FURNISHINGS INTERNATIONAL INC, S-1/A, 1999-02-03

FURNISHINGS INTERNATIONAL INC
S-1/A, 1999-02-03
WOOD HOUSEHOLD FURNITURE, (NO UPHOLSTERED)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1999

REGISTRATION NO. 333-58655
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 4

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)

<TABLE>
<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:

<TABLE>
<S> <C>
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>

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

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 FEBRUARY 3, 1999

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

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

CLASS A COMMON STOCK
------------------------

This is our initial public offering. The U.S. underwriters are offering
shares in the United States and Canada and the international
managers are offering shares outside the United States and
Canada.

We expect the public offering price to be between $ and
$ per share. Currently, no public market exists for the shares. After
pricing of the offerings, we expect that the Class A Common Stock will trade on
The New York Stock Exchange under the symbol "LFI." After completion of the
offerings, 399 Venture Partners, Inc., an affiliate of Citigroup Inc., 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 RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 15 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price........................ $ $
Underwriting Discount........................ $ $
Proceeds, before expenses, to LifeStyle...... $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional
shares at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an aggregate of
additional shares.

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.

The shares of Class A Common Stock will be ready for delivery in New York,
New York on or about , 1999.

------------------------
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON FIRST UNION CAPITAL MARKETS CORP.
------------------------

The date of this prospectus is , 1999.

<PAGE> 4

[Photo A]

HENREDON'S VISAGE(TM) 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(TM) artisans create exquisite
statement furniture pieces, beautiful objets d'art, lighting and accessories.
Extensive hand-crafting is a signature of Maitland-Smith(TM), 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 HOME 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(TM) speaks to those who value the
ultimate in understated elegance.

[Photo E]

PINEHURST COLLECTION(TM) 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(R) 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.

2
<PAGE> 5

[Photo J]

BETSY CAMERON'S STORYBOOK(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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<S> <C>
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
Data...................................................... 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Business.................................................... 41
Management.................................................. 55
Executive Compensation...................................... 58
Certain Relationships and Related Transactions.............. 62
Shares Eligible for Future Sale............................. 64
Security Ownership of Certain Beneficial Owners and
Management................................................ 65
Description of Capital Stock................................ 67
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>

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

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 Citigroup
Inc.), 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 and the issuance of the
maximum number of shares of Series B Convertible Preferred Stock issuable to
Masco upon the closing of the Offerings as described herein at a price per share
equal to the initial public offering price of the Class A Common Stock offered
hereby (assumed to be $ per share, the midpoint of the range set forth
on the cover page hereof) less the underwriting discount.

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

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 1998 net sales of $2.0 billion. Fine furniture
represented approximately 87% of our net sales in 1998 and decorative home
furnishing fabrics represented approximately 13%. 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, improve retailer profitability 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 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.

5
<PAGE> 8

- 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 collections 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.

6
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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

- 13 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 72 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 $240 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 do not
expect to incur significant increases in our capital expenditures during 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.
Approximately 180 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.

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

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<PAGE> 10

activity occurred in Asia, where facilities with 1.3 million square feet of
manufacturing and distribution space have been eliminated, as production has
been consolidated into existing, lower-cost Asian facilities.

Further, 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 becoming
operationally excellent by 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 make-to-order
(or "Pull") methodology. Overall, these reengineering initiatives are designed
to cut order-to-ship cycles dramatically -- with a goal of being able to ship
product 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,
marketing and technology.

Principally as a result of these actions, we improved our EBITDA margin
from 8.0% in 1995 to 9.0% in 1996 and 1997 (10.1% in 1997 after adjustment to
exclude restructuring charges). In 1998, we significantly accelerated the
reengineering-driven conversion of our manufacturing and business processes,
which necessarily caused temporary disruption at certain plants and resulted in
additional costs. Despite order growth of approximately 5.3% in 1998, our net
sales increased by only 1.9% and our EBITDA margin declined from 9.0% to 8.7% as
compared with 1997, primarily because of the reengineering initiatives described
above. Exclusive of transition costs related to our restructuring and
reengineering initiatives, costs related to the development and implementation
of Year 2000 compliance measures and costs related to the computer system
implementation at The Robert Allen Group, however, our adjusted EBITDA margin
increased to 10.5% for 1998 from 10.1% for 1997.

In addition, from August 1996 through December 31, 1998, we reduced working
capital by $84.8 million to $446.2 million primarily through improved management
of our inventories and accounts payable. This reduction in working capital,
together with our operating cash flow, enabled us to reduce long-term debt by
$238.7 million (partially offset by the accretion of $90.4 million on the PIK
Debt owed to Masco discussed below) through 1998.

Across all of our furnishings companies, approximately one-third 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 12 to 24
months. More than 50% 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.

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order-to-ship cycle across our furnishings companies of two weeks or less. One
of the early successes in our reengineering-driven conversion efforts has been
in the production of BERKLINE(R) motion furniture. Implementation of short-cycle
management methodologies has resulted in a 30% improvement in inventory turns, a
27% 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 enjoyed market share growth in 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 now being produced
utilizing short-cycle management methodologies, which we believe drove the
dramatic increase in orders, greater than 25%, at BenchCraft during 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 help us 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 and alliances with selected
retailers for several years, most recently with HomeLife (formerly Sears
HomeLife). 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. For example, we have (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 more than $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 13 BEACON HILL(R) designer-exclusive
showrooms, we are well positioned to serve the premium home furnishings market
segment, a segment where Beacon Hill has historically grown 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 transactions described 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 at our option issue to Masco shares of Series
B Convertible Preferred Stock for an aggregate price of up to $100 million (less
an applicable discount in an amount as determined below) (the "Stock
Subscription"), (iv) we will redeem all of the outstanding shares of Series A-2
Preferred Stock (approximately 81,508 shares as of December 31, 1998) for a cash
purchase price of $100 per share, and 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 December 31, 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, having first paid in cash the accrued but
unpaid dividends on both the Series A-1 and the Series A-2 Preferred Stock
(accrued dividends of $16.5 million as of December 31, 1998 were paid on January
29, 1999) and (v) we will use the net proceeds of the Offerings and the cash
proceeds of the other financings to repay in full the PIK Debt (as defined
below) owed to Masco ($377.3 million as of December 31, 1998) (the "PIK Debt
Repayment"). For purposes of the foregoing transactions, shares of Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock will be
valued at a price per share equal to the initial public offering price of the
Class A Common Stock offered hereby (less the underwriting discount).

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"). In connection with the Tender Offer, we also solicited 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. 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 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 a majority in aggregate principal amount of
the Subordinated Notes. The Offerings will be conditioned on our purchase of the
Subordinated Notes pursuant to the Tender Offer, and any such purchase is
expected to occur at substantially the same time as the consummation of the
Offerings. We expect to incur bank indebtedness to finance the purchase of the
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 to be
outstanding after the
Offerings(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 and the cash proceeds of
the other financings to repay in full the
PIK Debt owed to Masco. 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 December 31, 1998, on a pro forma basis after giving effect to the
Reorganization, there would have been approximately shares of
Common Stock outstanding.

(d) Assumes the issuance of the maximum number of shares of Series B Convertible
Preferred Stock issuable to Masco in the Stock Subscription. See "-- The
Reorganization." The number of shares of Series B Convertible Preferred
Stock and Series C Convertible Preferred to be issued in the Stock
Subscription and upon exchange of shares of Series A-1 Preferred is based
upon an assumed initial public offering price of $ per share (the
midpoint of the range set forth on the cover page hereof). 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
------------------------------- -----------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED
DECEMBER 31, FROM FROM DECEMBER 31,
------------------- 1/1/96 TO 8/6/96 TO -----------------------
1994 1995 8/5/96 12/31/96 1997 1998
-------- -------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $1,897.5 $1,992.6 $1,147.9 $849.5 $1,968.8 $2,006.9
Cost of sales.......................................... 1,434.0 1,501.0 870.7 629.4 1,458.2 1,511.3
Restructuring charge(2)................................ -- -- -- -- 14.5 --
-------- -------- -------- ------ -------- --------
Gross profit......................................... 463.5 491.6 277.2 220.1 496.1 495.6
Selling, general and administrative expenses(3)........ 386.8 397.8 222.2 147.4 350.9 357.9
Restructuring charge(2)................................ -- -- -- -- 44.0 --
-------- -------- -------- ------ -------- --------
Operating profit..................................... 76.7 93.8 55.0 72.7 101.2 137.7
Interest expense....................................... 87.1 94.8 52.7 34.2 78.8 73.1
Other, net(4).......................................... 7.3 8.2 3.5 7.8 19.4 13.7
-------- -------- -------- ------ -------- --------
Income (loss) before income taxes and extraordinary
item............................................... (17.7) (9.2) (1.2) 30.7 3.0 50.9
Income taxes........................................... 6.1 7.0 6.8 16.2 13.8 20.9
-------- -------- -------- ------ -------- --------
Income (loss) before extraordinary item.............. (23.8) (16.2) (8.0) 14.5 (10.8) 30.0
Extraordinary item(5).................................. -- -- -- -- (11.6) --
-------- -------- -------- ------ -------- --------
Net income (loss).................................... (23.8) (16.2) (8.0) 14.5 (22.4) 30.0
Preferred dividends.................................... -- -- -- (6.6) (17.2) (16.5)
-------- -------- -------- ------ -------- --------
Net income (loss) available to common stockholders... $ (23.8) $ (16.2) $ (8.0) $ 7.9 $ (39.6) $ 13.5
======== ======== ======== ====== ======== ========
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED)(6):
Interest expense....................................... $ 25.5
Other, net............................................. 9.9
Net income............................................. 64.0
Basic income per common share..........................
Weighted average shares outstanding....................
Diluted income per common share(7).....................
Weighted average shares outstanding, assuming
dilution(7)..........................................
</TABLE>

(footnotes on following page)

12
<PAGE> 15

<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------- ------------------
1997 1998 1998(6)
-------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(11).................................. $ 450.0 $ 446.2 $ 472.8
Total assets......................................... 1,127.6 1,117.5 1,103.7
Total debt........................................... 688.7 690.1 381.5
Total liabilities.................................... 1,018.6 1,007.9 672.7
Mandatorily redeemable preferred stock............... 142.8 134.9 --
Stockholders' equity (deficit)....................... (33.8) (25.3) 431.0
</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 $12.7 million and
$16.0 million in 1994 and 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 and $9.1 million and amortization of deferred financing costs of
$1.7 million, $3.9 million and $2.2 million for the period from August 6
through December 31, 1996 and the years ended December 31, 1997 and 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 (assuming an initial public
offering price of $ per share, the midpoint of the range set forth
on the cover page hereof) as if each such transaction had occurred on
January 1, 1998, in the case of the pro forma statement of operations data,
and December 31, 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.

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

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>
PREDECESSOR LIFESTYLE
--------------------------- ----------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED
DECEMBER 31, FROM FROM DECEMBER 31,
--------------- 1/1/96 TO 8/6/96 TO ----------------------
1994 1995 8/5/96 12/31/96 1997 1998
------ ------ --------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)................................... $(23.8) $(16.2) $(8.0) $14.5 $(22.4) $ 30.0
Interest expense.................................... 87.1 94.8 52.7 34.2 78.8 73.1
Income taxes........................................ 6.1 7.0 6.8 16.2 13.8 20.9
Depreciation and amortization....................... 66.4 67.9 39.3 15.5 38.4 39.7
Extraordinary item.................................. -- -- -- -- 11.6 --
Receivables securitization costs.................... -- -- -- 4.4 9.8 9.1
Losses of Simmons................................... -- -- -- 1.5 3.4 1.6
Other non-cash...................................... 3.7 6.6 1.0 1.4 44.7(a) (0.1)
------ ------ ----- ----- ------ ------
EBITDA.......................................... $139.5 $160.1 $91.8 $87.7 $178.1 $174.3
====== ====== ===== ===== ====== ======
</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 the year ended December 31, 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 year ended December
31, 1998 exclude $30.0 million of transition costs related to the
restructuring and reengineering initiatives, $4.0 million of costs related
to the development and implementation of Year 2000 compliance measures 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
currently 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-driven
conversion of our manufacturing and business processes necessarily causes
temporary dislocations and additional costs in production at our plants during
the transition period. We expect the benefits of our reengineering strategy to
outweigh these short-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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."

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.

15
<PAGE> 18

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, 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 approximately 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.

16
<PAGE> 19

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. 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

After the Offerings, 399, Masco, the management stockholders and certain
other institutional investors and related individuals 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) and will likely have the power to control our Board of Directors and
thereby determine our company's policies. The interests of these stockholders
may conflict with the interests of certain other of our stockholders. See
"Management," "Security Ownership of Certain Beneficial Owners and Management"
and "Description of Capital Stock."

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 separate class, and holders of our Series B
Convertible Preferred Stock have the right to elect one director voting as a
separate 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
together 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 shares of
Class B Common Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock to be outstanding after the Offerings were converted
to Class A Common Stock, 399, Masco, the management stockholders and certain
other institutional investors and related individuals would control
approximately % of the total voting power exercisable by the then outstanding
shares of Class A Common 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."

399, Masco, the management stockholders and certain other institutional
investors and related individuals 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
stockholders have agreed not to sell, subject to certain limited exceptions, any

17
<PAGE> 20

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 2000, 2001 and 2002 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 vote of the directors then in office, the holders of a
majority of our Series B Convertible Preferred Stock or 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 at least 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 meeting
of our stockholders. In addition, certain provisions in our certificate of
incorporation and by-laws, including those summarized above, may be amended by
our stockholders only with the affirmative vote of 80% of our voting stock,
voting together as a single class. These provisions of our certificate of
incorporation and by-laws 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 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.

18
<PAGE> 21

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 failure 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 companies is 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. We
intend to complete remediation, testing and implementation by the middle of
1999. We currently anticipate that the development and implementation of Year
2000 compliance measures will cost approximately $12 million, all of which will
be expensed. In 1998, we incurred and expensed approximately $4 million on these
measures. In addition, during 1997, we began implementing a company-wide,
Oracle-based software platform that is designed to be Year 2000 compliant.

In addition to our internal information technology ("IT") systems, we also
have certain non-IT systems (e.g., machinery and equipment) that utilize
embedded technology such as microcontrollers. We do not believe that our
operations depend significantly on the technology contained in any non-IT
systems that are subject to Year 2000 compliance issues. As noted above,
however, we have initiated an assessment of our computerized systems that will
cover any material non-IT systems.

Because of the interdependent nature of business systems, we and our
operating subsidiaries could also be materially adversely affected if utilities,
private businesses and governmental entities with which we do business or from
which we obtain essential goods and services are not Year 2000 compliant. In
order to determine how we would be affected if a third party failed to resolve
its own Year 2000 issues, we are communicating with suppliers, customers and
other third parties about the compliance of their own systems. We currently
believe that a significant portion of this third party risk relates to our
operations outside the United States.

If we and our business partners fail to achieve Year 2000 compliance on a
timely basis, the possible material consequences include, among other things,
temporary plant closings, delays in the delivery of products, delays in the
receipt of supplies, invoice and collection errors, and inventory and supply
obsolescence. As a result of such Year 2000 issues, our business and the results
of our operations could be materially adversely affected by a temporary
inability to conduct business in the ordinary course for a period of time during
and around the Year 2000. However, we believe that our Year 2000 compliance
readiness program should significantly reduce the adverse effect of any such
disruptions, and we are in the process of developing a contingency plan to
address any such disruptions.

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 hereof) (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 and the cash proceeds of the other financings will be used to repay in
full the payment-in-kind debt owed to Masco incurred in connection with the
acquisition of the Predecessor in August 1996 (the "PIK Debt"). The PIK Debt
(aggregate principal amount of $375.4 million plus accrued interest of $1.9
million, as of December 31, 1998) bears interest at the rate of 12% per annum
and matures on August 5, 2008.

DILUTION

As of December 31, 1998, the net tangible book value of LifeStyle adjusted
for the Reorganization (other than the PIK Debt Repayment, the Stock
Subscription and the Tender Offer) was $71.2 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 $13.8 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 December 31, 1998 would have been $431.0 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 December 31, 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 December 31, 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 December 31, 1998 (i) as adjusted for the Reorganization (except for the
PIK Debt Repayment, the Stock Subscription 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, the Stock Subscription 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>
DECEMBER 31, 1998
--------------------------
PRO FORMA
AS ADJUSTED AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Long-term debt, current..................................... $ 3.2 $ 3.2
====== ======
LONG-TERM DEBT (EXCLUDING CURRENT PORTION THEREOF):
Credit Facility(1)(2)..................................... $134.6 $376.8
Subordinated Notes(1)..................................... 200.0 --
PIK Debt.................................................. 375.4 --
Other borrowings.......................................... 1.5 1.5
------ ------
Total long-term debt.............................. 711.5 378.3
------ ------
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, as adjusted; issued, pro forma as
adjusted.............................................. -- --
Preferred Stock $.01 par value, consisting of:
Series B Convertible Preferred Stock; authorized
shares; issued, as adjusted; issued,
pro forma as adjusted(3).............................. -- --
Series C Convertible Preferred Stock; authorized
shares; issued, as adjusted; issued,
pro forma as adjusted(3).............................. -- --
Additional paid-in capital................................ 115.9 490.9
Retained deficit.......................................... (11.7) (40.7)
Foreign currency translation.............................. (19.2) (19.2)
------ ------
Total stockholders' equity........................ 85.0 431.0
------ ------
Total capitalization(4)........................... $796.5 $809.3
====== ======
</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 December 31, 1998, LifeStyle had $5.3
million of additional borrowings available under the Credit Facility.
LifeStyle anticipates entering into further credit facilities in connection
with the Offerings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

(3) 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.

(4) 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 December 31, 1998, $150.0 million of senior interests in
the master trust had been sold to the participants in the facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

21
<PAGE> 24

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated balance sheet of LifeStyle
as of December 31, 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 statement of operations for the year ended December 31, 1998 gives
effect to such transactions and the Simmons Spin-off as if they had occurred on
January 1, 1998.

The unaudited pro forma consolidated balance sheet and statement 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 statement of operations does 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 DECEMBER 31, 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............. $ 7.1 $ -- $ 7.1 $ -- $ 7.1
Trade receivables.......... 48.7 -- 48.7 -- 48.7
Investment in receivables
trust................... 92.2 -- 92.2 -- 92.2
Other accounts
receivable.............. 26.5 -- 26.5 -- 26.5
Inventories................ 482.6 -- 482.6 -- 482.6
Prepaid expenses........... 41.0 -- 41.0 -- 41.0
Deferred income taxes...... 30.1 -- 30.1 -- 30.1
-------- ------- -------- ------- --------
Total current
assets........... 728.2 -- 728.2 -- 728.2
Property and equipment,
net........................ 356.4 -- 356.4 -- 356.4
Other assets................. 32.9 -- 32.9 (13.8)(c) 19.1
-------- ------- -------- ------- --------
Total assets....... $1,117.5 $ -- $1,117.5 $ (13.8) $1,103.7
======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT):
Current liabilities:
Long-term debt, current.... $ 3.2 $ -- $ 3.2 $ -- $ 3.2
Accounts payable........... 138.6 -- 138.6 -- 138.6
Accrued liabilities........ 106.2 -- 106.2 (26.6)(d) 79.6
-------- ------- -------- ------- --------
Total current
liabilities...... 248.0 -- 248.0 (26.6) 221.4
Long-term debt............... 686.9 24.6(a) 711.5 (333.2)(e) 378.3
Deferred income taxes........ 21.2 -- 21.2 -- 21.2
Other long-term
liabilities................ 51.8 -- 51.8 -- 51.8
-------- ------- -------- ------- --------
Total
liabilities...... 1,007.9 24.6 1,032.5 (359.8) 672.7
-------- ------- -------- ------- --------
Mandatorily redeemable
preferred stock............ 134.9 (134.9)(a) -- --
Stockholders' equity
(deficit).................. (25.3) 110.3(b) 85.0 346.0(f) 431.0
-------- ------- -------- ------- --------
Total liabilities
and stockholders'
equity
(deficit)........ $1,117.5 $ -- $1,117.5 $ (13.8) $1,103.7
======== ======= ======== ======= ========
</TABLE>

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

(1) "As Adjusted" gives effect to the payment of dividends on the Series A-1 and
A-2 Preferred Stock, the redemption of the Series A-2 Preferred Stock for
cash 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 December
31, 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
December 31, 1998.

23
<PAGE> 26

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

(a) As part of the Reorganization, the Series A-2 Preferred Stock will be
redeemed for a cash purchase price of $100 per share using borrowings under
the Credit Facility, 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 on both the Series A-1 and Series A-2
Preferred Stock using borrowings available under the Credit Facility
(accrued dividends of $16.5 million as of December 31, 1998 were paid on
January 29, 1999). As of December 31, 1998, Series A-1 and A-2 Preferred
Stock with a liquidation preference of $110.3 million and $8.1 million,
respectively (plus in each case 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 ($1.9 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) The net decrease in long-term debt results from the use of the net proceeds
of the Offerings and the cash proceeds of the other financings to repay, in
full, the PIK Debt ($375.4 million) and the Subordinated Notes ($200.0
million), partially offset by other borrowings to pay interest on the PIK
Debt ($1.9 million), as well as interest ($9.1 million), principal ($200.0
million) and Tender Offer premiums ($30.8 million) on the Subordinated
Notes.

(f) The increase in pro forma stockholders' equity (deficit) results from the
application of net proceeds from the Offerings and the Stock Subscription,
offset by the extraordinary loss to be recognized in connection with the
Tender Offer.

24
<PAGE> 27

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998

(IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.................................................. $2,006.9 $ -- $2,006.9
Cost of sales.............................................. 1,511.3 -- 1,511.3
-------- ------ --------
Gross profit............................................. 495.6 -- 495.6
Selling, general and administrative expenses............... 357.9 -- 357.9
-------- ------ --------
Operating profit......................................... 137.7 -- 137.7
Other expense, net:
Interest expense......................................... 73.1 (47.6)(a) 25.5
Other, net............................................... 13.7 (3.8)(b) 9.9
-------- ------ --------
86.8 (51.4) 35.4
-------- ------ --------
Income before income taxes................................. 50.9 51.4 102.3
Income taxes............................................... 20.9 17.4(c) 38.3
-------- ------ --------
Net income............................................... $ 30.0 $ 34.0 $ 64.0
======== ====== ========

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

25
<PAGE> 28

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT 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
DECEMBER 31, 1998
-----------------
<S> <C>
Elimination of PIK Debt interest............................ $(41.5)
Elimination of interest on the Subordinated Notes........... (21.8)
Increase in interest on Credit Facility..................... 15.7
------
$(47.6)
======
</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)
and the elimination of the net loss of Simmons which was spun off on June
30, 1998 ($1.6 million).

(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
DECEMBER 31, 1998
-----------------
<S> <C>
Net income.................................................. $64.0
Basic income per share of Common Stock:
Weighted average shares...................................
-----
Basic income per share.................................... $
=====
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.................................. $
=====
</TABLE>

26
<PAGE> 29

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 two 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 for each of the two years in the period ended December
31, 1998 has been derived from the audited consolidated financial statements of
LifeStyle. Such combined financial statements for the two 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 for each of the two years in the period ended December 31,
1998 have been audited by PricewaterhouseCoopers LLP. 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
DECEMBER 31, FROM FROM DECEMBER 31,
------------------- 1/1/96 TO 8/6/96 TO -------------------------
1994 1995 8/5/96 12/31/96 1997 1998
-------- -------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $1,897.5 $1,992.6 $1,147.9 $ 849.5 $1,968.8 $2,006.9
Cost of sales.......................................... 1,434.0 1,501.0 870.7 629.4 1,458.2 1,511.3
Restructuring charge(2)................................ -- -- -- -- 14.5 --
-------- -------- -------- -------- -------- --------
Gross profit......................................... 463.5 491.6 277.2 220.1 496.1 495.6
Selling, general and administrative expenses(3)........ 386.8 397.8 222.2 147.4 350.9 357.9
Restructuring charge(2)................................ -- -- -- -- 44.0 --
-------- -------- -------- -------- -------- --------
Operating profit..................................... 76.7 93.8 55.0 72.7 101.2 137.7
Interest expense....................................... 87.1 94.8 52.7 34.2 78.8 73.1
Other, net(4).......................................... 7.3 8.2 3.5 7.8 19.4 13.7
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary
item............................................... (17.7) (9.2) (1.2) 30.7 3.0 50.9
Income taxes........................................... 6.1 7.0 6.8 16.2 13.8 20.9
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item.............. (23.8) (16.2) (8.0) 14.5 (10.8) 30.0
Extraordinary item(5).................................. -- -- -- -- (11.6) --
-------- -------- -------- -------- -------- --------
Net income (loss)...................................... (23.8) (16.2) (8.0) 14.5 (22.4) 30.0
Preferred dividends.................................... -- -- -- (6.6) (17.2) (16.5)
-------- -------- -------- -------- -------- --------
Net income (loss) available to common stockholders..... $ (23.8) $ (16.2) $ (8.0) $ 7.9 $ (39.6) $ 13.5
======== ======== ======== ======== ======== ========
Basic income (loss) per common share before
extraordinary item, excluding Class D common
shares............................................... $ 20.47 $ (52.89) $ 31.62
Weighted average shares outstanding, excluding Class D
common shares........................................ 457,777 465,110 479,502
Diluted income (loss) per common share before
extraordinary item, excluding Class D common
shares(6)............................................ $ 10.75 $ (52.89) $ 16.59
Weighted average shares outstanding, assuming dilution,
excluding Class D common shares(6)................... 871,856 465,110 913,689
Basic and diluted loss per Class D common share(6)..... $(153.62) $(360.00) $(178.18)
Weighted average Class D shares outstanding(6)......... 9,439 9,389 9,148
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED)(7):
Interest expense............................................
Other, net..................................................
Net income..................................................
Basic income per common share...............................
Weighted average shares outstanding.........................
Diluted income per common share(6)..........................
Weighted average shares outstanding, assuming dilution(6)...

<CAPTION>
<S> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED)(7):
Interest expense............................................ $ 25.5
Other, net.................................................. 9.9
Net income.................................................. 64.0
Basic income per common share...............................
Weighted average shares outstanding.........................
Diluted income per common share(6)..........................
Weighted average shares outstanding, assuming dilution(6)...
</TABLE>

(footnotes on following page)

27
<PAGE> 30

<TABLE>
<CAPTION>
PREDECESSOR(1) LIFESTYLE
----------------------------- -----------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED
DECEMBER 31, FROM FROM DECEMBER 31,
---------------- 1/1/96 TO 8/6/96 TO ----------------------
1994 1995 8/5/96 12/31/96 1997 1998
------ ------ --------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as defined(8)...................................... $139.5 $160.1 $91.8 $ 87.7 $178.1 $174.3
EBITDA margin.............................................. 7.4% 8.0% 8.0% 10.3% 9.0% 8.7%
Adjusted EBITDA, as defined(9)............................. $139.5 $160.1 $91.8 $ 87.7 $198.5 $210.8
Adjusted EBITDA margin..................................... 7.4% 8.0% 8.0% 10.3% 10.1% 10.5%
Adjusted operating profit(9)............................... $ 76.7 $ 93.8 $55.0 $ 72.7 $159.7 $174.2
Adjusted operating profit margin........................... 4.0% 4.7% 4.8% 8.6% 8.1% 8.7%
Depreciation and amortization(10).......................... $ 66.4 $ 67.9 $39.3 $ 15.5 $ 38.4 $ 39.7
Capital expenditures....................................... 68.8 61.0 16.5 14.1 33.0 46.7
Fabric sample book expenditures............................ 14.1 15.0 9.2 3.3 14.3 18.5
Cash provided by operating activities...................... 13.4 49.3 48.8 119.6 139.7 160.6
Cash used for investing activities......................... (67.2) (72.5) (25.6) (708.9) (50.6) (93.9)
Cash provided by (used for) financing activities........... 53.1 15.8 (21.9) 611.7 (107.9) (63.2)
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR(1) LIFESTYLE
------------------- -------------------------------------------------------
PRO FORMA
AS ADJUSTED
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------- --------------------------------- -------------------
1994 1995 1996 1997 1998 1998(7)
-------- -------- -------- -------- -------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(11)............................. $ 723.4 $ 732.1 $ 467.8 $ 450.0 $ 446.2 $ 472.8
Total assets.................................... 1,907.5 1,903.9 1,185.5 1,127.6 1,117.5 1,103.7
Total debt...................................... 15.2 27.7 742.2 688.7 690.1 381.5
Total liabilities............................... 274.4 282.9 1,042.9 1,018.6 1,007.9 672.7
Mandatorily redeemable preferred stock.......... -- -- 126.6 142.8 134.9 --
Masco net investment and advances............... 1,633.1 1,621.0 -- -- -- --
Stockholders' equity (deficit).................. -- -- 16.0 (33.8) (25.3) 431.0
</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 and $9.1 million and amortization of deferred financing costs of
$1.7 million, $3.9 million and $2.2 million for the period August 6, 1996 to
December 31, 1996, and the years ended December 31, 1997 and 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.

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 (assuming an initial public
offering price of $ per share, the midpoint of the range set forth on
the cover page hereof) as if each such transaction had occurred on January
1, 1998, in the case of the pro forma statement of operations data, and
December 31, 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.

(footnotes continued on following page)
28
<PAGE> 31

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
--------------------------- ----------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED
DECEMBER 31, FROM FROM DECEMBER 31,
--------------- 1/1/96 TO 8/6/96 TO ----------------------
1994 1995 8/5/96 12/31/96 1997 1998
------ ------ --------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....................................... $(23.8) $(16.2) $(8.0) $14.5 $(22.4) $ 30.0
Interest expense........................................ 87.1 94.8 52.7 34.2 78.8 73.1
Income taxes............................................ 6.1 7.0 6.8 16.2 13.8 20.9
Depreciation and amortization........................... 66.4 67.9 39.3 15.5 38.4 39.7
Extraordinary item...................................... -- -- -- -- 11.6 --
Receivables securitization costs........................ -- -- -- 4.4 9.8 9.1
Losses of Simmons....................................... -- -- -- 1.5 3.4 1.6
Other non-cash.......................................... 3.7 6.6 1.0 1.4 44.7(a) (0.1)
------ ------ ----- ----- ------ ------
EBITDA.............................................. $139.5 $160.1 $91.8 $87.7 $178.1 $174.3
====== ====== ===== ===== ====== ======
</TABLE>

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).

29
<PAGE> 32

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 1998 net sales of $2.0 billion. Fine
furniture represented approximately 87% of LifeStyle's net sales in 1998 and
decorative home furnishing fabrics represented approximately 13%.

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.

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 occurred in Asia, where facilities with
approximately 1.3 million square feet of manufacturing and distribution space
have been eliminated, as production has been consolidated into existing,
lower-cost Asian facilities. As a result of the restructuring, significant
non-recurring costs have been incurred to sever lease obligations, provide for
employee severance, and provide for the impairment of inventory and fixed
assets. The restructuring initiatives included a reduction in workforce,
eliminating approximately 3,000 positions by the end of 1998. The positions
eliminated consist primarily of production and supervisory personnel.

30
<PAGE> 33

other facilities where existing production capacity can be more efficiently
utilized. As such, the operations discontinued did not have separately
identifiable revenues or operating income.

As a result of the restructuring, inventory with a carrying value of $14.5
million was written off. Property and equipment, consisting primarily of real
property, machinery and equipment at facilities to be closed, were 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 discussed below.

Operating profit for 1997 included 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. The following table presents LifeStyle's
restructuring activities for the periods indicated (in millions):

<TABLE>
<CAPTION>
ASSET CONTRACTUAL EMPLOYEE
WRITE-DOWNS OBLIGATIONS SEVERANCE OTHER TOTAL
----------- ----------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
December 31, 1997...................... $ 38.1 $ 9.8 $ 8.8 $ 1.8 $ 58.5
Activity during 1998:
Non-cash items....................... (38.1) -- -- -- (38.1)
Cash items........................... -- (8.5) (8.8) (1.8) (19.1)
------ ----- ------ ------ -------
December 31, 1998...................... $ -- $ 1.3 $ -- $ -- $ 1.3
====== ===== ====== ====== =======
</TABLE>

Further, 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 becoming operationally excellent by 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 make-to-order (or "Pull") methodology. Overall, these reengineering
initiatives are designed to cut order-to-ship cycles dramatically -- with a goal
of being able to ship product 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, marketing and technology.

Principally as a result of these actions, LifeStyle improved its EBITDA
margin from 8.0% in 1995 to 9.0% in 1996 and 1997 (10.1% in 1997 after
adjustment to exclude restructuring charges). In 1998, LifeStyle significantly
accelerated the reengineering-driven conversion of its manufacturing and
business processes, which necessarily caused temporary disruption at certain
plants and resulted in additional costs. Despite order growth of approximately
5.3% in 1998, LifeStyle's net sales increased by only 1.9% and its EBITDA margin
declined from 9.0% to 8.7% as compared with 1997, primarily because of the
reengineering initiatives described above. Exclusive of transition costs related
to its restructuring and reengineering initiatives, costs related to the
development and implementation of Year 2000 compliance measures and costs
related to the computer system implementation at The Robert Allen Group,
however, LifeStyle's adjusted EBITDA margin increased to 10.5% for 1998 from
10.1% for 1997.

In addition, from August 1996 through December 31, 1998, LifeStyle reduced
working capital by $84.8 million to $446.2 million primarily through improved
management of its inventories and accounts payable. This reduction in working
capital, together with LifeStyle's operating cash flow, enabled it to reduce
long-term debt by $238.7 million (partially offset by the accretion of $90.4
million on the PIK Debt) through 1998.

Across all of LifeStyle's furnishings companies, approximately one-third 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

31
<PAGE> 34

over the next 12 to 24 months. More than 50% 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.

As certain of these operational initiatives are implemented, they
temporarily negatively impact existing manufacturing and business processes,
resulting in additional costs and time inefficiencies. However, as the resultant
benefits are realized, they increasingly come to exceed transition costs and
yield net efficiency gains. The total transition costs related to reengineering
and restructuring initiatives, net of efficiency gains, are expected to be
approximately $48.0 million, of which $30.0 million was incurred during 1998 and
the remaining approximately $18.0 million is expected to be incurred during
1999.

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
-------------------- -----------------------------
YEAR PERIOD FROM PERIOD FROM YEAR ENDED
ENDED 1/1/96 TO 8/6/96 TO ---------------
1995 8/5/96 12/31/96 1997 1998
------ ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit margin......................... 24.7% 24.1% 25.9% 25.2% 24.7%
Selling, general and administrative
expenses.................................. 20.0% 19.4% 17.4% 17.8% 17.8%
Operating profit margin..................... 4.7% 4.8% 8.6% 5.1% 6.9%
Interest expense............................ 4.8% 4.6% 4.0% 4.0% 3.6%
Net income (loss)........................... (0.8)% (0.7)% 1.7% (1.1)% 1.5%
OTHER FINANCIAL DATA:
Adjusted operating profit (1)............... 4.7% 4.8% 8.6% 8.1% 8.7%
Adjusted EBITDA (1)......................... 8.0% 8.0% 10.3% 10.1% 10.5%
</TABLE>

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

(1) Adjusted operating profit and adjusted EBITDA for 1997 exclude restructuring
charges. Adjusted operating profit and adjusted EBITDA for 1998 exclude the
transition costs related to the restructuring and reengineering initiatives,
costs related to the development and implementation of Year 2000 compliance
measures 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.

32
<PAGE> 35

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997

Net sales were $2,006.9 million for the year ended December 31, 1998, an
increase of $38.1 million, or 1.9%, from $1,968.8 million for 1997. Net sales of
fine furniture increased 2.8% to $1,749.7 million for the year ended December
31, 1998 from $1,702.6 million for 1997. Fine furniture orders for the year
ended 1998 increased 6.3% over 1997, reflecting strong demand. While orders were
strong, LifeStyle's net sales of fine furniture were negatively impacted as the
implementation of planned restructuring, reengineering and logistics initiatives
combined to temporarily limit product availability. This negative impact is
likely to continue over the next several quarters, although at a reduced rate.
Net sales of decorative home furnishing fabrics decreased 3.4% to $257.2 million
for the year ended December 31, 1998 from $266.2 million for 1997. Decorative
home furnishing fabric sales were lost due to shipping delays incurred during
the implementation of a more sophisticated computer system at The Robert Allen
Group. This computer system is now on-line and 24 hour order-to-ship
availability with additional functionality is being achieved. In addition,
fabric sales continue to be negatively impacted by customers migrating to
leather, but new fabric product introductions are expected to recover some of
the lost volume.

Gross profit was $495.6 million for the year ended December 31, 1998, a
decrease of $0.5 million, or 0.1%, from $496.1 million for 1997. Gross profit
margin decreased to 24.7% for the year ended December 31, 1998 from 25.2% for
1997. Although there was no non-recurring restructuring charge recorded in 1998
as in 1997, gross profit margin was negatively impacted by transition costs
related to LifeStyle's restructuring and reengineering initiatives associated
with implementation of "Pull" manufacturing processes, as well as temporary
production inefficiencies, increased 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 in
support of these restructuring and reengineering initiatives.

Selling, general and administrative expenses were $357.9 million for the
year ended December 31, 1998, an increase of $7.0 million, or 2.0%, from $350.9
million for 1997. As a percentage of net sales, selling, general and
administrative expenses were 17.8% for the year ended December 31, 1998, the
same as in 1997. Selling expense was 10.9% of net sales as compared to 11.0% for
1997, and general and administrative expenses were 6.9% of net sales compared to
6.8% in 1997. General and administrative expenses increased due to higher
consulting fees, Year 2000 compliance costs and other administrative costs,
partially offset by reduced bad debt expense.

Operating profit was $137.7 million for the year ended December 31, 1998,
an increase of $36.5 million, or 36.1%, from $101.2 million for 1997. As a
percentage of net sales, operating profit margin increased to 6.9% for the year
ended December 31, 1998 from 5.1% for 1997. Operating profit was impacted by the
aforementioned planned restructuring and reengineering initiatives, which
necessarily caused disruption at certain plants and resulted in additional costs
in 1998 and the restructuring charge in 1997. In addition, LifeStyle incurred
costs related to Year 2000 compliance measures and the computer system
implementation at The Robert Allen Group during 1998. Operating profit is
expected to be unfavorably impacted, although at a reduced rate, through the
next several quarters as additional costs continue in support of these
restructuring and reengineering initiatives.

Operating profit for the fine furniture segment increased $44.8 million to
$116.5 million for the year ended December 31, 1998 from $71.7 million for 1997
due primarily to the $58.5 million restructuring charge taken in 1997 (no
comparable charge was taken in 1998) partially offset by the reengineering and
Year 2000 costs incurred in 1998 as discussed above. Operating profit for the
fabric segment decreased $2.3 million to $26.0 million from $28.3 million for
1997 due primarily to the computer system implementation discussed above.

Exclusive of transition costs related to LifeStyle's restructuring and
reengineering initiatives, Year 2000 compliance costs and costs related to the
computer system implementation at The Robert Allen Group,

33
<PAGE> 36

adjusted operating profit was $174.2 million, an increase of $14.5 million, or
9.1%, as compared to the year ended December 31, 1997. As a percentage of net
sales, adjusted operating profit margin increased to 8.7% for the year ended
December 31, 1998 from 8.1% for 1997.

Interest expense was $73.1 million for the year ended December 31, 1998, a
decrease of $5.7 million, or 7.2%, from 1997. This decrease was a result of
lower average debt outstanding during the year ended December 31, 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-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. Reduced shipments to the
two large customers that filed for protection under Chapter 11 and the
elimination of less profitable products had a short-term negative impact on
sales volume. However, LifeStyle believes that during 1998 it has substantially
replaced the lost sales volume with product sales to other retail customers.

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.
34
<PAGE> 37

Operating profit margins were 3.9% and 10.2% for the year ended December
31, 1997 compared with 7.6% and 10.5% for the period from August 6 through
December 31, 1996 for the fine furniture segment and the fabric segment,
respectively. The decrease in operating profit margins occurred for the reasons
described above.

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 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.

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<PAGE> 38

LifeStyle had outstanding, as of December 31, 1998, $375.4 million of 12%
PIK Debt plus accrued interest of $1.9 million. LifeStyle will use the net
proceeds from the Offerings and the cash proceeds of the other financings to
repay the PIK Debt in full.

LifeStyle currently has outstanding $200.0 million principal amount of
Subordinated Notes. In connection with the Offerings, LifeStyle commenced a cash
tender offer to acquire all 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 has solicited consents from the holders 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
approximately $29.0 million after tax.

At December 31, 1998, LifeStyle's consolidated indebtedness was $690.1
million and, after giving effect to the Reorganization and the Offerings, would
have been $381.5 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 December 31, 1998,
$150.0 million of senior interests in the master trust had been sold to the
participants in the facility.

During the year ended December 31, 1998, net cash from operating activities
totaled $160.6 million, net cash used for investing activities totaled $93.9
million, and net cash used for financing activities totaled $63.2 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. Cash
dividends of $16.5 million and $23.3 million were paid to holders of mandatorily
redeemable Series A-1 and A-2 Preferred Stock during January 1999 and 1998,
respectively.

Capital expenditures totaled $46.7 million for the year ended December 31,
1998, compared to $33.0 million for the comparable period of 1997. LifeStyle
believes that no significant increase in capital expenditure levels will be
required during the next several years. Fabric sample book expenditures totaled
$18.5 million for the year ended December 31, 1998, an increase of $4.2 million
over the comparable period of 1997.

LifeStyle made net principal payments on its long-term debt of $39.9
million (offset by the accretion of $41.3 million on the PIK Debt owed to Masco)
during 1998 and $90.1 million (offset by the accretion of $36.8 million on the
PIK Debt owed to Masco) during 1997. Total long-term debt increased to $690.1
million as of December 31, 1998 as compared to $688.7 million at December 31,
1997. As of December 31, 1998, the amount available under the Credit Facility
was $272.1 million (net of face amount of existing letters of credit of $15.4
million). As of December 31, 1998, after giving effect to the Reorganization and
the Offerings, the amount available under the Credit Facility would have been
$5.3 million.

On February 1, 1999, using borrowings under its Credit Facility, LifeStyle
purchased a subordinated note in the principal amount of $35.0 million from HL
Holding Corporation ("HL"), an affiliate of 399, in connection with HL's
acquisition of the HomeLife furniture retailing division of Sears. The note is
unsecured, will accrue interest at an annual rate of 11.0% (or 11.5% if this
interest is paid in kind at the option of HL) and is due in 2004. The note is
subordinated in payment to $10.0 million of senior debt of HL, the guarantee by
HL of a $95.0 million credit facility of its subsidiary and any other guarantee
by HL of subsidiary debt. The HomeLife division being acquired by HL has been a
long-time customer of LifeStyle. It is expected that following this acquisition,
LifeStyle and HomeLife will enjoy an enhanced business relationship on an on-
going basis.

LifeStyle intends to replace its current receivables securitization
facility with a new facility. The new facility is expected to provide LifeStyle
with increased financial flexibility by providing more favorable terms and
conditions, including higher funding amounts (an increase of approximately $30.0
million), reduced reserve requirements, and a lower total cost of funds.

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<PAGE> 39

time to time under its Credit Facility (or any successor facility), and maturing
on the third anniversary of the completion of the Offerings. LifeStyle does not
anticipate an immediate need for these funds.

In connection with the Offerings and the Reorganization, LifeStyle intends
to obtain an additional revolving line of credit prior to the consummation of
the Offerings.

LifeStyle believes that cash generated from operations, together with the
amounts available under the Credit Facility, the anticipated new receivables
securitization facility and the $100.0 million revolving line of credit, 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

LifeStyle and its operating subsidiaries are evaluating their computerized
systems on an internal basis, and 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 it has established a committee comprised of senior managers to review its
Year 2000 implementation strategy and to oversee 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. LifeStyle intends to complete remediation, testing and
implementation by the middle of 1999. LifeStyle currently anticipates that the
development and implementation of Year 2000 compliance measures will cost
approximately $12 million, all of which will be expensed. In 1998, LifeStyle
incurred and expensed approximately $4 million on these measures. In addition,
during 1997, LifeStyle began implementing a company-wide, Oracle-based software
platform that is designed to be Year 2000 compliant.

In addition to LifeStyle's internal information technology ("IT") systems,
it also has certain non-IT systems (e.g., machinery and equipment) that utilize
embedded technology such as microcontrollers. LifeStyle does not believe that
its operations depend significantly on the technology contained in any non-IT
systems that are subject to Year 2000 compliance issues. As noted above,
however, LifeStyle has initiated an assessment of its computerized systems that
will cover any material non-IT systems.

Because of the interdependent nature of business systems, LifeStyle and its
operating subsidiaries could also be materially adversely affected if utilities,
private businesses and governmental entities with which they do business or from
which they obtain essential goods and services are not Year 2000 compliant. In
order to determine how LifeStyle would be affected if a third party failed to
resolve its own Year 2000 issues, LifeStyle is communicating with suppliers,
customers and other third parties about the compliance of their own systems.
LifeStyle currently believes that a significant portion of this third party risk
relates to its operations outside the United States.

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<PAGE> 40

If LifeStyle and its business partners fail to achieve Year 2000 compliance
on a timely basis, the possible material consequences include, among other
things, temporary plant closings, delays in the delivery of products, delays in
the receipt of supplies, invoice and collection errors, and inventory and supply
obsolescence. As a result of such Year 2000 issues, LifeStyle's business and its
results of operations could be materially adversely affected by a temporary
inability to conduct business in the ordinary course for a period of time during
and around the Year 2000. However, LifeStyle believes that its Year 2000
compliance readiness program should significantly reduce the adverse effect of
any such disruptions, and LifeStyle is in the process of developing a
contingency plan to address any such disruptions.

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. However, LifeStyle's revenue is generated primarily in
the United States and, accordingly, is not significantly impacted by the Asian
devaluation. LifeStyle does not engage in foreign currency hedging.

In connection with the restructuring of LifeStyle's worldwide operations,
certain Asian manufacturing operations changed their internal operating
practices with regard to foreign currency transactions during 1998. Management
reevaluated the designation of the functional currency under SFAS No. 52
"Foreign Currency Translation" and determined that the local currency should be
designated as the functional currency for certain operations to properly reflect
the changed operating practices. As a result, the translation of non-monetary
assets and liabilities for the affected operations changed from historical
exchange rates to balance sheet date exchange rates, with translation
adjustments recorded as a component of stockholders' equity. This change
resulted in a non-cash adjustment to foreign currency translation in
stockholders' equity and non-monetary assets of approximately $8.2 million.

During 1997, LifeStyle recorded a $7.0 million loss on remeasurement and
foreign currency transactions and a $10.2 million translation adjustment to
stockholders' equity because of the significant devaluation of the Asian
currencies against the U.S. dollar. Volatility in the Asian currencies continued
during 1998, albeit at a more moderate pace than was experienced in 1997. During
1998, LifeStyle recorded a $2.5 million loss on remeasurement and foreign
currency transactions and a $10.1 million translation adjustment to
stockholders' equity, including the $8.2 million discussed above.

Financial information concerning LifeStyle's foreign operations, including
the net sales and assets that are attributable to LifeStyle's operations in the
United States and in foreign countries, are set forth in Note 17 to the
Financial Statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LifeStyle is exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and commodity prices.
LifeStyle does not engage in foreign currency hedging or the use of derivatives
to manage commodity price fluctuations or for speculative purposes. LifeStyle is
exposed to risks associated with changes in interest rates under its various
debt arrangements and the receivables securitization facility. In order to
manage its exposure to this market risk, LifeStyle maintains interest rate

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<PAGE> 41

collar arrangements on $250.0 million of long-term debt. LifeStyle's exposure to
changes in interest rates is summarized as follows:

<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
-------------------------------------------------------------------------
2004 AND FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
----- ----- ----- ------------ ------ ---------- ------------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG TERM DEBT:
Variable Rate (Credit
Facility)............ $2.5 $75.0 $35.0 $112.5 $112.5
Weighted average
rate................. 8.750% 5.875% 5.875% 5.940%
Fixed Rate (PIK Debt
and Subordinated
Notes)(1)............ $575.4 $575.4 $596.4
Weighted average
rate................. 11.609% 11.609%
INTEREST RATE COLLARS:
Notional amount(2)..... $250.0 $250.0 $(2.1)
Ceiling/floor.......... 6.750%/4.885% 6.750%/4.885%
OFF-BALANCE SHEET
FINANCIAL
INSTRUMENTS:
Receivables facility... $150.0 $150.0 $150.0
Weighted average
rate................. 5.789% 5.789%
</TABLE>

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

(1) To be repaid in full in connection with the Offerings.

(2) The notional amount represents the contract amount, not the amount at risk.

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. 131 "Disclosures about Segments of an Enterprise and Related
Information," became 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 have been restated to conform with the provisions of SFAS No. 131.

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

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 that its
adoption will have a material impact on its financial statements.

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<PAGE> 42

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
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $491.2 $479.6 $487.6 $510.4 $500.8 $479.7 $492.6 $533.8

Operating profit (loss)....... 40.2 40.2 36.8 (16.0) 31.0 30.3 37.2 39.2

Adjusted operating
profit(1)................... 40.2 40.2 36.8 42.5 42.5 39.3 44.7 47.7

EBITDA........................ 49.8 49.0 44.1 35.2 40.3 39.8 46.5 47.7

Adjusted EBITDA(1)............ 49.8 49.0 44.1 55.6 51.8 48.8 54.0 56.2
</TABLE>

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

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<PAGE> 43

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 1998 net sales of $2.0 billion. Fine
furniture represented approximately 87% of LifeStyle's net sales in 1998 and
decorative home furnishing fabrics represented approximately 13%. 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 and business 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, improve retailer
profitability 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 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> 44

The domestic residential furniture production industry consists of hundreds
of 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 collections 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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<PAGE> 45

- Over 80 independent stores selling LifeStyle products exclusively

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

- 13 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 72 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 $240 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 does not expect to incur
significant increases in its capital expenditures during 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. Approximately 180 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.

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<PAGE> 46

Principally as a result of these actions, LifeStyle has improved its EBITDA
margin from 8.0% in 1995 to 9.0% in 1996 and 1997 (10.1% in 1997 after
adjustment to exclude restructuring charges). In 1998, LifeStyle significantly
accelerated the reengineering-driven conversion of its manufacturing and
business processes, which necessarily caused temporary disruption at certain
plants and resulted in additional costs. Despite order growth of approximately
5.3% in 1998, LifeStyle's net sales increased by only 1.9% and its EBITDA margin
declined from 9.0% to 8.7% as compared with 1997, primarily because of the
reengineering initiatives described above. Exclusive of transition costs related
to its restructuring and reengineering initiatives, costs related to the
development and implementation of Year 2000 compliance measures and costs
related to the computer system implementation at The Robert Allen Group,
however, LifeStyle's adjusted EBITDA margin increased to 10.5% for 1998 from
10.1% for 1997.

Across all of LifeStyle's furnishings companies, approximately one-third 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 12 to
24 months. More than 50% 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.

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
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. 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 furnishings companies of two weeks or less. One of the early
successes in LifeStyle's reengineering-driven conversion efforts has been in the

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<PAGE> 47

production of BERKLINE(R) motion furniture. Implementation of short-cycle
management methodologies has resulted in a 30% improvement in inventory turns, a
27% 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 enjoyed market share growth in 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 now being produced
utilizing short-cycle management methodologies, which management believes drove
the dramatic increase in orders, greater than 25%, at BenchCraft during 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 help 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 and alliances with
selected retailers for several years, most recently with HomeLife (formerly
Sears HomeLife). 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. For example, LifeStyle has (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 more than $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 13 BEACON HILL(R)
designer-exclusive showrooms, LifeStyle is well positioned to serve the premium
home furnishings market segment, a segment where Beacon Hill has historically
grown 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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<PAGE> 48

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 HOME 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 regular

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<PAGE> 49

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

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 HERITAGE 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, 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(R). 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(TM) (female youth), and SEASIDE RETREAT(TM) (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> 50

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> 51

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(TM) 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> 52

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) 13
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 and alliances with selected retailers for several years, most
recently with HomeLife (formerly Sears HomeLife). 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 1998, LifeStyle's 20 largest customers represented approximately 20% of
net sales, with no single customer representing as much as 4.0%. 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> 53

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 HomeLife (formerly 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 13 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 213,000 square feet of space dedicated to furniture and
accessories, and 75,000 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
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<PAGE> 54

BEACON HILL(R) Showrooms, which offer ROBERT ALLEN(TM) and RAMM, SON &
CROCKER(TM) fabrics on a commission 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 72 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 $240 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 does not expect to incur
significant increases in its capital expenditures during 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 furnishings companies, approximately one-third 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 12 to 24 months. More
than 50% of LifeStyle's plants are now implementing short-cycle management
methodologies, and these "best practices" will be implemented

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<PAGE> 55

enterprise-wide. When implemented, these methodologies are expected to
dramatically reduce manufacturing 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, 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.

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 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,

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<PAGE> 56

style, timeliness of delivery and quality, and competitors include
Schumacher/Waverly, P/Kaufmann, Richloom and Mastercraft.

EMPLOYEES

As of December 31, 1998, LifeStyle employed approximately 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 December 31, 1998 aggregated
approximately $327 million, compared to approximately $314 million as of
December 31, 1997.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information as of December 31, 1998
concerning the directors and executive officers of LifeStyle:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Wayne B. Lyon........................ 66 Chairman of the Board, President and Chief Executive
Officer
Donald L. Barefoot................... 44 Executive Vice President -- Operations
Douglas C. Barnard................... 40 Vice President, General Counsel and Secretary
Alan D. Cole......................... 49 Executive Vice President
Ronald J. Hoffman.................... 54 Vice President, Treasurer and Chief Financial Officer
Richard M. Cashin, Jr. .............. 45 Director
David L. Johnston.................... 57 Director
Robert C. Larson..................... 64 Director
John A. Morgan....................... 68 Director
David F. Thomas...................... 49 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.
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<PAGE> 58

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.

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, and has recently reassumed his position. 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 voting as a separate class (the "Series C
Directors"), and holders of the Series B Convertible Preferred Stock have the
right to elect one director voting as a separate class (the "Series B
Director"). If at any time the number of Common Directors, together with the
Series B Director, exceeds six, then the holder of the Series C Convertible
Preferred Stock will be entitled to elect an additional Series C 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. If the
Institutional Stockholders (as defined below) own less than 5% of LifeStyle's
common equity (on a fully diluted basis), the Series C Preferred Stock will
automatically convert into Class A Common Stock, and the rights of the Series C
Preferred Stock to elect Series C Directors will automatically terminate. Upon
such conversion, the Series C Directors will be automatically removed from the
LFI Board and replaced with Common Directors. Similarly, if Masco owns less than
5% of LifeStyle's common equity (on a fully diluted basis), the Series B
Preferred Stock will automatically convert into Class A Common Stock, and the
rights of the Series B Preferred Stock to elect the Series B Director will
automatically terminate. Upon such conversion, the Series B Director will be
automatically removed from the LFI Board and replaced with a Common Director.
See "Description of Capital Stock -- Preferred Stock."

The Charter also provides 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 2000, 2001 and
2002 annual meetings of the stockholders of LifeStyle, depending upon the
particular class in which each such director is placed. Messrs. Thomas and
Walker will comprise the class of directors with terms expiring in 2000, Messrs.
Johnston and Morgan the class of directors with terms expiring in 2001, and
Messrs. Cashin, Larson and Lyon the class of directors with terms expiring in
2002. The Charter provides that 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 so that the number of directors in each class will be
as nearly equal as practicable. 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. 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
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<PAGE> 59

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. Messrs. Lyon, Morgan and Thomas will comprise
the initial members of the Executive Committee.

The Compensation Committee will administer the bonus, incentive
compensation and management stock plans of LifeStyle, and review 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.
Messrs. Cashin, Morgan and Thomas will comprise the initial members of the
Compensation Committee.

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
internal audit function, 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. Messrs. Johnston, Larson
and Walker will comprise the initial members of the Audit Review Committee.

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 election of 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 less than 90 days and not greater than 120 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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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 years ended December 31, 1998 and 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.................... 1998 $519,231 (7) $129,078 $ -- $33,550
Chairman of the Board, 1997 500,000 $250,000 107,661 -- 27,370
President and Chief Executive 1996 192,308 380,000(4) -- 108,805 14,838
Officer
Donald L. Barefoot(5)............ 1998 369,600 (7) -- 11,840 129,916
Executive Vice President -- 1997 148,077 180,000 -- 21,760 2,457
Operations
Douglas C. Barnard............... 1998 193,727 (7) -- -- 10,444
Vice President, General Counsel 1997 172,150 27,000 -- -- 24,509
and Secretary 1996 63,462 40,000 15,955 10,880 24,946
Alan D. Cole(6).................. 1998 369,600 (7) -- -- 19,048
Executive Vice President 1997 324,635 225,000 -- 5,440 47,764
Ronald J. Hoffman................ 1998 200,335 (7) -- -- 12,246
Vice President, Treasurer and 1997 177,200 27,750 -- -- 11,228
Chief Financial Officer 1996 65,385 45,000 -- 13,600 6,301
</TABLE>

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

(1) This column includes the following: (i) tax reimbursement payments; (ii)
personal use of the LifeStyle airplane (for 1998: Mr. Lyon -- $66,451) 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 (or, in the case of the 1998 award to Mr.
Barefoot, $ per share, which was the comparable book value per share on
August 31, 1997). 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,
1998.

(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 1998: Mr.
Lyon -- $7,730, Mr. Barefoot -- $7,730, Mr. Barnard -- $7,730, Mr.
Cole -- $7,730, Mr. Hoffman -- $7,730); (ii) LifeStyle contributions to the
group term life insurance plan for each of the named executive officers (for
1998: Mr. Lyon -- $8,820, Mr. Barefoot -- $714, Mr. Barnard -- $714, Mr.
Cole -- $1,218, Mr. Hoffman -- $2,016); (iii) LifeStyle contributions and
allocations under LifeStyle's Benefit Restoration Plan (for 1998: Mr.
Lyon -- $17,000, Mr. Barefoot -- $10,100, Mr. Barnard -- $2,000, Mr.
Cole -- $10,100 and Mr. Hoffman -- $2,500); and (iv) in the case of Mr.
Barefoot $111,372, received in 1998 as reimbursement in connection with his
relocation.

(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.

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<PAGE> 61

(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.

(7) LifeStyle will finalize and pay bonuses in March 1999.

MANAGEMENT STOCK OWNERSHIP

Approximately 180 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 -- 3; Mr. Barefoot -- 2; Mr.
Barnard -- 7; Mr. Cole -- 10 and Mr. Hoffman -- 30.

(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. 1999 EQUITY INCENTIVE PLAN

LifeStyle's Board of Directors has adopted, and LifeStyle's stockholders
have approved, the LifeStyle Furnishings International Ltd. 1999 Equity
Incentive Plan (the "1999 Plan").

The purpose of the 1999 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 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.

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<PAGE> 62

The 1999 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
1999 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 1999 Plan.

Under the 1999 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 1999 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 1999 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 1999 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 1999 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 1999 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. From time to time, an
investment banking firm of which Mr. Morgan is a partner performs investment
banking and other related services for LifeStyle. Fees payable by LifeStyle to
such firm for financial advisory services for 1998, and for services provided in
connection with the Reorganization and the Offerings, total $750,000, plus
expenses.

1999 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS

LifeStyle's Board of Directors has adopted, and LifeStyle's stockholders
have approved, LifeStyle's 1999 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> 63

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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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS AGREEMENT

LifeStyle and its current stockholders, including 399 and certain other
institutions and related 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 of
LifeStyle.

The Stockholders Agreement 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, subject to certain exceptions,
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 December 31, 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
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,

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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 transactions described 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 at its option issue to Masco shares of Series B Convertible
Preferred Stock for an aggregate price of up to $100 million (less an applicable
discount in an amount as determined below), (iv) LifeStyle will redeem all of
the outstanding shares of Series A-2 Preferred Stock (approximately 81,508
shares as of December 31, 1998) for a cash purchase price of $100 per share, and
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 December 31, 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,
having first paid in cash the accrued but unpaid dividends on both the Series
A-1 and the Series A-2 Preferred Stock (accrued dividends of $16.5 million as of
December 31, 1998 were paid on January 29, 1999), and (v) LifeStyle will use the
net proceeds of the Offerings and the cash proceeds of the other financings to
repay in full the PIK Debt owed to Masco ($377.3 million as of December 31,
1998). For purposes of the foregoing transactions, shares of Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock will be
valued at a price per share equal to the initial public offering price of the
Class A Common Stock offered hereby (less the underwriting discount).

HOMELIFE LOAN

On February 1, 1999, using borrowings under its Credit Facility, LifeStyle
purchased a subordinated note in the principal amount of $35.0 million from HL,
an affiliate of 399, in connection with HL's acquisition of the HomeLife
furniture retailing division of Sears. The note is unsecured, will accrue
interest at an annual rate of 11.0% (or 11.5% if this interest is paid in kind
at the option of HL) and is due in 2004. The note is subordinated in payment to
$10.0 million of senior debt of HL, the guarantee by HL of a $95.0 million
credit facility of its subsidiary and any other guarantee by HL of subsidiary
debt. The HomeLife division being acquired by HL has been a long-time customer
of LifeStyle. It is expected that following this acquisition, LifeStyle and
HomeLife will enjoy an enhanced business relationship on an on-going basis.

MASCO CREDIT FACILITY

Upon completion of the Offerings, Masco has agreed to provide LifeStyle
with a $100.0 million senior unsecured revolving line of credit, bearing
interest at 50 basis points over LifeStyle's borrowing rate from time to time
under its Credit Facility (or any successor facility), and maturing on the third
anniversary of the completion of the Offerings. LifeStyle does not anticipate an
immediate need for these funds.

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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 warrant 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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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth certain information as of December 31, 1998,
after giving effect to the Reorganization (assuming the issuance of the maximum
number of shares of Series B Convertible Preferred Stock issuable to Masco in
the Stock Subscription and assuming for purposes of the Stock Subscription and
the exchange of shares of Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock for Series A-1 Preferred Stock, an initial public
offering price of $ per share (the midpoint of the range set forth on
the cover page hereof)), and to the termination of a voting trust for the
management investors in connection with the Offerings, 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.(and
certain affiliates)(1)..........
Masco Corporation(2)..............
CCT Partners III, L.P.(1)(3)......
Wayne B. Lyon(4)(5)...............
Donald L. Barefoot(5).............
Douglas C. Barnard(5).............
Alan D. Cole(5)...................
Ronald J. Hoffman(5)..............
Richard M. Cashin, Jr.(1)(6)......
David L. Johnston(7)..............
Robert C. Larson(8)...............
John A. Morgan(9).................
David F. Thomas(1)(6).............
Martin D. Walker(10)..............
All directors and executive
officers as a group (eleven
persons)(11)....................
</TABLE>

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

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

(2) 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.

(3) 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 Citigroup Inc. and its subsidiaries, including 399. Shares
held by CCT are not included in the table as shares beneficially owned by
399.

(4) 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.

(footnotes continued on following page)

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

(6) 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.

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

(8) 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.

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

(10) Address is 200 Public Square, Suite 36-5000, Cleveland, OH 44114.

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

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<PAGE> 69

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 December 31, 1998, on a pro forma basis 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 B Convertible Preferred Stock were outstanding and shares
of Series C Convertible Preferred Stock were outstanding. As of December 31,
1998, on a pro forma basis after giving effect to the Reorganization, there were
holders of Class A Common Stock and holders of
Class B Common Stock. As of December 31, 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 Stock
are entitled to share ratably according to the number of shares held by them in
all assets remaining available for distribution to stockholders.

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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 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 if 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 if 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 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

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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

First Union National Bank 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, voting together as a single class, (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 vote of the directors of
LifeStyle then in office, 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 less than 90 days nor more than 120
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 100 days or more prior to the meeting, notice by the stockholder to
be timely must be received by 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 information concerning the stockholder proposing such
business.

Under applicable provisions of the DGCL, 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 certain of 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, 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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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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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.

71
<PAGE> 74

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Salomon Smith Barney Inc., Credit Suisse First Boston Corporation and First
Union Capital Markets Corp. 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......................
First Union Capital Markets Corp. ..........................

--------
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 First Union Capital Markets Corp. 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 reallow, 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 to
cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.

The following table shows the per share and total underwriting discounts
and commissions to be paid by LifeStyle to the Underwriters and the proceeds
before expenses to LifeStyle. This information is presented assuming either no
exercise or full exercise by the Underwriters of their over-allotment options.

<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public Offering Price...................................... $ $ $
Underwriting Discount...................................... $ $ $
Proceeds, before expenses, to LifeStyle.................... $ $ $
</TABLE>

The expenses of the Offerings (exclusive of the underwriting discount) are
estimated at $ and are payable by LifeStyle.

The shares of Class A Common Stock are being offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.

At the request of LifeStyle, the Underwriters have reserved for sale, at
the initial public offering price, up to shares of the Class A
Common Stock offered hereby to be sold 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 orally confirmed for purchase
within one day of the pricing of the Offerings will be offered by the U.S.
Underwriters to the general public on the same terms as the other shares offered
hereby.

LifeStyle, its executive officers and directors and its other current
stockholders have agreed, subject to certain 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 warrant 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 or repayable with 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

73
<PAGE> 76

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 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 to confirm sales of the Class A Common Stock
to any accounts over which they exercise discretionary authority.

Affiliates of Salomon Smith Barney Inc. will 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.

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.

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 the Underwriters create 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
74
<PAGE> 77

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, purchases 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
is a lender under LifeStyle's Credit Facility and First Union National Bank is
the registrar and transfer agent for the Class A Common Stock, each of which is
an affiliate of First Union Capital Markets Corp.

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, 1997 and
1998 and the consolidated statements of operations, comprehensive income and
cash flows for the period from August 6, 1996 to December 31, 1996 and each of
the two years in the period ended December 31, 1998 and the combined statements
of operations, comprehensive income and cash flows of the Predecessor for 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, 1997 and 1998................ F-3
Statements of Operations for the period January 1, 1996 to
August 5, 1996, for the period August 6, 1996 to December
31, 1996 and for each of the two years in the period ended
December 31, 1998......................................... F-4
Statements of Comprehensive Income for the period January 1,
1996 to August 5, 1996, for the period August 6, 1996 to
December 31, 1996 and for each of the two years in the
period ended December 31, 1998............................ F-5
Statements of Cash Flows for the period January 1, 1996 to
August 5, 1996, for the period August 6, 1996 to December
31, 1996 and for each of the two years in the period ended
December 31, 1998......................................... 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, 1997 and 1998 and the related
consolidated statements of operations, comprehensive income and cash flows for
the period August 6, 1996 to December 31, 1996 and for each of the two years in
the period ended December 31, 1998. 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 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, 1997 and
1998, and the consolidated results of their operations and their cash flows for
the period August 6, 1996 to December 31, 1996 and each of the two years in the
period ended December 31, 1998 and the combined results of operations and cash
flows of the Masco Home Furnishings Group for the period January 1, 1996 to
August 5, 1996, in conformity with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, LifeStyle changed its
functional currency for certain Asian manufacturing operations. As discussed in
Note 1 to the financial statements, 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 and are
presented on the historical cost basis existing prior to the acquisition period.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Greensboro, North Carolina

February 1, 1999

F-2
<PAGE> 80

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

<TABLE>
<CAPTION>
LIFESTYLE
----------------------------
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments................................. $ 3,670 $ 7,060
Trade receivables......................................... 66,360 48,730
Investment in receivables trust........................... 64,010 92,220
Other receivables......................................... 25,860 26,530
Inventories............................................... 513,420 482,580
Prepaid expenses.......................................... 36,200 40,980
Deferred income taxes..................................... 38,530 30,050
---------- ----------
Total current assets.............................. 748,050 728,150
Property and equipment, net................................. 337,770 356,430
Other assets................................................ 41,760 32,930
---------- ----------
Total assets...................................... $1,127,580 $1,117,510
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Long-term debt, current................................... $ 2,970 $ 3,160
Accounts payable.......................................... 124,540 138,570
Accrued liabilities....................................... 131,310 106,240
---------- ----------
Total current liabilities......................... 258,820 247,970
Long-term debt.............................................. 685,700 686,920
Deferred income taxes....................................... 20,000 21,230
Other long-term liabilities................................. 54,080 51,780
---------- ----------
Total liabilities................................. 1,018,600 1,007,900
Mandatorily redeemable preferred stock...................... 142,780 134,970
Stockholders' equity (deficit):
Common stock, $.01 par value.............................. 6 6
Preferred stock, $.01 par value........................... 4 4
Additional paid-in capital................................ 8,580 5,560
Retained earnings (deficit)............................... (33,220) (11,700)
Foreign currency translation.............................. (9,170) (19,230)
---------- ----------
Total stockholders' equity (deficit).............. (33,800) (25,360)
---------- ----------
Total liabilities and stockholders' equity
(deficit)....................................... $1,127,580 $1,117,510
========== ==========
</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 YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO TO ------------------------------
AUG. 5, 1996 DEC. 31, 1996 1997 1998
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales............................................. $1,147,890 $849,520 $1,968,820 $2,006,900
Cost of sales......................................... 870,650 629,430 1,458,190 1,511,260
Restructuring charge.................................. -- -- 14,480 --
---------- -------- ---------- ----------
Gross profit........................................ 277,240 220,090 496,150 495,640
Selling, general and administrative expenses.......... 222,230 147,430 350,850 357,940
Restructuring charge.................................. -- -- 44,020 --
---------- -------- ---------- ----------
Operating profit.................................... 55,010 72,660 101,280 137,700
---------- -------- ---------- ----------
Other expense, net:
Interest expense.................................... 970 34,160 78,840 73,090
Interest expense, Masco............................. 51,720 -- -- --
Other, net.......................................... 3,480 7,800 19,440 13,740
---------- -------- ---------- ----------
56,170 41,960 98,280 86,830
---------- -------- ---------- ----------
Income (loss) before income taxes and extraordinary
item................................................ (1,160) 30,700 3,000 50,870
Income taxes.......................................... 6,830 16,220 13,750 20,850
---------- -------- ---------- ----------
Income (loss) before extraordinary item............. (7,990) 14,480 (10,750) 30,020
Extraordinary item -- early extinguishment of debt
(net of income taxes of $7,750)..................... -- -- (11,620) --
---------- -------- ---------- ----------
Net income (loss)................................... (7,990) 14,480 (22,370) 30,020
Preferred dividends................................... -- (6,560) (17,230) (16,490)
---------- -------- ---------- ----------
Net income (loss) available to common
stockholders...................................... $ (7,990) $ 7,920 $ (39,600) $ 13,530
========== ======== ========== ==========
Basic income (loss) per common share, excluding Class
D common shares:
Income (loss) before extraordinary item............. N/A $ 20.47 $ (52.89) $ 31.62
Extraordinary item.................................. N/A -- (24.98) --
-------- ---------- ----------
Net income (loss)................................... N/A $ 20.47 $ (77.87) $ 31.62
======== ========== ==========
Diluted income (loss) per common share, excluding
Class D common shares:
Income (loss) before extraordinary item............. N/A $ 10.75 $ (52.89) $ 16.59
Extraordinary item.................................. N/A -- (24.98) --
-------- ---------- ----------
Net income (loss)................................... N/A $ 10.75 $ (77.87) $ 16.59
======== ========== ==========
Basic and diluted loss per Class D common share....... N/A $(153.62) $ (360.00) $ (178.18)
======== ========== ==========
</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)

<TABLE>
<CAPTION>
PREDECESSOR LIFESTYLE
------------ ---------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO TO -----------------------------
AUG. 5, 1996 DEC. 31, 1996 1997 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss)............................... $(7,990) $14,480 $(22,370) $30,020
Other comprehensive income (loss), net of tax:
Foreign currency translation.................. (830) 1,040 (10,210) (10,060)
------- ------- -------- -------
Comprehensive income (loss)..................... $(8,820) $15,520 $(32,580) $19,960
======= ======= ======== =======
</TABLE>

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 YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO AUG. 5, TO DEC. 31, -------------------
1996 1996 1997 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (7,990) $ 14,480 $(22,370) $ 30,020
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 29,790 9,650 24,160 26,070
Fabric sample book amortization......................... 9,470 5,820 14,250 13,660
Bad debt provision...................................... 2,250 2,360 6,140 2,680
Deferred income taxes................................... (2,610) (5,880) (6,680) 9,710
Non-cash interest expense............................... -- 14,230 36,940 41,500
Extraordinary loss, net of tax.......................... -- -- 11,620 --
Restructuring charge.................................... -- -- 58,500 --
Changes in operating assets and liabilities:
Receivables............................................. 39,550 13,450 16,360 13,520
Inventories............................................. (17,480) 32,200 3,970 30,840
Prepaid expenses and other assets....................... 2,470 (9,850) (1,200) 6,110
Accounts payable........................................ (1,890) 11,070 29,070 14,030
Other liabilities....................................... (4,720) 32,050 (31,030) (27,580)
-------- --------- -------- --------
Net cash provided by operating activities............... 48,840 119,580 139,730 160,560
-------- --------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures...................................... (16,520) (14,140) (33,020) (46,710)
Fabric sample book expenditures........................... (9,190) (3,260) (14,280) (18,540)
Net investments in receivables trust...................... -- (51,120) (12,890) (28,210)
Issuance of notes receivable.............................. -- -- (3,990) (1,040)
Collection of notes receivable............................ 2,790 1,670 16,650 7,440
Acquisition of businesses, net of cash acquired........... -- (645,430) -- --
Other, net................................................ (2,640) 3,380 (3,090) (6,880)
-------- --------- -------- --------
Net cash used for investing activities.................. (25,560) (708,900) (50,620) (93,940)
-------- --------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 87,760 525,000 234,000 47,500
Repayments of long-term debt.............................. (87,090) (108,690) (325,000) (87,000)
Net proceeds (repayments) of other debt................... -- -- 940 (390)
Net proceeds (repayments) of accounts receivable
transactions............................................ -- 167,000 (17,000) --
Capital contribution...................................... -- 66,010 -- --
Deferred financing costs.................................. -- (37,590) (790) --
Decrease in Masco net investment and advances............. (22,600) -- -- --
Dividends paid............................................ -- -- -- (23,340)
-------- --------- -------- --------
Net cash provided by (used for) financing activities.... (21,930) 611,730 (107,850) (63,230)
-------- --------- -------- --------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period........................ 1,350 22,410 (18,740) 3,390
Balance, beginning of period.............................. 17,310 -- 22,410 3,670
-------- --------- -------- --------
Balance, end of period.................................... $ 18,660 $ 22,410 $ 3,670 $ 7,060
======== ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................. $ 52,700 $ 6,200 $ 44,450 $ 31,830
======== ========= ======== ========
Income taxes.............................................. $ 10,000 $ 7,000 $ 28,300 $ 12,050
======== ========= ======== ========
</TABLE>

Non-cash transactions

On November 13, 1998, LifeStyle declared a cash dividend, payable January
1999, of $16.5 million to holders of mandatorily redeemable preferred stock.

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.

FII has filed a Registration Statement on Form S-1 (File No. 333-58655)
relating to the initial public offering of its common stock (the "Offerings").
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 the period 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 $3.9 million at December 31, 1997 and $2.7
million at December 31, 1998.

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 $16.0 million, net of accumulated amortization of $3.0 million, and
$13.8 million, net of accumulated amortization of $5.2 million, were included in
Other Assets in the accompanying balance sheets as of December 31, 1997 and
1998, 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 $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, $20.2
million during 1997 and $23.8 million during 1998.

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, 1997 and 1998 aggregated $17.9 million and $22.7 million,
respectively, and the related amounts charged to selling expense were $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, $14.3 million during 1997 and $13.7
million during 1998.

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,
1997 and 1998, LifeStyle's investment in these joint ventures totaled $7.3
million and $5.5 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. LifeStyle accounts for its receivables facility in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS No. 125 allows LifeStyle to derecognize the trade
receivables transferred to LFI Receivables Corporation (Note 8).

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 $222 million and $221 million as of
December 31, 1997 and 1998, 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.

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 6.75%
and a LIBOR floor of 4.89%, had a fair value of approximately $(0.4) and $(2.1)
million at December 31, 1997 and 1998, respectively, with a carrying value of
zero.

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,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Balance, beginning of period................................ $ 1,040 $ (9,170)
Translation adjustment...................................... (10,210) (10,060)
Income tax effect........................................... -- --
-------- --------
Balance, end of period...................................... $ (9,170) $(19,230)
======== ========
</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
"Other, net" in the statement of operations.

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Translation" and determined that the local currency should be designated as the
functional currency for certain operations to properly reflect the changed
operating practices. As a result, the translation of non-monetary assets and
liabilities for the affected operations changed from historical exchange rates
to balance sheet date exchange rates, with translation adjustments recorded as a
component of stockholders' equity. This change resulted in a non-cash adjustment
to foreign currency translation in stockholders' equity and non-monetary assets
of approximately $8.2 million.

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

Recently Issued Accounting Standards. 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," became effective in 1998. Comparative disclosures which include
prior period information have been restated to conform with the provisions of
this Statement. (Note 17)

SFAS No. 132 "Employers' Disclosure about Pensions and Other Postretirement
Benefits," became effective in 1998. Comparative disclosures which include prior
period information have been restated to conform with the provisions of this
Statement. (Note 10)

3. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Finished goods......................................... $219,820 $216,540
Raw material........................................... 212,640 192,510
Work in process........................................ 80,960 73,530
-------- --------
$513,420 $482,580
======== ========
</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,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Land and improvements.................................. $ 32,600 $ 36,350
Buildings.............................................. 204,920 208,720
Machinery and equipment................................ 121,930 160,370
-------- --------
359,450 405,440
Less accumulated depreciation.......................... 21,680 49,010
-------- --------
$337,770 $356,430
======== ========
</TABLE>

LifeStyle leases various facilities and equipment under non-cancelable
lease arrangements. Rent expense was $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, $19.7 million during 1997 and $17.5 million during 1998.

At December 31, 1998, future minimum rental commitments for operating
leases with non-cancelable terms in excess of one year are as follows:
1999-$24.8 million; 2000-$21.7 million; 2001-$17.3 million; 2002-$13.4 million;
2003-$11.6 million; and thereafter-$22.6 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 $2.1 million of these notes are due from one customer at
December 31, 1998. Although LifeStyle does not currently foresee a material
credit risk associated with this receivable, repayment is dependent upon the
financial stability of this customer.

On February 1, 1999, using borrowings under its Credit Facility, LifeStyle
purchased a subordinated note in the principal amount of $35.0 million from HL
Holding Corporation ("HL"), an affiliate of one of its stockholders, in
connection with HL's acquisition of the HomeLife furniture retailing division of
Sears. The note is unsecured, will accrue interest at an annual rate of 11.0%
(or 11.5% if this interest is paid in kind at the option of HL) and is due in
2004. The note is subordinated in payment to $10.0 million of senior debt of HL,
the guarantee by HL of a $95.0 million credit facility of its subsidiary and any
other guarantee by HL of subsidiary debt.

6. ACCRUED LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Salaries, wages and commissions............................. $ 28,330 $ 32,090
Employee retirement plans................................... 8,840 3,070
Interest.................................................... 12,840 12,240
Advertising and sales promotion............................. 9,720 9,420
Insurance................................................... 7,200 5,050
Warranty reserve............................................ 2,500 2,500
Property, payroll and other taxes........................... 3,140 4,040
Restructuring............................................... 28,510 1,300
Other....................................................... 30,230 36,550
-------- --------
$131,310 $106,240
======== ========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. RESTRUCTURING INITIATIVES

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 occurred in Asia, where facilities with 1.3
million square feet of manufacturing and distribution space have been
eliminated, as production has been consolidated into existing, lower-cost Asian
facilities. As a result of the restructuring, significant non-recurring costs
have been incurred to sever lease obligations, provide for employee severance,
and provide for the impairment of inventory and property and equipment. The
restructuring initiatives included a reduction in workforce, eliminating
approximately 3,000 positions by the end of 1998. The positions eliminated
consist primarily of production and supervisory personnel.

The activities discontinued consist of furniture and component parts
manufacturing plants that supply other manufacturing operations. The activities
previously performed at these facilities have been shifted to other facilities
where existing production capacity can be more efficiently utilized. As such,
the operations discontinued did 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.

Operating profit for 1997 included 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. The following represents LifeStyle's
restructuring activities for the periods indicated (in millions):

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

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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: 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>
1997 1998
-------- --------
<S> <C> <C>
Senior interests sold to Participants....................... $150,000 $150,000
Senior interests retained by the Receivables Subsidiary..... -- 23,900
Subordinated interests retained by the Receivables
Subsidiary................................................ 64,010 68,320
-------- --------
Balance of trade receivables and cash held by the Master
Trust..................................................... $214,010 $242,220
======== ========
</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, $9.8 million during 1997 and $9.1 million
during 1998, 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, 1998, 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>
1997 1998
-------- --------
<S> <C> <C>
Revolving credit facility................................... $152,000 $112,500
Subordinated Notes.......................................... 200,000 200,000
Payment-in-kind note........................................ 334,100 375,400
Other borrowings............................................ 2,570 2,180
-------- --------
688,670 690,080
Less current portion........................................ 2,970 3,160
-------- --------
$685,700 $686,920
======== ========
</TABLE>

LifeStyle may periodically guarantee loans, leases or other credit
facilities for its customers and joint venture partners. At December 31, 1998,
the outstanding balance of these guarantees approximated $3.6 million.

At December 31, 1998, the maturities of long-term debt during each of the
next five years were approximately as follows: 1999 - $3.2 million; 2000 - $1.5
million; 2001 - $0 million; 2002 - $75.0 million; 2003 - $35.0 million; and 2004
and thereafter $575.4 million.

Revolving Credit Facility. On August 15, 1997, LifeStyle replaced its
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 repayment of the former revolving credit
and term loan facilities, LifeStyle recorded an extraordinary loss of

F-13
<PAGE> 91
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

$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, 1998, 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, 1998, 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.

On January 29, 1999, LifeStyle commenced a cash tender offer to acquire all
of the outstanding Notes. The acquisition of the Notes is expected to occur at
substantially the same time as the Offerings and LifeStyle expects to pay a
premium of approximately $30.8 million.

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, is expected to be prepaid in connection with 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
F-14
<PAGE> 92
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

under these plans were $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, $11.1
million during 1997, and $11.4 million during 1998.

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>
LIFESTYLE
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate for obligations.............. 7.5% 7.5% 7.25%
Rate of increase in compensation levels..................... 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets............ 10.0% 10.0% 10.0%
</TABLE>

The change in projected benefit obligation, the change in fair value of
plan assets and the funded status of LifeStyle's pension plans at December 31 is
summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Projected benefit obligation at beginning of year........... $184,400 $191,000
Service cost................................................ 7,680 8,120
Interest cost............................................... 13,500 13,980
Actuarial (gain)/loss....................................... (5,930) 9,230
Benefits paid............................................... (8,650) (11,470)
-------- --------
Projected benefit obligation at end of year............... $191,000 $210,860
-------- --------
CHANGE IN FAIR VALUE PLAN ASSETS:
Fair value of plan assets at beginning of year.............. $134,820 $142,330
Actual return on plan assets................................ 9,050 13,030
Employer contribution....................................... 7,110 7,380
Benefits paid............................................... (8,650) (11,470)
-------- --------
Fair value of plan assets at end of year.................. $142,330 $151,270
-------- --------
Funded status............................................... $(48,670) $(59,590)
Unrecognized transition asset............................... (1,120) (930)
Unrecognized net actuarial loss............................. 20,410 30,280
Unrecognized prior service cost............................. 320 290
-------- --------
Accrued benefit cost...................................... $(29,060) $(29,950)
======== ========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED FOREIGN STOCKHOLDERS'
COMMON PREFERRED PAID-IN EARNINGS CURRENCY EQUITY
STOCK STOCK CAPITAL (DEFICIT) TRANSLATION (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)
-- -- ------ -------- -------- --------
Stock repurchases, net...... -- -- (60) -- -- (60)
Spin off Simmons............ -- -- (2,960) 7,990 -- 5,030
Dividends accrued on
mandatorily redeemable
preferred stock.......... -- -- -- (16,490) -- (16,490)
Currency translation........ -- -- -- -- (10,060) (10,060)
Net income.................. -- -- -- 30,020 -- 30,020
-- -- ------ -------- -------- --------
Balance at December 31,
1998........................ $6 $4 $5,560 $(11,700) $(19,230) $(25,360)
== == ====== ======== ======== ========
</TABLE>

On November 13, 1998, LifeStyle declared a cash dividend, payable January
1999, of $16.5 million to holders of mandatorily redeemable preferred stock.

Common Stock. As of December 31, 1998, 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 and 116,100 shares of Class C
Common Stock. As of December 31, 1998, there were 99,438, 378,058 and 115,168
shares of Class A, B and C common stock issued and outstanding, respectively. 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. The
Class D common stock was designed to specifically track the performance of
Simmons.

Preferred Stock. As of December 31, 1998, LifeStyle's preferred stock
consists of 4 million authorized shares with a par value of $0.01 per share. As
of December 31, 1998, there were 406,125 shares of Series B and Series C
Convertible Preferred Stock and 1,184,828 shares of Series A-1 and Series A-2
Mandatorily Redeemable Preferred Stock issued and outstanding, respectively. 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.

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 and 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
shares of Series A-1 and Series A-2 Preferred Stock for 13% junior subordinated
debentures on a dollar-for-dollar stated value basis plus accrued and unpaid
dividends. 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 will be redeemed for cash in
connection with the Offerings.

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
years ended December 31, 1997 and 1998, LifeStyle issued 3,071, 17,275 and 9,504
shares of Common Stock to management, respectively, 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 at the date
of issuance ranging from $5.44 to $17.11 per share. Approximately 5,451 shares
became available for issuance under the Plan in 1998. As of December 31, 1998,
there were 2,012 shares of Common Stock reserved for future issuance under the
Plan.

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 YEAR ENDED DECEMBER 31,
TO -----------------------------
DEC. 31, 1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Basic income (loss) per common share:
Income (loss) before extraordinary item................. $ 14,480 $(10,750) $ 30,020
Less: Loss applicable to Class D common stock........... (1,450) (3,380) (1,630)
Less: Preferred dividends............................... 6,560 17,230 16,490
-------- -------- --------
Income (loss) available to common stockholders.......... $ 9,370 $(24,600) $ 15,160
Weighted average shares................................. 457,777 465,110 479,502
-------- -------- --------
Basic income (loss) per share before extraordinary
item................................................. $ 20.47 $ (52.89) $ 31.62
======== ======== ========
Diluted income (loss) per common share:
Weighted average shares................................. 457,777 465,110 479,502
Effect of dilutive securities:
Convertible preferred stock.......................... 406,125 -- 406,125
Management stock..................................... 7,954 -- 28,062
-------- -------- --------
Weighted average shares, assuming dilution.............. 871,856 465,110 913,689
-------- -------- --------
Diluted income (loss) per share before extraordinary
item................................................. $ 10.75 $ (52.89) $ 16.59
======== ======== ========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Basic and diluted loss per Class D common share through the date of the
Simmons spin-off, June 30, 1998, were determined as follows:

<TABLE>
<CAPTION>
YEAR ENDED
AUG. 6, 1996 DECEMBER 31,
TO --------------------
DEC. 31, 1996 1997 1998
------------- -------- --------
<S> <C> <C> <C>
Basic and diluted loss per Class D common share:
Loss applicable to Class D common stockholders......... $ (1,450) $ (3,380) $ (1,630)
Weighted average shares................................ 9,439 9,389 9,148
-------- -------- --------
Basic and diluted loss per Class D common share........ $(153.62) $(360.00) $(178.18)
======== ======== ========
</TABLE>

13. INCOME TAXES

<TABLE>
<CAPTION>
LIFESTYLE
PREDECESSOR ------------------------------------
------------ YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO TO -------------------
AUG. 5, 1996 DEC. 31, 1996 1997 1998
------------ ------------- -------- -------
<S> <C> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item:
Domestic.................................... $ (350) $31,230 $ 36,360 $30,620
Foreign..................................... (810) (530) (33,360) 20,250
------- ------- -------- -------
$(1,160) $30,700 $ 3,000 $50,870
======= ======= ======== =======
Provision (credit) for income taxes:
Currently payable:
Federal -- U.S. income................... $ 3,680 $15,620 $ 4,820 $ 3,010
-- Certain foreign earnings...... 2,510 1,640 3,360 5,940
State and local.......................... 1,950 3,840 3,650 1,130
Foreign.................................. 1,300 1,010 1,110 1,900
Deferred:
Domestic................................. (2,600) (5,890) 9,190 8,870
Foreign.................................. (10) -- (8,380) --
------- ------- -------- -------
$ 6,830 $16,220 $ 13,750 $20,850
======= ======= ======== =======
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventories............................................... $ 8,850 $ 9,500
Accrued liabilities....................................... 40,930 36,470
------- -------
Gross deferred tax assets.............................. 49,780 45,970
------- -------
Deferred tax liabilities:
Property and equipment.................................... 29,960 35,860
Other..................................................... 1,290 1,290
------- -------
Gross deferred tax liabilities......................... 31,250 37,150
------- -------
Net deferred tax asset...................................... $18,530 $ 8,820
======= =======
</TABLE>

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

<TABLE>
<CAPTION>
LIFESTYLE
PREDECESSOR ---------------------------------
------------- YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO TO -----------------
AUG. 5, 1996 DEC. 31, 1996 1997 1998
------------- ------------- ------- -------
<S> <C> <C> <C> <C>
U.S. federal statutory rate.......................... 35% 35% 35% 35%
Tax (credit) at U.S. federal statutory rate.......... $ (410) $10,750 $ 1,050 $17,800
Higher taxes on foreign earnings..................... 4,080 2,870 7,560 750
Amortization in excess of tax........................ 2,620 140 -- --
State and local taxes, net of federal tax benefit.... 1,270 1,820 3,470 1,730
Other................................................ (730) 640 1,670 570
------ ------- ------- -------
Income taxes....................................... $6,830 $16,220 $13,750 $20,850
====== ======= ======= =======
</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. No valuation allowance was required
at December 31, 1997 or 1998.

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, $1.7 million and $0.1 million in 1996, 1997 and 1998,
respectively.

15. SIMMONS UPHOLSTERED FURNITURE CORPORATION ("SIMMONS")

On June 30, 1998, the common stock of Simmons, a wholly-owned subsidiary
that was separately managed, operated and financed, was distributed, on a
pro-rata basis, to the holders of the Class D common

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Assets...................................................... $12,070 $21,480 $ --
Liabilities................................................. 12,090 25,120 --
Net sales................................................... 91,800 81,540 30,300
Operating profit (loss)..................................... 300 (2,740) 120
Loss........................................................ (1,450) (3,380) (1,630)
</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. OPERATING SEGMENTS

Effective December 31, 1998, LifeStyle adopted SFAS No.131, Disclosures
About Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the way public business enterprises report information
about operating segments. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect LifeStyle's results of operations or
financial position.

LifeStyle is the largest manufacturer and marketer of home furnishings in
the U.S. It generates revenue from two operating segments: fine furniture
(including decorative accessories) and decorative home furnishings fabrics.
Management has determined these to be LifeStyle's operating segments based on
the nature of their products. The fine furniture segment is principally involved
in the manufacture, sale and distribution of home furnishing products to
independent and franchised retailers. These products consist of casegoods,
upholstered products, accessories, casual furniture and indoor/outdoor
furniture. The decorative home furnishings fabrics segment is principally
involved in the manufacture and sale of woven and printed fabrics to jobbers and
furniture manufacturers.

The accounting policies of the segments are the same as those described in
Note 2. LifeStyle evaluates performance based on operating profit or loss.
Revenues from transactions between operating segments are not material.
LifeStyle allocates corporate overhead to each segment.

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following represents selected financial information for LifeStyle's
operating segments for the periods indicated (in thousands):

<TABLE>
<CAPTION>
LIFESTYLE
PREDECESSOR ----------------------------------------------
------------ YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO TO ---------------------------
AUG. 5, 1996 DEC. 31, 1996 1997 1998
------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
NET SALES:
Fine furniture...................... $1,070,000 $ 796,000 $1,823,000 $1,876,000
Fabric.............................. 163,000 119,000 277,000 268,000
Intrasegment elimination and
other............................ (85,000) (65,000) (131,000) (137,000)
---------- ---------- ---------- ----------
Total net sales....................... $1,148,000 $ 850,000 $1,969,000 $2,007,000
========== ========== ========== ==========
NET SALES TO EXTERNAL CUSTOMERS:
Fine furniture...................... $ 991,000 $ 734,000 $1,703,000 $1,750,000
Fabric.............................. 157,000 116,000 266,000 257,000
---------- ---------- ---------- ----------
Total net sales to external
customers........................... $1,148,000 $ 850,000 $1,969,000 $2,007,000
========== ========== ========== ==========
OPERATING PROFIT (LOSS):
Fine furniture...................... $ 54,0000 $ 61,000 $ 72,000 $ 116,000
Fabric.............................. 13,000 13,000 28,000 26,000
Intrasegment elimination and
other............................ (12,000) (1,000) 1,000 (4,000)
---------- ---------- ---------- ----------
Total operating profit................ $ 55,000 $ 73,000 $ 101,000 $ 138,000
========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION EXPENSE:
Fine furniture...................... $ 17,000 $ 9,000 $ 17,000 $ 21,000
Fabric.............................. 12,000 7,000 16,000 17,000
Intrasegment elimination and
other............................ 2,000 -- -- --
---------- ---------- ---------- ----------
Total depreciation and amortization
expense............................. $ 31,000 $ 16,000 $ 33,000 $ 38,000
========== ========== ========== ==========
ADDITIONS TO LONG-LIVED ASSETS:
Fine furniture...................... $ 13,000 $ 13,000 $ 30,000 $ 40,000
Fabric.............................. 12,000 4,000 17,000 22,000
Intrasegment elimination and
other............................ 1,000 -- -- 3,000
---------- ---------- ---------- ----------
Total additions to long-lived
assets.............................. $ 26,000 $ 17,000 $ 47,000 $ 65,000
========== ========== ========== ==========
LIFESTYLE
--------------------------------
DEC. 31, 1997 DEC. 31, 1998
------------- -------------
TOTAL ASSETS:
Fine furniture...................... $ 923,000 $ 889,000
Fabric.............................. 147,000 153,000
Intrasegment elimination and
other............................ 58,000 75,000
---------- ----------
Total assets.......................... $1,128,000 $1,117,000
========== ==========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following geographic information represents LifeStyle's trade revenues
after elimination of intercompany sales based on product shipment location and
total assets based on physical location for the regions and for the periods
indicated (in thousands):

<TABLE>
<CAPTION>
LIFESTYLE
PREDECESSOR -----------------------------------------------
------------ YEAR ENDED
JAN. 1, 1996 AUG. 6, 1996 DECEMBER 31,
TO TO ------------------------------
AUG. 5, 1996 DEC. 31, 1996 1997 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
United States............................ $1,030,000 $ 762,000 $1,779,000 $1,853,000
Pacific Rim.............................. 76,000 58,000 115,000 87,000
European Union and other foreign
countries.............................. 42,000 30,000 75,000 67,000
---------- ---------- ---------- ----------
Total net sales................ $1,148,000 $ 850,000 $1,969,000 $2,007,000
========== ========== ========== ==========
LIFESTYLE
------------------------------
DEC. 31, 1997 DEC. 31, 1998
------------- -------------
TOTAL ASSETS:
United States............................ $ 894,000 $ 935,000
Pacific Rim.............................. 193,000 143,000
European Union and other foreign
countries.............................. 41,000 39,000
---------- ----------
Total assets................... $1,128,000 $1,117,000
========== ==========
</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(R) 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(R) offers tight tailoring detail and
fashionable fabric for consumers seeking easy comfort and affordable style.

<PAGE> 102

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

THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING 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

FIRST UNION CAPITAL MARKETS CORP.

, 1999

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

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement 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 FEBRUARY 3, 1999

PROSPECTUS

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.

CLASS A COMMON STOCK
$ PER SHARE
------------------

LifeStyle is selling shares of its common stock. The underwriters
named in this prospectus may purchase up to additional shares of common
stock from LifeStyle under certain circumstances.

Of the shares of common stock that LifeStyle is selling, shares
are being offered outside the United States and Canada by the international
underwriters named in this prospectus and shares are being offered at the
same time in the United States and Canada by a syndicate of U.S. underwriters.

This is an initial public offering of common stock. LifeStyle currently
expects the initial public offering price to be between $ and $ per
share, and has applied to have the Class A Common Stock listed on the New York
Stock Exchange under the symbol "LFI". After completion of the Offerings, 399
Venture Partners, Inc., an affiliate of Citigroup Inc., 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 $ $
</TABLE>

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------
SALOMON SMITH BARNEY INTERNATIONAL MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON FIRST UNION CAPITAL MARKETS CORP.
, 1999.

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

TABLE OF CONTENTS

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

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 Citigroup
Inc.), 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 and the issuance of the
maximum number of shares of Series B Convertible Preferred Stock issuable to
Masco upon the closing of the Offerings as described herein at a price per share
equal to the initial public offering price of the Class A Common Stock offered
hereby (assumed to be $ per share, the midpoint of the range set forth on
the cover page hereof) less the underwriting discount.

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

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

UNDERWRITING

Salomon Brothers International Limited, Merrill Lynch International, Credit
Suisse First Boston (Europe) Limited and First Union Capital Markets Corp. 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.................
First Union Capital Markets Corp. ..........................

--------
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
("Merrill Lynch"), Salomon Smith Barney Inc., Credit Suisse First Boston
Corporation and First Union Capital Markets Corp. 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 reallow, 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 International Managers may exercise these options
solely to cover over-allotments, if any, made on the sale of

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

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 to cover over-allotments, if any, on terms similar to
those granted to the International Managers.

The expenses of the Offerings (exclusive of the underwriting discount) are
estimated at $ and are payable by LifeStyle.

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 warrant 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 or repayable with 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

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

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.

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 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 to confirm sales of the Class A Common Stock
to any accounts over which they exercise discretionary authority.

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.

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

may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.

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 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-6
<PAGE> 109
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

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

LIFESTYLE FURNISHINGS
INTERNATIONAL LTD.

CLASS A COMMON STOCK

[LFI'S LOGOTYPE]

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

PROSPECTUS

, 1999

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

SALOMON SMITH BARNEY INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON

FIRST UNION CAPITAL MARKETS CORP.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
X-7
<PAGE> 110

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> 111

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> 112

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 February , 1999.+
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),
First Amendment to the Restated Credit Agreement dated as of
September 15, 1997(5) and Second Amendment to the Restated
Credit Agreement dated as of July 23, 1998.+
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> 113

<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. 1999 Equity
Incentive Plan.+
10.28 LifeStyle Furnishings International Ltd. 1999 Non-Employee
Director Stock Plan.+
10.29 Senior Unsecured Revolving Line of Credit by and between
LifeStyle Furnishings International Ltd. and Masco
Corporation dated March , 1999.+
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.

** Previously filed.

+ 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.

II-4
<PAGE> 114

(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

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> 115

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,
February 2, 1999.

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, February 3, 1999
- --------------------------------------------------- President and Chief
Wayne B. Lyon Executive Officer

/s/ RONALD J. HOFFMAN February 3, 1999
- --------------------------------------------------- Vice President, Treasurer
Ronald J. Hoffman and Chief Financial Officer

* February 3, 1999
- ---------------------------------------------------
Richard M. Cashin, Jr. Director

* February 3, 1999
- ---------------------------------------------------
David L. Johnston Director

* February 3, 1999
- ---------------------------------------------------
Robert C. Larson Director

* February 3, 1999
- ---------------------------------------------------
John A. Morgan Director

* February 3, 1999
- ---------------------------------------------------
David F. Thomas Director

* February 3, 1999
- ---------------------------------------------------
Martin D. Walker Director

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

II-6
<PAGE> 116

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,
1997 and 1998 and for the period August 6, 1996 to December 31, 1996 and for
each of the two years in the period ended December 31, 1998 and our audits of
the combined financial statements of the Masco Home Furnishings Group 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

PricewaterhouseCoopers LLP

Greensboro, North Carolina

February 1, 1999

S-1
<PAGE> 117

LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(PARENT COMPANY ONLY)

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

CONDENSED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS:
Current Assets:
Trade and other receivables.............................. $ 2,858 $ 4,125
Dividends receivable from subsidiaries................... 23,340 16,490
Inventories.............................................. 3,459 3,808
-------- --------
Total current assets............................. 29,657 24,423
Investment in subsidiary................................... 433,980 481,380
Property & equipment, net.................................. 380 5,516
Other assets............................................... -- 466
-------- --------
Total assets..................................... $464,017 $511,785
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Intercompany payable, net................................ 15,067 14,732
Accounts payable and accrued liabilities................. 5,870 12,043
-------- --------
Total current liabilities........................ 20,937 26,775
Long-term debt............................................. 334,100 375,400
-------- --------
Total liabilities................................ 355,037 402,175
-------- --------
Mandatorily redeemable preferred stock..................... 142,780 134,970
-------- --------
Total stockholders' equity (deficit)..................... (33,800) (25,360)
-------- --------
Total liabilities and stockholders' equity
(deficit)...................................... $464,017 $511,785
======== ========
</TABLE>

S-2
<PAGE> 118

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 YEAR ENDED
AUG. 6, 1996 DECEMBER 31,
TO -------------------------
DEC. 31, 1996 1997 1998
------------- -------- -------------
<S> <C> <C> <C>
Net sales.............................................. $ 21,916 $ 47,631 $ 54,752
Cost of sales.......................................... 19,470 43,642 50,399
-------- -------- --------
Gross profit......................................... 2,446 3,989 4,353
Selling, general and administrative expenses........... 9,069 20,515 26,264
-------- -------- --------
Operating loss....................................... (6,623) (16,526) (21,911)
Other income (expense), net:
Equity in earnings of wholly-owned subsidiary.......... 29,830 14,200 70,540
Interest expense....................................... (14,230) (36,940) (41,504)
Other, net............................................. 4,883 16,896 20,292
-------- -------- --------
20,483 (5,844) 49,328
-------- -------- --------
Income (loss) before income taxes.................... 13,860 (22,370) 27,417
Income taxes........................................... (620) -- (2,603)
-------- -------- --------
Net income (loss).................................... 14,480 (22,370) 30,020
Preferred dividends.................................... (6,560) (17,230) (16,490)
-------- -------- --------
Net income (loss) available to common shareholders... $ 7,920 $(39,600) $ 13,530
======== ======== ========
</TABLE>

S-3
<PAGE> 119

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 YEAR ENDED
AUG. 6, 1996 DECEMBER 31,
TO -----------------
DEC. 31, 1996 1997 1998
------------- ----- --------
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES........ $ 10,720 $(110) $ 5,090
-------- ----- --------
INVESTING ACTIVITIES:
Capital expenditures........................................ (320) (370) (5,300)
-------- ----- --------
Net cash used for investing activities................. (320) (370) (5,300)
-------- ----- --------
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) (210)
Balance, beginning of period................................ -- 10 (470)
-------- ----- --------
Balance, end of period...................................... $ 10 $(470) $ (680)
======== ===== ========
</TABLE>

S-4
<PAGE> 120

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(a) 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, 1998.......... $3.9 $2.7 $(2.5) $1.4 $2.7
==== ==== ===== ==== ====
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) $1.3 $4.8
==== ==== ===== ==== ====
Jan. 1, 1996 to Aug. 5, 1996.......... $9.0 $2.3 $ -- $2.0 $9.3
==== ==== ===== ==== ====
</TABLE>

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

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

S-5
<PAGE> 121

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 February , 1999.+
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),
First Amendment to Restated Credit Agreement dated as of
September 15, 1997(5) and Second Amendment to the Restated
Credit Agreement dated as of July 23, 1998.+
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).
10.12 Amendment No. 1 to the Stockholders Agreement dated as of
December 17, 1996(2).
</TABLE>

<PAGE> 122

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
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. 1999 Equity
Incentive Plan.+
10.28 LifeStyle Furnishings International Ltd. 1999 Non-Employee
Director Stock Plan.+
10.29 Senior Unsecured Revolving Line of Credit by and between
LifeStyle Furnishings International Ltd. and Masco
Corporation dated March , 1999.
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.

** Previously filed.

+ 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.

<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 1, 1999, 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

February 3, 1999

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

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 3,670 7,060
<SECURITIES> 64,010 92,220
<RECEIVABLES> 92,220<F1> 75,260<F1>
<ALLOWANCES> 0 0
<INVENTORY> 513,420 482,580
<CURRENT-ASSETS> 748,050 728,150
<PP&E> 337,770<F1> 356,430<F1>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,127,580 1,117,510
<CURRENT-LIABILITIES> 258,820 247,970
<BONDS> 200,000 200,000
142,780 134,970
4 4
<COMMON> 6 6
<OTHER-SE> (33,220) (11,700)
<TOTAL-LIABILITY-AND-EQUITY> 1,127,580 1,117,510
<SALES> 1,968,820 2,006,900
<TOTAL-REVENUES> 1,968,820 2,006,900
<CGS> 1,458,190 1,511,260
<TOTAL-COSTS> 1,472,670 1,511,260
<OTHER-EXPENSES> 19,440 13,740
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 78,840 73,090
<INCOME-PRETAX> 3,000 50,870
<INCOME-TAX> 13,750 20,850
<INCOME-CONTINUING> (10,750) 30,020
<DISCONTINUED> 0 0
<EXTRAORDINARY> (11,620) 0
<CHANGES> 0 0
<NET-INCOME> (22,370) 30,020
<EPS-PRIMARY> (77.87) 31.62
<EPS-DILUTED> (77.87) 16.59
<FN>
<F1>Receivables and property and equipment are presented net of allowances for
doubtful accounts and accumulated depreciation and amortization, respectively.
</FN>

</TABLE>