According to the Company’s FORM 10-Q for the quarterly period ended March 31, 2006, on August 31, 2005, the court granted preliminary approval of the settlement. On April 24, 2006, the court held a fairness hearing in connection with the motion for final approval of the settlement. The court did not issue a ruling on the motion for final approval at the fairness hearing. The settlement remains subject to a number of conditions, including final approval of the court.

As summarized by the same SEC filing, on August 6, 2001, Avanex, certain of its officers and directors, and various underwriters in its initial public offering (“IPO”) were named as defendants in a class action filed in the United States District Court for the Southern District of New York, captioned Beveridge v. Avanex Corporation et al., Civil Action No. 01-CV-7256. This action and other subsequently filed substantially similar class actions have been consolidated into In re Avanex Corp. Initial Public Offering Securities Litigation, Civil Action No. 01 Civ. 6890. Various plaintiffs have filed similar actions asserting virtually identical allegations against more than 40 investment banks and 250 other companies. All of these “IPO allocation” securities class actions currently pending in the Southern District of New York have been assigned to Judge Shira A. Scheindlin for coordinated pretrial proceedings as In re Initial Public Offering Securities Litigation, 21 MC 92. On October 9, 2002, the claims against Avanex’s directors and officers were dismissed without prejudice pursuant to a tolling agreement. The issuer defendants filed a coordinated motion to dismiss all common pleading issues, which the court granted in part and denied in part in an order dated February 19, 2003. The court’s order did not dismiss the Section 10(b) or Section 11 claims against Avanex. In June 2004, a stipulation of settlement for the claims against the issuer defendants, including Avanex, was submitted to the court.

The complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) defendants had solicited and received excessive and undisclosed commissions from certain investors in exchange for which defendants allocated to those investors material portions of the restricted number of Avanex shares issued in connection with the Avanex IPO; and (ii) defendants had entered into agreements with customers whereby defendants agreed to allocate Avanex shares to those customers in the Avanex IPO in exchange for which the customers agreed to purchase additional Avanex shares in the aftermarket at pre-determined prices. As alleged in the complaint, the SEC is investigating underwriting practices in connection with several other initial public offerings.