1, 1997 JAN. 1, 1997 JAN. 1, 1998
TO TO TO TO
DEC. 31, 1996 DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.................. 10,720 (420) 10 750
-------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures.................... (320) (60) (20) (450)
-------- -------- -------- --------
Net cash used for investing
activities....................... (320) (60) (20) (450)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Capital contribution to subsidiary...... (76,400) -- -- --
Capital contribution.................... 66,010 -- -- --
Dividends received...................... -- -- -- 23,340
Dividends paid.......................... -- -- -- (23,340)
-------- -------- -------- --------
Net cash provided by (used for)
financing activities............. (10,390) -- -- --
-------- -------- -------- --------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period...... 10 (480) (10) 300
Balance, beginning of period............ -- 10 10 (470)
-------- -------- -------- --------
Balance, end of period.................. $ 10 $ (470) $ -- $ (170)
======== ======== ======== ========
</TABLE>

S-4
<PAGE> 119

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------------- ---------- ---------
ADDITIONS
---------------------------
BALANCES AT CHARGED TO CHARGED BALANCES
BEGINNING OF COSTS AND (CREDITED) TO AT END
PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
deducted from accounts receivable in
the
balance sheets
Year ended December 31, 1997............. $4.8 $6.1 $ 0.7 $7.7 $3.9
==== ==== ===== ==== ====
Aug. 6, 1996 to Dec. 31, 1996............ $9.3 $2.4 $(5.6)(a) $1.3 $4.8
==== ==== ===== ==== ====
Jan. 1, 1996 to Aug. 5, 1996............. $9.0 $2.3 $ -- $2.0 $9.3
==== ==== ===== ==== ====
Year ended December 31, 1995............. $7.7 $6.6 $ -- $5.3 $9.0
==== ==== ===== ==== ====
</TABLE>

- ---------------
(a) In connection with the accounts receivable securitization, the portion of
the allowance for doubtful accounts related to sold receivables was credited
to accrued liabilities.

S-5
<PAGE> 120

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement (U.S. Version).+
2.1 Form of Merger Agreement between LifeStyle Furnishings
International Ltd. and Furnishings International Inc.+
3.1 Form of Certificate of Incorporation of LifeStyle
Furnishings International Ltd. to be adopted in connection
with the Merger (as defined in the Prospectus)+
3.2 Form of By-Laws of LifeStyle Furnishings International Ltd.
to be adopted in connection with the Merger (as defined in
the Prospectus)+
4.1 Specimen Certificate of Class A Common Stock of LifeStyle
Furnishings International Ltd.+
4.2 Indenture between LFI and IBJ Schroder Bank & Trust Company,
as Trustee, dated August 5, 1996(1)
4.3 Supplemental Indenture dated December 20, 1996(2)
4.4 Supplemental Indenture dated August 26, 1998.+
5.1 Opinion of Davis Polk & Wardwell regarding the legality of
the securities being registered.+
10.1 Acquisition Agreement between Furnishings International Inc.
and Masco Corporation dated as of March 29, 1996(1)
10.2 Amendment No. 1 to Acquisition Agreement dated as of June
21, 1996(1)
10.3 Amendment No. 2 to Acquisition Agreement dated as of August
5, 1996(1)
10.4 Restated Credit Agreement dated as of August 15, 1997 among
Furnishings International Inc., LifeStyle Furnishings
International Ltd., the subsidiary borrowers named therein,
the lenders named therein and The Chase Manhattan Bank, as
Swingline Lender, Administrative Agent and Collateral Agent,
The First National Bank of Chicago as Issuing Bank and
Co-Agent and CIBC, as Co-Agent (the "Credit Agreement")(4)
and First Amendment to Restated Credit Agreement dated as of
September 15, 1997(5)
10.5 Purchase Agreement, dated as of January 29, 1997, with
respect to Series 1997-1 Term Certificates(2)
10.6 Amended and Restated Pooling Agreement, dated as of February
4, 1997, among LFI Receivables Corporation, LFI Servicing
Corporation and The Chase Manhattan Bank, as Trustee(2)
10.7 Series 1997-1 Supplement to the Amended and Restated Pooling
Agreement, dated as of February 4, 1997, among LFI
Receivables Corporation, LFI Servicing Corporation, and The
Chase Manhattan Bank, as Trustee(2)
10.8 Series 1997-2 Supplement to the Amended and Restated Pooling
Agreement, dated as of February 4, 1997, among LFI
Receivables Corporation, LFI Servicing Corporation, The
Chase Manhattan Bank as Agent and as Initial Purchaser and
The Chase Manhattan Bank as Trustee(2)
10.9 Amended and Restated Servicing Agreement, dated as of
February 4, 1997, among LFI Receivables Corporation, LFI
Servicing Corporation, as Master Servicer, each of the
Servicers party thereto and The Chase Manhattan Bank, as
Trustee(2)
10.10 Amended and Restated Receivables Sale Agreement, dated as of
February 4, 1997, among LFI Receivables Corporation, the
Sellers named therein and the Servicers named therein(2)
10.11 Stockholders Agreement, dated as of August 5, 1996, among
Masco Corporation, Furnishings International Inc., 399
Venture Partners, Inc., Associated Madison Companies, Inc.,
and the other stockholders named therein (the "Stockholders
Agreement")(1)
</TABLE>

<PAGE> 121

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.12 Amendment No. 1 to the Stockholders Agreement dated as of
December 17, 1996(2)
10.13 Amendment No. 2 to the Stockholders Agreement dated as of
March 26, 1997(2)
10.14 Registration Rights Agreement, dated as of August 5, 1996,
among Masco Corporation, Furnishings International Inc., 399
Venture Partners, Inc., Associated Madison Companies, Inc.,
and the other stockholders named therein(1)
10.15 Amendment No. 3 to the Stockholders Agreement dated as of
July 15, 1997(3)
10.16 Amendment No. 4 to the Stockholders Agreement dated as of
July 7, 1998+
10.17 Amended Stockholders Agreement+
10.18 Management Agreement, dated as of August 5, 1996, by and
between Furnishings International Inc. and LifeStyle
Furnishings International Ltd.(1)
10.19 Tax Sharing Agreement, dated as of the 5th day of August
1996, by and between Furnishings International Inc.,
LifeStyle Furnishings International Ltd. and LFI Receivables
Corporation(1)
10.20 Letter Agreement, dated as of April 28, 1997, by and between
Furnishings International Inc. and Masco Corporation(1)
10.21 12.0% Senior Pay-in-Kind Note of Furnishings International
Inc. dated August 5, 1996(1)
10.22 Purchase Agreement dated July 31, 1996 between LifeStyle
Furnishings International Ltd., Chase Securities Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and the
Guarantors named therein(1)
10.23 LifeStyle's Retirement Benefit Restoration Plan(2)
10.24 Restricted Stock Plan(5)
10.25 Management Investment Plan(5)
10.26 Director Investment Plan(5)
10.27 LifeStyle Furnishings International Ltd. 1998 Equity
Incentive Plan+
10.28 LifeStyle Furnishings International Ltd. 1998 Non-Employee
Director Stock Plan+
11.1 Statements re computation of per share earnings+
21.1 Subsidiaries of LifeStyle Furnishings International Ltd.+
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)+
24.1 Power of Attorney (included on the signature pages of this
Registration Statement)*
27 Financial Data Schedule*
</TABLE>

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

+ To be filed by amendment.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on this Form S-1
of our reports dated February 25, 1998, except for Note 15 for which the date is
June 30, 1998, on our audits of the financial statements and financial statement
schedules of LifeStyle Furnishings International Ltd. and the Masco Home
Furnishings Group. We also consent to the references to our firm under the
captions "Experts" and "Selected Historical and Unaudited Pro Forma Financial
Data."

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Greensboro, North Carolina

August 27, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 3,670 11,470
<SECURITIES> 64,010 61,590
<RECEIVABLES> 92,220<F1> 74,450<F1>
<ALLOWANCES> 0 0
<INVENTORY> 513,420 501,320
<CURRENT-ASSETS> 748,050 723,300
<PP&E> 337,770<F1> 344,130<F1>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,138,830 1,114,530
<CURRENT-LIABILITIES> 258,820 265,810
<BONDS> 200,000 200,000
142,780 126,350
4 4
<COMMON> 6 6
<OTHER-SE> (33,220) (23,120)
<TOTAL-LIABILITY-AND-EQUITY> 1,138,830 1,114,530
<SALES> 1,968,820 980,490
<TOTAL-REVENUES> 1,968,820 980,490
<CGS> 1,458,190 737,560
<TOTAL-COSTS> 1,472,670 737,560
<OTHER-EXPENSES> 19,440 8,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 78,840 36,460
<INCOME-PRETAX> 3,000 16,810
<INCOME-TAX> 13,750 6,890
<INCOME-CONTINUING> (10,750) 9,920
<DISCONTINUED> 0 0
<EXTRAORDINARY> (11,620) 0
<CHANGES> 0 0
<NET-INCOME> (22,370) 9,920
<EPS-PRIMARY> (83.42) 4.34
<EPS-DILUTED> (83.42) 2.28
<FN>
<F1>Receivables and property and equipment are presented net of allowances for
doubtful accounts and accumulated depreciation and amortization, respectively.
</FN>

</TABLE>