The currently binding incentive scheme for the Netia Group (an employee share option scheme) was approved by Netia’s supervisory board in 2002 (“the Scheme”). The Scheme is aimed at encouraging, retaining and motivating participants and to align their interests directly with those of the shareholders. Scheme participants are granted options for the Company’s series K shares for new issue. The number of series K shares which can be issued for the purposes of the Scheme may not exceed 18,373,785. The total number of series K shares issued through June 30, 2008 was 5,054,520.

The execution of the Scheme has been entrusted to Netia’s supervisory board. To the extent provided for in the Scheme, the supervisory board, at its exclusive discretion, shall make decisions relating to, among other things, participation in the Scheme, the allotment of options, and the terms & conditions of their being exercised. The Company’s management board may present the supervisory board with recommendations related to other employees’ participating in the Scheme.

In 2007, to motivate members of the management board and senior manager to build Netia’s value, the supervisory board awarded a total of 38,000,000 stock options to members of Netia’s management board (in three tranches with the strike prices of PLN 5.50, PLN 7.00 and PLN 8.25, respectively). Furthermore, the supervisory board has consented to the granting of a total of 15,700,000 options to Netia’s senior managers (in two tranches and the strike prices for the particular tranches of options are: PLN 5.50 and PLN 7.00 respectively). In parallel, Netia’s supervisory board authorized the President of the management board to grant options to senior managers.

As at June 30, 2008, the total number of options approved by the supervisory board and issued was 64,696,220, out of which 42,769,873 options were outstanding. As at June 30, 2008, the total number of vested options was 8,814,229. The vesting period for the options is up to three years from the date of grant. All the outstanding options are exercisable until December 20, 2012. Upon exercise of the options, Netia issues to each exercising participant the number of shares representing such participant’s gain resulting from the exercise of the options, being the difference between the exercise price of Netia’s shares and the strike price of the options. The participant is not required to pay the strike price, ranging from PLN 4.71 to PLN 8.25

Netia recognizes the cost of share-based awards to employees (including share options) over the vesting period and the fair value of options is determined using a binomial pricing model. The cost of options recorded in the six-month period ended June 30, 2008 amounted to PLN 7.2 million. The Company estimates that the cost of the unvested options will amount to PLN 5.9 million during the second half of 2008, PLN 7.9 million in 2009 and PLN 2.6 million in 2010.