C. Method of Payment.Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof,at the election of the Optionee:1. cash; or2. check; or3. consideration received by the Company under a cashless exercise program implemented bythe Company in connection with the Plan; or4. surrender of other Shares which (i) in the case of Shares acquired upon exercise of anoption, have been owned by the Optionee for more than six (6) months on the date ofsurrender, and (ii) have a Fair Market Value on the date of surrender equal to theaggregate Exercise Price of the Exercised Shares.D. Non-Transferability of Option.This Option may not be transferred in any manner otherwise than by will or by the laws of descentor distribution and may be exercised during the lifetime of Optionee only by the Optionee. Theterms of the Plan and this Option Agreement shall be binding upon the executors, administrators,heirs, successors and assigns of the Optionee.E. Term of Option.This Option may be exercised only within the term set out in the Notice of Grant, and may beexercised during such term only in accordance with the Plan and the terms of this Option Agreement.F. Tax Consequences.Some of the federal tax consequences relating to this Option, as of the date of this Option, areset forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARESUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION ORDISPOSING OF THE SHARES.G. Exercising the Option. 1) Nonstatutory Stock Option. The Optionee may incur regular federal income tax liabilityupon exercise of a NSO. The Optionee will be treated as having received compensationincome (taxable at ordinary income tax rates) equal to the excess, if any, of the FairMarket Value of the Exercised Shares on the date of exercise over their aggregate ExercisePrice. If the Optionee is an Employee or a former Employee, the Company will be requiredto withhold from his or her compensation or collect from Optionee and pay to the applicabletaxing authorities an amount in cash equal to a percentage of this compensation income atthe time of exercise, and may refuse to honor the exercise and refuse to deliver Shares ifsuch withholding amounts are not delivered at the time of exercise.  2) Incentive Stock Option. If this Option qualifies as an ISO, the Optionee willhave no regular federal income tax liability upon its exercise, although the excess, ifany, of the Fair Market Value of the Exercised Shares on the date of exercise over theiraggregate Exercise Price will be treated as an adjustment to alternative minimum taxableincome for federal tax purposes and may subject the Optionee to alternative minimum tax inthe year of exercise. In the event that the Optionee ceases to be an Employee but remainsa Service Provider, any Incentive Stock Option of the Optionee that remains unexercisedshall cease to qualify as an Incentive Stock Option and will be treated for tax purposes asa Nonstatutory Stock Option on the date three (3) months and one (1) day following suchchange of status.  3) Disposition of Shares. a) NSO. If the Optionee holds NSO Shares for at least one year, any gainrealized on disposition of the Shares will be treated as long-term capital gain forfederal income tax purposes.  b) ISO. If the Optionee holds ISO Shares for at least one year afterexercise and two years after the grant date, any gain realized on disposition of theShares will be treated as long-term capital gain for federal income tax purposes. Ifthe Optionee disposes of ISO Shares within one year after exercise or two years afterthe grant date, any gain realized on such disposition will be treated as compensationincome (taxable at ordinary income rates) to the extent of the excess, if any, of thelesser of (A) the difference between the Fair Market Value of the Shares acquired on thedate of exercise and the aggregate Exercise Price, or (B) the difference between thesale price of such Shares and the aggregate Exercise Price. Any additional gain will betaxed as capital gain, short-term or long-term depending on the period that the ISOShares were held.  c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sellsor otherwise disposes of any of the Shares acquired pursuant to an ISO on or before thelater of (i) two years after the grant date, or (ii) one year after the exercise date,the Optionee shall immediately notify the Company in writing of such disposition. TheOptionee agrees that he orshe may be subject to income tax withholding by the Company on the compensation incomerecognized from such early disposition of ISO Shares by payment in cash or out of thecurrent earnings paid to the Optionee.
 

 
H. Entire Agreement; Governing Law.The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute theentire agreement of the parties with respect to the subject matter hereof and supersede in theirentirety all prior undertakings and agreements of the Company and Optionee with respect to thesubject matter hereof, and may not be modified adversely to the Optionee’s interest except by meansof a writing signed by the Company and Optionee. This agreement is governed by the internalsubstantive laws, but not the choice of law rules, of California.I. NO GUARANTEE OF CONTINUED SERVICE.OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOFIS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THEACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHERACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THEVESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUEDENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOTINTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS ASERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.By your signature and the signature of the Company’s representative below, you and the Companyagree that this Option is granted under and governed by the terms and conditions of the Plan andthis Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety,has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement andfully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees toaccept as binding, conclusive and final all decisions or interpretations of the Administrator uponany questions relating to the Plan and Option Agreement. Optionee further agrees to notify theCompany upon any change in the residence address indicated below.       OPTIONEE: AVANEX CORPORATION           By:     Signature