Document:

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                                                                   EXHIBIT 10.17

                              EMPLOYMENT AGREEMENT

      THIS AGREEMENT ("AGREEMENT") is dated as of June 29, 2003, and is by and
between Richard J. Schneider ("EXECUTIVE") and Acres Gaming Incorporated, a
Nevada corporation (herein the "COMPANY").

      WHEREAS, Executive is currently employed by the Company; and

      WHEREAS, International Game Technology ("IGT") has entered into an
Agreement and Plan of Merger (the "MERGER AGREEMENT"), dated the date hereof,
with the Company, pursuant to which the Company will, upon consummation of the
transactions contemplated in the Merger Agreement, become a direct wholly-owned
subsidiary of IGT (the "MERGER"). The Company acknowledges that, following the
Merger, continued access to the experience, knowledge and expertise possessed by
Executive will be critical to the Company's success; and

      WHEREAS, the Company considers it important and in its best interest to
foster the employment of key management personnel and desires to retain the
services of Executive on the terms and subject to the conditions in this
Agreement; and

      WHEREAS, Executive desires to continue employment by the Company after the
Merger on the terms and subject to the conditions of this Agreement.

      NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:

      1.    EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby employs Executive as President and Chief Operating
Officer of the Company, and Executive hereby accepts such employment with the
Company.

      2.    DUTIES OF EXECUTIVE.

            2.1   Executive shall report to the Executive Vice President of
Product Development of IGT. Executive will have all necessary powers to
discharge his duties and responsibilities, which will include general oversight
of the operations of the Company and/or its subsidiaries and affiliates;
consultation as needed with officers, managers, employees and other personnel of
the Company; and such other duties as the Chief Executive Officer or Board of
Directors of the Company may reasonably assign, consistent with duties typically
assigned to employees who hold positions similar to that of Executive.

            2.2   During the Term of this Agreement and except as provided
below, Executive will perform to the best of his abilities all duties assigned
to him hereunder, will devote substantially all of his primary business time,
attention and effort to the affairs of the Company, and will use his reasonable
best efforts to promote the interests of the Company. Notwithstanding the
foregoing or anything else in this Agreement, Executive may engage in reasonable
charitable, civic or community activities.

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            2.3   Executive warrants that he has obtained and possesses, or will
obtain and possess, and will maintain through the Term of this Agreement, all
licenses, approvals, permits and authorizations (the "LICENSES") necessary to
perform Executive's duties hereunder, including without limitation, any licenses
required by any state, county, Native American Tribe or other agency having
jurisdiction to regulate gaming, lotteries, liquor or the activities undertaken
by the Company. Any costs, attorneys' fees, investigation fees or other expenses
incurred in connection with obtaining such Licenses will be borne by the
Company. Executive warrants that he is fully eligible, under all standards and
requirements, to obtain or possess such licenses and that Executive will commit
no acts during the Term or any extension thereof that would jeopardize or
eliminate his ability to possess or maintain such licenses.

            2.4   Executive agrees to submit to drug testing in accordance with
Company's policy and to execute the Company's standard consent form.

      3.    TERM. The term of this Agreement (the "TERM") will commence as of
the Effective Time of the Merger as defined in Section 1.3 of the Merger
Agreement (the "EFFECTIVE DATE"), and will (subject to paragraph 8 hereof)
continue for a period of three (3) years from the Effective Date.
Notwithstanding anything to the contrary herein, (i) the terms of paragraph 5
below shall survive any termination of this Agreement other than a termination
pursuant to the following clause (ii), and (ii) if the Merger Agreement is
terminated according to the terms thereof, this Agreement shall, from the date
of termination of the Merger Agreement forward, be of no further force or
effect, and any prior employment agreement between Executive and the Company
shall remain in force pursuant to the terms and conditions thereof.

      4.    COMPENSATION.

            4.1   BASE SALARY. As compensation in full for the services to be
rendered by the Executive under this Agreement during the Term, the Company
shall pay to Executive a base salary of Two Hundred Thousand Dollars ($200,000)
per year ("BASE SALARY"),which Base Salary shall be paid in accordance with the
Company's normal payroll policies and procedures.

            4.2   BONUS. In addition to the Base Salary set forth in paragraph
4.1 above, the Company will pay Executive an annual bonus in an amount to be
determined in accordance with the bonus plan attached hereto as Exhibit A, up to
a maximum of Two Hundred percent (200%) of Executive's Base Salary, including
the Stay Bonus as defined in Exhibit A, such bonus to be paid at a time and in a
manner consistent with payment of such bonuses to other officers and/or
executives of the Company.

            4.3   PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled to
participate in all employee benefit plans or programs of the Company to the
extent that his position, title, tenure, salary, age, health and other
qualifications make him eligible to participate in accordance with the terms of
the applicable plans or programs. The Company does not guarantee the adoption or
continuance of any particular employee benefit plan or program during the Term,
and the Executive's participation in any such plan or program shall be subject
to the provisions, rules and regulations applicable thereto.

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            4.4   STOCK OPTIONS. Concurrent with the Effective Date of this
Agreement, the Company shall grant to Executive an option to purchase 35,000
shares of common stock of IGT, at an exercise price equal to the closing trading
price of IGT's common stock on the Effective Date, such grant to be governed by
the provisions of IGT's 2002 Stock Incentive Plan, as amended (the "STOCK
OPTION"), and a Nonqualified Stock Option Agreement dated as of the Effective
Date (the "OPTION AGREEMENT"). One-fifth of the Stock Option will vest on each
of the first five (5) anniversaries of the Effective Date.

            4.5   WITHHOLDING TAXES. The Company may withhold from any benefits
payable under this Agreement, all federal, state, city or other taxes as shall
be required to be withheld pursuant to any law or governmental regulation or
ruling.

      5.    CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors or required by an order of a court having
jurisdiction or under subpoena from an appropriate government agency, during the
Term or at any time thereafter, Executive shall not divulge, furnish or make
accessible to anyone or use in any way other than in the ordinary course of the
business of the Company (which shall, for purposes of this paragraph, include
the Company's subsidiaries and affiliates, before and after the Merger) any
confidential or secret knowledge or information of the Company, which Executive
has acquired or become acquainted with or will acquire or become acquainted with
prior to the termination of the period of his employment by the Company
(including employment by the Company or any affiliated or predecessor companies
prior to the date of this Agreement), whether developed by himself or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company and represents a substantial investment
of time and expense by the Company, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company. The foregoing
obligations of confidentiality, however, shall not apply to any knowledge or
information which is now published or which subsequently becomes generally
publicly known, other than as a direct or indirect result of the breach of this
Agreement by Executive.

      6.    VENTURES. If, during the Term, Executive is engaged or associated
with the planning or implementing of any project, program or venture involving
the Company and/or its subsidiaries and affiliates, and a third party or
parties, all rights with respect to such project, program or venture shall
belong to the Company, its subsidiaries and/or affiliates, as applicable. Except
as approved by the Board of Directors of the Company, Executive shall not be
entitled to any interest in such project, program or venture or to any
commission, finder's fee or other compensation in connection therewith other
than the compensation to be paid by Executive as provided in this Agreement.

      7.    NON-SOLICITATION. Executive agrees that during the Term and for a
period of twelve (12) months thereafter, he will not, without the prior written
approval of the Board of Directors of the Company, hire, solicit or endeavor to
entice away from the Company, its

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subsidiaries and affiliates, or otherwise interfere with the relationship of the
Company, its subsidiaries and affiliates with any management employee of the
Company, its subsidiaries and affiliates, or any person or entity who was,
within the then most recent prior twelve-month period, a customer, supplier or
contractor of the Company, its subsidiaries and affiliates.

      8.    TERMINATION. Executive or the Company may terminate Executive's
employment at any time upon thirty (30) days' prior written notice. In the event
of termination of Executive's employment, all compensation and benefits set
forth in this Agreement shall terminate except as specifically provided in this
paragraph 8. This Agreement shall terminate in accordance with the following
provisions:

            8.1   EXPIRATION OF THE TERM. Unless earlier terminated in
accordance with the provisions hereof, this Agreement shall terminate upon
expiration of the Term as provided in paragraph 3 above. After the expiration or
termination of the Term, the Board of Directors of the Company may continue the
employment of Executive and Executive may accept the employment on an at-will
basis.

            8.2   DEATH. If the Executive dies during the Term, this Agreement
shall terminate, with the Termination Date in such instance being the date of
the Executive's death. In such event, the Company shall pay to Executive's
estate all earned but unpaid Base Salary through the Termination Date.

            8.3   DISABILITY. If the Executive has been absent from service to
the Company as required in this Agreement for a period of ninety (90) days or
more during any one hundred eighty (180) day period during the Term as a result
of any physical or mental disability, the Company has the right to terminate
this Agreement, the Termination Date in such instance being ten (10) days after
notice thereof is given to Executive. In such event, the Company shall pay to
Executive all earned but unpaid Base Salary through the Termination Date.

            8.4   TERMINATION BY THE COMPANY FOR CAUSE. The Company has the
right to terminate this Agreement for Cause as defined herein, such termination
to be effective immediately upon notice thereof from the Company to Executive.
In such event, the Company shall pay to Executive all earned but unpaid Base
Salary through the Termination Date. For purposes of this Agreement, "CAUSE"
shall mean:

                  8.4.1 The willful and material failure of Executive to perform
his duties hereunder (other than any such failure due to Executive's physical or
mental illness) or the willful and material breach by Executive of his
obligations hereunder;

                  8.4.2 Executive engaging in willful and serious misconduct
that has cause or is reasonably expected to result in material injury to the
Company;

                  8.4.3 Executive is convicted of, or enters a plea of guilty or
nolo contendre, to a crime that constitutes a felony; or

                  8.4.4 The failure or inability of Executive to obtain or
retain any license required to be obtained or retained by him in any
jurisdiction in which the Company does or proposes to do business.

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            8.5   TERMINATION BY THE COMPANY WITHOUT CAUSE. If the Board of
Directors of the Company decides to terminate this Agreement during the Term
without Cause, it may do so under the following terms and conditions

                  8.5.1 The Company shall pay Executive a termination payment
equal to six (6) months of Executive's Base Salary (based upon the Base Salary
in existence as of the date of termination), provided, that Executive hereby
agrees that, in consideration of such payment, for a period of six (6) months
following the date of termination Executive shall not, without the written
consent of the Board of Directors of the Company, directly or indirectly, engage
in competition in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association or
otherwise) with any business which the Company, its subsidiaries and/or
affiliates conducted during the Term, including the design, development,
manufacture, distribution, marketing, leasing, financing or selling of
accessories, devices, or systems related to the products or services being sold
by the Company, its subsidiaries and/or affiliates. In the event Executive's
employment is terminated pursuant to this paragraph 8.5.1, the provisions of
Section 10 of the Option Agreement shall become null and void and shall be of no
further force and effect.

                  8.5.2 The Company will pay the premiums for Executive's health
benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA) to the
extent that he is eligible for COBRA benefits, for the shorter of a period of
six (6) months following termination without cause, or until Executive secures
new employment.

            8.6   TERMINATION BY EXECUTIVE. Executive may voluntarily terminate
this Agreement on the six-month anniversary of the Effective Date by giving
written notice of such termination to the Company. If Executive voluntarily
terminates this Agreement pursuant to the terms of this paragraph 8.6, Executive
shall be entitled to receive a termination payment equal to six (6) months of
Executive's Base Salary (based upon the Base Salary in existence as of the date
of termination), provided, that Executive hereby agrees that, in consideration
of such payment, for a period of six (6) months following the date of
termination Executive shall be subject to all of the restrictive provisions of
paragraph 8.5.1. If Executive terminates this Agreement pursuant to the terms of
this paragraph 8.6, the provisions of Section 10 of the Option Agreement shall
become null and void and shall be of no further force and effect.

      9.    MISCELLANEOUS.

            9.1   ENTIRE AGREEMENT. This Agreement, and the agreements in the
forms of exhibits attached hereto, constitute the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersede and preempt any prior written or prior or contemporaneous oral
understandings, agreements or representations by or between the parties, written
or oral, which may have related in any manner to the subject matter hereof, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.

            9.2   GOVERNING LAW. This Agreement and all rights and obligations
hereunder, including without limitation matters of construction, validity and
performance, is

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made under and shall be governed by and construed in accordance with the
internal laws of the State of Nevada, without regard to principles of conflict
of laws.

            9.3   AMENDMENTS. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by all of the
parties hereto.

            9.4   NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.

            9.5   SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation of
the foregoing, should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in excess of that
which is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent or activities which may validly
and enforceably be covered. Executive acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.

            9.6   ASSIGNMENT. This Agreement may be assigned by the Company in
connection with a Change of Control or sale of all or substantially all of the
Company's assets. This Agreement shall not be assignable, in whole or in part,
by Executive without the prior written consent of the Company.

            9.7   INJUNCTIVE RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement, especially the provisions of paragraph 5 above. Accordingly,
Executive specifically agrees that the Company shall be entitled to temporary
and permanent injunctive relief to enforce the provisions of this Agreement and
that such relief may be granted without the necessity of proving actual damages.
This provision with respect to injunctive relief shall not, however, diminish
the right of the Company to claim and recover damages in addition to injunctive
relief.

            9.8   ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement or breach thereof, except for claims for injunctive
relief set out in paragraph 9.7 above, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association relating to
employment, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement.

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      IN WITNESS WHEREOF, the Company and Executive have executed this agreement
as of the date set forth in the first paragraph.

                                        COMPANY

                                        By:     /s/ Patrick W. Cavanaugh
                                              ----------------------------------
                                        Name:   Patrick W. Cavanaugh
                                              ----------------------------------
                                        Title:  SVP, CFA & Treasurer
                                              ----------------------------------

                                        EXECUTIVE

                                        By:     /s/ Richard J. Schneider
                                              ----------------------------------
                                                Richard J. Schneider

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                                    EXHIBIT A
                                   BONUS PLAN

1.    Stay Bonus  Executive shall be entitled to receive an annual bonus in the
amount of $50,000 for each of the three years of the Term ("STAY BONUS"),
provided, that Executive remains in the employ of the Company as of the date of
determination of the annual bonus.

2.    Maximum Bonus  Executive's maximum aggregate annual bonus (including Stay
Bonus) shall not exceed 200% of Base Salary.

3.    Annual Bonus

      Executive's bonus for the first year of the Term (the "FIRST YEAR BONUS")
shall be determined as set forth below. For each remaining year of the Term,
Executive's annual bonus will be determined by the Board of Directors of the
Company in accordance with IGT's standard practices.

PLAN:                   Means the specified target operating income of the
                        Company for the Measurement Period which is $11,000,000.
                        Measurement Period means the twelve-month period
                        immediately following the Effective Date.

BONUS IF OPERATING      If the actual operating income of the Company for the
INCOME MEETS PLAN:      Measurement Period (the "ACTUAL OPERATING INCOME") is
                        100% of Plan, Executive shall be entitled to receive a
                        First Year Bonus equal to seventy percent (70%) of Base
                        Salary (the "TARGET BONUS").

BONUS IF OPERATING      If Actual Operating Income is less than Plan, Executive
INCOME FALLS BELOW      shall be entitled to receive a First Year Bonus equal to
PLAN:                   (i) the Target Bonus, minus (ii) one percent (1%) of
                        Base Salary for each one percent (1%) (or portion
                        thereof) that Actual Operating Income falls short of
                        Plan.

BONUS IF OPERATING      If Actual Operating Income exceeds Plan, Executive shall
INCOME IS ABOVE         be entitled to receive a First Year Bonus equal to (i)
PLAN:                   the Target Bonus, plus (ii) one Dollar ($1) for each ten
                        Dollars ($10) (or portion thereof) by which the Actual
                        Operating Income exceeds Plan.

CALCULATION OF ACTUAL   For purposes of determining the amount of the First Year
OPERATING INCOME:       Bonus, the calculation of Actual Operating Income shall
                        exclude any negative adjustments to operating income
                        resulting from (i) pricing changes made or caused to be
                        made by IGT or (ii) accounting changes required as a
                        result of the Merger.<PAGE>

                                                                    Exhibit 10.8

                               AVANEX CORPORATION

                                 1998 STOCK PLAN

                             STOCK OPTION AGREEMENT

      Unless otherwise defined herein, the terms defined in the 1998 Stock Plan,
as amended (the "Plan") shall have the same defined meanings in this Option
Agreement.

I.    NOTICE OF STOCK OPTION GRANT

      You have been granted an Option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:

      Date of Grant

      Vesting Commencement Date

      Exercise Price per Share

      Total Number of Shares Granted

      Total Exercise Price

      Type of Option                        ____ Incentive Stock Option

                                            ____ Nonstatutory Stock Option

      Term/Expiration Date:

      Exercise and Vesting Schedule:

      Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance to the following vesting schedule:

      25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter on the same day of the month as the Vesting
Commencement Date, subject to the Optionee continuing to be a Service Provider
on such dates.

      Acceleration Upon a Change of Control. Notwithstanding the foregoing, upon
a Change of Control, as defined below, that occurs while Optionee provides
services to the Company, this Option shall become vested and exercisable as to
fifty percent (50%) of the shares subject to this Option on the date the event
constituting a Change of Control is consummated. The balance of the shares
subject to this Option shall continue to vest on the same schedule (i.e., the
same number of shares

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shall vest each month) as existed prior to the Change of Control. For example,
if a Change of Control occurs on a date when 25% of Optionee's shares have
vested, then an additional 25% of the shares shall be vested pursuant to this
paragraph. The remaining 50% of the shares subject to this Option shall vest at
the rate of 1/48th of the shares per month thereafter, such that all shares are
fully vested after an additional 24-month period. If a Change of Control occurs
on a date where more than 50% of Optionee's shares have already vested, then no
additional Shares shall vest pursuant to this paragraph.

      Acceleration Upon a Change of Control and Termination of Employment.
Notwithstanding the foregoing, in the event the Optionee's employment with the
Company terminates as a result of an Involuntary Termination other than for
Cause upon or within 12 months after a Change of Control, this Option shall be
fully (i.e. 100%) vested and this Option may be exercised, in whole or in part,
upon the date of such termination.

      Acceleration Following Involuntary Termination without Cause.
Notwithstanding the foregoing, in the event the Optionee's employment with the
Company terminates as a result of an Involuntary Termination without Cause upon
or within 12 months after the commencement of Optionee's employment with the
Company, but prior to a Change of Control, this Option shall vest as to 1/48th
of the Shares subject to the Option for each full month from the Vesting
Commencement Date until the date of Optionee's Involuntary Termination.

      The following terms referred to in this Agreement shall have the following
meanings:

            (i) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Optionee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Optionee, (ii)
conviction of a felony that is injurious to the Company, and (iii) a willful act
by the Optionee which constitutes gross misconduct and which is injurious to the
Company.

            (ii) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:

            Any "person" (as such term is used in Sections 13(d) and 14(d) of
            the Securities Exchange Act of 1934, as amended) is or becomes the
            "beneficial owner" (as defined in Rule 13d-3 under said Act),
            directly or indirectly, of securities of the Company representing
            50% or more of the total voting power represented by the Company's
            then outstanding voting securities other than in a private financing
            transaction approved by the Board of Directors;

            the direct or indirect sale or exchange by the stockholders of the
            Company of all or substantially all of the stock of the Company;

            a merger or consolidation in which the Company is a party and in
            which the stockholders of the Company before such merger or
            consolidation do not retain, directly or indirectly, at a least
            majority of the beneficial interest in the voting stock of the
            Company after such transaction; or

            the sale or disposition by the Company of all or substantially all
            the Company's assets.

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            (iii) Disability. "Disability" shall mean that the Optionee has been
unable to substantially perform his duties as the result of his incapacity due
to physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Optionee or the Optionee's
legal representative (such agreement as to acceptability not to be unreasonably
withheld).

            (iv) Involuntary Termination. "Involuntary Termination" shall mean
(i) without the Optionee's express written consent, the significant reduction of
the Optionee's duties or responsibilities relative to the Optionee's duties or
responsibilities in effect immediately prior to such reduction; provided,
however, that a reduction in duties or responsibilities solely by virtue of the
Company being acquired and made part of a larger entity (as, for example, when
the Chief Financial Officer of Company remains as such following a Change of
Control and is not made the Chief Financial Officer of the acquiring
corporation) shall not constitute an "Involuntary Termination"; (ii) without the
Optionee's express written consent, a substantial reduction, without good
business reasons, of the facilities and perquisites (including office space and
location) available to the Optionee immediately prior to such reduction; (iii)
without the Optionee's express written consent, a material reduction by the
Company in the base compensation of the Optionee as in effect immediately prior
to such reduction, or the ineligibility of the Optionee to continue to
participate in any long-term incentive plan of the Company; (iv) a material
reduction by the Company in the kind or level of employee benefits to which the
Optionee is entitled immediately prior to such reduction with the result that
the Optionee's overall benefits package is significantly reduced; (v) the
relocation of the Optionee to a facility or a location more than 50 miles from
the Optionee's then present location, without the Optionee's express written
consent; (vi) any purported termination of the Optionee by the Company which is
not effected for death or Disability or for Cause, or any purported termination
for which the grounds relied upon are not valid; or (vii) the failure of the
Company to obtain the assumption of this agreement by any successors
contemplated in Section I.(ii) above.

      Termination Period:

      This Option may be exercised for three months after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for twelve months after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.

      In addition, upon an Involuntary Termination of the Optionee's employement
other than for Cause upon or within 12 months after a Change of Control, this
Option may be exercised for twenty-four months after Optionee ceases to be a
Service Provider.

II.   AGREEMENT

      A.    Grant of Option.

            The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set

                                      -3-

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forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.

            If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").

      B.    Exercise of Option.

            (a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

            (b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.

                        No Shares shall be issued pursuant to the exercise of
this Option unless such issuance and exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.

      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; or

            2. check; or

            3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or

            4. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.

      D.    Non-Transferability of Option.

                                      -4-

<PAGE>

            This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms 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 be exercised 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, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.

      G.    Exercising the Option.

            1. Nonstatutory Stock Option. The Optionee may incur regular federal
income tax liability upon exercise of a NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.

            2. Incentive Stock Option. If this Option qualifies as an ISO, the
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.

            3. Disposition of Shares.

                        (a) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.

                        (b) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be

                                      -5-

<PAGE>

treated as long-term capital gain for federal income tax purposes. If the
Optionee disposes of ISO Shares within one year after exercise or two years
after the grant date, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (A) the difference between the Fair Market
Value of the Shares acquired on the date of exercise and the aggregate Exercise
Price, or (B) the difference between the sale price of such Shares and the
aggregate Exercise Price. Any additional gain will be taxed as capital gain,
short-term or long-term depending on the period that the ISO Shares were held.

                        (c) Notice of Disqualifying Disposition of ISO Shares.
If the Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to an ISO on or before the later 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. The Optionee agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized from such early disposition of ISO Shares by payment in cash
or out of the current earnings paid to the Optionee.

      H.    Entire Agreement; Governing Law.

            The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive 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 HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

            By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this 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 and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.

                                      -6-

<PAGE>

OPTIONEE:                           AVANEX CORPORATION

_____________________________       By__________________________________
Signature

_____________________________       ____________________________________
Print Name                          Title

_____________________________
Residence Address

_____________________________

<PAGE>

                                    EXHIBIT A

                               AVANEX CORPORATION

                                 1998 STOCK PLAN

                                 EXERCISE NOTICE

Avanex Corporation
40919 Encyclopedia Circle
Fremont, CA 94538

Attention:  Secretary

      1. Exercise of Option. Effective as of today, ________________, _____, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Avanex Corporation (the "Company") under and
pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.

      2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.

      3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

      4. Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.

      5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

<PAGE>

      6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.

Submitted by:                         Accepted by:
PURCHASER:                            AVANEX CORPORATION

______________________________        ______________________________________
Signature                             By

______________________________        ______________________________________
Print Name

Address:                              Address:

______________________________        AVANEX CORPORATION

______________________________        40919 Encyclopedia Circle
                                      Fremont, CA 94538

                                      _____________________________________
                                      Date Received

                                      -2-

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