Knoll Inc – ‘PREM14A’ on 7/30/99

On:  Friday, 7/30/99   ·   Accession #:  1047469-99-29284   ·   File #:  1-12907

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Preliminary Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Solicitation Material -- Merger    163    835K 
                          or Acquisition                                         

Document Table of Contents

PREM14A
1st Page of 163
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
As filed with the Securities and Exchange Commission on July 30, 1999 
PRELIMINARY PROXY MATERIALS 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 

Filed by the Registrant /X/                                             
Filed by a Party other than the Registrant / /                          

Check the appropriate box:                                              
/X/  Preliminary Proxy Statement                                        
/ /  Confidential, for Use of the Commission Only (as permitted by Rule 
14a-6(e)(2))                                                  
/ /  Definitive Proxy Statement                                         
/ /  Definitive Additional Materials                                    
/ /  Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12      

                                  KNOLL,
INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):                              

/ /  No fee required.                                                           
/X/  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.   
(1) Title of each class of securities to which transaction applies:   
Common Stock, par value $.01 per share                        
         -----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:      
17,954,035 shares                                             
         -----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed  
       pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):    
$28.00                                                        
         -----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:                  
$502,712,980                                                  
         -----------------------------------------------------------------------
(5) Total fee paid:                                                   
$100,542.60                                                   
         -----------------------------------------------------------------------
/ /  Fee paid previously with preliminary materials.                            
/X/  Check box if any part of the fee is offset as provided by Exchange Act Rule
  0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                   
(1) Amount Previously Paid:                                           
$100,542.60                                                   
         -----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:                     
Schedule 13E-3                                                
         -----------------------------------------------------------------------
(3) Filing Party:                                                     
     Knoll, Inc., 1235 Water Street, East Greenville, Pennsylvania 18041
         -----------------------------------------------------------------------
(4) Date Filed:                                                       
July 30, 1999                                                 
         -----------------------------------------------------------------------

PREM14A
2nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 2nd
[Knoll Letterhead]

September   , 1999                                                              

Dear Knoll Stockholder:                                                         

   You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Knoll, Inc., which will be held at [location to be determined], on October   
, 1999 at 10:00 a.m., local time.                                           

At the annual meeting, we will ask you to (1) approve the merger of a   
company to be formed by Warburg, Pincus Ventures, L.P. ("Warburg"), Knoll's     
majority stockholder, with and into Knoll pursuant to an Agreement and Plan of  
Merger, dated as of June 21, 1999 (as amended on July 29, 1999, the "Merger     
Agreement"), between Knoll and Warburg, (2) elect directors and (3) ratify Ernst
& Young LLP as Knoll's independent auditors. As a result of the merger, Knoll   
will become 100% owned by Warburg and members of Knoll management (together with
Warburg, the "Continuing Stockholders") and Knoll employees who may retain      
shares issued under Knoll's stock incentive plans.                              

Under the Merger Agreement, if the merger and related transactions are  
approved and consummated, holders of Knoll common stock (other than the         
Continuing Stockholders, holders of common stock issued pursuant to Knoll's     
stock incentive plans or any stockholder who properly perfects his or her       
appraisal rights under Delaware law) will receive $28.00 in cash for each share 
of common stock owned. This amount represents a premium of approximately 84%    
over the $15.25 closing market price of the common stock on March 23, 1999, the 
last full trading day before Knoll announced it had received the initial        
recapitalization (merger) offer from the Continuing Stockholders.               

  Under Delaware law, the Merger Agreement and the transactions contemplated
thereby must be approved by the affirmative vote of the holders of at least a   
majority of the outstanding shares of Knoll common stock. The Continuing        
Stockholders, who own a majority of the outstanding shares of common stock, have
agreed to vote in favor of the merger and have advised Knoll that they intend to
vote for the other matters presented by the Board of Directors at the annual    
meeting. Accordingly, approval of the merger and the Merger Agreement and the   
other matters to be considered at the annual meeting by Knoll's stockholders is 
assured.                                                                        

   In order to evaluate the fairness of the merger to Knoll's stockholders who
are not Continuing Stockholders (the "Public Holders"), Knoll's Board of        
Directors formed a Special Committee consisting of directors who are independent
of the Continuing Stockholders. The Special Committee believes that the terms of
the Merger Agreement and the merger are fair to the Public Holders. In arriving 
at its conclusion, the Special Committee considered the opinion of Lazard Freres
& Co. LLC, its independent investment banker, to the effect that that the merger
consideration of $28.00 per share is fair to the Public Holders from a financial
point of view. Such opinion is subject to various limitations, qualifications   
and assumptions described in Lazard's opinion, which is reprinted as Appendix B 
to the attached proxy statement. You should read Lazard's opinion carefully in  
its entirety.                                                                   

The Board of Directors, taking into account the recommendation of the   
Special Committee, has unanimously approved the Merger Agreement and the merger.
The Board of Directors believes that the merger is in the best interests of     
Knoll's stockholders, and unanimously recommends that you vote FOR the approval 
of the Merger Agreement and the merger.                                         

   THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS  
OF SUCH TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION       
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.     

PREM14A
3rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 3rd
 The attached Notice of Annual Meeting of Stockholders and proxy statement
explain the proposed merger and provide specific information concerning the     
annual meeting. Please read these materials (including the appendices thereto)  
carefully. In addition, you may obtain information about Knoll from documents   
that Knoll has filed with the Securities and Exchange Commission, including the 
Schedule 13E-3 Transaction Statement.                                           

This Letter, the Notice of Annual Meeting, the Proxy Statement and      
accompanying Form of Proxy are first being mailed to Knoll stockholders on or   
about September   , 1999.                                                       

If you do not vote in favor of the Merger Agreement and the transactions
contemplated thereby, you will have the right to dissent and to seek appraisal  
of the fair market value of your shares of common stock if the merger is        
consummated. In order to do so, however, you must properly perfect your         
appraisal rights under Delaware law in accordance with the procedures described 
on pages 27-30 of the accompanying proxy statement.                             

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, I URGE YOU TO     
COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD TO ENSURE THAT YOUR  
SHARES OF COMMON STOCK WILL BE VOTED AT THE ANNUAL MEETING. If you sign, date   
and return your proxy card without indicating how you want to vote, your proxy  
will be counted as a vote in favor of the Merger Agreement, the transactions    
contemplated thereby and the other matters to be voted upon at the annual       
meeting. You may revoke your proxy at any time before it is voted by submitting 
to Knoll's Secretary a written revocation or a proxy bearing a later date, or by
attending the annual meeting and giving oral notice of your intention to vote in
person. However, attendance at the annual meeting by a stockholder who has      
executed and delivered a proxy to Knoll will not in and of itself constitute a  
revocation of such proxy. If you plan to attend the meeting in person, please   
remember to bring a form of personal identification with you and, if you are    
acting as a proxy for another stockholder, please bring written confirmation    
from the record owner that you are acting as proxy.                             

  If you have any questions concerning the merger or the other matters to be
voted on at the annual meeting, or if you will need special assistance at the   
meeting, please call             , our proxy solicitors, toll-free at           
1-800-      or collect at             , or our Investor Relations department at 
(215) 679-7991.                                                                 

  On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR the approval of the Merger Agreement and the transactions       
contemplated thereby, as well as FOR the other matters to be voted upon at the  
annual meeting.                                                                 

                                                                [Download Table]
                                             
Sincerely,                                   

/s/ BURTON B. STANIAR                        
---------------------------------------------
Burton B. Staniar                            
CHAIRMAN OF THE BOARD                        

2 

PREM14A
4th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 4th
As filed with the Securities and Exchange Commision 

PRELIMINARY PROXY MATERIALS 

[ADD KNOLL LOGO AND ADDRESS]

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER  , 1999

To the Stockholders of Knoll, Inc.:                                             

Notice is hereby given that the 1999 Annual Meeting of Stockholders of Knoll,   
Inc. ("Knoll") will be held at [location to be determined], on October   , 1999,
at 10:00 a.m., local time, for the following purposes:                          

    1. To consider and vote upon a proposal to approve and adopt the Agreement
     and Plan of Merger, dated as of June 21, 1999 (as amended on July 29,
     1999, the "Merger Agreement"), between Warburg, Pincus Ventures, L.P.
  ("Warburg") and Knoll, pursuant to which a company to be formed by
  Warburg will be merged with and into Knoll and each share of Knoll
      common stock (other than shares held by Warburg and certain members of
  management and certain shares issued under Knoll's stock incentive
  plans) will be converted into the right to receive $28.00 in cash.

2. To elect nine directors of Knoll until the next annual meeting of  
stockholders of Knoll or until their successors are elected and 
qualified.                                                      

   3. To ratify the appointment of Ernst & Young LLP as independent auditors
of Knoll for the 1999 fiscal year.                              

   4. To transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.             

    All stockholders of record at the close of business on September  , 1999 are
entitled to notice of, and to vote at, the annual meeting. A list of such       
stockholders will be open to the examination of any stockholder, for any purpose
germane to the meeting, at Warburg's offices at 466 Lexington Avenue, New York, 
New York 10017 for a period of ten days prior to the meeting.                   

  Any stockholder who does not vote in favor of the Merger Agreement and the
transactions contemplated thereby will have the right to dissent and to seek    
appraisal of the fair value of his or her shares of common stock if the merger  
is consummated. In order to do so, however, stockholders must properly perfect  
their appraisal rights under Delaware law in accordance with the procedures     
described on pages 27-30 of the accompanying proxy statement.                   

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO  
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY IN THE     
ENCLOSED POSTAGE PAID ENVELOPE. If you sign, date and return your proxy card    
without indicating how you want to vote, your proxy will be voted FOR the       
approval and adoption of the Merger Agreement and the transactions contemplated 
thereby, FOR the election to the Board of Directors of those nominees approved  
by the current Board of Directors, FOR the ratification of the appointment of   
Ernst & Young LLP as auditors to Knoll for the 1999 fiscal year and will be     
voted in accordance with the proxyholder's best judgment as to any other        
business as may properly come before the annual meeting. Shares represented by  
proxies which are marked "withhold authority" with respect to the election of   
one or more nominees for election as directors, proxies which are marked        
"abstain" on other proposals and proxies which are marked to deny discretionary 
authority on other matters will not be counted in determining the number of     
votes cast for such matters. You may revoke your proxy at any time before it is 
voted by submitting to the Secretary of Knoll a written revocation or a proxy   
bearing a later date, or by attending the annual meeting and giving oral notice 
of your intention to vote in person. However, attendance at the annual meeting  
by a stockholder who has executed and delivered a proxy to Knoll will not in and
of itself constitute a revocation of such proxy.                                

PREM14A
5th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 5th
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. PROMPTLY     
FOLLOWING CONSUMMATION OF THE MERGER, YOU WILL BE SENT INSTRUCTIONS REGARDING   
THE PROCEDURES FOR EXCHANGING YOUR EXISTING STOCK CERTIFICATES FOR THE MERGER   
CONSIDERATION.                                                                  

    If you plan to attend the meeting in person, please remember to bring a form
of personal identification with you and, if you are acting as a proxy for       
another stockholder, please bring written confirmation from the record owner    
that you are acting as proxy.                                                   

  If you have any questions concerning the merger or the other matters to be
voted on at the annual meeting, or if you will need special assistance at the   
meeting, please call             , our proxy solicitors, toll-free at           
1-800-      or collect at             , or our Investor Relations department at 
(215) 679-7991.                                                                 

                                                                [Download Table]
                                             
By Order of the Board of Directors,          

/s/ PATRICK A. MILBERGER                     
---------------------------------------------
Patrick A. Milberger                         
SECRETARY                                    

September   , 1999                                                              

2 

PREM14A
6th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 6th
KNOLL, INC. 
1235 WATER STREET 
EAST GREENVILLE, PENNSYLVANIA 18041 
------------------------

ANNUAL MEETING OF STOCKHOLDERS

OCTOBER  , 1999 
------------------------

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:  WHAT IS THE PROPOSED TRANSACTION?                                           

A:  Approximately 60% of the outstanding Knoll common stock is held by Warburg, 
 Pincus Ventures, L.P. ("Warburg") and certain members of Knoll management
(the "Management Group" and, together with Warburg, the "Continuing     
    Stockholders"), and approximately 40% of the common stock is held by members
    of the public (the "Public Holders"). In the proposed transaction, a company
    to be formed by Warburg will merge with and into Knoll, with Knoll being the
surviving corporation (the "Surviving Corporation"). As a result of the 
  merger, the Continuing Stockholders (together with Knoll employees who may
 retain shares issued under Knoll's stock incentive plans) will become the
owners of 100% of the Knoll common stock, and the Public Holders will   
receive cash for their shares.                                          

Q:  WHAT WILL I RECEIVE IN THE MERGER?                                          

A:  Each holder of common stock (other than the Continuing Stockholders, holders
of common stock issued pursuant to Knoll's stock incentive plans or any 
Public Holder who properly perfects his or her appraisal rights under   
Delaware law) will receive $28.00 per share in cash. This merger        
consideration represents a premium of approximately 84% over the $15.25 
 closing market price of the common stock on March 23, 1999, the last full
trading day before Knoll announced it had received the initial          
recapitalization (merger) offer from the Continuing Stockholders.       

Q:  WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER AND   
THE MERGER AGREEMENT?                                                   
A:  The Board of Directors has determined that the merger is fair to, and in the
best interests of, Knoll and its stockholders. In order to evaluate the 
fairness of the merger to the Public Holders, Knoll's Board of Directors
 formed a Special Committee consisting of directors who are independent of
  the Continuing Stockholders. The Special Committee believes that the terms
  of the Merger Agreement and the merger are fair to the Public Holders, and
the Board of Directors took into account the conclusion of the Special  
    Committee in recommending that the stockholders of Knoll vote for the merger
and the Merger Agreement. In arriving at its conclusion, the Special    
    Committee considered the opinion of Lazard Freres & Co. LLC, its independent
    investment banker, to the effect that, based upon and subject to the various
 limitations, qualifications and assumptions described in the opinion, the
   merger consideration of $28.00 per share is fair to the Public Holders from
a financial point of view.                                              

Q:  WHAT APPROVALS DOES THE MERGER REQUIRE?                                     

A:  Under Delaware law, the Merger Agreement and the transactions contemplated  
   thereby must be approved by the affirmative vote of the holders of at least
  a majority of the outstanding shares of Knoll common stock. The Continuing
   Stockholders, who own a majority of the outstanding shares of common stock,
have agreed to vote in favor of the merger. Accordingly, approval of the
    merger and the Merger Agreement by Knoll's stockholders is assured. However,
consummation of the                                                     

1 

PREM14A
7th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 7th
  merger also is subject to (1) receipt of financing for the transaction and
(2) receipt of consents to the merger from the holders of a majority of 
Knoll's outstanding senior subordinated notes.                          

Q:  WILL I RECEIVE ANY INTEREST OR ADDITIONAL PAYMENT IF THE CLOSING OF THE     
MERGER IS DELAYED?                                                      

A:  Yes. If the merger is not consummated prior to November 18, 1999, the merger
consideration of $28.00 will be increased at an annual rate of 6.5% from
November 18, 1999 until the earlier of the consummation of the merger or
  January 17, 2000. However, there will not be any additional payment if the
merger is completed prior to November 18, 1999.                         

Q:  WHAT DO I NEED TO DO NOW?                                                   

A:  Please sign and mail your proxy card in the enclosed return envelope as soon
  as possible so that your shares can be represented at the meeting, even if
you plan to attend the meeting in person.                               

Q:  WHAT RIGHTS DO I HAVE TO DISSENT FROM THE MERGER?                           

A:  If you wish, you may dissent from the merger and seek an appraisal of the   
  fair value of your shares, but only if you comply with all requirements of
Delaware law summarized on pages 27-30 of this proxy statement. The     
appraised fair value of your shares may be more or less than the merger 
consideration to be paid in the merger.                                 

Q:  WHO CAN VOTE ON THE MERGER?                                                 

A:  All stockholders of record as of September  , 1999 will be entitled to      
   notice of and to vote, either in person or by proxy, at the annual meeting.
 However, shares of restricted stock granted under Knoll's stock incentive
plans that have not yet vested are not entitled to vote at the annual   
meeting.                                                                

Q:  SHOULD I SEND IN MY STOCK CERTIFICATES NOW?                                 

A:  No. If the merger is completed, we will promptly send you written           
instructions for exchanging your stock certificates for the merger      
consideration.                                                          

Q:  IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY 
SHARES FOR ME?                                                          

A:  Your broker will vote your shares only if you provide written instructions  
on how to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares.              

Q:  MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?              

A:  Yes. Just send in a later-dated, signed proxy card or a written revocation  
   before the annual meeting or attend the annual meeting and give oral notice
of your intention to vote in person. However, attendance at the annual  
meeting by a stockholder who has executed and delivered a proxy to Knoll
will not in and of itself constitute a revocation of such proxy.        

Q:  WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?                              

A:  We are working toward completing the merger as quickly as possible and      
expect to complete the merger promptly following the annual meeting.    

Q:  WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?                                

A:  The merger will be a taxable transaction to you for federal income tax      
    purposes. A brief review of the possible tax consequences to stockholders is
  set forth on page 37 of this proxy statement. You should also consult your
tax advisor as to the tax effect in your particular circumstances.      

Q:  WHAT OTHER MATTERS WILL BE VOTED ON AT THE ANNUAL MEETING?                  

A:  In addition to voting on the merger, you will be asked to elect a new Board 
of Directors                                                            

2 

PREM14A
8th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 8th
 and to ratify the appointment of Ernst & Young LLP as Knoll's independent
   auditors for the 1999 fiscal year. If other business should come before the
 annual meeting, your shares will be voted in the discretion of management
   identified on the enclosed proxy card. The Continuing Stockholders, who own
a majority of the outstanding shares of common stock, have advised Knoll
  that they intend to vote for these other matters presented by the Board of
Directors at the annual meeting. Accordingly, approval of these other   
 matters to be considered at the annual meeting by Knoll's stockholders is
assured.                                                                

WHO CAN HELP ANSWER YOUR QUESTIONS? 

  The information provided above in "question and answer" format is for your
convenience only and is merely a summary of the information contained in this   
proxy statement. YOU SHOULD CAREFULLY READ THIS PROXY STATEMENT (INCLUDING THE  
APPENDICES THERETO) IN ITS ENTIRETY.                                            

  If you have any questions concerning the merger or the other matters to be
voted on at the annual meeting, if you would like additional copies of the proxy
statement or if you will need special assistance at the meeting, please call    
, our proxy solicitors, toll-free at 1-800-      or collect at      
 , or our Investor Relations department at (215) 679-7991.

3 

PREM14A
9th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 9th
TABLE OF CONTENTS 

                                                                [Download Table]

                                                   PAGE   
                                                 ---------
                                                          

SUMMARY........................................          1

INFORMATION CONCERNING THE ANNUAL MEETING......          5
    Date, Time and Place of the Annual                    
      Meeting..................................          5
    Purposes of the Annual Meeting.............          5
    Record Date; Quorum; Outstanding Common               
      Stock Entitled to Vote...................          5
    Vote Required for the Merger, the Election            
      of Directors and the Appointment of                 
      Auditors; Certain Common Stock Voting in            
      Favor of the Proposals...................          5
    Solicitation and Revocation of Proxies.....          6

SPECIAL FACTORS................................          7
    Background of the Merger...................          7
    Purposes and Reasons of the Merger; Certain           
      Effects of the Merger....................         10
    Recommendations of the Special Committee              
      and the Board of Directors; Fairness of             
      the Merger...............................         11
    Opinion of Lazard..........................         13
    Position of the Continuing Stockholders as            
      to Fairness..............................         19
    Opinion of Merrill Lynch...................         20
    Certain Projections Provided to Financial             
      Advisors.................................         23
    Conflicts of Interest......................         24
    Plans for Knoll after the Merger...........         25
    Conduct of the Business of Knoll if the               
      Merger is Not Consummated................         26
    Financing and Expenses of the Merger.......         26
    Rights of Dissenting Stockholders..........         27

PROPOSALS AT THE ANNUAL MEETING................         31

  PROPOSAL ONE--THE MERGER.....................         31
    Terms of the Merger........................         31
    Effective Time of the Merger...............         32
    Exchange and Payment Procedures............         32
    Transfer of Common Stock...................         32
    The Parties................................         32
    Representations and Warranties.............         33


                                                   PAGE   
                                                 ---------
                                                          
    Covenants..................................         34
    Conditions Precedent.......................         35
    Termination; Amendments; Waiver; Approval             
      of Special Committee Necessary...........         36
    Certain Tax Considerations.................         37
    Accounting Treatment.......................         37
    Regulatory Requirements....................         37
    Litigation Regarding the Merger............         37

  PROPOSAL TWO--ELECTION OF DIRECTORS..........         39
    Nomination.................................         39
    Information About Nominees.................         39
    Recommendation and Vote....................         40
    Directors and Executive Officers of                   
      Knoll....................................         41
    Additional Information About the Board of             
      Directors................................         42
    Executive Officer and Director                        
      Compensation.............................         43
      Compensation Committee and Stock Option             
        Committee Report on Executive                     
        Compensation...........................         43
      Summary Compensation Table...............         45
      Stock Option Grants Table................         46
      Aggregate Stock Option Exercise Table....         46
      Pension Plans............................         46
      Director Compensation....................         47
      Employment Agreements....................         47
      Compensation Committee Interlocks and               
        Insider Participation..................         48
      Performance Graph........................         49
    Security Ownership of Certain Beneficial              
      Owners and Management....................         50
    Section 16(a) Beneficial Ownership                    
      Reporting Compliance.....................         51
    Certain Transactions in the Shares of                 
      Common Stock.............................         51
    Certain Relationships and Related                     
      Transactions.............................         51
      Stockholders Agreement and Voting                   
        Agreement..............................         51
      Issuance of Restricted Shares of Common             
        Stock..................................         52

(i) 

PREM14A
10th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 10th
                                                                [Download Table]

                                                   PAGE   
                                                 ---------
                                                          
      Other....................................         53

  PROPOSAL THREE-- RATIFICATION OF THE                    
    APPOINTMENT OF ERNST & YOUNG LLP AS                   
    INDEPENDENT AUDITORS.......................         53
    Recommendation and Vote....................         53

THE COMPANY....................................         54
    Products...................................         54
    Product Design and Development.............         55
    Sales and Distribution.....................         56
    Manufacturing and Operations...............         56
    Raw Materials and Suppliers................         56
    Competition................................         57
    Patents and Trademarks.....................         57
    Employees..................................         57
    Environmental Matters......................         57

MARKET PRICE INFORMATION; DIVIDENDS;                      
  REPURCHASES OF SHARES OF COMMON STOCK........         59

SELECTED FINANCIAL DATA........................         60

RECENT DEVELOPMENTS............................         63

MANAGEMENT'S DISCUSSION AND ANALYSIS OF                   
  FINANCIAL CONDITION AND RESULTS OF                      
  OPERATIONS...................................         64
    Overview...................................         64
    Results of Operations......................         64
      Sales....................................         64
      Gross Profit and Operating Income........         64
      Interest Expense.........................         65
      Income Tax Expense.......................         65
      Extraordinary Items......................         65
      Pro Forma Net Income and Net Income per             
        Share as Adjusted for the Initial                 
        Public Offering (Unaudited Supplemental           
        Information)...........................         65

                                                   PAGE   
                                                 ---------
                                                          
      Earnings Per Share.......................         66
    Liquidity and Capital Resources............         66
    Inflation..................................         68
    Backlog....................................         68
    Impact of Year 2000........................         68
    Environmental Matters......................         70

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT            
  MARKET RISK..................................         71
    Interest Rate Risk.........................         71
    Foreign Currency Exchange Rate Risk........         72

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING           
  STATEMENTS...................................         72

OTHER MATTERS..................................         73
    Proposals by Knoll Stockholders............         73
    Where You Can Find More Information........         73

OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL              
  MEETING......................................         74

FINANCIAL STATEMENTS...........................        F-1

APPENDIX A--THE AMENDED AND RESTATED MERGER               
  AGREEMENT....................................        A-1
APPENDIX B--OPINION OF LAZARD FRERES & CO.                
  LLC..........................................        B-1
APPENDIX C--APPRAISAL RIGHTS, SECTION 262 OF              
  THE DELAWARE GENERAL CORPORATION LAW.........        C-1
APPENDIX D--OPINION OF MERRILL LYNCH...........        D-1
APPENDIX E--CERTAIN INFORMATION RELATING TO THE           
  GENERAL PARTNERS OF WP.......................        E-1

(ii)

PREM14A
11th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 11th
SUMMARY 

  THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT. TO
UNDERSTAND THE MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE     
TERMS AND CONDITIONS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY 
STATEMENT (INCLUDING THE APPENDICES HERETO) AND THE OTHER DOCUMENTS REFERRED TO 
HEREIN. THE ACTUAL TERMS AND CONDITIONS OF THE MERGER ARE CONTAINED IN THE      
MERGER AGREEMENT, WHICH IS INCLUDED IN THIS PROXY STATEMENT AS APPENDIX A.      

DATE, TIME AND PLACE OF THE ANNUAL MEETING (PAGE 5)                             

The annual meeting will be held on October   , 1999, at [location to be 
determined], at 10:00 a.m., local time.                                         

PURPOSES OF THE ANNUAL MEETING (PAGE 5)                                         

At the annual meeting, the stockholders of Knoll will be asked:         

- to consider and vote upon a proposal to approve and adopt the Merger  
Agreement and the transactions contemplated thereby;                

- to elect nine directors of Knoll until the next annual meeting of     
      stockholders of Knoll or until their successors are elected and qualified;

   - to ratify the appointment of Ernst & Young LLP as independent auditors of
Knoll for the 1999 fiscal year; and                                 

- to transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.                 

VOTING (PAGES 5-6)                                                              

  The Board of Directors has set the close of business on September   , 1999
as the date for determining stockholders entitled to vote at the annual meeting 
(the "Record Date"). At the annual meeting, each share of common stock (other   
than shares of restricted stock granted under Knoll's stock incentive plans that
have not yet vested) will be entitled to one vote. As of the Record Date, there 
were             shares of common stock outstanding and entitled to vote. As of 
such date, there were approximately       holders of record.                    

 Any proxy given by a stockholder may be revoked by the stockholder at any
time before it is voted by delivering a written notice of revocation to the     
Secretary of Knoll, by executing and delivering a later-dated proxy or by       
attending the meeting and giving oral notice of your intention to vote in       
person. Attendance at the annual meeting by a stockholder who has executed and  
delivered a proxy to Knoll will not in and of itself constitute a revocation of 
such proxy.                                                                     

UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL SHARES OF  
COMMON STOCK REPRESENTED BY VALID PROXIES WILL BE VOTED FOR THE MERGER AND THE  
OTHER PROPOSALS.                                                                

REQUIRED VOTE; APPROVAL OF THE PROPOSALS ASSURED (PAGE 5)                       

The Merger Agreement and the transactions contemplated thereby must be  
approved and adopted by the affirmative vote of the holders of at least a       
majority of the outstanding shares of common stock. The election of directors   
and the ratification of the appointment of Ernst & Young LLP as independent     
auditors for the 1999 fiscal year will be decided by the affirmative vote of the
holders of a majority of the shares of common stock present, in person or by    
proxy, at the annual meeting and entitled to vote thereon. The Continuing       
Stockholders, who own a majority of the outstanding shares of common stock, have
agreed to vote in favor of the merger and have advised Knoll that they intend to

1 

PREM14A
12th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 12th
vote for the other matters presented by the Board of Directors at the annual    
meeting. ACCORDINGLY, APPROVAL OF THE MERGER AND OF THE OTHER PROPOSALS TO BE   
CONSIDERED AT THE ANNUAL MEETING IS ASSURED.                                    

WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 10)                                   

    Each holder of common stock (other than the Continuing Stockholders, holders
of common stock issued pursuant to Knoll's stock incentive plans or any Public  
Holder who properly perfects his or her appraisal rights under Delaware law)    
will receive $28.00 per share in cash. This merger consideration represents a   
premium of approximately 84% over the $15.25 closing market price of the common 
stock on March 23, 1999, the last full trading day before Knoll announced it had
received the initial merger offer from the Continuing Stockholders. In addition,
if the merger is not consummated prior to November 18, 1999, the merger         
consideration will be increased at an annual rate of 6.5% from November 18, 1999
until the earlier of the consummation of the merger or January 17, 2000.        

BACKGROUND OF THE MERGER; PURPOSES AND REASONS OF THE MERGER (PAGES 7-10 AND    
10-11)                                                                      

    For a description of the events leading to the approval of the merger by the
Board of Directors and the purposes and reasons of the merger, see "Special     
Factors--Background of the Merger" and "--Purposes and Reasons of the Merger;   
Certain Effects of the Merger."                                                 

RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS (PAGES      
10-13)                                                                      

The Board of Directors, taking into account the recommendation of the   
Special Committee and the opinion of Lazard Freres & Co. LLC ("Lazard"), the    
Special Committee's independent investment banker, has determined that the      
merger is fair to, and in the best interests of, Knoll and its stockholders and 
unanimously recommends that you vote FOR approval and adoption of the Merger    
Agreement and the transactions contemplated thereby. The Board of Directors also
recommends that you vote FOR the election of the nominated directors and to     
ratify Ernst & Young LLP as Knoll's independent auditors for the 1999 fiscal    
year.                                                                           

OPINION OF LAZARD (PAGES 13-19)                                                 

  The Special Committee retained Lazard as its independent investment banker
in connection with its evaluation of the proposed merger. On June 21, 1999,     
Lazard delivered its oral opinion to the Special Committee to the effect that,  
as of such date and based upon and subject to the various limitations,          
qualifications and assumptions stated therein, the merger consideration of      
$28.00 per share of common stock to be received by the Public Holders pursuant  
to the Merger Agreement was fair, from a financial point of view, to those      
stockholders. Lazard confirmed its oral opinion by delivery of its written      
opinion dated June 21, 1999, a copy of which is attached to this proxy statement
as Appendix B. The opinion of Lazard does not constitute a recommendation as to 
how any Knoll stockholder should vote with respect to the merger. YOU SHOULD    
READ LAZARD'S OPINION CAREFULLY AND IN ITS ENTIRETY.                            

CONFLICTS OF INTEREST (PAGES 24-25)                                             

  In considering the recommendation of the Board with respect to the merger,
you should be aware of certain inherent conflicts of interest. Warburg and the  
members of the Management Group (which includes Burton B. Staniar, John H.      
Lynch, Kathleen G. Bradley, Andrew B. Cogan, Douglas J. Purdom, Barbara E.      
Ellixson, Carl G. Magnusson, Barry L. McCabe and Patrick A. Milberger) currently
own approximately 60% of the outstanding Knoll common stock. Following the      
merger, the Public Holders will receive the merger consideration of $28.00 in   
exchange for their shares of common stock. Although the members of the          
Management Group may sell up to 50% of their equity interest in Knoll prior to  
the consummation of the merger, the Continuing Stockholders, following the      
merger, will                                                                    

2 

PREM14A
13th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 13th
own substantially the entire equity interest of Knoll. In addition, at the      
effective time of the merger, Knoll expects to establish a new stock incentive  
program under which 2.7 million shares of common stock will be available for    
grant. Members of the Management Group may participate in this program.         

CERTAIN EFFECTS OF THE MERGER (PAGES 10-11)                                     

Following the merger, the Continuing Stockholders (together with Knoll  
employees who may retain shares issued under Knoll's stock incentive plans) will
own the entire equity interest of Knoll. It is expected that, immediately       
following the merger, the business and operations of Knoll will be continued    
substantially as they are currently being conducted. However, Knoll and the     
Continuing Stockholders will continue to evaluate Knoll's business and          
operations after the consummation of the merger and make such changes as are    
deemed appropriate from time to time.                                           

Accordingly, following the merger, the Continuing Stockholders (together
with Knoll employees who may retain shares issued under Knoll's stock incentive 
plans) will be the sole beneficiaries of any future earnings and growth of      
Knoll, and the Public Holders will no longer benefit from any increase in the   
value of Knoll or payment of any dividends on the common stock and will no      
longer bear the risk of any decrease in the value of Knoll.                     

  As a result of the merger, (1) the common stock will cease to be listed on
the New York Stock Exchange, (2) there will be no public market for the common  
stock and (3) Knoll will terminate registration of the common stock under the   
Securities Exchange Act.                                                        

CONDITIONS TO THE MERGER (PAGES 35-36)                                          

  Consummation of the merger is subject to, among other things, (1) approval
at the annual meeting by the holders of at least a majority of the common stock,
(2) receipt of financing for the transaction as provided in the Merger Agreement
and (3) receipt of consents to the merger from the holders of a majority of     
Knoll's outstanding senior subordinated notes. As described above, the          
Continuing Stockholders, who own a majority of the outstanding shares of common 
stock, have agreed to vote in favor of the merger. Accordingly, approval of the 
merger by Knoll's stockholders is assured.                                      

APPRAISAL RIGHTS (PAGES 27-30)                                                  

    Any stockholder who does not wish to accept the merger consideration has the
right under Section 262 of the Delaware General Corporation Law (the "DGCL") to 
have the "fair value" of his or her shares of common stock determined by the    
Delaware Court of Chancery. This "right of appraisal" is subject to a number of 
restrictions and technical requirements. Generally, in order to exercise        
appraisal rights:                                                               

- the stockholder must NOT vote in favor of the merger and the Merger   
Agreement;                                                          

  - the stockholder must make a written demand for appraisal BEFORE the vote
on the merger and the Merger Agreement in accordance with the DGCL; 

    - the stockholder must have been a record owner of shares of common stock on
      the date of the demand for appraisal and must continue to own them through
the effective time of the merger; and                               

- the stockholder, or another stockholder who has perfected his right of
   appraisal, or Knoll, must have filed an action in the Delaware Court of
     Chancery, within 120 days after the effective time of the merger, seeking
   an appraisal of dissenting shares. Knoll does not intend to file such a
suit.                                                               

3 

PREM14A
14th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 14th
  MERELY VOTING AGAINST THE MERGER AND THE MERGER AGREEMENT WILL NOT PROTECT
YOUR RIGHT OF APPRAISAL. APPENDIX C TO THIS PROXY STATEMENT SETS FORTH SECTION  
262 OF THE DGCL REGARDING APPRAISAL RIGHTS.                                     

FEDERAL INCOME TAX CONSEQUENCES (PAGE 37)                                       

    The receipt of the merger consideration will be a taxable transaction to the
Public Holders for U.S. federal income tax purposes under the Internal Revenue  
Code and may be a taxable transaction for foreign, state and local income tax   
purposes as well. Public Holders will recognize a gain or loss measured by the  
difference between the amount of cash they receive and their tax basis in the   
shares of common stock exchanged therefor. Public Holders should consult their  
own tax advisors regarding the U.S. federal income tax consequences of the      
merger, as well as any tax consequences under state, local or foreign laws.     

FINANCING OF THE MERGER (PAGES 26-27)                                           

At the closing of the merger, Knoll will pay to the Public Holders an   
aggregate purchase price of approximately $500 million for the shares of common 
stock, assuming no Public Holders exercise and perfect their appraisal rights in
connection with the merger. In addition, Knoll will incur approximately         
$      million in expenses in connection with the merger, the financing of the  
merger and related transactions. It is a condition to the consummation of the   
merger that sufficient funds are available for the foregoing purposes.          

   Warburg, on behalf of Knoll, has entered into a commitment letter with Bank
of America, N.A., The Chase Manhattan Bank and Merrill Lynch & Co. to arrange   
for a credit facility providing for up to $775 million to (1) fund the merger   
and related fees and expenses, (2) refinance up to $107.3 million outstanding   
principal amount of Knoll's 10 7/8% Senior Subordinated Notes due 2006 and all  
amounts owing under Knoll's existing senior credit agreement and (3) provide for
working capital and ongoing general corporate purposes. The credit facility will
consist of up to a $400 million six-year term loan facility and up to a $375    
million six-year revolving credit facility, and will bear interest at a         
LIBOR-based rate. The amount to be borrowed under the credit facility will be   
reduced by the amount, if any, that would have been required to retire any      
Senior Subordinated Notes remaining outstanding and not defeased as of the      
closing of the facility. At the effective time of the merger, the indebtedness  
incurred under the credit facility will become the indebtedness of Knoll as the 
corporation surviving the merger. The commitment is subject to the satisfaction 
of conditions customary for loans of this type, including the condition that    
there be no material adverse change in (a) the market for syndicated credit     
facilities which could materially impair the syndication of the credit facility 
or (b) the business, operations or financial condition of Knoll. The commitment 
is further subject to the settlement, to the lenders' satisfaction, of the      
stockholder litigation relating to the merger.                                  

ACCOUNTING TREATMENT (PAGE 37)                                                  

The merger and related transactions will be accounted for as a leveraged
recapitalization. The historical accounting basis of Knoll's assets and         
liabilities will be retained subsequent to the transactions.                    

4 

PREM14A
15th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 15th
INFORMATION CONCERNING THE ANNUAL MEETING 

DATE, TIME AND PLACE OF THE ANNUAL MEETING                                      

  This proxy statement is furnished to the holders of the outstanding common
stock as of the Record Date in connection with the solicitation of proxies by   
the Board of Directors of Knoll to be voted at the annual meeting of            
stockholders to be held at [location to be determined], on October   , 1999, at 
10:00 a.m. local time, or any postponement or adjournment. This proxy statement,
the Notice of Annual Meeting and the accompanying form of proxy are first being 
mailed to stockholders on or about September   , 1999.                          

PURPOSES OF THE ANNUAL MEETING                                                  

At the annual meeting, the stockholders of Knoll will be asked:         

- to consider and vote upon a proposal to approve and adopt the Merger  
Agreement and the transactions contemplated thereby;                

- to elect nine directors of Knoll until the next annual meeting of     
      stockholders of Knoll or until their successors are elected and qualified;

   - to ratify the appointment of Ernst & Young LLP as independent auditors of
Knoll for the 1999 fiscal year; and                                 

- to transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.                 

Additional information concerning the annual meeting, the merger and the
Merger Agreement is set forth below, and a copy of the Merger Agreement is      
attached hereto as Appendix A.                                                  

RECORD DATE; QUORUM; OUTSTANDING COMMON STOCK ENTITLED TO VOTE                  

 All stockholders of record at the close of business on September   , 1999
(the "Record Date") are entitled to notice of, and to vote at, the annual       
meeting. The presence, in person or by proxy, of holders of at least a majority 
of the shares of common stock issued, outstanding and entitled to vote on the   
matters to be considered at the annual meeting is required to constitute a      
quorum for the transaction of business. Pursuant to Knoll's certificate of      
incorporation, each holder of Knoll common stock is entitled to one vote for    
each share of common stock held on the Record Date on matters properly presented
at the annual meeting. However, shares of restricted stock granted under Knoll's
stock incentive plans that have not yet vested are not entitled to vote at the  
annual meeting. A list of stockholders of record will be open for examination by
any stockholder for any purpose germane to the annual meeting, at Warburg's     
offices at 466 Lexington Avenue, New York, New York 10017 for a period of 10    
days prior to the meeting.                                                      

VOTE REQUIRED FOR THE MERGER, THE ELECTION OF DIRECTORS AND THE APPOINTMENT OF  
AUDITORS; CERTAIN COMMON STOCK VOTING IN FAVOR OF THE PROPOSALS                 

The Merger Agreement and the transactions contemplated thereby must be  
approved and adopted by the affirmative vote of the holders of at least a       
majority of the voting power of the issued and outstanding common stock entitled
to vote. The election of directors and the ratification of the appointment of   
Ernst & Young LLP as independent auditors of Knoll for fiscal year 1999 will be 
decided by the affirmative vote of the holders of a majority of the shares of   
common stock present, in person or by proxy, at the annual meeting and entitled 
to vote thereon. The Continuing Stockholders, who own a majority of the         
outstanding shares of common stock, have agreed to vote in favor of the merger  
and have advised Knoll that they intend to vote for the other matters presented 
by the Board of Directors at the annual meeting. ACCORDINGLY, APPROVAL OF THE   
MERGER, THE MERGER AGREEMENT AND THE OTHER PROPOSALS TO BE CONSIDERED AT THE    
ANNUAL MEETING IS ASSURED.                                                      

5 

PREM14A
16th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 16th
SOLICITATION AND REVOCATION OF PROXIES                                          

All shares represented by proxies in the enclosed form that are properly
executed and returned on or before the date of the annual meeting, and          
subsequently not revoked, will be voted at the annual meeting or any adjournment
or postponement thereof in accordance with any instructions thereon, or, if no  
instructions are provided, will be voted FOR the approval and adoption of the   
Merger Agreement and the transactions contemplated thereby, FOR the election to 
the Board of Directors of those nominees approved by the current Board of       
Directors, FOR the ratification of the appointment of Ernst & Young LLP as      
independent auditors to Knoll for fiscal year 1999 and in accordance with the   
proxyholder's best judgment as to any other business as may properly come before
the annual meeting. Shares represented by proxies which are marked "withhold    
authority" with respect to the election of one or more nominees for election as 
directors, proxies which are marked "abstain" on other proposals, and proxies   
which are marked to deny discretionary authority on other matters will not be   
counted in determining the number of votes cast for such matters.               

Brokers are prohibited from exercising discretionary authority as to a  
merger for beneficial owners who have not returned proxies to brokers (so-called
"broker non-votes"). Those shares will be counted for the purpose of determining
if a quorum is present but will not be included in the vote totals for matters  
as to which discretionary authority is prohibited and, therefore, will have no  
effect on the vote as to the merger. Shares of restricted stock granted under   
Knoll's 1996 and 1997 stock incentive plans that have not yet vested are not    
entitled to vote at the annual meeting.                                         

Any stockholder who has given a proxy pursuant to this solicitation may 
revoke it by attending the annual meeting and giving oral notice of his or her  
intention to vote in person, without compliance with any other formalities. In  
addition, any proxy given pursuant to this solicitation may be revoked at any   
time prior to the annual meeting by delivering to the Secretary of Knoll a      
written statement revoking it or by delivering a duly executed proxy bearing a  
later date. Attendance at the annual meeting by a stockholder who has executed  
and delivered a proxy to Knoll will not in and of itself constitute a revocation
of such proxy. A vote in favor of the Merger Agreement and the transactions     
contemplated thereby means that a Public Holder will not have the right to      
dissent and seek appraisal of the fair value of such Public Holder's shares of  
common stock.                                                                   

Knoll management does not know of any matters other than those set forth
herein which may come before the annual meeting. If any other matters are       
properly presented to the annual meeting for action, it is intended that the    
persons named in the enclosed form of proxy and acting thereunder will vote in  
accordance with their best judgment on such matters. Such matters may include an
adjournment or postponement of the annual meeting from time to time in the event
the Board of Directors determines so to adjourn or postpone. If any such        
adjournment or postponement is made, additional proxies may be solicited during 
such adjournment period.                                                        

    Knoll will bear its own cost of the solicitation of proxies. Proxies will be
solicited initially by mail. Further solicitation may be made by directors,     
officers and employees of Knoll personally, by telephone or otherwise, but such 
persons will not be specifically compensated for such services. Upon request,   
Knoll will reimburse brokers, dealers, banks or similar entities acting as      
nominees for reasonable expenses incurred in forwarding copies of the proxy     
materials relating to the annual meeting to the beneficial owners of shares of  
common stock which such persons hold of record. Knoll has retained              
to coordinate the solicitation of such proxies by and through such nominees for 
a fee of approximately $      , plus reasonable out-of-pocket expenses.         

YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY SO
YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN       
PERSON.                                                                         

    STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON STOCK WITH
THEIR PROXY CARD. IF THE MERGER IS CONSUMMATED, THE PROCEDURE FOR THE EXCHANGE  
OF CERTIFICATES REPRESENTING COMMON STOCK WILL BE AS SET FORTH IN THIS PROXY    
STATEMENT.                                                                      

6 

PREM14A
17th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 17th
SPECIAL FACTORS 

BACKGROUND OF THE MERGER                                                        

   In September 1998, in response to a substantial drop in the market price of
the Knoll common stock, the Board of Directors approved a stock repurchase plan 
pursuant to which management was authorized to purchase from time to time, in   
the open market or through negotiated transactions, up to three million shares  
of Knoll common stock.                                                          

    In January 1999, Warburg first began to consider as a concrete possibility a
transaction in which all or substantially all of the shares of common stock     
owned by the public would be acquired by Knoll or an affiliate of Knoll (a      
"merger transaction"). The feasibility of such a transaction came under         
consideration as a result of concern by Warburg that Knoll's stock price did not
reflect the underlying strength of its business.                                

On February 2, 1999, Knoll announced that its Board of Directors had    
increased the number of shares of common stock authorized to be repurchased     
under Knoll's stock repurchase plan by two million shares. Warburg had not yet  
determined whether it would be interested in proposing a merger transaction, and
did not then discuss with management or the Board of Directors the possibility  
of a merger transaction.                                                        

    During the second week of February 1999, Warburg first discussed with Burton
B. Staniar, Chairman of the Board of Knoll, and John H. Lynch, Chief Executive  
Officer and President of Knoll, the possibility of a merger transaction in which
Warburg and the Management Group would jointly participate and in which all     
shares held by the Public Holders would be acquired for cash. Warburg indicated 
in that conversation that it would only be interested in pursuing such a        
transaction if Knoll's senior management would retain a substantial equity      
interest in Knoll. Over the following weeks, meetings were held between Warburg,
members of senior management of Knoll and legal, financial and accounting       
advisors to explore possible structures for such a transaction and to explore   
the various business, legal, financial and accounting issues that would result  
from such a transaction. Also during the second week of February, following the 
initial meeting between Warburg and Messrs. Staniar and Lynch and an initial    
meeting among Warburg, management and legal, financial and accounting advisors, 
the Board of Directors was informed that Warburg and management were exploring  
the possibility of proposing a merger transaction. Warburg and management       
stressed to the Board of Directors that their thinking was very preliminary and 
that no decision had been made to make a proposal.                              

   During the first week of March 1999, Messrs. Staniar and Lynch indicated to
Warburg that management would agree to seriously consider a possible merger     
transaction. Messrs. Staniar and Lynch raised various issues with Warburg,      
including what would be in the best interests of Knoll and its employees and    
various tax, accounting and structural issues. Following that conversation and  
through March 23, 1999, when the initial merger proposal was presented to       
Knoll's Board of Directors, management and Warburg, together with their legal,  
financial and accounting advisors, held a series of meetings and conversations  
to address the price to be offered in a merger transaction, the impact of any   
such transaction on Knoll and its employees, specific transaction structures,   
tax and accounting issues, financing alternatives and the means to secure the   
consent to any transaction of the holders of Knoll's 10 7/8% Senior Subordinated
Notes due 2006.                                                                 

  In the early evening of March 23, 1999, Warburg, members of the Management
Group and Merrill Lynch & Co. ("Merrill Lynch"), financial advisor to the       
Continuing Stockholders, held a conference call to determine the price that     
would be offered in the initial merger proposal. In this conference call,       
Merrill Lynch orally presented a range of possible valuations of Knoll and      
Merrill Lynch's methodology in arriving at that valuation range. Warburg        
proposed a price of $25.00 per share. Merrill Lynch stated that this price was  
within its valuation range and that in its opinion, as of that date, this price 
was fair from a financial point of view to the Public Holders. Merrill Lynch    
subsequently confirmed its oral opinion in a letter addressed to Warburg dated  
March 23, 1999.                                                                 

7 

PREM14A
18th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 18th
    Later that evening, at a meeting of Knoll's Board of Directors that had been
called to receive the merger proposal, Warburg and the Management Group formally
offered to enter into a merger transaction in which all shares held by the      
Public Holders would be acquired for $25.00 per share, representing a premium of
64% to the closing price of the common stock on the New York Stock Exchange on  
March 23, 1999 of $15.25. The offer was made subject to approval by the Board of
Directors and stockholders of Knoll, as well as to the receipt of financing, the
execution of a definitive merger agreement and other conditions customary in a  
transaction of this type. Warburg and the Management Group also made clear that 
they were not interested in selling their respective interests in Knoll and that
there were no prospects of a sale of a controlling interest to a third party. At
the March 23 meeting of the Board of Directors, two directors who were not      
members of the Continuing Stockholders and who were not employees of Knoll,     
Prof. Robert J. Dolan and Mr. John W. Amerman, were appointed to a Special      
Committee to consider the proposal, to retain legal and financial advisors, to  
negotiate with the Continuing Stockholders with respect to the proposed         
transaction and to report back its conclusions and recommendations to the Board 
of Directors. Prof. Dolan was elected Chairman of the Special Committee.        

    After the March 23 telephonic meeting of the Board of Directors, the Special
Committee immediately began the process of retaining legal counsel and a        
financial advisor. After considering several law firms, the Special Committee   
retained Debevoise & Plimpton as its counsel. The retention of Debevoise &      
Plimpton was confirmed in an engagement letter dated March 30, 1999.            

On April 6, 1999, the Special Committee met with representatives of its 
counsel, who reviewed with the Special Committee the duties of the members of   
the Special Committee under applicable state law. At that meeting, the Special  
Committee also discussed its meetings with several nationally recognized        
investment banking firms for possible retention to act as investment banker to  
the Special Committee. Following this meeting, Lazard was advised that it had   
been selected to act as the Special Committee's investment banker.              

  Over the next several weeks after April 6, in order to evaluate the merger
proposal, Lazard conducted a review of the business, operations and prospects of
Knoll as well as a review of the industry in general, and counsel to the Special
Committee performed legal due diligence. On April 14, 1999, the Special         
Committee met with its financial and legal advisors to discuss its perspective  
on Knoll and to suggest to Lazard certain Knoll managers to interview. On April 
16, 1999, the Special Committee received the written opinion, dated March 23,   
1999, of Merrill Lynch, the financial advisor to the Continuing Stockholders,   
addressed to Warburg, that, as of March 23, 1999, the $25.00 per share          
consideration proposed to be paid in the merger was fair from a financial point 
of view to the Public Holders. On April 21, 1999, senior management of Knoll met
with the Special Committee and its advisors and presented information about     
Knoll and its business and prospects, including a review of Knoll's financial   
projections. Senior management also reviewed the status of its discussions with 
prospective lenders for the financing of the merger. As part of its due         
diligence process, Lazard in late April and early May visited Knoll's           
headquarters and manufacturing facility in East Greenville, Pennsylvania and    
Knoll's New York showroom and interviewed a number of Knoll employees, including
four divisional vice presidents and the managing director of Knoll's European   
operations.                                                                     

   On May 10 and 12, 1999, the Special Committee met with Lazard and Debevoise
& Plimpton. At these meetings, Lazard advised the Special Committee of the      
progress of its due diligence investigation of Knoll, discussed preliminary     
financial analyses as to the valuation of Knoll and presented the Special       
Committee with its preliminary oral view with respect to the initial merger     
proposal of the Continuing Stockholders. Based on these discussions and on its  
own consideration of the matter, the Special Committee concluded that it could  
not recommend the $25.00 per share proposal of the Continuing Stockholders to   
the Board of Directors or the Public Holders.                                   

 On May 17, 1999, in a conference call with Jeffrey Harris of Warburg that
Prof. Dolan had scheduled following the May 12 meeting of the Special Committee,
Prof. Dolan and Mr. Amerman informed Mr. Harris of the Special Committee's      
conclusion that it could not recommend the $25.00 per                           

8 

PREM14A
19th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 19th
share proposal. Prof. Dolan and Mr. Amerman indicated to Mr. Harris their belief
that the Special Committee would be able to recommend a transaction at a price  
in excess of $30.00 per share. Prof. Dolan also informed Burton Staniar of the  
Special Committee's conclusion in a subsequent telephone conversation on May 17.
Later that day, Mr. Harris called Prof. Dolan to suggest that the parties'      
financial advisors meet.                                                        

   Representatives of Merrill Lynch and Lazard discussed Knoll's prospects and
related financial analyses in a telephone conversation on May 17 and in a       
meeting on May 25.                                                              

On May 27, 1999, a representative of Merrill Lynch indicated to a       
representative of Lazard that the Continuing Stockholders might be willing to   
increase their offer to a price in the range of $26.00 to $26.50 per share in   
cash. In a meeting with its advisors on May 27, the Special Committee concluded 
that it could not recommend a transaction at that price range. Lazard advised   
Merrill Lynch of the Special Committee's conclusion.                            

  On June 3, 1999, Prof. Dolan and Mr. Lynch spoke and discussed the process
to date and how best to proceed. On June 8, a representative of Merrill Lynch   
indicated to Lazard that the Continuing Stockholders would be prepared to       
increase the price to be paid in the merger to $28.00 per share in cash but     
would not increase the price any further. On June 8, the Special Committee, its 
counsel and its investment banker met to discuss the situation. Prof. Dolan     
called Mr. Lynch, who advised Prof. Dolan that the Continuing Stockholders would
not agree to increase the price to be paid in the merger beyond $28.00 per share
in cash. On June 10, the Special Committee met and determined to instruct its   
advisors to negotiate with the advisors to the Continuing Stockholders the      
non-price terms of a transaction agreement, so that the Special Committee, its  
counsel and its investment banker could review the price and non-price terms of 
a proposal together.                                                            

On June 10, 1999, legal counsel to the Continuing Stockholders provided 
counsel to the Special Committee with a draft of the Merger Agreement. On June  
14, 1999, counsel to the Special Committee provided their comments and those of 
the Special Committee on the draft Merger Agreement. Over the next several days,
the parties' counsel discussed the terms of the Merger Agreement, including the 
representations and warranties, covenants and conditions to closing. The Special
Committee's advisors also reviewed and commented on a draft of a commitment     
letter for the financing of the transaction, and representatives of Lazard spoke
to Knoll's chief financial officer and to a representative of the proposed      
lending group concerning the proposed financing of the transaction. Lazard also 
spoke to Knoll's chief financial officer about the consent required from the    
holders of Knoll's 10 7/8% Senior Subordinated Notes due 2006.                  

   On June 18, 1999, the Special Committee met with its advisors to review the
status of discussions with respect to the Merger Agreement. Later that day, a   
substantially final draft of the Merger Agreement was prepared and distributed  
to the Board of Directors. Also, on June 18, 1999, substantially complete forms 
of the commitment letter regarding the senior credit facility for financing the 
merger, and related costs and expenses, were delivered to the Special Committee.

On June 21, 1999, after meeting with representatives of Knoll's senior  
management for an update of information about Knoll's operating results and     
prospects, the Special Committee and its advisors met to consider the terms of  
the Merger Agreement, as negotiated, and the merger. Lazard presented its       
financial analyses to the Special Committee. Counsel to the Special Committee   
reviewed the duties of the Special Committee and summarized the Merger Agreement
and the improvements, from the perspective of the Public Holders, in the terms  
of the Merger Agreement negotiated by counsel for the Special Committee since   
receiving the initial draft. Lazard delivered to the Special Committee its      
opinion to the effect that, as of that date, and subject to the matters stated  
in the opinion, the consideration to be received in the merger by the Public    
Holders was fair from a financial point of view to those stockholders. After    
further discussion and deliberation, the Special Committee unanimously          
determined that the merger was fair and in the best interests of the Public     
Holders and unanimously determined to recommend that the Board of Directors     
approve the Merger Agreement and recommend its approval to all of the           
stockholders of Knoll.                                                          

9 

PREM14A
20th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 20th
    A special meeting of the Board of Directors was held later on June 21, 1999.
Prof. Dolan reviewed for the Board of Directors the process through which the   
Special Committee reached its conclusion that the merger was fair to and in the 
best interests of the Public Holders. Lazard then delivered its oral opinion,   
later confirmed in writing, to the effect that, as of June 21, 1999, and subject
to the matters stated in such opinion, the $28.00 per share cash consideration  
to be received by the Public Holders in the merger was fair to such stockholders
from a financial point of view. The Special Committee then recommended to the   
Board of Directors the approval of the Merger Agreement and the transactions    
contemplated thereby. After a thorough discussion of the terms of the merger and
the Merger Agreement, the Board of Directors unanimously adopted resolutions    
approving the merger and the Merger Agreement and the transactions contemplated 
thereby and recommended and deemed it advisable that the stockholders of Knoll  
vote to approve and adopt the Merger Agreement.                                 

    Following the initial announcement of the proposed merger on March 24, 1999,
a number of lawsuits were initiated on behalf of the Public Holders against     
Knoll, Warburg and certain of Knoll's directors alleging, among other things,   
that the merger consideration was inadequate and that certain actions and       
negotiations leading up to the proposed merger were not conducted on an         
arm's-length basis. Concurrent with the special meeting of the Board held on    
June 21, 1999, counsel for the Continuing Stockholders negotiated a settlement  
with counsel to the plaintiffs in the stockholder lawsuits arising from the     
merger and entered into a Memorandum of Understanding relating to such          
settlement.                                                                     

  On June 21, 1999, authorized representatives of Knoll and Warburg executed
and delivered the Merger Agreement. Later that day, the execution of the Merger 
Agreement was publicly announced through a press release issued by Knoll. Knoll 
also announced on June 21 that it had entered into a Memorandum of Understanding
with counsel to the plaintiffs in the stockholder lawsuits arising from the     
proposed merger. On July 29, 1999, Warburg and Knoll, with the approval of the  
Special Committee and the Board of Directors, amended and restated the Merger   
Agreement to effect certain changes in the mechanics of effecting the merger.   
None of the changes related to the Merger Consideration or the anticipated      
timing of the closing of the merger.                                            

PURPOSES AND REASONS OF THE MERGER; CERTAIN EFFECTS OF THE MERGER               

The principal purposes of the merger are to enable the Continuing       
Stockholders (together with Knoll employees who may retain shares issued under  
Knoll's stock incentive plans) to own all of the equity interest in Knoll, and  
afford the Public Holders the opportunity to receive a cash price for their     
shares of common stock that represents a premium over the market prices at which
the common stock traded prior to the announcement of the proposed merger. This  
will be accomplished by a merger of an acquisition entity to be organized by    
Warburg ("Acquisition Corp.") with and into Knoll, pursuant to which all of the 
shares of Knoll common stock held by the Public Holders will be converted into  
the right to receive the merger consideration of $28.00 per share. The          
Continuing Stockholders proposed the transaction as a result of their concern   
that Knoll's stock price did not reflect the underlying strength of its         
business. Other than as set forth herein, the Continuing Stockholders have no   
reason for proposing the merger at this particular time (as opposed to any other
time) and are not aware of any material development expected to affect the      
future value of the common stock that is not described in this proxy statement. 

The merger will terminate all equity interests in Knoll of the Public   
Holders, and the Continuing Stockholders (together with Knoll employees who     
retain shares issued under Knoll's stock incentive plans) will be the sole      
beneficiaries of any earnings and growth of Knoll. Accordingly, the Public      
Holders will no longer benefit from any increase in the value of Knoll or       
payment of dividends on the common stock, nor will they bear the risk of any    
decrease in the value of Knoll following the merger. The merger consideration to
be received by the Public Holders was the result of arm's-length negotiations   
between representatives of the Continuing Stockholders and the members of the   
Special Committee and their respective advisors following the receipt of the    
initial merger proposal from the                                                

10

PREM14A
21st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 21st
Continuing Stockholders. As a result of the merger, the common stock will be    
privately held and will cease to be publicly traded.                            

The common stock is currently registered under the Exchange Act and is  
listed for trading on the NYSE under the symbol "KNL." Upon consummation of the 
merger, the common stock will be delisted from the NYSE and registration of the 
common stock under the Exchange Act will be terminated. Because its common stock
will be privately held, Knoll will enjoy certain efficiencies, such as the      
elimination of the time devoted by its management and certain other employees to
complying with certain reporting requirements of the Exchange Act (including the
obligation to comply with the proxy rules thereunder), and its directors,       
officers and beneficial owners of more than 10% of the shares of common stock   
will be relieved of the reporting requirements and restrictions on insider      
trading under Section 16 of the Exchange Act. In addition, Knoll will be        
relieved of certain NYSE listing and reporting requirements. Accordingly, less  
information will be required to be made currently available than is the case at 
this time. Knoll will be able to reduce certain costs, which it estimates to be 
approximately $500,000 per year, including the costs of preparing, printing and 
mailing certain corporate reports and proxy statements, the expenses of a       
transfer agent and registrar and the costs of investor relations activities.    

    The Continuing Stockholders structured the transaction as a one-step merger,
without a first-step cash tender offer. The Continuing Stockholders believed    
that a first-step cash tender offer would make it less likely that the          
transaction would qualify as a leveraged recapitalization under generally       
accepted accounting principles and were unwilling to incur the greater financing
fees associated with a first-step cash tender offer structure. Moreover, they   
did not believe that a first-step tender offer would result in Public Holders'  
receiving the cash consideration significantly sooner than under a one-step     
merger structure. See "Proposals at the Annual Meeting--Proposal One--The       
Merger--Accounting Treatment."                                                  

 Approval of the merger requires the approval of the holders of at least a
majority of the outstanding shares of Knoll common stock but does not require   
the separate approval of the holders of a majority of the common stock held by  
the Public Holders. The Continuing Stockholders did not structure the           
transaction to require the approval of a majority of the common stock held by   
the Public Holders, because such approval is not required under the Delaware    
merger statute and because the Continuing Stockholders believe that the fairness
of the transaction was established by other factors, including the arm's-length 
bargaining between the Continuing Stockholders and the Special Committee as to  
the terms of the transaction, the other factors referred to below as having been
taken into account by the Special Committee, the Board and the Continuing       
Stockholders and the opinions of Merrill Lynch and Lazard.                      

In connection with the merger and the discussions relating thereto, the 
Continuing Stockholders have advised Knoll that, relating to the structure of   
the merger, they did not consider any alternatives that would have allowed the  
Public Holders to maintain an equity interest in Knoll because no such          
alternative would have accomplished the purposes of the merger as set forth in  
this section.                                                                   

RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS OF
THE MERGER                                                                  

RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS.    

On June 21, 1999, the Special Committee unanimously determined that the 
merger is fair to and in the best interests of the Public Holders and           
unanimously voted to recommend that the Board of Directors approve the Merger   
Agreement and recommend its approval to Knoll's stockholders.                   

    On June 21, 1999, the Board of Directors unanimously (1) determined that the
terms of the merger are fair to and in the best interests of the Public Holders,
(2) approved the Merger Agreement and authorized the execution and delivery     
thereof and (3) recommended that the stockholders of Knoll approve the merger,  
the Merger Agreement and the transactions contemplated thereby.                 

11

PREM14A
22nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 22nd
FAIRNESS OF THE MERGER.                                                 

 SPECIAL COMMITTEE.  In reaching its determinations referred to above, the
Special Committee considered the factors listed below. The following discussion 
of the factors considered by the Special Committee is not intended to be        
exhaustive but summarizes all material factors considered. The Special Committee
did not assign any relative or specific weights to the following factors, nor   
did it specifically characterize any factor as positive or negative, and        
individual members of the Special Committee may have given differing weights to 
differing factors and may have viewed certain factors more positively or        
negatively than others. Throughout its deliberations, the Special Committee     
received the advice of its investment banker and legal advisors.                

 - The fact that the per share price to be paid in the merger represents a
      premium of approximately 84% over the closing price of the common stock on
   March 23, 1999 (the last full trading day before Knoll announced it had
      received the initial merger proposal from the Continuing Stockholders) and
  a premium of approximately 44% over the closing price of the shares on
      February 23, 1999 (one month before the Continuing Stockholders made their
initial proposal).                                                  

   - The fact that the per share price to be received in the merger is payable
     in cash, eliminating any uncertainties in valuing the consideration to be
received by the Public Holders.                                     

  - The ownership by the Continuing Stockholders of approximately 60% of the
      outstanding shares, and their stated unwillingness to sell their shares to
a third party, which led the Special Committee to conclude that     
exploration of a business combination with a third party was not    
practicable.                                                        

- The likelihood that the merger would be consummated, including (1) the
    fact that the Continuing Stockholders had provided the Special Committee
   with copies of written financing commitments with respect to the merger
and (2) the limited nature of the other conditions to the merger.   

- The arm's-length negotiations between the Special Committee and its   
      representatives and the Continuing Stockholders and their representatives,
     which had resulted in a 12% increase in the price at which the Continuing
Stockholders were initially prepared to acquire the shares and in   
     improvements to the terms of the Merger Agreement from the perspective of
      the Public Holders, and the Special Committee's belief that $28.00 was the
 highest price that could be obtained from the Continuing Stockholders
under the circumstances.                                            

    - The opinion of Lazard, dated June 21, 1999, to the effect that, as of such
date, and subject to the matters stated in the opinion, the proposed
     consideration to be received by the Public Holders pursuant to the merger
  was fair to the Public Holders from a financial point of view, and the
    analyses presented to the Special Committee by Lazard. See "--Opinion of
 Lazard." A copy of Lazard's written opinion is attached to this proxy
statement as Appendix B and is incorporated herein by reference.    

 - The Special Committee's knowledge of Knoll and its prospects, including
   industry dynamics, company capabilities and challenges, and competitive
developments.                                                       

 - The terms of the merger and the Merger Agreement, including provisions:

      -- conditioning the parties' obligations on the absence of a withdrawal of
the Special Committee's recommendation of the merger,         

    -- requiring prior approval of the Special Committee for the waiver of a
        number of conditions to Knoll's obligations under the Merger Agreement
      and for any amendment of the Merger Agreement that adversely affects
the rights of the stockholders under the Merger Agreement, and

      -- providing for an increase in the consideration to be paid to the Public
      Holders, at the rate of 6.5% per year (for up to sixty days), if the
merger does not close by November 18, 1999.                   

12

PREM14A
23rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 23rd
   - The availability of dissenters' rights for stockholders under the DGCL in
connection with the merger.                                         

  BOARD OF DIRECTORS.  In reaching its determinations referred to above, the
Board of Directors considered the following factors: (1) the determinations and 
recommendations of the Special Committee; (2) the factors referred to above as  
having been taken into account by the Special Committee, including the opinion  
and presentation of Lazard; and (3) the fact that the price and the terms and   
conditions of the Merger Agreement were the result of arm's-length negotiations 
between the Special Committee and the Continuing Stockholders.                  

In considering the arm's-length nature of the negotiations and the      
procedural fairness of the merger, the Board of Directors noted that:           

  - the Special Committee consisted of independent directors of the Board of
Directors who represented the interests of the Public Holders;      

- the Special Committee retained and was advised by independent legal   
counsel; and                                                        

- the Special Committee retained and was advised by Lazard as its       
     independent investment banker to assist it in evaluating the transaction.

In considering the fairness of the merger, the Special Committee and the
Board of Directors did not consider Knoll's net book value or liquidation value 
materially relevant because they believed those values were not material        
indicators of Knoll's value as a going concern. Knoll's book value per share as 
of March 31, 1999 was $8.23, substantially below the $28.00 per share           
consideration to be paid in the merger.                                         

 The description set forth above of the factors considered by the Board of
Directors is not intended to be exhaustive, but summarizes all material factors 
considered. The Board of Directors did not assign any relative or specific      
weights to the factors nor did it specifically characterize any factor as       
positive or negative, and individual members of the Board of Directors may have 
given differing weights to different factors and may have viewed certain factors
more positively or negatively than others.                                      

OPINION OF LAZARD                                                               

    On June 21, 1999, Lazard delivered its oral opinion to the Special Committee
to the effect that, as of that date, and subject to certain considerations      
described by Lazard, the merger consideration to be received by the Public      
Holders pursuant to the Merger Agreement was fair, from a financial point of    
view, to the Public Holders. Lazard confirmed its oral opinion by delivery of   
its written opinion dated June 21, 1999. The opinion of Lazard does not         
constitute a recommendation as to how any Knoll stockholder should vote with    
respect to the merger.                                                          

 THE FULL TEXT OF THE WRITTEN OPINION OF LAZARD DATED JUNE 21, 1999, WHICH
IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW   
UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX B.           
STOCKHOLDERS OF KNOLL ARE ENCOURAGED TO, AND SHOULD, READ LAZARD'S OPINION IN   
ITS ENTIRETY.                                                                   

In connection with its opinion, Lazard:                                 

- reviewed the financial terms and conditions of the Merger Agreement;  

    - analyzed certain historical business and financial information relating to
Knoll;                                                              

   - reviewed various financial forecasts and other data provided to Lazard by
Knoll relating to its business;                                     

  - held discussions with members of Knoll senior management with respect to
the business and prospects of Knoll and its strategic objectives;   

- reviewed public information with respect to certain other companies in
lines of business Lazard believed to be generally comparable to the 
business of Knoll;                                                  

13

PREM14A
24th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 24th
 - reviewed the financial terms of certain business combinations involving
     companies in lines of business Lazard believed to be generally comparable
to that of Knoll, and in other industries generally;                

   - reviewed the historical stock prices and trading volumes of the shares of
Knoll common stock; and                                             

- reviewed such other information, and conducted such other financial   
studies, analyses and investigations, as Lazard deemed appropriate. 

In conducting its analyses and in arriving at its opinion, Lazard relied
upon the accuracy and completeness of the foregoing information, and did not    
assume any responsibility for any independent verification of such information  
or any independent valuation and appraisal of any of the properties, assets or  
liabilities of Knoll, or concerning the solvency or fair value (within the      
context of a solvency analysis) of Knoll. With respect to financial forecasts,  
Lazard assumed that they had been reasonably prepared on bases reflecting the   
best currently available estimates and judgments of Knoll management as to the  
future financial performance of Knoll. Lazard assumed no responsibility for and 
expressed no view as to such forecasts or the assumptions on which they were    
based. Lazard relied, with the consent of the Special Committee, on statements  
made by Warburg indicating that Warburg would not consent to a transaction      
involving a sale of Knoll. Additionally, Lazard was not requested or authorized 
to solicit, and did not solicit, interest from any party with respect to an     
acquisition of the outstanding shares of Knoll common stock, Knoll or its       
constituent businesses.                                                         

Further, the opinion of Lazard was necessarily based on accounting      
standards, economic, monetary, market and other conditions as in effect on, and 
the information made available to Lazard as of, the date of its opinion.        

 In rendering its opinion, Lazard assumed, with the consent of the Special
Committee, that the merger will be consummated on the terms described in the    
Merger Agreement, without any waiver of any material terms or conditions by     
Knoll, and that obtaining the necessary regulatory approvals for the merger will
not have an adverse effect on Knoll.                                            

In certain of its analyses, Lazard used projections set forth in a      
Sensitivity Case and both a Management Case and an Adjusted Case (as those terms
are defined below in the footnotes to the "Selected Companies Analysis" table)  
provided by Knoll management and the Special Committee. In considering the      
fairness of the offer of the Continuing Stockholders, Lazard principally relied 
upon the Sensitivity Case, after discussion with the Special Committee.         

    The following is a summary of the material financial analyses used by Lazard
in connection with providing its oral opinion to the Special Committee on June  
21, 1999. Lazard utilized substantially the same financial analyses in          
connection with providing its written opinion attached as Appendix B.           

   THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH  
SUMMARY.                                                                        

1.  HISTORICAL STOCK TRADING ANALYSIS. Lazard reviewed the historical   
trading prices and volumes for Knoll common stock. Lazard also compared the     
trading performance of Knoll common stock for the period from June 16, 1998     
through June 17, 1999 to the trading performance of an index of selected        
companies and the S&P 400 for the comparable period. The index included Herman  
Miller, Inc., HON INDUSTRIES Inc., Kimball International, Inc. and Steelcase    
Inc. In addition, Lazard compared the consideration to be received by the Public
Holders pursuant to the Merger Agreement to trading price and volume data since 
Knoll's initial public offering. Lazard also compared the trading price and     
trading volume for the period from March 23, 1998 to March 23, 1999.            

2.  SELECTED COMPANIES ANALYSIS. Lazard reviewed and compared certain   
financial information for Knoll to corresponding financial information, ratios  
and public market multiples for the following four publicly traded corporations 
(the "Selected Companies"):                                                     

- Herman Miller, Inc.;                                            

14

PREM14A
25th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 25th
- HON INDUSTRIES Inc.;                                            

- Kimball International, Inc.; and                                

- Steelcase Inc.                                                  

  Lazard also calculated and compared various financial multiples and ratios
based on information it obtained from SEC filings, publicly available research  
reports and the Institutional Brokers Estimate System ("IBES"). The multiples   
and ratios for Knoll were calculated using $28.00 per share and projections     
provided by Knoll management and the Special Committee. The multiples for each  
of the Selected Companies were based on the most recent SEC filings, publicly   
available research reports, IBES and closing prices on June 17, 1999. Lazard's  
analyses of the Selected Companies compared the following to the results for    
Knoll:                                                                          

    - enterprise value (i.e., market value of common equity plus debt less cash)
      as a multiple of latest twelve month ("LTM"), estimated 1999 and estimated
2000 revenues;                                                      

  - enterprise value as a multiple of LTM, estimated 1999 and estimated 2000
      earnings before interest, taxes, depreciation and amortization ("EBITDA");

  - enterprise value as a multiple of LTM, estimated 1999 and estimated 2000
earnings before interest and taxes ("EBIT");                        

  - equity value as a multiple of LTM, estimated 1999 and estimated 2000 net
income;                                                             

- estimated five-year earnings per share growth rate based on IBES      
estimates; and                                                      

- actual 1998 EBIT margin.                                              

The results of these analyses are summarized as follows:                

                                                        [Enlarge/Download Table]

                                                               SELECTED COMPANIES                                               
                                                         ------------------------------  SENSITIVITY   MANAGEMENT     ADJUSTED  
                                                               RANGE          MEDIAN        CASE*        CASE**        CASE***  
                                                         -----------------  -----------  -----------  -------------  -----------
                                                                                                                                
Enterprise Value as a Multiple of:                                                                                              
  LTM Revenue...........................................      0.54x-1.03x        0.98x        1.41x         1.41x         1.41x 
  1999E Revenue.........................................      0.51x-1.01x        0.90x        1.37x         1.37x         1.35x 
  2000E Revenue.........................................      0.47x-0.96x        0.80x        1.30x         1.31x         1.27x 
  LTM EBITDA............................................       5.4x-7.3x          6.4x         6.5x          6.5x          6.5x 
  1999E EBITDA..........................................       5.2x-6.5x          6.1x         6.3x          6.7x          6.2x 
  2000E EBITDA..........................................       4.6x-6.0x          5.4x         5.9x          6.2x          5.8x 
  LTM EBIT..............................................       8.0x-9.5x          8.2x         7.8x          7.8x          7.8x 
  1999E EBIT............................................       7.5x-8.4x          7.7x         7.6x          8.1x          7.5x 
  2000E EBIT............................................       6.6x-7.4x          7.0x         7.2x          7.7x          7.0x 

Equity Value as a Multiple of:                                                                                                  
  LTM Net Income........................................      11.4x-14.7x        13.4x        12.7x         12.7x         12.7x 
  1999E Net Income......................................      11.4x-13.6x        12.4x        12.1x         13.1x         11.9x 
  2000E Net Income......................................      10.3x-12.1x        10.9x        10.9x         11.8x         10.5x 
IBES Est. 5 Yr. Growth Rate.............................       10.0%-15.0%        14.0%        15.0%         15.0%         15.0%
1998 EBIT Margin........................................         7.0%-12.1%       11.0%        18.1%         18.1%         18.1%

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

*   Assumes (1) a 2.5% sales growth rate in 1999 and a 5% sales growth rate     
thereafter and (2) the same EBIT margin rate assumptions as the Adjusted
Case, in each case for Knoll (the "Sensitivity Case").                  

**  Assumes (1) a 2.0% sales growth rate in 1999 and a 5% sales growth rate     
   thereafter and (2) a 17.0% EBIT margin in 1999 and 2000, increasing by 0.5%
 per year thereafter to a 19.0% EBIT margin in 2004 and 2005, in each case
for Knoll (the "Management Case").                                      

*** Assumes (1) a sales growth rate of 4.0%, 6.5%, 8.0%, 8.0%, 9.0%, 6.5% and   
  6.5% in each of 1999, 2000, 2001, 2002, 2003, 2004 and 2005, respectively,
  and (2) an 18.1% EBIT margin in 1999 and 2000, a 19.0% EBIT margin in 2001
  and 2002, and a 19.5% EBIT margin in 2003, 2004 and 2005, in each case for
Knoll (the "Adjusted Case").                                            

15

PREM14A
26th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 26th
Based on these analyses and assuming approximately 40.65 million fully  
diluted shares outstanding and net debt of approximately $174.7 million, Lazard 
determined that the median implied equity value per share using the Sensitivity 
Case ranged from $26.62 to $31.48 per share of Knoll common stock, with a median
value in that range of $28.60 per share.                                        

3. SELECTED TRANSACTIONS ANALYSIS. Lazard calculated the implied equity 
value per share of Knoll common stock based on the LTM EBITDA multiple for each 
of the following three transactions, each of which involved a change of control 
(the "Selected Transactions"):                                                  

 - the acquisition of Shelby Williams Industries, Inc. by Falcon Products,
Inc.;                                                               

- the acquisition of WinsLoew Furniture Inc. by Trivest Furniture       
Corporation; and                                                    

- the acquisition of Knoll by Warburg.                                  

  Assuming approximately 40.65 million fully diluted shares outstanding, net
debt of approximately $174.7 million and an LTM EBITDA for Knoll of             
approximately $204.0 million, Lazard determined that the implied equity value   
per share of Knoll ranged from $31.34 per share to $35.35 per share. Lazard     
noted that, because the merger is not a "change of control" transaction, it is  
not directly comparable with any of the Selected Transactions, each of which    
involved a change of control.                                                   

    4. COMPARABLE MINORITY BUYOUT TRANSACTIONS ANALYSIS. Lazard analyzed certain
information relating to twenty-six selected minority buyout transactions since  
1998 (the "Selected Buyouts") using information provided by Securities Data     
Corp. and Factset. For all Selected Buyouts and for Selected Buyouts in which   
the acquisition price was paid solely in cash (the "Selected Cash Buyouts"),    
Lazard compared:                                                                

 - final premium (based on the purchase price) over one-month prior market
price; and                                                          

    - final premium (based on the purchase price) over prior 52-week high market
price.                                                              

The results of these analyses for the Selected Buyouts are summarized as
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                 SELECTED BUYOUTS     
                                                             ------------------------ 
                                                               AVERAGE      MEDIAN    
                                                             -----------  ----------- 
                                                                                      
Final Premium (Discount) Over One-Month Prior Price.........       32.2%        23.6% 
Final Premium (Discount) Over Prior 52-Week High Price......      (20.9%)      (12.9%)

  The results of these analyses for the Selected Cash Buyouts are summarized
as follows:                                                                     

                                                        [Enlarge/Download Table]

                                                              SELECTED CASH BUYOUTS   
                                                             ------------------------ 
                                                               AVERAGE      MEDIAN    
                                                             -----------  ----------- 
                                                                                      
Final Premium (Discount) Over One-Month Prior Price.........       32.0%        21.1% 
Final Premium (Discount) Over Prior 52-Week High Price......      (20.6%)      (12.9%)

   Based on such figures and using the $19.44 per share closing price of Knoll
stock one month prior to the initial proposal of the Continuing Stockholders,   
Lazard determined that the implied equity value per share of Knoll relative to  
the one month prior price ranged from $23.54 per share to $25.70 per share, with
an average of $25.70 and a median of $24.02 for the Selected Buyouts and an     
average of $25.66 and a median of $23.54 for the Selected Cash Buyouts. Lazard  
further determined that, based on such figures and using the $37.00 per share   
52-week high market price of Knoll stock prior to the Special Committee's       
consideration of Lazard's preliminary oral opinion with respect to the initial  
merger proposal of the Continuing Stockholders, the implied equity value per    
share of Knoll relative to the 52-week high market price ranged from $29.28 per 
share to $32.24 per share, with an average of $29.28 and a median of $32.34 for 
the Selected Buyouts and an average of $29.37 and a median of $32.24 for the    
Selected Cash Buyouts.                                                          

16

PREM14A
27th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 27th
    5. RESEARCH ANALYSTS' ESTIMATES. Lazard reviewed the most recently available
target prices at the time of the initial bid from research analysts at the      
following five firms:                                                           

- Robert W. Baird & Company, Inc.;                                      

- Credit Suisse First Boston;                                           

- Merrill Lynch & Co.;                                                  

- First Union Corporation; and                                          

- Raymond James & Associates.                                           

    Lazard then discounted these estimates to present value using discount rates
of 15.0% and 20.0%. The results of these analyses are summarized as follows:    

                                                                [Download Table]

                                                         12-MONTH TARGET PRICE 
                                                               ANALYSIS        
                                                        -----------------------
                                                           RANGE       MEDIAN  
                                                        ------------  ---------
                                                                               
12-Month Target Price.................................  $34.00-$40.00 $   35.00
Present Value at 15% Discount Rate....................  $29.57-$34.78 $   30.43
Present Value at 20% Discount Rate....................  $28.33-$33.33 $   29.17

 6. DISCOUNTED CASH FLOW ANALYSIS. Lazard performed a discounted cash flow
analysis using the Sensitivity Case.                                            

  Lazard calculated the net present value of unlevered free cash flows using
the Sensitivity Case for the years 1999 through 2003 using discount rates       
ranging from 11.0% to 13.0% and calculated terminal values based on multiples   
ranging from 5.5x to 7.5x estimated EBITDA in 2003. These terminal values were  
then discounted to present value using discount rates ranging from 11.0% to     
13.0% and added to the net present value of the unlevered free cash flows to    
determine a range of enterprise values and a range of implied equity values per 
share (the "EBITDA Valuation"). Lazard also calculated the net present value of 
unlevered free cash flows using the Sensitivity Case for the years 1999 through 
2003 using discount rates ranging from 11.0% to 13.0% and calculated terminal   
values based on estimated perpetual growth rates of unlevered free cash flow    
through 2003 ranging from 3.0% to 5.0%. These terminal values were then         
discounted to present value using discount rates ranging from 11.0% to 13.0% and
added to the net present value of the unlevered free cash flows to determine a  
range of enterprise values and a range of implied equity values per share (the  
"Perpetual Growth Valuation").                                                  

The results of this analysis are summarized as follows:                 

                                                        [Enlarge/Download Table]

                                                                     RANGES                
                                                     --------------------------------------
                                                         EBITDA         PERPETUAL GROWTH   
                                                       VALUATION*          VALUATION*      
                                                     ---------------  ---------------------
                                                                                           
                                                           $26.34 to                       
Sensitivity Case....................................          $37.45    $20.73 to $35.26   

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

*   Assumes approximately 40.65 million fully diluted shares outstanding and net
debt of approximately $174.7 million.                                   

 Lazard also performed the same analyses using the Management Case and the
Adjusted Case. The results of these analyses are summarized below:              

                                                        [Enlarge/Download Table]

                                                                     RANGES                
                                                     --------------------------------------
                                                         EBITDA         PERPETUAL GROWTH   
                                                       VALUATION*          VALUATION*      
                                                     ---------------  ---------------------
                                                                                           
                                                           $24.66 to                       
Management Case.....................................          $35.25    $18.91 to $32.45   
                                                           $29.31 to                       
Adjusted Case.......................................          $41.58    $24.02 to $40.84   

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

*   Assumes approximately 40.65 million fully diluted shares outstanding and net
debt of approximately $174.7 million.                                   

17

PREM14A
28th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 28th
   7. CONTINUING STOCKHOLDERS LEVERAGED BUYOUT ANALYSIS. Using the Sensitivity
Case assumptions, Lazard analyzed the equity internal rate of return from the   
perspective of the Continuing Stockholders assuming a purchase price ranging    
from $25.00 to $32.00 per share, a maximum ratio of pro forma debt to LTM EBITDA
of 3.8x and that the Continuing Stockholders exit their position in year five at
5.5x to 7.5x EBITDA. Lazard determined that the implied equity value per share  
using the Sensitivity Case would be $25.00 to $30.00 per share.                 

 Lazard also performed the same analyses using the Management Case and the
Adjusted Case. Using the same assumptions set forth above and assuming a maximum
ratio of pro forma debt to LTM EBITDA of 3.7x, the implied equity value per     
share using the Management Case would be $25.00 to $29.00 per share. Using the  
same assumptions set forth above and assuming a maximum ratio of pro forma debt 
to LTM EBITDA of 4.0x, the implied equity value per share using the Adjusted    
Case would be $25.00 to $32.00 per share.                                       

 8. NEW FINANCIAL SPONSOR LEVERAGED BUYOUT ANALYSIS. Using the Sensitivity
Case assumptions, Lazard analyzed the equity internal rate of return from the   
perspective of a new financial sponsor, assuming a purchase price ranging from  
$25.00 to $34.00 per share, a maximum ratio of pro forma debt to LTM EBITDA of  
4.8x and that the new financial sponsor exits its position in year five at 5.5x 
to 7.5x EBITDA. Lazard determined that the implied equity value per share using 
the Sensitivity Case would be $27.00 to $32.00 per share.                       

 Lazard also performed the same analyses using the Management Case and the
Adjusted Case. Using the same assumptions set forth above, the implied equity   
value per share would be $26.00 to $31.00 per share using the Management Case   
and $28.00 to $34.00 per share using the Adjusted Case.                         

    9. LEVERAGED RECAPITALIZATION ANALYSIS. Lazard calculated the implied equity
value per share based on a recapitalization analysis using the Sensitivity Case.
The recapitalization analysis assumed that 50% of Knoll's outstanding shares    
were repurchased at a price of $32.00 per share (which was assumed to be        
equivalent to a $16.00 special dividend to all stockholders). The implied       
post-recapitalization equity value was calculated assuming EBITDA exit multiples
of 5.5x to 7.5x in year five, using discount rates from 15% to 20%. The results 
of this analysis are summarized as follows:                                     

                                                                [Download Table]

                                      TOTAL IMPLIED EQUITY VALUE PER SHARE   
                                    ---------------------------------------- 
                                        5.5X          6.5X          7.5X     
                                    ------------  ------------  ------------ 
                                                                             
Sensitivity Case..................  $20.72-$25.64 $26.40-$32.67 $32.08-$39.69

 Lazard also performed the same analyses using the Management Case and the
Adjusted Case. The results of these analyses are summarized as follows:         

                                                                [Download Table]

                                      TOTAL IMPLIED EQUITY VALUE PER SHARE   
                                    ---------------------------------------- 
                                        5.5X          6.5X          7.5X     
                                    ------------  ------------  ------------ 
                                                                             
Management Case...................  $18.45-$22.82 $23.87-$29.53 $29.30-$36.24
Adjusted Case.....................  $24.88-$30.78 $31.15-$38.54 $37.42-$46.30

The preparation of a fairness opinion is a complex process and is not   
necessarily susceptible to partial analysis or summary description. Selecting   
portions of the analyses or of the summary set forth above, without considering 
the analyses as a whole, could create an incomplete view of the processes       
underlying Lazard's opinion. In arriving at its fairness determination, Lazard  
considered the results of all such analyses. No company or transaction used in  
the above analyses as a comparison is directly comparable to Knoll or the       
contemplated transaction.                                                       

   The analyses were prepared for the benefit of the Special Committee and the
opinion of Lazard was rendered in connection with its consideration of the      
merger. The opinion was not intended to and                                     

18

PREM14A
29th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 29th
does not constitute a recommendation to any holder of Knoll common stock as to  
whether such holder should vote to approve the merger.                          

As described above, Lazard's opinion to the Special Committee was one of
many factors taken into consideration by the Special Committee in making its    
determination to approve the Merger Agreement. The foregoing summary does not   
purport to be a complete description of the analyses performed by Lazard.       

  Lazard, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers  
and acquisitions, negotiated underwritings, competitive biddings, secondary     
distributions of listed and unlisted securities, private placements and         
valuations for estate, corporate and other purposes. Lazard has in the past     
provided certain investment banking services to a former affiliate of Knoll for 
which Lazard received customary fees.                                           

One of the factors the Special Committee deemed significant in selecting
Lazard as its investment banker was the fact that it is a nationally recognized 
investment banking firm with substantial experience in transactions similar to  
the merger.                                                                     

  Lazard provides a full range of financial, advisory and brokerage services
and in the course of its normal trading activities may from time to time effect 
transactions and hold positions in the securities or options on securities of   
Knoll for its own account and for the account of customers.                     

  Pursuant to a letter agreement dated April 27, 1999, the Special Committee
engaged Lazard to act as its investment banker in connection with the possible  
purchase by the Continuing Stockholders of the equity interests in Knoll not    
owned by them. Pursuant to the terms of this letter, Knoll paid Lazard a fee of 
$250,000 upon execution of the letter. An additional fee of $2,000,000 became   
payable upon the delivery of its opinion.                                       

Knoll has agreed to reimburse Lazard for its reasonable out-of-pocket   
expenses, including attorneys' fees, and to indemnify Lazard against certain    
liabilities, including certain liabilities under federal securities laws.       

POSITION OF THE CONTINUING STOCKHOLDERS AS TO FAIRNESS                          

   The Continuing Stockholders have concluded that the merger and the terms of
the Merger Agreement (including the merger consideration of $28.00 per share)   
are fair to Knoll and the Public Holders based on the following factors:        

   (1) the determinations and recommendations of the Special Committee and the
Board of Directors;                                               

  (2) the unanimous approval and recommendation of the merger and the Merger
    Agreement by the Special Committee, which consists solely of directors
who are independent of the Continuing Stockholders;               

(3) the independent factors referred to above as having been taken into 
    account by the Special Committee and the Board of Directors, including
the fact that the Board and the Special Committee had received the
opinion of Lazard;                                                

(4) the fact that the price and the terms and conditions of the Merger  
Agreement were the result of arm's-length negotiations between the
Special Committee and the Continuing Stockholders; and            

 (5) the opinion of Merrill Lynch on March 23, 1999, addressed to Warburg,
   that, as of that date, the initially proposed merger consideration of
    $25.00 per share was fair from a financial point of view to the Public
Holders.                                                          

19

PREM14A
30th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 30th
OPINION OF MERRILL LYNCH                                                        

    The Continuing Stockholders retained Merrill Lynch to act as their exclusive
financial advisor in connection with the merger. On March 23, 1999, Merrill     
Lynch delivered to the Continuing Stockholders its oral opinion, later confirmed
in writing, to the effect that, based upon and subject to certain factors and   
assumptions stated in its opinion, as of such date, the initially proposed      
$25.00 per share merger consideration was fair from a financial point of view to
the Public Holders.                                                             

    THE FULL TEXT OF THE MERRILL LYNCH OPINION, DATED MARCH 23, 1999, WHICH SETS
FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED,       
FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX D. KNOLL STOCKHOLDERS ARE URGED TO READ THE MERRILL 
LYNCH OPINION CAREFULLY IN ITS ENTIRETY, ESPECIALLY WITH REGARD TO THE          
ASSUMPTIONS MADE AND FACTORS CONSIDERED BY MERRILL LYNCH. THE MERRILL LYNCH     
OPINION WAS PROVIDED TO THE CONTINUING STOCKHOLDERS FOR THEIR INFORMATION AND IS
DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE MERGER TO   
THE PUBLIC HOLDERS, DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY   
THE CONTINUING STOCKHOLDERS TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A   
RECOMMENDATION TO ANY PUBLIC HOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON   
THE MERGER.                                                                     

 The merger consideration was determined through arm's-length negotiations
between the Special Committee and the Continuing Stockholders and was approved  
by Knoll's Board of Directors.                                                  

    The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch opinion or the presentation made by   
Merrill Lynch to the Continuing Stockholders. The preparation of a fairness     
opinion is a complex analytical process involving various determinations as to  
the most appropriate and relevant methods of financial analysis and the         
applications of those methods to the particular circumstances and, therefore,   
such an opinion is not readily susceptible to partial analysis or summary       
description. Accordingly, Merrill Lynch believes that its analyses must be      
considered as a whole and that selecting portions of its analyses, without      
considering all of its analyses, would create an incomplete view of the         
underlying Merrill Lynch opinion. In arriving at its opinion, Merrill Lynch did 
not attribute any particular weight to any analysis or factor considered by it, 
but rather made qualitative judgments as to the significance and relevance of   
each analysis and factor.                                                       

  In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial          
conditions and other matters, many of which are beyond the control of Merrill   
Lynch or Knoll. Any estimates contained in the analyses performed by Merrill    
Lynch are not necessarily indicative of actual values or future results, which  
may be significantly more or less favorable than suggested by such analyses.    
Additionally, estimates of the value of businesses or securities do not purport 
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently 
subject to substantial uncertainty. In addition, as described above, the Merrill
Lynch opinion and Merrill Lynch's presentation to the Continuing Stockholders   
were among several factors taken into consideration by the Continuing           
Stockholders in making their determination to offer the initially proposed      
$25.00 per share merger consideration. Consequently, the Merrill Lynch analyses 
described below should not be viewed as determinative of the decision of the    
Continuing Stockholders with respect to the fairness of the initially proposed  
$25.00 per share merger consideration or the subsequently proposed $28.00 per   
share merger consideration.                                                     

In arriving at its opinion, Merrill Lynch, among other things:          

- reviewed certain publicly available business and financial information
relating to Knoll that Merrill Lynch deemed to be relevant;         

  - reviewed certain information, including financial forecasts, relating to
   the business, earnings, cash flow, assets, liabilities and prospects of
Knoll;                                                              

20

PREM14A
31st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 31st
  - conducted discussions with members of Knoll senior management concerning
the matters described in the two preceding clauses;                 

 - reviewed the market prices and valuation multiples for the Knoll common
   stock and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant;                           

- compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be 
relevant; and                                                       

  - reviewed such other financial studies and analyses and took into account
   such other matters as Merrill Lynch deemed necessary, including Merrill
   Lynch's assessment of general economic, market and monetary conditions.

  In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to     
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly  
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information, did not undertake an independent evaluation or      
appraisal of any of the assets or liabilities of Knoll and was not furnished    
with any such evaluation or appraisal. In addition, Merrill Lynch did not assume
any obligation to conduct any physical inspection of the properties or          
facilities of Knoll. With respect to the financial forecast information         
furnished to or discussed with Merrill Lynch by Knoll or the Continuing         
Stockholders, Merrill Lynch assumed that they were reasonably prepared and      
reflected the best currently available estimates and judgment of Knoll's        
management or the Continuing Stockholders as to the expected future financial   
performance of Knoll.                                                           

The Merrill Lynch opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the          
information made available to Merrill Lynch as of March 23, 1999, the date of   
its opinion.                                                                    

The following is a summary of the material portions of the financial and
comparative analyses performed by Merrill Lynch in connection with its          
preparation of the Merrill Lynch opinion.                                       

Merrill Lynch calculated a range of implied valuations for Knoll by     
utilizing the following three principal valuation analyses:                     

   1.  SELECTED PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. A publicly traded
    comparable company analysis reviews a business's operating performance
  and outlook relative to a group of publicly traded peer companies to
determine an implied unaffected market trading valuation multiple.

2.  SELECTED COMPARABLE ACQUISITION TRANSACTION ANALYSIS. A comparable  
     acquisition transaction analysis provides an implied valuation multiple
       based upon financial information of companies which have been acquired in
selected recent transactions and which are in the same or similar 
industries as the business being valued.                          

   3.  DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis provides
   insight into the intrinsic value of a business based on the projected
earnings and capital requirements and the net present value of the
    subsequent cash flows anticipated to be generated by the assets of the
business.                                                         

SELECTED PUBLICLY TRADED COMPARABLE COMPANIES ANALYSIS.  Using publicly 
available information, Merrill Lynch reviewed the stock prices as of March 23,  
1999 and market multiples of the common stock of the following companies for    
purposes of the analyses described below:                                       

- Herman Miller, Inc.,                                                  

- HON INDUSTRIES Inc., and                                              

- Steelcase Inc.                                                        

21

PREM14A
32nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 32nd
Merrill Lynch believes these companies are engaged in lines of business that are
generally comparable to those of Knoll.                                         

        LAST TWELVE MONTHS EBITDA ANALYSIS.  Merrill Lynch determined the equity
    market value and derived the unlevered value (defined as equity market value
 plus the book value of debt less the cash and cash equivalents) for these
comparable companies. Merrill Lynch calculated a range of such unlevered
values as a multiple of the latest 12 months earnings before interest,  
  taxes, depreciation and amortization ("EBITDA"). This calculation resulted
  in a range of multiples from 4.4x to 6.3x, compared to an implied multiple
based on the initially proposed $25.00 per share merger consideration of
5.9x for Knoll.                                                         

      1999 ESTIMATED EBITDA ANALYSIS.  Merrill Lynch also calculated a range
    of unlevered values as a multiple of 1999 estimated EBITDA. This calculation
  resulted in a range of multiples from 4.0x to 5.6x, compared to an implied
multiple based on the initially proposed $25.00 per share merger        
consideration of 6.1x for Knoll.                                        

1999 AND 2000 EARNINGS PER SHARE ANALYSIS.  Merrill Lynch also  
    determined the prices of the comparable companies as a multiple of estimated
    fiscal year 1999 earnings per share (EPS) and estimated fiscal year 2000 EPS
   as estimated by First Call Research Network. For estimated fiscal year 1999
EPS, the multiples ranged from 9.6x to 11.1x, compared to an implied    
  multiple based on management's estimates and the initially proposed $25.00
    per share merger consideration of 12.0x for Knoll. For estimated fiscal year
2000 EPS, the multiples ranged from 8.2x to 9.7x, compared to an implied
  multiple based on management's estimates and the initially proposed $25.00
per share merger consideration of 11.0x for Knoll.                      

SELECTED COMPARABLE ACQUISITION TRANSACTION ANALYSIS.  Using publicly   
available information, Merrill Lynch reviewed the purchase prices and multiples 
paid in a broad variety of completed acquisitions in the furniture industry.    
Merrill Lynch deemed the most relevant transaction to be the acquisition of     
Knoll by Warburg, announced in December 1995.                                   

The multiple of unlevered value of the 1995 transaction (consideration  
offered for the equity plus the book value of debt less the cash and cash       
equivalents) to the sales of the acquired business for the 12 months preceding  
the acquisition was 0.91x, compared to an implied multiple based on the         
initially proposed $25.00 per share merger consideration of 1.25x for this      
transaction. The multiple of EBITDA for the 12 months preceding the initial     
acquisition was 6.4x, compared to an implied multiple based on the initially    
proposed $25.00 per share merger consideration of 5.9x for this transaction.    

No company, transaction or business used in the analyses described under
"--Selected Publicly Traded Comparable Companies Analysis" and "--Selected      
Comparable Acquisition Transaction Analysis" is identical to Knoll as of March  
23, 1999 or the current merger. Accordingly, an examination of the results of   
those analyses necessarily involves complex considerations and judgments        
concerning differences in financial and operating characteristics and other     
factors that could affect the transaction or the public trading or other values 
of the company or companies to which they are being compared. Mathematical      
analysis (such as determining the average or median) is not in itself a         
meaningful method of using comparable acquisition or company data.              

 DISCOUNTED CASH FLOW ANALYSIS.  Merrill Lynch performed a discounted cash
flow analysis of Knoll on a stand alone basis using a set of forecasts provided 
by management of Knoll. Utilizing the Knoll forecasts, Merrill Lynch calculated 
the theoretical unlevered discounted present value for Knoll by adding together 
the present value of (1) the projected stream of unlevered free cash flow       
through the fiscal year 2005 for Knoll and (2) the projected terminal value of  
Knoll at the end of fiscal year 2005. The terminal value of Knoll was calculated
based upon EBITDA multiples ranging from 4.0x to 6.0x and the unlevered         
after-tax discount rates used in the discounted cash flow analyses ranged from  
11.0% to 13.0%. This calculation resulted in a range of implied equity values   
for Knoll ranging from $19.10 to $28.67, compared to the initially proposed     
merger consideration equity value of $25.00 per share.                          

22

PREM14A
33rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 33rd
   PREMIUMS PAID ANALYSIS.  Merrill Lynch analyzed historical premiums paid in
selected public market leveraged buyouts from 1995 through 1999. Merrill Lynch  
determined that the relevant range of premiums ran approximately from 30% to    
50%, compared to the 64% premium over the closing price of Knoll common stock on
March 23, 1999 of $15.25, based on the initially proposed merger consideration  
of $25.00 per share.                                                            

    The Continuing Stockholders retained Merrill Lynch because of its experience
and expertise as an internationally recognized investment banking and advisory  
firm which, as a part of its investment banking business, regularly is engaged  
in the valuation of businesses and securities in connection with mergers and    
acquisitions, negotiated underwritings, competitive biddings, secondary         
distributions of listed and unlisted securities, private placements and         
valuations for corporate and other purposes. The Continuing Stockholders did not
impose any limitations on the investigation made or the procedures followed by  
Merrill Lynch in rendering its opinion. In the past, Merrill Lynch has provided 
financial advisory and financing services to Warburg, management and Knoll and  
may continue to do so, and has received, and may receive, fees for the rendering
of such services. In addition, Merrill Lynch has agreed to act as Documentation 
Agent with respect to the credit facility to be entered into by Knoll to fund   
the merger and related fees and expenses, among other things, and Merrill Lynch 
Capital Corporation has committed to underwrite a portion of the credit         
facility, subject to certain customary conditions. As a part of this commitment,
Merrill Lynch may hold a part of the credit facility. Furthermore, in the       
ordinary course of its business, Merrill Lynch may actively trade the equity    
securities of Knoll for its own account and for the accounts of it customers    
and, accordingly, may at any time hold a long or short position in such         
securities.                                                                     

Pursuant to the engagement letter, dated as of March 23, 1999, between  
Warburg, on behalf of the Continuing Stockholders, and Merrill Lynch, the       
Continuing Stockholders have agreed to pay Merrill Lynch a fee of $2,000,000 for
services rendered in connection with the delivery of its opinion, payable upon  
consummation of the merger. The Continuing Stockholders have also agreed to     
reimburse Merrill Lynch for the expenses reasonably incurred by it in connection
with its engagement (including reasonable fees and disbursements of its outside 
counsel) and to indemnify Merrill Lynch and its affiliates from and against     
certain liabilities, including liabilities under the federal securities laws,   
arising out of its engagement.                                                  

CERTAIN PROJECTIONS PROVIDED TO FINANCIAL ADVISORS                              

In the normal course of business, Knoll management prepares internal    
budgets, plans, estimates, forecasts or projections as to future revenues,      
earnings or other financial information in order to be able to anticipate the   
financial performance of Knoll. It does not, as a matter of course, publicly    
disclose these internal documents.                                              

    However, in connection with the proposed merger, to facilitate the financial
due diligence by the respective financial advisors, Knoll provided Merrill Lynch
with a preliminary 1999 annual budget and with certain financial projections    
which reflected management's best estimates and good faith judgments as to the  
future performance of Knoll. The same preliminary budget and projections were   
also provided to Lazard during the course of its engagement on behalf of the    
Special Committee.                                                              

The financial projections were subject to and prepared on the basis of  
estimates, limitations, qualifications and assumptions, and involved judgments  
with respect to, among other things, future economic, competitive, regulatory   
and financial market conditions and future business decisions which may not be  
realized and are inherently subject to significant business, economic,          
competitive and regulatory uncertainties, all of which are difficult to predict 
and many of which are beyond Knoll's control. These uncertainties include, among
others, (1) changes in the competitive marketplace, including the introduction  
of new products or pricing changes by Knoll's competitors, and (2) changes in   
the trends in the market for office furniture, including changes in the trend of
increased white-collar employment.                                              

23

PREM14A
34th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 34th
While Knoll believes these estimates and assumptions to have been       
reasonable, there can be no assurance that the projections will be accurate, and
actual results may vary materially from those shown. In light of the            
uncertainties inherent in forward-looking information of any kind, the inclusion
of these projections herein should not be regarded as a representation by Knoll,
the Continuing Stockholders or any other entity or person that the anticipated  
results will be achieved and investors are cautioned not to place undue reliance
on such information.                                                            

 Significant financial projections that were provided to Merrill Lynch and
Lazard are as follows:                                                          

                                                        [Enlarge/Download Table]

                    1999        2000         2001         2002         2003         2004         2005    
                  ---------  -----------  -----------  -----------  -----------  -----------  -----------
                                                      (IN THOUSANDS)                                     

                                                                                                         
Sales             $ 967,700  $ 1,016,000  $ 1,066,900  $ 1,120,200  $ 1,176,200  $ 1,235,000  $ 1,296,800
Operating income    164,500      172,700      187,000      201,800      217,500      234,500      246,100
EBITDA              203,300      218,700      242,400      266,700      291,600      311,800      333,200

 The foregoing information is presented in this proxy statement because it
was provided to Merrill Lynch and Lazard in connection with their engagements   
described herein. Knoll does not intend to update or otherwise revise the       
financial projections to reflect circumstances existing after the date the      
projections were prepared or to reflect the occurrence of unanticipated events. 
The financial projections should be read together with the summaries of the     
opinions of Lazard and Merrill Lynch and their respective reports attached as   
Appendices B and D hereto, respectively. See "--Opinion of Lazard" and          
"--Opinion of Merrill Lynch."                                                   

CONFLICTS OF INTEREST                                                           

   In considering the recommendation of the Special Committee and the Board of
Directors with respect to the merger, Knoll stockholders should be aware of     
certain inherent conflicts of interest, including those referred to below, that 
give rise to divided interests in considering the merger. The Special Committee 
and the Board of Directors were aware of these actual and potential conflicts of
interest.                                                                       

The Continuing Stockholders include Warburg and the senior management of
Knoll, including Burton B. Staniar, John H. Lynch, Kathleen G. Bradley, Andrew  
B. Cogan, Douglas J. Purdom, Barbara E. Ellixson, Carl G. Magnusson, Barry L.   
McCabe and Patrick A. Milberger. The Continuing Stockholders (including Warburg,
Pincus & Co., the general partner of Warburg), in the aggregate, currently own  
approximately 60% of the outstanding Knoll common stock. In addition, Jeffrey A.
Harris, Sidney Lapidus, Kewsong Lee and Henry B. Schacht are employees of       
Warburg and directors of Knoll (the "Warburg Directors"). Messrs. Staniar, Lynch
and Cogan are also directors of Knoll (the "Management Directors").             

In addition to their stock ownership, Knoll's directors and executive   
officers held, as of September  , 1999, stock options to purchase an aggregate  
of       shares of common stock at exercise prices ranging from $      to       
$      per share. At the effective time of the merger, all unexercised stock    
options outstanding under Knoll's pre-merger stock option plans will be         
converted into options having the same vesting schedule, exercise price and     
other terms to purchase the same number of shares of common stock of the        
corporation surviving the merger. Similarly, each share of common stock issued  
under Knoll's 1996 or 1997 stock incentive plans (including shares of common    
stock that were issued upon exercise of options granted under such stock        
incentive plans) and each share of common stock held by a member of the         
Management Group (except pursuant to Knoll's 401(k) plan), will remain          
outstanding as common stock of the surviving corporation, as long as such shares
of Knoll common stock have not been transferred by the person to whom Knoll     
issued such shares.                                                             

   Members of the Management Group have agreed to retain at least 50% of their
current equity interest in Knoll in the surviving corporation; they may sell    
their remaining shares (including shares                                        

24

PREM14A
35th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 35th
issued upon the exercise of stock options) in the open market prior to the      
consummation of the merger. Other senior employees who hold restricted stock    
received pursuant to Knoll's stock incentive plans will, by operation of the    
merger, retain such shares as shares of the surviving corporation, subject to   
the same terms and conditions as the existing shares. Warburg, the members of   
management who will own stock in the Surviving Corporation and Knoll expect to  
enter into a stockholders agreement with customary terms, including restrictions
on their ability to dispose of their shares.                                    

Members of the Management Group have exercised their right, under a     
stockholders agreement with Knoll, to require Knoll to register under the       
Securities Act of 1933 an aggregate of       shares of common stock for resale. 
Members of the Management Group expect to sell, prior to the merger, up to 50%  
of their equity interest in Knoll either pursuant to such registration or under 
Rule 144 under the Securities Act.                                              

   Following the merger, Warburg and the Management Group (together with Knoll
employees who may retain shares issued under Knoll's stock incentive plans) will
own, in the aggregate, 100% of the Knoll common stock outstanding immediately   
after the merger. The directors and officers of Knoll at the effective time of  
the merger will be the directors and officers of Knoll, as the surviving        
corporation, from and after the effective time of the merger.                   

    In addition, at the effective time of the merger, Knoll expects to establish
a new stock incentive program. Under this stock incentive program, 2.7 million  
shares of common stock would be made available, either in the form of a grant of
restricted shares of common stock or a grant of stock options to purchase common
stock, in either case, subject to vesting. Members of the Management Group may  
participate in such program. The Continuing Stockholders expect that all        
employee benefit and compensation plans of Knoll following the consummation of  
the merger will be substantially the same as Knoll's present benefit and        
compensation plans.                                                             

Knoll has also agreed, pursuant to the Merger Agreement, that the       
indemnification provisions with respect to officers and directors of Knoll      
contained in the current certificate of incorporation and by-laws of Knoll will 
be carried over into the certificate of incorporation and by-laws of Knoll      
following the merger without amendment, repeal or other modification for a      
period of six years from the effective time of the merger. Subject to certain   
conditions, Knoll has agreed to maintain the current levels of directors' and   
officers' liability insurance for six years from the effective time with respect
to coverage of matters occurring prior to the effective time, to the extent     
available. See "Proposals at the Annual Meeting--Proposal One--The              
Merger--Covenants."                                                             

The opportunity to obtain an equity interest in Knoll following the     
consummation of the merger may have presented the Warburg Directors and the     
Management Directors with actual or potential conflicts of interest in          
connection with the merger. In light of these inherent conflicts of interest,   
the Board of Directors of Knoll appointed the Special Committee comprised solely
of directors who are not employees or affiliates of Warburg, who are not members
of the Management Group and who are not Knoll employees, to evaluate the        
fairness of the merger to the Public Holders. Each member of the Special        
Committee is to receive a fee of $75,000 for his services on the Special        
Committee. See "Proposals at the Annual Meeting--Proposal Two--Election of      
Directors--Executive Officer and Director Compensation--Director Compensation." 

PLANS FOR KNOLL AFTER THE MERGER                                                

 It is expected that, following consummation of the merger, the operations
and business of Knoll will be conducted substantially as they are currently     
conducted. Neither Knoll nor any of the Continuing Stockholders has any present 
plans or proposals that relate to or would result in an extraordinary corporate 
transaction involving Knoll's corporate structure, business or management, such 
as a merger, reorganization, liquidation, relocation of any operations or sale  
or transfer of a material amount of assets. However, Knoll and the Continuing   
Stockholders will continue to evaluate Knoll's business and operations after the
merger from time to time, and may propose or develop new plans and proposals    
which either considers to be in the best interests of Knoll and its             
stockholders.                                                                   

25

PREM14A
36th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 36th
CONDUCT OF THE BUSINESS OF KNOLL IF THE MERGER IS NOT CONSUMMATED               

   Consummation of the merger is subject to several conditions, in addition to
the approval of the merger by the holders of a majority of the common stock.    
These conditions include, among others,                                         

(1) the absence of any legal restraints, proceedings or prohibitions that       
prevent consummation of the merger,                                     

(2) all required governmental consents and approvals shall have been obtained,  

(3) the holders of a majority in principal amount of Knoll's outstanding 10 7/8%
Senior Subordinated Notes due 2006 shall have consented to the merger   
(including the related financing thereof),                              

(4) the Special Committee shall not have withdrawn its recommendation of the    
merger and                                                              

(5) Acquisition Corp. shall have funds available to it at the closing sufficient
to pay the aggregate merger consideration and certain other fees and    
expenses related to the transactions contemplated by the merger and the 
Merger Agreement.                                                       

   The approval of the Special Committee is required for any waiver of Knoll's
rights under the Merger Agreement, any waiver of certain conditions to the      
obligations of Knoll and any amendment or modification of the Merger Agreement  
that adversely affects in any material respect the rights of stockholders under 
the Merger Agreement. As described below under "--Financing and Expenses of the 
Merger," Warburg has obtained a commitment from certain financial institutions  
with respect to the financing of the merger, although this commitment remains   
subject to certain conditions. Accordingly, even if the requisite stockholder   
approval is obtained, there can be no assurance that the merger will be         
consummated.                                                                    

    If the merger is not consummated for any reason, it is expected that Knoll's
business and operations will continue to be conducted by its current management,
under the direction of the Board of Directors, substantially as they are        
currently being conducted. No other transaction is currently being considered by
the Continuing Stockholders or Knoll as an alternative to the merger. If the    
merger is not consummated, Knoll may purchase additional shares of common stock 
on terms more or less favorable to the holders of the shares of common stock    
than the terms of the merger or may offer or sell shares of common stock, from  
time to time, in each case subject to availability at prices deemed acceptable  
to Knoll, pursuant to a merger transaction, tender offer, open market or        
privately negotiated transactions or otherwise.                                 

FINANCING AND EXPENSES OF THE MERGER                                            

   At the closing of the merger, Knoll expects to pay to the Public Holders an
aggregate purchase price of approximately $500 million for the shares of common 
stock, assuming no Public Holders dissent from the merger and perfect their     
appraisal rights provided under the DGCL. In addition, the Continuing           
Stockholders expect to incur approximately $  million in costs and expenses in  
connection with the merger, as set forth in the table below. However, upon      
completion of the merger, such costs and expenses will be assumed by Knoll.     

                                                        [Enlarge/Download Table]

                                                                                   ESTIMATED  
COST OR FEE                                                                         AMOUNT    
-------------------------------------------------------------------------------  -------------
                                                                                              
Financial advisory fees........................................................  $   4,250,000
Bank commitment fees...........................................................      7,750,000
Legal fees.....................................................................      2,500,000
Accounting fees................................................................        175,000
Printing and mailing fees......................................................         70,000
Solicitation expenses..........................................................               
SEC filing fees................................................................        100,543
Other regulatory filing fees...................................................               
Miscellaneous..................................................................               
                                                                                 -------------
    Total......................................................................  $            
                                                                                 -------------
                                                                                 -------------

26

PREM14A
37th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 37th
It is a condition to the consummation of the merger that Acquisition Corp. shall
have funds available to it at the closing sufficient to pay the aggregate merger
consideration and related fees and expenses.                                    

   Warburg, on behalf of Knoll, has entered into a commitment letter with Bank
of America, N.A., The Chase Manhattan Bank and Merrill Lynch & Co. to arrange   
for a credit facility providing for up to $775 million to (1) fund the merger   
and related fees and expenses, (2) refinance up to $107.3 million outstanding   
principal amount of Knoll's Senior Subordinated Notes and all amounts owing     
under Knoll's existing senior credit agreement and (3) provide for working      
capital and ongoing general corporate purposes. The credit facility will consist
of up to a $400 million six-year term loan facility and up to a $375 million    
six-year revolving credit facility, and will bear interest at a LIBOR-based     
rate. The amount to be borrowed under the credit facility will be reduced by the
amount (including any related fees, expenses and premiums), if any, that would  
have been required to retire any Senior Subordinated Notes remaining outstanding
and not defeased as of the closing of the credit facility. At the effective time
of the merger, the indebtedness incurred under the credit facility will become  
the indebtedness of Knoll as the corporation surviving the merger. The          
commitment letter contemplates that the lenders shall have a security interest  
in all of the capital stock of each of Knoll's domestic subsidiaries and 65% of 
the capital stock of each foreign subsidiary of Knoll, as well as all other     
present and future domestic assets and properties of Knoll. Additionally, the   
commitment letter contemplates that the credit facility will be guaranteed by   
all of Knoll's domestic subsidiaries.                                           

 The commitment is subject to the satisfaction of conditions customary for
loans of this type, including the condition that there be no material adverse   
change in (a) the market for syndicated credit facilities which could materially
impair the syndication of the credit facility or (b) the business, operations,  
or financial condition of Knoll. The commitment is further subject to the       
settlement, to the lenders' satisfaction, of the stockholder litigation relating
to the merger. Knoll expects to repay indebtedness incurred under the credit    
facility from operating cash flow.                                              

RIGHTS OF DISSENTING STOCKHOLDERS                                               

Holders of shares of common stock are entitled to appraisal rights under
Section 262 of the DGCL. A holder having a beneficial interest in shares of     
common stock held of record in the name of another person, such as a broker or  
nominee, must act promptly to cause the record holder to follow the steps       
summarized below properly and in a timely manner to perfect whatever appraisal  
rights the beneficial owner may have.                                           

  THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL 
TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX C TO THIS   
PROXY STATEMENT.                                                                

   All references in Section 262 and in this summary to a "stockholder" are to
the record holder of shares of common stock as to which appraisal rights are    
asserted. As used in this proxy statement, "Surviving Corporation" means Knoll, 
Inc., the corporation surviving the merger.                                     

    Holders of shares of common stock who do not wish to accept, pursuant to the
merger, the merger consideration provided for in the Merger Agreement and who   
follow the procedures set forth in Section 262 of the DGCL will be entitled to  
have their shares of common stock appraised by the Delaware Court of Chancery   
and to receive payment in cash of the "fair value" of such shares of common     
stock, exclusive of any element of value arising from the accomplishment or     
expectation of the merger, together with a fair rate of interest, if any, as    
determined by such court.                                                       

Under Section 262 of the DGCL, where a merger is to be submitted for    
approval and adoption at a meeting of stockholders, as in the case of the annual
meeting, the corporation submitting the proposed merger to a vote of its        
stockholders must notify each of its stockholders entitled to appraisal         

27

PREM14A
38th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 38th
rights that such appraisal rights are available. Such notice must be given by   
the corporation to its stockholders entitled to appraisal rights no less than 20
days prior to the meeting at which the merger proposal will be submitted to the 
stockholders for a vote and such notice must include a copy of Section 262 of   
the DGCL. THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE HOLDERS OF SHARES 
OF COMMON STOCK, AND THE APPLICABLE STATUTORY PROVISIONS OF THE DGCL ARE        
ATTACHED TO THE PROXY STATEMENT AS APPENDIX C. Any holder who wishes to exercise
such appraisal rights, or who wishes to preserve his or her right to do so,     
should review the following discussion and Appendix C carefully because failure 
to timely and properly comply with the procedures specified will result in the  
loss of appraisal rights under the DGCL.                                        

   A HOLDER OF SHARES OF COMMON STOCK WISHING TO EXERCISE HIS OR HER APPRAISAL
RIGHTS MUST DELIVER TO THE SECRETARY OF KNOLL, BEFORE THE VOTE ON THE MERGER AND
THE MERGER AGREEMENT AT THE ANNUAL MEETING, A WRITTEN DEMAND FOR APPRAISAL OF   
HIS OR HER SHARES OF COMMON STOCK AND MUST NOT VOTE HIS OR HER SHARES OF STOCK  
IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.       
Because a proxy which does not contain voting instructions will, unless revoked,
be voted for approval and adoption of the merger and the Merger Agreement, a    
holder of shares of common stock who votes by proxy and who wishes to exercise  
his appraisal rights must:                                                      

    - vote against approval and adoption of the merger and the Merger Agreement;
or                                                                  

   - abstain from voting on approval and adoption of the merger and the Merger
Agreement.                                                          

    Neither voting (in person or by proxy) against, abstaining from voting on or
failing to vote on the proposal to approve and adopt the merger and the Merger  
Agreement will constitute a written demand for appraisal within the meaning of  
Section 262 of the DGCL. The written demand for appraisal must be in addition to
and separate from any such proxy or vote. In addition, a holder wishing to      
exercise his or her appraisal rights must continue to hold such shares of common
stock from the date of the demand for appraisal until the effective time of the 
merger.                                                                         

  Only the person who is the holder of record on the date the written demand
for appraisal is made is entitled to assert appraisal rights for the common     
stock registered in that holder's name. A demand for appraisal should be        
executed by or on behalf of the holder of record, fully and correctly, as his or
her name appears on the stock certificate(s). If the shares of common stock are 
owned of record in a fiduciary capacity, such as by a trustee, guardian or      
custodian, execution of the demand should be made in that capacity, and if the  
shares of common stock are owned of record by more than one person, as in a     
joint tenancy and tenancy-in-common, the demand should be executed by or on     
behalf of all joint owners. An authorized agent, including one or more joint    
owners, may execute a demand for appraisal on behalf of a holder of record;     
however, the agent must identify the record owner or owners and expressly       
disclose the fact that, in executing the demand, the agent is agent for such    
owner or owners.                                                                

    A record holder such as a broker who holds shares of common stock as nominee
for several beneficial owners may exercise appraisal rights with respect to the 
shares of common stock held for one or more beneficial owners while not         
exercising such rights with respect to the shares of common stock held for other
beneficial owners; in such case, the written demand should set forth the number 
of shares of common stock as to which appraisal is sought and when no number of 
shares of common stock is expressly mentioned the demand will be presumed to    
cover all shares of common stock held in the name of the record owner. Holders  
who hold their shares of common stock in brokerage accounts or other nominee    
forms and who wish to exercise appraisal rights are urged to consult with their 
brokers to determine the appropriate procedures for the making of a demand for  
appraisal by such a nominee.                                                    

28

PREM14A
39th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 39th
 All written demands for appraisal should be delivered to the Secretary of
Knoll, either in person or by mail (certified mail, return receipt requested,   
being the recommended form of transmittal) addressed to him at: Knoll, Inc.,    
1235 Water Street, East Greenville, PA 18041.                                   

Within ten days after the effective time of the merger, the Surviving   
Corporation must send a notice as to the effectiveness of the merger to each    
former stockholder of Knoll who has made such a written demand for appraisal and
who has not voted in favor of approval and adoption of the merger and the Merger
Agreement. Within 120 days after the effective time, but not thereafter, the    
Surviving Corporation, or any holder who is entitled to appraisal rights under  
Section 262 of the DGCL and has complied with the requirements of that section, 
may file a petition in the Delaware Court of Chancery demanding a determination 
of the fair value of the shares of common stock. The Surviving Corporation is   
under no obligation to and does not presently intend to file a petition in      
respect of the appraisal of the fair value of the shares of common stock.       
Accordingly, it is the obligation of the holders to initiate all necessary      
action to perfect their appraisal rights within the time prescribed in Section  
262 of the DGCL.                                                                

  Within 120 days after the effective time, any holder who has complied with
the requirements under Section 262 of the DGCL for exercise of appraisal rights 
will be entitled, upon written request, to receive from the Surviving           
Corporation a statement setting forth the aggregate number of shares of common  
stock with respect to which demands for appraisal have been received and which  
have not voted in favor of approval and adoption of the merger and the Merger   
Agreement, and the aggregate number of holders of such shares of common stock.  
Such statements must be mailed within ten days after a written request therefor 
has been received by the Surviving Corporation.                                 

 If a petition for appraisal is duly filed by a holder of shares of common
stock and a copy thereof is delivered to the Surviving Corporation, the         
Surviving Corporation will then be obligated within 20 days to provide the      
Delaware Court of Chancery with a duly verified list containing the names and   
addresses of all holders of shares of common stock who have demanded appraisal  
of their shares. After notice to such holders, the Delaware Court of Chancery is
empowered to conduct a hearing upon the petition to determine those holders who 
have complied with Section 262 of the DGCL and who have become entitled to      
appraisal rights under that section. The Delaware Court of Chancery may require 
the holders who have demanded payment for their shares of common stock to submit
their stock certificates to the Register in Chancery for a notation thereon of  
the pendency of the appraisal proceedings; and if any holder fails to comply    
with such direction, the Delaware Court of Chancery may dismiss the proceedings 
as to such holder.                                                              

  After determining the holders entitled to an appraisal, the Delaware Court
of Chancery will appraise the "fair value" of their shares of common stock,     
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon   
the amount determined to be the fair value. Holders considering seeking         
appraisal should be aware that the fair value of their shares of common stock as
determined under Section 262 of the DGCL could be more than, the same as or less
than the consideration they would receive pursuant to the Merger Agreement if   
they did not seek appraisal of their shares of common stock and that investment 
banking opinions as to fairness from a financial point of view are not          
necessarily opinions as to fair value under Section 262 of the DGCL. The        
Delaware Supreme Court has stated that "proof of value by any techniques or     
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal            
proceedings. In addition, Delaware courts have decided that the statutory       
appraisal remedy, depending on factual circumstances, may or may not be a       
dissenter's exclusive remedy. The Court also will determine the amount of       
interest, if any, to be paid upon the amounts to be received by persons whose   
shares of common stock have been appraised. The costs of the action may be      
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court also may order that all or a portion of the                           

29

PREM14A
40th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 40th
expenses incurred by any stockholder in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of     
experts utilized in the appraisal proceeding, be charged pro rata against the   
value of all of the shares of common stock that have effectively pursued        
appraisal.                                                                      

From and after the effective time, a holder who has duly demanded an    
appraisal in compliance with Section 262 of the DGCL will not be entitled to    
vote the shares of common stock subject to the appraisal demand for any purpose 
or be entitled to the payment of dividends or other distributions, if any, on   
those shares (except dividends or other distributions, other than the merger    
consideration, payable to holders of record of shares of common stock as of a   
date prior to the effective time).                                              

If any holder who demands appraisal of his shares of common stock under 
Section 262 of the DGCL fails to perfect, or effectively withdraws or loses, his
right to appraisal as provided in the DGCL, the shares of common stock of such  
stockholder will be converted into the right to receive the merger consideration
in accordance with the Merger Agreement. A holder will fail to perfect, or      
effectively lose or withdraw, his or her right to appraisal if he or she:       

    - was not a record owner of shares of common stock on the date of the demand
   for appraisal or failed to own the shares through the effective time of
the merger;                                                         

 - fails to provide a written demand for appraisal of his or her shares of
common stock before the taking of the vote on the merger;           

    - votes for approval and adoption of the merger and the Merger Agreement (or
submits an executed proxy without voting instructions);             

    - does not file a petition for appraisal in the Court of Chancery within 120
days after the effective time of the merger; or                     

- delivers to Knoll (or, after the effective time, to the Surviving     
    Corporation) a written withdrawal of his or her demand for appraisal and
      an acceptance of the merger, except that any such attempt to withdraw made
more than 60 days after the effective time will require the written 
approval of the Surviving Corporation.                              

FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR 
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.

30

PREM14A
41st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 41st
PROPOSALS AT THE ANNUAL MEETING 

PROPOSAL ONE--THE MERGER                                                        

    On June 21, 1999, Warburg and Knoll entered into the Merger Agreement, which
was amended and restated on July 29, 1999. At the annual meeting, Knoll         
stockholders will be asked to approve the adoption of the Merger Agreement,     
pursuant to which each share of Knoll common stock (other than shares in Knoll's
treasury (which will be canceled), shares as to which appraisal rights have been
perfected under Delaware law, certain shares issued under Knoll's stock         
incentive plans and all shares then owned by the Continuing Stockholders) will  
be automatically converted at the effective time into the right to receive the  
merger consideration of $28.00 in cash. The following includes a description of 
certain provisions of the Merger Agreement and is qualified in its entirety by  
reference to the Merger Agreement, a copy of which is attached hereto as        
Appendix A and is incorporated herein by reference.                             

  THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.                                                       

TERMS OF THE MERGER                                                             

Prior to the consummation of the merger, Warburg will incorporate and   
organize Acquisition Corp. and assign to Acquisition Corp. all of its rights,   
interests and obligations under the Merger Agreement. At the effective time of  
the merger, Acquisition Corp. will be merged with and into Knoll, Acquisition   
Corp. will cease to exist and Knoll will continue as the Surviving Corporation. 
The certificate of incorporation and by-laws of Knoll prior to the consummation 
of the merger will remain the certificate of incorporation and by-laws of the   
Surviving Corporation following the merger. The officers and directors of Knoll 
immediately prior to the effective time will be the officers and directors of   
the Surviving Corporation immediately following the merger.                     

   As of the effective time of the merger, by virtue of the merger and without
any action on the part of the Continuing Stockholders, Acquisition Corp., Knoll 
or the Public Holders,                                                          

- each share of Knoll common stock issued under Knoll's stock incentive 
  plans that has not been transferred by the person to whom Knoll issued
   such shares will remain outstanding as one share of common stock of the
Surviving Corporation;                                              

    - each share of Knoll common stock owned by the Continuing Stockholders will
remain outstanding as one share of common stock of the Surviving    
Corporation;                                                        

- except as described above, each share of Knoll common stock issued and
      outstanding immediately prior to the effective time will be converted into
      and become the right to receive the merger consideration of $28.00 in cash
and will be canceled upon conversion;                               

- each share of common stock that constitutes treasury stock of Knoll   
     immediately prior to the effective time will be canceled and retired; and

- each share of common stock of Acquisition Corp. will be canceled and  
retired.                                                            

   Shares of Knoll common stock outstanding immediately prior to the effective
time held by a Public Holder who has demanded and perfected his or her right to 
appraisal will not be converted. Any such Public Holder will instead be entitled
to such rights as are afforded under the DGCL.                                  

 In addition, if the merger is not consummated prior to November 18, 1999,
the merger consideration of $28.00 per share will be increased at an annual rate
of 6.5% for the period, and only for the period, from November 18, 1999 until   
the earlier of the consummation of the merger or January 17, 2000.              

31

PREM14A
42nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 42nd
EFFECTIVE TIME OF THE MERGER                                                    

The merger will become effective when the certificate of merger is duly 
filed with the Secretary of State of the State of Delaware in accordance with   
the relevant provisions of the DGCL or at such other time as is permissible in  
accordance with the DGCL and as Knoll and Acquisition Corp. will agree and as   
specified in the certificate of merger.                                         

EXCHANGE AND PAYMENT PROCEDURES                                                 

Prior to the effective time of the merger, Knoll will appoint a bank or 
trust company to act as exchange agent for payment of the merger consideration  
and will have deposited with the exchange agent for the benefit of the Public   
Holders the aggregate amount of the merger consideration payable pursuant to the
Merger Agreement. Promptly after the effective time, the exchange agent will    
mail to each Public Holder of record of certificates of Knoll common stock a    
letter of transmittal and instructions for use in effecting the surrender of    
certificates representing such shares of common stock. Upon surrender to the    
exchange agent of a certificate formerly representing shares of Knoll common    
stock and acceptance by the exchange agent, the Public Holder of such           
certificate will be entitled to the merger consideration.                       

  YOU SHOULD NOT DELIVER YOUR COMMON SHARE CERTIFICATES NOW; YOU SHOULD SEND
THEM ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN THE LETTER OF TRANSMITTAL TO BE 
MAILED TO YOU PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER. IN ALL CASES, THE
MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN THE MERGER AGREEMENT AND SUCH LETTERS OF TRANSMITTAL.                  

   Knoll strongly recommends that certificates for common stock and letters of
transmittal be transmitted only by registered United States mail, return receipt
requested, appropriately insured. Holders of common stock whose certificates are
lost will be required to make an affidavit claiming such certificate or         
certificates lost, stolen or destroyed and, if required by Knoll, the posting of
a bond in such amount as Knoll may reasonably require as indemnity against any  
claim that may be made against it with respect to such certificate.             

  Any merger consideration (including any interest and other income received
by the exchange agent) not validly claimed by Knoll stockholders for six months 
after the effective time will be delivered to Knoll upon demand and any holders 
of shares of common stock who have not complied with the terms and conditions   
for the exchange of certificates set forth in the Merger Agreement will         
thereafter look only to the Surviving Corporation, and only as general          
creditors, for the payment of their claim to the merger consideration.          

TRANSFER OF COMMON STOCK                                                        

No transfer of shares of common stock will be made on the stock transfer
books of Knoll after the close of business on the day immediately prior to the  
effective time of the merger. If, on or after the effective time, certificates  
for shares of common stock are presented, they will be canceled and exchanged   
for the right to receive the merger consideration, as provided in the preceding 
section of this proxy statement.                                                

THE PARTIES                                                                     

The parties to the Merger Agreement are Knoll and Warburg. The Merger   
Agreement provides that prior to consummation of the merger, Warburg will       
organize and incorporate Acquisition Corp. and assign to Acquisition Corp. all  
of its rights, interests and obligations under the Merger Agreement.            

Knoll is a global office furnishings manufacturer committed to design   
excellence. Unless the context requires or specifies otherwise, the term "Knoll"
refers to Knoll, Inc., its subsidiaries and                                     

32

PREM14A
43rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 43rd
predecessor entities as a combined entity. Knoll's principal executive offices  
are located at 1235 Water Street, East Greenville, Pennsylvania and its         
telephone number is (215) 679-7991.                                             

    Warburg is a Delaware limited partnership whose principal business is making
venture capital and related investments. Warburg, Pincus & Co., a New York      
general partnership ("WP"), is the general partner of Warburg. The principal    
business of WP is serving as general partner of Warburg and other affiliates. WP
has a 15% interest in the profits of Warburg as the general partner. E.M.       
Warburg, Pincus & Co., LLC, a New York limited liability company ("EMW"),       
manages Warburg. The principal business of EMW is serving as investment manager 
of Warburg and other affiliates. Lionel I. Pincus is the managing partner of WP 
and the managing member of EMW and may be deemed to control both WP and EMW. The
principal office of Warburg, WP and EMW is 466 Lexington Avenue, New York, New  
York 10017, and their telephone number is (212) 878-0600. See Appendix E hereto 
for additional information relating to the general partners of WP.              

The Management Group consists of the following executive officers and   
directors of Knoll, who will also be minority owners of Acquisition Corp.       
following the merger: Burton B. Staniar, John H. Lynch, Andrew B. Cogan,        
Kathleen G. Bradley, Douglas J. Purdom, Carl G. Magnusson, Patrick A. Milberger,
Barbara E. Ellixson and Barry L. McCabe. The principal offices of the members of
the Management Group are located at 1235 Water Street, East Greenville,         
Pennsylvania and their telephone number is (215) 679-7991.                      

   Acquisition Corp. will be incorporated and organized by Warburg pursuant to
the Merger Agreement to implement the merger. Acquisition Corp. will be         
authorized only to conduct business in connection with the completion of the    
merger and will engage in no other operations. Acquisition Corp. will be merged 
into Knoll and will cease to exist. The principal executive offices of          
Acquisition Corp. will be located at Warburg's principal executive offices: c/o 
Warburg, Pincus Ventures, L.P., 466 Lexington Avenue, New York, NY 10017. The   
telephone number of Acquisition Corp. will be (212) 878-0600.                   

REPRESENTATIONS AND WARRANTIES                                                  

The Merger Agreement contains various representations and warranties of 
Knoll to Warburg, including with respect to the following matters:              

    - the due organization and valid existence of Knoll and its subsidiaries and
similar corporate matters;                                          

- the capitalization of Knoll and its subsidiaries;                     

   - the due authorization, execution and delivery of the Merger Agreement and
its binding effect on Knoll;                                        

   - the adoption of the Merger Agreement by unanimous resolution of the Board
of Directors of Knoll;                                              

   - approval by the Special Committee of the terms of the Merger Agreement as
they relate to the Public Holders;                                  

  - determination by the Special Committee that the merger is fair to and in
the best interests of the Public Holders;                           

- recommendation of the Special Committee that the Board of Directors   
approve the Merger Agreement;                                       

- there are no brokers or finders employed by Knoll with respect to the 
merger other than Lazard;                                           

33

PREM14A
44th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 44th
- the completeness and accuracy of Knoll's filings with the SEC and the 
accuracy of its financial statements; and                           

    - the absence of material adverse changes in Knoll's business since December
31, 1998.                                                           

Such representations and warranties are subject, in certain cases, to specified 
exceptions and qualifications.                                                  

    The Merger Agreement also contains representations and warranties of Warburg
to Knoll, including with respect to the following matters:                      

- the due organization and valid existence of Acquisition Corp. at the  
effective time of the merger;                                       

  - the due authorization, execution and delivery of the Merger Agreement by
Warburg and its binding effect upon Warburg;                        

  - the binding effect of the Merger Agreement on Acquisition Corp. upon the
assignment of the Merger Agreement by Warburg to Acquisition Corp.; 

  - there are no brokers or finders employed by Warburg or Acquisition Corp.
with respect to the merger other than Merrill Lynch;                

   - the accuracy of the information provided by Warburg and Acquisition Corp.
for inclusion in this proxy statement;                              

   - the receipt by Warburg of a commitment letter from Bank of America, N.A.,
  The Chase Manhattan Bank and Merrill Lynch & Co. committing to provide
    Acquisition Corp. up to $775 million in financing in connection with the
merger and related transactions; and                                

   - that Warburg does not have any agreement or present intention to sell its
interest in Knoll or any material part of Knoll.                    

Such representations and warranties are subject, in certain cases, to specified 
exceptions and qualifications.                                                  

The representations and warranties of each of the parties to the Merger 
Agreement will expire upon completion of the merger.                            

COVENANTS                                                                       

  Knoll has agreed in the Merger Agreement to seek and solicit the requisite
vote of stockholders at the annual meeting for the adoption and approval of the 
Merger Agreement. Warburg has agreed to vote all shares of common stock owned by
it at the annual meeting in favor of the adoption and approval of the Merger    
Agreement. Each of Warburg and Knoll have agreed to use its reasonable best     
efforts to take all additional actions necessary in order to complete the merger
and related transactions. Warburg further agreed to take all actions necessary  
to cause Acquisition Corp. to perform its obligations under the Merger          
Agreement.                                                                      

Knoll has agreed that the indemnification provisions with respect to    
officers and directors of Knoll contained in the current certificate of         
incorporation and by-laws of Knoll will be carried over into the certificate of 
incorporation and by-laws of Knoll following the merger without amendment,      
repeal or other modification for a period of six years from the effective time  
of the merger. Subject to certain conditions, Knoll has agreed to maintain the  
current levels of directors' and officers' liability insurance for six years    
from the effective time with respect to coverage of matters occurring prior to  
the effective time, to the extent available, and providing coverage equivalent  
to the maximum available coverage under such Knoll policies currently in effect 
(paying up to 200% of the annual premiums currently paid by Knoll).             

34

PREM14A
45th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 45th
Knoll and Warburg have agreed:                                          

 (1) to consult with each other in advance of making any public statements
concerning the merger;                                            

  (2) to give prompt notice of the occurrence or non-occurrence of any event
    that is reasonably likely to cause a representation or warranty in the
      Merger Agreement to be untrue or inaccurate in any material respect; and

(3) to give prompt notice of any failure to comply with any covenant,   
condition or agreement under the Merger Agreement.                

CONDITIONS PRECEDENT                                                            

 The obligations of each of Knoll and Warburg to consummate the merger are
subject to the fulfillment or waiver (if permissible) at or prior to the        
effective time of certain conditions, including the following:                  

 (1) no statute, rule or regulation, shall have been enacted; no executive
      order, decree, ruling or injunction shall have been issued; and no order
     of a court or agency shall be in effect directing that the transactions
contemplated by the Merger Agreement not be consummated;          

 (2) all required consents, waivers and approvals of governmental entities
shall have been obtained;                                         

(3) the merger and the Merger Agreement shall have been adopted by the  
  affirmative vote or written consent of a majority of the outstanding
shares of Knoll common stock;                                     

(4) the holders of a majority in principal amount of Knoll's outstanding
    10 7/8% Senior Subordinated Notes due 2006 shall have consented to the
merger (including the related financing thereof); and             

  (5) the Special Committee shall not have withdrawn its recommendation that

     - the merger is fair to and in the best interest of the Public Holders;
and                                                           

- the Board of Directors approve the Merger Agreement.            

The obligation of Knoll to effect the merger is further subject to the  
fulfillment or waiver (if permissible) at or prior to the effective time of the 
following conditions:                                                           

 (1) the representations and warranties of Warburg in the Merger Agreement
    shall be true and correct in all material respects as of the effective
time; and                                                         

(2) Warburg and Acquisition Corp. shall have performed in all material  
respects their obligations under the Merger Agreement.            

   The obligation of Acquisition Corp. to effect the merger is further subject
to the fulfillment or waiver (if permissible) at or prior to the effective time 
of the following conditions:                                                    

(1) the representations and warranties of Knoll contained in the Merger 
    Agreement shall be true and correct in all material respects as of the
effective time;                                                   

(2) Knoll shall have performed in all material respects its obligations 
under the Merger Agreement;                                       

(3) there shall have been no material adverse change in the business,   
  assets, liabilities, results of operations or financial condition of
Knoll since December 31, 1998, except as set forth in Knoll's SEC 
filings;                                                          

35

PREM14A
46th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 46th
(4) Acquisition Corp. shall have funds available to it at the closing   
    sufficient to pay the merger consideration, pursuant to the Commitment
Letter or any other commitment acceptable to Acquisition; and     

(5) holders of not more than 10% of the issued and outstanding shares of
      Knoll common stock shall have exercised their rights of dissent from the
merger under Section 262 of the DGCL.                             

TERMINATION; AMENDMENTS; WAIVER; APPROVAL OF SPECIAL COMMITTEE NECESSARY        

The Merger Agreement provides that it may be terminated and the merger  
abandoned at any time prior to the effective time, before or after approval and 
adoption by Knoll stockholders at the annual meeting:                           

(1) by mutual written consent of Warburg and Knoll; or                  

(2) by either Warburg or Knoll if:                                      

- the merger shall not have been consummated by December 31, 1999,
         provided that the right to terminate the Merger Agreement in such event
   is not available to any party whose failure to fulfill any of its
      obligations under the Merger Agreement results in the failure of the
merger to occur on or before such date; or                    

      - the Special Committee shall have withdrawn, modified or changed in any
manner adverse to Acquisition Corp. its approval of the Merger
    Agreement or the merger after having concluded in good faith after
        consultation with independent legal counsel that there is a reasonable
    probability that the failure to take such action would result in a
violation of its fiduciary obligations under applicable law.  

   In the event of termination, the Merger Agreement will become null and void
and there will be no liability on the part of Warburg, Knoll or Acquisition     
Corp., except for any liability arising from breach of the Merger Agreement. The
Merger Agreement may be amended by the parties in writing; provided, that, any  
amendment of the Merger Agreement following approval by Knoll's stockholders    
that, in the judgment of the Special Committee, adversely affects in any        
material respect the rights of stockholders under the Merger Agreement shall    
require the prior approval of Knoll's stockholders. All costs and expenses      
incurred by Warburg and Acquisition Corp. in connection with the Merger         
Agreement and the consummation of the transactions contemplated thereby shall   
become the obligations of the Surviving Corporation following the merger.       

  The Merger Agreement provides that the parties thereto may extend the time
for performance or waive compliance of the other party with any of the          
agreements or fulfillment of conditions to its own obligations in whole or in   
part if such waiver or extension is in writing and signed by a duly authorized  
officer.                                                                        

   The Merger Agreement further requires the approval of the Special Committee
for:                                                                            

(1) any amendment or modification of the Merger Agreement that adversely
affects in any material respect the rights of stockholders;       

    (2) any waiver of the conditions to Knoll's obligations to effect the merger
that:                                                             

     - the Special Committee's recommendation shall not have been withdrawn,

   - Warburg's representations shall be true and correct in all material
respects as of the effective time; and                        

  - Warburg and Acquisition Corp. shall have performed in all material
respects their obligations under the Merger Agreement; and    

36

PREM14A
47th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 47th
(3) any waiver of Knoll's rights under the Merger Agreement.            

CERTAIN TAX CONSIDERATIONS                                                      

Receipt by stockholders of the merger consideration is a taxable event. 
Stockholders may recognize a gain or loss measured by the difference between the
amount of cash received by any individual stockholder in the merger and that    
stockholder's tax basis in the shares of common stock exchanged therefor. If a  
stockholder holds shares of common stock as capital assets, the gain or loss may
be capital gain or loss (which will be long term if the shares are held for more
than 12 months).                                                                

This summary does not discuss all of the tax consequences which may be  
relevant to certain types of Public Holders subject to special treatment under  
the federal income tax laws (such as individual retirement accounts and other   
tax-deferred accounts, life insurance companies, tax-exempt organizations,      
dealers in securities and foreign persons). Accordingly, Public Holders should  
consult their own tax advisors with respect to the particular consequences to   
them of the receipt of the merger consideration in the merger, including the    
applicability and effect of any state, local or foreign tax laws to which they  
may be subject and of any legislative or administrative changes in law.         

ACCOUNTING TREATMENT                                                            

The merger and related transactions will be accounted for as a leveraged
recapitalization. The historical accounting basis of Knoll's assets and         
liabilities will be retained subsequent to the transactions.                    

REGULATORY REQUIREMENTS                                                         

Except for the filing of the certificate of merger with the Secretary of
State of the State of Delaware pursuant to the DGCL after the approval and      
adoption of the Merger Agreement and the transactions contemplated thereby,     
compliance with federal and state securities laws, and the expiration or        
termination of the waiting period under the Hart-Scott-Rodino Antitrust         
Improvements Act (which is expected to occur by September   , 1999), neither    
Knoll nor Warburg is aware of any material United States federal or state or    
foreign governmental regulatory requirement necessary to be complied with or    
approval that must be obtained in connection with the merger.                   

LITIGATION REGARDING THE MERGER                                                 

In March 1999, eight class action complaints were filed in the Court of 
Chancery for the State of Delaware, New Castle County, relating to the initial  
merger proposal of the Continuing Stockholders contemplating the acquisition of 
all of the outstanding shares of common stock owned by Public Holders at a price
of $25.00 per share (STARK V. KNOLL, INC., ET AL. No. 17049NC; GUIDO V. WARBURG 
PINCUS & CO., ET AL., No. 17052NC; MAROTTA V. KNOLL, INC., ET AL., No. 17053NC; 
FINKELSTEIN V. KNOLL, INC., ET AL., No. 17055NC; RAUSCH V. KNOLL, INC., ET AL., 
No. 17059NC; HATFIELD V. KNOLL, INC., et al., No. 17068NC; SHERVY V. KNOLL,     
INC., ET AL., No. 17073NC; SIMMS V. KNOLL, INC., ET AL., No. 17076NC). The Stark
complaint was voluntarily dismissed, and the remaining seven complaints were    
consolidated into a single action. The defendants named in the complaints are   
Knoll, Burton B. Staniar, John W. Amerman, Robert J. Dolan, Jeffrey A. Harris,  
Sidney Lapidus, Kewsong Lee, John L. Vogelstein, John H. Lynch, Warburg Pincus &
Co., Warburg Pincus Ventures, L.P. and E.M. Warburg, Pincus & Co., L.L.C. The   
complaints alleged breach of fiduciary duty on the part of the individual       
defendants in connection with the proposed purchase of such shares of common    
stock and sought a preliminary injunction, damages and rescission.              

 Generally, the lawsuits purport to be brought on behalf of the holders of
common stock and allege substantially similar claims of breach of fiduciary     
duty. In general, the plaintiffs allege that the merger consideration is unjust 
and inadequate in that the intrinsic value of shares of common stock is         
allegedly                                                                       

37

PREM14A
48th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 48th
greater than the merger consideration, in view of Knoll's prospects; the merger 
consideration includes an inadequate premium; and the merger consideration is   
designed to cap the market price of the shares of common stock before the       
trading price for the shares of common stock could recover from an alleged      
temporary downturn in the market. The lawsuits also generally seek injunctive   
relief, an injunction of the proposed merger (or, if it is consummated,         
rescission thereof), compensatory and other damages, and an award of attorney's 
fees and expenses.                                                              

On June 21, 1999, Knoll entered into a Memorandum of Understanding with 
counsel to the plaintiffs in such shareholder lawsuits. The Memorandum of       
Understanding provides for the settlement of such lawsuits based on the payment 
of a per share merger consideration of $28.00 and is subject to, among other    
things, completion of definitive documentation relating to the settlement, court
approval and consummation of the merger. Additionally, the Memorandum of        
Understanding provides that the plaintiffs will petition the court for          
certification of a class on a "non-opt-out" basis.                              

38

PREM14A
49th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 49th
PROPOSAL TWO--ELECTION OF DIRECTORS                                             

NOMINATION                                                                      

   The Board of Directors presently consists of nine directors who are elected
to serve until the next annual meeting of stockholders or until their successors
are duly elected and qualified. The Board has designated the nominees listed    
below for election as directors to the Board to serve until the 2000 annual     
meeting or until their successors are duly elected and qualified. If any        
nominess will, prior to the annual meeting, become unavailable for election as a
director, the persons named in the accompanying proxy card will vote for such   
other nominee, if any, in their discretion as may be recommended by the Board of
Directors.                                                                      

  Although Messrs. Amerman and Dolan have been nominated for election to the
Board of Directors, each has indicated his intention to remain on the Board only
until the merger is completed in order to be available to exercise the rights of
the Special Committee pursuant to the Merger Agreement. See "Proposals at the   
Annual Meeting--Proposal One--The Merger--Termination; Amendments; Waiver;      
Approval of Special Committee Necessary."                                       

INFORMATION ABOUT NOMINEES                                                      

The following information has been furnished to Knoll by the respective 
nominees for director:                                                          

                                                        [Enlarge/Download Table]

NAME                                        AGE     POSITION                                                       
------------------------------------------  ---     ---------------------------------------------------------------
                                                                                                                   
Burton B. Staniar.........................      57  Chairman of the Board                                          
John H. Lynch.............................      46  President, Chief Executive Officer and Director                
Andrew B. Cogan...........................      36  Executive Vice President--Marketing and Product Development and
                                                    Director                                                       
John W. Amerman...........................      67  Director                                                       
Robert J. Dolan...........................      51  Director                                                       
Jeffrey A. Harris.........................      43  Director                                                       
Sidney Lapidus............................      61  Director                                                       
Kewsong Lee...............................      33  Director                                                       
Henry B. Schacht..........................      64  Director                                                       

  BURTON B. STANIAR was appointed Chairman of the Board of Knoll in December
1993. Mr. Staniar served as Chief Executive Officer of Knoll from December 1993 
to January 1997. Prior to that time, Mr. Staniar had held a number of           
assignments at Westinghouse Electric Corporation, currently known as CBS        
Corporation ("Westinghouse"), including President of Group W Cable and Chairman 
and Chief Executive Officer of Westinghouse Broadcasting. Prior to joining      
Westinghouse in 1980, he held a number of marketing and general management      
positions at Colgate Palmolive and Church and Dwight Co., Inc. Mr. Staniar is   
also a director of Church and Dwight Co., Inc.                                  

 JOHN H. LYNCH joined Knoll as Vice Chairman of the Board in May 1994. Mr.
Lynch was subsequently elected President of Knoll and in January 1997 was       
elected Chief Executive Officer. From 1990 to 1994, prior to joining Knoll, Mr. 
Lynch was a partner in BGI, a management firm. During that time, Mr. Lynch led  
the restructuring of the Westinghouse Broadcasting television and radio         
stations. From 1988 to 1990, Mr. Lynch was an associate dean at the Harvard     
Business School.                                                                

ANDREW B. COGAN has been a director of Knoll since February 1996. He was
elected to the position of Executive Vice President--Marketing and Product      
Development in August 1998, after serving as Senior Vice President since May    
1994. Mr. Cogan has held several positions in the design and marketing group    
since joining Knoll in 1989.                                                    

39

PREM14A
50th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 50th
  JOHN W. AMERMAN has been a director of Knoll since May 1997. Until October
1997, Mr. Amerman had served as Chairman of the Board, and until January 1997 as
Chief Executive Officer, of Mattel, Inc., positions in which he served for ten  
years. Mr. Amerman also was a director of Vanstar Corporation from 1996 until   
early 1999. Mr. Amerman currently is a director of Unocal Corporation and has   
been a director of the Aegis Group, plc since 1997.                             

  ROBERT J. DOLAN has been a director of Knoll since May 1997. Mr. Dolan has
been a Professor of Business Administration at Harvard University Graduate      
School of Business Administration since 1980. From 1976 to 1980, Mr. Dolan was a
Professor at University of Chicago Graduate School of Business.                 

JEFFREY A. HARRIS, a director of Knoll since February 1996, has been a  
General Partner of WP and a Member and Managing Director of EMW, and its        
predecessors since 1988, where he has been employed since 1983. Mr. Harris is a 
director of Industri-Matematik International Corp., ECsoft Group plc, Spinnaker 
Exploration, Inc. and several privately held companies.                         

   SIDNEY LAPIDUS, a director of Knoll since February 1996, has been a General
Partner of WP and a Member and Managing Director of EMW and its predecessors    
since January 1982, where he has been employed since 1967. Mr. Lapidus is a     
director of Lennar Corporation, Caribiner International, Inc., Grubb & Ellis    
Company, Information Holdings, Inc., Four Media Company, Radio Unica Holding    
Corp. and several privately held companies.                                     

KEWSONG LEE, a director of Knoll since February 1996, has been a General
Partner of WP and a Member and Managing Director of EMW and its predecessors    
since January 1997, where he has been employed since 1992. Mr. Lee is a director
of RenaissanceRe Holdings Ltd., Eagle Family Food Holdings, Inc. and several    
privately held companies.                                                       

   HENRY B. SCHACHT, a director of Knoll since December 2, 1998, has served as
a Director and Senior Advisor of EMW since March 1, 1999. Prior thereto, Mr.    
Schacht served as Chairman of the Board of Lucent Technologies Inc. from 1997 to
February 1998 and as Chief Executive Officer of Lucent from 1996 to October     
1997. Prior thereto, Mr. Schacht served as Chairman (1994-1995) and Chief       
Executive Officer (1973-1994) of Cummins Engine Company, Inc. Mr. Schacht is a  
senior advisor and a director of Lucent and a director of The Chase Manhattan   
Corporation and The Chase Manhattan Bank, N.A., Aluminum Company of America     
(Alcoa), Cummins Engine Company, Inc., Johnson & Johnson Corp. and The New York 
Times Co.                                                                       

RECOMMENDATION AND VOTE                                                         

   Approval of the election of the nominees to the Board of Directors requires
the affirmative vote of the holders of a majority of the shares of common stock 
present, in person or by proxy, and entitled to vote at the annual meeting.     

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.                               

40

PREM14A
51st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 51st
DIRECTORS AND EXECUTIVE OFFICERS OF KNOLL                                       

  The table below sets forth the names, ages and titles of the directors and
executive officers of Knoll.                                                    

                                                        [Enlarge/Download Table]

NAME                                            AGE      POSITION                                                       
------------------------------------------  -----------  ---------------------------------------------------------------
                                                                                                                        
Burton B. Staniar.........................          57   Chairman of the Board                                          
John H. Lynch.............................          46   President, Chief Executive Officer and Director                
Kathleen G. Bradley.......................          49   Executive Vice President--Sales, Distribution and Customer     
                                                         Service                                                        
Andrew B. Cogan...........................          36   Executive Vice President--Marketing and Product Development and
                                                         Director                                                       
Stephen A. Grover.........................          46   Senior Vice President--Operations                              
Carl G. Magnusson.........................          59   Senior Vice President--Design                                  
Douglas J. Purdom.........................          40   Senior Vice President and Chief Financial Officer              
Wolfgang Billstein........................          49   Managing Director--Knoll Europe                                
Barbara E. Ellixson.......................          46   Vice President--Human Resources                                
Barry L. McCabe...........................          52   Vice President, Controller and Treasurer                       
Patrick A. Milberger......................          42   Vice President, General Counsel and Secretary                  
John W. Amerman...........................          67   Director                                                       
Robert J. Dolan...........................          51   Director                                                       
Jeffrey A. Harris.........................          43   Director                                                       
Sidney Lapidus............................          61   Director                                                       
Kewsong Lee...............................          33   Director                                                       
Henry B. Schacht..........................          64   Director                                                       

   KATHLEEN G. BRADLEY was named Executive Vice President--Sales, Distribution
and Customer Service in August 1998, after serving as Senior Vice President     
since 1996 and Divisional Vice President for Knoll's southeast division since   
1988. Prior to that time, Ms. Bradley was regional manager for Knoll's Atlanta  
region, a position to which she was promoted in 1983. She began her career with 
Knoll in 1979.                                                                  

  STEPHEN A. GROVER joined Knoll as Senior Vice President--Operations in May
1999. Mr. Grover spent the last 18 years at General Electric Company, where he  
held a variety of management positions. He most recently served as Global       
Manager of Magnetic Resonance Manufacturing for GE Medical Systems.             

CARL G. MAGNUSSON has held the position of Senior Vice President--Design
since February 1993. A Canadian citizen, Mr. Magnusson has been involved in     
design, product development, quality and communications since joining Knoll in  
1976.                                                                           

   DOUGLAS J. PURDOM joined Knoll as Senior Vice President and Chief Financial
Officer in August 1996. Prior to that time, Mr. Purdom served as Vice President 
and Chief Financial Officer of Magma Copper Company, an Arizona-based copper    
mining company, since 1992, and as Corporate Controller of that company from    
1989 to 1991.                                                                   

    WOLFGANG BILLSTEIN joined Knoll in November 1994 as Managing Director--Knoll
Europe. In addition, since 1991, Mr. Billstein has been owner and Managing      
Director of Peill & Putzler, a German-based manufacturer and distributor of     
glass products. A German citizen, Mr. Billstein previously worked in Europe for 
The Procter & Gamble Company and Benckiser GmbH, a consumer products company.   

41

PREM14A
52nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 52nd
BARBARA E. ELLIXSON was promoted to her current position as Vice        
President--Human Resources in August 1994, after serving as Manager of Human    
Resources for Knoll's East Greenville site. Ms. Ellixson began her career with  
Westinghouse in 1971 and has held a variety of human resources positions in     
several different business units.                                               

    BARRY L. MCCABE joined Knoll in August 1990 as Controller. Mr. McCabe worked
with a number of Westinghouse business units after joining Westinghouse in 1974 
in the Auditing Department.                                                     

  PATRICK A. MILBERGER joined Knoll as Vice President and General Counsel in
April 1994. Prior to joining Knoll, Mr. Milberger served as an Assistant General
Counsel and in a number of other positions in the Westinghouse Law Department,  
which he joined in 1986. Prior to such time, Mr. Milberger was in private       
practice at Buchanan Ingersoll, P.C.                                            

Except for Messrs. Magnusson and Billstein, all directors and executive 
officers of Knoll are citizens of the United States. See above under            
"--Information About Nominees" for information relating to Knoll's directors.   

ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS                             

Knoll's business affairs are managed under the direction of the Board of
Directors. Members of the Board are kept informed through various reports and   
documents sent to them each month, through operating and financial reports      
routinely presented to the Board and committee meetings by the Chief Executive  
Officer and other officers, and through other means. During 1998, the standing  
committees listed below assisted the Board in carrying out its duties. All of   
the directors are non-employee directors except Messrs. Staniar, Lynch and      
Cogan. Directors who are officers of Knoll do not participate in any action of  
the Board relating to any executive compensation plan described in this proxy   
statement.                                                                      

COMMITTEES OF THE BOARD OF DIRECTORS

                                                        [Enlarge/Download Table]

COMPENSATION COMMITTEE                STOCK OPTION COMMITTEE                AUDIT COMMITTEE                     
------------------------------------  ------------------------------------  ------------------------------------
                                                                                                                
John W. Amerman                       John W. Amerman                       John W. Amerman                     
Jeffrey A. Harris                     Robert J. Dolan                       Robert J. Dolan                     
Sidney Lapidus                                                                                                  

  During 1998, the Board met four times, the Compensation Committee met four
times, the Stock Option Committee met two times and the Audit Committee met     
twice. Each of Knoll's incumbent directors attended at least 75% of the total   
number of meetings of the Board and Committees on which he served during the    
period of such director's service on the Board.                                 

  The Compensation Committee has the authority to approve the annual salary,
bonus and other benefits paid to Knoll's senior executives, review and approve  
Knoll's compensation programs and establish, review and approve policies for    
management perquisites.                                                         

    The Stock Option Committee has the authority to grant options and restricted
stock under Knoll's existing stock incentive plans, and to review and approve   
new stock inventive plans and similar programs, as necessary and appropriate.   

  The Audit Committee has general responsibility to review Knoll's financial
controls, as well as the accounting and audit activities of Knoll. It is the    
responsibility of the Audit Committee to review annually the qualifications of  
Knoll's independent certified public accountants, make recommendations to the   
Board as to their selection and review the planning, fees and results of their  
audit. Additionally, the Audit Committee meets periodically with the Knoll      
employees responsible for financial and accounting matters to review Knoll's    
internal procedures and controls, monitors the business practices               

42

PREM14A
53rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 53rd
of Knoll, and reports regularly to the full Board on its activities. The Audit  
Committee currently conducts a quarterly telephonic meeting with management and 
Knoll's independent certified public accountants. The Audit Committee presently 
consists of Messrs. Amerman and Dolan. None of the members of the Audit         
Committee are directly involved in the supervision of Knoll's financial affairs.

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION                                     

COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE   
COMPENSATION                                                          

The Compensation Committee and the Stock Option Committee, as presently 
constituted, were formed on July 22, 1997, shortly after the completion of      
Knoll's initial public offering in May of 1997. At that time, the Board adopted 
a charter for each committee. Prior to July 22, 1997, all grants of common stock
and options to purchase common stock under Knoll's 1996 and 1997 stock incentive
plans were made at the discretion of a Stock Plan Committee of the Board        
comprised of Burton B. Staniar and Jeffrey A. Harris.                           

COMPENSATION PHILOSOPHY.  Knoll's compensation program is designed to   
attract, reward and retain highly qualified executives and to encourage the     
achievement of business objectives and superior corporate performance. The      
program attempts to assure the Board and stockholders that (1) the achievement  
of Knoll's overall goals and objectives can be supported by adopting an         
appropriate executive compensation policy and implementing it through an        
effective total compensation program and (2) the total compensation program and 
practices of Knoll are designed with full consideration of all accounting, tax, 
securities law and other regulatory requirements and are of the highest quality.

  Knoll's executive compensation program consists of three key elements: (1)
base salary, (2) a performance-based annual bonus, and (3) a long-term          
compensation component composed of equity-based awards pursuant to Knoll's stock
incentive plans.                                                                

BASE SALARY.  Base salaries are determined by evaluating the            
responsibilities associated with the position and the individual's overall level
of experience. In addition, the compensation of Messrs. Staniar, Lynch, Cogan   
and Purdom is subject to the terms of the respective employment agreements of   
such persons. Periodic salary adjustments will be determined by giving          
consideration to Knoll's performance, each executive's contribution to that     
performance and the recommendation of the Chief Executive Officer.              

ANNUAL BONUS.  Bonuses are paid annually pursuant to Knoll's Annual     
Incentive Compensation Program, in which the Named Executive Officers are       
eligible to participate, as well as any other employees selected by the Chief   
Executive Officer. The program establishes target bonus awards based on a stated
percentage of the base salary of program participants. The bonuses are paid in  
part based on the achievement of targeted operating results and in part based on
achievement of individual goals established for the participant.                

As to all of the Named Executive Officers except Ms. Bradley, the annual
bonuses are also subject to the terms of the employment agreements and          
consulting agreement referenced above.                                          

    LONG-TERM COMPENSATION.  In order to align stockholder and executive officer
interests, the long-term component of Knoll's executive compensation program    
utilizes equity-based awards whose value is directly related to the value of the
common stock. These equity-based awards have been and will be granted by the    
Stock Option Committee pursuant to Knoll's stock incentive plans. Individuals to
whom equity-based awards are to be granted and the amount of common stock       
related to equity-based awards will be determined solely at the discretion of   
the Stock Option Committee. Because individual equity-based award levels will be
based on a subjective evaluation of each individual's overall past and expected 
future contribution, no specific formula is used to determine such awards for   
any executive.                                                                  

43

PREM14A
54th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 54th
   The Compensation Committee and Stock Option Committee are each committed to
design, administer and develop executive compensation programs intended to      
support the growth and profitability of Knoll.                                  

COMPENSATION OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER.  Except as
described below, the 1998 compensation of Burton B. Staniar, Chairman of Knoll's
Board, and John H. Lynch, President and Chief Executive Officer of Knoll, was   
determined and reviewed by the Compensation Committee in accordance with Knoll's
compensation philosophy, subject to the existing employment agreements of       
Messrs. Staniar and Lynch. In determining the incentive portion of compensation,
the Compensation Committee considers the achievement of agreed-upon objectives, 
the overall financial and operating performance of Knoll and the creation and   
enhancement of shareholder value. The Committee also considers subjective       
factors such as leadership and motivational abilities in measuring the          
performance of Messrs. Staniar and Lynch.                                       

The Compensation Committee believes that Knoll's outstanding 1998       
performance was significantly impacted by Messrs. Staniar and Lynch and by the  
other members of Knoll's management team. Additionally, the Compensation        
Committee believes that the beneficial ownership position of Messrs. Staniar and
Lynch in Knoll cause their interests to be well aligned with the long term      
interests of Knoll and its stockholders.                                        

    TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION.  Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), limits the tax deductibility of  
compensation in excess of $1 million paid to certain members of senior          
management, unless the payments are made under a performance-based plan as      
defined in Section 162(m). Knoll's general policy is to structure its           
compensation programs to preserve the tax deductibility of compensation paid to 
its executive officers and other members of management. All compensation paid   
pursuant to Knoll's stock incentive plans are exempt from the application of    
Section 162(m) and will continue to be exempt therefrom until after the Annual  
Meeting. Thereafter, it is designed to allow for the grant of equity-based      
awards that will be performance-based and therefore exempt from the application 
of Section 162(m). While Knoll currently intends to pursue a strategy of        
maximizing deductibility of senior management compensation, it also believes it 
is important to maintain the flexibility to take actions it considers to be in  
the best interests of Knoll and its stockholders, which are necessarily based on
considerations in addition to Section 162(m).                                   

44

PREM14A
55th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 55th
SUMMARY COMPENSATION TABLE                                              

   The following table sets forth, for the years ended December 31, 1998, 1997
and 1996, individual compensation information for the Chief Executive Officer of
Knoll and each of the four other most highly compensated executive officers of  
Knoll during 1998 (the "Named Executive Officers").                             

                                                        [Enlarge/Download Table]

                                                                                           LONG-TERM                           
                                                                                      COMPENSATION AWARDS                      
                                                                   ANNUAL          -------------------------                   
                                                                COMPENSATION        RESTRICTED   SECURITIES                    
                                                           ----------------------     STOCK      UNDERLYING       ALL OTHER    
NAME AND PRINCIPAL POSITION                       YEAR       SALARY      BONUS      AWARDS(1)    OPTIONS(2)    COMPENSATION(3) 
----------------------------------------------  ---------  ----------  ----------  ------------  -----------  -----------------
                                                                                                                               
Burton B. Staniar.............................       1998  $  399,996  $  900,000            --          --       $   8,019    
  Chairman of the Board                              1997     399,996     750,000            --          --           8,979    
                                                     1996     410,830     600,000  $     30,000          --           5,694    

John H. Lynch.................................       1998     399,996     900,000            --          --           8,019    
  President and Chief Executive Officer              1997     399,996     750,000            --          --           8,979    
                                                     1996     393,330     600,000        30,000          --           6,399    

Andrew B. Cogan...............................       1998     222,502     400,000            --          --              99    
  Executive Vice President--Marketing and            1997     199,992     300,000            --      35,000              99    
  Product Development                                1996     197,930     250,000        12,000          --              99    

Kathleen G. Bradley...........................       1998     222,502     400,000            --          --           8,019    
  Executive Vice President--Sales,                   1997     199,992     300,000            --     188,365           8,424    
  Distribution and Customer Service                  1996     197,050     250,000         6,000          --           4,427    

Douglas J. Purdom.............................       1998     209,167     200,000            --          --           8,019    
  Senior Vice President and Chief Financial          1997     200,004     200,000            --          --           8,979    
  Officer                                            1996      73,591      83,300     1,300,000          --           2,199    

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

(1) On February 29, 1996, Messrs. Staniar, Lynch and Cogan and Ms. Bradley were 
   granted 941,829, 941,829, 376,731 and 188,365 shares of vested and unvested
  restricted stock, respectively. On August 20, 1996, Mr. Purdom was granted
    282,548 shares of unvested restricted stock. Holders of shares of restricted
stock are not entitled to receive dividends until such shares vest and  
   become unrestricted. As of June 30, 1999, 90% of the shares granted to each
  of Messrs. Staniar and Lynch had vested and an additional 10% will vest on
March 1, 2000; 80% of the shares granted to Mr. Cogan had vested and an 
   additional 20% will vest on March 1, 2000; 60% of the shares granted to Ms.
Bradley had vested and an additional 20% will vest on March 1, 2000 and 
2001; and 40% of the shares granted to Mr. Purdom had vested and an     
additional 20% will vest on August 20, 1999, 2000 and 2001. At June 30, 
   1999, Messrs. Staniar, Lynch, Cogan and Purdom and Ms. Bradley held 94,183,
94,183, 75,347, 169,530 and 75,346 shares of unvested restricted stock, 
   respectively, having a value (based on the December 31, 1998 closing price)
of $2,790,171, $2,790,171, $2,232,155, $5,022,326 and $2,232,125,       
respectively.                                                           

(2) Represents the aggregate number of shares of common stock subject to options
granted to the Named Executive Officers.                                

(3) Amounts in this column represent Knoll's matching contributions to the      
   Knoll, Inc. Retirement Savings Plan and the payment by Knoll of premiums in
respect of term life insurance.                                         

45

PREM14A
56th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 56th
STOCK OPTION GRANTS TABLE                                               

  The following table sets forth information concerning individual grants of
options made to Named Executive Officers during 1998.                           

                                                        [Enlarge/Download Table]

                                                                                                         POTENTIAL REALIZABLE
                                                                                                           VALUE AT ASSUMED  
                                                                                                             ANNUAL RATES    
                                              NUMBER OF                                                     OF STOCK PRICE   
                                             SECURITIES      % OF TOTAL                                      APPRECIATION    
                                             UNDERLYING        OPTIONS                                     FOR OPTION TERM   
                                               OPTIONS       GRANTED TO     EXERCISE OR    EXPIRATION    --------------------
NAME                                           GRANTED        EMPLOYEES     BASE PRICE        DATE          5%         10%   
-----------------------------------------  ---------------  -------------  -------------  -------------  ---------  ---------
                                                                                                                             
Burton B. Staniar........................            --              --%     $      --            N/A    $      --  $      --
John H. Lynch............................            --              --             --            N/A           --         --
Andrew B. Cogan..........................            --              --             --            N/A           --         --
Kathleen G. Bradley......................            --              --             --            N/A           --         --
Douglas J. Purdom........................            --              --             --            N/A           --         --

AGGREGATE STOCK OPTION EXERCISE TABLE                                   

    The following table sets forth information regarding the exercise of options
by the Named Executive Officers during 1998. The table also shows the number and
value of unexercised options that were held by the Named Executive Officers on  
December 31, 1998. The values of unexercised options are based on a fair market 
value of $29.625 per share on December 31, 1998.                                

                                                        [Enlarge/Download Table]

                                            NUMBER OF                        NUMBER OF                                   
                                             SHARES                    SECURITIES UNDERLYING    VALUE OF UNEXERCISED     
                                            ACQUIRED        VALUE       UNEXERCISED OPTIONS     IN-THE-MONEY OPTIONS     
NAME                                       ON EXERCISE    REALIZED    EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------------------------------------  -------------  -----------  -----------------------  -----------------------   
                                                                                                                         
Burton B. Staniar.......................          N/A           N/A           -0-/-0-           $       -0-/-0-          
John H. Lynch...........................          N/A           N/A           -0-/-0-                   -0-/-0-          
Andrew B. Cogan.........................          N/A           N/A         7,000/28,000              2,250/9,000        
Kathleen G. Bradley.....................          N/A           N/A        37,673/150,692           515,932/2,063,727    
Douglas J. Purdom.......................          N/A           N/A           -0-/-0-                   -0-/-0-          

PENSION PLANS                                                           

Retirement benefits are provided to employees through two pension plans.
Prior to the purchase of Knoll in February 1996 from Westinghouse, benefits were
provided under The Knoll Group Pension Plan, which was retained by Westinghouse 
(the "Westinghouse Pension Plan"). Effective March 1, 1996, Knoll established   
the Knoll Pension Plan (the "Knoll Pension Plan"). The Westinghouse Pension Plan
provides eligible employees with retirement benefits based on a career average  
compensation formula. The formula for computing normal retirement benefits under
this plan is 1.45% of career compensation divided by twelve. Once a participant 
accumulates five years of vesting service, he or she can take early retirement  
anytime after reaching age 55. The accrued normal retirement benefit is reduced 
6% per year prior to normal retirement age. The minimum benefit earned for any  
year of participation in the plan is $300 ($25 per month), prorated for the     
partial years worked during the first and last years of employment. The         
estimated annual benefits payable upon normal retirement under the Westinghouse 
Pension Plan for each of the Named Executive Officers is as follows: Mr. Staniar
($0); Mr. Lynch ($4,712); Ms. Bradley ($24,648); Mr. Cogan ($16,500); and Mr.   
Purdom ($0). Mr. Purdom did not participate in the Westinghouse Pension Plan.   

 Effective January 1, 1998, the career average compensation formula in the
Knoll Pension Plan was increased from 1.45% to 1.55% of career compensation.    
This amendment was made retroactive to March 1, 1996. The terms of the Knoll    
Pension Plan are otherwise the same as those of the                             

46

PREM14A
57th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 57th
Westinghouse Pension Plan. As of December 31, 1998, the estimated annual        
benefits payable upon normal retirement under the Knoll Pension Plan (with the  
amended formula) for each of the Named Executive Officers is as follows: Mr.    
Staniar ($6,898); Mr. Lynch ($6,898); Ms. Bradley ($6,898); Mr. Cogan ($6,898); 
and Mr. Purdom ($6,101).                                                        

    Through the first two months of fiscal year 1996, Messrs. Staniar, Lynch and
Cogan and Ms. Bradley also participated in the Westinghouse Executive Pension   
Program (the "Westinghouse Excess Plan"), which provides for benefits not       
payable by the Westinghouse Pension Plan because of limitations imposed by the  
Internal Revenue Code of 1986, as amended (the "Code"). The benefit formula for 
this plan is average total compensation and years of eligibility service        
multiplied by 1.47% minus amounts payable under the Westinghouse Pension Plan.  
The estimated annual benefits payable under this plan upon normal retirement for
each of the Named Executive Officers is as follows: Mr. Staniar ($263,000); Mr. 
Lynch ($13,972); Ms. Bradley ($5,820); Mr. Cogan ($14,089); and Mr. Purdom ($0).
Mr. Purdom did not participate in the Westinghouse Excess Plan.                 

Remuneration covered by the Westinghouse Pension Plan, the Knoll Pension
Plan and the Westinghouse Excess Plan primarily includes salary and bonus, as   
set forth in the Summary Compensation Table. Under the Westinghouse Pension     
Plan, the Knoll Pension Plan and the Westinghouse Excess Plan, Messrs. Staniar, 
Lynch, Cogan and Purdom and Ms. Bradley have the following years of credited    
service, as of December 31, 1998: 0.00/2.83/15.44, 1.75/2.83/1.75,              
7.14/2.83/5.498, 0.00/2.36/0.00 and 16.64/2.83/5.498 years, respectively.       

DIRECTOR COMPENSATION                                                   

Directors who are not employees or officers of Knoll are paid a fee of  
$1,000 for each board meeting attended and are reimbursed for certain expenses  
in connection with attendance at board and committee meetings. Other than with  
respect to reimbursement of expenses, directors who are employees or officers of
Knoll or Warburg do not receive additional compensation for services as a       
director.                                                                       

 Knoll's Board of Directors appointed the Special Committee, consisting of
Messrs. Amerman and Dolan, to determine the advisability and fairness to Knoll's
stockholders of the proposed merger. The Board of Directors also determined to  
pay to the members of the Special Committee, in lieu of the standard fee paid to
directors for serving on a committee of the Board of Directors, a one-time fee  
of $75,000 for serving on the Special Committee. The Board of Directors also    
determined to pay the fees and expenses of the Special Committee's financial and
legal advisors, and to reimburse the members of the Special Committee for all of
their out-of pocket travel and other expenses incurred in connection with each  
member's service on the Special Committee. The Board of Directors also          
determined that Knoll will, in consideration of the service of the members of   
the Special Committee thereon, indemnify and hold harmless each member of the   
Special Committee against any and all liabilities and expenses (including       
without limitation reasonable legal fees and expenses) arising in connection    
with such service, to the fullest extent permitted by Knoll's certificate of    
incorporation and bylaws, as currently in effect.                               

EMPLOYMENT AGREEMENTS                                                   

    Knoll has entered into employment agreements with Burton B. Staniar, Knoll's
Chairman of the Board, John H. Lynch, Knoll's President and Chief Executive     
Officer, and Andrew B. Cogan, Knoll's Executive Vice President--Marketing and   
Product Development, for terms which expired on March 1, 1999 and were each     
renewed pursuant to automatic one-year extensions. Such employment agreements   
will continue to renew automatically each March 1 unless either party gives 60  
days notice not to renew. The agreements with Messrs. Staniar and Lynch provide 
for a base salary of $400,000, with a service bonus of 25% of base salary at the
end of each calendar year, and a target annual bonus of                         

47

PREM14A
58th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 58th
125% of base salary based on the attainment of targets set by the Board of      
Directors. The agreement with Mr. Cogan provides for a base salary of $250,000  
and a target annual bonus of up to 100% of base salary based on the attainment  
of goals and objectives set by the Board of Directors. The agreements may be    
terminated at any time by Knoll, but if so terminated without "cause," or if    
Knoll fails to renew the agreements, Knoll must pay the employee 125% of one    
year's base salary (100% of base salary in the case of Mr. Cogan). The          
agreements also contain non-compete, non-solicitation (during the term of the   
agreement and for one year thereafter) and confidentiality provisions.          

In addition, Knoll has entered into a Letter Agreement, dated August 13,
1996, with Douglas J. Purdom. This agreement sets forth the initial starting    
salary, target bonus and stock grants to Mr. Purdom. Mr. Purdom's agreement     
provides that upon a "change of control" of Knoll during the term of the        
agreement, following which Mr. Purdom is terminated for reasons unrelated to his
performance, Mr. Purdom will receive one year of base salary as severance in    
satisfaction of any claims he may have against Knoll. For purposes of Mr.       
Purdom's agreement, "change of control" means the sale of all or substantially  
all of the stock or assets of Knoll to a party unrelated with Warburg and will  
not mean the public offering of the stock of Knoll or any related entity.       

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION             

During the year ended December 31, 1998, the compensation of Messrs.    
Staniar, Lynch, Cogan and Purdom was determined pursuant to employment          
agreements between such officers and Knoll. See "--Employment Agreements."      
Except as otherwise described herein, the 1998 compensation of each of Messrs.  
Staniar, Lynch, Cogan, Purdom and Ms. Bradley was determined by the Compensation
Committee, comprised of Messrs. Amerman, Harris and Lapidus. The Compensation   
Committee and the Stock Option Committee, which is comprised of Messrs. Amerman 
and Dolan, were formed on July 22, 1997, shortly after the completion of Knoll's
initial public offering in May of 1997. At that time, the Board adopted a       
charter for each committee. Prior to July 22, 1997, all grants of common stock  
and options under Knoll's 1996 and 1997 stock incentive plans were made at the  
discretion of a Stock Plan Committee of the Board of Directors comprised of     
Burton B. Staniar and Jeffrey A. Harris. Except for Messrs. Staniar, Lynch and  
Cogan, no member of the Board of Directors is or has been an officer or employee
of Knoll. During the year ended December 31, 1998, no executive officer of Knoll
served on any board of directors or compensation committee of any entity (other 
than Knoll) with which any member of the Board of Directors is affiliated.      

48

PREM14A
59th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 59th
PERFORMANCE GRAPH                                                       

 The following graph compares the cumulative return on the common stock to
such return for the Standard & Poor's ("S&P") 500 Composite Stock Price Index   
and an industry peer group (the "Peer Group") for the period commencing with the
effective date of Knoll's initial public offering on May 9, 1997 (the "Initial  
Public Offering") and ending on December 31, 1998, assuming (i) $100 was        
invested on May 9, 1997 (the effective date of the Initial Public Offering for  
which the initial price to the public was $17.00 per share of common stock) and 
(ii) reinvestment of dividends. The Peer Group consists of Herman Miller, Inc.  
("Herman Miller"), HON INDUSTRIES Inc. ("HON") and Steelcase Inc. ("Steelcase"),
since the initial public offering of Steelcase on February 17, 1998. Each of    
these companies is engaged in the manufacture of office furniture and believed  
by Knoll to have similar industry characteristics as Knoll and to provide       
services similar to those provided by Knoll. Prior to the initial public        
offering of Steelcase on February 17, 1998, the Peer Group consisted only of    
Herman Miller and HON (the "Old Peer Group"). The graph below represents the    
cumulative stockholder return as measured by the last sale price at the end of  
the period from May 9, 1997 through December 31, 1998. As depicted in the graph 
below, during this period, the cumulative total return (1) for the common stock 
was 74.3%, (2) for the S&P 500 Composite Stock Price Index was 53.0%, (3) for   
the Peer Group Index was -5.0% and (4) for the "Old" Peer Group was 20.7%.      

                                                        [Enlarge/Download Table]

                                                                  TOTAL RETURN           
                                                       ----------------------------------
                        ISSUE                            5/9/97     12/31/97    12/31/98 
-----------------------------------------------------  ----------  ----------  ----------
                                                                                         
Knoll................................................    $100.000    $188.971    $174.265
S&P 500..............................................    $100.000    $118.997    $153.003
Herman Miller and HON................................    $100.000    $135.301    $120.744
Herman Miller, HON and Steelcase.....................    $100.000    $135.301     $95.017

49

PREM14A
60th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 60th
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                  

   The following table sets forth certain information regarding the beneficial
ownership of the common stock, as of June 25, 1999, by (1) each person known by 
Knoll to own beneficially more than 5% of the outstanding common stock, (2) each
of Knoll's directors, (3) each of the Named Executive Officers of Knoll, and (4)
all directors and executive officers of Knoll, as a group (17 persons). Except  
as set forth in the table, the business address of each person is 1235 Water    
Street, East Greenville, PA 18041. The information set forth in the table and   
the notes thereto is based solely upon information provided to Knoll directly by
such stockholders. As described in the notes to the table, voting and/or        
dispositive power with respect to certain common stock is shared by the named   
individuals or entities. In these cases, such shares are shown as beneficially  
owned by each of those sharing voting and/or dispositive power.                 

                                                        [Enlarge/Download Table]

                                                                                     NUMBER OF SHARES                
BENEFICIAL OWNER (1)                                                                 COMMON STOCK (2)    PERCENTAGE  
-----------------------------------------------------------------------------------  -----------------  -------------
                                                                                                                     
Warburg, Pincus & Co. (3)..........................................................       20,981,956           53.0% 
  466 Lexington Avenue                                                                                               
  New York, New York 10017                                                                                           
Burton B. Staniar (4)..............................................................        1,093,744            2.8  
John H. Lynch......................................................................          720,896            1.8  
Kathleen G. Bradley................................................................          200,919              *  
Andrew B. Cogan....................................................................          307,584              *  
Douglas J. Purdom..................................................................          220,491              *  
John W. Amerman (5)................................................................           15,000              *  
Robert J. Dolan (5)................................................................           15,000              *  
Jeffrey A. Harris (6)..............................................................       20,995,731           53.1  
Sidney Lapidus (6).................................................................       21,010,956           53.1  
Kewsong Lee (6)....................................................................       20,984,856           53.0  
Henry B. Schacht (7)...............................................................            5,000              *  
All directors and executive officers as a group (17 persons).......................       23,911,326           60.0  

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

*   Less than 1%.                                                               

(1) Percentages are calculated pursuant to Rule 13d-3 under the Exchange Act.   
Percentage calculations assume, for each person and group, that all     
   restricted shares which vest within 60 days following June 25, 1999 and all
shares which may be acquired by such person or group pursuant to options
  currently exercisable or which become exercisable within 60 days following
    June 25, 1999 are outstanding for the purpose of computing the percentage of
common stock owned by such person or group. However, those unvested and 
unissued shares of common stock described above are not deemed to be    
outstanding for calculating the percentage of common stock owned by any 
   other person. Except as otherwise indicated, the persons in this table have
   sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to community property laws 
  where applicable and subject to the information contained in the footnotes
to this                                                                 
 table. The number of shares outstanding for these purposes as of June 25,
1999 consists of 39,571,660 shares of common stock (excluding 1,073,703 
restricted shares which have not yet vested).                           

(2) Excludes 94,183, 94,183, 75,347, 113,021, 75,346 and 565,103 restricted     
shares of common stock for Messrs. Staniar, Lynch, Cogan and Purdom, Ms.
  Bradley and all directors and executive officers as a group, respectively,
  which will not vest within 60 days, as well as options to purchase 10,000,
  28,000, 10,000, 20,000, 113,019 and 539,058 shares of common stock held by
    Messrs. Amerman, Cogan, Dolan, Schacht and Ms. Bradley and all directors and
executive officers as a group, respectively, which have not yet vested. 

(3) Warburg directly owns 20,709,922 shares of common stock, and WP directly    
 owns an additional 272,034 shares. The sole general partner of Warburg is
    WP. EMW manages Warburg. Additionally, as of June 25, 1999, WP may be deemed
to beneficially own 674,304 shares of common stock held by its asset    
    management affiliate, Warburg Pincus Asset Management, Inc., which WP may be
deemed to control. WP disclaims beneficial ownership of such shares, for
purposes of the Exchange Act or otherwise. The members of EMW are       
substantially the same as the partners of WP. Lionel I. Pincus is the   
  managing partner of WP and the managing member of EMW and may be deemed to
   control both WP and EMW. WP has a 15% interest in the profits of Warburg as
the general partner. Jeffrey A. Harris, Sidney Lapidus and Kewsong Lee, 
 directors of Knoll, are Managing Directors and members of EMW and general
 partners of WP. As such, Messrs. Harris, Lapidus and Lee may be deemed to
   have an indirect pecuniary interest (within the meaning of Rule 16a-1 under
the                                                                     

50

PREM14A
61st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 61st
  Exchange Act) in an indeterminate portion of the shares beneficially owned
    by Warburg. See Note 6 below. Additionally, Mr. Schacht is a Director of and
Senior Advisor to EMW.                                                  

(4) Excludes 62,500 shares owned by The Burton Foundation, of which Mr. Staniar 
is a Trustee. Mr. Staniar disclaims beneficial ownership of such shares 
owned by The Burton Foundation.                                         

(5) Upon consummation of the Initial Public Offering in May 1997, Knoll granted 
each of Messrs. Amerman and Dolan options to purchase 25,000 shares of  
  common stock. Twenty percent of these options vested upon grant. The terms
of the grant provide for the remaining options to vest in four equal    
installments on the succeeding four anniversaries of the grant date.    

(6) 20,709,922 and 272,034 of the shares indicated as owned by Messrs. Harris,  
   Lapidus and Lee are owned directly by Warburg and WP, respectively, and are
included because of the affiliation of such persons with Warburg and WP.
Messrs. Harris, Lapidus and Lee disclaim "beneficial ownership" of these
shares within the meaning of Rule 13d-3 under the Exchange Act. Messrs. 
Harris, Lapidus and Lee directly own of record 13,775, 29,000 and 2,900 
shares of common stock, respectively. See Note 3 above.                 

(7) Upon his appointment to the Board in December 2, 1998, Knoll granted Mr.    
    Schacht options to purchase 25,000 shares of common stock. Twenty percent of
these options vested upon grant. The terms of the grant provide for the 
   remaining options to vest in four equal installments on the succeeding four
anniversaries of the grant date.                                        

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE                         

 Under the Exchange Act, Knoll's directors and executive officers, and any
persons holding more than 10% of the outstanding shares of common stock are     
required to report their initial ownership of common stock and any subsequent   
changes in that ownership to the SEC. Specific due dates for these reports have 
been established by the SEC, and Knoll is required to disclose any failure by   
such persons to file these reports in a timely manner during the 1998 fiscal    
year. Based solely upon Knoll's review of copies of such reports furnished to   
it, Knoll believes that during the 1998 fiscal year its executive officers and  
directors and the holders of more than 10% of the outstanding shares of common  
stock complied with all reporting requirements of Section 16(a) under the       
Exchange Act.                                                                   

CERTAIN TRANSACTIONS IN THE SHARES OF COMMON STOCK                              

   There were no transactions in the shares of common stock that were effected
during the past 60 days by Knoll or Warburg, or any of their respective         
subsidiaries, directors, executive officers or controlling persons.             

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                  

STOCKHOLDERS AGREEMENT AND VOTING AGREEMENT                             

   Warburg, NationsBanc Investment Corp. ("NationsBanc") and 12 senior members
of management (each a "Holder" and collectively, the "Holders") and Knoll are   
parties to a Stockholders Agreement (the "Stockholders Agreement"), dated as of 
February 29, 1996, which governs certain matters related to corporate governance
and registration of shares of common stock and preferred stock ("Registrable    
Securities") held by such Holders (other than shares acquired pursuant to       
Knoll's stock incentive plans).                                                 

    Pursuant to the Stockholders Agreement, Warburg is entitled to request on up
to two occasions that Knoll file a registration statement under the Securities  
Act covering the sale of at least $25 million of shares of common stock, subject
to certain conditions. If officers or directors of Knoll holding other          
securities of Knoll request inclusion of their securities in any such           
registration, or if holders of securities of Knoll other than Registrable       
Securities who are entitled, by contract with Knoll or otherwise, to have       
securities included in such a registration (the "Other Stockholders"), request  
such inclusion, the Holders will offer to include the securities of such        
officers, directors and Other Stockholders in any underwriting involved in such 
registration, provided, among other conditions, that the underwriter            
representative of any such offering has the right, subject to certain           
conditions, to limit the number of Registrable Securities included in the       
registration. Knoll may defer the registration for 120 days if it believes that 
it would be seriously detrimental to Knoll for such registration statement to be
filed.                                                                          

51

PREM14A
62nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 62nd
The Stockholders Agreement further provides that, if Knoll proposes to  
register any of its securities (other than registrations related solely to      
employee benefit plans or pursuant to Rule 145 or on a form which does not      
permit secondary sales or does not include substantially the same information as
would be required to be included in a registration statement covering the sale  
of Registrable Securities), either for its own account or for the account of    
other security holders, holders of Registrable Securities may require Knoll to  
include all or a portion of their Registrable Securities in the registration and
in any underwriting involved therein, provided, among other conditions, that the
underwriter representative of any such offering has the right, subject to       
certain conditions, to limit the number of Registrable Securities included in   
the registration. In addition, after Knoll becomes qualified to use Form S-3,   
the holders of Registrable Securities will have the right to request an         
unlimited number of registrations on Form S-3 to register at least $5 million of
such shares, subject to certain conditions, provided that Knoll will not be     
required to effect such a registration within 180 days of the effective date of 
the most recent registration pursuant to this provision.                        

  In general, all fees, costs and expenses of such registrations (other than
underwriting discounts and selling commissions applicable to sales of the       
Registrable Securities) and all fees and disbursements of counsel for the       
Holders will be borne by Knoll.                                                 

   The Stockholders Agreement provides that the original Board of Directors of
Knoll was to be comprised of Messrs. Staniar, Lynch, Lapidus, Harris, Lee and   
John L. Vogelstein, an officer of EMW. Pursuant to the Stockholders Agreement,  
Warburg, NationsBanc and the other stockholders who are a party thereto (who    
hold in the aggregate a majority of the outstanding shares of common stock) have
agreed to vote their shares of common stock for four directors nominated by     
Warburg if Warburg owns 50% or more of Knoll's outstanding shares of common     
stock, three directors if it owns 25% or more, two directors if it owns 15% or  
more and one director if it owns 5% or more.                                    

 Warburg, WP and Knoll entered into a Voting Agreement dated September 11,
1998 pursuant to which Warburg and WP agreed that if, as the result of share    
repurchases by Knoll, their aggregate holdings of voting common stock exceed    
49.9% of the then outstanding voting common stock of Knoll, then Warburg and WP 
will not cast a vote on any proposal as to which a vote is taken in excess of   
49.9% of the total number of votes that may be cast on such proposal.           

ISSUANCE OF RESTRICTED SHARES OF COMMON STOCK                           

In connection with the issuance of 4,144,030 restricted shares of common
stock pursuant to Knoll's 1996 stock incentive plan established in connection   
with the acquisition of Knoll from Westinghouse, Warburg and Knoll also entered 
into separate Stockholders Agreements with all of Knoll's executive officers and
other members of Knoll management. Pursuant to these agreements, persons deemed 
to be "insiders" within the meaning of Section 16 of the Exchange Act have      
agreed not to transfer their shares except (1) to members of their immediate    
families and other related or controlled entities, (2) to Warburg or an         
affiliate thereof or (3) to others upon five business days prior written notice 
to the Board of Directors. The restrictions on transfer will terminate when     
Warburg owns less than 10% of the outstanding shares of common stock. In        
addition, pursuant to these agreements, Knoll agreed that, if Knoll determined  
to register any shares of common stock for its own account or for the account of
security holders, Knoll would include in such registration certain vested shares
of common stock received by management pursuant to the 1996 stock incentive     
plan, subject to certain limited exceptions. In addition, management may request
unlimited registrations of at least $5,000,000 of securities on Form S-3,       
provided that Knoll is not required to effect a registration pursuant to this   
provision within 180 days of the effective date of the most recent registration 
pursuant to this provision.                                                     

Pursuant to the 1996 stock incentive plan, Knoll also entered into      
Restricted Share Agreements with each recipient of restricted shares of common  
stock, including each of Knoll's executive officers. Pursuant to these          
agreements, Mr. Staniar received 941,829 restricted shares, Mr. Lynch received  
941,829 restricted shares, Mr. Cogan received 376,731 restricted shares, Ms.    
Bradley received 188,365 restricted shares and Mr. Purdom received 282,548      
restricted shares. The agreements for each recipient                            

52

PREM14A
63rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 63rd
other than Mr. Purdom were dated February 29, 1996, and Mr. Purdom's agreement  
was dated August 20, 1996. With respect to Messrs. Staniar and Lynch, 90% of the
shares granted have vested and the remaining unvested shares will vest on March 
1, 2000. With respect to Mr. Cogan, 80% of the shares granted have vested and   
the remaining unvested shares will vest on March 1, 2000. With respect to Ms.   
Bradley, 60% of the shares granted have vested and the remaining unvested shares
will vest at the rate of 20% on each of March 1, 2000 and 2001. With respect to 
Mr. Purdom, 40% of the shares granted have vested and the remaining unvested    
shares will vest at the rate of 20% on each of August 20, 1999, 2000 and 2001.  
The agreements provide that upon the voluntary termination of employment for    
reasons other than death, disability or retirement at age 65, or (except in the 
case of Messrs. Staniar and Lynch) if the grantee's employment was terminated   
without cause, the nonvested restricted shares are to be immediately forfeited  
to Knoll. For all of such officers other than Messrs. Staniar, Lynch and Cogan, 
upon termination of the employment of such officers with cause, the agreements  
provide that Knoll may repurchase the shares of common stock at $0.10 per share.

OTHER                                                                   

   During the year ended December 31, 1998, Knoll paid $274,237.67 to Emanuela
Frattini Magnusson for design services and product royalties, the bulk of which 
was payable pursuant to the terms of a July 1993 Design Development Agreement   
between Emanuela Frattini and Knoll pertaining to Knoll's                       
Propeller-Registered Trademark- product line. Emanuela Frattini Magnusson is the
wife of Carl G. Magnusson, Knoll's Senior Vice President--Design.               

    In connection with the Initial Public Offering and pursuant to an agreement,
dated as of April 14, 1997, among Knoll, Warburg, NationsBanc, N.A.             
("NationsBanc") and certain members of Knoll management, upon consummation of   
the Initial Public Offering 800,000 shares of Knoll's Series A 12% Participating
Convertible Preferred Stock were redeemed for $80.0 million and 11,749,361      
shares of common stock, and the remaining 802,998 shares of Series A Preferred  
Stock were converted into 15,691,558 shares of common stock. Further pursuant to
such arrangement, (1) Warburg received $75.9 million and 25,024,481 shares of   
common stock, (2) NationsBanc received $4.1 million and 1,361,877 shares of     
common stock, (3) Messrs. Staniar, Lynch, Billstein, Cogan, Purdom, McCabe and  
Milberger received 400,736, 400,736, 6,249, 78,116, 78,116, 9,374 and 18,748    
shares of common stock, respectively, and (4) Mmes. Bradley and Ellixson        
received 12,499 and 9,374 shares of common stock, respectively.                 

PROPOSAL THREE--RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS         
INDEPENDENT AUDITORS                                                        

Upon recommendation of the Audit Committee, the Board of Directors has  
proposed that the stockholders ratify the appointment of the firm of Ernst &    
Young LLP to serve as the independent auditors of Knoll for the 1999 fiscal year
until the 2000 annual meeting. Ernst & Young LLP has served as Knoll's          
independent auditors since 1996. It is expected that representatives of Ernst & 
Young LLP will be present at the annual meeting, both to respond to appropriate 
questions of stockholders of Knoll and to make a statement if they so desire.   

RECOMMENDATION AND VOTE                                                         

   Assuming the presence of a quorum, the affirmative vote of the holders of a
majority of the shares of common stock present, in person or by proxy, at the   
annual meeting and entitled to vote is necessary for the ratification of the    
appointment by the Board of Directors of Ernst & Young LLP for the 1999 fiscal  
year.                                                                           

    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR KNOLL FOR THE 1999 FISCAL YEAR.   

53

PREM14A
64th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 64th
THE COMPANY 

Knoll is engaged in the design, manufacture and distribution of office  
furniture products and accessories, focusing on the middle to high-end of the   
contract furniture market. Knoll's principal executive offices are located at   
1235 Water Street, East Greenville, Pennsylvania 18041, and its telephone number
is (215) 679-7991.                                                              

PRODUCTS--Knoll offers a broad range of office furniture products and   
accessories that support Knoll's strategy of being a one-stop source for quality
office furniture. Knoll's five basic product categories offered in North America
are as follows: (1) office systems, (2) seating, (3) storage solutions and      
filing cabinets, (4) desks and casegoods and (5) tables. Knoll also offers      
specialty products that are sold under the KNOLLSTUDIO, KNOLLEXTRA,             
KNOLLTEXTILES and SPINNEYBECK names. KNOLLSTUDIO features Knoll's signature     
design classics, including high image side chairs, sofas, desks and tables for  
both office and home use, while KNOLLEXTRA, KNOLLTEXTILES and SPINNEYBECK       
feature products that complement Knoll's office system and seating product      
categories.                                                                     

The following is a description of Knoll's major product categories and  
lines:                                                                          

OFFICE SYSTEMS--Knoll offers a complete line of office system products, 
comprised mainly of the REFF, CURRENTS, MORRISON, EQUITY and DIVIDENDS product  
lines, in order to meet the needs of a variety of businesses. Office systems may
be used for teamwork settings, private offices and open floor plans and are     
comprised of adjustable partitions, work surfaces, storage cabinets and         
electrical and lighting systems that can be moved, re-configured and re-used    
within the office. Office systems, therefore, offer a cost effective and        
flexible alternative to traditional drywall office construction. Knoll has      
focused on this area of the office furniture industry because it is the largest 
category, typically provides attractive gross margins and often leads to repeat 
and add-on sales of additional office systems, complementary furniture and      
furniture accessories. Office systems accounted for approximately 68.4% of      
Knoll's sales in 1998, 67.2% of sales in 1997 and 65.4% of sales in 1996.       

    Knoll's CURRENTS and DIVIDENDS product lines were added to its office system
offerings in 1998. These two new office systems address category segments and   
price points where Knoll's previous product offerings may have been limited and 
where management believes that demand for quality products has been             
under-served. Knoll believes its brand identity, superior design and            
complementary product offerings give it a competitive advantage in launching new
products.                                                                       

   SEATING--Knoll believes that the office seating market includes three major
segments: the "appearance," "comfort" and "basic" segments. Key customer        
criteria in seating include superior ergonomics, aesthetics, comfort and        
quality, all of which Knoll believes to be consistent with its strengths and    
reputation. With its SAPPER, BULLDOG, PARACHUTE and SOHO product lines, Knoll   
has a complete offering of seating in the appearance and comfort segments at    
various price, appearance, comfort and performance levels. The majority of sales
in the U.S. seating market are made to the same customers as are the office     
system sales.                                                                   

STORAGE SOLUTIONS AND FILING CABINETS--Knoll offers a variety of storage
options, as part of its CALIBRE collection, designed to be integrated with its  
office systems as well as with its and others' stand-alone furniture. These     
products consist of stand-alone metal filing, storage and desk products that    
integrate into and support Knoll's office system sales. They also function as   
free-standing furniture in private offices or open-plan environments.           

DESKS AND CASEGOODS--Knoll's collections of stand-alone wood desks,     
bookshelves and credenzas are available in a range of designs and price points. 
These products combine contemporary styling with sophisticated workplace        
solutions and attract a wide variety of customers, ranging from those conducting
large office reconfigurations to small retail purchasers.                       

54

PREM14A
65th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 65th
  TABLES--Knoll offers two product lines in the tables category: INTERACTION
tables and PROPELLER tables. INTERACTION tables are an innovative line of       
adjustable tables that are designed to be integrated into Knoll's office system 
lines and to provide customers with ergonomically superior work surfaces. These 
tables are also often sold as stand-alone products to non-systems customers.    
Knoll's award-winning line of PROPELLER meeting and conference tables provide   
advanced wire management and technology support while offering sufficient       
flexibility to allow end users to reconfigure a meeting room quickly and easily 
to accommodate their specific needs.                                            

   KNOLLSTUDIO--Knoll's historically significant KNOLLSTUDIO collection serves
the design-conscious segment of the fine contract furniture market, providing   
the architecture and design community and customers with sophisticated furniture
for high-profile office and home uses. KNOLLSTUDIO provides a marketing umbrella
for the full range of Knoll's office products and is recognized as the "design  
engine" of Knoll. KNOLLSTUDIO products, which include a wide variety of high    
image side chairs, sofas, desks and conference, training, side and dining       
tables, were created by many of this century's most prominent architects and    
designers, such as Ludwig Mies van der Rohe, Marcel Breuer, Eero Saarinen and   
Frank Gehry, for prestigious corporate and residential interiors. In 1998, Knoll
introduced a signature collection of products that Maya Lin, the                
internationally-known designer of the National Veterans Memorial in Washington, 
D.C., designed for the KNOLLSTUDIO line. KNOLLSTUDIO includes complete          
collections by individual designers as well as distinctive single items.        

KNOLLEXTRA--KNOLLEXTRA is a rapidly growing line of desk and office     
accessories, including letter trays, sorters, binder bins, file holders,        
calendars, desk pads, planters, wastebaskets and bookends. KNOLLEXTRA also      
offers a number of computer accessories and ergonomic office products. Not only 
does this product line complement Knoll's office system products, but it is also
sold to customers for use with other manufacturers' products.                   

KNOLLTEXTILES--KNOLLTEXTILES offers a wide range of coverings for walls,
panels and seating. KNOLLTEXTILES was established in 1947 to develop high       
quality fabrics for Knoll furniture. These products allow Knoll to distinguish  
its product offerings by providing specialty fabric options and flexibility in  
fabric selection and application. As it does with its furniture lines, Knoll    
uses many independent designers to create its fabrics, which has helped it      
establish what management believes to be a unique reputation for textile design.
Not only are KNOLLTEXTILES coverings applied to Knoll furniture, but they are   
also sold to customers for use on other manufacturers' products, thereby        
allowing Knoll to benefit from its competitors' sales.                          

   LEATHER--Spinneybeck Enterprises, Inc., a wholly owned subsidiary of Knoll,
supplies quality upholstery leather that is used on Knoll furniture and is sold 
to customers, primarily including other office furniture manufacturers,         
upholsters, aviation, custom coach and boating manufacturers and the            
architecture and design community, for use on their products.                   

EUROPEAN PRODUCTS--Much like North America, Knoll Europe has product    
offerings that allow customers to single-source a complete office environment,  
including certain products designed specifically for the European market. Knoll 
Europe's core product categories include: (1) office systems, including the     
HANNAH DESKING SYSTEM and the PL1 SYSTEM, which are targeted to Northern Europe,
the ALLESANDRI SYSTEM, which is targeted to the French market, and the SOHO     
DESKING SYSTEM, which has broad market appeal; (2) KNOLLSTUDIO, which serves the
image and design-oriented segment of the fine furniture market; (3) seating,    
including a comprehensive range of chairs such as SAPPER, BULLDOG, PARACHUTE and
SOHO; and (4) storage cabinets, which are designed to complement its office     
system products. Knoll also sells its products designed and manufactured in     
North America to the international operations of its core North American        
customers.                                                                      

  PRODUCT DESIGN AND DEVELOPMENT--Knoll's design philosophy is linked to its
commitment to working with some of the world's preeminent designers to develop  
products that delight and inspire. Knoll has won numerous design awards and has 
more than 30 products in the design collection of the Museum of                 

55

PREM14A
66th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 66th
Modern Art. Knoll's collection of classic and current designs includes works by 
such internationally recognized architects and designers as Ludwig Mies van der 
Rohe, Marcel Breuer, Eero Saarinen, Harry Bertoia, Massimo Vignelli and Frank   
Gehry. Today, Knoll continues to engage prominent outside architects and        
designers, such as Maya Lin, to create new products and product enhancements. By
combining the creative vision of architects and designers with a corporate      
commitment to products that address changing business needs, Knoll seeks to     
launch new offerings that achieve recognition in the architecture and design    
community and generate strong demand among corporate customers.                 

An important part of Knoll's product development capabilities is its    
responsiveness to customer needs and flexibility to handle customized           
manufacturing requests. In order to develop products across its product range,  
Knoll works closely with independent designers from a number of industries. By  
utilizing these long-standing design relationships and listening to customers to
analyze their needs, Knoll has been able to redesign and enhance its products in
order to better meet customer preferences.                                      

SALES AND DISTRIBUTION--Knoll's customers are typically Fortune 1000    
companies. Knoll employs approximately 350 direct sales representatives, who    
work closely with its approximately 220 independent dealers in North America to 
present Knoll's products to prospective customers. The sales force, in          
conjunction with the dealer network, has close relationships with architects,   
designers and corporate facility managers, who often have a significant         
influence on product selection for large orders.                                

In addition to coordinating sales efforts with Knoll's sales            
representatives, Knoll's dealers generally handle project management,           
installation and maintenance for the account after the initial product selection
and sale. Although many of these dealers also carry products of other           
manufacturers, none of them acts as a dealer for Knoll's principal direct       
competitors. Knoll has not experienced significant turnover in its dealer       
network except at its own initiative, as the dealer's economic investment in    
learning all aspects of a particular manufacturer's product offerings and the   
value of the relationships the dealer forms with Knoll and with customers       
discourage dealers from changing their vendor affiliations. Knoll is not        
dependent on any one of its dealers, the largest of which accounted for less    
than 5.0% of Knoll's North American sales in 1998. Additionally, no single      
customer represented more than 2.5% of Knoll's North American sales during 1998.
However, a number of U.S. government agencies purchase Knoll's products through 
multiple contracts with the General Services Administration ("GSA"). Sales to   
government entities under the GSA contracts aggregated approximately 7.8% in    
1998.                                                                           

    In Europe, Knoll sells its products in largely the same manner as it does in
North America, through a direct sales force and a network of dealers, though    
each major European market has its own distinct characteristics. Knoll Europe   
accounted for approximately 6.5% of Knoll's sales in 1998. In the Latin American
and Asia-Pacific markets, which accounted for less than 1.5% of Knoll's sales in
1998, Knoll uses both dealers and independent licensees.                        

MANUFACTURING AND OPERATIONS--Knoll operates four manufacturing sites in
North America, with plants located in East Greenville, Pennsylvania; Grand      
Rapids and Muskegon, Michigan; and Toronto, Canada. In addition, Knoll has two  
plants in Italy: one in Foligno and one in Graffignana. All of Knoll's plants   
are registered under ISO 9000, an internationally developed set of quality      
criteria for manufacturing companies.                                           

    RAW MATERIALS AND SUPPLIERS--Knoll's North America purchasing is centralized
in its East Greenville facility. This centralization, in addition to close      
working relationships formed with its main suppliers, has enabled Knoll to focus
on achieving purchasing economies and "just-in-time" inventory practices. Knoll 
uses steel, lumber, paper, paint, plastics, laminates, particleboard, veneers,  
glass, fabrics, leathers and upholstery filling material. Knoll currently does  
not maintain any long-term supply contracts and believes that the supply sources
for these materials are adequate. Knoll does not rely on any sole source        
suppliers for any of its raw materials, except for certain electrical products. 

56

PREM14A
67th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 67th
COMPETITION--The office furniture market is highly competitive. Office  
furniture companies compete on the basis of (1) product design, including       
performance, ergonomic and aesthetic factors, (2) product quality and           
durability, (3) price, (4) on-time delivery and (v) service and technical       
support. Pricing pressures, in particular, have begun to increase in Knoll's    
primary market. In the United States, where Knoll had an estimated 7.1% market  
share and derived approximately 90.4% of its sales in 1998, five companies      
(including Knoll) represent approximately 59.5% of the market.                  

 Some of Knoll's competitors, especially those in North America, are large
and have significantly greater financial, marketing, manufacturing and technical
resources than those of Knoll. Knoll's most significant competitors in its      
primary markets are Steelcase Inc., Herman Miller, Inc., Haworth, Inc. and, to a
lesser extent, HON INDUSTRIES Inc. These competitors have a substantial volume  
of furniture installed at businesses throughout the country, providing a        
continual source of demand for further products and enhancements. Moreover, the 
products of these competitors have strong acceptance in the marketplace.        
Although Knoll believes that it has been able to compete successfully in its    
markets to date, there can be no assurance that it will be able to continue to  
do so in the future.                                                            

The European market is highly fragmented, as the combined sales of the  
estimated top 50 manufacturers represent less than approximately 60.0% of the   
market. Based on the most recent publicly available trade information, Knoll    
believes that no single company holds more than a 10.0% share of the European   
market.                                                                         

PATENTS AND TRADEMARKS--Knoll has approximately 95 active United States 
utility patents on various components used in its products and systems and      
approximately 125 active United States design patents. Knoll also has           
approximately 200 patents in various foreign countries.                         
Knoll-Registered Trademark-, KnollStudio-Registered Trademark-,                 
KnollExtra-Registered Trademark-, Good Design Is Good                           
Business-Registered Trademark-, Bulldog-Registered Trademark-,                  
Calibre-Registered Trademark-, Currents-TM-, Dividends-TM-,                     
Equity-Registered Trademark-, Parachute-Registered Trademark-,                  
Propeller-Registered Trademark-, and Reff-TM- are Knoll trademarks. Knoll       
considers securing and protecting its intellectual property rights to be        
important to its business.                                                      

EMPLOYEES--As of June 30, 1999, Knoll employed a total of 4,284 people, 
including 2,870 hourly and 1,414 salaried employees. The Grand Rapids, Michigan 
plant is the only unionized plant within the U.S., with the Carpenters and      
Joiners of America-Local 1615 having a four-year contract expiring August 26,   
2002. Management believes that relations with this union are positive. In 1998, 
there was an unsuccessful attempt to unionize employees at Knoll's Muskegon,    
Michigan facility. Knoll believes that relations with its employees in Muskegon 
and throughout North America are good. Nonetheless, it is possible that Knoll   
employees may attempt to unionize in the future. Certain workers in Knoll's     
facilities in Italy are represented by unions. Knoll has experienced brief work 
stoppages from time to time at its plants in Italy, certain of which related to 
national or local issues. Such work stoppages have not materially affected      
Knoll.                                                                          

    ENVIRONMENTAL MATTERS--Knoll believes that it is substantially in compliance
with all applicable laws and regulations for the protection of the environment  
and the health and safety of its employees based upon existing facts known to   
management. Compliance with federal, state, local and foreign environmental     
regulations relating to the discharge of substances into the environment, the   
disposal of hazardous wastes and other related activities has had and will      
continue to have an impact on Knoll's operations, but has, since the formation  
of Knoll in 1990, been accomplished without having a material adverse effect on 
Knoll's operations. There can be no assurance that such regulations will not    
change in the future or that Knoll will not incur material costs as a result of 
such regulations. While it is difficult to estimate the timing and ultimate     
costs to be incurred due to uncertainties about the status of laws, regulations 
and technology, management presently has no planned expenditures of significant 
amounts for future environmental compliance. Knoll has trained staff responsible
for monitoring compliance with environmental, health and safety requirements.   
Knoll's goal is to reduce and, wherever possible, eliminate the creation of     
hazardous waste in its manufacturing processes.                                 

57

PREM14A
68th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 68th
    Knoll has been identified as a potentially responsible party pursuant to the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")  
for remediation costs associated with waste disposal sites previously used by   
Knoll. CERCLA imposes liability without regard to fault or the legality of the  
disposal. The remediation costs at the CERCLA sites are unknown; however, Knoll 
does not expect its liability to be material to Knoll as a whole. At each of the
sites, Knoll is one of many potentially responsible parties and expects to have 
only a small percentage of liability. At some of the sites, Knoll expects to    
qualify as a de minimis or de micromis contributor, eligible for a cash-out     
settlement. In addition, Westinghouse has agreed to indemnify Knoll for certain 
costs associated with CERCLA liabilities known as of the date of the acquisition
of Knoll from Westinghouse.                                                     

58

PREM14A
69th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 69th
MARKET PRICE INFORMATION; DIVIDENDS;
REPURCHASES OF SHARES OF COMMON STOCK 

The shares of Knoll common stock have been traded on the NYSE under the 
symbol "KNL" since May 9, 1997, the date of Knoll's initial public offering. The
following table sets forth, for the periods indicated, high and low closing     
sales prices for the common stock as reported by the NYSE. Public Holders are   
encouraged to obtain current market quotations.                                 

                                                                [Download Table]

                      HIGH        LOW  
                     -------    -------
                                       
1997                                   
Second Quarter                         
 (commencing May 9,                    
 1997).............. $23 3/4    $17 1/4
Third Quarter.......  33 15/16   22 7/8
Fourth Quarter......  34 3/16    25 3/8
1998                                   
First Quarter.......  42 1/8     29 3/8
Second Quarter......  40 9/16    27    
Third Quarter.......  37         21 7/8
Fourth Quarter......  30 1/8     19 1/4
1999                                   
First Quarter.......  29 15/16   15 1/4
Second Quarter......  26 3/4     23 3/4
Third Quarter                          
 (through                              
 September  ,                          
 1999)..............                   

  On March 23, 1999, the last full trading day prior to the day on which the
initial merger proposal was announced, the per share high and low sales prices  
were $16 1/4 and $15 1/4, respectively. The closing price of the Knoll common   
stock was $24 13/16 on June 21, 1999, the last full trading day prior to the day
on which the announcement of the execution of the Merger Agreement. As of such  
date, there were approximately 4,100 holders of record of the common stock.     

The credit agreement governing Knoll's revolving credit facility and the
indenture relating to Knoll's 10 7/8% Senior Subordinated Notes due 2006 contain
certain covenants that, among other things, limit Knoll's ability to incur      
additional indebtedness, purchase Knoll stock and pay dividends to its          
stockholders. Knoll has never paid any dividends on its common stock, and any   
future determination to pay dividends will depend on Knoll's results of         
operations, financial condition, capital requirements, contractual restrictions 
and other factors deemed relevant by the Board of Directors.                    

 Knoll completed an initial public offering of its common stock during the
second quarter of 1997. An aggregate of 9,200,000 shares, including 720,000     
shares sold by a selling stockholder, were sold during May and June 1997 at     
$17.00 per share.                                                               

In September 1998, the Board of Directors approved a share repurchase   
program that authorized the repurchase of up to 3.0 million shares of Knoll     
common stock. On February 2, 1999, the Board of Directors approved an increase  
of 2.0 million shares to the program. During 1998, Knoll repurchased 1,707,700  
shares of common stock for $38.8 million. 120,000 shares were repurchased during
the three months ended September 30, 1998, at per share purchase prices ranging 
from $23.80 to $28.18, or an average price of $26.06, and 1,587,700 shares were 
repurchased during the three months ended December 31, 1998, at per share       
purchase prices ranging from $19.30 to $27.93, or an average price of $22.50.   
During the three months ended March 31, 1999, Knoll purchased 1,187,000 shares  
of its common stock for $28.7 million, at per share purchase prices ranging from
$21.54 to $27.99, or an average per share price of $24.16. Since the inception  
of the share repurchase program in September 1998, Knoll purchased a total of   
2,894,700 shares of its common stock for $67.5 million, or an average price of  
$23.33 per share. Other than in connection with such stock repurchase program,  
neither Knoll nor any of its affiliates, including Warburg (other than as       
described with respect to isolated purchases by certain directors and executive 
officers in this proxy statement) has purchased any shares of common stock in   
the open market since January 1, 1997.                                          

59

PREM14A
70th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 70th
SELECTED FINANCIAL DATA 

   The following table presents (1) selected historical consolidated financial
information of The Knoll Group, Inc. and related predecessor entities, as of the
dates and for the periods indicated, (2) selected historical consolidated       
financial information of Knoll, as of the dates and for the periods indicated   
and (3) summary pro forma consolidated financial information of Knoll, for the  
periods indicated, after giving effect to the events described in the notes     
below. The selected historical consolidated financial information of The Knoll  
Group, Inc. and related predecessor entities for the periods ended December 31, 
1994 and 1995 and February 29, 1996 and of Knoll for the periods ended December 
31, 1996, 1997 and 1998 has been derived from audited financial statements of   
The Knoll Group, Inc. and related predecessor entities and Knoll, respectively. 
The selected historical consolidated financial information of Knoll for the     
three months ended March 31, 1998 and 1999 has been derived from Knoll's        
unaudited financial statements. The unaudited interim financial statements      
include all adjustments, consisting only of normal recurring accruals that Knoll
considers necessary for a fair presentation of the financial position and       
results of operations for that period. The results of operations for any interim
period are not necessarily indicative of results for the full fiscal year. The  
summary pro forma information does not purport to represent what Knoll's results
actually would have been if such events had occurred at the dates indicated, nor
does such information purport to project Knoll's results for any future period. 
The selected financial information should be read in conjunction with           
Consolidated Financial Statements of Knoll, the related Notes thereto and       
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations," which are included elsewhere in this proxy statement.              

                                                        [Enlarge/Download Table]

                              THE KNOLL GROUP, INC.                                         KNOLL                                  
                                  (PREDECESSOR)             ---------------------------------------------------------------------- 
                        ----------------------------------                                                                 THREE   
                                                                                                       PRO FORMA          MONTHS   
                             YEAR ENDED        TWO MONTHS    TEN MONTHS         YEAR ENDED             YEAR ENDED          ENDED   
                            DECEMBER 31,         ENDED          ENDED          DECEMBER 31,           DECEMBER 31,       MARCH 31, 
                        --------------------  FEBRUARY 29,  DECEMBER 31,   --------------------  ----------------------  --------- 
                          1994       1995         1996          1996         1997       1998     1996 (1)(2)  1997 (2)     1998    
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
                                  (IN THOUSANDS)                            (IN THOUSANDS, EXCEPT PER SHARE DATA)                  
                                                                                                                                   
OPERATING DATA                                                                                                                     
Sales.................  $ 562,869  $ 620,892   $   90,232     $ 561,534    $ 810,857  $ 948,691   $ 651,766   $ 810,857  $ 220,775 
Cost of sales (3).....    410,104    417,632       59,714       358,841      489,962    572,756     419,908     489,962    133,452 
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
Gross profit..........    152,765    203,260       30,518       202,693      320,895    375,935     231,858     320,895     87,323 
Provision for                                                                                                                      
  restructuring.......     29,180         --           --            --           --         --          --          --         -- 
Selling, general and                                                                                                               
  administrative                                                                                                                   
  expenses (4)........    167,238    138,527       21,256       131,349      183,018    204,392     153,388     183,018     49,273 
Westinghouse long-term                                                                                                             
  incentive                                                                                                                        
  compensation (5)....         --         --       47,900            --           --         --          --          --         -- 
Allocated corporate                                                                                                                
  expenses (3) (4)....      5,881      9,528          921            --           --         --          --          --         -- 
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
Operating in-                                                                                                                      
  come (loss).........    (49,534)    55,205      (39,559)       71,344      137,877    171,543      78,470     137,877     38,050 
Interest expense......      3,225      1,430          340        32,952       25,075     16,860      34,359      22,373      4,583 
Other income                                                                                                                       
  (expense), net......        699     (1,597)        (296)          447        1,667      2,732         151       1,667       (418)
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
Income (loss) before                                                                                                               
  income tax expense                                                                                                               
  (benefit) and                                                                                                                    
  extraordinary                                                                                                                    
  item................    (52,060)    52,178      (40,195)       38,839      114,469    157,415      44,262     117,171     33,049 
Income tax expense                                                                                                                 
  (benefit)...........      7,713     22,846      (16,107)       16,844       48,026     64,371      19,094      49,096     13,239 
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
Income (loss) before                                                                                                               
  extraordinary                                                                                                                    
  item................    (59,773)    29,332      (24,088)       21,995       66,443     93,044      25,168      68,075     19,810 
Extraordinary loss on                                                                                                              
  early extinguishment                                                                                                             
  of debt, net of                                                                                                                  
  taxes (6)...........         --         --           --         5,159        5,337         --          --          --         -- 
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
Net income (loss)                                                                                                                  
  (6).................  $ (59,773) $  29,332   $  (24,088)    $  16,836    $  61,106  $  93,044   $  25,168   $  68,075  $  19,810 
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  --------- 



                          1999                                                                                                     
                        ---------                                                                                                  

                                                                                                                                   
OPERATING DATA                                                                                                                     
Sales.................  $ 209,210                                                                                                  
Cost of sales (3).....    127,663                                                                                                  
                        ---------                                                                                                  
Gross profit..........     81,547                                                                                                  
Provision for                                                                                                                      
  restructuring.......         --                                                                                                  
Selling, general and                                                                                                               
  administrative                                                                                                                   
  expenses (4)........     45,413                                                                                                  
Westinghouse long-term                                                                                                             
  incentive                                                                                                                        
  compensation (5)....         --                                                                                                  
Allocated corporate                                                                                                                
  expenses (3) (4)....         --                                                                                                  
                        ---------                                                                                                  
Operating in-                                                                                                                      
  come (loss).........     36,134                                                                                                  
Interest expense......      4,222                                                                                                  
Other income                                                                                                                       
  (expense), net......       (398)                                                                                                 
                        ---------                                                                                                  
Income (loss) before                                                                                                               
  income tax expense                                                                                                               
  (benefit) and                                                                                                                    
  extraordinary                                                                                                                    
  item................     31,514                                                                                                  
Income tax expense                                                                                                                 
  (benefit)...........     13,120                                                                                                  
                        ---------                                                                                                  
Income (loss) before                                                                                                               
  extraordinary                                                                                                                    
  item................     18,394                                                                                                  
Extraordinary loss on                                                                                                              
  early extinguishment                                                                                                             
  of debt, net of                                                                                                                  
  taxes (6)...........         --                                                                                                  
                        ---------                                                                                                  
Net income (loss)                                                                                                                  
  (6).................  $  18,394                                                                                                  
                        ---------                                                                                                  
                        ---------                                                                                                  

60

PREM14A
71st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 71st
                                                        [Enlarge/Download Table]

                              THE KNOLL GROUP, INC.                                         KNOLL                                 
                                  (PREDECESSOR)             ----------------------------------------------------------------------
                        ----------------------------------                                                                 THREE  
                                                                                                       PRO FORMA          MONTHS  
                             YEAR ENDED        TWO MONTHS    TEN MONTHS         YEAR ENDED             YEAR ENDED          ENDED  
                            DECEMBER 31,         ENDED          ENDED          DECEMBER 31,           DECEMBER 31,       MARCH 31,
                        --------------------  FEBRUARY 29,  DECEMBER 31,   --------------------  ----------------------  ---------
                          1994       1995         1996          1996         1997       1998     1996 (1)(2)  1997 (2)     1998   
                        ---------  ---------  ------------  -------------  ---------  ---------  -----------  ---------  ---------
                                  (IN THOUSANDS)                            (IN THOUSANDS, EXCEPT PER SHARE DATA)                 
                                                                                                                                  
Earnings per share:                                                                                                               
  Income before                                                                                                                   
    extraordinary item                                                                                                            
    per share of                                                                                                                  
    common stock (7):                                                                                                             
      Basic...........                                        $    0.71    $    1.78  $    2.25   $    0.64   $    1.69  $    0.48
      Diluted.........                                        $    0.63    $    1.64  $    2.14   $    0.58   $    1.57  $    0.45
  Net income per share                                                                                                            
    of common stock                                                                                                               
    (6) (7):                                                                                                                      
      Basic...........                                        $    0.54    $    1.64  $    2.25   $    0.64   $    1.69  $    0.48
      Diluted.........                                        $    0.48    $    1.51  $    2.14   $    0.58   $    1.57  $    0.45
  Weighted average                                                                                                                
    shares of common                                                                                                              
    stock (7):                                                                                                                    
      Basic...........                                           31,040       37,284     41,271      39,520      40,287     41,181
      Diluted.........                                           34,701       40,398     43,509      43,181      43,400     43,859


                          1999                                                                                                    
                        ---------                                                                                                 
                                                                                                                                  
Earnings per share:                                                                                                               
  Income before                                                                                                                   
    extraordinary item                                                                                                            
    per share of                                                                                                                  
    common stock (7):                                                                                                             
      Basic...........  $    0.47                                                                                                 
      Diluted.........  $    0.45                                                                                                 
  Net income per share                                                                                                            
    of common stock                                                                                                               
    (6) (7):                                                                                                                      
      Basic...........  $    0.47                                                                                                 
      Diluted.........  $    0.45                                                                                                 
  Weighted average                                                                                                                
    shares of common                                                                                                              
    stock (7):                                                                                                                    
      Basic...........     39,553                                                                                                 
      Diluted.........     41,225                                                                                                 

                                                        [Enlarge/Download Table]

                                       THE KNOLL GROUP,                                                           
                                      INC. (PREDECESSOR)                            KNOLL                         
                                     --------------------  -------------------------------------------------------
                                         DECEMBER 31,                DECEMBER 31,                  MARCH 31,      
                                     --------------------  --------------------------------  ---------------------
                                       1994       1995       1996       1997        1998       1998        1999   
                                     ---------  ---------  ---------  ---------  ----------  ---------  ----------
                                        (IN THOUSANDS)          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)     
                                                                                                                  
BALANCE SHEET DATA                                                                                                
Working capital..................... $  22,898  $  82,698  $  64,754  $  65,553  $   95,040  $  95,724  $  128,734
Total assets........................   705,316    656,710    675,712    680,859     714,027    682,923     689,809
Total long-term debt, including                                                                                   
  current portion...................    12,451      3,538    354,154    207,029     169,255    197,001     194,205
Total liabilities...................   247,310    176,259    497,908    392,570     370,177    370,839     355,458
Stockholders' equity................   458,006    480,451    177,804    288,289     343,850    312,084     334,351
Other data:                                                                                                       
    Ratio of earnings to fixed                                                                                    
      charges (8)...................                                        5.1         8.9        7.2         7.3
    Book value per share............                                             $     8.23             $     8.23

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

(1) Reflects summary pro forma financial information of Knoll derived from the  
 financial statements and notes thereto included in the Form 10-K filed by
    Knoll with the SEC for the year ended December 31, 1998, adjusted to reflect
the completion of the acquisition of Knoll from Westinghouse, the       
  application of the net proceeds of $160,000 from the sale of capital stock
   and related borrowings of $260,000 and $165,000 under Knoll's then-existing
    credit agreement and Knoll's 10 7/8% Senior Subordinated Notes due 2006 (the
 "Senior Subordinated Notes"), respectively, as if such events occurred at
the beginning of the period.                                            

(2) Reflects summary pro forma financial information of Knoll derived from the  
 financial statements and notes thereto included in the Form 10-K filed by
    Knoll with the SEC for the year ended December 31, 1998, adjusted to reflect
  (1) the completion of Knoll's initial public offering, (2) the application
    of the net proceeds to Knoll of $133,440 therefrom, together with borrowings
 of $11,673 under Knoll's then-existing revolving credit facility, for the
redemption of 800,000 shares of Series A 12.0% Participating Convertible
Preferred Stock ("Series A Preferred Stock") for an aggregate redemption
  price of $80,000 in cash and 11,749,361 shares of common stock and for the
redemption of an aggregate principal amount of $57,750 of the Senior    
Subordinated Notes for a total redemption price of $65,113 (including a 
redemption premium of $5,775 and accrued and unpaid interest thereon of 
  $1,558) and (3) the conversion of the remaining 802,998 shares of Series A
Preferred Stock into 15,691,558 shares of common stock as if such events
occurred at the beginning of the respective periods.                    

(3) Pro forma 1996 cost of sales has been increased by (1) $801 to reflect an   
   increase in amortization and depreciation resulting from the acquisition of
 Knoll from Westinghouse and (2) $552 to reflect the reclassification of a
portion of allocated corporate expenses. The reclassified allocated     
 corporate expenses approximate the replacement cost to Knoll for services
   formerly provided by Westinghouse to the predecessor, including (1) benefit
expense related to the adoption of various independent benefit plans    
comparable to Westinghouse benefit plans and (2) the cost of services   
required to replace specific                                            

61

PREM14A
72nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 72nd
  activities formerly provided by Westinghouse to the predecessor, including
audit, tax, general ledger, accounts receivable, human resources, legal,
insurance and data communications.                                      

(4) Pro forma 1996 selling, general and administrative expenses have been       
    increased by (1) $369 to reflect the reclassification of allocated corporate
    expenses which approximate the replacement cost to Knoll (described above in
    note 3) and (2) $414 to reflect an increase in amortization and depreciation
resulting from the acquisition.                                         

(5) Westinghouse long-term incentive compensation has been eliminated in pro    
forma 1996. Such compensation became payable from Westinghouse, and the 
amounts payable were established, as a result of consummation of the    
acquisition.                                                            

(6) The pro forma 1996 operating data presented does not include the $5,159     
extraordinary loss on early extinguishment of debt, net of taxes. In    
    addition, the pro forma operating data for the years ended December 31, 1996
and 1997 does not include an extraordinary loss of $5,337, net of taxes,
    associated with the early redemption of a portion of the Senior Subordinated
Notes in connection with the initial public offering.                   

(7) Because of the redemption and conversion into common stock of the Series A  
Preferred Stock upon consummation of Knoll's initial public offering,   
 historical net income per share amounts for the ten months ended December
    31, 1996 and year ended December 31, 1997 are not presented herein. Earnings
  per share amounts for these periods are pro forma as they are based on the
  weighted average number of shares of common stock and potentially dilutive
  securities (nonvested stock grants and employee stock options) outstanding
during the periods, after giving effect to the redemption and conversion
 into common stock of the Series A Preferred Stock assuming the redemption
  and conversion had occurred at the beginning of the periods presented. See
Note 2 above.                                                           

(8) For purposes of determining the ratio of earnings to fixed charges, earnings
 are defined as earnings before income taxes and extraordinary items, plus
  fixed charges. Fixed charges include interest expense on all indebtedness,
  amortization of deferred financing fees and one-third of rental expense on
   operating leases, which represents that portion of rental expense deemed to
be attributable to interest.                                            

62

PREM14A
73rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 73rd
RECENT DEVELOPMENTS 

SECOND QUARTER RESULTS                                                          

On July 21, 1999, Knoll announced its unaudited earnings for the three  
months ended June 30, 1999. Knoll announced that its sales for the three months 
ended June 30, 1999 were $253.7 million, an increase of 2.7% from $247.0 million
for the same period of 1998. Knoll's operating income for the three months ended
June 30, 1999 was $46.3 million, an increase of 2.2% from $45.3 million for the 
same period of 1998. During the three months ended June 30, 1999, Knoll incurred
$3.0 million of expense related to the anticipated recapitalization of Knoll    
through the merger. Excluding the recapitalization expense, Knoll's diluted     
earnings per share for the three months ended June 30, 1999 were $0.61, an      
increase of 7.0% from diluted earnings per share of $0.57 for the same period of
1998. Knoll's 1999 earnings per share benefited from the impact of the          
repurchase of shares of Knoll common stock under Knoll's stock repurchase       
program.                                                                        

The following table sets forth selected unaudited financial data for the
three months ended June 30, 1999. This information is not necessarily indicative
of results for the full year ending December 31, 1999.                          

                                                        [Enlarge/Download Table]

                                                                                       THREE MONTHS ENDED  
                                                                                            JUNE 30,       
                                                                                     ----------------------
                                                                                        1998        1999   
                                                                                     ----------  ----------
                                                                                     (IN THOUSANDS, EXCEPT 
                                                                                       PER SHARE AMOUNTS)  
                                                                                                           
Sales............................................................................... $  246,957  $  253,726

Operating Income....................................................................     45,282      46,296

Recapitalization Expense............................................................     --           3,000

Income Before Income Tax Expense....................................................     42,405      38,600

Income Tax Expense..................................................................     17,342      16,796

Net Income.......................................................................... $   25,063  $   21,804
                                                                                     ----------  ----------
                                                                                     ----------  ----------

Net Income per Share of Common Stock                                                                       

  Basic............................................................................. $     0.60  $     0.55

  Diluted........................................................................... $     0.57  $     0.53

Weighted Average Shares of Common Stock Outstanding                                                        

  Basic.............................................................................     41,718      39,572

  Diluted...........................................................................     43,930      40,934

63

PREM14A
74th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 74th
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS 

 The following discussion should be read in conjunction with the financial
statements of Knoll and notes thereto beginning on page F-1.                    

OVERVIEW                                                                        

    1998 was a record year for sales and earnings, which led to continued market
share gains. Management believes Knoll's operating success was driven by        
progress made with Knoll's growth initiatives as well as benefits it continues  
to receive from strategic actions initiated in 1994 to reorganize business      
activities and manufacturing processes.                                         

Knoll made significant progress with its growth strategy in 1998. It    
introduced two new office system products, CURRENTS and DIVIDENDS, to enhance   
the breadth of its office system offerings and provide what management believes 
to be a very strong, comprehensive offering of office system products.          
Additionally, Knoll increased the size of its sales force and geographically    
expanded into secondary markets.                                                

   The application of Knoll's growth strategy together with favorable industry
dynamics had a significant effect on Knoll's results of operations and financial
position in 1998. Revenues in the first quarter of 1999 were down compared to   
the first quarter of 1998 due principally to a slowdown in industry orders and  
sales levels.                                                                   

RESULTS OF OPERATIONS                                                           

   SALES--Over the past two years, Knoll has experienced significant growth in
sales. 1998 sales were up 17.0% from 1997 to $948.7 million. 1997 sales of      
$810.9 million were up 24.4%, or $159.1 million, from $651.8 million in sales   
for 1996. Knoll's sales growth resulted from increased volume, with the largest 
increase coming from sales of office systems, which management believes to be   
the largest and fastest growing product category in the industry. The Business  
and Institutional Furniture Manufacturer's Association estimates that U.S. sales
of office systems were $4.6 billion, or 36.9% of total industry sales, in 1998. 
Office systems accounted for 68.4% of Knoll's sales in 1998, 67.2% of sales in  
1997 and 65.4% of sales in 1996.                                                

    Sales for the first quarter of 1999 were $209.2 million, a decrease of 5.3%,
or $11.6 million, from first quarter 1998 sales of $220.8 million. Sales in the 
first quarter of 1999 were down primarily as a result of a slowdown in industry 
sales levels.                                                                   

    GROSS PROFIT AND OPERATING INCOME--Knoll's gross profit and operating income
as a percentage of sales are the highest of the public companies in the         
industry. Both have continued to benefit from increasing volume and a continued 
focus on cost control. As a percentage of Sales, gross profit was 39.6% for 1998
and 1997 and 35.6%, on a pro forma basis, for 1996 and operating income was     
18.1% for 1998, 17.0% for 1997 and 12.0%, on a pro forma basis, for 1996.       

Although selling, general and administrative expenses increased on a    
relative dollar basis in 1998 compared to 1997 and in 1997 compared to pro forma
1996, such expenses decreased as a percentage of sales. The increases on a      
relative dollar basis were due primarily to incremental employee costs related  
to higher sales, profit and employment levels in 1998 and 1997 as well as       
increased expenses related to new product and technology initiatives in 1997.   
Knoll's 1998 selling, general and administrative expenses as a percentage of    
sales decreased to 21.5% for 1998 from 22.6% for 1997 and 23.5%, on a pro forma 
basis, for 1996.                                                                

    As a result of Knoll's continued focus on cost control, Knoll's gross profit
and operating income as a percentage of sales remained strong despite lower     
sales volume in the first quarter of 1999. As a                                 

64

PREM14A
75th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 75th
percentage of sales, gross profit was 39.0% for the first quarter of 1999 versus
39.6% for the first quarter of 1998 and operating income was 17.3% for the first
quarter of 1999 versus 17.2% for the first quarter of 1998.                     

  Selling, general and administrative expenses for the first quarter of 1999
were $45.4 million, a decrease of 7.9%, or $3.9 million, from $49.3 million for 
the first quarter of 1998. This decrease was primarily due to lower employee    
costs related to reduced sales and profit levels. As a percentage of sales,     
Knoll's selling, general and administrative expenses decreased to 21.7% for the 
first quarter of 1999 from 22.3% for the first quarter of 1998.                 

 INTEREST EXPENSE--Since the acquisition of Knoll from Westinghouse, Knoll
has continued to significantly reduce its debt. During the ten months ended     
December 31, 1996, Knoll prepaid $72.0 million of indebtedness under its        
then-existing credit facilities. In 1997, Knoll redeemed an aggregate principal 
amount of $57.8 million of its Senior Subordinated Notes and repaid $89.2       
million of bank debt. Finally, in 1998, Knoll repaid $38.0 million of bank debt,
which is lower than the prior two years in part due to the implementation of the
share repurchase program. Knoll's interest expense was impacted favorably as a  
result of the continued overall reduction of debt as well as lower interest     
rates associated with the refinancing of its previously existing senior credit  
agreement in December 1996. See "--Liquidity and Capital Resources" for further 
discussion of the events discussed above.                                       

   Interest expense for the first quarter of 1999 was $4.2 million compared to
$4.6 million for the first quarter of 1998. The decrease in interest expense is 
principally due to lower outstanding debt balances during the first quarter of  
1999 compared to the first quarter of 1998.                                     

INCOME TAX EXPENSE--With operations in the U.S., Canada and various     
countries in Europe, Knoll's effective tax rate is directly affected by the mix 
of pretax income and the varying effective tax rates attributable to the        
countries in which it operates. This changing mix is primarily responsible for  
the change in the effective tax rate from 43.7% in 1996, on a pro forma basis,  
to 42.0% in 1997 and 40.9% in 1998. Additionally, the change in the effective   
tax rate from 1996 to 1997 and from 1997 to 1998 has been impacted by the       
reduced effect of non-deductible expenses with the increase in pretax income.   

The changing mix referred to above is also primarily responsible for the
change in the effective tax rate to 41.6% for the first quarter of 1999 from    
40.1% for the first quarter of 1998. Additionally, the change in the effective  
tax rate from the first quarter of 1998 to the first quarter of 1999 has been   
impacted by the increased effect of nondeductible expenses with the decrease in 
pretax income.                                                                  

EXTRAORDINARY ITEMS--In connection with Knoll's May 1997 initial public 
offering, which is discussed below, Knoll executed an early redemption of an    
aggregate principal amount of $57.8 million of its Senior Subordinated Notes. As
a result of this redemption, Knoll recorded an extraordinary loss of $5.3       
million, net of a tax benefit of $3.5 million, in 1997. Such loss consisted of a
$5.7 million premium paid and $3.1 million of unamortized financing costs that  
were written-off.                                                               

Knoll also recorded an extraordinary loss of $5.2 million, net of a tax 
benefit of $3.3 million, in 1996 in connection with its strategic move to       
refinance its previously existing credit agreement on more favorable terms. This
extraordinary loss consisted of the write-off of unamortized financing costs    
related to the refinanced debt.                                                 

 PRO FORMA NET INCOME AND NET INCOME PER SHARE AS ADJUSTED FOR THE INITIAL
PUBLIC OFFERING (UNAUDITED SUPPLEMENTAL INFORMATION)--In May 1997, Knoll        
completed an initial public offering, generating net proceeds of $133.4 million 
from the sale of 8,480,000 shares of common stock. Knoll used those net proceeds
together with $11.7 million borrowed under its then-existing revolving credit   
facility to redeem 800,000 shares of Series A Preferred Stock for $80.0 million 
and, as previously discussed, to redeem an aggregate principal amount of $57.8  
million of the Senior Subordinated Notes                                        

65

PREM14A
76th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 76th
for $65.1 million. If Knoll assumes that these events had occurred at the       
beginning of 1996, net income, on a pro forma as adjusted basis, would have     
increased 170.2% to $68.1 million ($1.57 per share diluted) for 1997 from $25.2 
million ($0.58 per share diluted) for 1996 and historical net income of $93.0   
million ($2.14 per share diluted) for 1998 would have grown 36.6% from pro forma
as adjusted net income for 1997.                                                

    EARNINGS PER SHARE--Knoll's diluted earnings per share for the first quarter
of 1999 is unchanged from the first quarter of 1998 as lower net income was     
offset by the effect of the reduced number of shares of common stock outstanding
that resulted from the repurchase of shares of common stock by Knoll under its  
share repurchase program that was implemented in September 1998.                

LIQUIDITY AND CAPITAL RESOURCES                                                 

    The following table highlights certain key cash flow and capital information
pertinent to the discussion that follows:                                       

                                                        [Enlarge/Download Table]

                                                                                                      THE KNOLL GROUP, INC.
                                                                                                          (PREDECESSOR)    
                                                                                                      ---------------------
                            THREE MONTHS   THREE MONTHS       YEAR           YEAR       TEN MONTHS         TWO MONTHS      
                                ENDED          ENDED          ENDED         ENDED          ENDED              ENDED        
                              MARCH 31,      MARCH 31,    DECEMBER 31,   DECEMBER 31,  DECEMBER 31,       FEBRUARY 29,     
                                1999           1998           1998           1997          1996               1996         
                            -------------  -------------  -------------  ------------  -------------  ---------------------
                                                                                                         (IN THOUSANDS)    
                                                         (IN THOUSANDS)                                                    
                                                                                                                           
Cash provided by (used in)                                                                                                 
  operating activities....    $   7,312      $  11,319      $ 114,563     $  135,262     $  89,502          $ (54,039)     
Capital expenditures......        3,573          5,483         36,390         33,080        15,255              2,296      
Net proceeds from                                                                                                          
  (repayment of) long-term                                                                                                 
  debt, excluding initial                                                                                                  
  borrowing for the                                                                                                        
  acquisition from                                                                                                         
  Westinghouse............       25,000        (10,000)       (38,000)      (146,988)      (72,130)                --      
Net proceeds from issuance                                                                                                 
  of stock................          649          3,290          4,813        133,559       160,400                 --      
Purchase of common stock..       28,675             --         38,849             --            --                 --      

 Knoll continued to generate strong cash flow from operating activities in
1998 primarily as a result of its improved earnings before noncash items.       
Knoll's cash flow from operating activities for 1998 was lower than that        
generated for 1997 as a result of increased working capital that was partially  
due to increased volume and new product introductions. Free cash flow has       
generally been used to fund capital expenditures, working capital requirements  
and debt service, and, in 1998, the cash flow was also used to implement a share
repurchase program.                                                             

  Knoll's capital expenditures for 1998 were primarily for new manufacturing
equipment, additions to existing plants and information systems. The plant      
additions consisted of the expansion of three U.S. plants by an aggregate of    
approximately 139,000 square feet. Knoll estimates that capital expenditures for
1999 will be approximately $35.0 million.                                       

In September 1998, the Board of Directors approved a share repurchase   
program that authorized the repurchase of 3.0 million shares of Knoll common    
stock. On February 2, 1999, the Board of Directors approved an increase of 2.0  
million shares to the program. During 1998, Knoll repurchased 1,707,700 shares  
of common stock for $38.8 million. As of March 24, 1999, Knoll purchased a total
of 2,894,700 shares for $67.5 million under the program.                        

    During the ten months ended December 31, 1996, the acquisition of Knoll from
Westinghouse had a significant impact on Knoll's investing and financing        
activities. The necessary capital to fund the acquisition was obtained from the 
issuance of stock for $160.0 million and debt of $425.0 million, of             

66

PREM14A
77th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 77th
which $165.0 million was from the issuance of the Senior Subordinated Notes and 
$260.0 million was from senior credit facilities. The senior credit facilities  
were subsequently refinanced, in December 1996, on more favorable terms. Knoll  
was able to prepay $72.0 million of indebtedness under its credit facilities    
that existed in 1996.                                                           

As previously discussed, in May 1997, Knoll completed an initial public 
offering that generated net proceeds of $133.4 million from its sale of         
8,480,000 shares of common stock. Knoll used those net proceeds together with   
$11.7 million borrowed under its then-existing revolving credit facility to     
redeem 800,000 shares of Series A Preferred Stock for $80.0 million and to      
redeem an aggregate principal amount of $57.8 million of the Senior Subordinated
Notes for $65.1 million (including a redemption premium of $5.7 million and     
accrued and unpaid interest thereon of $1.6 million). In addition to the        
redemption of a portion of the Senior Subordinated Notes, Knoll repaid $89.2    
million of bank debt during 1997.                                               

On August 8, 1997, Knoll entered into a new senior credit agreement that
modified certain terms of the agreement that it entered into in December 1996.  
The new agreement provides for a $275.0 million revolving credit facility that  
matures in August 2002. Borrowings under the new agreement bear interest at a   
floating rate based, at Knoll's option, upon (1) the Eurodollar rate (as defined
therein) plus an applicable percentage which is subject to change based on      
Knoll's ratio of funded debt to EBITDA or (2) the greater of the federal funds  
rate plus 0.5% or the prime rate. The new credit agreement contains restrictive 
covenants, financial covenants and events of default. Among other things, the   
restrictive covenants limit Knoll's ability to incur additional indebtedness,   
pay dividends, purchase Knoll stock, make investments, grant liens and engage in
certain other activities. During 1998, Knoll continued to reduce its outstanding
indebtedness under this credit facility, as it repaid $38.0 million. As of      
December 31, 1998, Knoll had an aggregate of $212.6 million available for       
borrowing under the revolving credit facility.                                  

In addition to the revolving credit facility, Knoll had $107.2 million  
aggregate principal amount of Senior Subordinated Notes outstanding as of       
December 31, 1998. The Senior Subordinated Notes are subordinated to all of     
Knoll's existing and future senior indebtedness, including all indebtedness     
under the revolving credit facility. The indenture governing the terms of the   
Senior Subordinated Notes imposes certain restrictions on Knoll and its         
subsidiaries, including restrictions on the ability to incur indebtedness, pay  
dividends, purchase Knoll stock, make investments, grant liens and engage in    
certain other activities. Knoll may be required to purchase the Senior          
Subordinated Notes upon a change of control (as defined in the indenture) and in
certain circumstances with the proceeds of asset sales. The Senior Subordinated 
Notes are redeemable at Knoll's option at any time after March 15, 2001,        
initially at 105.438% of their principal amount at maturity, plus accrued       
interest, declining to 100.0% of their principal amount at maturity, plus       
accrued interest, on or after March 15, 2004.                                   

Knoll's foreign subsidiaries maintain local credit facilities to provide
credit for overdraft, working capital and other purposes. As of December 31,    
1998, total credit available under such facilities was approximately $12.2      
million, of which none had been utilized. Knoll believes that it is currently in
compliance with all terms of its indebtedness.                                  

    During the three months ended March 31, 1999, Knoll generated cash flow from
operations of $7.3 million. Cash provided by operations resulted primarily from 
earnings before depreciation and amortization offset by cash used for working   
capital purposes, which was principally for the payment of December 31, 1998    
accruals for employee costs related to 1998 sales and profits.                  

   Knoll borrowed $25.0 million under its revolving credit facility during the
first quarter of 1999. These borrowings together with cash generated from       
operations were used to fund $3.6 million in capital expenditures and repurchase
1.2 million shares of Knoll common stock for $28.7 million.                     

67

PREM14A
78th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 78th
As of March 31, 1999, Knoll's ratio of debt to total capitalization was 
36.7%, and Knoll had an aggregate of $197.0 million available for borrowing     
under its U.S. and European revolving credit facilities. Knoll continues to have
significant liquidity requirements. In addition to working capital needs and the
need to fund capital expenditures to support Knoll's growth initiatives, Knoll  
has cash requirements for debt service. Knoll believes that existing cash       
balances and cash flow from operating activities, together with borrowings      
available under the revolving credit facility, will be sufficient to fund       
working capital needs, capital spending requirements and debt service           
requirements for at least the next 12 months.                                   

  If the merger is consummated, Knoll will incur significant additional debt
under new financing arrangements. Management believes that Knoll's cash flows   
would be sufficient to service such additional debt as well as continue to fund 
working capital needs and capital expenditures.                                 

INFLATION                                                                       

There was no significant impact on Knoll's operations as a result of    
inflation during the three years ended December 31, 1998 or the three months    
ended March 31, 1999.                                                           

BACKLOG                                                                         

  Knoll's backlog of unfilled orders was $159.2 million at December 31, 1998
versus $141.3 million at December 31, 1997 and $161.7 million at March 31, 1999 
versus $149.5 million at March 31, 1998. Knoll manufactures substantially all of
its products to order and expects to fill substantially all outstanding unfilled
orders within the next twelve months. As such, backlog is not a significant     
factor used to predict Knoll's long-term business prospects.                    

IMPACT OF YEAR 2000                                                             

Knoll has certain existing computer programs that were written using two
digits rather than four to define the applicable year. As a result, those       
computer programs have time-sensitive software that may recognize a date using  
"00" as the year 1900 rather than the year 2000. This could result in a system  
failure or miscalculations causing disruptions of operations, including, among  
other things, a temporary inability to process transactions, send invoices or   
engage in similar normal business activities. Knoll also has manufacturing      
equipment that contains embedded chips that may recognize a date using "00" as  
the year 1900 rather than the year 2000, which may result in a temporary        
inability to use such equipment in Knoll's manufacturing processes.             

In 1997, Knoll initiated a strategic project to replace and enhance its 
existing manufacturing and business systems (software and hardware) in North    
America with a new fully integrated system intended to enhance its order entry  
response time and accuracy, improve manufacturing processes, reduce delivery    
times, improve shipping accuracy and reduce fixed costs. While the decision to  
embark on this project was business related, the new software that Knoll will   
implement has been represented by the vendor to be year 2000 compliant.         
Therefore, the year 2000 issue is not expected to pose significant operational  
problems for Knoll's computer systems. However, if the new software is not      
implemented on a timely basis or fails to be fully year 2000 compliant, the year
2000 issue could have a material impact on Knoll's operations.                  

    Knoll has completed an evaluation of the information systems currently being
used by its European operations and other potential European year 2000 issues   
and is taking actions to address the year 2000 issues that have been identified.
Based upon information presently known, Knoll does not expect its European year 
2000 issues to have a material adverse effect upon its results of operations.   

68

PREM14A
79th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 79th
In North America, Knoll has installed and is utilizing the financial    
applications of the new system at all of its sites and has installed and is     
utilizing the new manufacturing application at three of four sites. In addition,
Knoll has completed an inventory of its manufacturing equipment to identify     
equipment that contains embedded chips and is taking actions to address issues  
related to embedded chips that Knoll has determined may not be year 2000        
compliant. Knoll anticipates that it will install all of the system applications
and remedy the problems related to embedded chips that are not year 2000        
compliant, through replacement or other satisfactory measures, by the third     
quarter of 1999. If Knoll successfully implements the new system and addresses  
issues associated with noncompliant embedded chips by the third quarter of 1999,
the year 2000 issues associated with its information systems and manufacturing  
equipment would not be expected to have a material adverse effect on Knoll's    
operations. Knoll has experienced and expects to continue to experience         
operational issues related to the project implementation. Knoll has been        
developing and will continue to develop and implement plans to address these    
issues as they arise.                                                           

  In the event Knoll is unable to complete the implementation of the project
on a timely basis, Knoll's ability to take customer orders, manufacture and     
deliver product on a timely basis, invoice customers and collect payments may be
impaired. Knoll can not reasonably estimate at this time the amount of lost     
revenue or additional expenses that might be expected in this scenario. Failure 
to implement the project on a timely basis could have a material adverse effect 
on Knoll.                                                                       

 Knoll currently does not have a contingency plan in place. However, Knoll
continually evaluates the status of completion and whether or not a contingency 
plan is or may be necessary. Knoll would tailor any contingency plan to address 
the issue in question and attempt to minimize the impact upon Knoll's operations
and customers.                                                                  

Knoll estimates that the total project cost will be approximately $32.7 
million, of which approximately 70% will be expensed and 30% will be            
capitalized. Through March 31, 1999, Knoll has incurred expenditures of         
approximately $25.6 million ($18.2 million expense and $7.4 million capital)    
related to the project. The project is being funded with cash flows from        
operations. The estimated cost of the project has not constrained Knoll's       
information systems budget or materially affected other necessary information   
systems activities.                                                             

    The costs and completion date of the project are based on the best estimates
of management, which were derived utilizing numerous assumptions of future      
events, including the continued availability of certain technical and consulting
resources. There can be no guarantee that these estimates are accurate. Actual  
results could differ materially from those anticipated and, therefore, could    
have a material adverse effect on Knoll's operations.                           

As the year 2000 issue is a global concern, Knoll's operations could be 
materially adversely affected by circumstances beyond its control. Disruptions  
in the economy generally resulting from year 2000 issues could materially       
adversely affect Knoll. Additionally, the year 2000 readiness of Knoll's        
vendors, dealers and other third parties (such as utility companies, the U.S.   
government and customers) on which it relies could impact Knoll's operations.   
Although Knoll's systems do not interface directly with those of third parties, 
the inability of these other parties to complete their year 2000 initiatives in 
a timely manner could have a material adverse effect on Knoll.                  

Knoll has no means of ensuring that its vendors, dealers and other third
parties will be year 2000 compliant in a timely manner. However, Knoll is       
actively working to determine the year 2000 readiness of these parties and to   
determine the actions, if any, that would be necessary to help minimize any     
potential adverse impact on Knoll. Knoll is formally communicating with vendors,
dealers and certain other third parties through questionnaires and on-site      
visits. For those vendors that Knoll deems to be at risk of not being adequately
prepared for the year 2000, Knoll has or will attempt to seek alternate sources 
for procuring product or supplies, build inventories or develop an appropriate  
contingency plan. To date,                                                      

69

PREM14A
80th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 80th
Knoll is not aware of any third-party year 2000 issue that is expected to       
materially adversely impact Knoll's operations.                                 

ENVIRONMENTAL MATTERS                                                           

  The past and present business operations of Knoll and the past and present
ownership and operation of manufacturing plants on real property by Knoll are   
subject to extensive and changing federal, state, local and foreign             
environmental laws and regulations. As a result, Knoll is involved from time to 
time in administrative and judicial proceedings and inquiries relating to       
environmental matters. Knoll cannot predict what environmental legislation or   
regulations will be enacted in the future, how existing or future laws or       
regulations will be administered or interpreted or what environmental conditions
may be found to exist. Compliance with more stringent laws or regulations, or   
stricter interpretation of existing laws, may require additional expenditures by
Knoll, some of which may be material. Knoll has been identified as a potentially
responsible party pursuant to CERCLA for remediation costs associated with waste
disposal sites previously used by Knoll. The remediation costs at these CERCLA  
sites are unknown, but Knoll does not expect any liability it may have under    
CERCLA to be material, based on the information presently known to Knoll. In    
addition, Westinghouse has agreed to indemnify Knoll for certain costs          
associated with CERCLA liabilities known as of the date of the acquisition of   
Knoll from Westinghouse.                                                        

70

PREM14A
81st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 81st
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    During the normal course of business, Knoll is routinely subjected to market
risk associated with interest rate movements and foreign currency exchange rate 
movements. Interest rate risk arises from Knoll's debt obligations and related  
interest rate collar agreements. Foreign currency exchange rate risk arises from
Knoll's foreign operations and purchases of inventory from foreign suppliers.   

INTEREST RATE RISK                                                              

Knoll has both fixed and variable rate debt obligations for other than  
trading purposes that are denominated in U.S. dollars. Changes in interest rates
have different impacts on the fixed and variable rate portions of the debt. A   
change in interest rates impacts the interest incurred and cash paid on the     
variable rate debt but does not impact the interest incurred or cash paid on the
fixed rate debt.                                                                

  Knoll uses interest rate collar agreements for other than trading purposes
in order to manage its exposure to fluctuations in interest rates on its        
variable rate debt. Such agreements effectively set agreed-upon maximum and     
minimum rates on a notional principal amount and utilize the London Interbank   
Offered Rate ("LIBOR") as a floating rate reference. The notional amounts are   
utilized to measure the amount of interest to be paid or received and do not    
represent the amount of exposure to credit loss. Fluctuations in LIBOR impact   
both the net financial instrument position and the amount of cash to be paid or 
received, if any. During the year ended December 31, 1998, Knoll was not        
required to make nor was it entitled to receive any payments as a result of     
these hedging activities.                                                       

    Knoll will continue to review its exposure to interest rate fluctuations and
evaluate whether it should manage such exposure through hedging transactions.   

    The following table summarizes Knoll's market risks associated with its debt
obligations and interest rate collar agreements as of December 31, 1998. For    
debt obligations, the table presents principal cash flows and average interest  
rates by year of maturity. Variable interest rates presented for variable rate  
debt represent the weighted average interest rates on Knoll's revolving credit  
facility borrowings as of December 31, 1998. For interest rate caps and floors, 
the table presents the notional amounts and related interest rates by year of   
maturity. The forward rates presented for the caps and floors are the average   
forward rates for the term of each contract.                                    

                                                        [Enlarge/Download Table]

                                   1999       2000       2001       2002       2003     THEREAFTER     TOTAL    FAIR VALUE 
                                 ---------  ---------  ---------  ---------  ---------  -----------  ---------  -----------
                                                                                                                           
                                                                   (DOLLARS IN THOUSANDS)                                  
RATE SENSITIVE LIABILITIES                                                                                                 
Long-term Debt:                                                                                                            
  Fixed Rate....................        --         --         --  $      81  $     100   $ 108,074   $ 108,255   $ 120,394 
    Average Interest Rate.......    10.79%     10.79%     10.79%     10.79%     10.80%      10.80%                         
  Variable Rate................. $  10,000         --         --  $  51,000         --          --   $  61,000   $  61,000 
    Average Interest Rate.......     5.76%      5.76%      5.76%      5.76%         --          --                         

RATE SENSITIVE DERIVATIVE                                                                                                  
  FINANCIAL INSTRUMENTS                                                                                                    
Interest Rate Caps:                                                                                                        
  Notional Amount............... $ 115,000         --         --         --         --          --   $ 115,000          -- 
  Strike Rate...................     7.97%         --         --         --         --          --                         
  Forward Rate..................     5.06%         --         --         --         --          --                         
Interest Rate Floors:                                                                                                      
  Notional Amount............... $ 115,000         --         --         --         --          --   $ 115,000          -- 
  Strike Rate...................     5.05%         --         --         --         --          --                         
  Forward Rate..................     5.06%         --         --         --         --          --                         

As of March 31, 1999, Knoll had $86.0 million of variable rate debt     
outstanding, which is an increase of $25.0 million from December 31, 1998. The  
fair value of this debt continues to approximate its carrying amount.           

71

PREM14A
82nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 82nd
FOREIGN CURRENCY EXCHANGE RATE RISK                                             

  Knoll manufactures its products in the United States, Canada and Italy and
sells its products in those markets as well as in other European countries.     
Knoll's foreign sales and certain expenses are transacted in foreign currencies.
The production costs, profit margins and competitive position of Knoll are      
affected by the strength of the currencies in countries where it manufactures or
purchases goods relative to the strength of the currencies in countries where   
its products are sold. Additionally, as Knoll's reporting currency is the U.S.  
dollar, Knoll's financial position is affected by the strength of the currencies
in countries where Knoll has operations relative to the strength of the U.S.    
dollar. The principal foreign currencies in which Knoll conducts business are   
the Canadian dollar and the Italian lira. For the year ended December 31, 1998, 
approximately 9.6% of Knoll's revenues and 27.3% of Knoll's expenses were       
denominated in currencies other than the U.S. dollar. Foreign currency exchange 
rate fluctuations did not have a material impact on Knoll's financial results   
during 1998.                                                                    

   Knoll generally does not hedge its foreign currency exposure. However, from
time to time, Knoll enters into foreign currency forward exchange contracts to  
manage its exposure to foreign exchange rates associated with purchases of      
inventory from foreign suppliers. The terms of these contracts are generally    
less than a year. Material gains and losses on these contracts are recognized in
income in the period the value of the contract changes. The contract amounts    
outstanding at December 31, 1998 as well as the amount of gains and losses      
recorded during the year ended December 31, 1998 are not material. Additionally,
Knoll does not anticipate any material adverse effect on its results of         
operations or financial position relating to these foreign currency forward     
exchange contracts.                                                             

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

    Certain portions of this proxy statement, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contain various 
forward-looking statements within the meaning of Section 27A of the Securities  
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent Knoll's expectations or beliefs concerning future   
events. Forward-looking statements relate to future operations, strategies,     
financial results or other developments and are not based on historical         
information. In particular, statements using verbs such as "anticipates,"       
"believes," "estimates," "expects" or words of similar meaning generally involve
forward-looking statements.                                                     

   Knoll cautions that its forward-looking statements are further qualified by
important factors that could cause actual results to differ materially from     
those in the forward-looking statements. Such factors include, without          
limitation, the highly competitive nature of the market in which Knoll competes,
including the introduction of new products, pricing changes by Knoll's          
competitors and growth rates of the office systems category; risks associated   
with Knoll's growth strategy, including the risk that Knoll's introduction of   
new products will not achieve the same degree of success achieved historically  
by Knoll's products; implementation of Knoll's information systems project,     
which could impair Knoll's operations if not implemented successfully or on     
time; Knoll's dependence on key personnel; the ability of Knoll to maintain its 
relationships with its dealers; Knoll's indebtedness, which requires a portion  
of Knoll's cash flow from operations to be dedicated to debt service, making    
such cash flow unavailable for other purposes, and which could limit Knoll's    
flexibility in reacting to changes in its industry or economic conditions       
generally; Knoll's reliance on its patents and other intellectual property;     
environmental laws and regulations, including those that may be enacted in the  
future, that affect the ownership and operation of Knoll's manufacturing plants;
risks relating to potential labor disruptions; fluctuations in foreign currency 
exchange rates; possible risks relating to year 2000 issues; and fluctuations in
industry revenues driven by a variety of macroeconomic factors, including white-
collar employment levels and corporate cash flows, as well as by a variety of   
industry factors such as corporate reengineering and restructuring, technology  
demands, ergonomic, health and safety concerns and corporate relocations.       

72

PREM14A
83rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 83rd
OTHER MATTERS 

PROPOSALS BY KNOLL STOCKHOLDERS                                                 

   If the merger is consummated, there will be no public stockholders of Knoll
and no public participation in any future meetings of stockholders of Knoll.    
However, if the merger is not consummated, Knoll's public stockholders will     
continue to be entitled to attend and participate in Knoll's stockholder        
meetings. If the merger is not consummated, the next annual meeting of          
Stockholders is expected to be held on or about May 15, 2000. If any Knoll      
stockholder wishes to present a proposal intended to be presented at the 2000   
annual meeting, notice must be received by Knoll no later than December 15, 1999
in order to be considered by the Board of Directors for inclusion in the proxy  
statement to be used in connection with the 2000 annual meeting.                

In order for a stockholder to bring other business before a stockholder 
meeting, timely notice must be received by Knoll within the time limits         
described above. Such notice must include a description of the proposed         
business, the reasons therefor, and other specific matters. These requirements  
are separate from and in addition to the requirements a stockholder must meet to
have a proposal considered for inclusion in Knoll's 2000 proxy statement.       
Proposals should be sent to the Secretary of Knoll, whose address is c/o Knoll, 
Inc., 1235 Water Street, East Greenville, Pennsylvania 18041.                   

WHERE YOU CAN FIND MORE INFORMATION                                             

As required by law, Knoll files reports, proxy statements and other     
information with the SEC. Because the merger is a "going-private" transaction,  
Knoll and the Continuing Stockholders have filed with the SEC a Rule 13E-3      
Transaction Statement on Schedule 13E-3 with respect to the merger. This proxy  
statement does not contain all of the information set forth in the Schedule     
13E-3 and the exhibits thereto, certain parts of which are omitted in accordance
with the rules and regulations of the SEC.                                      

   You can inspect and copy these materials at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,    
Washington, D.C. 20549, and at the following Regional Offices of the SEC: 500   
West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade     
Center, Suite 1300, New York, New York 10048. For further information concerning
the SEC's public reference rooms, you may call the SEC at 1-800-SEC-0330. Some  
of this information may also be accessed on the World Wide Web through the SEC's
Internet address at "http://www.sec.gov." Knoll's shares are listed on the NYSE,
and materials may also be inspected at its offices, 20 Broad Street, New York,  
New York 10005.                                                                 

   You should rely on the information contained in this proxy statement. Knoll
has not authorized anyone to give any information different from the information
contained in this proxy statement. This proxy statement is dated September   ,  
1999. You should not assume that the information contained in this proxy        
statement is accurate as of any later date, and the mailing of this proxy       
statement to stockholders will not create any implication to the contrary.      

73

PREM14A
84th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 84th
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

    The Board of Directors knows of no additional matters that will be presented
for consideration at the annual meeting. Execution of the accompanying proxy,   
however, confers on the designated proxy holders discretionary authority to vote
the shares of common stock covered thereby in accordance with their best        
judgment on such other business, if any, that may properly come before, and all 
matters incident to the conduct of, the annual meeting or any adjournments or   
postponements thereof.                                                          

                                                                [Download Table]
                                             
By Order of the Board of Directors,          

/s/ PATRICK A. MILBERGER                     
---------------------------------------------
Patrick A. Milberger                         
SECRETARY                                    

September   , 1999                                                              

74

PREM14A
85th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 85th
KNOLL, INC. 
INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                                              PAGE   
                                                                                                            ---------
                                                                                                                     
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                                              
Condensed Consolidated Balance Sheets at March 31, 1999 and December 31, 1998..............................       F-2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998.........       F-3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998.........       F-4
Notes to the Condensed Consolidated Financial Statements...................................................       F-5

AUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                                            
Report of Independent Auditors.............................................................................       F-7
Consolidated Balance Sheets at December 31, 1998 and 1997..................................................       F-8
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997, the Ten Months Ended           
  December 31, 1996 and the Two Months Ended February 29, 1996 (Predecessor)...............................       F-9
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997, the Ten Months Ended           
  December 31, 1996 and the Two Months Ended February 29, 1996 (Predecessor)...............................      F-10
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1998 and 1997,           
  the Ten Months Ended December 31, 1996 and the Two Months Ended February 29, 1996 (Predecessor)..........      F-11
Notes to the Consolidated Financial Statements.............................................................      F-12

Schedule II--Valuation and Qualifying Accounts.............................................................      F-45

F-1 

PREM14A
86th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 86th
KNOLL, INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS 

(UNAUDITED) 

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                               MARCH 31, 1999  DECEMBER 31, 1998
                                                                               --------------  -----------------
                                                                                                                
                                    ASSETS                                                                      
Current assets:                                                                                                 
  Cash and cash equivalents...................................................   $   17,906       $    17,465   
  Customer receivables, net...................................................      116,686           137,956   
  Inventories.................................................................       79,682            77,113   
  Deferred income taxes.......................................................       19,925            21,067   
  Prepaid and other current assets............................................       10,163             9,842   
                                                                               --------------        --------   
    Total current assets......................................................      244,362           263,443   
Property, plant and equipment.................................................      261,361           257,970   
Accumulated depreciation......................................................      (78,473)          (71,803)  
                                                                               --------------        --------   
    Property, plant and equipment, net........................................      182,888           186,167   
Intangible assets.............................................................      282,242           282,197   
Accumulated amortization......................................................      (24,123)          (22,154)  
                                                                               --------------        --------   
    Intangible assets, net....................................................      258,119           260,043   
Other noncurrent assets.......................................................        4,440             4,374   
                                                                               --------------        --------   
    Total Assets..............................................................   $  689,809       $   714,027   
                                                                               --------------        --------   
                                                                               --------------        --------   
                     LIABILITIES AND STOCKHOLDERS' EQUITY                                                       
Current liabilities:                                                                                            
  Current maturities of long-term debt........................................   $       --       $    10,000   
  Accounts payable............................................................       50,113            59,551   
  Income taxes payable........................................................        6,927             7,096   
  Other current liabilities...................................................       58,588            91,756   
                                                                               --------------        --------   
    Total current liabilities.................................................      115,628           168,403   
Long-term debt................................................................      194,205           159,255   
Postretirement benefits other than pensions...................................       18,769            18,450   
Other noncurrent liabilities..................................................       26,856            24,069   
                                                                               --------------        --------   
    Total liabilities.........................................................      355,458           370,177   
                                                                               --------------        --------   
Stockholders' equity:                                                                                           
  Common stock, $0.01 par value; 100,000,000 shares authorized; 40,645,363                                      
    shares issued and outstanding (net of 2,894,700 treasury shares) in 1999                                    
    and 41,799,499 shares issued and outstanding (net of 1,707,700 treasury                                     
    shares) in 1998...........................................................          406               418   
  Additional paid-in-capital..................................................      153,783           181,792   
  Unearned stock grant compensation...........................................         (642)             (712)  
  Retained earnings...........................................................      189,380           170,986   
  Accumulated other comprehensive income......................................       (8,576)           (8,634)  
                                                                               --------------        --------   
    Total stockholders' equity................................................      334,351           343,850   
                                                                               --------------        --------   
    Total Liabilities and Stockholders' Equity................................   $  689,809       $   714,027   
                                                                               --------------        --------   
                                                                               --------------        --------   

See accompanying notes. 

F-2 

PREM14A
87th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 87th
KNOLL, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(UNAUDITED) 

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                             THREE MONTHS ENDED  
                                                                                                 MARCH 31,       
                                                                                           ----------------------
                                                                                                                 
                                                                                              1999        1998   
                                                                                           ----------  ----------
Sales..................................................................................... $  209,210  $  220,775
Cost of sales.............................................................................    127,663     133,452
                                                                                           ----------  ----------
Gross profit..............................................................................     81,547      87,323
Selling, general and administrative expenses..............................................     45,413      49,273
                                                                                           ----------  ----------
Operating income..........................................................................     36,134      38,050
Interest expense..........................................................................      4,222       4,583
Other expense, net........................................................................        398         418
                                                                                           ----------  ----------
Income before income tax expense..........................................................     31,514      33,049
Income tax expense........................................................................     13,120      13,239
                                                                                           ----------  ----------
Net income................................................................................ $   18,394  $   19,810
                                                                                           ----------  ----------
                                                                                           ----------  ----------
Earnings per share:                                                                                              
  Basic................................................................................... $     0.47  $     0.48
  Diluted................................................................................. $     0.45  $     0.45
Weighted average shares of common stock outstanding:                                                             
  Basic...................................................................................     39,553      41,181
  Diluted.................................................................................     41,225      43,859

See accompanying notes. 

F-3 

PREM14A
88th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 88th
KNOLL, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(UNAUDITED) 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                              THREE MONTHS ENDED  
                                                                                                  MARCH 31,       
                                                                                             -------------------- 
                                                                                                                  
                                                                                               1999       1998    
                                                                                             ---------  --------- 
CASH FLOWS FROM OPERATING ACTIVITIES                                                                              
Net income.................................................................................. $  18,394  $  19,810 
Adjustments to reconcile net income to cash provided by operating activities:                                     
  Depreciation and amortization.............................................................     8,553      9,579 
  Other noncash items.......................................................................       620        376 
  Changes in assets and liabilities:                                                                              
    Customer receivables....................................................................    20,709       (184)
    Inventories.............................................................................    (2,928)    (6,728)
    Accounts payable........................................................................    (8,918)      (212)
    Current and deferred income taxes.......................................................     2,230      2,677 
    Other current assets and liabilities....................................................   (33,596)   (14,660)
    Other noncurrent assets and liabilities.................................................     2,248        661 
                                                                                             ---------  --------- 
Cash provided by operating activities.......................................................     7,312     11,319 
                                                                                             ---------  --------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                                                              
Purchases of property, plant and equipment..................................................    (3,573)    (5,483)
Proceeds from sale of assets................................................................        66          7 
                                                                                             ---------  --------- 
Cash used in investing activities...........................................................    (3,507)    (5,476)
                                                                                             ---------  --------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                                                              
Proceeds from (repayment of) revolving credit facility, net.................................    25,000    (10,000)
Net proceeds from issuance of stock.........................................................       649      3,290 
Purchase of common stock....................................................................   (28,675)        -- 
                                                                                             ---------  --------- 
Cash used in financing activities...........................................................    (3,026)    (6,710)
                                                                                             ---------  --------- 
Effect of exchange rate changes on cash and cash equivalents................................      (338)      (231)
                                                                                             ---------  --------- 
Increase (decrease) in cash and cash equivalents............................................       441     (1,098)
Cash and cash equivalents at beginning of period............................................    17,465     10,790 
                                                                                             ---------  --------- 
Cash and cash equivalents at end of period.................................................. $  17,906  $   9,692 
                                                                                             ---------  --------- 
                                                                                             ---------  --------- 

See accompanying notes. 

F-4 

PREM14A
89th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 89th
KNOLL, INC. 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1999

(UNAUDITED) 

1. BASIS OF PRESENTATION                                                        

 The accompanying unaudited condensed consolidated financial statements of
Knoll, Inc. (the "Company" or "Knoll") have been prepared in accordance with    
generally accepted accounting principles for interim financial information and  
with the instructions to Form 10-Q and Article 10 of Regulation S-X and         
therefore do not include all of the information and footnotes required by       
generally accepted accounting principles for complete financial statements. In  
the opinion of management, all adjustments (consisting only of normal recurring 
accruals) considered necessary for a fair presentation are reflected in the     
condensed consolidated financial statements. The condensed consolidated balance 
sheet as of December 31, 1998 is derived from the Company's 1998 audited balance
sheet. The unaudited condensed consolidated financial statements and notes      
thereto should be read in conjunction with the consolidated financial statements
and notes thereto contained in the Company's annual report on Form 10-K for the 
year ended December 31, 1998. The results of operations for the three months    
ended March 31, 1999 are not necessarily indicative of the results to be        
expected for the full year ending December 31, 1999.                            

2. PROPOSAL TO ACQUIRE SHARES OWNED BY PUBLIC STOCKHOLDERS                      

 On June 21, 1999, the Company announced that it has entered into a merger
agreement (which was amended on July 29, 1999) with Warburg, Pincus Ventures,   
L.P. ("Warburg"), which provides that a newly formed entity to be organized by  
Warburg would merge with and into Knoll. In the merger, the public shareholders 
of Knoll would receive $28.00 per share in cash for the approximately 17.7      
million shares owned by them, representing approximately 40% of the shares      
outstanding. The merger agreement was approved and adopted by the board of      
directors of the Company following the unanimous recommendation by a special    
committee of independent directors.                                             

   The merger is subject to, among other things, (1) approval at the Company's
1999 annual meeting by the holders of at least a majority of the outstanding    
Knoll common stock, (2) receipt of financing for the transaction as provided in 
the merger agreement and (3) receipt of consents to the merger from the holders 
of a majority of Knoll's outstanding senior subordinated notes. Knoll has       
received a commitment from Bank of America, N.A., The Chase Manhattan Bank and  
Merrill Lynch & Co. to provide, subject to certain conditions, the financing    
necessary to complete the merger. The merger is expected to be completed in     
October 1999.                                                                   

The Company also announced that it has entered into a memorandum of     
understanding with counsel to the plaintiffs in the shareholder lawsuits arising
from the merger. The memorandum of understanding provides for the settlement of 
such lawsuits based on the payment of a per share merger consideration of $28.00
and is subject to, among other things, completion of definitive documentation   
relating to the settlement, court approval and consummation of the merger.      

F-5 

PREM14A
90th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 90th
KNOLL, INC. 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

MARCH 31, 1999

(UNAUDITED) 

3. INVENTORIES                                                                  

                                                        [Enlarge/Download Table]

                                                                                  MARCH 31, 1999  DECEMBER 31, 1998
                                                                                  --------------  -----------------
                                                                                                                   
                                                                                           (IN THOUSANDS)          
Raw materials....................................................................   $   41,559        $  42,625    
Work in process..................................................................       11,619           11,827    
Finished goods...................................................................       26,504           22,661    
                                                                                       -------          -------    
Inventories......................................................................   $   79,682        $  77,113    
                                                                                       -------          -------    
                                                                                       -------          -------    

4. EARNINGS PER SHARE                                                           

The following table sets forth a reconciliation of the numerators and   
denominators of the basic and diluted earnings per share computations (in       
thousands, except per share amounts):                                           

                                                        [Enlarge/Download Table]

                                                                                          WEIGHTED                 
                                                                          NET INCOME   AVERAGE SHARES    PER SHARE 
                                                                          (NUMERATOR)   (DENOMINATOR)     AMOUNT   
                                                                          -----------  ---------------  -----------
                                                                                                                   
THREE MONTHS ENDED MARCH 31, 1999:                                                                                 
Basic earnings per share.................................................  $  18,394         39,553      $    0.47 
                                                                                                             ----- 
                                                                                                             ----- 
Effect of dilutive potential common shares:                                                                        
  Stock options..........................................................         --            245                
  Nonvested restricted stock grants......................................         --          1,427                
                                                                          -----------        ------                
Diluted earnings per share...............................................  $  18,394         41,225      $    0.45 
                                                                          -----------        ------          ----- 
                                                                          -----------        ------          ----- 
THREE MONTHS ENDED MARCH 31, 1998:                                                                                 
Basic earnings per share.................................................  $  19,810         41,181      $    0.48 
                                                                                                             ----- 
                                                                                                             ----- 
Effect of dilutive potential common shares:                                                                        
  Stock options..........................................................         --            609                
  Nonvested restricted stock grants......................................         --          2,069                
                                                                          -----------        ------                
Diluted earnings per share...............................................  $  19,810         43,859      $    0.45 
                                                                          -----------        ------          ----- 
                                                                          -----------        ------          ----- 

  Options to purchase 1,093,000 shares of common stock that were outstanding
as of March 31, 1999 were not included in the calculation of diluted earnings   
per share for the three months ended March 31, 1999. Such options were excluded 
from the calculation because their exercise prices exceeded the average market  
price of the common stock for the appropriate period and, therefore, the effect 
on earnings per share would have been antidilutive.                             

5. SHARE REPURCHASE PROGRAM                                                     

During the three months ended March 31, 1999, the Company purchased     
1,187,000 shares of its common stock for $28.7 million, or an average price of  
$24.16. Since the inception of the share repurchase program in September 1998,  
the Company has purchased 2,894,700 shares of its common stock for $67.5        
million, or an average price of $23.33 per share.                               

6. COMPREHENSIVE INCOME                                                         

Total comprehensive income for the three months ended March 31, 1999 and
1998 was $18.5 million and $19.8 million, respectively.                         

F-6 

PREM14A
91st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 91st
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders                                             
Knoll, Inc.                                                                     

   We have audited the accompanying consolidated balance sheets of Knoll, Inc.
as of December 31, 1998 and 1997 and the related consolidated statements of     
operations, changes in stockholders' equity and cash flows for the years ended  
December 31, 1998 and 1997 and the ten-month period ended December 31, 1996     
(post-acquisition periods), and the consolidated statements of operations,      
changes in stockholders' equity and cash flows of The Knoll Group, Inc.         
(Predecessor) for the two-month period ended February 29, 1996 (pre-acquisition 
period). Our audits also included the financial statement schedule listed in the
accompanying index. These financial statements and schedule are the             
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements and schedule 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 consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position of
Knoll, Inc. at December 31, 1998 and 1997 and the consolidated results of its   
operations and its cash flows for the post-acquisition periods in conformity    
with generally accepted accounting principles. Further, in our opinion, the     
aforementioned Predecessor consolidated financial statements present fairly, in 
all material respects, the consolidated results of operations and cash flows of 
The Knoll Group, Inc. for the pre-acquisition period in conformity with         
generally accepted accounting principles. Also, in our opinion, the related     
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the       
information set forth therein.                                                  

                         /S/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania                                                      
January 29, 1999 except for Note 20, as                                         
to which the date is February 10, 1999,                                       
and Notes 21 and 25, as to which the                                          
date is March 24, 1999                                                        

F-7 

PREM14A
92nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 92nd
KNOLL, INC. 

CONSOLIDATED BALANCE SHEETS 

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                                DECEMBER 31,      
                                                                                           ---------------------- 
                                                                                                                  
                                                                                              1998        1997    
                                                                                           ----------  ---------- 
                                          ASSETS                                                                  
Current assets:                                                                                                   
  Cash and cash equivalents............................................................... $   17,465  $   10,790 
  Customer receivables, net...............................................................    137,956     122,851 
  Inventories.............................................................................     77,113      68,249 
  Deferred income taxes...................................................................     21,067      21,295 
  Prepaid and other current assets........................................................      9,842       3,697 
                                                                                           ----------  ---------- 
    Total current assets..................................................................    263,443     226,882 
Property, plant and equipment, net........................................................    186,167     180,450 
Intangible assets, net....................................................................    260,043     270,677 
Other noncurrent assets...................................................................      4,374       2,850 
                                                                                           ----------  ---------- 
    Total Assets.......................................................................... $  714,027  $  680,859 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 
                           LIABILITIES AND STOCKHOLDERS' EQUITY                                                   
Current liabilities:                                                                                              
  Current maturities of long-term debt.................................................... $   10,000  $   10,000 
  Accounts payable........................................................................     59,551      66,697 
  Income taxes payable....................................................................      7,096       6,791 
  Other current liabilities...............................................................     91,756      77,841 
                                                                                           ----------  ---------- 
    Total current liabilities.............................................................    168,403     161,329 
Long-term debt............................................................................    159,255     197,029 
Deferred income taxes.....................................................................     10,678       5,301 
Postretirement benefits other than pensions...............................................     18,450      16,424 
Other noncurrent liabilities..............................................................     13,391      12,487 
                                                                                           ----------  ---------- 
    Total liabilities.....................................................................    370,177     392,570 
                                                                                           ----------  ---------- 
Stockholders' equity:                                                                                             
  Common stock, $0.01 par value; authorized 100,000,000 shares; 41,799,499 shares issued                          
    and outstanding (net of 1,707,700 treasury shares) in 1998; 43,234,943 shares issued                          
    and outstanding in 1997...............................................................        418         432 
  Additional paid-in-capital..............................................................    181,792     214,950 
  Unearned stock grant compensation.......................................................       (712)       (993)
  Retained earnings.......................................................................    170,986      77,942 
  Accumulated other comprehensive income..................................................     (8,634)     (4,042)
                                                                                           ----------  ---------- 
    Total stockholders' equity............................................................    343,850     288,289 
                                                                                           ----------  ---------- 
    Total Liabilities and Stockholders' Equity............................................ $  714,027  $  680,859 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

See accompanying notes to the consolidated financial statements.

F-8 

PREM14A
93rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 93rd
KNOLL, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS 

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                                      THE KNOLL   
                                                                                                     GROUP, INC.  
                                                                          (UNAUDITED)                (PREDECESSOR)
                                                                         SUPPLEMENTAL                -----------  
                                                  YEAR         YEAR        PRO FORMA    TEN MONTHS   TWO MONTHS   
                                                  ENDED        ENDED         DATA          ENDED        ENDED     
                                                DECEMBER     DECEMBER     YEAR ENDED     DECEMBER     FEBRUARY    
                                                   31,          31,      DECEMBER 31,       31,          29,      
                                                  1998         1997          1996          1996         1996      
                                               -----------  -----------  -------------  -----------  -----------  
                                                                           (NOTE 3)                               
                                                                                                                  
Sales.........................................  $ 948,691    $ 810,857     $ 651,766     $ 561,534    $  90,232   
Cost of sales.................................    572,756      489,962       419,908       358,841       59,714   
                                               -----------  -----------  -------------  -----------  -----------  
Gross profit..................................    375,935      320,895       231,858       202,693       30,518   
Selling, general and administrative                                                                               
  expenses....................................    204,392      183,018       153,388       131,349       21,256   
Westinghouse long-term incentive                                                                                  
  compensation................................         --           --            --            --       47,900   
Allocated corporate expenses..................         --           --            --            --          921   
                                               -----------  -----------  -------------  -----------  -----------  
Operating income (loss).......................    171,543      137,877        78,470        71,344      (39,559)  
Interest expense..............................     16,860       25,075        40,030        32,952          340   
Other income (expense), net...................      2,732        1,667           151           447         (296)  
                                               -----------  -----------  -------------  -----------  -----------  
Income (loss) before income tax expense                                                                           
  (benefit) and extraordinary item............    157,415      114,469        38,591        38,839      (40,195)  
Income tax expense (benefit)..................     64,371       48,026        16,848        16,844      (16,107)  
                                               -----------  -----------  -------------  -----------  -----------  
Income (loss) before extraordinary item.......     93,044       66,443        21,743        21,995      (24,088)  
Extraordinary loss on early extinguishment of                                                                     
  debt, net of taxes..........................         --        5,337         5,159         5,159           --   
                                               -----------  -----------  -------------  -----------  -----------  
Net income (loss).............................  $  93,044    $  61,106     $  16,584     $  16,836    $ (24,088)  
                                               -----------  -----------  -------------  -----------  -----------  
                                               -----------  -----------  -------------  -----------  -----------  
Earnings per share (Note 2):                                                                                      
  Income before extraordinary item:                                                                               
    Basic.....................................  $    2.25    $    1.78     $    0.70     $    0.71                
    Diluted...................................  $    2.14    $    1.64     $    0.63     $    0.63                
  Net income:                                                                                                     
    Basic.....................................  $    2.25    $    1.64     $    0.53     $    0.54                
    Diluted...................................  $    2.14    $    1.51     $    0.48     $    0.48                
Weighted average shares of common stock (Note                                                                     
  2):                                                                                                             
    Basic.....................................     41,271       37,284        31,040        31,040                
    Diluted...................................     43,509       40,398        34,701        34,701                

Supplemental pro forma as adjusted data                                                                           
  (Unaudited) (Note 5):                                                                                           
    Pro forma net income......................               $  68,075     $  25,168                              
    Pro forma net income per share of common                                                                      
      stock (Note 2):                                                                                             
        Basic.................................               $    1.69     $    0.64                              
        Diluted...............................               $    1.57     $    0.58                              
    Pro forma weighted average shares of                                                                          
      common stock (Note 2):                                                                                      
        Basic.................................                  40,287        39,520                              
        Diluted...............................                  43,400        43,181                              

See accompanying notes to the consolidated financial statements.

F-9 

PREM14A
94th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 94th
KNOLL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                          THE KNOLL   
                                                                                         GROUP, INC.  
                                                                                         (PREDECESSOR)
                                                                                         -----------  
                                                     YEAR         YEAR      TEN MONTHS   TWO MONTHS   
                                                     ENDED        ENDED        ENDED        ENDED     
                                                   DECEMBER     DECEMBER     DECEMBER     FEBRUARY    
                                                      31,          31,          31,          29,      
                                                     1998         1997         1996         1996      
                                                  -----------  -----------  -----------  -----------  
                                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES                                                                  
Net income (loss)................................  $  93,044    $  61,106    $  16,836    $ (24,088)  
Noncash items included in income:                                                                     
  Depreciation...................................     28,686       25,082       19,251        3,150   
  Amortization of intangible assets..............      7,816        8,041        7,881        1,167   
  Extraordinary loss.............................         --        8,838        8,542           --   
  Other noncash items............................     (1,636)         240          477           --   
Changes in assets and liabilities:                                                                    
  Customer receivables...........................    (15,184)     (12,176)      (5,110)       8,798   
  Inventories....................................     (9,061)     (11,381)       1,416          671   
  Accounts payable...............................     (6,452)      18,052       15,870      (15,292)  
  Current and deferred income taxes..............        591       15,896       (3,961)     (16,627)  
  Other current assets...........................       (237)       1,674          747        2,283   
  Other current liabilities......................     13,547       12,849       18,372       (7,190)  
  Other noncurrent assets and liabilities........      3,449        7,041        9,181       (6,911)  
                                                  -----------  -----------  -----------  -----------  
Cash provided by (used in) operating                                                                  
  activities.....................................    114,563      135,262       89,502      (54,039)  
                                                  -----------  -----------  -----------  -----------  

CASH FLOWS FROM INVESTING ACTIVITIES                                                                  
Acquisition of the Company from Westinghouse.....         --           --     (579,801)          --   
Capital expenditures.............................    (36,390)     (33,080)     (15,255)      (2,296)  
Proceeds from sale of assets.....................        152          164          218           --   
                                                  -----------  -----------  -----------  -----------  
Cash used in investing activities................    (36,238)     (32,916)    (594,838)      (2,296)  
                                                  -----------  -----------  -----------  -----------  

CASH FLOWS FROM FINANCING ACTIVITIES                                                                  
Repayment of short-term debt, net................         --           --       (1,483)      (3,805)  
Proceeds from (repayment of) revolving credit                                                         
  facility, net..................................    (38,000)     (79,000)      88,000           --   
Proceeds from long-term debt.....................        201           --      525,000           --   
Repayment of long-term debt......................         --      (67,988)    (260,130)          --   
Premium paid for early extinguishment of debt....         --       (5,775)          --           --   
Net proceeds from issuance of stock..............      4,813      133,559      160,400           --   
Redemption of preferred stock....................         --      (80,000)          --           --   
Purchase of common stock.........................    (38,849)          --           --           --   
Net receipts from parent company.................         --           --           --       60,848   
                                                  -----------  -----------  -----------  -----------  
Cash provided by (used in) financing                                                                  
  activities.....................................    (71,835)     (99,204)     511,787       57,043   
                                                  -----------  -----------  -----------  -----------  
Effect of exchange rate changes on cash and cash                                                      
  equivalents....................................        185       (1,156)          18           58   
                                                  -----------  -----------  -----------  -----------  
Increase in cash and cash equivalents............      6,675        1,986        6,469          766   
Cash and cash equivalents at beginning of                                                             
  period.........................................     10,790        8,804        2,335        1,569   
                                                  -----------  -----------  -----------  -----------  
Cash and cash equivalents at end of period.......  $  17,465    $  10,790    $   8,804    $   2,335   
                                                  -----------  -----------  -----------  -----------  
                                                  -----------  -----------  -----------  -----------  

See accompanying notes to the consolidated financial statements.

F-10

PREM14A
95th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 95th
KNOLL, INC. 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                UNEARNED STOCK              
                                                       PREFERRED     COMMON       ADDITIONAL         GRANT        RETAINED  
                                                         STOCK        STOCK     PAID-IN-CAPITAL  COMPENSATION     EARNINGS  
                                                      -----------  -----------  --------------  ---------------  -----------
                                                                                                                            
THE KNOLL GROUP, INC. (PREDECESSOR)                                                                                         
Balance at December 31, 1995........................   $      --    $      --     $       --       $      --      $      -- 
Net loss............................................          --           --             --              --             -- 
Foreign currency translation adjustment.............          --           --             --              --             -- 
  Comprehensive loss................................                                                                        
Capital expenditures................................          --           --             --              --             -- 
Net interunit transactions..........................          --           --             --              --             -- 
                                                      -----------       -----   --------------       -------     -----------
Balance at February 29, 1996........................   $      --    $      --     $       --       $      --      $      -- 
                                                      -----------       -----   --------------       -------     -----------
                                                      -----------       -----   --------------       -------     -----------


----------------------------------------------------------------------------------------------------------------------------
                                                                                                                            
Balance at March 1, 1996 (shares: 1,599,000                                                                                 
  preferred and 3,139,430 common)...................   $   1,599    $      31     $  158,370       $      --      $      -- 
Net income..........................................          --           --             --              --         16,836 
Foreign currency translation adjustment.............          --           --             --              --             -- 
  Comprehensive income..............................                                                                        
Shares issued for consideration (shares: 3,998                                                                              
  preferred, 7,848 common)..........................           4           --            396              --             -- 
Shares issued under stock incentive plan (4,144,030                                                                         
  shares)...........................................          --           42          1,381          (1,423)            -- 
Earned stock grant compensation.....................          --           --             --              36             -- 
                                                      -----------       -----   --------------       -------     -----------
Balance at December 31, 1996........................       1,603           73        160,147          (1,387)        16,836 
Net income..........................................          --           --             --              --         61,106 
Foreign currency translation adjustment.............          --           --             --              --             -- 
  Comprehensive income..............................                                                                        
Shares issued for consideration (8,502,716                                                                                  
  shares)...........................................          --           85        133,474              --             -- 
800,000 preferred shares redeemed for $80,000 and                                                                           
  11,749,361 common shares..........................        (800)         117        (79,317)             --             -- 
802,998 preferred shares converted into 15,691,558                                                                          
  common shares.....................................        (803)         157            646              --             -- 
Earned stock grant compensation.....................          --           --             --             394             -- 
                                                      -----------       -----   --------------       -------     -----------
Balance at December 31, 1997........................          --          432        214,950            (993)        77,942 
Net income..........................................          --           --             --              --         93,044 
Foreign currency translation adjustment.............          --           --             --              --             -- 
  Comprehensive income..............................                                                                        
Shares issued for consideration:                                                                                            
  Exercise of stock options, including tax benefit                                                                          
    of $864 (196,647 shares)........................          --            2          4,020              --             -- 
  Other (75,609 shares).............................          --            1          1,654              --             -- 
  Purchase of common stock (1,707,700 shares).......          --          (17)       (38,832)             --             -- 
Earned stock grant compensation.....................          --           --             --             281             -- 
                                                      -----------       -----   --------------       -------     -----------
Balance at December 31, 1998 (41,799,499 shares)....   $      --    $     418     $  181,792       $    (712)     $ 170,986 
                                                      -----------       -----   --------------       -------     -----------
                                                      -----------       -----   --------------       -------     -----------


                                                                       ACCUMULATED OTHER       TOTAL                        
                                                      PARENT COMPANY     COMPREHENSIVE     STOCKHOLDERS'                    
                                                        INVESTMENT           INCOME           EQUITY                        
                                                      ---------------  ------------------  -------------                    
                                                                                                                            
THE KNOLL GROUP, INC. (PREDECESSOR)                                                                                         
Balance at December 31, 1995........................     $ 503,317         $  (22,866)       $ 480,451                      
                                                                                           -------------                    
Net loss............................................       (24,088)                --          (24,088)                     
Foreign currency translation adjustment.............            --                 58               58                      
                                                                                           -------------                    
  Comprehensive loss................................                                           (24,030)                     
                                                                                           -------------                    
Capital expenditures................................         2,296                 --            2,296                      
Net interunit transactions..........................        58,552                 --           58,552                      
                                                      ---------------        --------      -------------                    
Balance at February 29, 1996........................     $ 540,077         $  (22,808)       $ 517,269                      
                                                      ---------------        --------      -------------                    
                                                      ---------------        --------      -------------                    
----------------------------------------------------                                                                        
                                                                                                                            
Balance at March 1, 1996 (shares: 1,599,000                                                                                 
  preferred and 3,139,430 common)...................     $      --         $       --        $ 160,000                      
                                                                                           -------------                    
Net income..........................................            --                 --           16,836                      
Foreign currency translation adjustment.............            --                532              532                      
                                                                                           -------------                    
  Comprehensive income..............................                                            17,368                      
                                                                                           -------------                    
Shares issued for consideration (shares: 3,998                                                                              
  preferred, 7,848 common)..........................            --                 --              400                      
Shares issued under stock incentive plan (4,144,030                                                                         
  shares)...........................................            --                 --               --                      
Earned stock grant compensation.....................            --                 --               36                      
                                                      ---------------        --------      -------------                    
Balance at December 31, 1996........................            --                532          177,804                      
                                                                                           -------------                    
Net income..........................................            --                 --           61,106                      
Foreign currency translation adjustment.............            --             (4,574)          (4,574)                     
                                                                                           -------------                    
  Comprehensive income..............................                                            56,532                      
                                                                                           -------------                    
Shares issued for consideration (8,502,716                                                                                  
  shares)...........................................            --                 --          133,559                      
800,000 preferred shares redeemed for $80,000 and                                                                           
  11,749,361 common shares..........................            --                 --          (80,000)                     
802,998 preferred shares converted into 15,691,558                                                                          
  common shares.....................................            --                 --               --                      
Earned stock grant compensation.....................            --                 --              394                      
                                                      ---------------        --------      -------------                    
Balance at December 31, 1997........................            --             (4,042)         288,289                      
                                                                                           -------------                    
Net income..........................................            --                 --           93,044                      
Foreign currency translation adjustment.............            --             (4,592)          (4,592)                     
                                                                                           -------------                    
  Comprehensive income..............................                                            88,452                      
                                                                                           -------------                    
Shares issued for consideration:                                                                                            
  Exercise of stock options, including tax benefit                                                                          
    of $864 (196,647 shares)........................            --                 --            4,022                      
  Other (75,609 shares).............................            --                 --            1,655                      
  Purchase of common stock (1,707,700 shares).......            --                 --          (38,849)                     
Earned stock grant compensation.....................            --                 --              281                      
                                                      ---------------        --------      -------------                    
Balance at December 31, 1998 (41,799,499 shares)....     $      --         $   (8,634)       $ 343,850                      
                                                      ---------------        --------      -------------                    
                                                      ---------------        --------      -------------                    

See accompanying notes to the consolidated financial statements.

F-11

PREM14A
96th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 96th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION                                       

  Knoll, Inc. and its subsidiaries (the "Company" or "Knoll") are engaged in
the design, manufacture and sale of office furniture products and accessories,  
focusing on the middle to high-end segments of the contract furniture market.   
The Company has operations in the United States ("U.S."), Canada and Europe and 
sells its products primarily through its direct sales representatives and       
independent dealers.                                                            

  The Company was formed on February 29, 1996 as a result of the acquisition
of the office furniture business unit (The Knoll Group, Inc. and related        
entities) of Westinghouse Electric Corporation, currently known as CBS          
Corporation ("Westinghouse"). See Note 3 for further discussion of the          
acquisition.                                                                    

The accompanying consolidated financial statements present the financial
position of the Company as of December 31, 1998 and 1997, the results of        
operations, cash flows and changes in stockholders' equity of the Company for   
the years ended December 31, 1998 and 1997 and the ten-month period ended       
December 31, 1996 and the results of operations, cash flows and changes in      
stockholders' equity of The Knoll Group, Inc. and related entities (the         
"Predecessor") for the two-month period ended February 29, 1996. In addition,   
unaudited supplemental pro forma results of operations data of the Company has  
been provided for the years ended December 31, 1997 and 1996. Such data is      
provided solely for additional analysis and is not intended to be a presentation
in accordance with generally accepted accounting principles (see Note 5).       

   Since the Predecessor was a business unit of Westinghouse, the accompanying
financial statements of the Predecessor include estimates for certain expenses  
incurred by Westinghouse on its behalf. These expenses generally include, but   
are not limited to, officer and employee salaries, rent, depreciation,          
accounting and legal services, other selling, general and administrative        
expenses and other such expenses.                                               

    The operating results of the European subsidiaries are reported and included
in the consolidated financial statements on a one-month lag to allow for the    
timely presentation of consolidated information. The effect of this presentation
is not material to the financial statements.                                    

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

PRINCIPLES OF CONSOLIDATION                                                     

    The consolidated financial statements of the Company include the accounts of
Knoll, Inc. and its wholly owned subsidiaries. Intercompany transactions and    
balances have been eliminated in consolidation.                                 

The consolidated financial statements of the Predecessor include the    
accounts of The Knoll Group, Inc. and related entities after elimination of     
intercompany transactions except for those with other units of Westinghouse.    

CASH AND CASH EQUIVALENTS                                                       

Cash and cash equivalents includes cash on hand and investments with    
original maturities of three months or less.                                    

F-12

PREM14A
97th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 97th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)                    
INVENTORIES                                                                     

 Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.                                           

PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION                                     

 Property, plant and equipment are recorded at cost. Depreciation of plant
and equipment is computed using the straight-line method over the estimated     
useful lives of the assets. The useful lives are as follows: 45 years for       
buildings and 3 to 12 years for machinery and equipment.                        

INTANGIBLE ASSETS                                                               

Intangible assets consist of goodwill, trademarks and deferred financing
fees. Goodwill is recorded at the amount by which cost exceeds the net assets of
acquired businesses, and all other intangible assets are recorded at cost.      
Goodwill and trademarks are amortized under the straight-line method over 40    
years, while deferred financing fees are amortized over the life of the         
respective debt.                                                                

  Management reviews the carrying value of goodwill and other intangibles on
an ongoing basis. When factors indicate that an intangible asset may be         
impaired, management uses an estimate of the undiscounted future cash flows over
the remaining life of the asset in measuring whether the intangible asset is    
recoverable. If such an analysis indicates that impairment has in fact occurred,
the book value of the intangible asset is written down to its estimated fair    
value.                                                                          

REVENUE RECOGNITION                                                             

Sales are recognized as products are shipped and services are rendered. 

INCOME TAXES                                                                    

Deferred tax assets and liabilities are recognized for the future tax   
consequences attributable to temporary differences between the financial        
statement carrying amounts of existing assets and liabilities and their         
respective tax bases and are measured using enacted tax rates expected to apply 
to taxable income in the years in which the temporary differences are expected  
to reverse. Income taxes are provided in the accompanying financial statements  
of the Predecessor as if the Predecessor had filed a separate tax return.       

FOREIGN CURRENCY TRANSLATION                                                    

    Results of foreign operations are translated into U.S. dollars using average
exchange rates during the period, while assets and liabilities are translated   
into U.S. dollars using exchange rates in effect at the balance sheet date. The 
resulting translation adjustments are recorded in, and are the only component   
of, accumulated other comprehensive income.                                     

Transaction gains and losses resulting from exchange rate changes on    
transactions denominated in currencies other than the functional currency are   
included in income in the year in which the change occurs.                      

F-13

PREM14A
98th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 98th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)                    
STOCK-BASED COMPENSATION                                                        

Statement of Financial Accounting Standards No. 123, "Accounting for    
Stock-Based Compensation" ("SFAS 123"), encourages entities to record           
compensation expense for stock-based employee compensation plans at fair value  
but provides the option of measuring compensation expense using the intrinsic   
value method prescribed in Accounting Principles Board Opinion No. 25,          
"Accounting for Stock Issued to Employees" ("APB 25"). The Company accounts for 
stock-based compensation in accordance with APB 25. Pro forma results of        
operations as if SFAS 123 had been used to account for stock-based compensation 
plans are presented in Note 20.                                                 

SHARE AND PER SHARE AMOUNTS                                                     

Because of the significance of the redemption and conversion into common
stock of the outstanding Series A 12% Participating Convertible Preferred Stock 
("Series A Preferred Stock") as discussed in Note 4, historical earnings per    
share amounts for the year ended December 31, 1997 and the ten months ended     
December 31, 1996 are not presented herein. Earnings per share amounts reported 
for these periods are pro forma as they are based on the weighted average number
of shares of common stock and potentially dilutive securities (employee stock   
options and nonvested restricted stock grants) outstanding during the periods,  
after giving effect to the redemption and conversion into common stock of the   
Series A Preferred Stock assuming such redemption and conversion had occurred at
the beginning of the periods. In addition, pursuant to Securities and Exchange  
Commission Staff Accounting Bulletin No. 98, all common stock and options to    
purchase common stock issued for nominal consideration prior to the initial     
public offering (see Note 4) have been reflected as outstanding as of the       
beginning of each of these periods.                                             

All numbers of shares of common stock and per share amounts for 1997 and
1996 have been adjusted, as necessary, to give retroactive effect to the        
3.13943-for-1 stock split that occurred on May 6, 1997.                         

USE OF ESTIMATES                                                                

   The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates  
and assumptions that affect the reported amounts of certain assets, liabilities,
revenues and expenses and the disclosure of certain contingent assets and       
liabilities. Actual future results may differ from such estimates.              

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT                                        

    In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software      
Developed for or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective 
for the Company beginning on January 1, 1999. It requires the capitalization of 
certain costs incurred after the date of adoption in connection with developing 
or obtaining software for internal use. The Company currently expenses such     
costs as incurred. The Company believes that the adoption of SOP 98-1 will not  
have a material impact on the Company's future earnings or financial position.  

F-14

PREM14A
99th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 99th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)                    
RECLASSIFICATIONS                                                               

    Certain amounts for 1997 and 1996 in the accompanying consolidated financial
statements have been reclassified to conform to the 1998 classifications.       

3. ACQUISITION                                                                  

  On December 20, 1995, Westinghouse entered into a Stock Purchase Agreement
(the "Agreement") with T.K.G. Acquisition Corp. ("TKG"), a subsidiary of        
Warburg, Pincus Ventures, L.P. Under the terms of the Agreement, TKG acquired   
all of the outstanding capital stock of The Knoll Group, Inc. and related       
entities on February 29, 1996 through its wholly owned subsidiary T.K.G.        
Acquisition Sub, Inc. Immediately following this transaction, T.K.G. Acquisition
Sub, Inc. and The Knoll Group, Inc. merged with and into Knoll North America,   
Inc., the principal U.S. operating company of The Knoll Group, Inc. Knoll North 
America, Inc. changed its name to Knoll, Inc. at the time of the merger. On     
March 14, 1997, Knoll, Inc. merged with and into TKG. TKG then changed its name 
to Knoll, Inc.                                                                  

The cost of the acquisition was $579,801,000. TKG funded the acquisition
through proceeds of $160,000,000 received from the sale of TKG capital stock,   
$165,000,000 received from an offering of 10.875% Senior Subordinated Notes due 
2006 (the "Senior Subordinated Notes") and $260,000,000 in borrowings under     
senior bank credit facilities. T.K.G. Acquisition Sub, Inc. executed the        
offering of the Senior Subordinated Notes and borrowings under the credit       
facilities. As such, upon the acquisition and subsequent mergers, the Senior    
Subordinated Notes and credit facility borrowings became obligations of Knoll,  
Inc.                                                                            

  The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired and   
liabilities assumed based upon fair market value at the date of acquisition. The
excess of the consideration paid over the estimated fair value of the net assets
acquired, totaling $66,850,000, has been recorded as goodwill and is being      
amortized on a straight-line basis over 40 years.                               

    Supplemental pro forma results of operations for the year ended December 31,
1996 have been presented for comparative purposes only. Such results include    
certain adjustments, such as additional depreciation expense as a result of a   
step-up in the basis of fixed assets, additional selling, general and           
administrative costs for services previously provided by Westinghouse,          
additional amortization expense as a result of goodwill and other intangible    
assets, increased interest expense as a result of the debt assumed to finance   
the acquisition, elimination of incentive compensation under Westinghouse's     
long-term incentive plans that became payable, and for which amounts payable    
were established, as a result of the acquisition, and related income tax        
effects. Such results do not purport to be indicative of the actual results that
would have occurred had the acquisition been consummated at the beginning of    
1996, nor do they purport to be indicative of results that will be achieved in  
the future.                                                                     

4. INITIAL PUBLIC OFFERING                                                      

The Company completed an initial public offering (the "IPO") during the 
second quarter of 1997. An aggregate of 9,200,000 shares, including 720,000     
shares sold by a selling stockholder, were sold during May and June 1997 at     
$17.00 per share. The net proceeds to the Company amounted to $133,440,000 after
deducting related expenses. The net proceeds, together with borrowings of       

F-15

PREM14A
100th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 100th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

4. INITIAL PUBLIC OFFERING -- (CONTINUED)                                       
$11,673,000 under the Company's then-existing revolving credit facility, were   
used (i) to redeem 800,000 shares of Series A Preferred Stock and (ii) to redeem
an aggregate principal amount of $57,750,000 of the Company's Senior            
Subordinated Notes for a total redemption price of $65,113,000, including a     
redemption premium of $5,775,000 and accrued and unpaid interest thereon of     
$1,588,000. The 800,000 shares of Series A Preferred Stock were redeemed for    
$80,000,000 and 11,749,361 shares of common stock. Additionally, in connection  
with the IPO, another 802,998 shares of Series A Preferred Stock were converted 
into 15,691,558 shares of common stock.                                         

5. SUPPLEMENTAL PRO FORMA AS ADJUSTED DATA (UNAUDITED)                          

The supplemental pro forma as adjusted data is included for purposes of 
additional analysis. It presents results of operations assuming that the IPO and
the application of the net proceeds to the Company therefrom together with      
related borrowings under the Company's then-existing revolving credit facility  
occurred at the beginning of the respective periods. Such pro forma as adjusted 
data does not reflect extraordinary losses of $5,337,000 and $5,159,000, net of 
taxes, incurred in 1997 and 1996, respectively, in connection with the early    
redemption of debt (see Note 12). The supplemental pro forma as adjusted        
weighted average shares of common stock outstanding reflect the issuance of the 
Company's common stock in the IPO and the redemption and conversion into common 
stock of the Series A Preferred Stock (see Note 4) as of the beginning of each  
period presented.                                                               

  The supplemental pro forma as adjusted data reflects interest savings from
the redemption of an aggregate principal amount of $57,750,000 of the Company's 
Senior Subordinated Notes, additional interest expense incurred on $11,673,000  
in related borrowings under the Company's then-existing revolving credit        
facility and related income tax effects. Interest expense (including the        
amortization of deferred financing fees) has been decreased by $2,702,000 and   
$5,671,000 for the years ended December 31, 1997 and 1996, respectively.        
Interest adjustments are based on the actual interest rate of 10.875% for the   
Senior Subordinated Notes and a weighted average interest rate of 6.6% in 1997  
and 8.25% in 1996 for the then-existing revolving credit facility. The weighted 
average interest rates approximate the actual interest rates for the period     
January 1, 1997 to May 8, 1997, the period preceding the IPO, and the ten-month 
period ended December 31, 1996, respectively, for the Company's average         
outstanding borrowings under the then-existing senior credit facilities. Income 
tax expense has been increased by $1,070,000 and $2,246,000 for the years ended 
December 31, 1997 and 1996, respectively, to reflect the assumed income tax     
effects of the interest expense adjustments.                                    

The supplemental pro forma as adjusted information does not purport to  
represent what the Company's results actually would have been if the            
aforementioned events had occurred at the beginning of each period presented,   
nor does such information purport to project the results of the Company for any 
future periods. The unaudited supplemental pro forma as adjusted financial      
information is based upon assumptions that the Company believes are reasonable. 

6. RELATED PARTY TRANSACTIONS OF THE PREDECESSOR                                

The Predecessor purchased products from and sold products to other      
Westinghouse operations. Additionally, Westinghouse provided certain services to
the Predecessor, some of which the Predecessor purchased and some of which      
Westinghouse charged directly to the Predecessor. Services that the Predecessor 
purchased from Westinghouse included telecommunications, printing and           
productivity and quality consulting. Other services provided by Westinghouse for
which the Predecessor was charged                                               

F-16

PREM14A
101st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 101st
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

6. RELATED PARTY TRANSACTIONS OF THE PREDECESSOR -- (CONTINUED)                 
directly included information systems support; certain accounting functions,    
such as transaction processing; legal, environmental affairs and human resources
consulting and compliance support; and liability, property and workers'         
compensation insurance programs administration. The cost of all services        
provided by Westinghouse, whether they were purchased by the Predecessor or     
charged directly to the Predecessor by Westinghouse, are included in the        
Predecessor's results of operations for the two months ended February 29, 1996. 

Westinghouse did not charge its business units for the carrying costs   
related to its investment in such units (i.e. parent company investment).       
Therefore, the Predecessor's results of operations for the two months ended     
February 29, 1996 do not include any allocated interest charges from            
Westinghouse.                                                                   

Certain members of management of the Predecessor were participants in a 
long-term incentive compensation plan established by Westinghouse. The plan     
provided for the payment of awards at the end of a five-year period based on the
achievement of certain performance goals set by Westinghouse's Board of         
Directors. As a result of the consummation of the acquisition discussed in Note 
3, the payment of awards was accelerated pursuant to the terms of the plan,     
resulting in a charge to operations of $47,900,000 for the two months ended     
February 29, 1996.                                                              

7. CUSTOMER RECEIVABLES                                                         

    Customer receivables are presented net of an allowance for doubtful accounts
of $5,057,000 and $5,461,000 at December 31, 1998 and 1997, respectively.       
Management performs ongoing credit evaluations of its customers and generally   
does not require collateral. As of December 31, 1998 and 1997, the U.S.         
government represented approximately 11.4% and 13.8%, respectively, of gross    
customer receivables.                                                           

8. INVENTORIES                                                                  

                                                        [Enlarge/Download Table]

                                                                                                 DECEMBER 31,    
                                                                                             --------------------
                                                                                                                 
                                                                                               1998       1997   
                                                                                             ---------  ---------


                                                                                                (IN THOUSANDS)   
                                                                                                                 
Raw materials............................................................................... $  42,625  $  37,868
Work in process.............................................................................    11,827      9,638
Finished goods..............................................................................    22,661     20,743
                                                                                             ---------  ---------
Inventories................................................................................. $  77,113  $  68,249
                                                                                             ---------  ---------
                                                                                             ---------  ---------

F-17

PREM14A
102nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 102nd
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

9. PROPERTY, PLANT AND EQUIPMENT                                                

                                                        [Enlarge/Download Table]

                                                                                                DECEMBER 31,      
                                                                                           ---------------------- 
                                                                                                                  
                                                                                              1998        1997    
                                                                                           ----------  ---------- 


                                                                                               (IN THOUSANDS)     
                                                                                                                  
Land and buildings........................................................................ $   67,303  $   62,249 
Machinery and equipment...................................................................    169,261     139,592 
Construction in progress..................................................................     21,406      22,433 
                                                                                           ----------  ---------- 
Property, plant and equipment.............................................................    257,970     224,274 
Accumulated depreciation..................................................................    (71,803)    (43,824)
                                                                                           ----------  ---------- 
Property, plant and equipment, net........................................................ $  186,167  $  180,450 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

10. INTANGIBLE ASSETS                                                           

                                                        [Enlarge/Download Table]

                                                                                                DECEMBER 31,      
                                                                                           ---------------------- 
                                                                                                                  
                                                                                              1998        1997    
                                                                                           ----------  ---------- 


                                                                                               (IN THOUSANDS)     
                                                                                                                  
Goodwill.................................................................................. $   53,943  $   56,803 
Trademarks................................................................................    219,900     219,900 
Deferred financing fees...................................................................      8,354       8,354 
                                                                                           ----------  ---------- 
Intangible assets.........................................................................    282,197     285,057 
Accumulated amortization..................................................................    (22,154)    (14,380)
                                                                                           ----------  ---------- 
Intangible assets, net.................................................................... $  260,043  $  270,677 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

11. OTHER CURRENT LIABILITIES                                                   

                                                        [Enlarge/Download Table]

                                                                                                 DECEMBER 31,    
                                                                                             --------------------
                                                                                                                 
                                                                                               1998       1997   
                                                                                             ---------  ---------


                                                                                                (IN THOUSANDS)   
                                                                                                                 
Accrued employee compensation............................................................... $  51,593  $  39,414
Accrued product warranty....................................................................    10,407     10,871
Other.......................................................................................    29,756     27,556
                                                                                             ---------  ---------
Other current liabilities................................................................... $  91,756  $  77,841
                                                                                             ---------  ---------
                                                                                             ---------  ---------

F-18

PREM14A
103rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 103rd
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

12. INDEBTEDNESS                                                                

The Company's long-term debt is summarized as follows:                  

                                                        [Enlarge/Download Table]

                                                                                                DECEMBER 31,      
                                                                                           ---------------------- 
                                                                                                                  
                                                                                              1998        1997    
                                                                                           ----------  ---------- 


                                                                                               (IN THOUSANDS)     
                                                                                                                  
10.875% Senior Subordinated Notes due 2006................................................ $  107,250  $  107,250 
Revolving loans, variable rate (5.675%--5.875% at December 31, 1998 and 6.25%--6.40% at                           
  December 31, 1997), due 2002............................................................     61,000      99,000 
Other.....................................................................................      1,005         779 
                                                                                           ----------  ---------- 
                                                                                              169,255     207,029 
Less current maturities...................................................................    (10,000)    (10,000)
                                                                                           ----------  ---------- 
Long-term debt............................................................................ $  159,255  $  197,029 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

SENIOR SUBORDINATED NOTES                                                       

 The Company assumed the obligations under the 10.875% Senior Subordinated
Notes due 2006 as a direct result of the acquisition and merger that occurred on
February 29, 1996 (see Note 3). The Senior Subordinated Notes are unsecured and 
are guaranteed by each existing and future wholly owned domestic subsidiary of  
Knoll, Inc. However, if the Company is unable to satisfy all or any portion of  
its obligations with respect to the Senior Subordinated Notes, it is unlikely   
that the guarantors will be able to pay all or any portion of such unsatisfied  
obligations.                                                                    

 During June 1997, the Company used proceeds from its IPO to repurchase an
aggregate principal amount of $57,750,000 of the Senior Subordinated Notes for a
total redemption price of $65,113,000, including a redemption premium of        
$5,775,000 and accrued and unpaid interest thereon of $1,588,000. The Company   
wrote off unamortized financing costs of $3,063,000 related to the portion of   
the Senior Subordinated Notes that was redeemed. The early redemption premium   
and write-off of unamortized financing costs resulted in an extraordinary loss  
of $8,838,000 on a pretax basis ($5,337,000 on an after-tax basis) for the year 
ended December 31, 1997.                                                        

 The Senior Subordinated Notes outstanding at December 31, 1998 may not be
redeemed at the Company's option prior to March 15, 2001. At such date, the     
Senior Subordinated Notes are redeemable, in whole or in part, at 105.438% of   
principal amount, and thereafter at an annually declining premium over par until
March 15, 2004 when they are redeemable at par. There are no sinking fund       
requirements related to the Senior Subordinated Notes.                          

The indenture for the Senior Subordinated Notes limits the incurrence of
indebtedness, payment of dividends and purchase of Company stock and includes   
certain other restrictions and limitations that are customary with subordinated 
indebtedness of this type. Under the indenture, the amount available to pay     
dividends and redeem stock was $102,055,000 as of December 31, 1998. The Company
was in compliance with the terms of the indenture at December 31, 1998.         

TERM AND REVOLVING LOANS                                                        

   On December 17, 1996, the Company entered into a $230,000,000 senior credit
agreement, consisting of a $100,000,000 term loan and a $130,000,000 revolving  
credit facility, that replaced its then existing senior credit agreement. The   
refinancing resulted in an extraordinary charge of $8,542,000 on a              

F-19

PREM14A
104th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 104th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

12. INDEBTEDNESS -- (CONTINUED)                                                 
pretax basis ($5,159,000 on an after-tax basis) to operations for the ten months
ended December 31, 1996. This extraordinary charge consisted of the write-off of
unamortized financing costs related to the refinanced debt.                     

 On August 8, 1997, the Company entered into a new agreement that modified
certain terms of the December 17, 1996 credit agreement. The new agreement      
provides for a $275,000,000 revolving credit facility that matures in August    
2002. At the time this change became effective, $90,000,000 of indebtedness     
outstanding under the previously existing term loan and $50,000,000 under the   
previously existing revolving credit facility became revolving borrowings under 
the new agreement.                                                              

    The new senior credit agreement contains a letter of credit subfacility that
allows for the issuance of up to $20,000,000 in letters of credit, a competitive
bid loan subfacility that provides for the issuance of up to $140,000,000 in    
competitive bid loans and a swing line loan subfacility that allows for the     
issuance of up to $10,000,000 in swing line loans. The amount available for     
borrowing under the revolving credit facility is reduced by the total           
outstanding letters of credit, competitive bid loans and swing line loans.      

 Under the terms of the existing credit agreement, the Company may use the
revolving credit facility for working capital and general purposes. Borrowings  
bear interest at a floating rate based at the Company's option, upon (i) the    
Eurodollar rate (as defined in the agreement) plus an applicable percentage that
is subject to change based on the Company's ratio of funded debt to EBITDA or   
(ii) the greater of the federal funds rate plus 0.5% or the prime rate.         

The credit agreement subjects the Company to various affirmative and    
negative covenants. Among other things, the covenants limit the Company's       
ability to incur additional indebtedness, declare or pay dividends and purchase 
Company stock and require the Company to maintain certain financial ratios with 
respect to funded debt leverage. Under the credit agreement, the amount         
available to pay dividends and redeem stock was $86,212,000 as of December 31,  
1998. The Company was in compliance with the credit agreement covenants at      
December 31, 1998.                                                              

    At December 31, 1998, the Company had outstanding credit facility borrowings
totaling $61,000,000, of which $10,000,000 has been classified as current, and  
total letters of credit of approximately $1,417,000. There were no borrowings   
under the letters of credit.                                                    

    The Company pays a commitment fee ranging from 0.125% to 0.25%, depending on
the Company's leverage ratio, on the unused portion of the revolving credit     
facility. In addition, a letter of credit fee ranging from 0.325% to 0.75%,     
depending on the Company's leverage ratio, is required to be paid on the amount 
available to be drawn under letters of credit. As of December 31, 1998, the     
commitment and letter of credit fees applicable to the Company were 0.125% and  
0.325%, respectively.                                                           

The Company also has several revolving credit agreements with various   
European financial institutions. These credit agreements are to provide credit  
primarily for overdraft and working capital purposes. As of December 31, 1998,  
total credit available under such agreements was approximately $12,247,000 or   
the European equivalent. There is currently no expiration date on these         
agreements. The interest rate on borrowings is variable and is based on the     
monetary market rate that is linked to each country's prime rate. As of December
31, 1998, the Company did not have any outstanding borrowings under the European
credit facilities.                                                              

F-20

PREM14A
105th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 105th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

12. INDEBTEDNESS -- (CONTINUED)                                                 
INTEREST PAID                                                                   

 For the years ended December 31, 1998 and 1997, the Company made interest
payments totaling $15,943,000 and $25,505,000, respectively. Total interest paid
for the ten months ended December 31, 1996 was $25,775,000.                     

MATURITIES                                                                      

Aggregate maturities of the Company's indebtedness are as follows (in   
thousands):                                                                     

                                                                [Download Table]
                                                                             
1999..............................................................  $  10,000
2000..............................................................         --
2001..............................................................         --
2002..............................................................     51,081
2003..............................................................        100
Thereafter........................................................    108,074
                                                                    ---------
                                                                    $ 169,255
                                                                    ---------
                                                                    ---------

13. PREFERRED STOCK                                                             

The Company's Certificate of Incorporation authorizes the issuance of   
10,000,000 shares of preferred stock with a par value of $1.00 per share.       
1,920,000 of these shares are designated as Series A 12% Participating          
Convertible Preferred Stock, of which 1,602,998 shares have been retired and    
canceled as a result of the redemption and conversion discussed in Note 4 and   
317,002 shares remain eligible to be issued. Subject to existing laws, the Board
of Directors is authorized to provide for the issuance of preferred shares in   
one or more series, for such consideration and with designations, powers,       
preferences and relative, participating, optional or other special rights and   
the qualifications, limitations or restrictions thereof, as shall be determined 
by the Board of Directors.                                                      

14. DERIVATIVE FINANCIAL INSTRUMENTS                                            

  The Company uses interest rate collar agreements to manage its exposure to
fluctuations in interest rates on its variable rate debt. Such agreements       
effectively set agreed-upon maximum and minimum rates on a notional principal   
amount and utilize the London Interbank Offered Rate ("LIBOR") as a variable    
rate reference. The net amount paid or received on the agreements is recognized 
as an adjustment to interest expense.                                           

The aggregate notional principal amount of the Company's interest rate  
collar agreements outstanding at December 31, 1998 and 1997 was $115,000,000 and
$150,000,000, respectively, and the related weighted average maximum and minimum
rates were 7.97% and 5.05%, respectively, at December 31, 1998 and 7.86% and    
5.16%, respectively, at December 31, 1997. The agreements outstanding at        
December 31, 1998 mature in April 1999. The counterparties to the interest rate 
collar agreements are major financial institutions. During the years ended      
December 31, 1998 and 1997 and the ten months ended December 31, 1996, the      
Company was not required to make nor was it entitled to receive any payments as 
a result of these hedging activities.                                           

F-21

PREM14A
106th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 106th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

14. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                             
From time to time, the Company also enters into foreign currency forward
exchange contracts to manage its exposure to foreign exchange rates associated  
with purchases of inventory from foreign suppliers. The terms of these contracts
are generally less than a year. Material gains and losses on these contracts are
recognized in income in the period the value of the contract changes. The       
contract amounts outstanding at December 31, 1998 and 1997 as well as the       
amounts of gains and losses recorded during the years ended December 31, 1998   
and 1997 were not material. The Company had not entered into any foreign        
currency forward exchange contracts during the ten months ended December 31,    
1996.                                                                           

15. CONTINGENT LIABILITIES AND COMMITMENTS                                      

The Company is subject to various claims and litigation in the ordinary 
course of its business. The Company is not a party to any lawsuit or proceeding 
which, in the opinion of management, based on information presently known, is   
likely to have a material adverse effect on the Company.                        

16. FAIR VALUE OF FINANCIAL INSTRUMENTS                                         

   The following methods and assumptions were used to estimate the fair values
of each class of financial instruments:                                         

CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE             

 The fair values of these financial instruments approximate their carrying
amounts due to their immediate or short-term periods to maturity.               

LONG-TERM DEBT                                                                  

   The fair values of the variable rate long-term debt instruments approximate
their carrying amounts. The fair value of other long-term debt was estimated    
using quoted market values or discounted cash flow analyses based on current    
incremental borrowing rates for similar types of borrowing arrangements. The    
fair value of the Company's long-term debt, including the current portion, was  
approximately $181,394,000 at December 31, 1998 and $220,435,000 at December 31,
1997 while the carrying amounts were $169,255,000 and $207,029,000,             
respectively.                                                                   

INTEREST RATE COLLAR AGREEMENTS                                                 

The fair value of the Company's interest rate collar agreements, as     
estimated by dealers, was not material as of December 31, 1998 and 1997.        

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS                                     

    The fair value of the Company's foreign currency forward exchange contracts,
as determined by quoted market prices, was not material as of December 31, 1998 
and 1997.                                                                       

F-22

PREM14A
107th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 107th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

17. EARNINGS PER SHARE                                                          

The following table sets forth a reconciliation of the numerators and   
denominators of the basic and diluted earnings per share computations for income
before extraordinary item. Earnings per share amounts for the year ended        
December 31, 1997 and the ten months ended December 31, 1996 are pro forma. See 
Note 2 for a description of the pro forma basis of presentation.                

                                                        [Enlarge/Download Table]

                                                                      INCOME BEFORE                                
                                                                      EXTRAORDINARY  WEIGHTED AVERAGE              
                                                                          ITEM            SHARES         PER SHARE 
                                                                       (NUMERATOR)     (DENOMINATOR)      AMOUNT   
                                                                      -------------  -----------------  -----------
                                                                                                                   
                                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   
YEAR ENDED DECEMBER 31, 1998                                                                                       
Basic earnings per share.............................................   $  93,044           41,271       $    2.25 
                                                                                                             ----- 
                                                                                                             ----- 
Effect of dilutive potential common shares:                                                                        
  Employee stock options.............................................          --              476                 
  Nonvested restricted stock grants..................................          --            1,762                 
                                                                      -------------         ------                 
Diluted earnings per share...........................................   $  93,044           43,509       $    2.14 
                                                                      -------------         ------           ----- 
                                                                      -------------         ------           ----- 
YEAR ENDED DECEMBER 31, 1997                                                                                       
Basic pro forma earnings per share...................................   $  66,443           37,284       $    1.78 
                                                                                                             ----- 
                                                                                                             ----- 
Effect of dilutive potential common shares:                                                                        
  Employee stock options.............................................          --              235                 
  Nonvested restricted stock grants..................................          --            2,879                 
                                                                      -------------         ------                 
Diluted pro forma earnings per share.................................   $  66,443           40,398       $    1.64 
                                                                      -------------         ------           ----- 
                                                                      -------------         ------           ----- 
TEN MONTHS ENDED DECEMBER 31, 1996                                                                                 
Basic pro forma earnings per share...................................   $  21,995           31,040       $    0.71 
                                                                                                             ----- 
                                                                                                             ----- 
Dilutive effect of nonvested restricted stock grants.................          --            3,661                 
                                                                      -------------         ------                 
Diluted pro forma earnings per share.................................   $  21,995           34,701       $    0.63 
                                                                      -------------         ------           ----- 
                                                                      -------------         ------           ----- 

As discussed in Note 12, the Company recognized an extraordinary loss on
early extinguishment of debt of $5,337,000, net of taxes, in 1997 and           
$5,159,000, net of taxes, in 1996. On a per share basis, these extraordinary    
losses amounted to $0.14 basic and $0.13 diluted in 1997 and $0.17 basic and    
$0.15 diluted in 1996.                                                          

F-23

PREM14A
108th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 108th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

18. INCOME TAXES                                                                

Income (loss) before income taxes and extraordinary item consists of the
following:                                                                      

                                                        [Enlarge/Download Table]

                                                                                    THE KNOLL   
                                                                                   GROUP, INC.  
                                                                                   (PREDECESSOR)
                                                                                   -----------  
                                               YEAR         YEAR      TEN MONTHS   TWO MONTHS   
                                               ENDED        ENDED        ENDED        ENDED     
                                             DECEMBER     DECEMBER     DECEMBER     FEBRUARY    
                                                31,          31,          31,          29,      
                                               1998         1997         1996         1996      
                                            -----------  -----------  -----------  -----------  
                                                       (IN THOUSANDS)                  (IN      
                                                                                   THOUSANDS)   
                                                                                                
U.S. operations............................  $ 142,483    $  82,851    $  23,381    $ (39,105)  
Foreign operations.........................     14,932       31,618       15,458       (1,090)  
                                            -----------  -----------  -----------  -----------  
                                             $ 157,415    $ 114,469    $  38,839    $ (40,195)  
                                            -----------  -----------  -----------  -----------  
                                            -----------  -----------  -----------  -----------  

    Income tax expense (benefit), excluding extraordinary items, is comprised of
the following:                                                                  

                                                        [Enlarge/Download Table]

                                                                                    THE KNOLL   
                                                                                   GROUP, INC.  
                                                                                   (PREDECESSOR)
                                                                                   -----------  
                                             YEAR                     TEN MONTHS   TWO MONTHS   
                                             ENDED         YEAR          ENDED        ENDED     
                                           DECEMBER        ENDED       DECEMBER     FEBRUARY    
                                              31,      DECEMBER 31,       31,          29,      
                                             1998          1997          1996         1996      
                                          -----------  -------------  -----------  -----------  
                                                      (IN THOUSANDS)                   (IN      
                                                                                   THOUSANDS)   
                                                                                                
Current:                                                                                        
  Federal................................  $  42,364     $  21,585     $  10,909    $ (13,801)  
  State..................................      9,456         5,980         2,953       (1,814)  
  Foreign................................      5,414        11,295           661           28   
                                          -----------  -------------  -----------  -----------  
    Total current........................     57,234        38,860        14,523      (15,587)  
                                          -----------  -------------  -----------  -----------  
Deferred:                                                                                       
  Federal................................      4,423         6,258        (2,850)        (460)  
  State..................................      1,113           708          (612)         (60)  
  Foreign................................      1,601         2,200         5,783           --   
                                          -----------  -------------  -----------  -----------  
    Total deferred.......................      7,137         9,166         2,321         (520)  
                                          -----------  -------------  -----------  -----------  
Income tax expense (benefit).............  $  64,371     $  48,026     $  16,844    $ (16,107)  
                                          -----------  -------------  -----------  -----------  
                                          -----------  -------------  -----------  -----------  

  Income taxes paid by the Company for the years ended December 31, 1998 and
1997 totaled $61,404,000 and $24,026,000, respectively. For the ten months ended
December 31, 1996, income taxes paid by the Company amounted to $13,137,000.    

The recognition and measurement of the income tax benefit for the       
Predecessor required certain assumptions, allocations and significant estimates 
in order to measure the tax consequences as if the Predecessor were a           
stand-alone taxpayer.                                                           

F-24

PREM14A
109th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 109th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

18. INCOME TAXES -- (CONTINUED)                                                 
    The following table sets forth the tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities:   

                                                        [Enlarge/Download Table]

                                                                                                  DECEMBER 31,     
                                                                                              -------------------- 
                                                                                                                   
                                                                                                1998       1997    
                                                                                              ---------  --------- 


                                                                                                 (IN THOUSANDS)    
                                                                                                                   
Deferred tax assets:                                                                                               
  Accounts receivable, principally due to allowance for doubtful accounts.................... $   1,624  $   1,634 
  Inventories................................................................................     2,640      3,153 
  Net operating loss carryforwards...........................................................    19,045     21,359 
  Obligation for postretirement benefits other than pension..................................     7,591      7,039 
  Accrued liabilities and other items........................................................    20,915     20,493 
                                                                                              ---------  --------- 
Gross deferred tax assets....................................................................    51,815     53,678 
Valuation allowance..........................................................................   (22,528)   (25,172)
                                                                                              ---------  --------- 
Net deferred tax assets......................................................................    29,287     28,506 
                                                                                              ---------  --------- 
Deferred tax liabilities:                                                                                          
  Intangibles, principally due to differences in amortization................................    11,260      7,303 
  Plant and equipment, principally due to differences in depreciation and assigned values....     7,411      5,011 
  Other items................................................................................       227        198 
                                                                                              ---------  --------- 
Gross deferred tax liabilities...............................................................    18,898     12,512 
                                                                                              ---------  --------- 
Net deferred tax asset....................................................................... $  10,389  $  15,994 
                                                                                              ---------  --------- 
                                                                                              ---------  --------- 

 As of December 31, 1998, the Company had net operating loss carryforwards
totaling approximately $49,959,000 in various foreign tax jurisdictions, of     
which $17,658,000 generally expire through 2000 and $32,301,000 may be carried  
forward for an unlimited time.                                                  

  The Company has recorded a valuation allowance for net deferred tax assets
in foreign tax jurisdictions, primarily related to pre-acquisition net operating
loss carryforwards, due to losses incurred in these tax jurisdictions in        
previous years.                                                                 

At December 31, 1996, the Company had recorded a valuation allowance of 
$33,161,000.                                                                    

For the years ended December 31, 1998 and 1997 and the ten months ended 
December 31, 1996, tax benefits recognized through reductions of the valuation  
allowance for pre-acquisition net operating loss carryforwards had the effect of
reducing goodwill by $1,457,000, $4,524,000 and $4,246,000, respectively. If    
additional tax benefits are recognized in the future through further reduction  
of the valuation allowance, such benefits will generally reduce goodwill.       

F-25

PREM14A
110th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 110th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

18. INCOME TAXES -- (CONTINUED)                                                 
The following table sets forth a reconciliation of the statutory federal
income tax rate to the effective income tax rate:                               

                                                        [Enlarge/Download Table]

                                                                                              THE KNOLL  
                                                                                             GROUP, INC. 
                                                                                            (PREDECESSOR)
                                                                                            -------------
                                                 YEAR           YEAR         TEN MONTHS      TWO MONTHS  
                                                 ENDED          ENDED           ENDED           ENDED    
                                             DECEMBER 31,   DECEMBER 31,    DECEMBER 31,    FEBRUARY 29, 
                                                 1998           1997            1996            1996     
                                             -------------  -------------  ---------------  -------------
                                                                                                         
Federal statutory tax rate..................        35.0%          35.0%           35.0%          (35.0%)
Increase (decrease) in the tax rate                                                                      
  resulting from:                                                                                        
    State taxes, net of federal effect......         4.4            3.8             3.9            (4.5) 
    Higher income tax rates of other                                                                     
      countries.............................         1.2            2.4             3.2            (0.2) 
    Non-deductible goodwill amortization....         0.2            0.3             1.0             1.1  
    Other...................................         0.1            0.5             0.3            (1.4) 
                                                     ---            ---             ---           -----  
Effective tax rate..........................        40.9%          42.0%           43.4%          (40.0%)
                                                     ---            ---             ---           -----  
                                                     ---            ---             ---           -----  

  The Company has not made provision for U.S. federal and state income taxes
as of December 31, 1998 on approximately $35,522,000 of foreign earnings that   
are expected to be reinvested indefinitely. Upon distribution of those earnings 
in the form of dividends or otherwise, the Company would be subject to U.S.     
income taxes (subject to an adjustment for foreign tax credits) and withholding 
taxes payable to the various foreign countries. Determination of the amount of  
the unrecognized deferred tax liability is not practicable.                     

19. LEASES                                                                      

    The Company has commitments under operating leases for certain machinery and
equipment and facilities used in its operations. Total rental expense for the   
years ended December 31, 1998 and 1997 and the ten months ended December 31,    
1996 was $9,256,000, $8,902,000 and $7,787,000, respectively. Future minimum    
rental payments required under those operating leases that have an initial or   
remaining noncancelable lease term in excess of one year are as follows (in     
thousands):                                                                     

                                                                [Download Table]
                                                                              
1999...............................................................  $   7,442
2000...............................................................      6,470
2001...............................................................      5,569
2002...............................................................      4,803
2003...............................................................      3,532
Subsequent years...................................................      3,653
                                                                     ---------
Total minimum rental payments......................................  $  31,469
                                                                     ---------
                                                                     ---------

F-26

PREM14A
111th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 111th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

20. STOCK PLANS                                                                 

In connection with the acquisition discussed in Note 3, the Company     
established the Knoll, Inc. 1996 Stock Incentive Plan (the "1996 Stock Plan").  
Under the 1996 Stock Plan, awards denominated or payable in shares or options to
purchase shares of the Company's common stock may be granted to officers and    
other key employees of the Company. A combined maximum of 4,709,126 shares or   
options to purchase shares were authorized for issuance under the 1996 Stock    
Plan. Options that are granted have a contractual life of ten years. A Stock    
Plan Committee of the Company's Board of Directors has sole discretion          
concerning administration of the 1996 Stock Plan, including selection of        
individuals to receive awards, types of awards, the terms and conditions of the 
awards and the time at which awards will be granted.                            

The Knoll, Inc. 1997 Stock Incentive Plan (the "1997 Stock Plan") was   
established on February 14, 1997. The terms of the 1997 Stock Plan are          
essentially the same as those of the 1996 Stock Plan, except pursuant to the    
1997 Stock Plan, discounted options may be granted, options may be repriced, the
Board of Directors has greater flexibility to amend the 1997 Plan and, as of    
December 31, 1998, a combined maximum of 2,255,772 shares or options to purchase
shares were authorized for issuance under the plan.                             

    During the ten months ended December 31, 1996, the Company granted 4,144,030
restricted common shares, with a weighted average fair market value of $0.34 per
share, to key employees. The fair market value of the shares on the date of     
grant has been recorded as unearned stock grant compensation and is presented as
a separate component of stockholders' equity. Compensation expense is recognized
ratably over the vesting period. As of December 31, 1998, a total of 2,486,404  
restricted shares have vested. The remaining 1,657,626 restricted shares will   
vest as follows: 640,432 shares in 1999, 640,433 shares in 2000 and 376,761     
shares in 2001.                                                                 

The following table summarizes the Company's stock option activity:     

                                                        [Enlarge/Download Table]

                                                                  YEAR ENDED                 YEAR ENDED        
                                                               DECEMBER 31, 1998          DECEMBER 31, 1997    
                                                           -------------------------  -------------------------
                                                                         WEIGHTED                   WEIGHTED   
                                                                          AVERAGE                    AVERAGE   
                                                           NUMBER OF     EXERCISE     NUMBER OF     EXERCISE   
                                                            OPTIONS        PRICE       OPTIONS        PRICE    
                                                           ----------  -------------  ----------  -------------
                                                                                                               
Outstanding at beginning of year..........................  2,142,158    $   20.73            --    $      --  
Granted...................................................     50,000        28.21     2,173,552        20.66  
Exercised.................................................   (196,647)       16.06            --           --  
Forfeited.................................................    (30,000)       28.50       (31,394)       15.93  
                                                           ----------                 ----------               
Outstanding at end of year................................  1,965,511        21.27     2,142,158        20.73  
                                                           ----------                 ----------               
                                                           ----------                 ----------               
Exercisable at end of year................................    240,789        24.33        10,000        17.00  
                                                           ----------                 ----------               
                                                           ----------                 ----------               
Available for future grants...............................    658,710                    678,710               
                                                           ----------                 ----------               
                                                           ----------                 ----------               

On February 10, 1999, the Board of Directors authorized an additional   
1,000,000 shares or options to purchase shares, subject to stockholder approval,
for issuance under the 1997 Stock Plan. Also on such date, the Company granted  
an additional 270,000 options with an exercise price of $21.25 per share.       

  Options were granted at an exercise price equal to the market price on the
date of grant.                                                                  

F-27

PREM14A
112th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 112th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

20. STOCK PLANS -- (CONTINUED)                                                  
The following table summarizes information regarding stock options      
outstanding and exercisable at December 31, 1998:                               

                                                        [Enlarge/Download Table]

                                      OPTIONS OUTSTANDING                                          
                         ----------------------------------------------     OPTIONS EXERCISABLE    
                                                                         --------------------------
                                          WEIGHTED          WEIGHTED                    WEIGHTED   
                                           AVERAGE           AVERAGE                     AVERAGE   
RANGE OF EXERCISE        NUMBER OF        REMAINING         EXERCISE      NUMBER OF     EXERCISE   
PRICES                    OPTIONS     CONTRACTUAL LIFE        PRICE        OPTIONS        PRICE    
-----------------------  ----------  -------------------  -------------  -----------  -------------
                                                                                                   
  $15.93--$17.00          1,142,511        8.19 years       $   15.98        82,789     $   16.19  
  $24.88--$33.38            823,000              8.88           28.62       158,000         28.59  
                         ----------                                      -----------               
  $15.93--$33.38          1,965,511              8.48           21.27       240,789         24.33  
                         ----------                                      -----------               
                         ----------                                      -----------               

 The Company also has a qualified, noncompensatory employee stock purchase
plan, which provides all employees the ability to purchase common stock of the  
Company at a price equal to 15.0% below the lower of the market price at (i) the
beginning of each quarterly offering period or (ii) the end of each quarterly   
offering period. Purchases under the plan are limited to 10.0% of an employee's 
eligible gross pay, up to $25,000. The Company has reserved 300,000 shares of   
its common stock for issuance under its employee stock purchase plan. During the
year ended December 31, 1998, the Company issued 75,609 shares at a weighted    
average price of $21.89 under this plan. From August 1, 1997, the date the      
employee stock purchase plan commenced, through December 31, 1997, the Company  
issued 22,716 shares at a weighted average price of $26.71.                     

    As discussed in Note 2, the Company continues to account for its stock-based
compensation plans in accordance with APB 25. Accordingly, no compensation cost 
has been recognized for the Company's stock options or stock purchase rights    
granted in connection with the employee stock purchase plan. If the Company had 
recognized compensation cost based upon the fair value of the stock options and 
stock purchase rights at the date of grant as prescribed by SFAS 123, the       
Company's pro forma net income and pro forma net income per share would have    
been as follows (in thousands, except per share amounts):                       

                                                        [Enlarge/Download Table]

                                                                                       YEAR ENDED    YEAR ENDED 
                                                                                      DECEMBER 31,  DECEMBER 31,
                                                                                          1998          1997    
                                                                                      ------------  ------------
                                                                                                                
Pro forma net income.................................................................  $   89,804    $   59,731 
Pro forma net income per share of common stock:                                                                 
  Basic..............................................................................        2.18          1.60 
  Diluted............................................................................        2.06          1.48 

The weighted average fair value of options granted in 1998 and 1997 was 
$13.68 and $10.13 per share, respectively, and the weighted average fair value  
of stock purchase rights granted under the employee stock purchase plan was     
$4.84 and $5.31 per share in 1998 and 1997, respectively. The fair value of the 
options and stock purchase rights was estimated at the date of grant using a    
Black-Scholes option pricing model with the following assumptions: risk-free    
interest rate of 5.75% in 1998 and 6.0% in 1997, dividend yield of 0.0% in 1998 
and 1997, expected volatility of the market price of the common stock of 35.0%  
in 1998 and 1997 and weighted average expected lives of 7 years for the options 
and 3 months for the stock purchase rights in 1998 and 1997. The estimated fair 
value of the options was amortized to expense over the vesting period of the    
options for purposes of determining                                             

F-28

PREM14A
113th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 113th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

20. STOCK PLANS -- (CONTINUED)                                                  
pro forma net income and pro forma net income per share. The effects of applying
SFAS 123 for purposes of providing pro forma disclosures are not likely to be   
representative of the effects on reported net income in future years.           

21. STOCK REPURCHASE PROGRAM                                                    

In September 1998, the Board of Directors approved a share repurchase   
program that authorized the repurchase of up to 3,000,000 shares of the         
Company's common stock. The Board of Directors subsequently approved an increase
of 2,000,000 shares to the program on February 2, 1999. As such, the program now
allows for the repurchase of up to 5,000,000 shares of the Company's common     
stock. Common shares may be purchased in the open market or through negotiated  
transactions at the discretion of Company management, depending on ongoing      
assessments of capital needs and prevailing market conditions. During 1998, the 
Company purchased 1,707,700 shares for $38,849,000, or an average price of      
$22.75 per share. As of March 24, 1999, the Company purchased a total of        
2,894,700 shares for $67,524,000 under the program. The repurchased shares are  
held in treasury.                                                               

22. PENSION AND OTHER POSTRETIREMENT BENEFITS                                   

The Company has two domestic defined benefit pension plans and two plans
providing for other postretirement benefits, including medical and life         
insurance coverage. One of the pension plans and one of the other postretirement
benefits plans cover eligible U.S. nonunion employees while the other pension   
plan and other postretirement benefits plan cover eligible U.S. union employees.

F-29

PREM14A
114th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 114th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

22. PENSION AND OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)                    
  The following table sets forth a reconciliation of the benefit obligation,
plan assets and accrued benefit cost related to the pension and other           
postretirement benefits provided by the Company:                                

                                                        [Enlarge/Download Table]

                                                                        PENSION BENEFITS        OTHER BENEFITS     
                                                                      --------------------  ---------------------- 
                                                                                                                   
                                                                        1998       1997        1998        1997    
                                                                      ---------  ---------  ----------  ---------- 


                                                                                     (IN THOUSANDS)                
                                                                                                                   
CHANGE IN BENEFIT OBLIGATION:                                                                                      
Benefit obligation at January 1...................................... $   8,078  $   3,953  $   18,149  $   17,157 
Service cost.........................................................     5,396      4,893         595         560 
Interest cost........................................................       615        207       1,294       1,224 
Participant contributions............................................       252        276          --          -- 
Amendment............................................................       451         --          --          -- 
Actuarial loss (gain)................................................     3,214     (1,160)      1,302         592 
Benefits paid........................................................      (109)       (91)       (493)     (1,384)
                                                                      ---------  ---------  ----------  ---------- 
Benefit obligation at December 31....................................    17,897      8,078      20,847      18,149 
                                                                      ---------  ---------  ----------  ---------- 
CHANGE IN PLAN ASSETS:                                                                                             
Fair value of plan assets at January 1...............................     3,721         30          --          -- 
Actual return on plan assets.........................................       241         55          --          -- 
Employer contributions...............................................     4,536      3,451         493       1,384 
Participant contributions............................................       252        276          --          -- 
Benefits paid........................................................      (109)       (91)       (493)     (1,384)
                                                                      ---------  ---------  ----------  ---------- 
Fair value of plan assets at December 31.............................     8,641      3,721          --          -- 
                                                                      ---------  ---------  ----------  ---------- 

Funded status........................................................    (9,256)    (4,357)    (20,847)    (18,149)
Unrecognized net loss (gain).........................................     2,156     (1,160)      1,677         375 
Unrecognized prior service cost......................................       416         --          --          -- 
                                                                      ---------  ---------  ----------  ---------- 
Accrued benefit cost................................................. $  (6,684) $  (5,517) $  (19,170) $  (17,774)
                                                                      ---------  ---------  ----------  ---------- 
                                                                      ---------  ---------  ----------  ---------- 

  Significant assumptions as of December 31 that were used in accounting for
the pension and other postretirement benefits plans are as follows:             

                                                        [Enlarge/Download Table]

                                                                          PENSION BENEFITS       OTHER BENEFITS    
                                                                        --------------------  -------------------- 
                                                                                                                   
                                                                          1998       1997       1998       1997    
                                                                        ---------  ---------  ---------  --------- 
Discount rate..........................................................      6.75%      7.25%      6.75%      7.25%
Expected return on plan assets.........................................      8.50       8.50         --         -- 
Rate of compensation increase..........................................      4.50       4.50       4.50       4.50 

F-30

PREM14A
115th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 115th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

22. PENSION AND OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)                    
 The following table sets forth the components of the net periodic benefit
cost for the Company's pension and other postretirement benefits plans:         

                                                        [Enlarge/Download Table]

                                              PENSION BENEFITS                               OTHER BENEFITS               
                                ---------------------------------------------  -------------------------------------------
                                    YEAR            YEAR         TEN MONTHS        YEAR           YEAR        TEN MONTHS  
                                    ENDED           ENDED           ENDED          ENDED          ENDED          ENDED    
                                DECEMBER 31,    DECEMBER 31,    DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31, 
                                    1998            1997            1996           1998           1997           1996     
                                -------------  ---------------  -------------  -------------  -------------  -------------
                                               (IN THOUSANDS)                                (IN THOUSANDS)               
                                                                                                                          
Service cost...................   $   5,396       $   4,893       $   3,953      $     595      $     560      $     440  
Interest cost..................         615             207              --          1,294          1,224          1,000  
Expected return on plan                                                                                                   
  assets.......................        (321)            (55)             --             --             --             --  
Amortization of prior service                                                                                             
  costs........................          35              --              --             --             --             --  
Recognized actuarial gain......         (22)             --              --             --             --             --  
                                     ------          ------          ------         ------         ------         ------  
Net periodic benefit cost......   $   5,703       $   5,045       $   3,953      $   1,889      $   1,784      $   1,440  
                                     ------          ------          ------         ------         ------         ------  
                                     ------          ------          ------         ------         ------         ------  

For purposes of measuring the benefit obligation and the net periodic   
benefit cost as of and for the year ended December 31, 1998, respectively,      
associated with the Company's other postretirement benefits plans, a 7.50%      
annual rate of increase in the per capita cost of covered health care benefits  
was assumed for 1998. The rate was then assumed to decrease 1.00% per year to   
5.50% in 2000 and remain at that level thereafter. Increasing the assumed health
care cost trend rate by 1.00% in each year would increase the benefit obligation
as of December 31, 1998 by $2,415,000 and increase the net periodic benefit cost
for the year ended December 31, 1998 by $258,000. Decreasing the assumed health 
care cost trend rate by 1.00% in each year would decrease the benefit obligation
as of December 31, 1998 by $2,073,000 and decrease the net periodic benefit cost
for the year ended December 31, 1998 by $217,000.                               

   Prior to March 1, 1996, the Predecessor sponsored a defined benefit pension
plan and other postretirement benefits plan for all eligible U.S. nonunion      
employees. As a result of the sale of the Predecessor by Westinghouse, as       
discussed in Note 3, benefits earned through February 29, 1996 under the pension
plan were frozen and participants were fully vested in their benefits. The      
pension plan was subsequently merged into a Westinghouse pension plan.          
Furthermore, the Company assumed the liability related to the Predecessor's     
other postretirement benefits plan. For the two months ended February 29, 1996, 
the Predecessor incurred an aggregate of $441,000 of pension and other          
postretirement benefits expense.                                                

  Employees of the Canadian and United Kingdom (U.K.) operations participate
in defined contribution plans. The Company's expense related to these plans for 
the years ended December 31, 1998 and 1997 and the ten months ended December 31,
1996 was $842,000, $1,121,000 and $632,000, respectively.                       

  The Company also sponsors a retirement savings plan (i.e. 401(k) plan) for
all U.S. nonunion employees and U.S. hourly union employees. Under this plan,   
participants may defer a portion of their earnings up to the annual contribution
limits established by the Internal Revenue Service. The Company matches 40.0% of
participant contributions on up to the first 6.0% of compensation for           

F-31

PREM14A
116th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 116th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

22. PENSION AND OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)                    
nonunion employees and matches 50.0% of participant contributions on up to the  
first 6.0% of compensation for union employees. For participants who are        
nonunion employees, the plan also provides for additional employer matching     
based on the achievement of certain profitability goals. The Company's common   
stock is offered as an investment option under the 401(k) plan. Although the    
stock is typically purchased on the open market, the Company has reserved       
500,000 shares of its common stock for issuance under its 401(k) plan. The      
Company's total expense under this plan was $5,472,000 and $5,180,000 for the   
years ended December 31, 1998 and 1997, respectively, and $2,957,000 for the ten
months ended December 31, 1996. The Predecessor administered a similar          
retirement savings plan and incurred related expense totaling $406,000 for the  
two months ended February 29, 1996.                                             

23. SEGMENT AND GEOGRAPHIC REGION INFORMATION                                   

   The Company operates exclusively in the business of design, manufacture and
sale of office furniture products and accessories. In addition to its principal 
manufacturing operations and markets in North America, the Company conducts     
manufacturing and sales operations in Europe.                                   

  The Company's sales to customers, operating income and net property, plant
and equipment are summarized by geographic areas below. Sales to customers are  
attributed to the geographic areas based on the point of sale.                  

                                                        [Enlarge/Download Table]

                                                                   UNITED                                       
                                                                   STATES      CANADA     EUROPE    CONSOLIDATED
                                                                ------------  ---------  ---------  ------------
                                                                                                                
                                                                                 (IN THOUSANDS)                 
YEAR ENDED DECEMBER 31, 1998                                                                                    
Sales to customers.............................................  $  857,711   $  29,361  $  61,619   $  948,691 
Operating income...............................................     158,880       9,915      2,748      171,543 
Property, plant and equipment, net.............................     146,488      27,754     11,925      186,167 

YEAR ENDED DECEMBER 31, 1997                                                                                    
Sales to customers.............................................     717,326      37,674     55,857      810,857 
Operating income...............................................     108,002      24,497      5,378      137,877 
Property, plant and equipment, net.............................     145,215      23,829     11,406      180,450 

TEN MONTHS ENDED DECEMBER 31, 1996                                                                              
Sales to customers.............................................     493,653      24,456     43,425      561,534 
Operating income...............................................      54,381      10,681      6,282       71,344 
Property, plant and equipment, net.............................     141,725      21,882     12,611      176,218 

F-32

PREM14A
117th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 117th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

24. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)                                 

   The following table sets forth unaudited summary information on a quarterly
basis for the Company for the years ended December 31, 1998 and 1997.           

                                                        [Enlarge/Download Table]

                                                                    FIRST       SECOND      THIRD       FOURTH  
                                                                   QUARTER     QUARTER     QUARTER     QUARTER  
                                                                  ----------  ----------  ----------  ----------
                                                                                                                
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)     
1998                                                                                                            
Net sales........................................................ $  220,775  $  246,957  $  235,028  $  245,931
Gross profit.....................................................     87,323      97,838      93,022      97,752
Net income.......................................................     19,810      25,063      24,937      23,234
Earnings per share of common stock:                                                                             
  Basic..........................................................       0.48        0.60        0.60        0.57
  Diluted........................................................       0.45        0.57        0.57        0.55

1997                                                                                                            
Net sales........................................................    177,833     212,582     208,402     212,040
Gross profit.....................................................     67,974      86,176      83,714      83,031
Income before extraordinary item.................................     11,638      16,956      19,471      18,378
Net income.......................................................     11,638      11,619      19,471      18,378
Income before extraordinary item per share of                                                                   
  common stock:                                                                                                 
    Basic........................................................       0.37        0.46        0.48        0.45
    Diluted......................................................       0.34        0.43        0.45        0.42

 Income before extraordinary item per share amounts reported for the first
and second quarters of 1997 are pro forma as they are adjusted to reflect the   
redemption and conversion into common stock of the Series A Preferred Stock as  
of the beginning of the respective periods (see Note 2).                        

   The Company recorded an extraordinary loss of $8,838,000 pretax ($5,337,000
after-tax) during the second quarter of 1997. This loss consisted of the        
write-off of unamortized deferred financing fees and the premium paid in        
connection with the early redemption of a portion of the Company's Senior       
Subordinated Notes.                                                             

25. SUBSEQUENT EVENTS                                                           

On March 23, 1999, the Company received a proposal from Warburg, Pincus 
Ventures, L.P. and certain members of Knoll management to acquire all of the    
outstanding shares of the Company's common stock owned by public stockholders at
a price of $25.00 per share. The Board of Directors has authorized the          
appointment of a special committee, consisting of independent members of the    
Board of Directors, to consider the proposal. Consummation of the acquisition   
would be subject to approval by the Board of Directors and stockholders of      
Knoll, as well as to the receipt of financing, the execution of a definitive    
merger agreement and other conditions customary in a transaction of this type.  
Five class action complaints relating to the proposal were filed on or about    
March 24, 1999. The Company is among the defendants. The Company is unable to   
predict what impact, if any, such litigation may have on the Company or the     
proposed transaction. The financial statements do not reflect any effects of the
litigation or the proposed transaction.                                         

F-33

PREM14A
118th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 118th
KNOLL, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

26. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT                  

As discussed in Note 12, the Company's Senior Subordinated Notes are    
guaranteed by all existing and future directly or indirectly wholly owned       
domestic subsidiaries of the Company (the "Guarantors"). The Guarantors are     
Knoll Overseas, Inc., a holding company for the entities that conduct the       
Company's European business, and Spinneybeck Enterprises, Inc., which directly  
and through a Canadian subsidiary operates the Company's leather business.      

 These Guarantors will irrevocably and unconditionally, fully, jointly and
severally, guarantee the performance and payment when due, of all obligations   
under the Senior Subordinated Notes, limited to the largest amount that would   
not render such Guarantors' obligations under the guarantees subject to         
avoidance under any applicable federal or state fraudulent conveyance or similar
law.                                                                            

The condensed consolidating information that follows presents:          

   - Condensed consolidating financial information as of December 31, 1998 and
     1997 and for the years ended December 31, 1998 and 1997, ten months ended
  December 31, 1996 and two months ended February 29, 1996 of (a) Knoll,
      Inc. (as the Issuer), (b) the Guarantors, (c) the combined non-Guarantors,
(d) elimination entries and (e) the Company on a consolidated basis.

 - The Issuer and the Guarantors are shown with their investments in their
subsidiaries accounted for on the equity method.                    

The condensed consolidating financial information should be read in     
connection with the consolidated financial statements of the Company. Separate  
financial statements of the Guarantors are not presented because management has 
determined that separate financial statements are not material. The Guarantors  
are fully, jointly, severally and unconditionally liable under the guarantees.  

    Certain amounts for 1997 and 1996 in the condensed consolidating information
have been reclassified to conform to the 1998 classifications.                  

F-34

PREM14A
119th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 119th
KNOLL, INC. 

BALANCE SHEET 

DECEMBER 31, 1998 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                   GUARANTORS                                               
                                                            ------------------------                                        
                                                                                                                            
                                                            SPINNEYBECK     KNOLL                                           
                                                  KNOLL,    ENTERPRISES,  OVERSEAS,      NON-                               
                                                   INC.        INC.         INC.      GUARANTORS   ELIMINATIONS    TOTAL    
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
                    ASSETS                                                                                                  
Current assets:                                                                                                             
  Cash and cash equivalents.................... $    3,503   $     561    $      --    $  13,401    $       --   $   17,465 
  Customer receivables, net....................    115,823       1,698           --       20,435            --      137,956 
  Accounts receivable-related parties..........     13,954          40        3,568       40,061       (57,623)          -- 
  Inventories..................................     53,146       8,270           --       15,697            --       77,113 
  Deferred income taxes........................     20,169          --           --          898            --       21,067 
  Prepaid and other current assets.............      2,132          14            4        7,692            --        9,842 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
    Total current assets.......................    208,727      10,583        3,572       98,184       (57,623)     263,443 
Property, plant and equipment, net.............    146,275         213           --       39,679            --      186,167 
Intangible assets, net.........................    258,604          --           --        1,439            --      260,043 
Equity investments.............................    106,709         666       15,932           --      (123,307)          -- 
Other noncurrent assets........................      2,046           9           97        2,222            --        4,374 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
    Total Assets............................... $  722,361   $  11,471    $  19,601    $ 141,524    $ (180,930)  $  714,027 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
     LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                   
Current liabilities:                                                                                                        
  Current maturities of long-term debt......... $   10,000   $      --    $      --    $      --    $       --   $   10,000 
  Accounts payable-trade.......................     37,446         415           --       21,690            --       59,551 
  Accounts payable-related parties.............     39,826         235        2,526       15,036       (57,623)          -- 
  Income taxes payable.........................      5,872         637           35          552            --        7,096 
  Other current liabilities....................     81,100         838        1,061        8,757            --       91,756 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
    Total current liabilities..................    174,244       2,125        3,622       46,035       (57,623)     168,403 
Long-term debt.................................    158,250          --           --        1,005            --      159,255 
Deferred income taxes..........................      8,531          --           --        2,147            --       10,678 
Postretirement benefits other than pension.....     18,450          --           --           --            --       18,450 
Other noncurrent liabilities...................      8,049          --           --        5,342            --       13,391 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
    Total liabilities..........................    367,524       2,125        3,622       54,529       (57,623)     370,177 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
Stockholders' equity:                                                                                                       
  Common stock.................................        418          --           --           --            --          418 
  Additional paid-in-capital...................    184,145         273       12,812       60,107       (75,545)     181,792 
  Unearned stock grant compensation............       (712)         --           --           --            --         (712)
  Retained earnings............................    170,986       9,073        3,167       35,522       (47,762)     170,986 
  Accumulated other comprehensive income.......         --          --           --       (8,634)           --       (8,634)
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
    Total stockholders' equity.................    354,837       9,346       15,979       86,995      (123,307)     343,850 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
    Total Liabilities and Stockholders'                                                                                     
      Equity................................... $  722,361   $  11,471    $  19,601    $ 141,524    $ (180,930)  $  714,027 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 
                                                ----------  -----------  -----------  -----------  ------------  ---------- 

F-35

PREM14A
120th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 120th
KNOLL, INC. 

BALANCE SHEET 

DECEMBER 31, 1997 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                GUARANTORS                                                
                                                        --------------------------                                        
                                                                                                                          
                                                        SPINNEYBECK      KNOLL                                            
                                              KNOLL,    ENTERPRISES,   OVERSEAS,       NON-                               
                                               INC.        INC.          INC.       GUARANTORS   ELIMINATIONS    TOTAL    
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
                  ASSETS                                                                                                  
Current assets:                                                                                                           
  Cash and cash equivalents................ $    1,052   $     291     $      --     $   9,447    $       --   $   10,790 
  Customer receivables, net................     97,364       1,629            --        23,858            --      122,851 
  Accounts receivable-related parties......      2,380          35         2,257        41,427       (46,099)          -- 
  Inventories..............................     46,665       7,443            --        14,141            --       68,249 
  Deferred income taxes....................     20,323          --            --           972            --       21,295 
  Prepaid and other current assets.........      2,258          (2)            4         1,437            --        3,697 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
    Total current assets...................    170,042       9,396         2,261        91,282       (46,099)     226,882 
Property, plant and equipment, net.........    144,923         292            --        35,235            --      180,450 
Intangible assets, net.....................    267,231          --            --         3,446            --      270,677 
Equity investments.........................     95,308         567        14,947            --      (110,822)          -- 
Other noncurrent assets....................        731           9            97         2,013            --        2,850 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
    Total Assets........................... $  678,235   $  10,264     $  17,305     $ 131,976    $ (156,921)  $  680,859 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
   LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                   
Current liabilities:                                                                                                      
  Current maturities of long-term debt..... $   10,000   $      --     $      --     $      --    $       --   $   10,000 
  Accounts payable-trade...................     46,709         482            --        19,506            --       66,697 
  Accounts payable-related parties.........     41,290         137           (10)        4,682       (46,099)          -- 
  Income taxes payable.....................     (2,046)        223           (69)        8,683            --        6,791 
  Other current liabilities................     67,291         678         1,886         7,986            --       77,841 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
    Total current liabilities..............    163,244       1,520         1,807        40,857       (46,099)     161,329 
Long-term debt.............................    196,250          --            --           779            --      197,029 
Deferred income taxes......................      3,149          --            --         2,152            --        5,301 
Postretirement benefits other than                                                                                        
  pension..................................     16,424          --            --            --            --       16,424 
Other noncurrent liabilities...............      7,803          --            --         4,684            --       12,487 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
  Total liabilities........................    386,870       1,520         1,807        48,472       (46,099)     392,570 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
Stockholders' equity:                                                                                                     
  Common stock.............................        432          --            --            --            --          432 
  Additional paid-in-capital...............    213,984       3,535        12,897        60,079       (75,545)     214,950 
  Unearned stock grant compensation........       (993)         --            --            --            --         (993)
  Retained earnings........................     77,942       5,209         2,601        27,467       (35,277)      77,942 
  Accumulated other comprehensive income...         --          --            --        (4,042)           --       (4,042)
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
    Total stockholders' equity.............    291,365       8,744        15,498        83,504      (110,822)     288,289 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
    Total Liabilities and Stockholders'                                                                                   
      Equity............................... $  678,235   $  10,264     $  17,305     $ 131,976    $ (156,921)  $  680,859 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 
                                            ----------  -----------  -------------  -----------  ------------  ---------- 

F-36

PREM14A
121st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 121st
KNOLL, INC. 

STATEMENT OF OPERATIONS 

YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                GUARANTORS                                               
                                                        --------------------------                                       
                                                        SPINNEYBECK      KNOLL                                           
                                              KNOLL,    ENTERPRISES,   OVERSEAS,       NON-                              
                                               INC.        INC.          INC.       GUARANTORS   ELIMINATIONS    TOTAL   
                                            ----------  -----------  -------------  -----------  ------------  ----------
                                                                                                                         
Sales to customers......................... $  835,209   $  22,502     $      --     $  90,980    $       --   $  948,691
Sales to related parties...................     24,652       3,531         1,244       124,816      (154,243)          --
                                            ----------  -----------       ------    -----------  ------------  ----------
Total sales................................    859,861      26,033         1,244       215,796      (154,243)     948,691
Cost of sales to customers.................    526,437       9,114           813        64,478       (28,086)     572,756
Cost of sales to related parties...........     14,578       3,531            --       108,048      (126,157)          --
                                            ----------  -----------       ------    -----------  ------------  ----------
Gross profit...............................    318,846      13,388           431        43,270            --      375,935
Selling, general and administrative                                                                                      
  expenses.................................    165,976       6,938           871        30,607            --      204,392
                                            ----------  -----------       ------    -----------  ------------  ----------
Operating income (loss)....................    152,870       6,450          (440)       12,663            --      171,543
Interest expense...........................     16,809          --            --            51            --       16,860
Other income, net..........................        412          --            --         2,320            --        2,732
Income from equity investments.............     11,401          99           985            --       (12,485)          --
                                            ----------  -----------       ------    -----------  ------------  ----------
Income before income tax expense...........    147,874       6,549           545        14,932       (12,485)     157,415
Income tax expense (benefit)...............     54,830       2,685           (21)        6,877            --       64,371
                                            ----------  -----------       ------    -----------  ------------  ----------
Net income................................. $   93,044   $   3,864     $     566     $   8,055    $  (12,485)  $   93,044
                                            ----------  -----------       ------    -----------  ------------  ----------
                                            ----------  -----------       ------    -----------  ------------  ----------

F-37

PREM14A
122nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 122nd
KNOLL, INC. 

STATEMENT OF OPERATIONS 

YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                GUARANTORS                                               
                                                        --------------------------                                       
                                                        SPINNEYBECK      KNOLL                                           
                                              KNOLL,    ENTERPRISES,   OVERSEAS,       NON-                              
                                               INC.        INC.          INC.       GUARANTORS   ELIMINATIONS    TOTAL   
                                            ----------  -----------  -------------  -----------  ------------  ----------
                                                                                                                         
Sales to customers......................... $  698,392   $  18,934     $      --     $  93,531    $       --   $  810,857
Sales to related parties...................     22,545       3,507         1,192       103,412      (130,656)          --
                                            ----------  -----------  -------------  -----------  ------------  ----------
Total sales................................    720,937      22,441         1,192       196,943      (130,656)     810,857
Cost of sales to customers.................    450,099       7,707           703        67,902       (36,449)     489,962
Cost of sales to related parties...........     14,530       3,507            --        76,170       (94,207)          --
                                            ----------  -----------  -------------  -----------  ------------  ----------
Gross profit...............................    256,308      11,227           489        52,871            --      320,895
Selling, general and administrative                                                                                      
  expenses.................................    151,907       6,287         1,828        22,996            --      183,018
                                            ----------  -----------  -------------  -----------  ------------  ----------
Operating income (loss)....................    104,401       4,940        (1,339)       29,875            --      137,877
Interest expense...........................     24,960          --            --           115            --       25,075
Other income (expense), net................       (190)         --            (1)        1,858            --        1,667
Income from equity investments.............     19,837         117         2,158            --       (22,112)          --
                                            ----------  -----------  -------------  -----------  ------------  ----------
Income before income tax expense (benefit)                                                                               
  and extraordinary item...................     99,088       5,057           818        31,618       (22,112)     114,469
Income tax expense (benefit)...............     32,645       2,051           (15)       13,345            --       48,026
                                            ----------  -----------  -------------  -----------  ------------  ----------
Income before extraordinary item...........     66,443       3,006           833        18,273       (22,112)      66,443
Extraordinary loss on early extinguishment                                                                               
  of debt,                                                                                                               
  net of taxes.............................      5,337          --            --            --            --        5,337
                                            ----------  -----------  -------------  -----------  ------------  ----------
Net income................................. $   61,106   $   3,006     $     833     $  18,273    $  (22,112)  $   61,106
                                            ----------  -----------  -------------  -----------  ------------  ----------
                                            ----------  -----------  -------------  -----------  ------------  ----------

F-38

PREM14A
123rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 123rd
KNOLL, INC. 

STATEMENT OF OPERATIONS 

TEN MONTHS ENDED DECEMBER 31, 1996

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                GUARANTORS                                               
                                                        --------------------------                                       
                                                        SPINNEYBECK      KNOLL                                           
                                              KNOLL,    ENTERPRISES,   OVERSEAS,       NON-                              
                                               INC.        INC.          INC.       GUARANTORS   ELIMINATIONS    TOTAL   
                                            ----------  -----------  -------------  -----------  ------------  ----------
                                                                                                                         
Sales to customers......................... $  480,857   $  12,796     $      --     $  67,881    $       --   $  561,534
Sales to related parties...................     13,227       2,210            --        62,580       (78,017)          --
                                            ----------  -----------  -------------  -----------  ------------  ----------
Total sales................................    494,084      15,006            --       130,461       (78,017)     561,534
Cost of sales to customers.................    323,607       6,109           521        50,293       (21,689)     358,841
Cost of sales to related parties...........      8,902       1,054            --        46,372       (56,328)          --
                                            ----------  -----------  -------------  -----------  ------------  ----------
Gross profit (loss)........................    161,575       7,843          (521)       33,796            --      202,693
Selling, general and administrative                                                                                      
  expenses.................................    108,713       4,342         1,461        16,833            --      131,349
                                            ----------  -----------  -------------  -----------  ------------  ----------
Operating income (loss)....................     52,862       3,501        (1,982)       16,963            --       71,344
Interest expense...........................     32,706          --            --           246            --       32,952
Other income (expense), net................        757          (4)          953        (1,259)           --          447
Income from equity investments.............     10,319          77         2,769            --       (13,165)          --
                                            ----------  -----------  -------------  -----------  ------------  ----------
Income before income tax expense (benefit)                                                                               
  and extraordinary item...................     31,232       3,574         1,740        15,458       (13,165)      38,839
Income tax expense (benefit)...............      9,237       1,371           (28)        6,264            --       16,844
                                            ----------  -----------  -------------  -----------  ------------  ----------
Income before extraordinary item...........     21,995       2,203         1,768         9,194       (13,165)      21,995
Extraordinary loss on early extinguishment                                                                               
  of debt,                                                                                                               
  net of taxes.............................      5,159          --            --            --            --        5,159
                                            ----------  -----------  -------------  -----------  ------------  ----------
Net income................................. $   16,836   $   2,203     $   1,768     $   9,194    $  (13,165)  $   16,836
                                            ----------  -----------  -------------  -----------  ------------  ----------
                                            ----------  -----------  -------------  -----------  ------------  ----------

F-39

PREM14A
124th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 124th
KNOLL, INC. 

STATEMENT OF OPERATIONS 

TWO MONTHS ENDED FEBRUARY 29, 1996

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                  GUARANTORS                                                 
                                                         ----------------------------                                        
                                                         SPINNEYBECK                                                         
                                                         ENTERPRISES,      KNOLL          NON-                               
                                            KNOLL, INC.     INC.      OVERSEAS, INC.   GUARANTORS   ELIMINATIONS    TOTAL    
                                            -----------  -----------  ---------------  -----------  ------------  ---------- 
                                                                                                                             
Sales to customers.........................  $  76,471    $   2,095      $      --      $  11,666    $       --   $   90,232 
Sales to related parties...................      1,318          330             --          6,935        (8,583)          -- 
                                            -----------  -----------         -----     -----------  ------------  ---------- 
Total sales................................     77,789        2,425             --         18,601        (8,583)      90,232 
Cost of sales to customers.................     50,580          931            111          9,041          (949)      59,714 
Cost of sales to related parties...........        883          149             --          6,602        (7,634)          -- 
                                            -----------  -----------         -----     -----------  ------------  ---------- 
Gross profit (loss)........................     26,326        1,345           (111)         2,958            --       30,518 
Selling, general and administrative                                                                                          
  expenses.................................     16,800          725            224          3,507            --       21,256 
Westinghouse long-term incentive                                                                                             
  compensation.............................     47,900           --             --             --            --       47,900 
Allocated corporate expenses...............        921           --             --             --            --          921 
                                            -----------  -----------         -----     -----------  ------------  ---------- 
Operating income (loss)....................    (39,295)         620           (335)          (549)           --      (39,559)
Interest expense...........................         --           --             --            340            --          340 
Other income (expense), net................       (265)          --            170           (201)           --         (296)
Income (loss) from equity                                                                                                    
  investments..............................       (218)          23           (493)            --           688           -- 
                                            -----------  -----------         -----     -----------  ------------  ---------- 
Income (loss) before income tax expense                                                                                      
  (benefit)................................    (39,778)         643           (658)        (1,090)          688      (40,195)
Income tax expense (benefit)...............    (16,338)         259            (56)            28            --      (16,107)
                                            -----------  -----------         -----     -----------  ------------  ---------- 
Net income (loss)..........................  $ (23,440)   $     384      $    (602)     $  (1,118)   $      688   $  (24,088)
                                            -----------  -----------         -----     -----------  ------------  ---------- 
                                            -----------  -----------         -----     -----------  ------------  ---------- 

F-40

PREM14A
125th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 125th
KNOLL, INC. 

STATEMENT OF CASH FLOWS 

YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                    GUARANTORS                                                    
                                                           ----------------------------                                           
                                                             SPINNEYBECK       KNOLL                                              
                                                 KNOLL,     ENTERPRISES,     OVERSEAS,      NON-                                  
                                                  INC.          INC.           INC.      GUARANTORS    ELIMINATIONS      TOTAL    
                                               ----------  ---------------  -----------  -----------  ---------------  ---------- 
                                                                                                                                  
CASH PROVIDED BY OPERATING ACTIVITIES......... $  101,588     $     285      $      --    $  12,690      $      --     $  114,563 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                              
Capital expenditures..........................    (27,170)          (15)            --       (9,205)            --        (36,390)
Proceeds from sale of assets..................         69            --             --           83             --            152 
                                               ----------         -----          -----   -----------         -----     ---------- 
Cash used in investing activities.............    (27,101)          (15)            --       (9,122)            --        (36,238)

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                              
Repayment of revolving credit                                                                                                     
  facility, net...............................    (38,000)           --             --           --             --        (38,000)
Proceeds from long-term debt..................         --            --             --          201             --            201 
Net proceeds from issuance of stock...........      4,813            --             --           --             --          4,813 
Purchase of common stock......................    (38,849)           --             --           --             --        (38,849)
                                               ----------         -----          -----   -----------         -----     ---------- 
Cash provided by (used in) financing                                                                                              
  activities..................................    (72,036)           --             --          201             --        (71,835)

Effect of exchange rate changes on cash and                                                                                       
  cash equivalents............................         --            --             --          185             --            185 
                                               ----------         -----          -----   -----------         -----     ---------- 
Increase in cash and cash equivalents.........      2,451           270             --        3,954             --          6,675 
Cash and cash equivalents at beginning                                                                                            
  of year.....................................      1,052           291             --        9,447             --         10,790 
                                               ----------         -----          -----   -----------         -----     ---------- 
Cash and cash equivalents at                                                                                                      
  end of year................................. $    3,503     $     561      $      --    $  13,401      $      --     $   17,465 
                                               ----------         -----          -----   -----------         -----     ---------- 
                                               ----------         -----          -----   -----------         -----     ---------- 

F-41

PREM14A
126th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 126th
KNOLL, INC. 

STATEMENT OF CASH FLOWS 

YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                   GUARANTORS                                                
                                                            ------------------------                                         
                                                            SPINNEYBECK     KNOLL                                            
                                                  KNOLL,    ENTERPRISES,  OVERSEAS,      NON-                                
                                                   INC.        INC.         INC.      GUARANTORS   ELIMINATIONS     TOTAL    
                                                ----------  -----------  -----------  -----------  -------------  ---------- 
                                                                                                                             
CASH PROVIDED BY OPERATING ACTIVITIES.......... $  124,109   $   2,546    $      --    $   8,607     $      --    $  135,262 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                         
Capital expenditures...........................    (26,740)        (22)          --       (6,347)           29       (33,080)
Proceeds from sale of assets...................        108          --           --           85           (29)          164 
Payments received on intercompany loans........      2,500          --           --           --        (2,500)           -- 
                                                ----------  -----------  -----------  -----------       ------    ---------- 
Cash used in investing activities..............    (24,132)        (22)          --       (6,262)       (2,500)      (32,916)

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                         
Repayment of revolving credit facility, net....    (79,000)         --           --           --            --       (79,000)
Repayment of long-term debt, net...............    (67,750)         --           --         (238)           --       (67,988)
Repayment of intercompany loans................         --      (2,500)          --           --         2,500            -- 
Premium paid for early extinguishment of                                                                                     
  debt.........................................     (5,775)         --           --           --            --        (5,775)
Net proceeds from issuance of stock............    133,559          --           --           --            --       133,559 
Redemption of preferred stock..................    (80,000)         --           --           --            --       (80,000)
                                                ----------  -----------  -----------  -----------       ------    ---------- 
Cash used in financing activities..............    (98,966)     (2,500)          --         (238)        2,500       (99,204)
Effect of exchange rate changes on cash and                                                                                  
  cash equivalents.............................         --          --           --       (1,156)           --        (1,156)
                                                ----------  -----------  -----------  -----------       ------    ---------- 
Increase in cash and cash equivalents..........      1,011          24           --          951            --         1,986 
Cash and cash equivalents at beginning of                                                                                    
  year.........................................         41         267           --        8,496            --         8,804 
                                                ----------  -----------  -----------  -----------       ------    ---------- 
Cash and cash equivalents at end of                                                                                          
  year......................................... $    1,052   $     291    $      --    $   9,447     $      --    $   10,790 
                                                ----------  -----------  -----------  -----------       ------    ---------- 
                                                ----------  -----------  -----------  -----------       ------    ---------- 

F-42

PREM14A
127th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 127th
KNOLL, INC. 

STATEMENT OF CASH FLOWS 

TEN MONTHS ENDED DECEMBER 31, 1996

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                      GUARANTORS                                        
                                                            ------------------------------                              
                                                              SPINNEYBECK        KNOLL                                  
                                                             ENTERPRISES,      OVERSEAS,       NON-                     
                                               KNOLL, INC.       INC.            INC.       GUARANTORS    ELIMINATIONS  
                                               -----------  ---------------  -------------  -----------  ---------------
                                                                                                                        
CASH PROVIDED BY OPERATING ACTIVITIES.........  $  78,889      $     399       $      --     $  10,214      $      --   

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                    
Acquisition of the Company from                                                                                         
  Westinghouse................................   (579,801)            --              --            --             --   
Capital expenditures..........................    (12,531)          (134)             --        (2,590)            --   
Proceeds from sale of assets..................         43             --              --           175             --   
                                               -----------         -----             ---    -----------           ---   
Cash used in investing activities.............   (592,289)          (134)             --        (2,415)            --   

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                    
Repayment of short-term debt, net.............         --             --              --        (1,483)            --   
Proceeds from revolving credit facility,                                                                                
  net.........................................     88,000             --              --            --             --   
Proceeds from (repayment of) long-term debt,                                                                            
  net.........................................    265,000             --              --          (130)            --   
Net proceeds from issuance of stock...........    160,400             --              --            --             --   
Net receipts from (payments to) parent                                                                                  
  company.....................................       (120)            --              --           120             --   
                                               -----------         -----             ---    -----------           ---   
Cash provided by (used in) financing                                                                                    
  activities..................................    513,280             --              --        (1,493)            --   
Effect of exchange rate changes on cash and                                                                             
  cash equivalents............................         --             --              --            18             --   
                                               -----------         -----             ---    -----------           ---   
Increase (decrease) in cash and cash                                                                                    
  equivalents.................................       (120)           265              --         6,324             --   
Cash and cash equivalents at beginning of                                                                               
  period......................................        161              2              --         2,172             --   
                                               -----------         -----             ---    -----------           ---   
Cash and cash equivalents at end of period....  $      41      $     267       $      --     $   8,496      $      --   
                                               -----------         -----             ---    -----------           ---   
                                               -----------         -----             ---    -----------           ---   



                                                 TOTAL                                                                  
                                               ----------                                                               
                                                                                                                        
CASH PROVIDED BY OPERATING ACTIVITIES......... $   89,502                                                               
CASH FLOWS FROM INVESTING ACTIVITIES                                                                                    
Acquisition of the Company from                                                                                         
  Westinghouse................................   (579,801)                                                              
Capital expenditures..........................    (15,255)                                                              
Proceeds from sale of assets..................        218                                                               
                                               ----------                                                               
Cash used in investing activities.............   (594,838)                                                              
CASH FLOWS FROM FINANCING ACTIVITIES                                                                                    
Repayment of short-term debt, net.............     (1,483)                                                              
Proceeds from revolving credit facility,                                                                                
  net.........................................     88,000                                                               
Proceeds from (repayment of) long-term debt,                                                                            
  net.........................................    264,870                                                               
Net proceeds from issuance of stock...........    160,400                                                               
Net receipts from (payments to) parent                                                                                  
  company.....................................         --                                                               
                                               ----------                                                               
Cash provided by (used in) financing                                                                                    
  activities..................................    511,787                                                               
Effect of exchange rate changes on cash and                                                                             
  cash equivalents............................         18                                                               
                                               ----------                                                               
Increase (decrease) in cash and cash                                                                                    
  equivalents.................................      6,469                                                               
Cash and cash equivalents at beginning of                                                                               
  period......................................      2,335                                                               
                                               ----------                                                               
Cash and cash equivalents at end of period.... $    8,804                                                               
                                               ----------                                                               
                                               ----------                                                               

F-43

PREM14A
128th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 128th
KNOLL, INC. 

STATEMENT OF CASH FLOWS 

TWO MONTHS ENDED FEBRUARY 29, 1996

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                    GUARANTORS                                               
                                                             ------------------------                                        
                                                             SPINNEYBECK     KNOLL                                           
                                                             ENTERPRISES,  OVERSEAS,      NON-                               
                                                KNOLL, INC.     INC.         INC.      GUARANTORS   ELIMINATIONS    TOTAL    
                                                -----------  -----------  -----------  -----------  ------------  ---------- 
                                                                                                                             
CASH PROVIDED BY (USED IN) OPERATING                                                                                         
  ACTIVITIES...................................  $ (53,215)   $   1,267    $     651    $  17,139    $  (19,881)  $  (54,039)
CASH FLOWS FROM INVESTING ACTIVITIES                                                                                         
Capital expenditures...........................     (2,022)         (28)          --         (246)           --       (2,296)
                                                -----------  -----------       -----   -----------  ------------  ---------- 
Cash used in investing activities..............     (2,022)         (28)          --         (246)           --       (2,296)

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                         
Repayment of short-term debt, net..............     (2,055)          --           --       (1,750)           --       (3,805)
Net receipts from (payments to) parent                                                                                       
  company......................................     57,635       (1,419)        (651)     (14,598)       19,881       60,848 
                                                -----------  -----------       -----   -----------  ------------  ---------- 
Cash provided by (used in) financing                                                                                         
  activities...................................     55,580       (1,419)        (651)     (16,348)       19,881       57,043 
Effect of exchange rate changes on cash and                                                                                  
  cash equivalents.............................         --           --           --           58            --           58 
                                                -----------  -----------       -----   -----------  ------------  ---------- 
Increase (decrease) in cash and cash                                                                                         
  equivalents..................................        343         (180)          --          603            --          766 
Cash and cash equivalents at beginning of                                                                                    
  period.......................................       (182)         182           --        1,569            --        1,569 
                                                -----------  -----------       -----   -----------  ------------  ---------- 
Cash and cash equivalents at end of period.....  $     161    $       2    $      --    $   2,172    $       --   $    2,335 
                                                -----------  -----------       -----   -----------  ------------  ---------- 
                                                -----------  -----------       -----   -----------  ------------  ---------- 

F-44

PREM14A
129th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 129th
SCHEDULE II 

VALUATION AND QUALIFYING ACCOUNTS 

                                                        [Enlarge/Download Table]

                         COLUMN A                            COLUMN B     COLUMN C       COLUMN D        COLUMN E   
----------------------------------------------------------  -----------  -----------  ---------------  -------------
                                                                                                                    
                                                                          ADDITIONS                                 
                                                            BALANCE AT   CHARGED TO                                 
                                                             BEGINNING    COSTS AND                     BALANCE AT  
                       DESCRIPTION                           OF PERIOD    EXPENSES    DEDUCTIONS (1)   END OF PERIOD
----------------------------------------------------------  -----------  -----------  ---------------  -------------


                                                                                 (IN THOUSANDS)                     
                                                                                                                    
VALUATION ACCOUNTS DEDUCTED IN THE CONSOLIDATED BALANCE                                                             
  SHEET FROM THE ASSETS TO WHICH THEY APPLY:                                                                        
Year Ended December 31, 1998:                                                                                       
  Allowance for doubtful accounts.........................   $   5,461    $   1,313      $   1,717       $   5,057  
Year Ended December 31, 1997:                                                                                       
  Allowance for doubtful accounts.........................       5,713        1,943          2,195           5,461  
Ten Months Ended December 31, 1996:                                                                                 
  Allowance for doubtful accounts.........................       5,838        2,098          2,223           5,713  
Two Months Ended February 29, 1996:                                                                                 
  Allowance for doubtful accounts.........................       5,790          159            210           5,739  

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

(1) Uncollectible accounts written off and foreign currency translation.        

F-45

PREM14A
130th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 130th
                                                                      APPENDIX A

AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
WARBURG, PINCUS VENTURES, L.P.
AND 
KNOLL, INC. 

DATED AS OF JULY 29, 1999 

PREM14A
131st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 131st
TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                                             PAGE   
                                                                                                             -----  
                                                                                                                    
ARTICLE I. THE MERGER.......................................................................................       1

  Section 1.1.      Formation of Acquisition................................................................       1

  Section 1.2.      The Merger..............................................................................       1

  Section 1.3.      Effective Time..........................................................................       1

  Section 1.4.      Closing.................................................................................       2

  Section 1.5.      Certificate of Incorporation; By-Laws; Officers and Directors...........................       2

  Section 1.6.      Effect on Common Stock..................................................................       2

  Section 1.7.      Dissenting Shares.......................................................................       3

  Section 1.8.      Treatment of Stock Options..............................................................       4

  Section 1.9.      Exchange of Knoll Common Stock Certificates.............................................       4

  Section 1.10.     Proxy Statement and Schedule 13E-3......................................................       6

  Section 1.11.     Additional Agreements and Provisions....................................................       7

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF KNOLL.........................................................       7

  Section 2.1.      Organization of Knoll and its Subsidiaries..............................................       7

  Section 2.2.      Capitalization of Knoll; Ownership......................................................       7

  Section 2.3.      Subsidiaries of Knoll...................................................................       8

  Section 2.4.      Authorization...........................................................................       8

  SEction 2.5.      Fairness Opinion and Approval by the Special Committee..................................       8

  Section 2.6.      Brokers and Finders.....................................................................       9

  Section 2.7.      SEC Documents; Undisclosed Liabilities..................................................       9

PREM14A
132nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 132nd
                                                        [Enlarge/Download Table]

                                                                                            PAGE 
                                                                                            -----
                                                                                                 

  Section 2.8.   Absence of Certain Changes or Events..................................  9       

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF WARBURG.................................  9       

  Section 3.1.   Organization and Authority of Acquisition............................. 10       

  Section 3.2.   Authorization......................................................... 10       

  Section 3.3.   Brokers and Intermediaries............................................ 10       

  Section 3.4.   Proxy Statement....................................................... 10       

  Section 3.5.   Financing............................................................. 10       

  Section 3.6.   Sale of Knoll......................................................... 10       

ARTICLE IV. CERTAIN COVENANTS AND AGREEMENTS........................................... 11       

  Section 4.1.   Announcement.......................................................... 11       

  Section 4.2.   Notification of Certain Matters....................................... 11       

  Section 4.3.   Directors' and Officers' Indemnification.............................. 11       

  Section 4.4.   Stockholders Meeting.................................................. 12       

  Section 4.5.   Obligations of Acquisition............................................ 12       

ARTICLE V. CONDITIONS PRECEDENT........................................................ 12       

  Section 5.1.   Conditions to Each Party's Obligation to Effect the Merger............ 12       

  Section 5.2.   Conditions to the Obligation of Knoll to Effect the Merger............ 13       

  Section 5.3.   Conditions to the Obligation of Acquisition to Effect the Merger...... 13       

ARTICLE VI. TERMINATION, AMENDMENT AND WAIVER.......................................... 14       

  Section 6.1.   Termination........................................................... 14       

  Section 6.2.   Effect of Termination................................................. 14       

  Section 6.3.   Amendment............................................................. 15       

  Section 6.4.   Waiver................................................................ 15       

  Section 6.5.   Approval of Special Committee Required................................ 15       

ii

PREM14A
133rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 133rd
                                                        [Enlarge/Download Table]

                                                                                            PAGE 
                                                                                            -----
                                                                                                 

ARTICLE VII. MISCELLANEOUS............................................................. 15       

  Section 7.1.   Non-Survival of Representations and Warranties........................ 15       

  Section 7.2.   Expenses.............................................................. 15       

  Section 7.3.   Applicable Law........................................................ 15       

  Section 7.4.   Notices............................................................... 16       

  Section 7.5.   Entire Agreement...................................................... 17       

  Section 7.6.   Assignment............................................................ 17       

  Section 7.7.   Headings; References.................................................. 17       

  Section 7.8.   Counterparts.......................................................... 17       

  Section 7.9.   No Third Party Beneficiaries.......................................... 17       

  Section 7.10.  Severability; Enforcement............................................. 17       

iii 

PREM14A
134th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 134th
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of July 29, 
1999, by and between Warburg, Pincus Ventures, L.P., a Delaware limited         
partnership ("Warburg"), and Knoll, Inc., a Delaware corporation ("Knoll").     

  WHEREAS, Warburg and certain members of the management of Knoll identified
in the Schedule 13D filed with the Securities and Exchange Commission (the      
"SEC") on April 2, 1999 (collectively, the "Management Members" and, together   
with Warburg, the "Buyout Group") desire to acquire the entire equity interest  
in Knoll and to provide for the payment of $28.00 per share in cash for all     
shares of the common stock, par value $.01 per share, of Knoll (the "Knoll      
Common Stock") not held by them; and                                            

   WHEREAS, Warburg intends to form a corporation for the purpose of effecting
such transaction (such corporation, "Acquisition"); and                         

WHEREAS, the Board of Directors of Knoll, upon the recommendation of the
special committee established to consider the fairness of the transaction       
contemplated by this Agreement (the "Special Committee"), has unanimously       
approved, and deems advisable and in the best interests of its stockholders, the
merger of Acquisition with and into Knoll in accordance with Section 251 of the 
Delaware General Corporation Law (the "DGCL") and upon the terms, and subject to
the conditions, of this Agreement (the "Merger"); and                           

WHEREAS, Warburg and Knoll have previously entered into an Agreement and
Plan of Merger, dated as of June 21, 1999 (the "Old Merger Agreement"), with    
respect to the Merger and desire to amend and restate the Old Merger Agreement  
in its entirety as set forth herein;                                            

 NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto, intending to be 
legally bound, agree as follows:                                                

ARTICLE I.
THE MERGER

Section 1.1.  FORMATION OF ACQUISITION.                                 

  Prior to consummation of the Merger, Warburg will incorporate and organize
Acquisition.                                                                    

  Section 1.2.  THE MERGER.  At the Effective Time (as hereinafter defined),
upon the terms and subject to the conditions set forth in this Agreement and in 
accordance with the DGCL, Acquisition shall be merged with and into Knoll, the  
separate existence of Acquisition shall cease, and Knoll shall continue as the  
surviving corporation (the "Surviving Corporation"). The Merger shall have the  
effects as provided by the DGCL and other applicable law.                       

Section 1.3.  EFFECTIVE TIME.  As soon as practicable following the     
satisfaction or waiver of the conditions set forth in Article V, Acquisition and
Knoll shall file with the Secretary of State of the State of Delaware a         
certificate of merger (the "Certificate of Merger") executed in accordance with 
the relevant provisions of the DGCL. The Merger shall become effective at such  

A-1 

PREM14A
135th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 135th
time as the Certificate of Merger is duly filed in the Department of State of   
the State of Delaware, or at such other time as is permissible in accordance    
with the DGCL and as Acquisition and Knoll shall agree and as specified in the  
Certificate of Merger (the time the Merger becomes effective being the          
"Effective Time").                                                              

   Section 1.4.  CLOSING.  The closing of the Merger (the "Closing") will take
place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, 
New York 10019 at 9:00 a.m. (New York time) on the date of the satisfaction of  
the conditions provided in Article V, or at such other time and place as        
Acquisition and Knoll shall agree (the "Closing Date").                         

Section 1.5.  CERTIFICATE OF INCORPORATION; BY-LAWS; OFFICERS AND       
DIRECTORS.  Pursuant to the Merger: (a) the Certificate of Incorporation and    
By-laws of Knoll as in effect immediately prior to the Effective Time shall be  
the Certificate of Incorporation and By-laws of the Surviving Corporation       
following the Merger, until thereafter changed or amended as provided therein   
and in accordance with applicable law; (b) the directors of Knoll shall be the  
directors of the Surviving Corporation following the Merger and until the       
earlier of their death, resignation or removal or until their respective        
successors are duly elected or appointed and qualified; and (c) the officers of 
Knoll immediately prior to the Effective Time shall be the officers of the      
Surviving Corporation until the earlier of their death, resignation or removal  
or until their respective successors are duly elected or appointed and          
qualified.                                                                      

  Section 1.6.  EFFECT ON COMMON STOCK.  As of the Effective Time, by virtue
of the Merger and without any action on the part of Acquisition, Knoll or the   
holders of any shares of Knoll Common Stock:                                    

(a)  COMMON STOCK OF ACQUISITION.  Each share of Common Stock, par value
$.01 per share, of Acquisition (the "Acquisition Common Stock") that is issued  
and outstanding immediately prior to the Effective Time shall be canceled and   
retired and shall cease to exist, and no consideration shall be delivered in    
exchange therefor, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto.                            

    (b)  COMMON STOCK OF KNOLL.  Subject to Sections 1.6(c), 1.6(d), 1.6(e), 1.7
and 1.8, each share of Knoll Common Stock that is issued and outstanding        
immediately prior to the Effective Time shall be converted into and become the  
right to receive the sum (the "Merger Consideration") of $28.00 and the         
Additional Amount (as defined below), if any, in cash and, when so converted,   
shall automatically be canceled and retired and shall cease to exist, and each  
holder of a certificate representing any such shares of Knoll Common Stock      
shall, to the extent such certificate represents such shares, cease to have any 
rights with respect thereto, except the right to receive the Merger             
Consideration allocable to the shares formerly represented by such certificate  
upon surrender of such certificate in accordance with Section 1.9. "Additional  
Amount" shall mean an amount equal to the product of (i) $28.00, (ii) a         
fraction, the numerator of which shall be the number of days in the period from 
and including November 18, 1999 to but excluding the earlier of January 17, 2000
and the Closing Date, and the denominator of which shall be 365 and (iii) .065; 
provided, however, that the Additional Amount shall be zero if the Effective    
Time occurs prior to November 18, 1999.                                         

A-2 

PREM14A
136th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 136th
   (c)  CANCELLATION OF TREASURY STOCK.  Each share of Knoll Common Stock that
is owned immediately prior to the Effective Time by Knoll or any Subsidiary of  
Knoll (as hereinafter defined) that constitutes treasury stock in the hands of  
the holder thereof, shall be canceled and retired and shall cease to exist, and 
no consideration shall be delivered in exchange therefor, and each holder of a  
certificate representing any such shares shall cease to have any rights with    
respect thereto. The term "Subsidiary" means any corporation, joint venture,    
partnership, limited liability company or other entity of which Knoll, directly 
or indirectly, owns or controls capital stock (or other equity interests)       
representing more than fifty percent of the general voting power of such entity 
under ordinary circumstances.                                                   

  (d)  KNOLL COMMON STOCK HELD BY WARBURG.  Each share of Knoll Common Stock
that is owned immediately prior to the Effective Time by Warburg or by Warburg, 
Pincus, & Co. shall remain outstanding as one share of the Common Stock, par    
value $.01 per share, of the Surviving Corporation (the "Surviving Corporation  
Common Stock").                                                                 

(e)  KNOLL COMMON STOCK SUBJECT TO INCENTIVE PLANS OR HELD BY MANAGEMENT
MEMBERS.  Each share of Knoll Common Stock (i) issued pursuant to Knoll's 1996  
Stock Incentive Plan or 1997 Stock Incentive Plan (collectively, the "Knoll     
Incentive Plans") that is outstanding immediately prior to the Effective Time   
(whether or not vested), including any shares of Knoll Common Stock that were   
issued upon exercise of Knoll Options (as defined below) granted under the Knoll
Incentive Plans, or (ii) otherwise held by any Management Member (except        
pursuant to Knoll's 401(k) Plan), but which, in either case of clauses (i) and  
(ii) above, has not been transferred by the person to whom Knoll issued such    
shares, shall remain outstanding as one share of Surviving Corporation Common   
Stock and shall otherwise remain subject to the terms and conditions of the     
Knoll Incentive Plans and any related agreements in effect immediately prior to 
the Effective Time.                                                             

Section 1.7.  DISSENTING SHARES                                         

 (a) Notwithstanding anything in this Agreement to the contrary, shares of
Knoll Common Stock outstanding immediately prior to the Effective Time and held 
by a holder who has demanded and perfected such holder's right to appraisal of  
such shares in accordance with Section 262 of the DGCL ("Dissenting Shares")    
shall not be converted into the right to receive the Merger Consideration, but  
the holder thereof shall instead be entitled to such rights as are afforded     
under the DGCL with respect to such holder's Dissenting Shares, unless such     
holder fails to perfect or withdraws or otherwise loses such holder's right to  
appraisal.                                                                      

  (b) If any holder of shares of Knoll Common Stock who demands appraisal of
such holder's shares pursuant to the DGCL fails to perfect or withdraws or      
otherwise loses such holder's right to appraisal, at the later of the Effective 
Time or upon the occurrence of such event, the Dissenting Shares of such holder 
shall be converted into and represent the right to receive the Merger           
Consideration, without interest thereon, in accordance with Section 1.6(b).     

(c) Knoll shall give Warburg and, after its formation, Acquisition (i)  
prompt notice of any written demand for appraisal or payment of the fair value  
of any shares of Knoll Common Stock, withdrawals of such demands, and any other 
instruments served pursuant to the DGCL received                                

A-3 

PREM14A
137th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 137th
by Knoll and (ii) the opportunity to direct all negotiations and proceedings    
with respect to demands for appraisal under the DGCL. Knoll shall not           
voluntarily make any payment with respect to any demand for appraisal and shall 
not, except with the prior written consent of Warburg or Acquisition, settle or 
offer to settle any such demands.                                               

Section 1.8.  TREATMENT OF STOCK OPTIONS.  Knoll and the Surviving      
Corporation shall take all actions necessary to provide that, upon consummation 
of the Merger, each then outstanding option to purchase shares of Knoll Common  
Stock (collectively, the "Knoll Options") granted under the Knoll Incentive     
Plans, whether or not then exercisable or vested, shall be assumed by the       
Surviving Corporation at the Effective Time, and each such Knoll Option shall   
become an option to purchase that number of shares of Surviving Corporation     
Common Stock (a "Knoll Substitute Option") equal to the number of shares of     
Knoll Common Stock purchasable immediately prior to the Merger pursuant to such 
Knoll Option. The exercise price per share for each Knoll Substitute Option     
shall be the current exercise price per share of Knoll Common Stock of the Knoll
Option related thereto. Each Knoll Substitute Option otherwise shall be subject 
to the other terms and conditions applicable to the Knoll Option to which it    
relates.                                                                        

Section 1.9.  EXCHANGE OF KNOLL COMMON STOCK CERTIFICATES.              

(a)  EXCHANGE AGENT.  Prior to the Effective Time, Knoll shall appoint a
bank or trust company to act as exchange agent (the "Exchange Agent") for the   
payment of the Merger Consideration. As of the Effective Time, Acquisition shall
have deposited with the Exchange Agent, for the benefit of the holders of shares
of Knoll Common Stock, for exchange in accordance with this Section 1.9, the    
aggregate amount of cash payable pursuant to Section 1.6(b) hereof in exchange  
for outstanding shares of Knoll Common Stock (the "Exchange Fund").             

  (b)  EXCHANGE PROCEDURES.  Promptly after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates,     
which immediately prior to the Effective Time represented outstanding shares of 
Knoll Common Stock, whose shares were converted into the right to receive cash  
pursuant to Section 1.6(b), a letter of transmittal (which shall specify that   
delivery shall be effected, and risk of loss and title to the certificates      
representing such shares of Knoll Common Stock shall pass, only upon delivery of
the certificates representing such shares of Knoll Common Stock to the Exchange 
Agent and shall be in such form and have such other provisions as the Exchange  
Agent may reasonably specify), and instructions for use in effecting the        
surrender of the certificates representing such shares of Knoll Common Stock, in
exchange for the Merger Consideration. Upon surrender to the Exchange Agent of a
certificate or certificates formerly representing shares of Knoll Common Stock  
and acceptance thereof by the Exchange Agent, the holder thereof shall be       
entitled to the amount of cash into which the number of shares of Knoll Common  
Stock formerly represented by such                                              

A-4 

PREM14A
138th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 138th
certificate or certificates surrendered shall have been converted pursuant to   
this Agreement. The Exchange Agent shall accept such certificates upon          
compliance with such reasonable terms and conditions as the Exchange Agent may  
impose to effect an orderly exchange thereof in accordance with normal exchange 
practices. After the Effective Time, there shall be no further transfer on the  
records of Knoll or its transfer agent of certificates representing shares of   
Knoll Common Stock and if such certificates are presented to Knoll for transfer,
they shall be canceled against delivery of the Merger Consideration allocable to
the shares of Knoll Common Stock represented by such certificate or             
certificates. If any Merger Consideration is to be remitted to a name other than
that in which the certificate for the Knoll Common Stock surrendered for        
exchange is registered, it shall be a condition of such exchange that the       
certificate so surrendered shall be properly endorsed, with signature           
guaranteed, or otherwise in proper form for transfer and that the person        
requesting such exchange shall pay to Knoll, or its transfer agent, any transfer
or other taxes required by reason of the payment of the Merger Consideration to 
a name other than that of the registered holder of the certificate surrendered, 
or establish to the satisfaction of Knoll or its transfer agent that such tax   
has been paid or is not applicable. Until surrendered as contemplated by this   
Section 1.9, each certificate for shares of Knoll Common Stock shall be deemed  
at any time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration allocable to the shares represented by  
such certificate as contemplated by Section 1.6(b). No interest will be paid or 
will accrue on any amount payable as Merger Consideration.                      

  (c)  NO FURTHER OWNERSHIP RIGHTS IN KNOLL STOCK.  The Merger Consideration
paid upon the surrender for exchange of certificates formerly representing      
shares of Knoll Common Stock in accordance with the terms of this Section 1.9   
shall be deemed to have been paid in full satisfaction of all rights pertaining 
to the shares of Knoll Common Stock formerly represented by such certificates.  

(d)  TERMINATION OF EXCHANGE FUND.  Any portion of the Exchange Fund    
(including any interest and other income received by the Exchange Agent in      
respect of all such funds) which remains undistributed to the holders of the    
certificates formerly representing shares of Knoll Common Stock for six months  
after the Effective Time shall be delivered to the Surviving Corporation, upon  
demand, and any holders of shares of Knoll Common Stock prior to the Merger who 
have not theretofore complied with this Section 1.9 shall thereafter look only  
to the Surviving Corporation, and only as general creditors thereof, for payment
of their claim for Merger Consideration to which such holders may be entitled.  

    (e)  NO LIABILITY.  No party to this Agreement shall be liable to any Person
(as hereinafter defined) in respect of any amount from the Exchange Fund        
delivered to a public official pursuant to any applicable abandoned property,   
escheat or similar law. The term "Person" means any individual, corporation,    
partnership, trust or unincorporated organization or a government or any agency 
or political subdivision thereof.                                               

(f)  LOST CERTIFICATES.  In the event any certificate or certificates   
formerly representing shares of Knoll Common Stock shall have been lost, stolen 
or destroyed, upon the making of an affidavit of that fact by the Person        
claiming such certificate or certificates to be lost, stolen or destroyed, and  
if required by the Surviving Corporation, the posting by such Person of a bond  
in such amount as the Surviving Corporation may reasonably require as indemnity 
against any claim that may be made against it with respect to such certificate, 
the Exchange Agent will issue in exchange for such lost, stolen or destroyed    
certificate the Merger Consideration deliverable in respect thereof as          
determined in accordance with this Section 1.9.                                 

  (g)  WITHHOLDING RIGHTS.  The Surviving Corporation and the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise       
payable pursuant to this                                                        

A-5 

PREM14A
139th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 139th
Agreement to any holder of shares of Knoll Common Stock such amounts as the     
Surviving Corporation or the Exchange Agent is required to deduct and withhold  
under the United States Internal Revenue Code of 1986, as amended, or any       
provision of state, local or foreign tax law with respect to the making of such 
payment. To the extent that amounts are so withheld by the Surviving Corporation
or the Exchange Agent, such withheld amounts shall be treated for all purposes  
of this Agreement as having been paid to the holder of the shares of Knoll      
Common Stock in respect of which such deduction and withholding was made by the 
Surviving Corporation or the Exchange Agent.                                    

Section 1.10.  PROXY STATEMENT AND SCHEDULE 13E-3                       

  (a) Knoll shall prepare, in consultation with Warburg, the Proxy Statement
on Schedule 14A (the "Proxy Statement") to be distributed to holders of the     
Knoll Common Stock for the purpose of soliciting proxies for use at the annual  
or special meeting of stockholders of Knoll (the "Stockholders Meeting") at     
which the adoption of this Agreement and the approval of the transactions       
contemplated thereby shall be sought. In the Proxy Statement, subject to the    
fiduciary duties of its Board of Directors or of the directors constituting the 
Special Committee (as determined by such directors in good faith after          
consultation with counsel), Knoll shall recommend to its stockholders the       
approval of the Merger, this Agreement and the transactions contemplated hereby.
Knoll shall file the Proxy Statement with the SEC as soon as is reasonably      
practicable after the date hereof and shall use all reasonable efforts to       
respond to comments from the SEC and to cause the Proxy Statement to be mailed  
to Knoll's stockholders at the earliest practicable time.                       

(b) None of the information to be supplied by Knoll for inclusion in the
Proxy Statement will, at the time of the mailing of the Proxy Statement and any 
amendments or supplements thereto, contain any untrue statement of a material   
fact or omit to state any material fact required to be stated therein or        
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Proxy Statement will, as of its  
date, comply as to form in all material respects with all applicable laws,      
including the provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder. Knoll    
will not mail, amend or supplement the Proxy Statement unless the Proxy         
Statement or any amendment or supplement thereof is satisfactory in content to  
Warburg in the exercise of its reasonable judgment.                             

(c) As soon as practicable after the date of this Agreement, Warburg and
Knoll shall file with the SEC, and shall use their reasonable best efforts to   
cause any of their respective affiliates engaging in this transaction to file   
with the SEC, a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the         
"Schedule 13E-3 Transaction Statement") with respect to the Merger. Each of the 
parties hereto agrees to use its reasonable best efforts to cooperate and to    
provide each other with such information as any of such parties may reasonably  
request in connection with the preparation of the Proxy Statement and the       
Schedule 13E-3 Transaction Statement. Each party hereto agrees promptly to      
supplement, update and correct any information provided by it for use in the    
Proxy Statement and the Schedule 13E-3 Transaction Statement if and to the      
extent that such information is or shall have become incomplete, false or       
misleading.                                                                     

A-6 

PREM14A
140th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 140th
Section 1.11.  ADDITIONAL AGREEMENTS AND PROVISIONS.  Upon the terms and
subject to the conditions of this Agreement and subject to the fiduciary duties 
of the directors of Knoll or of the directors constituting the Special Committee
(as determined by such directors in good faith after consultation with counsel),
each of the parties hereto agrees to use its reasonable best efforts to take, or
cause to be taken, all additional action and to do, or cause to be done, all    
additional things necessary, proper or advisable under applicable laws and      
regulations to consummate and make effective the transactions contemplated by   
this Agreement. If at any time after the Effective Time, any further action is  
necessary or desirable to carry out the purposes of this Agreement or to vest   
the Surviving Corporation with full title to all properties, assets, rights,    
approvals, immunities and franchises of either Knoll or Acquisition, the proper 
officers and directors of each corporation that is a party to this Agreement    
shall take all such necessary action. The parties hereto agree to use their     
respective best efforts to challenge any action brought against any of the      
parties hereto seeking a temporary restraining order or preliminary or permanent
injunctive relief which would prohibit, or materially interfere with, the       
consummation of the transactions contemplated by this Agreement.                

ARTICLE II. 
REPRESENTATIONS AND WARRANTIES OF KNOLL 

   Knoll hereby represents and warrants to Warburg and Acquisition as follows:

    Section 2.1.  ORGANIZATION OF KNOLL AND ITS SUBSIDIARIES.  Knoll and each of
its Subsidiaries is a corporation duly organized, validly existing and in good  
standing under the laws of its jurisdiction of organization and has all the     
requisite corporate power and authority to carry on its business as now being   
conducted and to own, lease, use and operate the properties owned and used by   
it. Knoll and each of its Subsidiaries is qualified and in good standing to do  
business in each jurisdiction in which the nature of its business requires it to
be so qualified, except to the extent the failure to be so qualified has not    
had, and would not reasonably be expected to have, a Material Adverse Effect.   
The term "Material Adverse Effect" means a material adverse effect on the       
business, assets, liabilities, results of operations or financial condition of  
Knoll and its Subsidiaries, taken as a whole.                                   

 Section 2.2.  CAPITALIZATION OF KNOLL; OWNERSHIP.  The authorized capital
stock of Knoll consists of (i) 100,000,000 shares of Knoll Common Stock, of     
which 40,659,751 shares are issued and outstanding as of the date hereof, and   
(ii) 10,000,000 shares of Preferred Stock, par value $1.00 per share, of which  
1,920,000 shares are designated as Series A 12% Participating Convertible       
Preferred Stock, 1,602,998 shares of which series have been retired and         
canceled. All of the issued and outstanding shares of capital stock of Knoll are
duly authorized, validly issued, fully paid and non-assessable and free of      
preemptive rights. Except for outstanding Knoll Options to purchase an aggregate
of no more than 2,750,000 shares of Knoll Common Stock, there are no outstanding
options, warrants or other rights of any kind to acquire (including preemptive  
rights) any additional shares of capital stock of Knoll or securities           
convertible into or exchangeable for, or which otherwise confer on the holder   
thereof any right to acquire, any such additional shares, nor is Knoll committed
to issue any such option, warrant, right or security. Following the             

A-7 

PREM14A
141st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 141st
Merger, Knoll will have no obligation to issue, transfer or sell any shares of  
its capital stock or other securities of Knoll pursuant to any employee benefit 
plan or otherwise.                                                              

 Section 2.3.  SUBSIDIARIES OF KNOLL.  All shares of capital stock of each
Subsidiary have been validly issued and are fully paid and non-assessable. There
are no outstanding options, warrants or other rights of any kind to acquire     
(including preemptive rights) any additional equity interests of any Subsidiary 
or securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any additional equity interests of any 
Subsidiary, nor is any Subsidiary committed to issue any such option, warrant,  
right or security. Other than the Subsidiaries referred to in this Section 2.3, 
Knoll does not own, directly or indirectly, any equity interest in any other    
corporation, joint venture, partnership, limited liability company or other     
entity.                                                                         

 Section 2.4.  AUTHORIZATION.  Knoll has all requisite corporate power and
authority to enter into this Agreement and, subject to any necessary approval of
the Merger by the stockholders of Knoll, to carry out its obligations hereunder 
and to consummate the transactions contemplated hereby. The execution and       
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part  
of Knoll (other than the approval of this Agreement and the transactions        
contemplated hereby by the stockholders of Knoll). The Board of Directors of    
Knoll has unanimously adopted resolutions approving this Agreement and the      
Merger, and has determined that the terms of the Merger are fair to, and in the 
best interests of, Knoll and its stockholders. Knoll has taken all action       
necessary to exempt the Merger and the other transactions contemplated hereby   
with Warburg, Acquisition and their affiliates from the operation of the        
"Business Combination Statute" at Section 203 of the DGCL. This Agreement has   
been duly executed and delivered by Knoll and, assuming the due authorization,  
execution and delivery hereof by Acquisition, constitutes the valid and binding 
obligation of Knoll, enforceable against Knoll in accordance with its terms,    
except as such enforceability may be limited by applicable bankruptcy,          
insolvency, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.                                             

    Section 2.5.  FAIRNESS OPINION AND APPROVAL BY THE SPECIAL COMMITTEE.  On or
prior to the date hereof, the Special Committee (i) determined that the Merger  
is fair to and in the best interest of the stockholders of Knoll other than the 
Buyout Group (the "Public Stockholders") and (ii) recommended that the Board of 
Directors of Knoll approve this Agreement and such transactions. The Special    
Committee has received an opinion of Lazard Freres & Co. LLC to the effect that 
the consideration to be received by the Public Stockholders in the Merger is    
fair to such stockholders from a financial point of view.                       

Section 2.6.  BROKERS AND FINDERS.  Other than Lazard Freres & Co. LLC, 
neither Knoll nor any Subsidiary has employed any broker, finder, advisor or    
intermediary in connection with the transactions contemplated by this Agreement 
which would be entitled to a broker's, finder's or similar fee or commission in 
connection therewith or upon the consummation thereof. Any such fees due to     
Lazard Freres & Co. LLC shall be paid by Knoll.                                 

  Section 2.7.  SEC DOCUMENTS; UNDISCLOSED LIABILITIES.  Knoll has filed all
required reports, schedules, forms, statements and other documents with the     
Securities and Exchange Commission                                              

A-8 

PREM14A
142nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 142nd
(the "SEC") since January 1, 1998 (the "SEC Documents"). As of their respective 
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act of 1933, as amended (the "Securities Act"), or the        
Exchange Act, as the case may be, and the rules and regulations of the SEC      
promulgated thereunder applicable to such SEC Documents. Except to the extent   
that information contained in any SEC Document has been revised or superseded by
a later filed SEC Document, none of the SEC Documents contains any untrue       
statement of a material fact or omits to state any material fact required to be 
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial     
statements of Knoll included in the SEC Documents comply as to form in all      
material respects with applicable accounting requirements and the published     
rules and regulations of the SEC with respect thereto, have been prepared in    
accordance with GAAP (except, in the case of unaudited statements, as permitted 
by applicable instructions or regulations of the SEC relating to the preparation
of quarterly reports on Form 10-Q) applied on a consistent basis during the     
period involved (except as may be indicated in the notes thereto) and fairly    
present the financial position of Knoll as of the dates thereof and the results 
of operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).                    

   Section 2.8.  ABSENCE OF CERTAIN CHANGES OR EVENTS.  Except as disclosed in
the SEC Documents filed and publicly available prior to the date of this        
Agreement, since the date of the most recent audited financial statements       
included in the filed SEC Documents, Knoll has conducted its business only in   
the ordinary course, and there has not been any material adverse change in the  
business or financial condition of Knoll and its subsidiaries taken as a whole. 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF WARBURG 

Warburg hereby represents and warrants to Knoll as follows:             

  Section 3.1.  ORGANIZATION AND AUTHORITY OF ACQUISITION.  At the Effective
Time, Acquisition will be a corporation duly incorporated, validly existing and 
in good standing under the laws of the State of Delaware. Acquisition will be   
incorporated solely for the purpose of merging with and into Knoll and taking   
action incident thereto. Except for obligations or liabilities incurred in      
connection with the transactions contemplated by this Agreement or in connection
with its organization, at the Effective Time Acquisition will not have incurred 
any obligations or liabilities or engaged in any business activities of any     
kind.                                                                           

 Section 3.2.  AUTHORIZATION.  Warburg has, and Acquisition will have, all
partnership or corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions            
contemplated hereby. The execution and delivery of this Agreement and the       
consummation of the transactions contemplated hereby have been (or in the case  
of Acquisition, will be) duly authorized by all requisite partnership or        
corporate action on the part of Warburg and Acquisition. This Agreement has been
duly executed and delivered by                                                  

A-9 

PREM14A
143rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 143rd
Warburg and, assuming the due authorization, execution and delivery hereof by   
Knoll, constitutes the valid and binding obligation of Warburg, enforceable     
against Warburg in accordance with its terms, except as such enforceability may 
be limited by applicable bankruptcy, insolvency, reorganization, or similar laws
affecting creditors' rights generally or by general equitable principles. Upon  
consummation of the Assignment (as hereinafter defined), assuming the due       
authorization, execution and delivery hereof by Knoll, this Agreement will      
constitute the valid and binding obligation of Acquisition, enforceable against 
Acquisition in accordance with its terms, except as such enforceability may be  
limited by applicable bankruptcy, insolvency, reorganization, or similar laws   
affecting creditors' rights generally or by general equitable principles.       

  Section 3.3.  BROKERS AND INTERMEDIARIES.  Other than Merrill Lynch & Co.,
Warburg has not, and Acquisition will not have, employed any broker, finder,    
advisor or intermediary in connection with the transactions contemplated by this
Agreement which would be entitled to a broker's, finder's, or similar fee or    
commission in connection therewith or upon the consummation thereof. Any such   
fees shall be the liability of Warburg or Acquisition.                          

 Section 3.4.  PROXY STATEMENT.  None of the information to be supplied by
Warburg or Acquisition for inclusion in the Proxy Statement will, at the time of
the mailing of the Proxy Statement and any amendments or supplements thereto,   
contain any untrue statement of a material fact or omit to state any material   
fact required to be stated therein or necessary in order to make the statements 
therein, in light of the circumstances under which they are made, not           
misleading.                                                                     

Section 3.5.  FINANCING.  Warburg has received a letter (the "Commitment
Letter") from Bank of America, N.A., as Administrative Agent, The Chase         
Manhattan Bank, as Syndication Agent, Merrill Lynch & Co. and Merrill Lynch,    
Pierce, Fenner & Smith Incorporated, as Documentation Agent, and Banc of America
Securities LLC and Chase Securities, Inc., as Joint Lead Arrangers and Joint    
Book Managers, committing to provide to Acquisition, upon the terms and subject 
to the conditions therein, up to $775 million in financing in connection with   
the Merger and certain transactions related thereto and for ongoing general     
corporate purposes. Warburg has furnished a copy of the Commitment Letter to the
Special Committee and its advisers.                                             

   Section 3.6.  SALE OF KNOLL.  Neither Warburg nor any of its affiliates has
any agreement, understanding or any present intention to sell Knoll or any      
material part of Knoll.                                                         

ARTICLE IV. 
CERTAIN COVENANTS AND AGREEMENTS

Section 4.1.  ANNOUNCEMENT.  None of Knoll, Warburg or Acquisition shall
issue any press release or otherwise make any public statement with respect to  
this Agreement and the transactions contemplated hereby without the prior       
consent of the others (which consent shall not be unreasonably withheld), except
as may be required by applicable law or stock exchange                          

A-10

PREM14A
144th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 144th
regulation. Notwithstanding anything in this Section 4.1 to the contrary,       
Acquisition, Warburg and Knoll will, to the extent practicable, consult with    
each other before issuing, and provide each other the opportunity to review and 
comment upon, any such press release or other public statement with respect to  
this Agreement and the transactions contemplated hereby whether or not required 
by law.                                                                         

Section 4.2.  NOTIFICATION OF CERTAIN MATTERS.  Knoll shall give prompt 
notice to Warburg and Acquisition, and Warburg and Acquisition shall give prompt
notice to Knoll, of (a) the occurrence or non-occurrence of any event the       
occurrence or non-occurrence of which would be reasonably likely to cause any   
representation or warranty contained in this Agreement to be untrue or          
inaccurate in any material respect at or prior to the Effective Time and (b) any
material failure of Knoll, or of Warburg or Acquisition, as the case may be, to 
comply with or satisfy any covenant, condition or agreement to be complied with 
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 4.3 shall not limit or otherwise affect the remedies   
available hereunder to the party or parties receiving such notice.              

Section 4.3.  DIRECTORS' AND OFFICERS' INDEMNIFICATION.                 

(a) The Certificate of Incorporation and the By-laws of the Surviving   
Corporation shall contain the provisions with respect to indemnification and    
limitation of liability of directors and officers set forth in Knoll's          
Certificate of Incorporation and By-laws on the date of this Agreement, which   
provisions shall not be amended, repealed or otherwise modified for a period of 
six years from the Effective Time in any manner that would adversely affect the 
rights thereunder of individuals who on or prior to the Effective Time were     
directors or officers of Knoll, unless such modification is required by law.    

 (b) The Surviving Corporation shall maintain in effect for six years from
the Effective Time policies of directors' and officers' liability insurance     
containing terms and conditions which are not less advantageous to the insured  
than any such policies of Knoll currently in effect on the date of this         
Agreement (the "Knoll Insurance Policies"), with respect to matters occurring   
prior to the Effective Time, to the extent available, and having the maximum    
available coverage under any such Knoll Insurance Policies; provided, that in no
event shall the Surviving Corporation be required to pay annual premiums for    
insurance under this Section 4.3(b) in excess of 200% of the annual premiums    
currently paid by Knoll and provided further, however, that if the annual       
premiums for such insurance coverage exceed 200% of the annual premiums         
currently paid by Knoll, the Surviving Corporation shall be obligated to obtain 
a policy with the greatest coverage that can be obtained for premiums that are  
200% of the annual premiums currently paid by Knoll.                            

 Section 4.4.  STOCKHOLDERS MEETING.  Knoll agrees to seek and solicit the
requisite vote of stockholders at the Stockholders Meeting for the adoption and 
approval of this Agreement and the transactions contemplated hereby. Warburg    
agrees to vote all shares of Knoll Common Stock owned by it, and to cause       
Acquisition to vote any and all shares of Knoll Common Stock that Acquisition   
may own, at the Stockholders Meeting in favor of the adoption and approval of   
this Agreement and the transactions contemplated hereby.                        

A-11

PREM14A
145th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 145th
 Section 4.5.  OBLIGATIONS OF ACQUISITION.  Warburg shall take all actions
necessary to cause Acquisition to perform its obligations in accordance with the
terms, and subject to the conditions, of this Agreement.                        

ARTICLE V.
CONDITIONS PRECEDENT

Section 5.1.  CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE       
MERGER.  The respective obligation of each party to effect the Merger shall be  
subject to the satisfaction on or prior to the Closing Date of each of the      
following conditions (any of which may be waived by the parties hereto in       
writing, in whole or in part, to the extent permitted by applicable law):       

  (a)  NO INJUNCTION OR PROCEEDING.  No preliminary or permanent injunction,
temporary restraining order or other decree of a court, legislature or other    
agency or instrumentality of federal, state or local government (a "Governmental
Entity") shall be in effect, no statute, rule or regulation shall have been     
enacted by a Governmental Entity and no action, suit or proceeding by any       
Governmental Entity shall have been instituted or threatened, which prohibits   
the consummation of the Merger or materially challenges the transactions        
contemplated hereby.                                                            

  (b)  CONSENTS.  Other than filing the Certificate of Merger, all consents,
approvals and authorizations of and filings with Governmental Entities required 
for the consummation of the transactions contemplated hereby shall have been    
obtained or effected or filed.                                                  

(c)  APPROVAL OF HOLDERS OF KNOLL COMMON STOCK.  This Agreement and the 
Merger shall have been adopted by the affirmative vote or written consent of a  
majority of the shares of Knoll Common Stock outstanding.                       

(d)  CONSENT OF HOLDERS OF SENIOR SUBORDINATED NOTES.  The holders of a 
majority in principal amount of Knoll's outstanding 10 7/8% Senior Subordinated 
Notes due 2006 shall have consented to the Merger (including the related        
financing thereof).                                                             

  (e)  RECOMMENDATION OF THE SPECIAL COMMITTEE.  The Special Committee shall
not have withdrawn its recommendation that (i) the Merger is fair to and in the 
best interest of the Public Stockholders and (ii) the Board of Directors of     
Knoll approve this Agreement and such transactions.                             

Section 5.2.  CONDITIONS TO THE OBLIGATION OF KNOLL TO EFFECT THE       
MERGER.  The obligation of Knoll to effect the Merger is further subject to the 
satisfaction or waiver of each of the following conditions prior to or at the   
Closing Date:                                                                   

   (a)  REPRESENTATIONS AND WARRANTIES.  The representations and warranties of
Warburg and Acquisition contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as though made at and as  
of the Effective Time, and Knoll shall have received a certificate of the       
President of Acquisition to that effect.                                        

A-12

PREM14A
146th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 146th
   (b)  AGREEMENTS.  Warburg and Acquisition shall have performed and complied
in all material respects with all their undertakings and agreements required by 
this Agreement to be performed or complied with by them prior to or at the      
Closing Date.                                                                   

Section 5.3.  CONDITIONS TO THE OBLIGATION OF ACQUISITION TO EFFECT THE 
MERGER.  The obligation of Acquisition to effect the Merger is further subject  
to the satisfaction or waiver of each of the following conditions prior to or at
the Closing Date:                                                               

   (a)  REPRESENTATIONS AND WARRANTIES.  The representations and warranties of
Knoll contained in this Agreement shall be true and correct in all material     
respects at and as of the Effective Time as though made at and as of the        
Effective Time, and Acquisition shall have received a certificate of the        
President and Chief Executive Officer of Knoll to that effect.                  

 (b)  AGREEMENTS.  Knoll shall have performed and complied in all material
respects with all of its undertakings and agreements required by this Agreement 
to be performed or complied with by it prior to or at the Closing Date.         

(c)  NO MATERIAL ADVERSE CHANGE.  Except as set forth in the Knoll SEC  
Reports filed on or prior to the date of this Agreement, since December 31, 1998
there shall have been no material adverse change in the business, assets,       
liabilities, results of operations or financial condition of Knoll and its      
Subsidiaries, taken as a whole.                                                 

    (d)  AVAILABILITY OF FUNDS.  Acquisition shall have funds available to it at
the Closing sufficient to pay the Merger Consideration, pursuant to the         
Commitment Letter or any other commitment acceptable to Acquisition.            

  (e)  APPRAISAL RIGHTS.  The holders of not more than 10% of the issued and
outstanding shares of Knoll Common Stock shall have exercised their rights to   
dissent from the Merger in accordance with Section 262 of the DGCL and pursuant 
to Section 1.7 of this Agreement.                                               

ARTICLE VI. 
TERMINATION, AMENDMENT AND WAIVER 

   Section 6.1.  TERMINATION.  This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or     
after stockholder approval thereof:                                             

(a) by the mutual written consent of Warburg (or Acquisition, after its 
formation) and Knoll (with the approval of the Special Committee);              

  (b) by either Warburg (or Acquisition, after its formation) or Knoll (with
the approval of the Special Committee), in each case by written notice to the   
other, if:                                                                      

A-13

PREM14A
147th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 147th
   (i) the Merger has not been consummated on or prior to December 31,
 1999; provided, however, that the right to terminate this Agreement under
   this Section 6.1(b)(i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or   
    resulted in, the failure of the Merger to occur on or prior to such date; or

       (ii) the Special Committee shall have withdrawn, or modified or changed
  in any manner adverse to Acquisition its approval of this Agreement or the
Merger after having concluded in good faith after consultation with     
 independent legal counsel that there is a reasonable probability that the
failure to take such action would result in a violation of its fiduciary
obligations under applicable law.                                       

Section 6.2.  EFFECT OF TERMINATION.  In the event of the termination of
this Agreement as provided in Section 6.1, this Agreement shall become null and 
void, and there shall be no liability on the part of Warburg, Acquisition or    
Knoll (except as set forth in Section 7.2 hereof, which shall survive any       
termination of this Agreement); provided that nothing herein shall relieve any  
party from any liability or obligation with respect to any breach of this       
Agreement.                                                                      

 Section 6.3.  AMENDMENT.  This Agreement may be amended in writing by the
parties hereto; provided that any amendment of this Agreement following approval
by the stockholders of Knoll at the Stockholders Meeting that, in the judgment  
of the Special Committee, adversely affects in any material respect the rights  
of stockholders under this Agreement shall require the prior approval of the    
stockholders of Knoll.                                                          

Section 6.4.  WAIVER.  At any time prior to the Effective Time, whether 
before or after the approval of the holders of Knoll Common Stock referred to in
Section 5.1(c) hereof, either party may (i) extend the time for the performance 
of any of the obligations or other acts of the other party hereto or (ii) waive 
compliance with any of the agreements of the other party or fulfillment of any  
conditions to its own obligations hereunder. Any agreement on the part of a     
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party by a duly authorized    
officer.                                                                        

  Section 6.5.  APPROVAL OF SPECIAL COMMITTEE REQUIRED.  The approval of the
Special Committee shall be required for (i) any amendment or modification of    
this Agreement that adversely affects in any material respect the rights of     
stockholders under this Agreement, (ii) any waiver of any condition to the      
obligations of Knoll under Sections 5.1(e), 5.2(a) or 5.2(b) hereof and (iii)   
any waiver of Knoll's rights under this Agreement.                              

ARTICLE VII.
MISCELLANEOUS 

  Section 7.1.  NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  None of the
representations and warranties in this Agreement or in any instrument delivered 
pursuant to this Agreement shall survive the Effective Time, and neither        
Warburg, Acquisition or Knoll, nor any                                          

A-14

PREM14A
148th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 148th
of their respective officers, directors or employees or stockholders, shall have
any liability whatsoever with respect to any such representation or warranty    
after such time. This Section 7.1 shall not limit any covenant or agreement of  
the parties which by its terms contemplates performance after the Effective     
Time.                                                                           

    Section 7.2.  EXPENSES.  Except as contemplated by this Agreement, all costs
and expenses incurred in connection with the Agreement and the consummation of  
the transactions contemplated hereby shall be the obligation of the party       
incurring such expenses. All costs and expenses incurred by Warburg or          
Acquisition in connection with the Agreement and the consummation of the        
transactions contemplated hereby shall, after the Effective Time, be obligations
of the Surviving Corporation.                                                   

   Section 7.3.  APPLICABLE LAW.  This Agreement shall be governed by the law,
excluding conflicts of law rules, of the State of Delaware.                     

    Section 7.4.  NOTICES.  All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given or made as follows:   
(a) if sent by registered or certified mail in the United States return receipt 
requested, upon receipt; (b) if sent by reputable overnight air courier, two    
business days after being so sent; (c) if sent by telecopy transmission, with a 
copy mailed on the same day in the manner provided in clauses (a) or (b) above, 
when transmitted and receipt is confirmed by telephone; or (d) if otherwise     
actually personally delivered, when delivered, and shall be sent or delivered as
follows:                                                                        

If to Knoll, to:                                                                
John H. Lynch                                                                   
President & CEO                                                                 
Knoll, Inc.                                                                     
1235 Water Street                                                               
East Greenville, PA 18041                                                       
(215) 679-1013 (facsimile)                                                      
with a copy to:                                                                 
Patrick A. Milberger, Esq.                                                      
Vice President, General Counsel and Secretary                                   
Knoll, Inc.                                                                     
1235 Water Street                                                               
East Greenville, PA 18041                                                       
(215) 679-1013 (facsimile)                                                      
and to:                                                                         
Meredith M. Brown, Esq.                                                         
Debevoise & Plimpton                                                            

A-15

PREM14A
149th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 149th
875 Third Avenue                                                                
New York, NY 10022                                                              
(212) 909-6836 (facsimile)                                                      
If to Warburg or Acquisition, to:                                               
Jeffrey A. Harris                                                               
Managing Director                                                               
Warburg, Pincus Ventures, L.P.                                                  
466 Lexington Avenue, 10th Floor                                                
New York, NY 10017                                                              
(212) 878-9351 (facsimile)                                                      
with a copy to:                                                                 
Michael A. Schwartz, Esq.                                                       
Willkie Farr & Gallagher                                                        
787 Seventh Avenue                                                              
New York, NY 10019                                                              
(212) 728-8111 (facsimile)                                                      

Such names and addresses may be changed by such notice.                         

    Section 7.5.  ENTIRE AGREEMENT.  This Agreement (including the documents and
instruments referred to herein) contains the entire understanding of the parties
hereto with respect to the subject matter contained herein, and supersedes and  
cancels all prior agreements (including the Old Merger Agreement), negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting such subject matter.                                                 

Section 7.6.  ASSIGNMENT.  Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any either party hereto 
(whether by operation of law or otherwise) without the prior written consent of 
the other party; provided, however, that promptly following the formation of    
Acquisition, Warburg shall assign to Acquisition (the "Assignment") its rights, 
interests and obligations hereunder, Acquisition shall assume and succeed to    
such rights, interests and obligations, and Warburg shall be fully and          
irrevocably relieved of its obligations hereunder, except its obligations       
pursuant to Sections 1.11, 4.1, 4.2, 4.4 and 4.5 hereof. This Section 7.6 shall 
survive any termination of this Agreement.                                      

Section 7.7.  HEADINGS; REFERENCES.  The article, section and paragraph 
headings contained in this Agreement are for reference purposes only and shall  
not affect in any way the meaning or interpretation of this Agreement.          

  Section 7.8.  COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each counterpart shall be deemed to be an original but all of     
which shall be considered one and the same agreement.                           

A-16

PREM14A
150th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 150th
   Section 7.9.  NO THIRD PARTY BENEFICIARIES.  Except as provided in Sections
1.9 and 4.3, nothing in this Agreement, express or implied, is intended to      
confer upon any Person not a party to this Agreement any rights or remedies     
under or by reason of this Agreement.                                           

Section 7.10.  SEVERABILITY; ENFORCEMENT.  Any term or provision of this
Agreement that is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or                
unenforceability without rendering invalid or unenforceable the remaining terms 
and provisions of this Agreement or affecting the validity or unenforceability  
of any of the terms or provisions of this Agreement in any other jurisdiction.  
If any provision of this Agreement is so broad as to be unenforceable, the      
provisions shall be interpreted to be only so broad as is enforceable.          

A-17

PREM14A
151st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 151st
   IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.                                                

                                                                [Download Table]
                                              
KNOLL, INC.                                   

By:            /s/ DOUGLAS J. PURDOM          
     -----------------------------------------
              Name: Douglas J. Purdom         
      Title:  Senior Vice President and Chief 
                 Financial Officer            

WARBURG, PINCUS VENTURES, L.P.                

By: Warburg, Pincus & Co., General Partner    

By:            /s/ JEFFREY A. HARRIS          
     -----------------------------------------
              Name: Jeffrey A. Harris         
             Title:  Managing Director        

A-18

PREM14A
152nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 152nd
                                                                      APPENDIX B

OPINION OF LAZARD FRERES & CO. LLC

June 21, 1999                                                                   

The Special Committee of the Board of Directors                                 
Knoll, Inc.                                                                     
1235 Water Street                                                               
East Greenville, PA 18041                                                       

Dear Members of the Special Committee:                                          

    We understand that Warburg, Pincus Ventures L.P. ("Warburg") and Knoll, Inc.
("Knoll") have entered into an Agreement and Plan of Merger dated as of June 21,
1999 (the "Agreement"), pursuant to which a corporation ("Sub") to be formed by 
Warburg and certain members of Knoll's management will merge with and into Knoll
(the "Merger"). Pursuant to the Merger, each issued and outstanding share (other
than shares held in treasury or owned by Sub or any of its subsidiaries) of     
common stock, par value $.01 per share (the "Knoll Common Stock"), of Knoll will
be cancelled and converted into the right to receive $28.00 in cash and, under  
certain circumstances an Additional Payment (as defined in the Merger Agreement)
(together, the "Merger Consideration").                                         

    You have requested our opinion as to the fairness, from a financial point of
view, to the holders, other than Warburg and the other stockholders of Sub, of  
the outstanding shares of Knoll Common Stock of the Merger Consideration to be  
received by such holders (the "Public Stockholders") pursuant to the Agreement. 
In connection with this opinion, we have:                                       

(i) Reviewed the financial terms and conditions of the Agreement;       

    (ii) Analyzed certain historical business and financial information relating
to Knoll;                                                     

 (iii) Reviewed various financial forecasts and other data provided to us by
Knoll relating to its business;                               

 (iv) Held discussions with members of the senior management of Knoll with
  respect to the business and prospects of Knoll and its strategic
objectives;                                                   

  (v) Reviewed public information with respect to certain other companies in
       lines of business we believe to be generally comparable to the business
of Knoll;                                                       

    (vi) Reviewed the financial terms of certain business combinations involving
         companies in lines of business we believe to be generally comparable to
that of Knoll, and in other industries generally;             

  (vii) Reviewed the historical stock prices and trading volumes of the shares
of Knoll Common Stock; and                                    

(viii) Reviewed such other information, conducted such other financial      
 studies, analyses and investigations, as we deemed appropriate.

In conducting our analysis and in arriving at our opinion as expressed  
herein, we have relied upon the accuracy and completeness of the foregoing      
information, and have not assumed any responsibility for any independent        
verification of such information or any independent valuation and appraisal of  
any of the properties, assets or liabilities of Knoll, or concerning the        
solvency or fair value (within the context of a solvency analysis) of Knoll.    
With respect to financial forecasts, we have assumed that they have been        
reasonably prepared on bases reflecting the best currently available estimates  
and judgments of management of Knoll as to the future financial performance of  
Knoll. We assume no responsibility for and express no view as to such forecasts 
or the assumptions on which they are based. We have                             

B-1 

PREM14A
153rd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 153rd
relied, with your consent, on statements made by Warburg indicating that Warburg
would not consent to a transaction involving a sale of Knoll; and we were not   
requested or authorized to solicit, and did not solicit, interest from any party
with respect to an acquisition of the outstanding shares of Knoll Common Stock, 
Knoll or its constituent businesses.                                            

    Further, our opinion is necessarily based on accounting standards, economic,
monetary, market and other conditions as in effect on, and the information made 
available to us as of, the date hereof.                                         

In rendering our opinion, we have assumed, with your consent, that the  
Merger will be consummated on the terms described in the Agreement, without any 
waiver of any material terms or conditions by Knoll, and that obtaining the     
necessary regulatory approvals for the Merger will not have an adverse effect on
Knoll.                                                                          

Lazard Freres & Co. LLC is acting as investment banker to the Special   
Committee of the Board of Directors of Knoll in connection with the Merger and  
will receive a fee for our services. We have in the past provided investment    
banking services to Knoll for which we have received customary fees.            

  Our engagement and the opinion expressed herein are for the benefit of the
Special Committee of the Board of Directors of Knoll and the Board of Directors 
of Knoll and our opinion is rendered in connection with their respective        
considerations of the Merger. The opinion is not intended to and does not       
constitute a recommendation to any holder of the Knoll Common Stock as to       
whether such holder should vote to approve the Merger. It is understood that,   
except for the reproduction of this letter in its entirety in a proxy statement 
of Knoll relating to a vote of the holders of Knoll Common Stock with respect to
the Merger, this letter may not be disclosed or otherwise referred to without   
our prior consent (which consent shall not be unreasonably withheld), except as 
may otherwise be required by law or by a court of competent jurisdiction.       

  Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Merger Consideration to be received by the Public          
Stockholders pursuant to the Agreement is fair, from a financial point of view, 
to the Public Stockholders.                                                     

                                                                [Download Table]
                                              
Very truly yours,                             

LAZARD FRERES & CO. LLC                       

By:             /s/ JAMES L. KEMPNER          
     -----------------------------------------
                  James L. Kempner            
                 MANAGING DIRECTOR            

B-2 

PREM14A
154th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 154th
                                                                      APPENDIX C

APPRAISAL RIGHTS
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW 

 262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to     
subsection (d) of this section with respect to such shares, who continuously    
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither  
voted in favor of the merger or consolidation nor consented thereto in writing  
pursuant to Section 228 of this title will be entitled to an appraisal by the   
Court of Chancery of the fair value of the stockholder's shares of stock under  
the circumstances described in subsections (b) and (c) of this section. As used 
in this section, the word "stockholder" means a holder of record of stock in a  
stock corporation and also a member of record of a nonstock corporation; the    
words "stock" and "share" mean and include what is ordinarily meant by those    
words and also membership or membership interest of a member of a nonstock      
corporation; and the words "depository receipt" mean a receipt or other         
instrument issued by a depository representing an interest in one or more       
shares, or fractions thereof, solely of stock of a corporation, which stock is  
deposited with the depository.                                                  

    (b) Appraisal rights will be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be        
effected pursuant to Section 251 (other than a merger effected pursuant to      
subsection Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263, or Section 264 of this title:                         

       (1) Provided, however, that no appraisal rights under this section will
    be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to     
   determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or          
  consolidation, were either (i) listed on a national securities exchange or
   designated as a national market system security on an interdealer quotation
   system by the National Association of Securities Dealers, Inc. or (ii) held
    of record by more than 2,000 holders; and further provided that no appraisal
rights will be available for any shares of stock of the constituent     
corporation surviving a merger if the merger did not require for its    
approval the vote of the stockholders of the surviving corporation as   
provided in subsection (f) of Section 251 of this title.                

      (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
  under this section will be available for the shares of any class or series
    of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to        
   SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:                                         

       a. Shares of stock of the corporation surviving or resulting from
      such merger or consolidation, or depository receipts in respect thereof;

         b. Shares of stock of any other corporation, or depository receipts
  in respect thereof, which shares of stock (or depository receipts in
  respect thereof) or depository receipts at the effective date of the
    merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an 
    interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;       

   c. Cash in lieu of fractional shares or fractional depository
   receipts described in the foregoing subparagraphs (a) and (b) of this
paragraph; or                                                     

C-1 

PREM14A
155th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 155th
        d. Any combination of the shares of stock, depository receipts and
 cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs (a), (b) and (c) of this 
paragraph.                                                        

      (3) In the event all of the stock of a subsidiary Delaware corporation
  party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
will be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section will be available for the shares of any     
class or series of its stock as a result of an amendment to its certificate of  
incorporation, any merger or consolidation in which the corporation is a        
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision, 
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, will apply as nearly as is practicable.                    

(d) Appraisal rights will be perfected as follows:                      

        (1) If a proposed merger or consolidation for which appraisal rights are
   provided under this section is to be submitted for approval at a meeting of
  stockholders, the corporation, not less than 20 days prior to the meeting,
will notify each of its stockholders who was such on the record date for
    such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are     
   available for any or all of the shares of the constituent corporations, and
will include in such notice a copy of this section. Each stockholder    
  electing to demand the appraisal of such stockholder's shares will deliver
to the corporation, before the taking of the vote on the merger or      
   consolidation, a written demand for appraisal of such stockholder's shares.
  Such demand will be sufficient if it reasonably informs the corporation of
   the identity of the stockholder and that the stockholder intends thereby to
  demand the appraisal of such stockholder's shares. A proxy or vote against
    the merger or consolidation will not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as 
  herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation will notify each  
stockholder of each constituent corporation who has complied with this  
subsection and has not voted in favor of or consented to the merger or  
consolidation of the date that the merger or consolidation has become   
effective; or                                                           

       (2) If the merger or consolidation was approved and adopted pursuant to
Section 228 or Section 253 of this title, each constituent corporation, 
 either before the effective date of the merger or consolidation or within
   ten days thereafter, will notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal  
rights of the approval of the merger or consolidation and that appraisal
   rights are available for any or all shares of such class or series of stock
  of such constituent corporation, and will include in such notice a copy of
this section; provided that, if the notice is given on or after the     
   effective date of the merger or consolidation, such notice will be given by
  the surviving or resulting corporation to all such holders of any class or
   series of stock of a constituent corporation that are entitled to appraisal
    rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, will, also notify such stockholders of the     
  effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such  
 notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it 
 reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such    
    holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent   
corporation will send a second notice before the effective date of the  
    merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal 
rights of the effective date of                                         

C-2 

PREM14A
156th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 156th
  the merger or consolidation or (ii) the surviving or resulting corporation
will send such a second notice to all such holders on or within 10 days 
   after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such  
 second notice need only to be sent to each stockholder who is entitled to
  appraisal rights and who has demanded appraisal of such holder's shares in
   accordance with this subsection. An affidavit of the secretary or assistant
 secretary or of the transfer agent of the corporation that is required to
  give either notice that such notice has been given will, in the absence of
   fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each    
   constituent corporation may fix, in advance, a record date that will be not
  more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or     
consolidation, the record date will be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the  
   record date will be the close of business on the day next preceding the day
on which the notice is given.                                           

    (e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with 
subsections (a) and (d) hereof and who is otherwise entitled to appraisal       
rights, may file a petition in the Court of Chancery demanding a determination  
of the value of the stock of all such stockholders. Notwithstanding the         
foregoing, at any time within 60 days after the effective date of the merger or 
consolidation, any stockholder will have the right to withdraw such             
stockholder's demand for appraisal and to accept the terms offered upon the     
merger or consolidation. Within 120 days after the effective date of the merger 
or consolidation, any stockholder who has complied with the requirements of     
subsections (a) and (d) hereof, upon written request, will be entitled to       
receive from the corporation surviving the merger or resulting from the         
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for   
appraisal have been received and the aggregate number of holders of such shares.
Such written statement will be mailed to the stockholder within 10 days after   
such stockholder's written request for such a statement is received by the      
surviving or resulting corporation or within 10 days after expiration of the    
period for delivery of demands for appraisal under subsection (d) hereof,       
whichever is later.                                                             

    (f) Upon the filing of any such petition by a stockholder, service of a copy
thereof will be made upon the surviving or resulting corporation, which will    
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and   
addresses of all stockholders who have demanded payment for their shares and    
with whom agreements as to the value of their shares have not been reached by   
the surviving or resulting corporation. If the petition will be filed by the    
surviving or resulting corporation, the petition will be accompanied by such a  
duly verified list. The Register in Chancery, if so ordered by the Court, will  
give notice of the time and place fixed for the hearing of such petition by     
registered or certified mail to the surviving or resulting corporation and to   
the stockholders shown on the list at the addresses therein stated. Such notice 
will also be given by 1 or more publications at least 1 week before the day of  
the hearing, in a newspaper of general circulation published in the City of     
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication will be approved by the Court, and the
costs thereof will be borne by the surviving or resulting corporation.          

(g) At the hearing on such petition, the Court will determine the       
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an   
appraisal for their shares and who hold stock represented by certificates to    
submit their certificates of stock to the Register in Chancery for notation     
thereon of the pendency of the appraisal proceedings; and if any stockholder    
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.                                                               

  (h) After determining the stockholders entitled to an appraisal, the Court
will appraise the shares, determining their fair value exclusive of any element 
of value arising from the accomplishment or                                     

C-3 

PREM14A
157th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 157th
expectation of the merger or consolidation, together with a fair rate of        
interest, if any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court will take into account all relevant      
factors. In determining the fair rate of interest, the Court may consider all   
relevant factors, including the rate of interest which the surviving or         
resulting corporation would have had to pay to borrow money during the pendency 
of the proceeding. Upon application by the surviving or resulting corporation or
by any stockholder entitled to participate in the appraisal proceeding, the     
Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of the 
stockholder entitled to an appraisal. Any stockholder whose name appears on the 
list filed by the surviving or resulting corporation pursuant to subsection (f) 
of this section and who has submitted such stockholder's certificates of stock  
to the Register in Chancery, if such is required, may participate fully in all  
proceedings until it is finally determined that such stockholder is not entitled
to appraisal rights under this section.                                         

(i) The Court will direct the payment of the fair value of the shares,  
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court 
may direct. Payment will be so made to each such stockholder, in the case of    
holders of uncertified stock forthwith, and the case of holders of shares       
represented by certificates upon the surrender to the corporation of the        
certificates representing such stock. The Court's decree may be enforced as     
other decrees in the Court of Chancery may be enforced, whether such surviving  
or resulting corporation be a corporation of this State or of any state.        

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon        
application of a stockholder, the Court may order all or a portion of the       
expenses incurred by any stockholder in connection with the appraisal           
proceeding, including, without limitation, reasonable attorney's fees and the   
fees and expenses of experts, to be charged pro rata against the value of all   
the shares entitled to an appraisal.                                            

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's appraisal rights as provided in 
subsection (d) of this section will be entitled to vote such stock for any      
purpose or to receive payment of dividends or other distributions on the stock  
(except dividends or other distributions payable to stockholders of record at a 
date which is prior to the effective date of the merger or consolidation);      
provided, however, that if no petition for an appraisal will be filed within the
time provided in subsection (e) of this section, or if such stockholder will    
deliver to the surviving or resulting corporation a written withdrawal of such  
stockholder's demand for an appraisal and an acceptance of the merger or        
consolidation, either within 60 days after the effective date of the merger or  
consolidation as provided in subsection (e) of this section or thereafter with  
the written approval of the corporation, then the right of such stockholder to  
an appraisal will cease. Notwithstanding the foregoing, no appraisal proceeding 
in the Court of Chancery will be dismissed as to any stockholder without the    
approval of the Court, and such approval may be conditioned upon such terms as  
the Court deems just.                                                           

    (l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to   
the merger or consolidation will have the status of authorized and unissued     
shares of the surviving or resulting corporation.                               

C-4 

PREM14A
158th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 158th
                                                                      APPENDIX D

OPINION OF MERRILL LYNCH

                          March 23, 1999

Warburg, Pincus, Ventures, L.P.                                                 
466 Lexington Avenue                                                            
New York, New York 10017                                                        

Gentlemen:                                                                      

Warburg, Pincus Ventures, L.P. and certain members of Knoll management  
(together the "Acquiror") have proposed to acquire (the "Transaction") all the  
outstanding shares of Knoll, Inc. (the "Company") not owned by the Acquiror at a
price of $25 per share (the "Consideration").                                   

  You have asked us whether, in our opinion, the Consideration to be paid by
the Acquiror pursuant to the Transaction is fair from a financial point of view 
to the stockholders of the Company (other than the Acquiror).                   

In arriving at the opinion set forth below, we have, among other things:

  (1) Reviewed certain publicly available business and financial information
relating to the Company that we deemed to be relevant;            

    (2) Reviewed certain information, including financial forecasts, relating to
     the business, earnings, cash flow, assets, liabilities and prospects of
the Company;                                                      

  (3) Conducted discussions with members of senior management of the Company
  and the Acquiror concerning the matters described in clauses 1 and 2
above;                                                            

(4) Reviewed the market prices and valuation multiples for the shares of
 common stock of the Company and compared them with those of certain
publicly traded companies that we deemed to be relevant;          

(5) Compared the proposed financial terms of the Transaction with the   
 financial terms of certain other transactions which we deemed to be
relevant; and                                                     

    (6) Reviewed such other financial studies and analyses and took into account
    such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.                 

In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,     
discussed with or reviewed by or for us, or publicly available, and we have not 
assumed any responsibility for independently verifying such information or      
undertaken an independent evaluation or appraisal of any of the assets or       
liabilities of the Company or been furnished with any such evaluation or        
appraisal. In addition, we have not assumed any obligation to conduct any       
physical inspection of the properties or facilities of the Company. With respect
to the financial forecast information furnished to or discussed with us by the  
Company or the Acquiror, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the Company's
or the Aquiror's management as to the expected future financial performance of  
the Company.                                                                    

   Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to 
us, as of the date hereof.                                                      

 We are acting as financial advisor to the Acquiror in connection with the
proposed transaction and will receive a fee from the Acquiror for our services  
which is contingent upon the consummation of the                                

D-1 

PREM14A
159th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 159th
transaction. In addition, the Acquiror has agreed to indemnify us for certain   
liabilities arising out of our engagement. We have, in the past, provided       
financial advisory and financing services to the Acquiror and the Company and   
may continue to do so and have received, and may receive, fees for the rendering
of such services. In addition, in the ordinary course of our business, we may   
actively trade securities of the Company for our own account and for the        
accounts of customers and, accordingly, may at any time hold a long or short    
position in such securities.                                                    

 This opinion is for the use and benefit of the Acquiror. Our opinion does
not address the merits of the underlying decision by the Acquiror to engage in  
the proposed transaction. As you are aware, we are acting solely as financial   
advisors to the Acquiror. We are not acting as advisors to the Company or its   
special committee. Therefore, this opinion is not to be relied upon by the      
Company or its stockholders as a substitute for any opinion prepared by the     
Company's Board of Directors or any committees thereof or their advisors.       

    On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration proposed to be paid by the Acquiror       
pursuant to the Transaction is fair from a financial point of view to the       
stockholders of the Company (other than the Acquiror).                          

                     Very truly yours,
                                       /s/ Merrill Lynch, Pierce, Fenner &
                      Smith Incorporated

                                         MERRILL LYNCH, PIERCE, FENNER & SMITH
                INCORPORATED

D-2 

PREM14A
160th Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 160th
APPENDIX E

 Set forth below is the name, position and principal occupation of each of
the general partners of Warburg, Pincus & Co. ("WP"), the sole general partner  
of Warburg, Pincus Ventures, L.P. ("Warburg"). Except for those persons whose   
names and former affiliations follow this list, each general partner has held a 
position in WP or an affiliate for at least the past five years. E.M. Warburg,  
Pincus & Co., LLC ("EMW") serves as investment manager of Warburg and other     
affiliates. Except as otherwise indicated, the business address of each of such 
person is 466 Lexington Avenue, New York, New York 10017, and each of such      
persons is a citizen of the United States.                                      

                                                        [Enlarge/Download Table]

NAME                                          PRESENT PRINCIPAL OCCUPATION IN ADDITION TO POSITION WITH WP       
-------------------------------------  --------------------------------------------------------------------------
                                                                                                                 
Joel Ackerman........................  Managing Director and Member, EMW                                         
Alvaro J. Aguirre....................  Managing Director and Member, EMW                                         
Harold Brown.........................  Senior Managing Director and Member, EMW                                  
W. Bowman Cutter.....................  Managing Director and Member, EMW                                         
Elizabeth B. Dater...................  Managing Director and Member, EMW                                         
Cary J. Davis........................  Managing Director and Member, EMW                                         
Stephen Distler......................  Managing Director, Member and Treasurer, EMW                              
Stewart K.P. Gross...................  Managing Director and Member, EMW                                         
Patrick T. Hackett...................  Managing Director and Member, EMW                                         
Jeffrey A. Harris....................  Managing Director and Member, EMW                                         
William H. Janeway...................  Managing Director and Member, EMW                                         
Douglas M. Karp......................  Managing Director and Member, EMW                                         
Charles R. Kaye......................  Managing Director and Member, EMW                                         
Henry Kressel........................  Managing Director and Member, EMW                                         
Joseph P. Landy......................  Managing Director and Member, EMW                                         
Sidney Lapidus.......................  Managing Director and Member, EMW                                         
Kewsong Lee..........................  Managing Director and Member, EMW                                         
Reuben S. Leibowitz..................  Managing Director and Member, EMW                                         
S. Joshua Lewis......................  Managing Director and Member, EMW                                         
David E. Libowitz....................  Managing Director and Member, EMW                                         
Nancy Martin.........................  Managing Director and Member, EMW                                         
Edward J. McKinley...................  Managing Director and Member, EMW                                         
Rodman W. Moorhead III...............  Senior Managing Director and Member, EMW                                  
Howard H. Newman.....................  Managing Director and Member, EMW                                         
Gary D. Nusbaum......................  Managing Director and Member, EMW                                         
Dalip Pathak.........................  Managing Director and Member, EMW                                         
Lionel I. Pincus.....................  Chairman of the Board, CEO, and Managing Member, EMW; and Managing        
                                         Partner, Pincus & Co.                                                   
Ernest H. Pomerantz..................  Managing Director and Member, EMW                                         
John D. Santoleri....................  Managing Director and Member, EMW                                         
Steven G. Schneider..................  Managing Director and Member, EMW                                         
James E. Thomas......................  Managing Director and Member, EMW                                         
John L. Vogelstein...................  Vice Chairman and Member, EMW                                             
Elizabeth H. Weatherman..............  Managing Director and Member, EMW                                         
Pincus & Co.(*)                                                                                                  
NL & Co.(**)                                                                                                     

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

*   A New York limited partnership whose primary activity is ownership interest 
  in WP and EMW. The controlling person of Pincus & Co. is Lionel I. Pincus.

**  A New York limited partnership whose primary activity is ownership interest 
in WP. The controlling person of NL & Co. is Lionel I. Pincus.          

E-1 

PREM14A
161st Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 161st
    ALVARO J. AGUIRRE has been a Managing Director of EMW since January 1999. He
was a Vice President of EMW from October to December 1998. He was Chief         
Financial Officer or TV Filme, Inc. from June 1996 to August 1998. He was an    
Associate of Morgan Stanley & Co., Inc. from March 1994 to June 1996.           

    CARY J. DAVIS has been a Managing Director of EMW since January 1999. He was
a Vice President of EMW from October 1994 to December 1998. He was Executive    
Assistant to Michael Dell with Dell Computer Corp. from September 1992 to August
1994.                                                                           

    NANCY MARTIN has been a Managing Director of EMW since January 1999. She was
a Consultant with Martin Associates Consulting Services from September 1996 to  
December 1998. She was Vice President Research and Development of MCI           
Systemhouse from May 1994 to September 1996.                                    

E-2 

PREM14A
162nd Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 162nd
KNOLL 
PRELIMINARY PROXY CARD
KNOLL, INC. 
ANNUAL MEETING OF STOCKHOLDERS OF KNOLL, INC. 
OCTOBER __, 1999, 10:00 A.M. (LOCAL TIME) 
[LOCATION TO BE DETERMINED] 

THIS PROXY IS SOLICITED ON BEHALF OF THE board of Directors KNOLL, INC. IN
CONNECTION WITH ITS Annual Meeting of Stockholders To Be Held on
OCTOBER   , 1999.   
---   

    The undersigned stockholder of Knoll, Inc. ("Knoll"), revoking all
previous proxies, hereby constitutes and appoints Douglas J. Purdom and Patrick 
A. Milberger, and each of them, as proxies with full power of substitution to   
vote on behalf of the undersigned all shares of common stock of Knoll which the 
undersigned is entitled to vote at the Annual Meeting of Stockholders of Knoll  
to be held on October   , 1999, at 10:00 a.m., (local time), at [location to be 
determined], and at any adjournment and postponements thereof, upon all matters 
presented before such annual meeting, and does hereby ratify and confirm all    
that said proxies or their substitutes may lawfully do by virtue hereof. The    
undersigned hereby acknowledges receipt of the Notice of the Annual Meeting and 
hereby instructs said proxies to vote or refrain from voting such shares of     
Knoll common stock as marked on the reverse side upon the matters listed on the 
reverse side. In their discretion, such proxies are authorized to vote such     
shares upon such other business as may properly come before the Annual Meeting. 

DO NOT SUBMIT ANY STOCK CERTIFICATES WITH THIS PROXY CARD.

SEE REVERSE SIDE

Continued and to be signed on reverse side. 

PREM14A
Last Page of 163
TOC
1st
Previous
Next
↓Bottom
Just 163rd
1.  To approve and adopt the Agreement and Plan    For     Against    Abstain   
of Merger, dated as of June 21, 1999 (as       / /       / /       / /  
amended on July 29, 1999), between Knoll,                               
Inc. and Warburg, Pincus Ventures, L.P., and                            
the transactions contemplated thereby.                                  

2.  To elect the nine nominees listed below to     For  Withhold  For All Except
the Board of Directors of Knoll until the       / /      / /        / / 
next Annual Meeting of Stockholders of Knoll                            
or until their successors are elected and                               
qualified.                                                              

                                                        [Enlarge/Download Table]
                                                                                     
BURTON B. STANIAR  JOHN H. LYNCH   ANDREW B. COGAN  JOHN W. AMERMAN   ROBERT J. DOLAN
JEFFREY A. HARRIS  SIDNEY LAPIDUS  KEWSONG LEE      HENRY B. SCHACHT                 

IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK THE "FOR  
ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NOMINEE(S) NAME. YOUR SHARES WILL 
BE VOTED FOR THE REMAINING NOMINEE(S).                                          

3.  Ratification of the appointment of Ernst &     For     Against    Abstain   
Young LLP as independent auditors of the       / /       / /       / /  
Company for the 1999 fiscal year.                                       

4.  To transact such other business as may                                      
properly come before the meeting or any                                 
adjournment or postponement thereof.                                    

THIS PROXY WHEN PROPERLY EXECUTED, WILL BE        MARK HERE FOR ADDRESS         
VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS      CHANGE AND NOTE ATA LEFT / /  
GIVEN, THIS PROXY WILL BE VOTED FOR THE                                         
APPROVAL AND ADOPTION OF THE AGREEMENT AND                                      
PLAN OF MERGER, IN FAVOR OF THE NOMINEES FOR      MARK HERE IF YOU PLAN         
DIRECTOR AND TO RATIFY THE APPOINTMENT OF         TO ATTEND THE MEETING    / /  
ERNST & YOUNG LLP IN ACCORDANCE WITH                                            
RECOMMENDATIONS OF KNOLL'S BOARD OF                                             
DIRECTORS.                                                                      

                                  Please mark, date and sign exactly as your
                             name appears hereon and return in the
                                 enclosed envelope. If acting as executor,
                                   administrator, trustee, guardian, etc., you
                               should so indicate when signing. If the
                                signer is a corporation, please sign the
                               full corporate name, by duly authorized
                                 officer. If shares are held jointly, each
                      stockholder named should sign.

                   Signature:            Date:
                                            ------------     ---------------

                   Signature:            Date:
                                            ------------     ---------------
                 VOTES MUST BE INDICATED
                         (X) IN BLACK OR BLUE INK.   / /

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PREM14A’ Filing		Date		First		Last			Other Filings
		3/15/04		77		103
		8/26/02		67
		8/20/01		55		63
		3/15/01		77		103
		3/1/01		55		63
		8/20/00		55		63
		5/15/00		83
		3/1/00		55		63
		1/17/00		7		135
		12/31/99		46		147			10-K,  8-K
		12/15/99		83
		11/18/99		7		135
		8/20/99		55		63			424B3
Filed on:		7/30/99		1					SC 13E3
		7/29/99		2		163
		7/21/99		73
		6/30/99		55		73			10-Q
		6/25/99		60
		6/21/99		2		163			8-K
		6/18/99		19
		6/17/99		24		25
		6/14/99		19
		6/10/99		19
		6/3/99		19
		5/27/99		19
		5/17/99		18
		4/27/99		29
		4/21/99		18
		4/16/99		18
		4/14/99		18
		4/6/99		18
		4/2/99		134					SC 13D
		3/31/99		23		90			10-K405,  10-Q
		3/30/99		18
		3/24/99		20		117			8-K
		3/23/99		2		158			8-K
		3/1/99		50		57
		2/23/99		22
		2/10/99		91		111
		2/2/99		17		113			SC 13G
		1/29/99		91
		1/1/99		98
		12/31/98		44		146			10-K405,  10-K405/A,  8-K
		12/2/98		50		61
		9/30/98		69					10-Q
		9/11/98		62
		6/16/98		24
		3/31/98		70		90			10-K,  10-Q
		3/23/98		24
		2/17/98		59
		1/1/98		56		142
		12/31/97		55		129			10-K
		8/8/97		77		104
		8/1/97		112
		7/22/97		53		58
		5/9/97		59		69			S-1/A
		5/8/97		100
		5/6/97		98					8-A12B,  S-1/A
		4/14/97		63
		3/14/97		99					S-1
		2/14/97		111
		1/1/97		69		100
		12/31/96		55		129			10-K,  10-K/A
		12/17/96		103		104
		8/20/96		55		63
		8/13/96		58					10-Q
		3/1/96		56		115
		2/29/96		55		129
		12/31/95		70		95
		12/20/95		99
		12/31/94		70
									List all Filings