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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  x                            Filed by a Party other than the Registrant ¨

Check the appropriate box:

AVANEX CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS

To Be Held on November 13, 2008

To Our Stockholders:

Notice is hereby given that the Annual Meeting of Stockholders (the “Annual Meeting”) of Avanex Corporation, a Delaware corporation (“Avanex”), will be held on November 13, 2008, at 9:00 a.m., local time, at Avanex’s corporate headquarters, 40919 Encyclopedia Circle, Fremont, California 94538, for the following purposes:

These items of business are more fully described in the Proxy Statement accompanying this Notice of Annual Meeting.

Only holders of record of Avanex’s Common Stock at the close of business on October 8, 2008, the record date, are entitled to vote on the matters listed in this Notice of Annual Meeting.

All stockholders are cordially invited to attend the Annual Meeting in person. However, to ensure your representation at the Annual Meeting, please vote as soon as possible using one of the following methods: (1) by using the Internet as instructed on the enclosed proxy card, (2) by telephone as instructed on the enclosed proxy card, or (3) by mail by completing, signing, dating and returning the enclosed proxy card in the enclosed postage-prepaid envelope. For further details, please see the section entitled “Voting” on page 2 of the accompanying Proxy Statement. Any stockholder attending the Annual Meeting may vote in person even if he or she has voted using the Internet, telephone or proxy card.

By Order of the Board of Directors

of Avanex Corporation

/s/ Giovanni Barbarossa

Giovanni Barbarossa

Interim Chief Executive Officer

Fremont, California

October 13, 2008

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AVANEX CORPORATION

PROXY STATEMENT

FOR THE

2008 ANNUAL MEETING OF STOCKHOLDERS

PROCEDURAL AND OTHER MATTERS

General

This Proxy Statement is being furnished to the holders of common stock, par value $0.001 per share (the “Common Stock”), of Avanex Corporation, a Delaware corporation (“Avanex” or the “Company”), in connection with the solicitation of proxies by the Board of Directors of Avanex for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on November 13, 2008, at 9:00 a.m., local time, and at any adjournment or postponement thereof, for the purpose of considering and acting upon the matters set forth herein. The Annual Meeting will be held at Avanex’s corporate headquarters, 40919 Encyclopedia Circle, Fremont, California 94538. The telephone number at that location is (510) 897-4188.

Following the close of market on August 12, 2008, the Company effected a fifteen-for-one reverse stock split of its Common Stock. Accordingly, each fifteen shares of issued and outstanding Common Stock and equivalents as of the close of market on August 12, 2008 was converted into one share of Common Stock, and the reverse stock split was reflected in the trading price of the Common Stock at the opening of market on August 13, 2008. Unless indicated otherwise, all share amounts and per share prices appearing in this Proxy Statement reflect the reverse stock split for all periods presented.

This Proxy Statement, the accompanying proxy card and the Company’s Annual Report on Form 10-K are first being mailed on or about October 13, 2008, to all stockholders entitled to vote at the Annual Meeting.

Stockholders Entitled to Vote; Record Date

Only holders of record of the Company’s Common Stock at the close of business on October 8, 2008 (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting. Such stockholders are entitled to cast one vote for each share of Common Stock held as of the Record Date on all matters properly submitted for the vote of stockholders at the Annual Meeting. As of the Record Date, there were 15,486,405 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. No shares of preferred stock were outstanding. For information regarding security ownership by management and by the beneficial owners of more than five percent of the Company’s Common Stock, see “Security Ownership of Certain Beneficial Owners and Management” beginning on page 36.

Quorum; Required Vote

The presence of the holders of a majority of the shares of Common Stock entitled to vote generally at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Such stockholders are counted as present at the Annual Meeting if they (1) are present in person at the Annual Meeting or (2) have properly submitted a proxy card or voted by telephone or by using the Internet. Under the General Corporation Law of the State of Delaware, an abstaining vote and a broker “non-vote” are counted as present and entitled to vote and are, therefore, included for purposes of determining whether a quorum is present at the Annual Meeting. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions on how to vote from the beneficial owner.

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A plurality of the votes duly cast is required for the election of directors (Proposal One).

The affirmative vote of a majority of the votes duly cast is required to ratify the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm (Proposal Two). Abstentions are deemed to be “votes cast,” and have the same effect as a vote against this proposal. However, broker non-votes are not deemed to be votes cast, and therefore are not included in the tabulation of the voting results on this proposal.

Voting

Voting by Proxy Card.    All shares entitled to vote and represented by properly executed proxy cards received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxy cards. If no instructions are indicated on a properly executed proxy card, the shares represented by that proxy card will be voted as recommended by the Board of Directors. If any other matters are properly presented for consideration at the Annual Meeting, including, among other things, consideration of a motion to adjourn the Annual Meeting to another time or place (including, without limitation, for the purpose of soliciting additional proxies), the persons named in the enclosed proxy card and acting thereunder will have discretion to vote on those matters in accordance with their best judgment. The Company does not currently anticipate that any other matters will be raised at the Annual Meeting.

Voting by Telephone or the Internet.    If you are a registered stockholder, you may vote your shares by calling the toll-free number indicated on the enclosed proxy card and following the recorded instructions or by accessing the website indicated on the enclosed proxy card and following the instructions provided. If your shares are registered in the name of a bank or brokerage firm, you may be eligible to vote your shares electronically over the Internet or by telephone. A large number of banks and brokerage firms are participating in the Broadridge Financial Solutions online program. This program provides eligible stockholders who receive a paper copy of the annual report and proxy statement the opportunity to vote via the Internet or by telephone. If your bank or brokerage firm is participating in Broadridge’s program, your voting form will provide instructions. If your voting form does not reference Internet or telephone information, please complete and return the paper proxy card in the self-addressed postage paid envelope provided. When a stockholder votes via the Internet or by telephone, his or her vote is recorded immediately. Avanex encourages its stockholders to vote using these methods whenever possible.

Voting by Attending the Meeting.    A stockholder may vote his or her shares in person at the Annual Meeting. A stockholder planning to attend the Annual Meeting should bring proof of identification and proof of ownership of Common Stock for entrance to the Annual Meeting. If a stockholder attends the Annual Meeting, he or she may submit his or her vote in person, and any previous votes that were submitted by the stockholder, whether by Internet, telephone or mail, will be superseded by the vote that such stockholder casts at the Annual Meeting.

Changing Vote; Revocability of Proxies.    If a stockholder has voted by telephone, over the Internet or by returning a proxy card, such stockholder may change his or her vote before the Annual Meeting.

A stockholder who has voted by telephone or over the Internet may later change his or her vote by making a timely and valid telephone or Internet vote, as the case may be, or by following the procedures in the following paragraph.

A stockholder may revoke any proxy given pursuant to this solicitation at any time before it is voted by: (1) filing with the Secretary of the Company, at or before the taking of the vote at the Annual Meeting, a written notice of revocation or a duly executed proxy card, in either case dated later than the prior proxy relating to the same shares, or (2) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not by itself revoke a proxy). Any written notice of revocation or subsequent proxy card must be received by the Secretary of the Company prior to the taking of the vote at the Annual Meeting. Such written notice of revocation or subsequent proxy card should be hand delivered to the Secretary of the Company or should be sent to Avanex Corporation, 40919 Encyclopedia Circle, Fremont, California 94538, Attention: Corporate Secretary.

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Expenses of Solicitation

Avanex will bear all expenses of this solicitation, including the cost of preparing and mailing this solicitation material. The Company may reimburse brokerage firms, custodians, nominees, fiduciaries, and other persons representing beneficial owners of Common Stock for their reasonable expenses in forwarding solicitation material to such beneficial owners. Directors, officers and employees of the Company may also solicit proxies in person or by telephone, letter, electronic mail, telegram, facsimile or other means of communication. Such directors, officers and employees will not be additionally compensated, but they may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. The Company has retained the services of Morrow & Co., a professional proxy solicitation firm, to assist in the solicitation of proxies. Avanex will pay Morrow & Co. a fee for its services, which will not be significant, in addition to reimbursement of its out-of-pocket expenses.

Procedure for Submitting Stockholder Proposals

Requirements for Stockholder Proposals to be Considered for Inclusion in the Company’s Proxy Materials.    Stockholders may present proper proposals for inclusion in the Company’s proxy statement and for consideration at the annual meeting of its stockholders to be held in 2009 by submitting their proposals in writing to the Secretary of the Company in a timely manner. In order to be included in the Company’s proxy materials for the 2009 annual meeting of stockholders, stockholder proposals must be received by the Secretary of the Company no later than the Notice Deadline (as defined below), and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Requirements for Stockholder Proposals to be Brought Before an Annual Meeting.    In addition, the Company’s Bylaws establish an advance notice procedure for stockholders who wish to present certain matters before an annual meeting of stockholders. In general, nominations for the election of directors may be made by (1) the Board of Directors, (2) the Corporate Governance and Nominating Committee or (3) any stockholder entitled to vote who has delivered written notice to the Secretary of the Company no later than the Notice Deadline, which notice must contain specified information concerning the nominees and concerning the stockholder proposing such nominations. However, if a stockholder wishes only to recommend a candidate for consideration by the Corporate Governance and Nominating Committee as a potential nominee for the Company’s Board of Directors, see the procedures discussed in “Corporate Governance — Process for Recommending Candidates for Election to the Board of Directors” on page 9.

The Company’s Bylaws also provide that the only business that may be conducted at an annual meeting is business that is (1) specified in the notice of meeting given by or at the direction of the Board of Directors, (2) properly brought before the meeting by or at the direction of the Board of Directors or (3) properly brought before the meeting by a stockholder who has delivered written notice to the Secretary of the Company no later than the Notice Deadline, which notice must contain specified information concerning the matters to be brought before such meeting and concerning the stockholder proposing such matters.

The “Notice Deadline” is defined as that date which is 120 days prior to the one-year anniversary of the date on which the Company first mailed its proxy materials for the previous year’s annual meeting of stockholders. As a result, the Notice Deadline for the 2009 annual stockholder meeting is June 15, 2009.

If a stockholder who has notified the Company of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, or does not send a representative who is qualified under Delaware law to present the proposal on his or her behalf, the Company need not present the proposal for vote at such meeting.

A copy of the full text of the Bylaw provisions discussed above may be obtained by writing to the Secretary of the Company. All notices of proposals by stockholders, whether or not included in the Company’s proxy materials, should be sent to Avanex Corporation, 40919 Encyclopedia Circle, Fremont, California 94538, Attention: Corporate Secretary.

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PROPOSAL ONE

ELECTION OF DIRECTORS

General

The Company’s Bylaws currently authorize six directors who are divided into three classes with staggered three-year terms. A director serves in office until his or her respective successor is duly elected and qualified or until his or her earlier death or resignation. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of an equal number of directors.

Nominees for Class III Directors

Two Class III directors have been nominated for election at the Annual Meeting for three-year terms expiring in 2011. Upon the recommendation of the Corporate Governance and Nominating Committee, the Board of Directors has nominated Joel A. Smith III and Susan Wang for reelection as Class III directors. Unless otherwise instructed, the proxyholders will vote the proxies received by them for the reelection of Mr. J. Smith and Ms. Wang. The Company expects that Mr. J. Smith and Ms. Wang will accept such nomination; however, in the event that a nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the Board of Directors to fill such vacancy. The term of office of the person elected as director will continue until such director’s term expires in 2011 or until such director’s successor has been elected and qualified.

Nominees for Class III Directors Whose Terms Expire in 2011

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”

THE NOMINEES LISTED ABOVE.

Information Regarding Other Directors Continuing in Office

Incumbent Class I Director Whose Term Expires in 2009

Incumbent Class II Directors Whose Terms Expire in 2010

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See “Corporate Governance” and “Executive Compensation — Director Compensation” below for additional information regarding the Board.

PROPOSAL TWO

RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

General

The Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP as its independent registered public accounting firm to audit the consolidated financial statements of the Company for fiscal year 2009. Although ratification by stockholders is not required by law, the Audit Committee has determined that it is desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint new independent auditors at any time during the year if the Audit Committee believes that such a change would be in the best interests of Avanex and its stockholders. If the stockholders do not ratify the appointment of Deloitte & Touche LLP, the Audit Committee may reconsider its selection.

A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if he or she desires to do so, and is expected to be available to respond to appropriate questions.

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL.

Accounting Fees

The following table shows the fees paid or accrued by the Company for the audit and other services provided by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, for fiscal years 2007 and 2008.

Pre-Approval of Audit and Non-Audit Services

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. To ensure prompt handling of unexpected matters, the Audit Committee delegates to the Chairman of the Audit Committee the authority to approve all audit and permissible non-audit services.

Since the May 6, 2003 effective date of the SEC rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of an independent registered public accounting firm was approved in advance by the Audit Committee, and none of those engagements made use of the de minimus exception to pre-approval contained in the SEC’s rules.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

With respect to the Company’s financial reporting process, the management of the Company is responsible for (1) establishing and maintaining internal controls and (2) preparing the Company’s consolidated financial statements. The Company’s independent registered public accounting firm is responsible for auditing these financial statements. It is the responsibility of the Audit Committee to oversee these activities. In the performance of its oversight function, the Audit Committee has:

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Based upon the reviews and discussions described in this Report, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

AUDIT COMMITTEE OF

THE BOARD OF DIRECTORS

Susan Wang, Chair

Greg Dougherty

Joel A. Smith III

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CORPORATE GOVERNANCE

Corporate Governance Principles

Avanex is committed to sound corporate governance. The Board of Directors has adopted Corporate Governance Principles, which are available at http://www.avanex.com under “Investors — Corporate Governance — Corporate Governance Principles.”

Independence of the Board of Directors

The Board of Directors has determined that all of its members are “independent directors” as defined in the listing standards of the Nasdaq Stock Market.

Contacting the Board of Directors

Any stockholder who desires to contact a non-employee director may do so electronically by sending an e-mail to the following address: directorcom@avanex.com. The e-mails are automatically forwarded unfiltered to our Non-Executive Chairman of the Board, who is Paul Smith, and who monitors these communications and forwards communication to the appropriate committee of the Board of Directors or non-employee director.

Code of Conduct

Avanex has adopted a Code of Business Conduct and Ethics that applies to all of its directors, officers (including its principal executive officer, principal financial officer and controller) and employees, which is available at http://www.avanex.com under “Investors — Corporate Governance — Code of Business Conduct and Ethics.” Avanex will also post on this section of its website any amendment to the Code of Business Conduct, as well as any waivers, that are required to be disclosed by the rules of the SEC or the Nasdaq Stock Market.

Executive Sessions

Avanex’s non-management directors meet in executive sessions, without management present, at least two times per year. The sessions are scheduled and chaired by our Non-Executive Chairman of the Board. Any independent director can request that an executive session be scheduled.

Attendance at Annual Stockholder Meetings by the Board of Directors

Directors are encouraged, but not required, to attend the annual meeting of stockholders. Three out of four of the Company’s then non-employee directors attended the Company’s 2007 annual meeting of stockholders.

Process for Recommending Candidates for Election to the Board of Directors

The Corporate Governance and Nominating Committee is responsible for, among other things, determining the criteria for membership to the Board of Directors and recommending candidates for election to the Board of Directors. It is the policy of the Committee to consider recommendations for candidates to the Board of Directors from stockholders. Such recommendations must be received by June 30 of the year in which the recommended candidate will be considered for nomination. Stockholder recommendations for candidates to the Board of Directors must be directed in writing to Avanex Corporation, 40919 Encyclopedia Circle, Fremont, California 94538, Attention: Corporate Secretary, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years and evidence of the nominating person’s ownership of Company stock. Such recommendations must also include a statement from the recommending stockholder in

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support of the candidate, particularly within the context of the criteria for membership on the Board of Directors, including issues of character, judgment, diversity, age, independence, expertise, corporate experience, other commitments and the like, personal references and an indication of the candidate’s willingness to serve.

The Committee’s general criteria and process for evaluating and identifying the candidates that it selects, or recommends to the full Board of Directors for selection as director nominees, are as follows:

Board Meetings and Committees

During the fiscal year ended June 30, 2008, the Board of Directors of the Company met 8 times (including meetings of the independent directors). With the exception of Dr. Cerf, all directors attended at least 75% of the total number of meetings of the Board of Directors and the committees of which he or she was a member.

The Company’s Board of Directors currently has four standing committees: an Audit Committee, a Compensation Committee, an Option Committee and a Corporate Governance and Nominating Committee.

Audit Committee.    The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of Mr. Dougherty, Mr. J. Smith and Ms. Wang, each

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of whom is “independent” as such term is defined for audit committee members by the listing standards of the Nasdaq Stock Market. The Board of Directors has determined that each of Mr. J. Smith and Ms. Wang is an “audit committee financial expert” as defined under the rules of the Securities Exchange Commission (the “SEC”). The Audit Committee met 14 times during the fiscal year ended June 30, 2008. The Audit Committee is responsible for overseeing the Company’s accounting and financial reporting processes, the audit of the Company’s financial statements and assisting the Board of Directors in oversight of (1) the integrity of the Company’s financial statements, (2) the Company’s internal accounting and financial controls, (3) the Company’s compliance with legal and regulatory requirements and (4) the independent registered public accounting firm’s qualifications, independence and performance. The Audit Committee acts pursuant to a written charter adopted by the Board of Directors, a copy of which is available at http://www.avanex.com under “Investors — Corporate Governance — Audit Committee Charter.”

See “Report of the Audit Committee of the Board of Directors” above for more information regarding the functions of the Audit Committee.

Compensation Committee.    The Compensation Committee currently consists of Dr. Cerf, Mr. Dougherty, Mr. P. Smith, Ms. Wang and Mr. Wolf, each of whom is “independent” as defined by the listing standards of the Nasdaq Stock Market. The Compensation Committee met 8 times during the fiscal year ended June 30, 2008. The Compensation Committee is primarily responsible for evaluating and approving the compensation and benefits for the Company’s executive officers, administering the Company’s 1998 Stock Plan, 1999 Employee Stock Purchase Plan and Officer and Director Share Purchase Plan and performing such other duties as may from time to time be determined by the Board of Directors. The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors, a copy of which is available at http://www.avanex.com under “Investors — Corporate Governance — Compensation Committee Charter.”

See “Executive Compensation — Compensation Discussion and Analysis” and “Executive Compensation — Director Compensation” for a description of the Company’s processes and procedures for the consideration and determination of executive compensation. The Compensation Committee Report is included in this Proxy Statement on page 23.

Option Committee.    The Option Committee currently consists of Mr. Dougherty. During the fiscal year ended June 30, 2008 and until Dr. Jo Major’s termination as the Company’s President and Chief Executive Officer in July 2008, the Option Committee consisted of Dr. Major. The Option Committee is responsible for granting options to purchase Common Stock of the Company and restricted stock units, on behalf of the Board of Directors, to employees other than officers and directors, pursuant to guidelines established by the Compensation Committee. The Option Committee fulfilled all of its duties through actions by written consent during the fiscal year ended June 30, 2008. The Option Committee acts pursuant to a written charter adopted by the Board of Directors, a copy of which is available at http://www.avanex.com under “Investors — Corporate Governance — Option Committee Charter.”

Corporate Governance and Nominating Committee.    The Corporate Governance and Nominating Committee currently consists of Dr. Cerf, Mr. J. Smith, Mr. P. Smith and Mr. Wolf each of whom is “independent” as defined by the listing standards of the Nasdaq Stock Market. The Corporate Governance and Nominating Committee met 4 times during the fiscal year ended June 30, 2008. The Corporate Governance and Nominating Committee is responsible for (1) reviewing and making recommendations to the Board of Directors regarding matters concerning corporate governance, (2) reviewing the composition and evaluating the performance of the Board of Directors, (3) recommending persons for election to the Board of Directors and evaluating director compensation, (4) reviewing the composition of committees of the Board of Directors and recommending persons to be members of such committees, (5) reviewing conflicts of interest of members of the Board of Directors and corporate officers and (6) performing such other duties as may from time to time be determined by the Board of Directors. The Corporate Governance and Nominating Committee’s policy is to consider recommendations of candidates for the Board of Directors submitted by the stockholders of the

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Company. For more information see the discussion in “Corporate Governance” on page 9. The Governance and Nominating Committee acts pursuant to a written charter adopted by the Board of Directors, a copy of which is available at http://www.avanex.com under “Investors — Corporate Governance — Corporate Governance and Nominating Committee Charter.”

Compensation Committee Interlocks and Insider Participation

The Company’s Compensation Committee is currently composed of Dr. Cerf, Mr. Dougherty, Mr. P Smith, Ms. Wang and Mr. Wolf. No interlocking relationship exists between any member of the Company’s Compensation Committee and any member of the compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Compensation Committee is or was formerly an officer or an employee of the Company.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Compensation Program and Philosophy

Avanex has designed its executive compensation program and philosophy to attract, motivate and retain talented executives responsible for the success of Avanex, which operates in an extremely competitive, global and rapidly changing telecommunications industry. Our compensation programs are based on a compensation philosophy of “pay for performance” that depends on the achievement of overall financial results and individual contributions by our executives and employees. Within this overall philosophy, our objectives are to:

During fiscal 2007, management and the Board of Directors began a gradual movement away from retention-based compensation, which had been used during periods of substantial restructuring of the Company, towards performance-based compensation, including corporate bonuses, and this movement continued in fiscal 2008. To preserve cash, we elected to issue restricted stock units in lieu of cash for incentive bonuses. As discussed further below, we paid certain executive bonuses for fiscal 2008 in cash, and at the beginning of fiscal 2009, a special retention program payable in Restricted Stock Units was implemented.

Management and the Compensation Committee of the Board of Directors use the above objectives as the framework for both executive and employee compensation programs. Overall compensation packages offered to Avanex’s executive officers strive to balance long- and short-term incentive compensation and cash and non-cash compensation. However, there is no formal policy or target for the allocation between long- and short-term incentive compensation and cash and non-cash compensation, and the balance of these components may vary over time depending on several factors, including the industry in which we compete, corporate performance and market compensation practices.

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Throughout this Compensation Discussion and Analysis, we refer to each individual who served as the Chief Executive Officer (“CEO”) or Chief Financial Officer (“CFO”) during fiscal 2008, as well as the other executive officers included in the “Summary Compensation Table” below, as the “named executive officers.”

Role and Authority of Our Compensation Committee

The members of the Compensation Committee during the fiscal year ended June 30, 2008, were Dr. Vinton G. Cerf, Greg Dougherty (Chair), Paul Smith, Susan Wang and Dennis Wolf. Each of these individuals qualifies as (i) an “independent director” under the requirements of The NASDAQ Stock Market LLC, (ii) a “non-employee director,” under Rule 16b-3 of the Securities Exchange Act of 1934 (“Exchange Act”), and (iii) an “outside director” under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).

The Compensation Committee has adopted a written charter approved by the Board of Directors; a copy is available at http://www.avanex.com under “Investors — Corporate Governance.”

Pursuant to the charter, the purposes of the Compensation Committee are to:

The Compensation Committee has the final decision-making authority with respect to the compensation of our executives. In carrying out its responsibilities, the Compensation Committee may engage outside consultants and/or consult with Avanex’s Human Resources Department as the Compensation Committee determines to be appropriate. The Compensation Committee also obtains advice and assistance from internal or external legal counsel and expert advisers selected by the Compensation Committee. For all employees other than executive officers, the Compensation Committee authorized the Company’s management to make salary adjustments and bonus decisions under financial guidelines approved by the Compensation Committee and the full Board of Directors. The Compensation Committee authorized the Option Committee, which during the fiscal 2008 and until July 16, 2008, consisted of our former President, Chief Executive Officer and Chairman of the Board, Dr. Jo Major and which, since July 16, 2008, consists of Director Greg Dougherty, to grant options to purchase Common Stock and restricted stock units, on behalf of the Board of Directors, to non-executive employees, pursuant to general guidelines established by the Compensation Committee.

Role of Executive Officers in Compensation Decisions

The Compensation Committee on occasion meets with the Chief Executive Officer to obtain recommendations with respect to the compensation programs, practices and packages for the named executive officers and other employees. The Compensation Committee considers, but is not bound to and does not always accept, management’s recommendations. The Chief Executive Officer and other executives or employees generally attend the Compensation Committee’s meetings, but they leave the meetings as appropriate when certain matters of executive compensation are discussed. The Compensation Committee makes decisions with respect to the Chief Executive Officer’s compensation package without his or her presence. The Compensation Committee reviews these decisions with the other members of the Board of Directors. Our Board of Directors and Compensation Committee make a practice of regularly meeting without management present. Following such meetings, the Chairman of the Compensation Committee, currently Greg Dougherty, or Paul Smith, the Non-Executive Chairman of the Board, typically discusses any Board or Compensation Committee concerns with management.

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Role of Compensation Consultant

The Compensation Committee works with the Avanex Human Resources group and outside experts in conducting its responsibilities. During fiscal 2008, the Compensation Committee engaged Compensia, Inc., an independent compensation advisor, to provide advice and information relating to executive compensation. Compensia assisted the Compensation Committee in its evaluation of executive base salary, bonus and equity incentive levels. Compensia reports directly to the Compensation Committee and does not perform any other consulting services for management.

Fiscal 2008 Peer Companies

The Compensation Committee examines the executive compensation practices of a peer group of opto-electronic product companies and semiconductor and semiconductor equipment manufacturers to assess the competitiveness and structure of Avanex’s executive compensation. Peer group companies are selected principally on the basis of their similarity to Avanex in terms of high technology industry focus, business strategy and the talent pool with which Avanex competes for talent. Companies are then scoped based on their size (as determined by revenue, market capitalization, net income, and employee base) to ensure comparability to Avanex.

The Compensation Committee reviews the peer group annually and makes adjustments to the composition of the peer group companies when necessary. The 26 companies used in the peer group analysis for fiscal 2008 included:

Executive compensation data for the peer group was collected from public filings as well as the Radford High-Technology Industry Survey. In the case of the Radford Survey, a custom report focusing on the above companies was utilized.

For fiscal 2009, the Compensation Committee, with the assistance of its outside consultant Compensia, reviewed the peer group against which executive compensation levels are benchmarked to ensure this group is still appropriate for Avanex. Based on this review, the Compensation Committee decided to evaluate Avanex’s executive pay practices against two peer groups. The first peer group (“Revenue Peers”) includes companies meeting the same criteria as the fiscal 2008 peer group. The second peer group (“Industry Peers”) includes opto-electronic companies of comparable size on a revenue basis. The rationale for considering two peer groups is that we have certain executive positions requiring specific skills and experience in our industry, and we have other executive positions where industry focus is less relevant. Each executive is compared to both peer groups, but the primary benchmark used for pay decisions may vary based on the executive’s function. The Compensation Committee also takes into account the experience level of the executive. The Compensation Committee believes this approach provides evaluation of Avanex’s executive compensation relative to such executives’ peers because in a sense, the labor market has to some degree been customized for each job.

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Components of Compensation

The principal components of Avanex’s executive officer compensation include:

We selected these components because we believe each is necessary to help us attract and retain the executive talent upon which Avanex’s success depends. These components also allow us to reward performance throughout the fiscal year and to provide an incentive for executives to appropriately balance their focus on short-term and long-term strategic goals. The Compensation Committee believes that this set of components is effective and will continue to be effective in achieving the objectives of our compensation program and philosophy.

The Compensation Committee reviews the entire executive compensation program on at least an annual basis. The Compensation Committee is aided in this review by its compensation consultant, Compensia, Inc. However, the Compensation Committee at any time may review one or more components as necessary or appropriate to ensure such components remain competitive and appropriately designed to reward performance. In setting compensation levels for a particular named executive officer, the Compensation Committee considers both individual and corporate factors.

The goal of the Compensation Committee has been to target total direct compensation (salary plus bonus plus equity) at approximately the 50^th percentile, relative to the appropriate peer group. This has been accomplished through the following approach:

Actual pay to individual executives varies, based on an individual’s performance, experience level brought to the position, anticipated contribution, and internal pay consistency.

Named Executive Officer Compensation Decisions

Dr. Jo S. Major, Jr. was terminated from his position as President and Chief Executive Officer of the Company, effective on July 7, 2008, and Ms. Marla Sanchez resigned from her position as Senior Vice President and Chief Financial Officer of the Company, effective on July 7, 2008. Mr. Patrick Edsell resigned from his position as Senior Vice President and General Manager, effective on August 25, 2008. Dr. Giovanni Barbarossa was appointed Interim Chief Executive Officer and the Company’s Principal Executive Officer, effective on July 7, 2008. Mr. Mark Weinswig was appointed Vice President, Finance and Treasurer and Interim Chief Financial Officer (principal financial and accounting officer) of the Company, effective on July 21, 2008. At the beginning of fiscal 2009, a special retention program was implemented, which is discussed further below.

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Base Salary

Avanex provides base salary to its executive officers and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. Salaries for the Company’s executive officers are determined primarily on the basis of the executive officer’s level of responsibility, general salary practices of peer companies and the officer’s individual qualifications, employment history, key skills and experience. Base salaries are reviewed annually and may be adjusted by the Compensation Committee based on individual performance, the functions performed by the executive officer, the scope of the executive officer’s on-going duties, general changes in the compensation peer group in which the Company competes for executive talent, the Company’s financial performance generally, and internal pay consistency. The weight given to each factor by the Compensation Committee may vary from individual to individual.

During fiscal 2008, the Compensation Committee considered the factors described above and reviewed the base salaries of the named executive officers and determined that the base salaries of the named executive officers should remain the same as the prior year except as set forth below:

Following the end of fiscal 2008, on July 21, 2008, in connection with his appointment as Vice President, Finance and Treasurer and Interim Chief Financial Officer (principal financial and accounting officer) of the Company, Mr. Mark Weinswig’s base salary was set at $200,000, and for the period that Mr. Weinswig serves as Interim Chief Financial Officer, he will be paid an additional annual salary of $65,000.

Also following the end of fiscal 2008, on August 18, 2008, an increase in the salary of Dr. Giovanni Barbarossa in his role as the Company’s Interim Chief Executive Officer of $100,000 was approved by the Compensation Committee. The increase is to be paid for the duration of the period in which Dr. Barbarossa serves as the Company’s Interim Chief Executive Officer and has been paid retroactive to the effective date of Dr. Barbarossa’s appointment as the Company’s Interim Chief Executive Officer on July 7, 2008.

Incentive Bonus

We believe that a significant portion of each executive officer’s annual compensation should be paid in the form of incentive bonuses that are directly tied to our financial performance and thus align the interests of our executive officers with our stockholders. Incentive bonus amounts vary based on the executive officer’s position and responsibilities with Avanex. Generally, the higher the level of responsibility that an executive officer has, the greater the percentage of the executive officer’s compensation that consists of an opportunity to earn incentive bonuses. As discussed above, we target total cash compensation (base salary plus target bonus) at approximately the 50th percentile of the peer group.

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Incentive bonus targets are set with reference to a percentage of base salary for our named executive officers, and during fiscal 2008 were set as follows:

Additionally, in connection with his appointment as Vice President, Finance and Treasurer and Interim Chief Financial Officer (principal financial and accounting officer) of the Company, on July 21, 2008, Mr. Mark Weinswig’s incentive bonus target (% of base salary) was set at 40%.

Our Compensation Committee recognizes the achievement of Avanex’s approved operating plan as measured by two corporate goals set forth in the Company’s annual operating plan: (i) non-GAAP earnings before interest, taxes, depreciation and amortization, or EBITDA, and (ii) annual revenue. These goals were weighted 60% and 40% respectively. Non-GAAP EBITDA was calculated by taking GAAP EBIT, less depreciation, amortization, stock-based compensation, restructuring charges and other non-recurring extraordinary expenses, as determined by the Compensation Committee and reviewed by the Audit Committee.

The incentive bonus program covered the entire fiscal year. Participants were entitled to receive 100% of their incentive bonus target for “on target” performance with opportunities for lower percentage payout for below target performance, subject to achievement of minimum levels, and higher percentage payout for above target performance. The aim of the incentive bonus program was to achieve positive non-GAAP EBITDA. Accordingly, if Avanex did not achieve positive non-GAAP EBITDA, no award would be paid under the program, regardless of Avanex’s achievement against the revenue goal.

The performance grid for each of the corporate goals is summarized below:

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On September 4, 2008, the Compensation Committee determined that Avanex had achieved 31.35% of the overall goal in fiscal 2008. Accordingly, restricted stock units with immediate vesting or cash were awarded to the named executive officers for fiscal 2008 performance in the table that follows. Awards under the incentive bonus program were made in September 2008 in Restricted Stock Units, as a means of preserving cash, issued pursuant to the 1998 Stock Plan, with immediate vesting. Dr. Major, Ms. Sanchez and Mr. Edsell received their fiscal 2008 bonus in cash following their departures from the Company. In addition, employees who would have received a bonus payout in stock with an aggregate value of less than $1,500 received their fiscal 2008 bonus in cash.

Bonus Program for Senior Vice President of Sales.    The bonus compensation for Mr. Scott Parker, our Senior Vice President of Sales, is composed of two components. A bonus, at a target of 60% of his base salary, was aligned with his Global Sales Incentive Plan. Of the incentive target, 80% is based on revenue generation goals or a quota and the remaining 20% is based on corporate Non-GAAP EBITDA performance. Mr. Parker’s Revenue Generation Target, or quota, consists of his quarterly revenue goal, in addition to an annual quota. In order for revenue to be counted towards the Revenue Generation Target, the revenue must be generated during the specified fiscal quarter or year from specific customers, regions, products and/or industry channels determined at the Company’s sole discretion. For these purposes, in order to qualify as “revenue” within a specific fiscal quarter, (a) the product generating the revenue must actually be shipped by the Company during the quarter, and (b) the revenue from such shipped products must have been recognized by the Company for accounting purposes. Eighty percent of the Revenue Generation payout was based on quarterly targets with 20% being reserved for an annual payout at the end of the fiscal year based on achievement towards annual quota.

Achievement of Revenue Generation Targets Against Performance for Mr. Parker for fiscal 2008 was calculated as follows:

Mr. Parker’s fiscal 2008 sales incentive plan paid a total of $12,578 for his achievements.

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Bonus Program for Chief Marketing Officer.    The bonus compensation for Mr. Yves LeMaitre, our former Chief Marketing Officer, was composed of two parts. The first part, at a target of 20% of his base salary, was aligned with the Incentive Bonus Program for fiscal 2008 that was not paid due to his departure from the Company on November 9, 2007. A larger portion of his bonus, at a target of 60% of his base salary, was aligned with his Global Sales Incentive Plan. Mr. LeMaitre’s Revenue Generation Target, or quota, consisted of his quarterly revenue goal, in addition to an annual quota. In order for revenue to have been counted towards the Revenue Generation Target, the revenue must have been generated during the specified fiscal quarter or year from specific customers, regions, products and/or industry channels determined at the Company’s sole discretion. For these purposes, in order to qualify as “revenue” within a specific fiscal quarter (a) the product generating the revenue must actually have been shipped by the Company during the quarter, and (b) the revenue from such shipped product must have been recognized by the Company for accounting purposes. Eighty percent of the Revenue Generation payout was based on quarterly targets and 20% was reserved for an annual payout at the end of the fiscal year.

Mr. LeMaitre’s fiscal 2008 sales incentive plan paid a total of $97,410 for his quarterly achievements.

Equity Compensation

Equity awards (stock options and restricted stock units) are granted to executive officers and other employees under the Company’s 1998 Stock Plan. Awards are intended to focus the attention of executives on the Company’s long-term performance, which the Company believes results in improved stockholder value, and to retain the services of the executive officers in a competitive job market by providing significant long-term earnings potential. Given these considerations, and the adoption of FAS 123 (R), the Compensation Committee uses a mix of options and time-based restricted stock units for equity compensation grants. The Compensation Committee believes this approach optimally balances the long-term interests of stockholders with the Company’s need to retain its executives.

Guidelines for equity grants are established for each executive based on peer group practices with respect to the FAS 123 (R) Black-Scholes value delivered and allocation of the equity pool among various employee levels. Individual grants are then determined based on consideration of the executive’s guideline, his or her individual performance, the retention value of current awards (measured by the amount of “in-the-money” value of stock options and unvested value of restricted stock units) and Company performance.

The Compensation Committee designs its equity grant practices to reflect an appropriate balance between stockholders’ dilution concerns and the Company’s need to remain competitive by recruiting and retaining high-performing employees. The gross burn rate for fiscal 2007 and 2008 was 2.9% and 2.8%, respectively. The Company defines the gross burn rate as the sum of the stock granted divided by the sum of the Common Stock outstanding. The net burn rate for fiscal 2007 and 2008 was 1.9% and 1.7%, respectively. The Company defines the net burn rate as the sum of the stock granted minus shares cancelled or forfeited divided by the sum of the Common Stock outstanding.

The details of stock option grants and awards of restricted stock units to the named executive officers during fiscal 2008 can be found below under the heading “Grants of Plan-Based Awards in 2008.” In connection with his appointment as Vice President, Finance and Treasurer and Interim Chief Financial Officer (principal financial and accounting officer) of the Company, on July 21, 2008, Mr. Mark Weinswig received an option to purchase 16,667 shares of the Company’s Common Stock at the current fair market value on the effective date of grant. One-fourth of the shares subject to the option shall vest one year after the date of grant, and 1/48^th of the shares subject to the option shall vest monthly thereafter, so that the option shall be fully vested four years from the date of grant. In addition, on July 21, 2008, Mr. Weinswig was granted 6,667 restricted stock units, one fourth of which shall vest one year after the date of grant, and 1/16^th of which shall vest quarterly thereafter, so that the restricted stock units shall be fully vested four years from the date of grant.

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Stock Ownership Program

The Compensation Committee resolved on October 16, 2007, that the executive officers of Avanex shall endeavor to hold the following minimum amount of Avanex stock, where the value of stock held is computed as total shares held multiplied by the market price of the stock, within a timeframe of five years:

The Avanex stock holdings of the Company’s named executive officers in fiscal 2008 are summarized in the table set forth in the section below entitled “Security Ownership of Certain Beneficial Owners and Management”.

Officer and Director Share Purchase Plan

The Compensation Committee approved, effective April 7, 2008, an Officer and Director Share Purchase Plan (the “Plan”), which allows executive officers and directors of the Company to purchase shares of the Company’s Common Stock at fair market value in lieu of salary or, in the case of directors, retainer fees. Eligible individuals voluntarily participate in the Plan by authorizing payroll deductions or, in the case of directors, deductions from retainer fees for the purpose of purchasing Avanex shares. Elections to participate in the Plan may only be made during open trading windows under the Company’s insider trading policy when the participant does not otherwise possess material non-public information concerning the Company. The Board of Directors has authorized 133,333 shares to be made available for purchase by officers and directors under the Plan.

Adoption of Employee Retention Program; RSU Grants to Certain Executive Officers

The Compensation Committee approved, effective August 18, 2008, an Employee Retention Program under the Company’s 1998 Stock Plan, pursuant to which the Committee granted Restricted Stock Units (“RSUs”) to certain employees of the Company, one half of which shall vest one year after the grant date and one-half of which shall vest two years after the grant date. The vesting of these RSUs may be accelerated in specified circumstances.

Pursuant to the Employee Retention Program, the Compensation Committee on August 18, 2008 granted RSUs to the following executive officers of the Company in the following amounts:

Benefits and Perquisites

Like other employees, Avanex executive officers are provided with standard health and welfare benefits, as well as the opportunity to participate in a 401(k) retirement and savings plan. The Company does not provide any additional perquisites to its named executive officers.

Change in Control and Severance Benefits

Our employees, including our named executive officers, are employees at-will and do not have long-term employment contracts with us. The at-will employment status of our employees affords us the flexibility necessary to remove employees when appropriate. However, in order to retain and attract highly qualified

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executives who may otherwise desire the protection of a long-term employment contract, we provide limited severance and change-in-control benefits to our executives. Such benefits also provide protection for our executives who, upon joining us, may forfeit substantial pay and benefits earned from a previous employer.

In recent years the optical-products industry has undergone, and in the future we anticipate the industry to continue to undergo, substantial industry consolidation. We determined that these limited change of control and severance provisions were necessary in order for us to attract and retain the highest quality executive officers that we could, and to enable our executive officers to focus their attention on increasing stockholder value rather than unnecessarily worrying about their livelihood.

For more information regarding our severance and change-in control benefits, please see the section entitled “Potential Payments Upon Termination or Change of Control” below.

Change in Control Benefits.    The stock option agreements and restricted stock unit agreements between Avanex and its executive officers generally provide that immediately upon a change of control, as defined in the agreements, each such award will become vested and exercisable as to 50% of the shares underlying such award, if such award is not already so vested. Upon or within twelve months of a change of control, if any such individual’s employment terminates as a result of an involuntary termination, as defined in the agreements (other than for cause, as defined in the agreements), each such award will become fully vested and exercisable.

Avanex provides limited vesting acceleration benefits, as described above, immediately upon a change of control transaction to create an incentive for its executive officers to help successfully execute such transaction from its early stages until closing. These benefits are limited in amount so as not to create an excessive windfall for the executive officer and to provide a continuing incentive for the executive officer to remain with the combined company following the transaction. Avanex also provides full acceleration benefits, as described above, to enable our executive officers to focus their attention on increasing the stockholder value of the combined company rather than unnecessarily worrying about their livelihood.

Severance Benefits: Interim Chief Executive Officer and Vice Presidents.    Avanex’s severance policy for our Interim Chief Executive Officer and vice presidents is as follows:

Except as otherwise required or provided by any applicable foreign, federal, state or local law, Avanex will only pay severance pursuant to this policy in exchange for the Interim Chief Executive Officer’s or vice president’s execution of a full release of all claims in a form satisfactory to Avanex.

Severance Benefits: Dr. Jo Major, Jr., the Company’s Former President and Chief Executive Officer.     Dr. Jo S. Major, Jr. was terminated from his position as President and Chief Executive Officer of the Company, effective on July 7, 2008. On July 25, 2008, Avanex entered into a Separation and Release Agreement with Dr. Major. The Separation and Release Agreement provided that Dr. Major receives the following:

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These severance benefits are subject to Dr. Major’s not revoking the Separation and Release Agreement and release of claims, as well as the non-solicitation and non-disparagement provisions set forth in the Separation and Release Agreement.

Departure of and Separation and Release Agreement with Mr. Yves LeMaitre, the Company’s Former Senior Vice President and Chief Marketing Officer.    On November 8, 2007, the Company accepted the resignation of Mr. Yves LeMaitre, the Company’s former Senior Vice President and Chief Marketing Officer, effective November 9, 2007. A separation agreement and release entered into between the parties on November 12, 2007, provided that Mr. LeMaitre receives the following:

The agreement contains a general release of claims from Mr. LeMaitre in favor of the Company.

Departure of and Separation and Release Agreement with Mr. Patrick Edsell, Company’s Former Senior Vice President and General Manager.    On August 25, 2008, the Company accepted the resignation of Mr. Patrick Edsell, the Company’s former Senior Vice President and General Manager, effective August 25, 2008. A separation agreement and release entered into between the parties on September 16, 2008 provided that Mr. Edsell receives the following:

The agreement contains a general release of claims from Mr. Edsell in favor of the Company.

Reasonableness of Compensation

The Compensation Committee believes that Avanex is achieving its compensation objectives and that, in particular, Avanex rewards its executive officers for driving operational success and stockholder value creation. Based on our performance record and our compensation objectives, management and the Compensation Committee believe the average target pay position relative to market, and pay mix, are reasonable and appropriate for Avanex’s executive officers.

Other Considerations

Tax Considerations

The Compensation Committee considers the potential effects of Section 162(m) of the Code on the compensation paid to certain of the Company’s executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for certain executive officers, unless compensation is performance-based.

The Compensation Committee is aware of the Section 162(m) limitations, and the available exemptions, and in 2005 obtained stockholder approval of the amended 1998 Stock Plan to allow the Company to receive a tax deduction for certain performance-based compensation paid under the 1998 Stock Plan in excess of the Section 162(m) limitations. Time-based restricted stock unit grants do not comply with Section 162(m) guidelines, nor does the Company’s annual incentive plan. The Compensation Committee will further address the issue of deductibility if circumstances warrant the use of other available exemptions.

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Section 409A of the Code

Section 409A imposes additional significant taxes in the event that an executive officer, director or service provider receives “deferred compensation” that does not satisfy the requirements of Section 409A. Although Avanex does not maintain a traditional nonqualified deferred compensation plan, Section 409A applies to certain severance arrangements and equity awards. Consequently, to assist in avoiding additional tax under Section 409A, Avanex has attempted to structure its equity awards in a manner intended to either avoid the application of Section 409A, or, to the extent doing so is not possible, comply with the applicable Section 409A requirements.

Accounting for Stock-Based Compensation

Beginning on July 1, 2005, Avanex began accounting for stock-based awards in accordance with the requirements of FAS 123 (R). Avanex gives equity awards that are a blend of stock options and Restricted Stock Units. Options are valued using a Black-Scholes stock option pricing model per the guidance in FAS 123 (R). Restricted stock units are valued at face value (i.e., the number of shares granted multiplied by the closing stock price on the date of grant). All equity award values are amortized over the requisite service period.

In general, management and the Compensation Committee view stock options as better aligned with the interests of the stockholders in that the stockholder suffers no dilution unless the underlying stock price appreciates. We view RSU grants as more retentive, in that they maintain value in the situation of a falling market. The Compensation Committee views equity grants that are a blend of these vehicles to be most appropriate for long-term retention and motivation of employees.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE OF

THE BOARD OF DIRECTORS

Greg Dougherty, Chair

Vinton Cerf

Paul Smith

Susan Wang

Dennis Wolf

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Summary Compensation Table

The following table presents information concerning the compensation received by our named executive officers during fiscal 2007 and fiscal 2008.

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Grants of Plan-Based Awards in 2008

The following table presents information concerning each grant of an award made to a named executive officer in fiscal 2008 under any plan.

Awards pursuant to the Incentive Bonus Program were determined by the Compensation Committee in September 2008 and awarded in cash (to former executive officers) and restricted stock units with immediate vesting (to current executive officers) as follows:

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Outstanding Equity Awards at 2008 Fiscal Year-End

The following table presents information concerning unexercised options and stock that have not vested for each named executive officer outstanding as of the end of fiscal 2008.

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2008 Option Exercises

The following table presents information concerning each exercise of stock options and shares acquired upon vesting of stock awards during fiscal 2008 for each of the named executive officers.

Potential Payments Upon Termination or Change of Control

Termination or Change of Control Arrangements

Change in Control Benefits

The stock option agreements and restricted stock unit agreements between Avanex and its executive officers generally provide that immediately upon a change of control, as defined in the agreements, each such award will become vested and exercisable as to 50% of the shares underlying such award, if such award is not already so vested. Upon or within twelve months of a change of control, if any such individual’s employment terminates as a result of an involuntary termination, as defined in the agreements (other than for cause, as defined in the agreements), each such award will become fully vested and exercisable.

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Severance Benefits

Interim Chief Executive Officer and Vice Presidents.    Avanex’s severance policy for its Interim Chief Executive Officer and vice presidents is as follows:

Except as otherwise required or provided by any applicable foreign, federal, state or local law, Avanex will only pay severance pursuant to this policy in exchange for the Interim Chief Executive Officer’s or vice president’s execution of a full release of all claims in a form satisfactory to Avanex.

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Estimated Payments Upon Termination or Change in Control

The following table provides information concerning the estimated payments and benefits that would be provided in the circumstances described above for each of the named executive officers. Payments and benefits are estimated assuming that the triggering event took place on the last business day of fiscal 2008 (June 30, 2008), and the price per share of Avanex’s Common Stock is the closing price on the NASDAQ Global Market as of that date ($16.95) (as adjusted for a fifteen-for-one reverse stock split which occurred after the close of market on August 12, 2008). There can be no assurance that a triggering event would produce the same or similar results as those estimated below if such event occurs on any other date or at any other price, of if any other assumption used to estimate potential payments and benefits is not correct. Due to the number of factors that affect the nature and amount of any potential payments or benefits, any actual payments and benefits may be different.