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01 February 2007

Amendment of the P4 shareholders agreement

WARSAW, Poland – February 1, 2007 – Netia SA (the “Issuer” or “Netia”) (WSE: NET), Poland’s largest alternative provider of fixed-line telecommunications services, today announced that on January 31, 2007 the Issuer concluded an investment agreement (the “Investment Agreement”), which provides for the accession of a new shareholder, Tollerton Investments Limited, with its seat in Cyprus (“Tollerton”), to P4 Sp. z o.o. (“P4”), and for the subscription by Tollerton for a 22% equity stake in the increased share capital of P4 in return for 100% of shares in Germanos Polska Sp. z o.o. together with its two subsidiaries Telecommunication Center Mobile Sp z o.o. and Mobile Phone Telecom Sp. z o.o. (the “Distribution Companies”), which will be contributed to P4 to pay for the new shares subscribed for by Tollerton. The Investment Agreement further provides for an amendment of the Shareholders Agreement of P4 dated August 23, 2005 after the transactions contemplated in the Investment Agreement have been completed (the “Shareholders Agreement”) (see Netia’s press release dated August 23, 2005).

The following entities are parties to the Investment Agreement and the amended Shareholders Agreement: the Issuer, Netia Mobile Sp. z o.o. (“Netia Mobile”, formerly Netia Ventures Sp. z o.o. (see Netia’s press release dated November 25, 2005)), Novator One L.P., Novator Telecom Poland S.a.r.l. (“Novator”), Novator Poland Pledge Sp. z o.o, Olympia Development S.A., Tollerton (Novator, Netia Mobile and Tollerton to be hereinafter jointly referred to as the “Shareholders”), and P4. Novator is a wholly-owned subsidiary of Novator One L.P., Netia Mobile is a wholly-owned subsidiary of the Issuer, and Tollerton is a wholly-owned subsidiary of Olympia Development S.A.

Pursuant to the Investment Agreement, Tollerton shall subscribe for new shares in P4 representing 22% of P4’s share capital (the “Shares”) in return for 100% equity stakes in the share capital of Germanos Polska Sp. z o.o., Telecommunication Center Mobile Sp. z o.o. and Mobile Phone Telecom Sp. z o.o. Following the increase of P4’s share capital, Netia Mobile will hold 23.4% of P4’s share capital while Novator will hold a 54.6% of P4’s share capital. The above is conditional on obtaining the consent of the Chairman of the Polish Office for the Protection of Competition and Consumers and the consent of China Development Bank, as required under the terms of the facility of EUR 150 million granted to P4 (see Netia’s press release dated 31 October 2006) to the transactions contemplated in the Investment Agreement, and on the Distribution Companies terminating certain existing exclusive distribution agreements to which they are the parties.

In the amended Shareholders Agreement, which will be concluded upon Tollerton subscribing for P4’s shares, the Shareholders reiterate their earlier commitments to make contributions to P4 up to EUR 300 million, pro rata to their respective changed shareholdings in P4’s share capital, whereby Tollerton has agreed to make contributions of EUR 35 million and the investment commitment of Netia Mobile will be reduced to EUR 79.5 million accordingly.

After the transaction, P4’s Supervisory Board (the “Supervisory Board”) shall consist of nine (9) members appointed for a five-year term of office. As long as Netia Mobile continues to hold: (i) at least 20% of the Shares – Netia Mobile shall be entitled to appoint, suspend and dismiss two (2) members of the Supervisory Board, and (ii) 10% – 20% of the Shares – Netia Mobile shall be entitled to appoint, suspend and dismiss one (1) Supervisory Board member, and to appoint the Chairman of the Supervisory Board. The remaining members of the Supervisory Board shall be appointed by Novator and Tollerton and/or the shareholders’ meeting of P4.

The Management Board of P4 (the “Management Board’) shall be composed of up to six (6) members appointed by the Supervisory Board in accordance with specific procedures ensuring that both Shareholders have a transparent and equitable share in the decision-making process. Netia Mobile will retain the right to suspend and dismiss specific Management Board members if their appointment is inconsistent with the above-mentioned procedures.

No P4 shareholder may transfer its Shares before August 23, 2008 without the consent of the other Shareholders, except for certain permitted transfers within their respective capital groups. If a change of control event affects any Shareholder, the other Shareholders will be entitled to purchase the Shares of such affected Shareholder pro rata to their respective shareholdings in P4.

The amended Shareholders Agreement includes standard procedures governing the sale of the Shares by the Shareholders following the lock-up period until August 23, 2008. If the Shareholder affected by the change-of-control event wishes to dispose of its Shares, the other Shareholders will be entitled to require the prospective third-party buyer to purchase their Shares on the same terms and pro-rata to the Shares sold by such Shareholder. Furthermore, should Novator select to sell its entire shareholding in P4, it will be entitled to require the other Shareholders to sell all of their on the same terms. The observance of these provisions is secured with contractual penalties of EUR 25 million. The payment of such contractual penalties does not exclude the rights of the parties to the amended Shareholders Agreement to claim damages in an amount exceeding the amount of such penalties. Any transfers of the Shares in breach of the Share transferability restrictions will be ineffective vis-à-vis P4.

The Agreement contains a list of specific matters requiring unanimous approvals from the Shareholders regarding potential alterations to the share capital structure, issuing securities, disposals and acquisitions of assets, certain business, commercial and accounting matters, indebtedness levels and dividend payouts. If, at any time, any P4 Shareholder which is a member of the Novator or Tollerton group transfers any P4 shares to a person who is not a party to the amended Shareholders Agreement, all resolutions of the shareholders’ meeting will require the consent of Netia Mobile, and all resolutions of the Supervisory Board will require the consent of all Supervisory Board members appointed by Netia Mobile.

If, after the lapse of the lock-up period until August 23, 2008, certain key issues regarding the management of P4’s affairs have not been successfully agreed upon, the amended Shareholders Agreement includes an option for Novator to purchase the Shares held by Netia Mobile and Tollerton at market price plus 10%, and an option for Netia Mobile and Tollerton to sell such Shares to Novator at market price with a 10% discount.

The Investment Agreement and the amended Shareholders Agreement specify the key principles of commercial cooperation of Netia and the Distribution Companies based on which the Issuer and P4 will conclude commercial contract providing for Netia’s access to the Distribution Companies’ sales network.

The amended Shareholders Agreement shall expire following the sale of all Shares by the Shareholders in accordance with its provisions. The amended Shareholders Agreement provides for restrictions on competitive activity, a confidentiality undertaking, and a ban on employee recruitment during an agreed period following the expiration of the Shareholders Agreement. The Shareholders accept an option of P4’s conversion into a joint stock company, however, not earlier than after August 23, 2007, and an option to introduce P4’s shares to public trading after August 23, 2008.

The Issuer considers the Investment Agreement to be a significant agreement, as its value exceeds 10% of the Issuer’s equity.

Key implications for the Issuer

  1. The Issuer will have guaranteed long-term access to the distribution network for products from the fixed-line segment offered by the Issuer.
  2. Netia’s associate company, P4, gains access to leading national distribution network of over 225 stores together with the continuing use of the Germanos brand name.
  3. The P4 joint venture is strengthened by the addition of a second strategic investor with proven know-how in mobile phone retailing, distribution, logistics and procurement.