According to the Company’s FORM 20-F for the fiscal year ended December 31, 2004, a settlement in principle has been reached among the plaintiff shareholders, the issuers (including Terra Networks, S.A.) and the issuers' insurance companies. According to the terms of the settlement, the issuers, including Terra, and their insurance companies undertake to guarantee a certain sum of money on condition that the plaintiffs do not collect such amount from the underwriters. The Company accepted the terms of this settlement agreement on July 22, 2003,
conditioned on the acceptance of the other parties. The settlement does not resolve the dispute between the plaintiffs and the underwriters. On February 15, 2005, the settlement was preliminarily approved by the trial judge, subject to minor revisions to the bar order. The court will hold an evidentiary hearing to determine the fairness of the settlement, after which the preliminary settlement would become final, and the actions against Terra and the other issuers would be dismissed.

As summarized by the same SEC filing, Terra Networks, S.A. and certain of its directors and officers who worked for the Company in 1999 at the time of our initial public offering in the United States have been named as defendants in five lawsuits filed in the United States. These lawsuits were consolidated into one amended complaint which is related to numerous purported class actions (over 1,000) filed in the Southern District of New York against certain issuers of securities in initial public offerings, certain individual directors and officers of those issuers, and the underwriters of those initial public offerings, purportedly on behalf of purchasers of stock in the initial public offerings or the aftermarket. The complaints allege principally that the financial institutions underwriting the initial public offering assigned shares to certain customers in exchange for those customers agreeing (i) to purchase shares in the aftermarket at a fixed price to maintain an artificially high market value for the shares and (ii) to pay the financial institutions inflated fees or other remuneration in violation of applicable Securities and Exchange Commission and National Association of Securities Dealers rules and regulations. Because these allegations have been made principally against the underwriters, the Company, and other companies whose initial public offerings have been the subject of similar allegations, have negotiated the stay of all proceedings brought against the issuers and directors and officers of the issuers until the issue between the plaintiffs and the underwriters is addressed by the court. Additionally, plaintiffs' counsel, issuers and the issuers' insurance companies have initiated a mediation.

The complaint charges defendants with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 for issuing a Registration Statement and Prospectus (the "Prospectus") that contained materially false and misleading information and failed to disclose material information. The complaint alleges that the Prospectus was false and misleading because it failed to disclose (i) the Underwriter Defendants' agreement with certain investors to provide them with significant amounts of restricted Terra Networks shares in the IPO in exchange for exorbitant and undisclosed commissions; and (ii) the agreement between the Underwriter Defendants and certain of its customers whereby the Underwriter Defendants would allocate shares in the IPO to those customers in exchange for the customers' agreement to purchase Terra Networks shares in the after- market at pre-determined prices.