KNOLL INC, PRER14A, 1999-09-10

KNOLL INC
PRER14A, 1999-09-10
MISCELLANEOUS FURNITURE & FIXTURES

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As filed with the Securities and Exchange Commission on September 10, 1999
PRELIMINARY PROXY MATERIALS

AMENDMENT NO. 1
TO

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.
/ / 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:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(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):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / 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:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[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 two 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.
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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 31-33 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 MacKenzie Partners, Inc., our proxy solicitors, toll-free
at 1-800-322-2885 or collect at (212) 929-5500, 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.

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Sincerely,

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

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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 24, 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 31-33 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.
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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.

<TABLE>
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By Order of the Board of Directors,

/s/ PATRICK A. MILBERGER
---------------------------------------------
Patrick A. Milberger
SECRETARY
</TABLE>

September , 1999

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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 two 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

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is assured. However, consummation of the merger remains subject to the
receipt of financing for the transaction.

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 31-33 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 24, 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 40 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 and to ratify the appointment of Ernst & Young LLP as Knoll's
independent auditors for the 1999 fiscal year. If other business

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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
MacKenzie Partners, Inc., our proxy solicitors, toll-free at 1-800-322-2885 or
collect at (212) 929-5500, or our Investor Relations department at (215)
679-7991.

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TABLE OF CONTENTS

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.................... 11
Recommendations of the Special Committee
and the Board of Directors; Fairness of
the Merger............................... 12
Opinion of Lazard.......................... 15
Position of the Continuing Stockholders as
to Fairness.............................. 22
Opinion of Merrill Lynch................... 23
Certain Projections Provided to Financial
Advisors................................. 27
Conflicts of Interest...................... 27
Plans for Knoll after the Merger........... 29
Conduct of the Business of Knoll if the
Merger is Not Consummated................ 29
Financing and Expenses of the Merger....... 30
Rights of Dissenting Stockholders.......... 31

PROPOSALS AT THE ANNUAL MEETING................ 34

PROPOSAL ONE--THE MERGER..................... 34
Terms of the Merger........................ 34
Effective Time of the Merger............... 35
Exchange and Payment Procedures............ 35
Transfer of Common Stock................... 35
The Parties................................ 35
Representations and Warranties............. 36

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Covenants.................................. 37
Conditions Precedent....................... 38
Termination; Amendments; Waiver; Approval
of Special Committee Necessary........... 39
Certain Tax Considerations................. 40
Accounting Treatment....................... 40
Regulatory Requirements.................... 40
Litigation Regarding the Merger............ 40

PROPOSAL TWO--ELECTION OF DIRECTORS.......... 41
Nomination................................. 41
Information About Nominees................. 41
Recommendation and Vote.................... 43
Directors and Executive Officers of
Knoll.................................... 43
Additional Information About the Board of
Directors................................ 44
Executive Officer and Director
Compensation............................. 45
Compensation Committee and Stock Option
Committee Report on Executive
Compensation........................... 45
Summary Compensation Table............... 47
Stock Option Grants Table................ 47
Aggregate Stock Option Exercise Table.... 48
Pension Plans............................ 48
Director Compensation.................... 49
Employment Agreements.................... 49
Compensation Committee Interlocks and
Insider Participation.................. 50
Performance Graph........................ 51
Security Ownership of Certain Beneficial
Owners and Management.................... 52
Section 16(a) Beneficial Ownership
Reporting Compliance..................... 53
Certain Transactions in the Shares of
Common Stock............................. 53
Certain Relationships and Related
Transactions............................. 54
Stockholders Agreement and Voting
Agreement.............................. 54
Issuance of Restricted Shares of Common
Stock.................................. 55
</TABLE>

(i)
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<TABLE>
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Other.................................... 55

PROPOSAL THREE-- RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS....................... 56
Recommendation and Vote.................... 56

THE COMPANY.................................... 57
Products................................... 57
Product Design and Development............. 58
Sales and Distribution..................... 59
Manufacturing and Operations............... 59
Raw Materials and Suppliers................ 59
Competition................................ 59
Patents and Trademarks..................... 60
Employees.................................. 60
Environmental Matters...................... 60

MARKET PRICE INFORMATION; DIVIDENDS;
REPURCHASES OF SHARES OF COMMON STOCK........ 61

SELECTED FINANCIAL DATA........................ 62

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
Recapitalization Expense................. 66
Income Tax Expense....................... 66
Extraordinary Items...................... 66
Initial Public Offering.................. 66
Earnings Per Share....................... 66
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Liquidity and Capital Resources............ 67
Inflation.................................. 69
Backlog.................................... 69
Impact of Year 2000........................ 69
Environmental Matters...................... 71

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................. 72
Interest Rate Risk......................... 72
Foreign Currency Exchange Rate Risk........ 73

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................... 73

OTHER MATTERS.................................. 74
Proposals by Knoll Stockholders............ 74
Where You Can Find More Information........ 74

OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL
MEETING...................................... 75

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
</TABLE>

(ii)
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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 24, 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

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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 11)

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 7-11 AND
11-12)

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
12-15)

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 15-22)

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 27-29)

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

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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. In
addition, Knoll has agreed to have the remaining 10,000 unvested options held by
each member of the Special Committee vest, and to cash out all of their options
based upon the $28.00 per share merger consideration, immediately upon
completion of the merger.

CERTAIN EFFECTS OF THE MERGER (PAGES 11-12)

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 38-39)

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
and (2) receipt of financing for the transaction as provided in the Merger
Agreement. 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 31-33)

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.

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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 40)

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 (PAGE 30)

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 $26.5
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 $650 million to (1) fund the merger
and related fees and expenses, (2) refinance 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 $325
million six-year term loan facility and up to a $325 million six-year revolving
credit facility, and will bear interest at a LIBOR-based rate. 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 40)

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.

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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 24, 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.

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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 MacKenzie
Partners, Inc. to coordinate the solicitation of proxies by and through such
nominees for a fee of $2,000, plus reasonable out-of-pocket expenses up to $500.

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.

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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 Knoll's senior officers were authorized to cause Knoll to
purchase from time to time, in the open market or through negotiated
transactions, up to three million shares of Knoll common stock. The Board of
Directors determined that Knoll should commence the stock repurchase program
because it believed that the program would serve as an effective use of Knoll's
excess cash flow, would return capital to Knoll's stockholders in an efficient
fashion and would enhance shareholder value.

In late 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. At this time Warburg began to
consider, on a preliminary basis, possible structures for a merger transaction,
including the possibility that Warburg or Knoll would conduct a tender offer for
the common stock. Warburg considered the possibility that a tender offer could
be made for all of the outstanding shares not owned by it, with the possibility
that such a tender offer might or might not be followed by a merger to cash out
any shares that might remain untendered. Warburg did not consider pursuing a
transaction with unaffiliated third parties because Warburg desired to continue
its investment in Knoll for the foreseeable future.

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. 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. 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.

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

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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.

Through these discussions, Warburg and the other Continuing Stockholders
determined that the possible merger transaction would likely take the form of a
single-step merger of Knoll with a merger vehicle. The Continuing Stockholders
determined not to pursue a tender offer for only a portion of the common stock
or a tender offer that was not to be followed by a merger because the Continuing
Stockholders desired to own all of the common stock following the merger
transaction. Also, although the Continuing Stockholders had preliminarily
evaluated the possibility of a two-step transaction, which might have consisted
of a tender offer for the common stock followed by a merger in which the
remaining shares of common stock would be acquired, the Continuing Stockholders'
initial merger proposal contemplated only a single-step merger. The Continuing
Stockholders preferred this structure because it was simpler, would allow the
transaction to qualify as a leveraged recapitalization under generally accepted
accounting principles and would reduce the anticipated financing and other
transaction costs, and because the Continuing Stockholders did not expect the
timing of such a transaction to be materially different from a two-step
transaction.

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.

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.

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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 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.

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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.

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.

10
<PAGE>
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 may
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. 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 have a 100 percent interest in
the net book value and net earnings of Knoll, increasing their interest from the
approximately 60 percent they currently own.

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
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

11
<PAGE>
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. Moreover, the Board and 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.

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.
However, the Special Committee did believe that each of the factors was material
to its determination that the transaction was fair, and characterized each of
the factors as positive. 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

12
<PAGE>

the advice of its investment banker and legal advisors, who are experienced in
advising on transactions similar to the merger.

- 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 fact that the price per share to be paid in the merger exceeded the
prices per share paid by Knoll to buy back its shares under its stock
repurchase program.

- 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, on behalf of the Public Holders, 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 belief that the price per share to be received in
the merger was fair relative to its own assessment of the business,
condition and prospects of Knoll, including as a result of increased price
competition and decreases in Knoll's revenues in the first quarter of
1999.

- 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

13
<PAGE>
-- 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.

- The availability of dissenters' rights for stockholders under the DGCL in
connection with the merger for stockholders who perfect their appraisal
rights under the DGCL.

As part of its determination with respect to the fairness of the
consideration to be received by the Public Holders pursuant to the Merger
Agreement, the Special Committee adopted the conclusion, and the analysis
underlying such conclusion, of Lazard, based upon the view of the Special
Committee as to the reasonableness of such analysis.

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 84%
premium over the closing price prior to the announcement of the initial merger
proposal, the all-cash nature of the transaction and 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 their representatives, on behalf of the Public
Holders, and the Continuing Stockholders and their representatives.

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;

- both members of the Special Committee were experienced and sophisticated
in business and financial matters and were well informed about the
business and operations of Knoll;

- the Special Committee retained and was advised by independent legal
counsel experienced in advising on transactions similar to the merger;

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

- the Special Committee engaged in deliberations to evaluate the merger and
alternatives thereto;

- the price per share to be paid in the merger exceeded the prices per share
paid by Knoll to buy back its shares under its stock repurchase program;

- the $28.00 per share price and the other terms and conditions of the
Merger Agreement resulted from active arm's-length bargaining between
representatives of the Special Committee, on the one hand, and
representatives of the Continuing Stockholders, on the other hand, which
resulted in an increase in the merger consideration offered from $25.00
per share in the initial merger proposal to $28.00 per share and in other
concessions and agreements which benefited the Public Holders; and

- the availability of dissenters' rights under the DGCL in connection with
the merger for stockholders who perfect their appraisal rights under the
DGCL.

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<PAGE>

In connection with its consideration of the determination by the Special
Committee, and as part of its determination with respect to the fairness of the
consideration to be received by the Public Holders pursuant to the Merger
Agreement, the Board of Directors adopted the conclusion, and the analysis
underlying such conclusion, of the Special Committee, based upon the view of the
Board of Directors as to the reasonableness of such analysis.

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.

All of the factors described above were considered by the Special Committee
and the Board of Directors in support of their conclusions that the merger is
fair to and in the best interests of the Public Holders. The Special Committee
and the Board of Directors also considered the fact that the merger was not
conditioned on the approval of a majority of the common stock held by the Public
Holders, and that the Continuing Stockholders possess sufficient voting power to
approve the Merger Agreement without the affirmative vote of any other
stockholder of the Company. While the approval of a majority of the common stock
held by the Public Holders may serve as an indication of the views of the Public
Holders (who are such as of the Record Date) as to the fairness of the
transaction, 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 Special Committee and the Board of Directors believe that the
substantive and procedural fairness of the transaction was established by the
factors set forth above.

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 foregoing factors. However, the Board of Directors did believe
that each of the factors was material to its determination that the transaction
was fair, and characterized each of the factors as positive. 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;

15
<PAGE>
- 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;

- 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.

16
<PAGE>
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. The Knoll
common stock underperformed the S&P 400 for the period examined.

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.;

- HON INDUSTRIES Inc.;

- Kimball International, Inc.; and

- Steelcase Inc.

The Selected Companies were chosen because they are publicly traded
companies with operations or businesses that for purposes of analysis may be
considered similar to Knoll's operations or businesses.

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.

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<PAGE>
The results of these analyses are summarized as follows:

<TABLE>
<CAPTION>
SELECTED COMPANIES
------------------------------ SENSITIVITY MANAGEMENT ADJUSTED
RANGE MEDIAN CASE* CASE** CASE***
----------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>

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

* 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").

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

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<PAGE>
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:

<TABLE>
<CAPTION>
SELECTED BUYOUTS
------------------------
AVERAGE MEDIAN
----------- -----------
<S> <C> <C>
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%)
</TABLE>

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

<TABLE>
<CAPTION>
SELECTED CASH BUYOUTS
------------------------
AVERAGE MEDIAN
----------- -----------
<S> <C> <C>
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%)
</TABLE>

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.

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:

<TABLE>
<CAPTION>
12-MONTH TARGET PRICE
ANALYSIS
-----------------------
RANGE MEDIAN
------------ ---------
<S> <C> <C>
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
</TABLE>

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<PAGE>
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:

<TABLE>
<CAPTION>
RANGES
--------------------------------------
EBITDA PERPETUAL GROWTH
VALUATION* VALUATION*
--------------- ---------------------
<S> <C> <C>
$26.34 to
Sensitivity Case.................................... $37.45 $20.73 to $35.26
</TABLE>

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

* 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:

<TABLE>
<CAPTION>
RANGES
--------------------------------------
EBITDA PERPETUAL GROWTH
VALUATION* VALUATION*
--------------- ---------------------
<S> <C> <C>
$24.66 to
Management Case..................................... $35.25 $18.91 to $32.45
$29.31 to
Adjusted Case....................................... $41.58 $24.02 to $40.84
</TABLE>

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

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

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.

20
<PAGE>
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:

<TABLE>
<CAPTION>
TOTAL IMPLIED EQUITY VALUE PER SHARE
----------------------------------------
5.5X 6.5X 7.5X
------------ ------------ ------------
<S> <C> <C> <C>
Sensitivity Case.................. $20.72-$25.64 $26.40-$32.67 $32.08-$39.69
</TABLE>

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

<TABLE>
<CAPTION>
TOTAL IMPLIED EQUITY VALUE PER SHARE
----------------------------------------
5.5X 6.5X 7.5X
------------ ------------ ------------
<S> <C> <C> <C>
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
</TABLE>

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 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.

21
<PAGE>

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. No other fees or compensation have
been paid by Knoll or any of its affiliates to Lazard during the last two years.

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. It is
the opinion of the Securities and Exchange Commission that indemnification for
liabilities arising under the federal securities laws is against public policy
and may therefore be unenforceable.

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 appointment of the Special Committee, consisting of two independent
members of the Board of Directors who represented the interests of the
Public Holders;

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

(3) 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;

(4) 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;

(5) the fact that the price per share to be paid in the merger exceeded the
prices per share paid by Knoll to buy back its shares under its stock
repurchase program;

(6) 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

(7) 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.

In connection with their consideration of the fairness of the consideration
to be received by Public Holders pursuant to the Merger Agreement, the
Continuing Stockholders have adopted the conclusions, and the analyses
underlying such conclusions, of Merrill Lynch, the Special Committee and the
Board of Directors, based upon the views of the Continuing Stockholders as to
the reasonableness of such analyses. The Continuing Stockholders have not
assigned any relative or specific weights to the foregoing factors. However, the
Continuing Stockholders believe that each of the factors is material to their
determination that the transaction is fair, and have characterized each of the
factors as positive. Individual Continuing Stockholders may have given differing
weights to different factors and may have viewed certain factors more positively
or negatively than others.

The Continuing Stockholders also have considered the fact that the merger is
not conditioned on the approval of a majority of the common stock held by the
Public Holders, and that the Continuing

22
<PAGE>

Stockholders possess sufficient voting power to approve the Merger Agreement
without the affirmative vote of any other Knoll stockholder. While the approval
of a majority of the common stock held by the Public Holders may serve as an
indication of the views of the Public Holders (who are such as of the Record
Date) as to the fairness of the transaction, 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
substantive and procedural fairness of the transaction was established by the
factors set forth above.

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

23
<PAGE>
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;

- 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.

24
<PAGE>
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.

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.

25
<PAGE>
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.

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. Knoll paid Merrill Lynch a total of $3,885,165 in connection
with Knoll's initial public offering in May 1997. During the last two years,
Merrill Lynch has not received any fees or other compensation from Knoll for
services that it rendered to Knoll. 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. It is the opinion of the Securities and Exchange
Commission that indemnification for liabilities arising under the federal
securities laws is against public policy and may therefore be unenforceable.
Although in its fairness opinion Merrill Lynch has expressly stated that the
Public Holders, in making their investment decision with respect to the merger,
may not rely on the conclusions reached in that fairness opinion (which was
intended for the information of the Continuing Stockholders), the actual
availability to Merrill Lynch of any defense to Public Holder reliance on the
opinion would be resolved by a court of competent jurisdiction. Furthermore,
resolution of the question of the availability to Merrill Lynch of a defense to
Public Holder reliance on the opinion would have no effect on the rights and
responsibilities of (1) the Continuing Stockholders or the Board of Directors
under state law and the federal securities laws or (2) Merrill Lynch under the
federal securities laws.

26
<PAGE>
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.

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:

<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005
--------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)

<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>

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,

27
<PAGE>
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 August 31, 1999, stock options to purchase an aggregate of
739,750 shares of common stock at exercise prices ranging from $15.93 to $33.13
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 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 1,384,858 shares of common stock for
resale. Members of the Management Group expect to sell, prior to the merger, up
to such number of shares either pursuant to such registration or under Rule 144
under the Securities Act. These members of the Management Group have exercised
their right to require Knoll to register shares of common stock owned by them
for resale because these members are not entitled to receive the merger
consideration pursuant to the terms of the Merger Agreement, which is attached
as Appendix A to the Proxy Statement.

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

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<PAGE>
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. In addition, Knoll has agreed to have the remaining 10,000 unvested
options held by each member of the Special Committee vest, and to cash out all
of their options based upon the $28.00 per share merger consideration,
immediately upon completion of the merger. 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.

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. In addition, Knoll has obtained the consent to the merger from the
holder of a majority in principal amount of Knoll's outstanding 10 7/8% Senior
Subordinated Notes.

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<PAGE>
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 $26.5 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.

<TABLE>
<CAPTION>
ESTIMATED
COST OR FEE AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
Financial advisory fees........................................................ $ 4,250,000
Bank commitment fees........................................................... 6,500,000
Consent payments to holders of Senior Subordinated Notes....................... 12,870,000
Legal fees..................................................................... 2,500,000
Accounting fees................................................................ 175,000
Printing and mailing fees...................................................... 70,000
Solicitation expenses.......................................................... 2,500
SEC filing fees................................................................ 100,543
Miscellaneous.................................................................. 31,957
-------------
Total...................................................................... $ 26,500,000
-------------
-------------
</TABLE>

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 $650 million to (1) fund the merger
and related fees and expenses (including consent fees payable to the holder of
Knoll's Senior Subordinated Notes), (2) refinance 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
$325 million six-year term loan facility and up to a $325 million six-year
revolving credit facility, and will bear interest at a LIBOR-based rate. 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.

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<PAGE>
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 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.

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<PAGE>
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.

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

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<PAGE>
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 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.

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<PAGE>
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.

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<PAGE>
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

35
<PAGE>
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;

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<PAGE>
- 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 $650 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).

Knoll and Warburg have agreed:

37
<PAGE>
(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;

(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

38
<PAGE>
(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.

Knoll has entered into an agreement with the holder of a majority in
principal amount of its outstanding 10 7/8% Senior Subordinated Notes. Under
this agreement, the holder consented to the merger (including the related
financing thereof), and Knoll agreed to pay the holder (and the other holders of
such notes who similarly consent), promptly after completion of the merger, $120
per $1,000 principal amount of the notes owned by each such holder.

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

39
<PAGE>
- Warburg and Acquisition Corp. shall have performed in all material
respects their obligations under the Merger Agreement; and

(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

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, and
compliance with federal and state securities laws, 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.

40
<PAGE>
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 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.

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:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Burton B. Staniar......................... 57 Chairman of the Board
John H. Lynch............................. 46 President, Chief Executive Officer and Director
Andrew B. Cogan........................... 37 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............................... 34 Director
Henry B. Schacht.......................... 64 Director
</TABLE>

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

41
<PAGE>
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.

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.

42
<PAGE>
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.

DIRECTORS AND EXECUTIVE OFFICERS OF KNOLL

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- ---------------------------------------------------------------
<S> <C> <C>
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........................... 37 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............................... 34 Director
Henry B. Schacht.......................... 64 Director
</TABLE>

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.

43
<PAGE>
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.

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

<TABLE>
<CAPTION>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE AUDIT COMMITTEE
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
John W. Amerman John W. Amerman John W. Amerman
Jeffrey A. Harris Robert J. Dolan Robert J. Dolan
Sidney Lapidus
</TABLE>

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.

44
<PAGE>
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 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

45
<PAGE>
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.

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).

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<PAGE>
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").

<TABLE>
<CAPTION>
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)
- ---------------------------------------------- --------- ---------- ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

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

(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 August 31, 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 60% of the shares granted to Mr. Purdom had vested and an
additional 20% will vest on August 20, 2000 and 2001. At August 31, 1999,
Messrs. Staniar, Lynch, Cogan and Purdom and Ms. Bradley held 94,183,
94,183, 75,347, 113,021 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, $3,348,247 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.

STOCK OPTION GRANTS TABLE

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

<TABLE>
<CAPTION>
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%
- ----------------------------------------- --------------- ------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 -- --
</TABLE>

47
<PAGE>
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.

<TABLE>
<CAPTION>
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
- ---------------------------------------- ------------- ----------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
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-
</TABLE>

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 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

48
<PAGE>
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.

Each of the members of the Special Committee, Messrs. Amerman and Dolan,
became a director of Knoll in May 1997, when Knoll completed its initial public
offering and listed its common stock on the New York Stock Exchange, which
requires listed companies to have at least two independent directors. On May 10,
1997, each was granted options to buy 25,000 shares of Knoll common stock at $17
per share (the price to the public in Knoll's initial public offering) under
Knoll's 1997 stock incentive plan. The option agreements provided that 20% would
vest immediately upon grant and an additional 20% would vest on May 10 of each
of the following four years. Under the 1997 plan, Knoll's stock option committee
has discretionary authority to accelerate the vesting of options granted under
the plan.

Messrs. Amerman and Dolan have informed Knoll that they do not wish to
remain as directors of Knoll following completion of the merger, since Knoll
will no longer be a public company and the principal reason for their election
to the Board of Directors will have ceased to exist. Messrs. Amerman and Dolan
also informed Knoll that they did not believe it was appropriate for them to
participate in any future increase or decrease in the value of Knoll common
stock following completion of the merger, and that, to be treated similarly to
the Public Holders, they wished to have their options terminate upon the
completion of the merger and to receive cash in the amount of the excess of the
merger consideration per share over the option price on the shares subject to
options. Accordingly, Knoll has agreed to have the remaining 10,000 unvested
options held by each of them vest, and to cash out all of their options based
upon the $28.00 per share merger consideration, immediately upon completion of
the merger.

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

49
<PAGE>
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 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.

50
<PAGE>
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%.

<TABLE>
<CAPTION>
TOTAL RETURN
----------------------------------
ISSUE 5/9/97 12/31/97 12/31/98
- ----------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>

51
<PAGE>
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 August 31, 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.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIAL OWNER (1) COMMON STOCK (2) PERCENTAGE
- ----------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Warburg, Pincus & Co. (3).......................................................... 20,981,956 52.7%
466 Lexington Avenue
New York, New York 10017
Burton B. Staniar (4).............................................................. 1,063,744 2.7
John H. Lynch (5).................................................................. 717,167 1.8
Kathleen G. Bradley................................................................ 200,919 *
Andrew B. Cogan.................................................................... 242,699 *
Douglas J. Purdom.................................................................. 220,491 *
John W. Amerman (6)................................................................ 25,000 *
Robert J. Dolan (6)................................................................ 25,000 *
Jeffrey A. Harris (7).............................................................. 20,995,731 52.8
Sidney Lapidus (7)................................................................. 21,010,956 52.8
Kewsong Lee (7).................................................................... 20,984,856 52.8
Henry B. Schacht (8)............................................................... 5,000 *
All directors and executive officers as a group (17 persons)....................... 23,747,717 59.3
</TABLE>

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

* 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 August 31, 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
August 31, 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
August 31, 1999 consists of 39,780,614 shares of common stock (excluding
1,017,194 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 21,000,
20,000, 113,019 and 504,058 shares of common stock held by Messrs. Cogan and
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 August 31, 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 Exchange Act) in an indeterminate portion of the shares beneficially
owned by Warburg. See Note 7 below. Additionally, Mr. Schacht is a Director
of and Senior Advisor to EMW.

52
<PAGE>

(4) Excludes 92,500 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) Includes 74,592 shares held by a trust of which Mr. Lynch is a trustee and
in which Mr. Lynch continues to have a beneficial interest.

(6) Includes options to purchase 10,000 shares which Knoll has agreed to have
vest immediately upon completion of the merger.

(7) 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.

(8) 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

Except as described below, 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.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF PRICE PER DESCRIPTION OF
NAME DATE COMMON STOCK SHARE ($) TRANSACTION
- --------------------------------------------- --------- ------------------- ----------- ------------------------
<S> <C> <C> <C> <C>
Wolfgang Billstein........................... 8/24/99 75,346 27.00 Sale(1)

Andrew B. Cogan.............................. 8/5/99 70,000 26.75 Sale(1)
8/17/99 1,885 N/A Gift
9/3/99 22,356 27.00 Sale(2)

Barbara E. Ellixson.......................... 8/5/99 100 N/A Gift

John H. Lynch................................ 8/30/99 3,729 N/A Gift
8/30/99 74,592 N/A Gift

Carl G. Magnusson............................ 8/12/99 11,750 26.375 Sale(1)

Barry L. McCabe.............................. 8/11/99 5,000 N/A Gift

Patrick A. Milberger......................... 8/5/99 1,249 N/A Gift

Burton B. Staniar............................ 8/5/99 30,000 N/A Gift
</TABLE>

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

(1) Sale effected in the open market under Rule 144.

(2) Sale effected in the open market pursuant to Knoll's shelf registration
statement.

53
<PAGE>
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.

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. As described above
under "Special Factors--Conflicts of Interest," members of the Management Group
have exercised their right under the Stockholders Agreement to require Knoll to
register 1,384,858 shares of common stock.

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

54
<PAGE>
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 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, 60%
of the shares granted have vested and the remaining unvested shares will vest at
the rate of 20% on each of August 20, 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

55
<PAGE>
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.

56
<PAGE>
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.

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

57
<PAGE>
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 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

58
<PAGE>
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.

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.

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<PAGE>
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 August 31, 1999, Knoll employed a total of 4,334 people,
including 2,915 hourly and 1,419 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.

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.

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<PAGE>
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.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
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)..............
</TABLE>

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. No shares were
purchased by Knoll during the three months ended June 30, 1999. 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.

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<PAGE>
SELECTED FINANCIAL DATA

The following table presents selected consolidated financial information of
The Knoll Group, Inc. and related predecessor entities, as of the dates and for
the periods indicated, and selected consolidated financial information of Knoll,
as of the dates and for the periods indicated. The selected 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 consolidated
financial information of Knoll for the six months ended June 30, 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 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.

<TABLE>
<CAPTION>
THE KNOLL GROUP, INC.
(PREDECESSOR) KNOLL
-------------------------------- ---------------------------------
YEAR ENDED TWO MONTHS TEN MONTHS YEAR ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31,
------------------ FEBRUARY 29, DECEMBER 31, ------------------
1994 1995 1996 1996 1997 1998
-------- -------- ------------ ------------ -------- --------
(IN THOUSANDS) (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Sales........................... $562,869 $620,892 $ 90,232 $561,534 $810,857 $948,691
Cost of sales................... 410,104 417,632 59,714 358,841 489,962 572,756
-------- -------- ------------ ------------ -------- --------
Gross profit.................... 152,765 203,260 30,518 202,693 320,895 375,935
Provision for restructuring..... 29,180 -- -- -- -- --
Selling, general and
administrative expenses....... 167,238 138,527 21,256 131,349 183,018 204,392
Westinghouse long-term incentive
compensation.................. -- -- 47,900 -- -- --
Allocated corporate expenses.... 5,881 9,528 921 -- -- --
-------- -------- ------------ ------------ -------- --------
Operating income (loss)......... (49,534) 55,205 (39,559) 71,344 137,877 171,543
Interest expense................ 3,225 1,430 340 32,952 25,075 16,860
Recapitalization expense........ -- -- -- -- -- --
Other income (expense), net..... 699 (1,597) (296) 447 1,667 2,732
-------- -------- ------------ ------------ -------- --------
Income (loss) before income tax
expense (benefit) and
extraordinary item............ (52,060) 52,178 (40,195) 38,839 114,469 157,415
Income tax expense (benefit).... 7,713 22,846 (16,107) 16,844 48,026 64,371
-------- -------- ------------ ------------ -------- --------
Income (loss) before
extraordinary item............ (59,773) 29,332 (24,088) 21,995 66,443 93,044
Extraordinary loss on early
extinguishment
of debt, net of taxes......... -- -- -- 5,159 5,337 --
-------- -------- ------------ ------------ -------- --------
Net income (loss)............... $(59,773) $ 29,332 $(24,088) $ 16,836 $ 61,106 $ 93,044
-------- -------- ------------ ------------ -------- --------
-------- -------- ------------ ------------ -------- --------

Earnings per share (1):
Income before extraordinary
item per share of common
stock:
Basic..................... $ 0.71 $ 1.78 $ 2.25
Diluted................... $ 0.63 $ 1.64 $ 2.14
Net income per share of common
stock:
Basic..................... $ 0.54 $ 1.64 $ 2.25
Diluted................... $ 0.48 $ 1.51 $ 2.14
Weighted average shares of
common
stock (1):
Basic..................... 31,040 37,284 41,271
Diluted................... 34,701 40,398 43,509

<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
OPERATING DATA
Sales........................... $467,732 $462,936
Cost of sales................... 282,571 279,191
-------- --------
Gross profit.................... 185,161 183,745
Provision for restructuring..... -- --
Selling, general and
administrative expenses....... 101,829 101,315
Westinghouse long-term incentive
compensation.................. -- --
Allocated corporate expenses.... -- --
-------- --------
Operating income (loss)......... 83,332 82,430
Interest expense................ 8,972 8,379
Recapitalization expense........ -- 3,000
Other income (expense), net..... 1,094 (937)
-------- --------
Income (loss) before income tax
expense (benefit) and
extraordinary item............ 75,454 70,114
Income tax expense (benefit).... 30,581 29,916
-------- --------
Income (loss) before
extraordinary item............ 44,873 40,198
Extraordinary loss on early
extinguishment
of debt, net of taxes......... -- --
-------- --------
Net income (loss)............... $ 44,873 $ 40,198
-------- --------
-------- --------
Earnings per share (1):
Income before extraordinary
item per share of common
stock:
Basic..................... $ 1.08 $ 1.02
Diluted................... $ 1.02 $ 0.98
Net income per share of common
stock:
Basic..................... $ 1.08 $ 1.02
Diluted................... $ 1.02 $ 0.98
Weighted average shares of
common
stock (1):
Basic..................... 41,451 39,563
Diluted................... 43,896 41,080
</TABLE>

62
<PAGE>

<TABLE>
<CAPTION>
THE KNOLL GROUP,
INC. (PREDECESSOR) KNOLL
-------------------- -------------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
-------------------- -------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital..................... $ 22,898 $ 82,698 $ 64,754 $ 65,553 $ 95,040 $ 98,015 $ 126,350
Total assets........................ 705,316 656,710 675,712 680,859 714,027 687,951 707,371
Total long-term debt, including
current portion................... 12,451 3,538 354,154 207,029 169,255 168,017 164,158
Total liabilities................... 247,310 176,259 497,908 392,570 370,177 352,281 349,896
Stockholders' equity................ 458,006 480,451 177,804 288,289 343,850 335,670 357,475

OTHER DATA
Ratio of earnings to fixed charges
(2)............................... 5.1 8.9 8.2 8.0
Book value per share................ $ 8.23 $ 8.79
</TABLE>

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

(1) All common stock share and per share amounts for the ten months ended
December 31, 1996 and the year ended December 31, 1997 have been adjusted,
as necessary, to give retroactive effect to the 3.13943-for-1 stock split
that resulted from the amendment of the Company's Certificate of
Incorporation on May 6, 1997. In addition, because of the significance of
the redemption and conversion into common stock of Knoll's Series A 12.0%
Participating Convertible Preferred Stock ("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.

(2) 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.

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<PAGE>
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.

Historical results of operations for 1996 referred to in the discussion
below represent the aggregate of the results of operations of Knoll's
predecessor for the two months ended February 29, 1996 and of Knoll for the ten
months ended December 31, 1996. Operating results data that are adjusted to
reflect the pro forma effect of the acquisition of Knoll from Westinghouse
and/or the pro forma effect of Knoll's initial public offering as if such events
had occurred at the beginning of 1996 do not purport to be indicative of the
actual results that would have occurred, nor do they purport to be indicative of
results that will be achieved in the future.

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 six months of 1999 were down compared to
the first six months 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 second quarter of 1999 were $253.7 million, an increase of
2.7%, or $6.7 million, from second quarter 1998 sales of $247.0 million. Sales
for the six months ended June 30, 1999 were $462.9 million, a decrease of 1.0%,
or $4.8 million, from sales of $467.7 million for the same period of 1998. This
decrease is primarily due to the impact on Knoll from the slowdown in industry
sales levels during the first six months of 1999.

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 35.8% for 1996 and operating income was 18.1% for 1998, 17.0% for
1997 and 4.9% for 1996. 1996 operating income was negatively impacted by $47.9
million of long-term incentive compensation expense under Westinghouse's
long-term incentive plans that became payable,

64
<PAGE>

and for which amounts payable were established, as a result of the acquisition
of Knoll from Westinghouse. Assuming the acquisition had occurred at the
beginning of 1996, gross profit and operating income as a percentage of sales
would have been 35.6% and 12.0%, respectively, for 1996. Such results reflect
additional depreciation expense as a result of a step-up in the basis of fixed
assets, additional costs required to replace specific services formerly provided
by Westinghouse, additional amortization expense as a result of goodwill and
other intangible assets and the elimination of the Westinghouse long-term
incentive compensation expense.

Although selling, general and administrative expenses increased on a
relative dollar basis in 1998 compared to 1997 and in 1997 compared to 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.
Additionally, the increase from 1996 to 1997 is also attributable to 1997
results reflecting a full year of additional depreciation and amortization that
resulted from the acquisition and a full year of additional costs required to
replace specific services formerly provided by Westinghouse. 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 23.4% for 1996.

As a percentage of sales, gross profit increased to 40.3% for the second
quarter of 1999 from 39.6% for the second quarter of 1998 and increased to 39.7%
for the six months ended June 30, 1999 from 39.6% for the same period of 1998.
The increases in gross margin were principally due to higher sales volume in the
second quarter of 1999, product mix and a reduction in depreciation expense due
to certain assets being fully depreciated in the first quarter of 1999.
Operating income as a percentage of sales was 18.2% for the second quarter of
1999 compared to 18.3% for the second quarter of 1998 and was 17.8% for the six
months ended June 30, 1999 and 1998.

Selling, general and administrative expenses were $55.9 million for the
second quarter of 1999 compared to $52.6 million for the second quarter of 1998.
This increase is primarily due to increased expenses related to sales and
marketing and certain strategic projects in the second quarter of 1999. Selling,
general and administrative expenses for the six months ended June 30, 1999 were
$101.3 million compared to $101.8 million for the same period of 1998. This
decrease is primarily due to lower employee costs related to reduced sales and
profit levels in the first quarter of 1999 offset by the second quarter increase
discussed above. As a percentage of sales, Knoll's selling, general and
administrative expenses increased to 22.0% for the second quarter of 1999 from
21.3% for the second quarter of 1998 and increased to 21.9% for the six months
ended June 30, 1999 from 21.8% for the same period 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 was $4.2 million for the second quarter of 1999 and $8.4
million for the six months ended June 30, 1999 compared to $4.4 million for the
second quarter of 1998 and $9.0 million for the six months ended June 30, 1998.
The decreases in interest expense are principally due to lower outstanding debt
balances during the second quarter and six months of 1999 compared to the second
quarter and six months of 1998.

65
<PAGE>

RECAPITALIZATION EXPENSE--During the second quarter of 1999, Knoll incurred
$3.0 million of expense relating to the recapitalization that will occur if the
merger is consummated.

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 (54.4%) in 1996 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. Assuming the
acquisition of Knoll from Westinghouse had occurred at the beginning of 1996,
Knoll's effective tax rate would have been 43.7% in 1996.

Knoll's effective tax rate for the second quarter and six months ended June
30, 1999 was 43.5% and 42.7%, respectively, compared to 40.9% and 40.5% for the
second quarter and six months ended June 30, 1998, respectively. The increases
in Knoll's effective tax rate for the quarterly and six-month periods are
primarily due to the recapitalization expense, which is not expected to be
deductible for income tax purposes. The changes in the effective tax rate for
the second quarter and six months have also been impacted by the mix of Knoll's
pretax income and the varying effective tax rates attributable to the countries
in which it operates.

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.

INITIAL PUBLIC OFFERING--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 for $65.1 million. If Knoll assumes that these events
as well as the acquisition of Knoll from Westinghouse had occurred at the
beginning of 1996, net income, on a pro forma 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 net income for
1997.

EARNINGS PER SHARE--Knoll's diluted earnings per share for the second
quarter of 1999 were $0.53, a decrease of 7.0% from diluted earnings per share
of $0.57 for the second quarter of 1998. Diluted earnings per share for the six
months ended June 30, 1999 were $0.98, a decrease of 3.9% from diluted earnings
per share of $1.02 for the same period of 1998. The recapitalization expense
discussed above negatively impacted 1999 diluted earnings per share by $0.08 for
the second quarter of 1999 and $0.07 for the six months ended June 30, 1999.
Excluding the impact of the recapitalization expense, earnings per share were
$0.61 for the second quarter of 1999, an increase of 7.0% over the second
quarter of 1998, and $1.05 for the six months ended June 30, 1999, an increase
of 2.9% over the same period of 1998. Earnings per share for the second quarter
and six months ended June 30, 1999 benefited from the reduced number of shares
of common stock outstanding that resulted from the repurchase of

66
<PAGE>

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:

<TABLE>
<CAPTION>
THE KNOLL GROUP, INC.
(PREDECESSOR)
---------------------
SIX MONTHS SIX MONTHS YEAR YEAR TEN MONTHS TWO MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 29,
1999 1998 1998 1997 1996 1996
----------- ----------- ------------- ------------ ------------- ---------------------
(IN THOUSANDS)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities......... $ 40,905 $ 46,600 $ 114,563 $ 135,262 $ 89,502 $ (54,039)
Capital expenditures........... 9,320 13,417 36,390 33,080 15,255 2,296
Repayment of long-term debt,
excluding initial borrowing
for the acquisition from
Westinghouse................. 5,000 39,000 38,000 146,988 72,130 --
Net proceeds from issuance of
stock........................ 946 3,844 4,813 133,559 160,400 --
Purchase of common stock....... 28,675 -- 38,849 -- -- --
</TABLE>

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 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

67
<PAGE>
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 six months ended June 30, 1999, Knoll generated cash flow from
operations of $40.9 million. Cash provided by operations resulted primarily from
earnings before depreciation and amortization offset by cash used for working
capital purposes. This cash flow was applied to the funding of $9.3 million in
capital expenditures, the repayment of $5.0 million under Knoll's revolving
credit facility and the repurchase, during the first two months of 1999, of
1,187,000 shares of Knoll's common stock for $28.7 million.

As of June 30, 1999, Knoll's ratio of debt to total capitalization was
31.5%, and Knoll had an aggregate of $226.5 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 twelve months.

68
<PAGE>

If the merger is consummated, Knoll would incur significant additional debt
under new financing arrangements. 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 $650.0
million. The proceeds will be used to (1) fund the merger and related fees and
expenses, (2) refinance 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 $325.0 million six-year
term loan facility and up to a $325.0 million six-year revolving credit
facility, and will bear interest at a LIBOR-based rate. 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 (1) the market for syndicated credit facilities which could materially
impair the syndication of the credit facility or (ii) 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.

Management believes that Knoll's cash flows from operations would be
sufficient to service the additional debt as well as continue to fund normal
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 six months ended
June 30, 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 $172.3 million at June 30, 1999
versus $143.5 million at June 30, 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

69
<PAGE>
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.

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, during the third
quarter of 1999. If Knoll successfully implements the new system and addresses
issues associated with noncompliant embedded chips during 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 June 30, 1999, Knoll has incurred expenditures of
approximately $29.2 million ($20.6 million expense and $8.6 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.

70
<PAGE>
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, 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.

71
<PAGE>
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.

<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
--------- --------- --------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(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% -- -- -- -- --
</TABLE>

As of June 30, 1999, Knoll had $56.0 million of variable rate debt
outstanding, which is a decrease of $5.0 million from December 31, 1998. The
fair value of this debt continues to approximate its carrying amount.

72
<PAGE>
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 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.

73
<PAGE>
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.

74
<PAGE>
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.

<TABLE>
<S> <C> <C>
By Order of the Board of Directors,

/s/ PATRICK A. MILBERGER
---------------------------------------------
Patrick A. Milberger
SECRETARY
</TABLE>

September , 1999

75
<PAGE>
KNOLL, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at June 30, 1999 and December 31, 1998............................... F-2
Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 1999 and 1998 and the
Six Months Ended June 30, 1999 and 1998.................................................................. F-3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998............ F-4
Notes to the Condensed Consolidated Financial Statements................................................... F-5

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................. F-9
Consolidated Balance Sheets at December 31, 1998 and 1997.................................................. F-10
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-11
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-12
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-13
Notes to the Consolidated Financial Statements............................................................. F-14

Schedule II--Valuation and Qualifying Accounts............................................................. F-46
</TABLE>

F-1
<PAGE>
KNOLL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 15,849 $ 17,465
Customer receivables, net..................................................... 135,563 137,956
Inventories................................................................... 79,409 77,113
Deferred income taxes......................................................... 19,507 21,067
Prepaid and other current assets.............................................. 14,742 9,842
------------- --------
Total current assets........................................................ 265,070 263,443
Property, plant and equipment................................................... 266,983 257,970
Accumulated depreciation........................................................ (85,346) (71,803)
------------- --------
Property, plant and equipment, net.......................................... 181,637 186,167
Intangible assets............................................................... 282,306 282,197
Accumulated amortization........................................................ (26,100) (22,154)
------------- --------
Intangible assets, net...................................................... 256,206 260,043
Other noncurrent assets......................................................... 4,458 4,374
------------- --------
Total Assets................................................................ $ 707,371 $ 714,027
------------- --------
------------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................................... $ -- $ 10,000
Accounts payable.............................................................. 58,715 59,551
Income taxes payable.......................................................... 1,231 7,096
Other current liabilities..................................................... 78,774 91,756
------------- --------
Total current liabilities................................................... 138,720 168,403
Long-term debt.................................................................. 164,158 159,255
Postretirement benefits other than pension...................................... 19,039 18,450
Other noncurrent liabilities.................................................... 27,979 24,069
------------- --------
Total liabilities........................................................... 349,896 370,177
------------- --------
Stockholders' equity:
Common stock, $0.01 par value; 100,000,000 shares authorized; 40,659,751
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..................................................................... 407 418
Additional paid-in-capital.................................................... 154,080 181,792
Unearned stock grant compensation............................................. (573) (712)
Retained earnings............................................................. 211,184 170,986
Accumulated other comprehensive income........................................ (7,623) (8,634)
------------- --------
Total stockholders' equity.................................................. 357,475 343,850
------------- --------
Total Liabilities and Stockholders' Equity.................................. $ 707,371 $ 714,027
------------- --------
------------- --------
</TABLE>

See accompanying notes.

F-2
<PAGE>
KNOLL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
<S> <C> <C> <C> <C>
JUNE 30, JUNE 30,
---------------------- ----------------------

<CAPTION>
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales............................................................ $ 253,726 $ 246,957 $ 462,936 $ 467,732
Cost of sales.................................................... 151,528 149,119 279,191 282,571
---------- ---------- ---------- ----------
Gross profit..................................................... 102,198 97,838 183,745 185,161
Selling, general and administrative expenses..................... 55,902 52,556 101,315 101,829
---------- ---------- ---------- ----------
Operating income................................................. 46,296 45,282 82,430 83,332
Interest expense................................................. 4,157 4,389 8,379 8,972
Recapitalization expense......................................... 3,000 -- 3,000 --
Other income (expense), net...................................... (539) 1,512 (937) 1,094
---------- ---------- ---------- ----------
Income before income tax expense................................. 38,600 42,405 70,114 75,454
Income tax expense............................................... 16,796 17,342 29,916 30,581
---------- ---------- ---------- ----------
Net income....................................................... $ 21,804 $ 25,063 $ 40,198 $ 44,873
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Earnings per share of common stock:
Basic........................................................ $ 0.55 $ 0.60 $ 1.02 $ 1.08
Diluted...................................................... $ 0.53 $ 0.57 $ 0.98 $ 1.02
Weighted average shares of common stock outstanding:
Basic........................................................ 39,572 41,718 39,563 41,451
Diluted...................................................... 40,934 43,930 41,080 43,896
</TABLE>

See accompanying notes.

F-3
<PAGE>
KNOLL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
<S> <C> <C>
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................. $ 40,198 $ 44,873
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization........................................................ 17,649 19,177
Other noncash items.................................................................. 1,298 (696)
Changes in assets and liabilities:
Customer receivables............................................................... 1,453 (10,240)
Inventories........................................................................ (2,887) (5,741)
Accounts payable................................................................... (1,594) 180
Current and deferred income taxes.................................................. (4,664) 547
Other current assets and liabilities............................................... (13,500) (5,719)
Other noncurrent assets and liabilities............................................ 2,952 4,219
----------- -----------
Cash provided by operating activities.................................................. 40,905 46,600
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment............................................. (9,320) (13,417)
Proceeds from sale of assets........................................................... 91 9
----------- -----------
Cash used in investing activities...................................................... (9,229) (13,408)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of revolving credit facility, net............................................ (5,000) (39,000)
Net proceeds from issuance of stock.................................................... 946 3,844
Purchase of common stock............................................................... (28,675) --
----------- -----------
Cash used in financing activities...................................................... (32,729) (35,156)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents........................... (563) (113)
----------- -----------
Decrease in cash and cash equivalents.................................................. (1,616) (2,077)
Cash and cash equivalents at beginning of period....................................... 17,465 10,790
----------- -----------
Cash and cash equivalents at end of period............................................. $ 15,849 $ 8,713
----------- -----------
----------- -----------
</TABLE>

See accompanying notes.

F-4
<PAGE>
KNOLL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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, as amended. The results of operations for the
three and six months ended June 30, 1999 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1999.

2. PENDING ACQUISITION OF SHARES OWNED BY PUBLIC STOCKHOLDERS

On March 23, 1999, the Company received a proposal from Warburg, Pincus
Ventures, L.P. ("Warburg") and certain members of Knoll management
(collectively, the "Continuing Stockholders") regarding a recapitalization
(merger) transaction whereby the Company would acquire all of the outstanding
shares of its common stock not owned by the Continuing Stockholders for $25.00
per share. The Board of Directors appointed a special committee, consisting of
independent members of the Board of Directors, to consider the proposed merger.
The special committee retained legal counsel and an investment banker to assist
in evaluating the proposed merger. The Continuing Stockholders subsequently
increased the proposed merger consideration to $28.00 per share. On June 21,
1999, the Board of Directors, at the recommendation of the special committee,
approved the proposed merger at a price of $28.00 per share.

Pursuant to an Agreement and Plan of Merger dated as of June 21, 1999 (as
amended on July 29, 1999), between Warburg and Knoll, a newly formed entity to
be organized by Warburg would merge with and into Knoll, and the public
stockholders 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. Consummation of the merger is subject to, among other
things, (i) approval at the Company's 1999 annual meeting by the holders of at
least a majority of the outstanding Knoll common stock, (ii) receipt of
financing for the transaction, as provided in the merger agreement, and (iii)
receipt of consents to the merger from the holders of a majority of Knoll's
outstanding 10.875% Senior Subordinated Notes due 2006 (the "Senior Subordinated
Notes"). The merger is expected to be completed in October 1999.

During the three months ended June 30, 1999, the Company incurred $3.0
million of expense relating to the recapitalization of the Company that will
occur if the merger is consummated. This expense is not expected to be
deductible for income tax 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

F-5
<PAGE>
KNOLL, INC.

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

JUNE 30, 1999

(UNAUDITED)

2. PENDING ACQUISITION OF SHARES OWNED BY PUBLIC STOCKHOLDERS -- (CONTINUED)

to $650.0 million. The proceeds will be used to (i) fund the merger and related
fees and expenses, (ii) refinance all amounts owing under Knoll's existing
senior credit agreement and (iii) provide for working capital and ongoing
general corporate purposes.

On August 13, 1999, the Company entered into an agreement with the holder of
a majority of its Senior Subordinated Notes. Under the agreement, the majority
holder consented to the merger, and the Company agreed to pay such holder (and
other holders of the Senior Subordinated Notes who also consent), promptly after
completion of the merger, $120 per $1,000 principal amount of the Senior
Subordinated Notes owned by the holder.

Eight class action complaints relating to the initial announcement of the
proposed merger were filed in March 1999. One complaint was voluntarily
dismissed and the seven remaining complaints were consolidated into a single
action. On June 21, 1999, the Company entered into a Memorandum of Understanding
with counsel to the plaintiffs in the 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. The Company believes that the settlement, if
completed as provided for in the Memorandum of Understanding, will not have a
material adverse effect on the Company.

3. INVENTORIES

<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1999 31, 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................................... $ 39,948 $ 42,625
Work in process........................................................ 12,835 11,827
Finished goods......................................................... 26,626 22,661
--------- -----------
Inventories............................................................ $ 79,409 $ 77,113
--------- -----------
</TABLE>

F-6
<PAGE>
KNOLL, INC.

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

JUNE 30, 1999

(UNAUDITED)

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):

<TABLE>
<CAPTION>
WEIGHTED
NET INCOME AVERAGE SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ --------------- -----------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999:
Basic earnings per share................................................ $ 21,804 39,572 $ 0.55
-----
-----
Effect of dilutive potential common shares:
Stock options....................................................... -- 313
Nonvested restricted stock grants................................... -- 1,049
------------ ------
Diluted earnings per share.............................................. $ 21,804 40,934 $ 0.53
------------ ------ -----
------------ ------ -----
THREE MONTHS ENDED JUNE 30, 1998:
Basic earnings per share................................................ $ 25,063 41,718 $ 0.60
-----
-----
Effect of dilutive potential common shares:
Stock options....................................................... -- 524
Nonvested restricted stock grants................................... -- 1,688
------------ ------
Diluted earnings per share.............................................. $ 25,063 43,930 $ 0.57
------------ ------ -----
------------ ------ -----
SIX MONTHS ENDED JUNE 30, 1999:
Basic earnings per share................................................ $ 40,198 39,563 $ 1.02
-----
-----
Effect of dilutive potential common shares:
Stock options....................................................... -- 279
Nonvested restricted stock grants................................... -- 1,238
------------ ------
Diluted earnings per share.............................................. $ 40,198 41,080 $ 0.98
------------ ------ -----
------------ ------ -----
SIX MONTHS ENDED JUNE 30, 1998:
Basic earnings per share................................................ $ 44,873 41,451 $ 1.08
-----
-----
Effect of dilutive potential common shares:
Stock options....................................................... -- 566
Nonvested restricted stock grants................................... -- 1,879
------------ ------
Diluted earnings per share.............................................. $ 44,873 43,896 $ 1.02
------------ ------ -----
------------ ------ -----
</TABLE>

Options to purchase 823,000 shares of common stock that were outstanding as
of June 30, 1999 were not included in the calculation of diluted earnings per
share for the three months ended June 30, 1999. These options, in addition to
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 six months ended June 30, 1999. Such options were excluded from
the calculations because their exercise prices exceeded the average market price
of the common stock for the appropriate period and, therefore, their effect on
earnings per share would have been antidilutive.

F-7
<PAGE>
KNOLL, INC.

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

JUNE 30, 1999

(UNAUDITED)

5. SHARE REPURCHASE PROGRAM

During the six months ended June 30, 1999, the Company purchased 1,187,000
shares of its common stock for $28.7 million, or an average price of $24.16 per
share. 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

For the three months ended June 30, 1999 and 1998, total comprehensive
income amounted to $22.7 million and $22.8 million, respectively. Total
comprehensive income for the six months ended June 30, 1999 and 1998 was $41.2
million and $42.6 million, respectively.

F-8
<PAGE>
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 19, as
to which the date is February 10, 1999,
and Notes 20 and 24, as to which the
date is March 24, 1999

F-9
<PAGE>
KNOLL, INC.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
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 pension................................................ 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
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-10
<PAGE>
KNOLL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
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
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales...................................................... $ 948,691 $ 810,857 $ 561,534 $ 90,232
Cost of sales.............................................. 572,756 489,962 358,841 59,714
----------- ----------- ----------- -----------
Gross profit............................................... 375,935 320,895 202,693 30,518
Selling, general and administrative expenses............... 204,392 183,018 131,349 21,256
Westinghouse long-term incentive compensation.............. -- -- -- 47,900
Allocated corporate expenses............................... -- -- -- 921
----------- ----------- ----------- -----------
Operating income (loss).................................... 171,543 137,877 71,344 (39,559)
Interest expense........................................... 16,860 25,075 32,952 340
Other income (expense), net................................ 2,732 1,667 447 (296)
----------- ----------- ----------- -----------
Income (loss) before income tax expense (benefit) and
extraordinary item....................................... 157,415 114,469 38,839 (40,195)
Income tax expense (benefit)............................... 64,371 48,026 16,844 (16,107)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item.................... 93,044 66,443 21,995 (24,088)
Extraordinary loss on early extinguishment of
debt, net of taxes....................................... -- 5,337 5,159 --
----------- ----------- ----------- -----------
Net income (loss).......................................... $ 93,044 $ 61,106 $ 16,836 $ (24,088)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Earnings per share (Note 2):
Income before extraordinary item:
Basic.................................................. $ 2.25 $ 1.78 $ 0.71
Diluted................................................ $ 2.14 $ 1.64 $ 0.63
Net income:
Basic.................................................. $ 2.25 $ 1.64 $ 0.54
Diluted................................................ $ 2.14 $ 1.51 $ 0.48
Weighted average shares of common stock (Note 2):
Basic.................................................. 41,271 37,284 31,040
Diluted................................................ 43,509 40,398 34,701
</TABLE>

See accompanying notes to the consolidated financial statements.

F-11
<PAGE>
KNOLL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
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
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-12
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNEARNED STOCK
PREFERRED COMMON ADDITIONAL GRANT RETAINED
STOCK STOCK PAID-IN-CAPITAL COMPENSATION EARNINGS
----------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
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........................ $ -- $ -- $ -- $ -- $ --
----------- ----- -------------- ------- -----------
----------- ----- -------------- ------- -----------

<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
----------- ----- -------------- ------- -----------
----------- ----- -------------- ------- -----------

<CAPTION>
ACCUMULATED OTHER TOTAL
PARENT COMPANY COMPREHENSIVE STOCKHOLDERS'
INVESTMENT INCOME EQUITY
--------------- ------------------ -------------
<S> <C> <C> <C>
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
--------------- -------- -------------
--------------- -------- -------------
- ----------------------------------------------------
<S> <C> <C> <C>
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
--------------- -------- -------------
--------------- -------- -------------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-13
<PAGE>
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.

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.

INVENTORIES

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

F-14
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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,

F-15
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

"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 19.

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.

RECLASSIFICATIONS

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

F-16
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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
$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. 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 directly included information systems support;
certain accounting functions, such as transaction processing; legal,
environmental affairs and human resources consulting and compliance support; and

F-17
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. RELATED PARTY TRANSACTIONS OF THE PREDECESSOR -- (CONTINUED)

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.

6. 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.

7. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------

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

F-18
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>

9. INTANGIBLE ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>

10. OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>

F-19
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INDEBTEDNESS

The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>

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-20
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. 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-21
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. 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):

<TABLE>
<S> <C>
1999.............................................................. $ 10,000
2000.............................................................. --
2001.............................................................. --
2002.............................................................. 51,081
2003.............................................................. 100
Thereafter........................................................ 108,074
---------
$ 169,255
---------
---------
</TABLE>

12. 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.

13. 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-22
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. 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.

14. 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.

15. 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-23
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. 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.

<TABLE>
<CAPTION>
INCOME BEFORE
EXTRAORDINARY WEIGHTED AVERAGE
ITEM SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ----------------- -----------
<S> <C> <C> <C>
(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
------------- ------ -----
------------- ------ -----
</TABLE>

As discussed in Note 11, 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-24
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. INCOME TAXES

Income (loss) before income taxes and extraordinary item consists of the
following:

Income tax expense (benefit), excluding extraordinary items, is comprised of
the following:

<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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)
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
</TABLE>

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-25
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. 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:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>

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-26
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. INCOME TAXES -- (CONTINUED)

The following table sets forth a reconciliation of the statutory federal
income tax rate to the effective income tax rate:

<TABLE>
<CAPTION>
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
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
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%)
--- --- --- -----
--- --- --- -----
</TABLE>

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.

18. 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):

<TABLE>
<S> <C>
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
---------
---------
</TABLE>

F-27
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. 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:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>

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-28
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. STOCK PLANS -- (CONTINUED)

The following table summarizes information regarding stock options
outstanding and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
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
- ----------------------- ---------- ------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$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
---------- -----------
---------- -----------
</TABLE>

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):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
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
</TABLE>

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-29
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. 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.

20. 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.

21. 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-30
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. 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:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- ---------- ----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>

Significant assumptions as of December 31 that were used in accounting for
the pension and other postretirement benefits plans are as follows:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
<S> <C> <C> <C> <C>
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
</TABLE>

F-31
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. 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:

<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>

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-32
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. 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.

22. 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.

<TABLE>
<CAPTION>
UNITED
STATES CANADA EUROPE CONSOLIDATED
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
(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
</TABLE>

F-33
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. 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.

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(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
</TABLE>

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.

24. 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-34
<PAGE>
KNOLL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

25. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT

As discussed in Note 11, 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-35
<PAGE>
KNOLL, INC.

BALANCE SHEET

DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
------------------------
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----------- ----------- ----------- ------------ ----------
---------- ----------- ----------- ----------- ------------ ----------
</TABLE>

F-36
<PAGE>
KNOLL, INC.

BALANCE SHEET

DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
------------------------
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----------- ----------- ----------- ------------ ----------
---------- ----------- ----------- ----------- ------------ ----------
</TABLE>

F-37
<PAGE>
KNOLL, INC.

STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
------------------------
SPINNEYBECK KNOLL
KNOLL, ENTERPRISES, OVERSEAS, NON-
INC. INC. INC. GUARANTORS ELIMINATIONS TOTAL
---------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----------- ----------- ----------- ------------ ----------
---------- ----------- ----------- ----------- ------------ ----------
</TABLE>

F-38
<PAGE>
KNOLL, INC.

STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
------------------------
SPINNEYBECK KNOLL
KNOLL, ENTERPRISES, OVERSEAS, NON-
INC. INC. INC. GUARANTORS ELIMINATIONS TOTAL
---------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----------- ----------- ----------- ------------ ----------
---------- ----------- ----------- ----------- ------------ ----------
</TABLE>

F-39
<PAGE>
KNOLL, INC.

STATEMENT OF OPERATIONS

TEN MONTHS ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
------------------------
SPINNEYBECK KNOLL
KNOLL, ENTERPRISES, OVERSEAS, NON-
INC. INC. INC. GUARANTORS ELIMINATIONS TOTAL
---------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----------- ----------- ----------- ------------ ----------
---------- ----------- ----------- ----------- ------------ ----------
</TABLE>

F-40
<PAGE>
KNOLL, INC.

STATEMENT OF OPERATIONS

TWO MONTHS ENDED FEBRUARY 29, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
------------------------
SPINNEYBECK KNOLL
ENTERPRISES, OVERSEAS, NON-
KNOLL, INC. INC. INC. GUARANTORS ELIMINATIONS TOTAL
----------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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)
----------- ----------- ----- ----------- ------------ ----------
----------- ----------- ----- ----------- ------------ ----------
</TABLE>

F-41
<PAGE>
KNOLL, INC.

STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
----------------------------
SPINNEYBECK KNOLL
KNOLL, ENTERPRISES, OVERSEAS, NON-
INC. INC. INC. GUARANTORS ELIMINATIONS TOTAL
---------- --------------- ----------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----- ----- ----------- ----- ----------
---------- ----- ----- ----------- ----- ----------
</TABLE>

F-42
<PAGE>
KNOLL, INC.

STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)

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
---------- ----------- ----- ----------- ------ ----------
---------- ----------- ----- ----------- ------ ----------
</TABLE>

F-43
<PAGE>
KNOLL, INC.

STATEMENT OF CASH FLOWS

TEN MONTHS ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
GUARANTORS
--------------------------
SPINNEYBECK KNOLL
ENTERPRISES, OVERSEAS, NON-
KNOLL, INC. INC. INC. GUARANTORS ELIMINATIONS TOTAL
----------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES....... $ 78,889 $ 399 $ -- $ 10,214 $ -- $ 89,502

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of the Company from
Westinghouse.............................. (579,801) -- -- -- -- (579,801)
Capital expenditures........................ (12,531) (134) -- (2,590) -- (15,255)
Proceeds from sale of assets................ 43 -- -- 175 -- 218
----------- ----- ----------- ----------- ----- -----------
Cash used in investing activities........... (592,289) (134) -- (2,415) -- (594,838)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of short-term debt, net........... -- -- -- (1,483) -- (1,483)
Proceeds from revolving credit facility,
net....................................... 88,000 -- -- -- -- 88,000
Proceeds from (repayment of) long-term debt,
net....................................... 265,000 -- -- (130) -- 264,870
Net proceeds from issuance of stock......... 160,400 -- -- -- -- 160,400
Net receipts from (payments to) parent
company................................... (120) -- -- 120 -- --
----------- ----- ----------- ----------- ----- -----------
Cash provided by (used in) financing
activities................................ 513,280 -- -- (1,493) -- 511,787

Effect of exchange rate changes on cash and
cash equivalents.......................... -- -- -- 18 -- 18
----------- ----- ----------- ----------- ----- -----------
Increase (decrease) in cash and cash
equivalents............................... (120) 265 -- 6,324 -- 6,469
Cash and cash equivalents at beginning of
period.................................... 161 2 -- 2,172 -- 2,335
----------- ----- ----------- ----------- ----- -----------
Cash and cash equivalents at end of
period.................................... $ 41 $ 267 $ -- $ 8,496 $ -- $ 8,804
----------- ----- ----------- ----------- ----- -----------
----------- ----- ----------- ----------- ----- -----------
</TABLE>

F-44
<PAGE>
KNOLL, INC.

STATEMENT OF CASH FLOWS

TWO MONTHS ENDED FEBRUARY 29, 1996

(IN THOUSANDS)

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
----------- ----------- ----- ----------- ------------ ----------
----------- ----------- ----- ----------- ------------ ----------
</TABLE>

F-45
<PAGE>
SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) END OF PERIOD
- ---------------------------------------------------------- ----------- ----------- --------------- -------------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
</TABLE>

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

(1) Uncollectible accounts written off and foreign currency translation.

F-46
<PAGE>
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
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
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
</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
</TABLE>

ii
<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
</TABLE>

iii
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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

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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.

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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

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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

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(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

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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

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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.

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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.

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(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:

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(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

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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

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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.

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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.

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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.

<TABLE>
<S> <C> <C>
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
</TABLE>

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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
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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.

<TABLE>
<S> <C> <C>
Very truly yours,

LAZARD FRERES & CO. LLC

By: /s/ JAMES L. KEMPNER
-----------------------------------------
James L. Kempner
MANAGING DIRECTOR
</TABLE>

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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

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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

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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

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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.

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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

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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

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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.

<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION IN ADDITION TO POSITION WITH WP
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
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.(**)
</TABLE>

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

* 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.

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<PAGE>
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