Document:

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                                                                    EXHIBIT 10.7

                       ALLIANCE FIBER OPTICS PRODUCT, INC.

                                 1997 STOCK PLAN

                     STOCK OPTION AGREEMENT - EARLY EXERCISE

         Alliance Fiber Optics Product, Inc. (the "Company") hereby grants an
option to purchase Shares of its Common Stock to the optionee named below on the
terms and conditions set forth in this cover sheet, the Company's 1997 Stock
Plan, and all exhibits attached hereto (together, the "Stock Option Agreement"):

<TABLE>
<S>                                                   <C>
Grant Number:                                         56
Date of Grant                                         January 18, 2000
Vesting Commencement Date                             January 1, 2000
Exercise Price Per Share                              US$0.20
Total Number of Shares Granted                        1,000,000
Type of Option                                        [X]  Incentive Stock Option(1)
                                                      [ ]  Nonqualified Stock Option
Expiration Date                                       January 18, 2010
</TABLE>

     Exercise and Vesting Schedule:

         The option granted hereunder may be exercised, in whole or in part,
based on the vesting schedule as set forth below.

         One forty-eighth (1/48) of the shares subject to the option shall vest
in the holder thereof on the one month anniversary of the Vesting Commencement
Date and an additional one-forty-eighth (1/48) of the shares subject to the
option shall vest in the holder thereof at the end of each full month
thereafter. The option is subject to special acceleration of vesting upon the
occurrence of certain circumstances, as further described on Attachment A to
this cover sheet.

                  BY SIGNING THIS COVER SHEET, YOU AGREE THAT THIS STOCK OPTION
AGREEMENT IS SUBJECT TO THE TERMS AND CONDITIONS OF THIS COVER SHEET, THE 1997
STOCK PLAN AND EXHIBITS A-D, WHICH ARE ATTACHED HERETO AND MADE A PART OF THIS
DOCUMENT.

OPTIONEE:                                    ALLIANCE FIBER OPTICS PRODUCT, INC.
                                             a California corporation

/s/ PETER C. CHANG                           By /s/ PETER C. CHANG
--------------------------                     ---------------------------------
Peter C. Chang                                 Peter C. Chang, President

----------
(1) ISO to the extend permitted under applicable law, the balance, if any,
shall be a NSO.

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                                  ATTACHMENT A

         1. In the event of any "Change of Control" (as defined below), then
one-half (1/2) of the then unvested portion of the Option will immediately vest.

         2. For purposes of the foregoing a "Change of Control" shall be deemed
to have occurred if (i) the Company sells or otherwise disposes of all or
substantially all of its assets; (ii) there is a merger or consolidation of the
Company with any other corporation or corporations, if the shareholders of the
Company, as a group, do not hold, immediately after such event, more than 50% of
the voting power of the surviving or successor corporation; or (iii) a person or
entity (exclusive of persons who are now officers and directors of the Company),
including any "person" as such term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the
"beneficial owner" (as defined in the Exchange Act) of capital stock of the
Company representing 40% or more of the combined voting power of the voting
securities of the Company.

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                                    EXHIBIT A

                             STOCK OPTION AGREEMENT

TYPE OF OPTION

The type of option which you have been granted is designated on the cover sheet.
If designated as an Incentive Stock Option, this option is intended to be an
incentive stock option under section 422 of the Internal Revenue Code and will
be interpreted accordingly.

VESTING

You may exercise this Option during its term in accordance with the exercise
schedule set out in the cover sheet and the applicable provisions of the Plan
and this Stock Option Agreement. In the event of your death, disability or other
termination of employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this Stock
Option Agreement.

TERM

Your option may be exercised only within the term set out in the cover sheet,
and may be exercised during such term only in accordance with the Plan and this
Stock Option Agreement. In any event, your Option will expire on the day before
the 10th anniversary of the Date of Grant, as shown on the cover sheet. It will
expire earlier if your Company service terminates, as described below.

REGULAR TERMINATION

In the event of the termination of your consulting relationship or Continuous
Status as an Employee for any reason other than death or disability, you may, to
the extent otherwise so entitled at the date of such termination, exercise this
Option within 90 days after your termination. To the extent that you were not
entitled to exercise this Option at the date of such termination, or if you do
not exercise your Option within the 90 day period specified above, your Option
will terminate.

DEATH

In the event of your death, the Option may be exercised at any time within
twelve (12) months following the date of death by your estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that you could exercise the Option at the date of death.

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DISABILITY

If your service with the Company (or any Subsidiary) terminates because of your
disability, you may, but only within six (6) months from the date of termination
of employment, exercise the Option to the extent otherwise so entitled at the
date of such termination.

RESTRICTIONS ON EXERCISE

The Company will not permit you to exercise this option if the issuance of
Shares at that time would violate any law or regulation.

NOTICE OF EXERCISE

When you wish to exercise this option, you must notify the Company by filing the
proper "Notice of Exercise" form (attached hereto as Exhibit C) at the address
given on the form. Your notice must specify how many Shares you wish to
purchase. Your notice must also specify how your Shares should be registered (in
your name only or in your and your spouse's names as community property or as
joint tenants with right of survivorship). The notice will be effective when it
is received by the Company. If someone else wants to exercise this option after
your death, that person must prove to the Company's satisfaction that he or she
is entitled to do so.

FORM OF PAYMENT

Your Notice of Exercise must be accompanied by payment of the aggregate purchase
price as to all Shares you wish to purchase. Payment of the purchase price shall
be by cash or personal check.

WITHHOLDING TAXES

You will not be allowed to exercise this option unless you make acceptable
arrangements to pay any withholding or other taxes that may be due as a result
of the option exercise or the sale of shares acquired upon exercise of this
option and the sale of the shares.

REPRESENTATIONS

If the Shares you intend to purchase have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised, the
Company may require you to (i) deliver to the Company your Investment
Representation Statement (attached as Exhibit B), which may contain, among other
things, an agreement to refrain from sales of the Shares for up to 180 days
immediately following an underwritten initial public offering), and (ii) read
the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.

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RIGHT OF FIRST REFUSAL

In the event that you propose to sell, pledge or otherwise transfer to a third
party any Shares acquired under this Stock Option Agreement, or any interest in
such Shares, the Company shall have the "Right of First Refusal" with respect to
all (and not less than all) of such Shares. If you desire to transfer Shares
acquired under this Agreement, you must give a written notice to the Company
describing fully the proposed transfer, including the number of Shares proposed
to be transferred, the proposed transfer price and the name and address of the
proposed transferee. The Company shall have the right to purchase all, and not
less than all, of the Shares on the terms of the proposal described in the
notice by delivery of a notice of exercise of the Right of First Refusal within
30 days after the date when the notice was received by the Company.

If the Company fails to exercise its Right of First Refusal within 30 days after
the date when it received the notice, you may, not later than three (3) months
following receipt of the notice by the Company, conclude a transfer of the
Shares on the terms and conditions described in the notice. If the Company
exercises its Right of First Refusal, the parties shall consummate the sale of
the Shares within 30 days after the date when the Company received the notice.
The Company's Right of First Refusal shall terminate in the event that Stock is
listed on an established stock exchange or is quoted regularly on the Nasdaq
National Market.

TRANSFER OF OPTION

Prior to your death, only you may exercise this option. You cannot transfer or
assign this option. For instance, you may not sell this option or use it as
security for a loan. If you attempt to do any of these things, this option will
immediately become invalid. You may, however, dispose of this option in your
will.

Regardless of any marital property settlement agreement, the Company is not
obligated to honor a notice of exercise from your spouse or former spouse, nor
is the Company obligated to recognize such individual's interest in your option
in any other way.

NO EMPLOYMENT RIGHTS

Your option or this Agreement does not give you the right to be retained by the
Company (or any subsidiaries) in any capacity. The Company (and any
subsidiaries) reserves the right to terminate your service at any time and for
any reason.

SHAREHOLDER RIGHTS

You, or your estate or heirs, have no rights as a shareholder of the Company
until a certificate for your option Shares has been issued. No adjustments are
made for dividends or other

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rights if the applicable record date occurs before your stock certificate is
issued, except as described in the Plan.

ADJUSTMENTS

In the event of a stock split, a stock dividend or a similar change in the
Company stock, the number of Shares covered by this option and the exercise
price per share may be adjusted pursuant to the Plan. In the event of the
proposed dissolution or liquidation of the Company, or of a merger in which the
successor corporation does not agree to assume the Option or Stock Purchase
Right or substitute an equivalent Option or Stock Purchase Right, the Board
shall notify Optionees and Purchasers at least thirty (30) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
or Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.

LEGENDS

All certificates representing the Shares issued upon exercise of this option
shall, where applicable, have endorsed thereon the following legends:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
         RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES SET FORTH
         IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS
         OR HER PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT
         THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN
         REQUEST TO THE SECRETARY OF THE COMPANY BY THE HOLDER OF RECORD OF THE
         SHARES REPRESENTED BY THIS CERTIFICATE."

         "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
         OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
         SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
         COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."

APPLICABLE LAW

This Agreement will be interpreted and enforced under the laws of the State of
California.

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THE PLAN AND OTHER AGREEMENTS

The text of the Plan is incorporated in this Stock Option Agreement by
reference. Certain capitalized terms used in this Agreement are defined in the
Plan.

This Stock Option Agreement and the Plan constitute the entire understanding
between you and the Company regarding this option. Any prior agreements,
commitments or negotiations concerning this option are superseded.

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

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                                    EXHIBIT B

                       INVESTMENT REPRESENTATION STATEMENT

OPTIONEE   :  Peter C. Chang

COMPANY    :  ALLIANCE FIBER OPTICS PRODUCT, INC.

SECURITY   :  COMMON STOCK

AMOUNT     :  1,000,000

DATE       :  May 2, 2000

In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:

         (a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

         (b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities. Optionee understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of

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Corporations of the State of California and any other legend required under
applicable state securities laws.

         (c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of exercise of the Option by the Optionee, such exercise will be
exempt from registration under the Securities Act. In the event the Company
later becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, ninety (90) days thereafter the securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including among other things: (1) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable.

         In the event that the Company does not qualify under Rule 701 at the
time of exercise of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the resale occurring not less than one year after the
party has purchased, and made full payment for, within the meaning of Rule 144,
the securities to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the securities less than two years, (2) the
availability of certain public information about the Company, (3) the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934), and (4) the amount of securities being sold
during any three month period not exceeding the specified limitations stated
therein, if applicable.

         (d) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for one hundred eighty (180) days from the effective
date of such registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; provided however that the officers and directors of the Company
who own stock in the Company also agree to such restrictions.

         (e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act,

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compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rules 144 and 701 are not
exclusive, the Staff of the Securities and Exchange Commission has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rules 144 or 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk. Optionee understands that no assurances can be given that any such other
registration exemption will be available in such event.

         (f) Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.

                                       Signature of Optionee:

                                       /s/ PETER C. CHANG
                                       -----------------------------------------

                                       Date: May 2, 2000
                                            ------------------------------------

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                                    EXHIBIT C

                               NOTICE OF EXERCISE

ALLIANCE FIBER OPTICS PRODUCT, INC.
735 N.  Pastoria Avenue
Sunnyvale, CA 94086
Attention: Chief Financial Officer

         1. Exercise of Option. Effective as of today, May 2, 2000, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
1,000,000 shares of the Common Stock (the "Shares") of ALLIANCE FIBER OPTICS
PRODUCT, Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the
"Plan") and the Incentive [X] Nonstatutory Stock Option Agreement dated January
18, 2000 (the "Option Agreement").

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

         3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan. Thereafter, Optionee
shall enjoy rights as a shareholder until such time as Optionee disposes of the
Shares.

         4. Company's Right of First Refusal. Optionee understands and
acknowledges that the Shares are subject to certain right of first refusal
provisions under the terms of the Plan and Option Agreement.

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

         6. Restrictive Legends and Stop-Transfer Orders.

                  (A) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by state or federal
securities laws:

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                  THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
                  FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE
                  SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
                  EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT
                  COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
                  TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
                  THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
                  THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
                  CORPORATION.

                  (B) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

                  (C) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.

         7. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.

         8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.

         9. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.

         10. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at

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its address as shown below beneath its signature, or to such other address as
such party may designate in writing from time to time to the other party.

         11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

         12. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.

         13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Notice, the Plan, the Option Agreement
(along with all other attachments to the Option Agreement that are executed and
delivered along with this Notice, if any) and the Investment Representation
Statement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and is governed by California law except
for that body of law pertaining to conflict of laws.

Submitted by:                          Accepted by:

OPTIONEE:                              ALLIANCE FIBER OPTICS PRODUCT, INC.
                                       a California corporation
Peter C.  Chang

                                       By: /s/ PETER C. CHANG
                                           -------------------------------------
/s/ PETER C. CHANG                       Its:
-----------------------------              -------------------------------------

2701 Fairbrook Drive
-----------------------------          -----------------------------------------
(address)                              (address)

Mtn. View, CA 94040
-----------------------------          -----------------------------------------

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                                    EXHIBIT D

                       ALLIANCE FIBER OPTICS PRODUCT, INC.

                                 1997 STOCK PLAN

                       RESTRICTED STOCK PURCHASE AGREEMENT

         THIS AGREEMENT is made between Peter C. Chang (the "Purchaser") and
Alliance Fiber Optics Product, Inc., a California corporation (the "Company") as
of May 2, 2000.

                                    RECITALS

         (1) Pursuant to the exercise of the stock option (grant number 55)
granted to Purchaser under the Company's 1997 Stock Plan (the "Plan") and
pursuant to the Stock Option Agreement (the "Option Agreement") dated January
18, 2000 by and between the Company and Purchaser with respect to such grant,
which Plan and Option Agreement are hereby incorporated by reference, Purchaser
has elected to purchase 1,000,000 of those shares which have not become vested
under the vesting schedule set forth in the Option Agreement (the "Unvested
Shares"). The Unvested Shares and the shares subject to the Option Agreement
which have become vested are sometimes collectively referred to herein as the
"Shares".

         (2) As a condition to Purchaser's election to exercise the Option as to
the Unvested Shares, Purchase hereby executes and delivers this Restricted Stock
Purchase Agreement, which sets forth certain rights and obligations of the
parties with respect to the Unvested Shares acquired upon exercise of the
Option.

         (3) In accordance with the terms of the Option Agreement, the
Purchaser, if an Employee or director of the Company on the date of this
Agreement, and if permitted by the Company, has the right to pay all or a
portion of the exercise price for the Shares by way full recourse promissory
note in the form attached hereto as Exhibit D-6 (the "Note"). If none of the
exercise price for the Shares is paid by way of a Note, all references to the
Note in this Agreement shall be disregarded. If a Note is utilized, then by his
or her execution below, the Purchaser hereby grants a security interest to the
Company in all of the Shares to secure the payment obligations of the Purchaser
to the Company under the Note. To perfect the security interest granted hereby,
the Purchaser hereby agrees to pledge the Shares to the Company, by delivering
or authorizing delivery of the stock certificates representing such shares to
the escrow agent authorized in Section 2(b). Upon the occurrence of a default in
the payment of the Note when due, which default remains uncured for thirty (30)
days following written thereof, the Company shall be entitled to the rights and
remedies of a secured party under the Commercial Code of the State of
California. In the event that the

<PAGE>   15
Purchaser prepays all or a portion of the Note, in accordance with the
provisions thereof, the Purchaser intends, unless otherwise indicated in writing
by the Purchaser at the time of payment or at any time thereafter, that the
shares represented by the portion of the Note so repaid, including annual
interest thereon, shall continue to be held in the escrow provided for below, to
serve as independent collateral for the outstanding portion of the Note, for the
purpose of commencing the holding period set forth in Securities and Exchange
Commission Rule 144(d).

         1. Repurchase Option.

                  (a) If Purchaser's status as an Employee, Consultant or
director, as applicable, is terminated for any or no reason, including for cause
or without cause, death or disability, the Company shall have the right and
option to purchase from Purchaser, or Purchaser's personal representative, as
the case may be, all or any portion of the Purchaser's Then-Unvested Shares (as
defined below) as of the date of such termination at the original exercise price
paid by the Purchaser for such Shares (the "Repurchase Option"), which
repurchase price may be paid in cash, by cancellation of indebtedness under the
Note, or a combination. The term "Then-Unvested Shares" as used herein shall
mean that portion of the Unvested Shares that remain unvested on such
termination date in accordance with the vesting schedule set forth in the cover
sheet to the Option Agreement.

                  (b) Upon the occurrence of a termination, the Company may
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice. The
closing shall take place at the Company's office. At the closing, the holder of
the certificates for the Then-Unvested Shares being transferred shall deliver
the stock certificate or certificates evidencing the Then-Unvested Shares, and
the Company shall deliver the purchase price therefor.

                  (c) At its option, the Company may elect to make payment for
the Then-Unvested Shares to a bank selected by the Company. The Company shall
avail itself of this option by a notice in writing to Purchaser stating the name
and address of the bank, date of closing, and waiving the closing at the
Company's office.

                  (d) If the Company does not elect to exercise the Repurchase
Option conferred above by giving the requisite notice within ninety (90) days
following the termination, the Repurchase Option shall terminate.

                  (e) The Repurchase Option shall terminate in accordance with
the vesting schedule in Optionee's Option Agreement.

         2. Transferability of the Shares; Escrow.

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                  (a) Purchaser hereby authorizes and directs the secretary of
the Company, or such other person designated by the Company, to transfer the
Then-Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.

                  (b) To insure the availability for delivery of Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option
under Section 1, and as security for the faithful performance of the terms of
the Note, if applicable, Purchaser hereby appoints the secretary, or any other
person designated by the Company as escrow agent, as its attorney-in-fact to
sell, assign and transfer unto the Company, such Unvested Shares, if any,
repurchased by the Company pursuant to the Repurchase Option and shall, upon
execution of this Agreement, deliver and deposit with the secretary of the
Company, or such other person designated by the Company, the share certificates
representing the Unvested Shares, together with the stock assignment duly
endorsed in blank, attached hereto as Exhibit D-2. The Unvested Shares and stock
assignment shall be held by the secretary in escrow, pursuant to the Joint
Escrow Instructions of the Company and Purchaser attached as Exhibit D-3 hereto,
until the Company exercises its purchase right as provided in Section 1, until
such Unvested Shares are vested (and, if applicable, the Note is paid in full),
or until such time as this Agreement no longer is in effect. As a further
condition to the Company's obligations under this Agreement, the spouse of the
Purchaser, if any, shall execute and deliver to the Company the Consent of
Spouse attached hereto as Exhibit D-4. Upon vesting of the Unvested Shares (and,
if applicable, the Note is paid in full), the escrow agent shall promptly upon
written request, or periodically without written request, deliver to the
Purchaser the certificate or certificates representing such Shares in the escrow
agent's possession belonging to the Purchaser, and the escrow agent shall be
discharged of all further obligations hereunder; provided, however, that the
escrow agent shall nevertheless retain such certificate or certificates as
escrow agent if so required pursuant to other restrictions imposed pursuant to
this Agreement.

                  (c) The Company, or its designee, shall not be liable for any
act it may do or omit to do with respect to holding the Shares in escrow and
while acting in good faith and in the exercise of its judgment.

                  (d) Purchaser shall not sell, transfer, pledge, hypothecate or
otherwise dispose of any of the Shares while the Note remains outstanding, nor
any Unvested Shares which remain subject to the Company's Repurchase Option.
Notwithstanding the foregoing, upon prior written consent of the Company (which
consent shall not be unreasonably withheld), the Purchaser may assign or
transfer Unvested Shares for family planning, tax planning or estate planning,
or other such purposes, provided the transferee agrees to be bound by all
obligations of the Purchaser, and the Company is reasonably secure that such
obligations remain enforceable against the transferee.

                  (e) Transfer or sale of the Shares is subject to restrictions
on transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such

                                       3
<PAGE>   17
Shares subject to all the provisions hereof and the Exercise Notice executed by
the Purchaser with respect to any Unvested Shares purchased by Purchaser and
shall acknowledge the same by signing a copy of this Agreement.

         3. Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.

         4. Legends. The share certificate evidencing the Shares issued
hereunder may be endorsed with the legend substantially to the following effect
(in addition to any legend required under applicable state securities laws):

         THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.

         5. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.

         6. Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.

         7. Survival of Terms. This Agreement shall apply to and bind Purchaser
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.

         8. Section 83(b) Election. Purchaser hereby acknowledges that he or she
has been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an

                                       4
<PAGE>   18
election, alternative minimum taxable income will be measured and recognized by
Purchaser at the time or times on which the Company's Repurchase Option lapses.
Purchaser is strongly encouraged to seek the advice of his or her own tax
consultants in connection with the purchase of the Shares and the advisability
of filing of the Election under Section 83(b) of the Code. A form of Election
under Section 83(b) is attached hereto as Exhibit D-5 for reference.

         PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON
PURCHASER'S BEHALF.

         9. Representations. Purchaser has reviewed with his own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.

         10. Governing Law. This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules, of California.

         Purchaser represents that he has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.

                                       5
<PAGE>   19
         IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.

                                       "COMPANY"

                                       ALLIANCE FIBER OPTICS PRODUCT, INC.

                                       By:
                                           -------------------------------------
                                       Title:
                                             -----------------------------------

                                       "PURCHASER"

                                       /s/ PETER C. CHANG
                                       -----------------------------------------
                                       Signature

                                       Peter C. Chang
                                       -----------------------------------------
                                       Printed Name

                                       -----------------------------------------
                                       Soc. Sec. No.

                                       Address:
                                       2701 Fairbrook Drive
                                       -----------------------------------------
                                       Mtn. View, CA 94040
                                       -----------------------------------------

                                       6<PAGE>   1
                                                                    EXHIBIT 10.8

                       ALLIANCE FIBER OPTICS PRODUCT, INC.
                                 1997 STOCK PLAN

                             STOCK OPTION AGREEMENT

     Alliance Fiber Optics Product, Inc. (the "Company") hereby grants an option
to purchase Shares of its Common Stock to the optionee named below on the terms
and conditions set forth in this cover sheet, the Company's 1997 Stock Plan, and
Exhibit A attached hereto (together, the "Stock Option Agreement"):

<TABLE>
<S>                                    <C>
Grant Number:                          57
Date of Grant                          January 18, 2000
Vesting Commencement Date              March 1, 2000
Exercise Price Per Share               US$0.20
Total Number of Shares Granted         150,000
Type of Option                               Incentive Stock Option
                                       -----
                                         X   Nonqualified Stock Option
                                       -----
Expiration Date                        January 18, 2010
</TABLE>

     Exercise Schedule:

     The option granted hereunder may be exercised, in whole or in part, based
on the vesting schedule as set forth below.

     One twenty-fourth (1/24) of the shares subject to the option shall vest in
the holder thereof on the one month anniversary of the Vesting Commencement Date
and an additional one twenty-fourth (1/24) of the shares subject to the option
shall vest in the holder thereof at the end of each full month thereafter. The
option is subject to special acceleration of vesting upon the occurrence of
certain circumstances, as further described on Attachment A to this cover sheet.

     BY SIGNING THIS COVER SHEET, YOU AGREE THAT THIS STOCK OPTION AGREEMENT IS
SUBJECT TO THE TERMS AND CONDITIONS OF THIS COVER SHEET, THE 1997 STOCK PLAN AND
EXHIBIT A, WHICH IS ATTACHED HERETO AND MADE A PART OF THIS DOCUMENT.

OPTIONEE:                           ALLIANCE FIBER OPTICS PRODUCT, INC.
                                    a California corporation

/s/ R. David Dicioccio              By /s/ Peter C. Chang
------------------------------         ------------------------------
David Dicioccio                        Peter C. Chang, President

<PAGE>   2

                                  ATTACHMENT A

1.   In the event of, or at any time after a "Change of Control", your
employment or consulting relationship with the Company (or it successor) is
involuntarily terminated (as such term is defined below), then all of the
unvested portion of the Option will immediately vest in the holder thereof.

2.   For purposes of the foregoing:

     (a)  A "Change of Control" shall be deemed to have occurred if (i) the
Company sells or otherwise disposes of all or substantially all of its assets;
(ii) there is a merger or consolidation of the Company with any other
corporation or corporations, if the shareholders of the Company, as a group, do
not hold, immediately after such event, more than 50% of the voting power of the
surviving or successor corporation; or (iii) a person or entity (exclusive of
persons who are now officers and directors of the Company), including any
"person" as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), becomes the "beneficial owner" (as
defined in the Exchange Act) of capital stock of the Company representing 40% or
more of the combined voting power of the voting securities of the Company.

<PAGE>   3
                                    EXHIBIT A

                             STOCK OPTION AGREEMENT

TYPE OF OPTION

The type of option which you have been granted is designated on the cover sheet.
If designated as an Incentive Stock Option, this option is intended to be an
incentive stock option under section 422 of the Internal Revenue Code and will
be interpreted accordingly.

VESTING

You may exercise this Option during its term in accordance with the exercise
schedule set out in the cover sheet and the applicable provisions of the Plan
and this Stock Option Agreement. In the event of your death, disability or other
termination of employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this Stock
Option Agreement.

TERM

Your option may be exercised only within the term set out in the cover sheet,
and may be exercised during such term only in accordance with the Plan and this
Stock Option Agreement. In any event, your Option will expire on the day before
the 10th anniversary of the Date of Grant, as shown on the cover sheet. It will
expire earlier if your Company service terminates, as described below.

REGULAR TERMINATION

In the event of the termination of your consulting relationship or Continuous
Status as an Employee for any reason other than death or disability, you may, to
the extent otherwise so entitled at the date of such termination, exercise this
Option within 90 days after your termination. To the extent that you were not
entitled to exercise this Option at the date of such termination, or if you do
not exercise your Option within the 90 day period specified above, your Option
will terminate.

DEATH

In the event of your death, the Option may be exercised at any time within
twelve (12) months following the date of death by your estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that you could exercise the Option at the date of death.

<PAGE>   4

DISABILITY

If your service with the Company (or any Subsidiary) terminates because of your
disability, you may, but only within six (6) months from the date of termination
of employment, exercise the Option to the extent otherwise so entitled at the
date of such termination.

RESTRICTIONS ON EXERCISE

The Company will not permit you to exercise this option if the issuance of
Shares at that time would violate any law or regulation.

NOTICE OF EXERCISE

When you wish to exercise this option, you must notify the Company by filing the
proper "Notice of Exercise" form (attached hereto as Exhibit C) at the address
given on the form. Your notice must specify how many Shares you wish to
purchase. Your notice must also specify how your Shares should be registered (in
your name only or in your and your spouse's names as community property or as
joint tenants with right of survivorship). The notice will be effective when it
is received by the Company. If someone else wants to exercise this option after
your death, that person must prove to the Company's satisfaction that he or she
is entitled to do so.

FORM OF PAYMENT

Your Notice of Exercise must be accompanied by payment of the aggregate purchase
price as to all Shares you wish to purchase. Payment of the purchase price shall
be by cash or personal check.

WITHHOLDING TAXES

You will not be allowed to exercise this option unless you make acceptable
arrangements to pay any withholding or other taxes that may be due as a result
of the option exercise or the sale of shares acquired upon exercise of this
option and the sale of the shares.

REPRESENTATIONS

If the Shares you intend to purchase have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised, the
Company may require you to (i) deliver to the Company your Investment
Representation Statement (attached as Exhibit B), which may contain, among other
things, an agreement to refrain from sales of the Shares for up to 180 days
immediately following an underwritten initial public offering), and (ii) read
the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.

<PAGE>   5

RIGHT OF FIRST REFUSAL

In the event that you propose to sell, pledge or otherwise transfer to a third
party any Shares acquired under this Stock Option Agreement, or any interest in
such Shares, the Company shall have the "Right of First Refusal" with respect to
all (and not less than all) of such Shares. If you desire to transfer Shares
acquired under this Agreement, you must give a written notice to the Company
describing fully the proposed transfer, including the number of Shares proposed
to be transferred, the proposed transfer price and the name and address of the
proposed transferee. The Company shall have the right to purchase all, and not
less than all, of the Shares on the terms of the proposal described in the
notice by delivery of a notice of exercise of the Right of First Refusal within
30 days after the date when the notice was received by the Company.

If the Company fails to exercise its Right of First Refusal within 30 days after
the date when it received the notice, you may, not later than three (3) months
following receipt of the notice by the Company, conclude a transfer of the
Shares on the terms and conditions described in the notice. If the Company
exercises its Right of First Refusal, the parties shall consummate the sale of
the Shares within 30 days after the date when the Company received the notice.
The Company's Right of First Refusal shall terminate in the event that Stock is
listed on an established stock exchange or is quoted regularly on the Nasdaq
National Market.

TRANSFER OF OPTION

Prior to your death, only you may exercise this option. You cannot transfer or
assign this option. For instance, you may not sell this option or use it as
security for a loan. If you attempt to do any of these things, this option will
immediately become invalid. You may, however, dispose of this option in your
will.

Regardless of any marital property settlement agreement, the Company is not
obligated to honor a notice of exercise from your spouse or former spouse, nor
is the Company obligated to recognize such individual's interest in your option
in any other way.

NO EMPLOYMENT RIGHTS

Your option or this Agreement does not give you the right to be retained by the
Company (or any subsidiaries) in any capacity. The Company (and any
subsidiaries) reserves the right to terminate your service at any time and for
any reason.

SHAREHOLDER RIGHTS

You, or your estate or heirs, have no rights as a shareholder of the Company
until a certificate for your option Shares has been issued. No adjustments are
made for dividends or other

<PAGE>   6

rights if the applicable record date occurs before your stock certificate is
issued, except as described in the Plan.

ADJUSTMENTS

In the event of a stock split, a stock dividend or a similar change in the
Company stock, the number of Shares covered by this option and the exercise
price per share may be adjusted pursuant to the Plan. In the event of the
proposed dissolution or liquidation of the Company, or of a merger in which the
successor corporation does not agree to assume the Option or Stock Purchase
Right or substitute an equivalent Option or Stock Purchase Right, the Board
shall notify Optionees and Purchasers at least thirty (30) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
or Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.

LEGENDS

All certificates representing the Shares issued upon exercise of this option
shall, where applicable, have endorsed thereon the following legends:

     "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
     RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN
     AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER
     PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
     PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST
     TO THE SECRETARY OF THE COMPANY BY THE HOLDER OF RECORD OF THE SHARES
     REPRESENTED BY THIS CERTIFICATE."

     "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
     OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
     ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
     THAT SUCH REGISTRATION IS NOT REQUIRED."

APPLICABLE LAW

This Agreement will be interpreted and enforced under the laws of the State of
California.

<PAGE>   7

THE PLAN AND OTHER AGREEMENTS

The text of the Plan is incorporated in this Stock Option Agreement by
reference. Certain capitalized terms used in this Agreement are defined in the
Plan.

This Stock Option Agreement and the Plan constitute the entire understanding
between you and the Company regarding this option. Any prior agreements,
commitments or negotiations concerning this option are superseded.

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

<PAGE>   8

                                    EXHIBIT B

                       INVESTMENT REPRESENTATION STATEMENT

OPTIONEE :  DAVID DICIOCCIO

COMPANY  :  ALLIANCE FIBER OPTICS PRODUCT, INC.

SECURITY :  COMMON STOCK

AMOUNT   :  $30,000

DATE     :  June 15, 2000

In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:

     (a)  Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

     (b)  Optionee acknowledges and understands that the securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the securities. Optionee
understands that the certificate evidencing the securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of

<PAGE>   9

Corporations of the State of California and any other legend required under
applicable state securities laws.

     (c)  Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of exercise of the Option by the Optionee, such exercise will be
exempt from registration under the Securities Act. In the event the Company
later becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, ninety (90) days thereafter the securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including among other things: (1) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable.

     In the event that the Company does not qualify under Rule 701 at the time
of exercise of the Option, then the securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires among other
things: (1) the resale occurring not less than one year after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than two years, (2) the availability of certain
public information about the Company, (3) the sale being made through a broker
in an unsolicited "broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of
1934), and (4) the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable.

     (d)  Optionee agrees, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by Optionee (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) further agrees to execute any agreement reflecting
(1) above as may be requested by the underwriters at the time of the public
offering; provided however that the officers and directors of the Company who
own stock in the Company also agree to such restrictions.

     (e)  Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act,

                                       2
<PAGE>   10

compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rules 144 and 701 are not
exclusive, the Staff of the Securities and Exchange Commission has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rules 144 or 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk. Optionee understands that no assurances can be given that any such other
registration exemption will be available in such event.

     (f)  Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.

                                       Signature of Optionee:

                                       /s/ R. David Dicioccio
                                       -----------------------------------------

                                       Date: June 15, 2000
                                             -------------

                                       3
<PAGE>   11

                                    EXHIBIT C

                               NOTICE OF EXERCISE

ALLIANCE FIBER OPTICS PRODUCT, INC.
735 N.  Pastoria Avenue
Sunnyvale, CA 94086
Attention: Chief Financial Officer

     1.   Exercise of Option. Effective as of today, June 15, 2000, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
__________ shares of the Common Stock (the "Shares") of ALLIANCE FIBER OPTICS
PRODUCT, Inc. (the "Company") under and pursuant to the 1997 Stock Plan, as
amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option
Agreement dated January 18, 2000 (the "Option Agreement").

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

     3.   Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan. Thereafter, Optionee
shall enjoy rights as a shareholder until such time as Optionee disposes of the
Shares.

     4.   Company's Right of First Refusal. Optionee understands and
acknowledges that the Shares are subject to certain right of first refusal
provisions under the terms of the Plan and Option Agreement.

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

     6.   Restrictive Legends and Stop-Transfer Orders.

          (A)  Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:

<PAGE>   12
          THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
          INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
          ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
          COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
          RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
          REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
          SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
          CORPORATION.

          (B)  Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

          (C)  Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.

     7.   Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.

     8.   Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.

     9.   Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.

     10.  Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at

                                       2
<PAGE>   13

its address as shown below beneath its signature, or to such other address as
such party may designate in writing from time to time to the other party.

     11.  Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

     12.  Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.

     13.  Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Notice, the Plan, the Option Agreement
(along with all other attachments to the Option Agreement that are executed and
delivered along with this Notice, if any) and the Investment Representation
Statement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and is governed by California law except
for that body of law pertaining to conflict of laws.

Submitted by:                          Accepted by:

OPTIONEE:                              ALLIANCE FIBER OPTICS PRODUCT, INC.
                                       a California corporation

David Dicioccio

                                       By: /s/ Peter C. Chang
                                           ------------------------------------
/s/ R. David Dicioccio                 Its:
------------------------                    -----------------------------------

1900 Vallejo St., #404                 ----------------------------------------
------------------------               (address)
(address)

San Francisco, CA 94123
------------------------

                                       3

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