Donaldson, Lufkin & Jenrette

Transcription

1 Prospectus June 2, 2000 Netia Holdings S.A. 1,125,000 American Depositary Shares Representing 1,125,000 Ordinary Shares The Company: Trading in the ADSs on the Nasdaq National We are the largest alternative provider of Market will be subject to cancellation until the fixed-line telecommunications services in Poland. registration by the Commercial Court in Warsaw Netia Holdings S.A. of the capital increase of the ordinary shares ul. Poleczki 13 represented by the ADSs and our receipt of the Warsaw, Poland proceeds from certain concurrent equity transactions described below. If trading is Symbol & Markets: cancelled, we will refund the public offering price, Our ADSs are listed on the Nasdaq National together with accrued interest, to the holders of Market under the symbol NTIA and on the the ADSs at the time of such cancellation, Stock Exchange Automated Quotation System of regardless of the then-prevailing market price of the London Stock Exchange. Prior to the the ADSs. registration by the Commercial Court in Warsaw of the capital increase of the ordinary shares Certain of our shareholders have granted the represented by the ADSs and the delivery of those underwriters options to purchase an aggregate of ordinary shares to the Depositary for the ADSs, 160,000 shares solely to cover over-allotments. the ADSs sold in this offering will trade on the Nasdaq National Market with the temporary Closing: June 7, symbol NTIAV. On June 1, 2000, the last reported sale price of Concurrent Transactions: our ADSs on the Nasdaq National Market was $ per ADS. Concurrently with this offering, we are offering We have been approved to list our ordinary shares 1,125,000 of our ordinary shares in Poland. Our on the Warsaw Stock Exchange. largest shareholder, Telia AB (publ.), has agreed to purchase 2,250,000 of our ordinary shares, Use of Proceeds: subject to certain customary conditions. Our We plan to use the proceeds from this offering for wholly owned finance subsidiary, Netia Holdings II the build-out of our network, the payment of license fee obligations and general corporate B.V., is offering 200,000,000 of % Senior purposes. Notes due 2010, which will be guaranteed by us. The Offering: This offering is conditional on the completion of Each ADS represents one ordinary share of Netia our Polish offering and Telia s purchase of our Holdings S.A. shares, but not on the completion of the senior We are offering 1,125,000 ADSs. notes offering. Per ADS Total Public offering price:... $ $28,125,000 Underwriting fees:... $ $ 984,375 Proceeds to Netia:... $ $27,140,625 This investment involves risk. See Risk Factors beginning on page 15. Neither the Securities and Exchange Commission nor any state securities commission has determined whether this prospectus is truthful or complete. They have not made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. CA IB Investmentbank Global Coordinator Donaldson, Lufkin & Jenrette DLJdirect Inc. HSBC Investment Bank

2

3 TABLE OF CONTENTS Summary... 1 Risk Factors Presentation of Financial Information Exchange Controls and Other Limitations Affecting Security Holders Use of Proceeds Market Price for Our Ordinary Shares Dividend Policy Dilution Capitalization Unaudited Pro Forma Condensed Consolidated Financial Information Selected Consolidated Statement of Operations and Balance Sheet Data Management s Discussion and Analysis of Financial Condition and Results of Operations The Polish Telecommunications Industry Business Telecommunications Regulations Management Principal and Selling Shareholders Certain Transactions Description of Capital Stock Description of American Depositary Shares Shares Eligible for Future Sale Tax Considerations Underwriting Notice to Canadian Residents Notice to European Residents Settlement and Delivery Validity of Securities Experts Additional Information Enforceability of Certain Civil Liabilities Incorporation of Certain Information by Reference Glossary of Selected Telecommunications Terms... G-1 Index to the Consolidated Financial Statements... F-1 Page In connection with the offering, DLJ International Securities or its affiliates may, on behalf of the underwriters, over-allot or effect transactions which stabilize or maintain the market price of the securities at a level which might not otherwise prevail in the open market. Such transactions may be effected on the Nasdaq National Market or otherwise. Such stabilizing, if commenced, may be discontinued at any time. DLJ International Securities does not intend to disclose the extent of any stabilizing transactions or the amount of any long or short position. i

4 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements appear in a number of places in this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, the build-out of our telecommunications network; the development of the Polish telecommunications market; the growth in demand for business Internet services; our plans for the development of our business, including our plans to provide voice telephone service in Warsaw, domestic long distance service and expanded Internet services; our financing plans and our need for substantial capital resources to build our network and fund our operating losses; trends affecting our financial condition or results of operations; the impact of competition on our business; and changes in the regulatory environment affecting our business. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained in this prospectus identifies important factors that could cause such differences. You should read Risk Factors for a discussion of some of these factors. We undertake no obligation to publicly update or revise any forward-looking statements. ii

5 SUMMARY This summary may not contain all the information that may be important to you. You should read this entire prospectus, including the financial data and related notes, before making an investment decision. In particular you should carefully consider the factors set forth under the heading Risk Factors. The terms Netia, the Company and we as used in this prospectus refer to Netia Holdings S.A. and its subsidiaries as a combined entity, except where we make clear that such terms mean only Netia Holdings S.A. Overview We are the leading alternative fixed-line telecommunications provider in Poland. We own, operate and are continuing to build a state-of-the-art fiber-optic network, which currently spans approximately 2,300 route kilometers (1,429 miles) and connects approximately 270,000 active subscriber lines, including over 50,000 business lines. We provide a broad range of telecommunications services including voice, data and Internet-access services. Our goal is to be the preeminent national provider of integrated telecommunications and Internet solutions to the business, premium residential and carriers carrier markets in Poland. We are expanding our current Internet-access business with the roll-out of our branded service, Internetia, and we aim to become Poland s leading full service nationwide provider of Internet and Internet-related products and services. We have focused on servicing Poland s growing business market. Business customers accounted for 21.0% of our total subscriber lines at March 31, 2000, up from 20.5% at December 31, 1999 and 14.7% at December 31, During the three-month period ended March 31, 2000, business customers accounted for approximately 29.0% of our new subscriber lines. In July 1999, we became the first Polish company to list its shares on the Nasdaq National Market ( Nasdaq ). We currently provide local voice telephone service in 21 territories throughout Poland, including in five of Poland s ten largest cities (Katowice, Krakow, Gdansk, Lublin and Poznan). We recently won a tender for a license to provide local voice telephone service in Warsaw, the capital of Poland and the country s largest city. Approximately 40% of the population of Poland and approximately 70% of the population living in Poland s ten largest urban areas live in our local voice license territories and Warsaw. Our voice telephone services include switched, fixed-line voice telephone service, ISDN and voice mail. We have started to provide Internet-access and data services in major urban areas and expect to begin offering domestic long distance telephone service to the Polish market over our network, initially in Poland s 12 largest cities, in We also offer leased lines in connection with our voice, Internet and data services. We intend to expand our services to include additional value-added Internet services, such as voice over Internet protocol ( VoIP ), virtual private networks, web design, web hosting and co-location services; data services, including LAN-to-LAN and frame relay; and upon completion of our national backbone, carrier s carrier transmission services. We are operating and continuing to construct intra-city fiber-optic networks in our licensed territories, including in five of Poland s ten largest cities, and in the suburbs of Warsaw. In Warsaw and the remaining four of Poland s ten largest cities, we are constructing fiber-optic networks with a view towards completing those networks by We are also constructing broadband radio access networks in several large cities, including Warsaw, using radio frequency spectrum we acquired in February These radio access networks will allow us to rapidly connect business customers while our intra-city fiber-optic networks are being constructed and will continue to complement our fiber-optic networks when they are completed. We have commenced the construction, and at December 31, 1999, had completed approximately 1,650 route kilometers of a planned 3,500 route kilometer national inter-city fiber-optic backbone which we plan to complete by the end of This backbone network will link Poland s ten largest cities in addition to other cities along the backbone s route. Using this network infrastructure, we plan to maximize our penetration of the growing market for telecommunications and Internet solutions in Poland. We believe that this market includes an increasing number of customers operating in multiple locations who require advanced value-added services such as Internet and data 1

6 services. The advanced technology of our network, combined with our emphasis on superior customer service, have allowed us to provide our customers with reliable, high-quality services and to compete successfully with our principal competitor, Telekomunikacja Polska S.A. ( TPSA ), the state-controlled telecommunications carrier. Upon its completion, our national backbone will have substantial capacity, and we intend to offer wholesale (i.e., carrier s carrier) services, which we believe will give us a significant opportunity to enhance our operating margins and leverage our investment in our infrastructure. We plan to provide international inbound termination, international data, Internet protocol ( IP ) access and transmission and managed bandwidth services and leased capacity to other carriers among other wholesale services. In addition, our substantial capacity will give us the flexibility to sell or swap capacity and dark fiber, domestically and internationally, with a view to being the leading alternative bandwidth provider in the Polish carriers carrier market. The Internet is starting to make an impact in Poland and Internet usage is expected to grow at an estimated annual rate of 28% through 2004 (source: International Data Corporation, 1999). In September 1999, we acquired TopNet S.A. ( TopNet ), one of Poland s pioneering Internet service providers ( ISPs ), to increase our presence in the Internet market. We are building upon this acquisition to expand our current Internet access services and plan to offer our customers reliable high-speed Internet access both on a dial-up and dedicated-line basis, which we will make available through ISDN or digital subscriber line ( DSL ) connections. We have established Internet points of presence ( POPs ) in 28 cities and expect to have POPs in each of Poland s ten largest urban areas by the end of We launched Internetia, our branded Internet access service, in seven cities in April We intend to integrate our access services with a content-rich consumer portal. We believe our integrated access and portal service has the potential to generate additional revenue from e-commerce applications and advertising. In addition, we plan to offer web hosting and are developing intranet, extranet and other services for business customers including a business portal which will support business-to-business applications and transactions. We will enhance the content of our portals by pursuing joint ventures with experienced content providers, such as media companies. We expect that when we complete our fiber-optic backbone, we will be able to provide transmission services for third-party ISPs and thereby increase our network utilization and improve our operating margins. 2

7 Operating Data The following table sets forth operating data that demonstrate our continuing growth: As of and for the Three- As of and for the Year Ended December 31, Month Period Ended March , 2000 Network Data: Installed capacity(1)... 11,400 30, , , , ,641 Connected lines(2)... 9,200 28, , , , ,421 Digital switches Subscriber Data: Subscriber lines(3)... 8,258 18,290 63, , , ,912 Billable units (in millions)(4)... N/A Average monthly revenue per line (PLN)(5) Average monthly revenue per business line (PLN)(6)... N/A N/A Period incremental business/total customer mix(7)... N/A 8.3% 9.1% 19.4% 28.7% 29.0% Cumulative business/total customer mix(8)... N/A 6.8% 8.4% 14.7% 20.5% 21.0% (1) Installed capacity represents the number of active lines our switching nodes have the capacity to accommodate after testing and technical acceptance at the end of the referenced periods. Installed capacity is the benchmark used by the Minister of Communications of Poland (the MOC ) to measure compliance with the build-out milestones contained in our licenses. (2) Connected lines represents the number of lines that have been connected to our switching nodes and for which we had interconnection agreements with TPSA at the end of the referenced periods. (3) Subscriber lines represents the number of connected lines generating revenue at the end of the referenced periods. (4) Billable units ( pulses ) represent the aggregate units of measurement for which we billed our customers for each of the referenced periods. (5) Average monthly revenue per line is obtained by dividing the amount of monthly sales of service (excluding installation fees) by the average number of subscriber lines, in each case, for the last month of the referenced period. (6) Average monthly revenue per business line is obtained by dividing the amount of monthly sales of service to business customers (excluding installation fees) by the average number of subscriber business lines, in each case, for the last month of the referenced period. (7) Period incremental business/total customer mix represents the number of subscriber business lines added during the referenced periods as a percentage of total subscriber lines added during those periods. (8) Cumulative business/total customer mix represents the number of subscriber business lines as a percentage of total subscriber lines at the end of the referenced periods. 3

8 Our Strengths We have competitive strengths that we believe will allow us to continue to grow and position us to take advantage of the significant unmet demand for high-quality telecommunications and Internet services in Poland. These strengths include the following: Established Market Position. We believe that our significant size, marketing, sales and customer service experience and positive brand recognition give us a competitive advantage over other alternative providers, many of whose networks and operations are at earlier stages of development than ours. Significant Shareholder Support and Expertise. Our principal shareholder, Telia AB (publ.) ( Telia ), one of Europe s leading telecommunications providers, has provided us and continues to provide us with significant support in the development of our operations through a broad range of strategic, financial and operational initiatives. Technologically Advanced Digital Network. We believe that our fully digital, high-capacity fiberoptic network allows us to provide our customers with a significantly higher quality of telephone service than is generally available in much of Poland and positions us to serve the growing demand for Internet, data and carrier s carrier services. Attractive License Portfolio. We benefit from an array of licenses which allow us to provide bundled telecommunications services. Our licensed local voice telephone territories and Warsaw rank among the most economically developed in Poland, have a relatively high concentration of businesses and collectively have a gross domestic product per capita that is higher than, and an unemployment rate that is lower than, the national average. Favorable License Terms. We have generally secured our existing licenses on relatively attractive terms as compared to other alternative operators. Superior Customer Service. We believe we provide a level of customer service superior to that offered by our principal competitor, TPSA. Experienced Management. Our senior management team has extensive experience in the management of both Western and Polish corporations involved in the telecommunications, media and technology sectors. In addition to the above strengths, we believe that Poland is an attractive telecommunications market for alternative telecommunications providers. Poland is one of the fastest-growing economies in Europe and had real gross domestic product annual growth rates of 6.9%, 4.8% and 4.1% in 1997, 1998 and 1999, respectively. Moreover, we believe that there is substantial unmet demand for telecommunications services in Poland, as evidenced by a low fixed-line telephone penetration rate and generally long waiting periods for the connection of telephone services. Poland s fixed-line telephone penetration rate was approximately 25.0% as of December 31, 1999, which is significantly lower than penetration rates in Western Europe. Since the enactment of the Polish Telecommunications Act of 1990, as amended (the Communications Act ), the Polish government has been liberalizing the regulatory environment, and we believe that recent and anticipated changes in Poland s regulatory regime will further improve the competitive and regulatory environment for alternative providers, such as Netia. 4

9 Our Strategy We intend to build upon our position as the leading alternative fixed-line telecommunications operator in Poland to become the country s preeminent provider of bundled voice, data and Internet services. To accomplish this objective, we intend to focus on the following key areas: Complete National Backbone and Expand Network. We are focusing on completing the construction of a national fiber-optic backbone which will link the intra-city networks we are constructing in Poland. We are also continuing to develop intra-city networks in Poland s ten largest cities. Target High Revenue-Generating Customers. We intend to primarily target business and high revenue-generating residential customers. Focus on Providing Internet Services in Poland. We plan to offer a complete suite of Internet services, including our Internetia branded Internet access and consumer portal service as well as web design, web hosting, co-location services, business portals and e-commerce applications to business customers. Expand Our Telecommunications Services. We intend to provide our target customers with a broad range of advanced value-added telecommunications solutions. Enter Carriers Carrier Market. We plan to generate additional revenue by selling unused network capacity to third parties either as managed bandwidth or dark fiber. Provide Superior Service at Competitive Prices. We intend to build a competitive advantage by offering services that are consistently superior to those available from TPSA at competitive prices. Pursue Strategic Initiatives. We intend to continue to seek to expand the scope of our services including, possibly, providing international long distance service and third-generation mobile services, and to explore selected acquisitions of other telecommunications operators as well as opportunities for joint ventures with other providers and users of telecommunications services. Recent Developments Equity Transactions In April 2000, we made an application to list our ordinary shares on the Warsaw Stock Exchange, and our application was approved on May 30, In connection with the listing and concurrent with this offering, we intend to offer our ordinary shares to the public in Poland (the Polish Offering ). In addition, our largest shareholder, Telia, has committed to purchase 2,250,000 newly issued ordinary shares of Netia at a price per share equal to the price per share being paid in the Polish Offering less the applicable underwriting discount, subject to there being no injunction or court order prohibiting the transaction (the 2000 Telia Capital Increase ). The completion of this offering will be conditional upon completion of the Polish Offering and the 2000 Telia Capital Increase. This offering, together with the 2000 Telia Capital Increase and the Polish Offering, are expected to result in the issuance of 4,500,000 shares and raise gross proceeds of $111.4 million, reflecting a $25.00 price per ADS for this offering, a PLN 110 price per share in the Polish Offering (less a 30% discount on 50,000 shares sold to employees) and a PLN price per share in the 2000 Telia Capital Increase. The issuance of ADSs in this offering and the issuance of shares in the Polish Offering and the 2000 Telia Capital Increase will be subject to the registration of the shares by the Commercial Court in Warsaw. This offering, the 2000 Telia Capital Increase and the Polish Offering are referred to collectively in this prospectus as the Equity Transactions. 5

10 Telia Share Acquisition On May 5, 2000, Telia agreed to purchase approximately 4.9 million ordinary shares from four existing principal shareholders of Netia for $35 per share (the Telia Purchase ). Assuming consummation of the Telia Purchase (which is subject to satisfaction of several conditions including approval of the Polish Securities and Exchanges Commission), the 2000 Telia Capital Increase, the Polish Offering and this offering, Telia would own approximately 47.6% of our outstanding capital stock. Notes Offering Concurrent with this offering, our wholly owned subsidiary, Netia Holdings II B.V., is planning to offer 200,000,000 aggregate principal amount of its % Senior Notes due 2010 (the Notes Offering ), which will be guaranteed by Netia Holdings S.A. We expect that the Notes Offering will be completed June 9, We cannot assure you as to whether or when the Notes Offering will be completed. New Telecommunications Law On May 12, 2000, the lower house of Poland s Parliament passed a new telecommunications law in a form similar to the draft law described in Telecommunications Regulations Overview Proposed New Telecommunications Law. The legislative process is not complete at this time, and to become effective, the new law must also be adopted by the upper house of Parliament and signed by the President of Poland. If adopted, the law is likely to become effective by January 1, The key provisions of the new law are the following: licenses and license fees will be replaced by permits and nominal fees, effective January 1, 2002; the market will be regulated by a dedicated regulatory agency ( Urzad Regulacji Telekomunikacji or URT ) rather than a ministry of the government; service prices and interconnection arrangements will be cost-based and legal safeguards will be introduced against dominant market participants abusing their position; and the new law will not contain any foreign ownership restrictions except, for a limited time, with respect to international telecommunications services. The new law sanctions the population s general right to universal telecommunications services, which could lead to obligations being imposed on Poland s telecommunications operators. The new law makes URT the sole distributor of scarce resources such as phone number zone allotments and radio spectrum frequencies. Warsaw License On May 23, 2000, the MOC announced that it would delay the completion of its proceedings concerning the award of a Warsaw license to Netia pending the MOC s determination that the award would not be detrimental to the interests of the national economy, defense or security of Poland or the security and personal interests of the citizens of Poland, as required under the Communications Act. The MOC announced that the matter will be decided by June 30, Our representatives have met with a representative of the MOC subsequent to this announcement. They were advised that the MOC is completing its internal procedures for awarding the license and is not aware of any impediment to our receipt of the license. While we expect to receive our Warsaw license by June 30, 2000, we cannot assure you that this will occur. Executive Offices Our principal executive office is located at ul. Poleczki 13, Warsaw, Poland, and our telephone number is

11 The Offering We are selling our shares in the form of ADSs. ADSs are American depositary shares that represent our ordinary shares. Each ADS will represent one ordinary share. The Bank of New York (the Depositary ) will administer the ADSs. Because ADSs usually make owning foreign shares easier, ADSs are commonly used in offerings by foreign companies. We are using them because we believe they will provide you with following benefits: ADSs will be priced in U.S. Dollars and will trade and settle using the same procedures as for shares of U.S. companies. Although we do not expect to declare dividends in the foreseeable future, the Depositary will. normally convert the cash dividends and other payments, if any, we make from Polish Zlotys to U.S. Dollars for you. The Depositary will also assist you in claiming refunds for any Polish withholding taxes. Were we to solicit your vote, we expect the Depositary will put in place procedures to allow you to instruct the Depositary on how to vote the shares, so you will not need to come to Poland or comply with Polish law to exercise your right to vote. We expect to make all information describing the current business of Netia that we file with the Securities and Exchange Commission (the Commission ) or distribute to our shareholders available in English. The Depositary will make this information available in the United States. We will also ask the Depositary to send you annual reports and information on shareholder meetings that we furnish to investors. Although you must pay any applicable fees associated with owning ADSs, you will not need to make special custody arrangements and pay custody fees to hold the shares in Poland. ADSs representing ordinary shares offered... 1,125,000 ADSs. Ordinary shares outstanding after this offering, the Polish Offering and the 2000 Telia Capital Increase... 31,419,172 ordinary shares. Offering Price... $25.00 per ADS. Ordinary shares represented by one ADS... One ordinary share. Concurrent Equity Transactions... We are concurrently conducting the Polish Offering and Telia has committed to purchase 2,250,000 shares in the 2000 Telia Capital Increase. This offering and the other Equity Transactions will result in the issuance of an aggregate of 4,500,000 shares, if completed, and this offering is conditional on the closing of the other Equity Transactions. Concurrent Notes Offering... Over-allotment Option... We are offering 200 million aggregate principal amount of % senior notes of Netia Holdings II B.V. (the New Notes ) concurrently with this offering. Completion of this offering is not contingent upon completion of the Notes Offering. Certain of our shareholders (the Selling Shareholders ) have granted the underwriters options to purchase an aggregate of 7

12 Use of Proceeds... Listing and Quotation... Nasdaq Symbol... Risk Factors... Dividends... Lockup Agreements... Voting Rights... Settlement and Delivery ,000 shares solely to cover over-allotments. See Principal and Selling Shareholders and Underwriting. The net proceeds we will receive from this offering will be approximately $27.1 million. We intend to use these net proceeds principally to fund a portion of the capital requirements for the build-out of our network, including capital expenditures and license fees, to finance our working capital requirements and operating costs and for other general corporate purposes. See Risk Factors We Will Need Significant Additional Capital. Our ADSs are listed on Nasdaq and on the Stock Exchange Automated Quotation System operated by the London Stock Exchange ( SEAQ International ). In connection with the Polish Offering, our ordinary shares have been approved for listing on the Warsaw Stock Exchange. NTIA. Prior to the registration by the Commercial Court in Warsaw of the capital increase of the ordinary shares represented by the ADSs and the delivery of the ordinary shares to the Depositary for the ADSs, the ADSs sold in this offering will trade on Nasdaq with the temporary symbol NTIAV. For a discussion of certain factors that should be considered in evaluating an investment in the ADSs, see Risk Factors. We currently anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business. In addition, the instruments governing our existing debt, as well as provisions of Polish law, restrict (and may effectively prohibit) us from paying any dividends for the foreseeable future. See Dividend Policy. Netia, Telia, E.M. Warburg Pincus & Co LLC ( Warburg ), certain other shareholders and certain members of Netia s management have agreed with the underwriters that they will not, subject to certain exceptions, directly or indirectly, offer, sell, grant any option to purchase or otherwise dispose or contract to dispose of any ordinary shares or ADSs or any securities of Netia convertible into, or exchangeable or exercisable for, ordinary shares or ADSs for a period of 180 days (in the case of Telia) and 90 days (in all other cases) after the Closing Date (as defined below) without the prior consent of the Global Coordinator. One ADS will entitle its holder to vote in respect of one ordinary share. As a holder of ADSs, you must follow certain procedures in order to exercise the voting rights pertaining to the ordinary shares represented by your ADSs. See Description of American Depositary Shares Voting of Deposited Securities and Disclosure of Interests and Risk Factors Polish Law May Limit Your Voting Rights as a Holder of ADRs. You must pay for the ADSs in same-day funds in U.S. Dollars on the closing date of this offering, which is expected to be on or 8

13 about June 7, 2000 (the Closing Date ). Delivery of the ordinary shares represented by the ADSs will be made to a custodian for The Bank of New York, as Depositary, following the Registration Date (as defined below) and is subject to the registration by the Commercial Court in Warsaw of the capital increase (the Capital Increase ) needed to permit Netia to issue the ordinary shares represented by the ADSs in this offering, the Polish Offering and the 2000 Telia Capital Increase. The registration of the Capital Increase by the Commercial Court in Warsaw and the delivery of the ordinary shares represented by the ADSs to the custodian for the Depositary are referred to herein as the Registration. Although the ordinary shares to be issued and delivered to the Custodian (as defined under Description of American Depositary Shares ) on the Closing Date will not be in existence on the Closing Date, we expect that the American Depositary Receipts (the ADRs ) will be issued by the Depositary, subject to cancellation in the circumstances described below, and that delivery of the ADSs will be made through the facilities of The Depository Trust Company ( DTC ) (and through its participants, including Clearstream Banking ( Clearstream ) and Euroclear) on or about the Closing Date. Between the Closing Date and the completion of the Registration (the Registration Date ), all funds paid in respect of the ADSs will be held in escrow pursuant to the terms of an escrow agreement to be entered into on the Closing Date (the Escrow Agreement ) among Netia, the underwriters and ABN AMRO Bank (Polska) S.A. (the Escrow Agent ). If the Registration does not occur or the net proceeds of the Polish Offering or the 2000 Telia Capital Increase have not been received by Netia within ninety (90) days after the Closing Date (i.e., on or prior to September 5, 2000) or such later termination date as Netia and the Global Coordinator may agree (the Termination Date ), this offering will be terminated, the ADSs will be cancelled, and the Escrow Agent will release all funds paid in respect of the ADSs together with any interest accrued on such funds for the period from the Closing Date to the Termination Date, to the Depositary. It is expected that if the registration of the Capital Increase has occurred but the issuance of shares to the Custodian has not occurred on or prior to September 5, 2000, that the Termination Date will be extended. We anticipate that trading in the ADSs sold in this offering on Nasdaq will commence on a regular way basis pursuant to normal settlement procedures on the Closing Date, but will remain subject to cancellation unless the Registration occurs before the Termination Date. Until the Registration Date, you will not be entitled to instruct the Depositary to exercise any rights on your behalf as a 9

14 Temporary Deposit Facility... Escrow Agreement... shareholder of Netia, and the Depositary (or its nominee) will not be entitled to exercise any rights as a shareholder. You may not withdraw or deposit ordinary shares or other property with the Depositary in respect of the ADSs sold in this offering pursuant to the Deposit Agreement (as defined under Description of American Depositary Shares ) prior to the Registration Date. See Escrow Agreement and Risk Factors There Are Uncertainties Regarding Registration of the Capital Increase. Your ability to withdraw ordinary shares in respect of the ADSs will be subject to the receipt by the Depositary of a permit from the Polish Securities and Exchanges Commission to transfer such shares from the custodian for the Depositary to you. Delivery of ordinary shares of Netia will only be available in book-entry form through the Polish National Depositary of Securities or an entity that maintains an account with that depositary. The ADSs being issued in this offering are subject to cancellation if the Registration is not completed with the Commercial Court in Warsaw within 90 days. The ADSs we issued in our 1999 initial public offering have already received the necessary approvals, and are therefore not subject to cancellation. To facilitate a distinction between our outstanding ADSs and the ADSs issued in this offering, the Depositary is establishing a temporary depositary facility for the newly issued ADSs. This temporary facility provides that the ADSs issued in this offering will be automatically exchanged into ADSs under our existing depositary agreement following successful completion of the Polish Registration process. During the period prior to the Registration, the ADSs sold in this offering will trade separately on Nasdaq with the temporary symbol NTIAV. During such time, the ADSs sold in this offering will also have a separate CUSIP number from our existing ADSs. Following the Registration, the ADSs sold in this offering will trade together with our existing ADSs under our symbol NTIA with no special designations and will have the same CUSIP. See Description of American Depositary Shares. Under Polish law, the ordinary shares underlying the ADSs we offer in this prospectus may not be issued until payment for the ordinary shares is made and the capital increase for the shares is registered by the Commercial Court in Warsaw. Accordingly, as noted above under Settlement and Delivery, prior to the completion of the Polish Registration process, all sums paid in respect of the ADSs will be held in an escrow-type account pursuant to the terms of the Escrow Agreement. The Escrow Agreement will provide that, pending the Registration, the proceeds of this offering will be either (i) deposited in a U.S. Dollar-denominated bank account with the Escrow Agent (who may invest in interbank deposits approved by the Global 10

15 Coordinator and Netia) or (ii) invested in U.S. government securities to be held by the Escrow Agent. In the event the Registration does not occur or the net proceeds of the Polish Offering or the 2000 Telia Capital Increase have not been received by Netia on or prior to the Termination Date, (i) Netia shall issue a press release and notify the Depositary, the Escrow Agent, the underwriters and Nasdaq of the termination of this offering by the close of business on the Termination Date, and (ii) the Escrow Agent shall release all funds paid in respect of the ADSs, together with any interest accrued thereon from the Closing Date to the Termination Date to the Depositary. The Depositary shall (i) as promptly as practicable give notice to the then holders of the ADRs that the ADSs sold in this offering are cancelled with effect from the Termination Date and (ii) pay on a pro rata basis to the holders of the ADRs on the Termination Date, the funds received by it from the Escrow Agent. If the Registration does not occur, the amount returned to the holders of the ADRs on the Termination Date will represent the offer price for the ADSs (including any interest thereon) regardless of the then prevailing market prices for the ADSs. See Risk Factors There Are Uncertainties Regarding Registration of the Capital Increase and the section entitled Settlement and Delivery. 11

16 Summary Consolidated Statement of Operations and Balance Sheet Data The following summary consolidated statement of operations and balance sheet data have been derived from our audited consolidated financial statements as of December 31, 1998 and 1999 and for the three years ended December 31, 1999 (together, in each case, with the notes thereto, the December 31, 1999 Financial Statements ) and the unaudited interim condensed consolidated financial statements as of March 31, 1999 and 2000 and for the three-month periods ended March 31, 1999 and 2000 (together, in each case, with the notes thereto, the March 31, 2000 Financial Statements ) included elsewhere in this prospectus. We have prepared the December 31, 1999 Financial Statements and the March 31, 2000 Financial Statements (collectively, the Financial Statements ) in accordance with International Accounting Standards ( IAS ), which differ in certain important respects from U.S. generally accepted accounting principles ( U.S. GAAP ). You should read note 22 to the December 31, 1999 Financial Statements and note 11 to the March 31, 2000 Financial Statements for a discussion of these differences as they relate to us. The summary consolidated statement of operations and balance sheet data should be read in conjunction with Unaudited Pro Forma Condensed Consolidated Financial Information, Management s Discussion and Analysis of Financial Condition and Results of Operations, and the. Financial Statements included elsewhere in this prospectus. For your convenience, certain Polish Zloty amounts as of and for the year ended December 31, 1999 and as of and for the three-month period ended March 31, 2000 have been converted into U.S. Dollars at the rate of PLN per $1.00 (the effective exchange rate quoted by the National Bank of Poland (the NBP ) on March 31, 2000). You. should not view such translations as a representation that such Polish Zloty amounts actually represent such U.S. Dollar amounts or could be or could have been converted into U.S. Dollars at the rates indicated or at any other rate. At May 29, 2000, the Zl. oty exchange rate as quoted by the NBP was PLN 4.52 per $

17 For the Three-Month Period Ended For the Year Ended December 31, March 31, (Unaudited) (Unaudited) (Unaudited) PLN PLN PLN $ PLN PLN $ (in thousands, except per share data) Statement of Operations: Revenues: Telecommunication revenues.. 35,564 96, ,711 52,552 39,784 87,032 21,008 Other revenues(1)... 14,642 23,945 31,386 7,576 5,109 8,206 1,981 Total revenues... 50, , ,097 60,128 44,893 95,238 22,989 Costs and expenses: Interconnection charges... (5,692) (22,900) (61,994) (14,965) (10,439) (25,965) (6,268) Cost of equipment... (6,975) (11,425) (11,924) (2,878) (1,241) (3,632) (877) Depreciation and amortization. (16,926) (41,040) (119,163) (28,764) (22,018) (38,563) (9,308) Other operating expenses(2)... (86,901) (124,317) (190,558) (45,997) (34,714) (55,814) (13,473) Total costs and expenses.. (116,494) (199,682) (383,639) (92,604) (68,412) (123,974) (29,926) Loss from operations... (66,288) (79,302) (134,542) (32,476) (23,519) (28,736) (6,937) Financial expense, net(3)... (32,681) (151,596) (292,574) (70,662) (194,894) (31,102) (7,508) Write-off of loan origination expenses... (24,241) Other losses... (1,148) (550) (133) (62) Gain on dilution of interest in subsidiaries... 2,137 Income tax (charge)/benefit... (1,055) (8,802) 9,646 2,328 2,976 (4,501) (1,086) Minority share in losses/(gains) of subsidiaries... 36,703 35,353 (911) (220) (31) (7) Net loss... (85,425) (205,495) (418,931) (101,123) (215,499) (64,370) (15,538) Basic and diluted net loss per ordinary share(4)... (9.46) (19.78) (22.48) (5.43) (19.25) (2.45) (0.59) U.S. GAAP Revenues... 50, , ,097 60,128 44,893 95,238 22,989 Loss from operations... (68,047) (86,743) (154,249) (37,233) (26,895) (34,305) (8,281) Net loss... (90,530) (214,363) (537,463) (129,734) (219,698) (70,461) (17,008) Basic and diluted net loss per ordinary share (4)... (10.02) (20.63) (28.84) (6.96) (19.62) (2.68) (0.65) Other Data: EBITDA(5)... (49,362) (38,262) (15,379) (3,712) (1,501) 9,827 2,372 Net cash (used in)/provided by operating activities... (89,836) (156,413) (69,060) (16,670) (16,504) 16,297 3,934 Net cash used in investing activities... (393,264) (480,319) (970,522) (234,267) (124,454) (176,848) (42,688) Net cash (used in)/provided by financing activities... 1,390,819 (1,688) 1,727, ,019 93,923 Capital expenditures , , , , , ,848 42,688 As at March 31, 2000 Actual As Adjusted (10) Actual As Adjusted (10) PLN PLN $ $ (Unaudited, in thousands) Balance Sheet Data: Total cash(6) ,417 1,960, , ,133 Total assets(7)... 3,836,358 5,103, ,030 1,231,775 Total long-term debt(8)... 2,735,720 3,528, , ,771 Other long-term liabilities for licenses(9) , ,111 49,269 49,269 Total long-term obligations... 2,939,831 3,732, , ,040 Total shareholders equity ,722 1,086, , ,229 Total shareholders equity (U.S. GAAP) , , , ,901 13

18 (1) Consists primarily of the provision of specialized mobile radio services and sales of related equipment. In 1997, we sold the part of our other businesses relating to the sale of specialized radio equipment. (2) Other operating expenses include salaries and benefits, general and administrative and external services. See the Financial Statements included elsewhere in this prospectus. (3) Includes non-cash financial expense arising on discount notes of PLN 13.2 million, PLN 84.6 million, PLN million ($25.6 million), PLN 24.9 million and PLN 27.3 million ($6.6 million) for the years 1997, 1998 and 1999 and for the threemonth periods ended March 31, 1999 and 2000, respectively. (4) Basic and diluted net loss per ordinary share under IAS and U.S. GAAP is calculated by dividing net loss by the weighted average number of shares of Netia s capital stock outstanding during each period. The weighted average number of shares used in calculating the net loss per share were 9,033, 10,391 and 18,633, 11,196 and 26,261 for the years ended December 31, 1997, 1998 and 1999 and for the three-month periods ended March 31, 1999 and 2000, respectively. (5) Netia defines EBITDA to be net income (loss) as measured by IAS adjusted for depreciation and amortization, financial expense, income taxes, minority interest, share of losses of equity investees and non-recurring items (other losses and gains on dilution). EBITDA computed based on the foregoing elements determined in accordance with U.S. GAAP would be PLN (51.1) million, PLN (45.3) million, PLN (38.2) million ($(9.2) million), PLN (3.3) million and PLN 1.6 million ($0.4 million) for the years ended December 31, 1997, 1998 and 1999 and for the three-month periods ended March 31, 1999 and 2000, respectively. We believe EBITDA and related measures of cash flow from operating activities serve as useful supplementary financial indicators in measuring the operating performance of telecommunications companies. EBITDA is not a U.S. GAAP or IAS measure and should not be considered as an alternative to U.S. GAAP or IAS measures of net income/(loss) or as an indicator of operating performance or as a measure of cash flows from operations under U.S. GAAP or IAS or as an indicator of liquidity. Potential investors should note that EBITDA is not a uniform or standardized measure, and the calculation of EBITDA, accordingly, may vary significantly from company to company and by itself provides no grounds for comparison with other companies. (6) Total cash does not include restricted investments. (7) Total assets on a U.S. GAAP basis would be PLN 3.8 billion ($912.2 million) at March 31, (8) Includes current and long-term portion of long-term debt. The amount reflected would not differ under U.S. GAAP. (9) Includes current and long-term portion of liabilities for licenses and customer deposits, excluding the Warsaw and domestic long distance licenses. The amount reflected would not differ under U.S. GAAP. (10) Adjusted to give effect to (i) this offering, (ii) the issuance of the New Notes, (iii) the other Equity Transactions and (iv) the application of the net proceeds therefrom. 14

19 RISK FACTORS You should consider carefully the risks described below before making an investment decision. These risks are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. In general, investing in the securities of issuers with substantial operations in markets such as Poland involves a higher degree of risk than investing in the securities of issuers with substantial operations in the United States and other similar jurisdictions. We Are Experiencing Operating Losses We incurred net losses of PLN 85.4 million, PLN million, PLN million ($101.1 million) and PLN 64.4 million ($15.5 million) for the years 1997, 1998 and 1999, and for the first three months of 2000, respectively. We had negative operating cash flows of PLN 89.8 million, PLN million and PLN 69.1 million ($16.7 million) for the years 1997, 1998 and 1999, respectively. At March 31, 2000, we had an accumulated deficit of PLN million ($201.7 million). Our future success depends upon the successful construction, marketing and operation of our telecommunications network, which will depend upon, among other things, our ability to successfully develop our network and comply with the terms of our licenses. In addition, because we are developing one of the first privately owned Polish telecommunications networks, we will be limited in our ability to benefit from the operating experience of other market participants or personnel. We expect to continue to generate losses from operating activities while we concentrate on the build-out of our network. While we achieved positive operating cash flow for the first quarter of 2000, we cannot guarantee that we will be able to implement our business strategy successfully or that we will be able to maintain positive operating cash flow or achieve profitable operations. See Management s Discussion and Analysis of Financial Condition and Results of Operations, the Financial Statements and the other financial information included elsewhere in this prospectus. We Are Highly Leveraged As of March 31, 2000, after giving effect to the Notes Offering, we would have had, on a consolidated basis, approximately PLN 3.7 billion ($901.0 million) principal amount of indebtedness (or accreted value, as applicable) outstanding, including approximately PLN million ($49.3 million) of license fee obligations which will be payable over the next four years based on licenses we currently hold, excluding the Warsaw license and the domestic long distance license. See Capitalization. Our debt instruments limit, but do not prohibit, the incurrence of additional indebtedness. We anticipate that, in light of the amount of our existing indebtedness and the need to incur additional indebtedness to finance the build-out of our operations and to pay our license obligations, we will continue to have substantial leverage for the foreseeable future. Such leverage poses the risks that: a significant portion of our cash flow from operations, if any, must be dedicated to servicing our indebtedness; we may not be able to generate sufficient cash flow or access sufficient additional financing to service our outstanding indebtedness and to adequately fund our planned capital expenditures and operations; we could be more vulnerable to changes in general economic conditions; our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; and our operating and financial ability may be impaired by restrictions imposed by various debt instruments on operations and investments. In addition, various restrictive covenants contained in our existing and future debt instruments limit or may limit our ability to: borrow money; 15