Document:

<PAGE>

                        SETTLEMENT AND RELEASE AGREEMENT
                        --------------------------------

          This SETTLEMENT AND RELEASE AGREEMENT ("Agreement") is entered into on
this 5th day of October 2001 by and between STAAR Surgical Company (the
"Company"), and Gunther Roepstorff (the "Releasor"), with reference to the
following facts:

                                    RECITALS
                                    --------

          WHEREAS, effective January 1, 1998 the Company entered into that
certain "Independent Contractor Agreement" (the "Consulting Agreement") with the
Releasor; and

          WHEREAS, the Company and the Releasor desire to terminate the
Consulting Agreement in accordance with the terms of this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties to this
Agreement (hereinafter collectively the "parties" and individually a "party")
agree as follows:

                                   AGREEMENT
                                   ---------

     1.   PURPOSE.
          -------

          It is the desire and intention of the Releasor and the Company to
effect a final termination of the Consulting Agreement and a settlement and
resolution of all known and unknown claims arising in favor of the Releasor out
of the Consulting Agreement, regardless of their nature or basis.

     2.   TERMINATION OF CONSULTING AGREEMENT.
          -----------------------------------

          Upon execution of this Agreement, the Consulting Agreement shall
terminate and shall be of no further force and effect. Irrespective of the
foregoing, the Releasor agrees that he shall continue to be bound by paragraph 7
of the Consulting Agreement, requiring him to keep confidential the Company's
proprietary or confidential information.

     3.   CONSIDERATION.
          -------------

          As consideration for the execution of this Agreement by the Releasor,
the Company shall pay to the Releasor the sum of 500,000 German Deutsche Marks
and agrees that the Releasor shall be relieved of the obligation to repay
Domilens, the Company's subsidiary, the sum of 1,284,000 German Deutsche Marks,
constituting 80% of a loan totaling 1,700,000 German Deutsche Marks made to the
Releasor by Domilens.

                                       1

<PAGE>

     4.   RELEASE OF CLAIMS.
          -----------------

          By executing this Agreement, the Releasor does hereby generally and
specifically release, discharge and acquit the Company and its respective
subsidiaries, affiliates, officers, employees, directors, attorneys, successors,
predecessors, assignors, assignees, and each of them, from any and all claims,
cross-claims, third-party claims, counterclaims, demands, actions, charges,
causes of action, suits, liabilities, obligations, promises, damages, losses,
expenses, costs (including but not limited to attorneys' fees and costs actually
incurred) of whatever nature and kind, wherever filed or prosecuted, and whether
or not yet asserted, known or unknown, suspected or unsuspected, which are
related to or are in any manner incidental to the Consulting Agreement and the
termination of the Consulting Agreement.

     5.   WAIVER.
          ------

          The Releasor acknowledges that there is a risk that subsequent to the
execution of this Agreement he will discover, incur or suffer claims which were
unknown or unanticipated at the time of this Agreement, including, without
limitation, unknown or unanticipated claims which arise from, are based upon, or
are related to facts underlying the Consulting Agreement, which, had they been
known, may have materially affected his decision to execute this Agreement. By
executing this Agreement, the Releasor expressly assumes the risk of such
unknown and unanticipated claims and agrees that this Agreement applies to all
such potential claims.

          By executing this Agreement, the Releasor acknowledges that he has
read and is familiar with Section 1542 of the California Civil Code which
provides:

          "A general release does not extend to claims which the creditor does
          not know or suspect to exist in his favor at the time of executing the
          release, which if known by him must have materially affected his
          settlement with the debtor."

          By executing this Agreement, the Releasor expressly waives and
relinquishes all rights and benefits which he has or may have under Section 1542
of the California Civil Code to the full extent that he may lawfully waive all
such rights and benefits pertaining to the subject matter of this Agreement.

     6.   PROMISES OF RELEASOR.
          --------------------

          The Releasor hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced, any proceeding of any kind against any the Company, based upon
any matter purported to be released hereby. Without in any way limiting any of
the rights and remedies otherwise available to the Company, the Releasor shall
indemnify and hold harmless the Company from and against all loss, liability,
claim, damage (including incidental and consequential damages) or expense
(including costs of investigation and defense and reasonable attorney's fees)
whether or not involving third party claims, arising directly or indirectly from
or in connection with (i) the assertion by or on behalf of the Releasor of any
claim or other matter purported to be released

                                       2

<PAGE>

pursuant to this Release and (ii) the assertion by any third party of any claim
or demand against the Company which claim or demand arises directly or
indirectly from, or in connection with, any assertion by or on behalf of the
Releasor against such third party of any claims or other matters purported to be
released pursuant to this Release.

     7.   ADVICE OF COUNSEL.
          -----------------

          By executing this Agreement, the Releasor acknowledges that he has
consulted with and had the advice and counsel of an attorney and that he has
executed this Agreement after careful and independent investigation, and not
under fraud, duress or undue influence.

     8.   NO ASSIGNMENT.
          -------------

          The Releasor represents and warrants that he has not assigned or
otherwise transferred or subrogated and shall not assign or otherwise
transfer or subrogate any interest in any claims and/or cross-claims that he may
have against the Company which are the subject matter of this Agreement.

     9.   AUTHORIZATION.
          -------------

          Each party to this Agreement warrants that it or he has the power to
settle and release fully and completely all claims, causes of action, demands,
charges and liabilities against the other parties to this Agreement arising out
of or relating to the Consulting Agreement.

     10.  NO INDUCEMENT.
          -------------

          The parties to this Agreement declare and represent that no promises,
inducements, or agreements not expressly contained herein have been made and
that this Agreement contains the entire agreement among the parties.

     11.  BINDING EFFECT.
          --------------

          The provisions of this Agreement will be binding upon and inure to the
benefit of the heirs, executors, administrators, personal representatives,
successors in interest and assigns to the respective parties to it.

     12.  CALIFORNIA LAW.
          --------------

          This Agreement shall in all respects be interpreted, enforced and
governed under the laws of the state of California. The language and all parts
of this Agreement shall be in all cases construed as a whole according to its
very meaning and not strictly for or against any individual party.

                                       3

<PAGE>

     13.  NO MODIFICATION.
          ---------------

          This Agreement memorializes and constitutes the entire agreement and
understanding among the parties, and supersedes all prior negotiations, proposed
agreements and agreements, whether written or unwritten. The parties acknowledge
that no other party, nor any agent or attorney of any other party, has made any
promises, representations, or warranties whatsoever, expressly or impliedly,
which are not expressly contained in this Agreement, and the parties further
acknowledge that they have not executed this Agreement in reliance upon any
collateral promise, representation, warranty, or in reliance upon any belief as
to any fact or matter not expressly recited in this Agreement.

     14.  FURTHER ASSISTANCE.
          ------------------

          The parties shall hereafter execute all documents and do all that is
necessary, convenient or desirable in the reasonable opinion of the other party
to effect the provisions of this Agreement.

     15.  COUNTERPARTS AND FACSIMILES.
          ---------------------------

          For the convenience of the parties to this Agreement, this document
may be executed by facsimile signatures and in counterparts which shall together
constitute the agreement of the parties as one and the same instrument. It is
the intent of the parties that a copy of this Agreement signed by any party
shall be fully enforceable against that party.

     16.  SEVERABILITY.
          ------------

          Should any provision of this Agreement be declared or determined by
any court to be illegal or invalid, the validity of the remaining parts, terms
or provisions shall not be affected thereby and, in lieu of such illegal or
invalid provision, there shall be added a provision as similar in terms and
amount to such illegal or invalid provision as may be possible and, if such
illegal or invalid provision cannot be so modified, then it shall be deemed not
to be a part of this Agreement.

     17.  NOTICE.
          ------

          Unless otherwise specifically provided in this Agreement, all notices,
demands, requests, consents, approvals or other communications (collectively and
severally called "Notices") required or permitted to be given hereunder, or
which are given with respect to this Agreement, shall be in writing, and shall
be given by: (A) personal delivery (which form of Notice shall be deemed to have
been given upon delivery), (B) by telegraph or by private airborne/overnight
delivery service (which forms of Notice shall be deemed to have been given upon
confirmed delivery by the delivery agency) or (C) by electronic or facsimile or
telephonic transmission, provided the receiving party has a compatible device or
confirms receipt thereof (which forms of Notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt). Notices shall be addressed
to the parties at the addresses set forth below their names on the signature
page of this Agreement.

                                       4

<PAGE>

FX History: historical currency exchange rates

Conversion Table: USD to DEM (Interbank rate)

You have selected a currency which is replaced by the Euro. Please take a moment
to read the introduction of the Euro in 2002.
        ----------------------------

     Time period: 10/05/01 to 10/05/01.

Daily averages:
-------------------
10/05/2001 2.13240
-------------------

     Average (1 days): 2.13240

     High:             2.14760

     Low:              2.12820

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How to Read this table:
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<PAGE>

                                        "RELEASOR"

                                        ----------------------------------------
                                        Gunther Roepstorff
                                        Achtern Felin 20
                                        D-25474 Hasloh
                                        Germany

                                        "COMPANY"

                                        STAAR Surgical Company

                                        By:
                                           -------------------------------------
                                          1911 Walker Avenue
                                          Monrovia, California 91016

                                        5

<PAGE>

                                [LOGO] DOMILENS

For a partial payment of DM 120,000.- out of a first payment of DM 500,000.-
(consulting agreement) STAAR Surgical agreed to pay the amount of DM 120,000.-
out of the DOMILENS GmbH Germany account.

/s/ Illegible
-------------------------      ----------------------------
October 08th, 2001             David Bailey
                               CEO and President
                               STAAR Surgical

DOMILENS GmbH
Holsteiner Chaussee 303 a
D-22457 Hamburg

Postfach 61 12 63
D-22438 Hamburg

Telefon (040) 55 98 80-0
Telefax (040) 55 98 80-80
E-mail: domilens@domilens.de
web: www.domilens.de

Bestellservice zum
Nulltarif (0800) 60 33 000

Amtsgericht Hamburg B 38182
Geschaftsfuhrer: Gunther Roepstorff<PAGE>

                             STAAR SURGICAL COMPANY
                         STOCK OPTION PLAN AND AGREEMENT
                          FOR CHIEF EXECUTIVE OFFICER

                                    RECITALS
                                    --------

     On the Grant Date, the Board of Directors of STAAR Surgical Company (the
"Company") granted to David Bailey (the "Optionee") an option to purchase shares
of the Company's Common Stock at the Exercise Price specified in the Grant
Notice in consideration for his agreement to render services to the Company as
its Chief Executive Officer and President.

     This STAAR Surgical Company Stock Option Plan and Agreement for Chief
Executive Officer (the "Agreement") will govern the terms and conditions of the
option grant. All capitalized terms in this Agreement shall have the meanings
assigned to them in this Agreement, in the Grant Notice, or in the attached
Appendix.

                                    AGREEMENT
                                    ---------

     NOW, THEREFORE, it is hereby agreed as follows:

     1. Grant of Option. The Company hereby confirms the grant to the Optionee,
        ---------------
as of the Grant Date, an option (the "Option") to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the term specified in Paragraph 2 at the
Exercise Price.

     2. Option Term. The Option shall have a term of five (5) years measured
        -----------
from the Grant Date and shall accordingly expire at the close of business on the
Expiration Date, unless sooner terminated in accordance with Paragraph 5 or
Paragraph 6.

     3. Limited Transferability. During the Optionee's lifetime, the Option
        -----------------------
shall be exercisable only by the Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following the Optionee's death.

     4. Dates of Exercise. The Option shall become exercisable for the Option
        -----------------
Shares in one or more installments as specified in the Grant Notice. As the
Option becomes exercisable for such installments, those installments shall
accumulate and the Option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the term under
Paragraph 5 or Paragraph 6.

     5. Cessation of Service. The term specified in Paragraph 2 shall terminate
        --------------------
(and the Option shall cease to be outstanding) prior to the Expiration Date
should any of the following events occur:

          (a) If the Optionee's service is Terminated because of the Optionee's
death or Disability (or the Optionee dies within three (3) months after a
Termination other than for Cause or because of the Optionee's Disability), then
the Option may be exercised only to the extent that it would have been
exercisable by the Optionee on the Termination Date and must be exercised by the
Optionee (or the Optionee's legal representative or authorized assignee) no
later than twelve (12) months after the Termination Date, but in any event no
later than the Expiration Date.

                                       1

<PAGE>

          (b) In the event (i) the Company makes an Election to Release the
Optionee from providing Service, (ii) the Company makes an Election to Terminate
the Optionee's Service, or (iii) the Optionee's service is Terminated as a
result of a Corporate Transaction, the provisions of Paragraph 6 shall govern
the period for which the Option is to remain exercisable following the
Optionee's cessation of Service and shall supersede any provisions to the
contrary in this Paragraph 5.

          (c) If the Optionee ceases to remain in Service for any reason (other
than a reason set forth in sub-paragraphs (a) and (b) of this Paragraph 5) while
the Option is outstanding, then the Optionee shall have a period of thirty (30)
days (commencing with the date of Termination) during which to exercise the
Option, but in no event shall the Option be exercisable at any time after the
Expiration Date. During the limited period of post-Service exercisability, the
Option may not be exercised in the aggregate for more than the number of Option
Shares in which the Optionee is, at the time of the Optionee's cessation of
Service, vested pursuant to the Vesting Schedule specified in the Grant Notice.
Upon the expiration of such limited exercise period or (if earlier) upon the
Expiration Date, the Option shall terminate and cease to be outstanding for any
vested Option Shares for which the Option has not been exercised. To the extent
the Optionee is not vested in the Option Shares at the time of the Optionee's
cessation of Service, the Option shall immediately terminate and cease to be
outstanding with respect to those Option Shares.

     6.   Accelerated Vesting and Exercise.
          --------------------------------

          (a) In the event (i) the Company makes an Election to Release the
Optionee from providing Service, (ii) the Company makes an Election to Terminate
the Optionee's Service, or (iii) the Optionee's Service is Terminated as a
result of a Corporate Transaction, the Option Shares at the time subject to the
Option but not otherwise vested shall automatically vest in full so that the
Option shall, immediately prior to the effective date of the Company's Election
to Release, Election by the Company to Terminate, or Termination of the
Optionee's Service as a result of a Corporate Transaction, become fully
exercisable for all of such Option Shares. However, in the event of a Corporate
Transaction, the Option Shares shall not vest on such an accelerated basis if
                                     ---
and to the extent the Optionee's Service is not Terminated and (i) the Option is
assumed, converted or replaced by the successor corporation (or parent thereof)
in the Corporate Transaction or (ii) the Option is replaced with an equivalent
award or with substantially similar consideration as was provided to the
Company's stockholders in the Corporate Transaction.

          (b) In the event (i) the Company makes an Election to Release the
Optionee from providing Service or (ii) the Company makes an Election to
Terminate the Optionee's Service, the Optionee may exercise the Option no later
than three (3) months after the Termination Date, but in any event no later than
the Expiration Date.

          (c) Immediately following a Corporate Transaction, the Option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.

          (d) If the Option is assumed in connection with a Corporate
Transaction, then the Option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the Option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
       --------

                                       2

<PAGE>

          (e) This Agreement shall not in any way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

     7. Adjustment in Option Shares. Should any change be made to the Common
        ---------------------------
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to the Option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

     8. Shareholder Rights. The holder of the Option shall not have any
        ------------------
shareholder rights with respect to the Option Shares until such person shall
have exercised the Option, paid the Exercise Price and become a holder of record
of the purchased shares.

     9. Manner of Exercising Option.
        ---------------------------

          (a) In order to exercise the Option with respect to all or any part of
the Option Shares for which the Option is at the time exercisable, the Optionee
(or any other person or persons exercising the Option) must take the following
actions:

               (1) Execute and deliver to the Company a Notice of Exercise of
          Stock Option, in a form substantially similar to Exhibit A to this
          Agreement, for the Option Shares for which the Option is exercised.

               (ii) Pay the aggregate Exercise Price for the purchased shares in
          one or more of the following forms:

                    (A) by cancellation of indebtedness of the Company to the
               Optionee;

                    (B) if approved by the Board of Directors, by surrender of
               shares of Common Stock that either: (1) have been owned by the
               Optionee for more than six (6) months and have been paid for
               within the meaning of SEC Rule 144 (and, if such shares were
               purchased from the Company by use of a promissory note, such note
               has been fully paid with respect to such shares); or (2) were
               obtained by the Optionee in the public market;

                    (C) if approved by the Board of Directors, by tender of a
               full recourse promissory note having such terms as may be
               approved by the Board of Directors and bearing interest at a rate
               sufficient to avoid imputation of income under Sections 483 and
               1274 of the Internal Revenue Code;

                    (D) if approved by the Board of Directors, by waiver of
               compensation due or accrued to the Optionee for services
               rendered;

                    (E) with respect only to purchases upon exercise of an
               Option, and provided that a public market for the Company's stock
               exists:

                                       3

<PAGE>

                         (1) through a "same day sale" commitment from the
               Optionee and a broker-dealer that is a member of the National
               Association of Securities Dealers (an "NASD Dealer") whereby the
               Optionee irrevocably elects to exercise the Option and to sell a
               portion of the Option Shares so purchased to pay for the Exercise
               Price, and whereby the NASD Dealer irrevocably commits upon
               receipt of such shares to forward the Exercise Price directly to
               the Company; or

                         (2) through a "margin" commitment from the
               Optionee and an NASD Dealer whereby the Optionee irrevocably
               elects to exercise the Option and to pledge the shares so
               purchased to the NASD Dealer in a margin account as security for
               a loan from the NASD Dealer in the amount of the Exercise Price,
               and whereby the NASD Dealer irrevocably commits upon receipt of
               such shares to forward the Exercise Price directly to the
               Company; or

                    (F) by any combination of the foregoing. Except to the
               extent the sale and remittance procedure is utilized in
               connection with the Option exercise, payment of the Exercise
               Price must accompany the Notice of Exercise of Stock Option
               delivered to the Company in connection with the Option exercise.

               (iii) Furnish to the Company appropriate documentation that the
          person or persons exercising the Option (if other than Optionee) have
          the right to exercise the Option.

               (iv) Execute and deliver to the Company such written
          representations as may be requested by the Company in order for it to
          comply with the applicable requirements of federal and state
          securities laws.

               (v) Make appropriate arrangements with the Company for the
          satisfaction of all federal, state and local income and employment tax
          withholding requirements applicable to the Option exercise.

          (b) As soon as practicable after the Exercise Date, the Company shall
issue to or on behalf of the Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the appropriate
legends affixed thereto.

          (c) In no event may the Option be exercised for any fractional shares.

     10. Special Tax Election. The acquisition of the Option Shares may result
         --------------------
in adverse tax consequences that may be avoided or mitigated by filing an
election under Internal Revenue Code Section 83(b). Such election must be filed
within thirty (30) days after the Exercise Date. A description of the tax
consequences applicable to the acquisition of the Option Shares is set forth in
Exhibit B. THE OPTIONEE SHOULD CONSULT WITH HIS TAX ADVISOR TO DETERMINE THE TAX
CONSEQUENCES OF ACQUIRING THE OPTION SHARES AND THE ADVANTAGES AND DISADVANTAGES
OF FILING THE SECTION 83(b) ELECTION. THE OPTIONEE ACKNOWLEDGES THAT IT IS THE
OPTIONEE'S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION
UNDER SECTION 83(b), EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF.

                                       4

<PAGE>

     11.  Compliance with Laws and Regulations.
          ------------------------------------

          (a) The exercise of the Option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Company and the
Optionee with all requirements of applicable law and with all applicable
regulations of any stock exchange (or the Nasdaq Stock Market, if applicable) on
which the Common Stock may be listed for trading at the time of such exercise
and issuance.

          (b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to the Option shall
relieve the Company of any liability with respect to the non-issuance or sale of
the Common Stock as to which such approval shall not have been obtained. The
Company, however, shall use its best efforts to obtain all such approvals.

     12. Successors and Assigns. Except to the extent otherwise provided in
         ----------------------
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Company and its successors and assigns and the
Optionee, the Optionee's assigns and the legal representatives, heirs and
legatees of the Optionee's estate.

     13. Notices. Any notice required to be given or delivered to the Company
         -------
under the terms of this Agreement shall be in writing and addressed to the
Company at its principal corporate offices. Any notice required to be given or
delivered to the Optionee shall be in writing and addressed to the Optionee at
the address indicated below the Optionee's signature line of this Agreement. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.

     14. Governing Law. The interpretation, performance and enforcement of this
         -------------
Agreement shall be governed by the laws of the State of Delaware without resort
to that State's conflict-of-laws rules.

     15. Additional Terms Applicable to an Incentive Option. In the event the
         --------------------------------------------------
Option is designated an Incentive Stock Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:

          (a) The Option shall cease to qualify for favorable tax treatment as
an Incentive Stock Option if (and to the extent) the Option is exercised for one
or more Option Shares: (i) more than three (3) months after the date the
Optionee ceases to be an employee for any reason other than death or Disability
or (ii) more than twelve (12) months after the date the Optionee ceases to be an
Employee by reason of Disability.

          (b) The Option shall not become exercisable in the calendar year in
which granted if (and to the extent) the aggregate fair market value (determined
at the Grant Date) of the Common Stock for which the Option would otherwise
first become exercisable in such calendar year would, when added to the
aggregate value (determined as of the respective date or dates of grant) of the
Common Stock and any other securities for which one or more other Incentive
Stock Options granted to the Optionee prior to the Grant Date first become
exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. To the extent the exercisability of the Option is
deferred by reason of the foregoing limitation, the deferred portion shall
become exercisable in the first calendar year or years thereafter in which the
One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 15(b) would
not be contravened, but such deferral shall in all events end immediately prior
to the effective date

                                       5

<PAGE>

of a Corporate Transaction in which the Option is not to be assumed, whereupon
the Option shall become immediately exercisable as a Non-Statutory Option for
the deferred portion of the Option Shares.

          (c) Should the Optionee hold, in addition to the Option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this Option, then the foregoing limitations on
the exercisability of such options as Incentive Stock Options shall be applied
on the basis of the order in which such options are granted.

     16. Early Exercise Rights. The Optionee may elect to exercise a portion or
         ---------------------
all of the Option prior to the date of vesting. If the Optionee makes this
election, the Company will place such Option Shares into escrow. The Option
Shares will vest in the same manner that the unvested portion of the Option to
which the Option Shares relate was to vest. For example, if the Optionee would
be entitled to exercise a portion of the Option to purchase 10,000 shares of
Common Stock on December 31, 2002, but elects to exercise that portion of the
Option on December 31, 2001, then 10,000 shares of Common Stock will be placed
in escrow for the Optionee until December 31, 2002, at which time the Common
Stock will be released to the Optionee. In the event, prior to the end of the
escrow period, (i) the Optionee's Service is terminated due to his death or
Disability, (ii) the Company makes an Election to Release the Optionee from
providing Service, (iii) the Company makes an Election to Terminate the
Optionee's Service, or (iv) the Optionee's Service is Terminated as a result of
a Corporate Transaction, any Option Shares in escrow shall be released to the
Optionee, free of the vesting conditions. If the Optionee ceases to render
Service for any other reason, the Company shall have the right, but not the
obligation, for a period of 90 days following the cessation of Optionee's
Service, to purchase some or all of the Option Shares in escrow at a price equal
to the Exercise Price. If the Company fails to purchase some or all of the
Option Shares in escrow, the unpurchased Option Shares shall be released to the
Optionee.

IN WITNESS WHEREOF, the parties have executed this Agreement on this 13th day of
November 2001.

                              STAAR Surgical Company, a Delaware corporation

                              By: /s/ John S Santos
                                  ----------------------------------------------
                              Name: John S Santos
                              Title: VP CFO, Secretary.

                              Optionee

                              /s/ David Bailey
                              --------------------------------------------------
                              David Bailey

                              Address:
                                      ------------------------------------------

                              --------------------------------------------------

                                       6

<PAGE>

                                    APPENDIX

        The following definitions shall be in effect under the Agreement:

     1. Agreement shall mean this Stock Option Agreement.
        ---------

     2. Cause shall mean any cause, as defined by applicable law or by the
        -----
Employment Agreement.

     3. Common Stock shall mean the Company's common stock.
        ------------

     4. Corporate Transaction shall mean:
        ---------------------

          (a) a dissolution or liquidation of the Company;

          (b) the sale or disposition by the Company to an unrelated third party
     of 50% or more of its business or assets,

          (c) the sale of the capital stock of the Company in connection with
     the sale or transfer of a controlling interest in the Company to an
     unrelated third party, or

          (d) the merger or consolidation of the Company with another
     corporation as part of a sale or transfer of a controlling interest in the
     Company to an unrelated third party.

"A controlling interest" shall be defined as 50% or more of the Company's
outstanding capital stock.

     5. Disability means a disability, whether temporary or permanent, partial
        ----------
or total, as determined by the Board of Directors.

     6. Election to Release means the Company's election to release the Optionee
        -------------------
from providing Service pursuant to Paragraph 13(e)(ii) of the Employment
Agreement.

     7. Election to Terminate means the Company's exercise of its election to
        ---------------------
terminate the Optionee's Service pursuant to Paragraph 13(d) of the Employment
Agreement.

     8. Employment Agreement means that certain Employment Agreement entered
        --------------------
into between the Company and the Optionee on December 20, 2000.

     9. Exercise Date shall mean the date on which the Option shall have been
        -------------
exercised in accordance with Paragraph 9 of the Agreement.

     10. Exercise Price shall mean the exercise price payable per Option Share
         --------------
as specified in the Grant Notice.

     11. Expiration Date shall mean the date on which the Option expires as
         ---------------
specified in the Grant Notice.

     12. Grant Date shall mean the date of grant of the Option as specified in
         ----------
the Grant Notice.

                                       7

<PAGE>

     13. Grant Notice shall mean the Notice of Grant of Stock Option
         ------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

     14. Incentive Option shall mean an option which satisfies the requirements
         ----------------
of Internal Revenue Code Section 422.

     15. Non-Statutory Option shall mean an option not intended to satisfy the
         --------------------
requirements of Internal Revenue Code Section 422.

     16. Option Shares shall mean the number of shares of Common Stock subject
         -------------
to the Option.

     17. Optionee shall mean the person to whom the option is granted as
         --------
specified in the Grant Notice.

     18. Service shall mean employment services rendered by the Optionee
         -------
pursuant to the Employment Agreement.

     19. Terminated or Termination shall mean that the Optionee has for any
         -------------------------
reason ceased to provide services as an employee, officer, and director of the
Company. The Optionee will not be deemed to have ceased to provide services in
the case of (i) sick leave, (ii) military leave, or (iii) any other leave of
absence approved by the Company, provided that such leave is for a period of not
more than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to a
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. The Board of Directors will have sole
discretion to determine whether the Optionee has ceased to provide services and
the effective date on which the Optionee ceased to provide services (the
"Termination Date").

     20. Vesting Schedule shall mean the vesting schedule specified in the Grant
         ----------------
Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his period of Service.

                                       8

<PAGE>

                                    EXHIBIT A

                       NOTICE OF EXERCISE OF STOCK OPTION
                       ----------------------------------

           [To be signed by the Optionee only upon exercise of Option]

TO:     Secretary
        STAAR Surgical Company
        1911 Walker Avenue
        Monrovia, California 91016

     The undersigned, the holder of an Option pursuant to that certain STAAR
Surgical Company Stock Option Plan and Agreement for Chief Executive Officer
dated March      , 2001 (the "Option Agreement"), between STAAR Surgical
           ------             ----------------
Company, a Delaware corporation (the "Company") and the undersigned (the
                                      -------
"Optionee"), hereby irrevocably elects, in accordance with the terms and
 --------
conditions of the Option Agreement, to exercise the undersigned's Option to
purchase               (          )/(1)/ shares of the common stock, $.01 par
        --------------  ----------
value ("Common Stock") of the Company (collectively and severally, the "Option
        ------ -----                                                    ------
Shares"), for the aggregate purchase price of               ($          )/(2)/.
------                                       --------------    ---------

     /(1)/ Insert number of Option Shares as specified in the Notice of Grant of
           Stock Option that are vested Option Shares that the Optionee is
           exercising pursuant to this Notice.

     /(2)/ Number of Option Shares to be purchased multiplied by the Exercise
           Price per share.

     The Optionee hereby acknowledges that the following legend (or any
variation thereof determined appropriate by the Company) will be placed on the
share certificate or certificates for the Option Shares to comply with
applicable federal and state securities laws:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED
     UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE
     UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT, OR (2) REGISTERED
     OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE
     UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM
     REGISTRATION OR QUALIFICATION AFFORDED BY SUCH STATE OR TERRITORIAL
     SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN
     ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE OR
     DISTRIBUTION.

                              Signature:
                                            ------------------------------------
                              Print Name:
                                            ------------------------------------
                              Address:
                                            ------------------------------------

                                            ------------------------------------

                                        9

<PAGE>

                              Date:         ------------------------------------

                                       10

<PAGE>

                                    EXHIBIT B
                       FEDERAL INCOME TAX CONSEQUENCES OF
                           SECTION 83(b) TAX ELECTION

     1. Federal Income Tax Consequences and Section 83(b) Election For Exercise
        -----------------------------------------------------------------------
of Non-Statutory Option. If the Option Shares are acquired pursuant to the
-----------------------
exercise of a Non-Statutory Option, as specified in the Grant Notice, then under
Internal Revenue Code Section 83, the excess of the Fair Market Value of the
Option Shares on the date any forfeiture restrictions applicable to such shares
lapse over the Exercise Price paid for such shares will be reportable as
ordinary income on the lapse date. For this purpose, the term "forfeiture
restrictions" includes vesting requirements. However, the Optionee may elect
under Internal Revenue Code Section 83(b) to be taxed at the time the Option
Shares are acquired, rather than when and as such Option Shares cease to be
subject to such forfeiture restrictions. Such election must be filed with the
Internal Revenue Service within thirty (30) days after the date of the
Agreement. Even if the Fair Market Value of the Option Shares on the date of the
Agreement equals the Exercise Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. FAILURE
TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30) DAY PERIOD WILL RESULT IN
THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS
LAPSE.

     2. Federal Income Tax Consequences and Conditional Section 83(b) Election
        ----------------------------------------------------------------------
For Exercise of Incentive Stock Option. If the Option Shares are acquired
--------------------------------------
pursuant to the exercise of an Incentive Stock Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Option
Shares:

          (i) For regular tax purposes, no taxable income will be recognized at
     the time the Option is exercised.

          (ii) The excess of (a) the Fair Market Value of the Option Shares on
     the date the Option is exercised or (if later) on the date any forfeiture
     restrictions applicable to the Option Shares lapse over (b) the Exercise
     Price paid for the Option Shares will be includable in Optionee's taxable
     income for alternative minimum tax purposes.

          (iii) If Optionee makes a disqualifying disposition of the Option
     Shares, then Optionee will recognize ordinary income in the year of such
     disposition equal in amount to the excess of (a) the Fair Market Value of
     the Option Shares on the date the Option is exercised or (if later) on the
     date any forfeiture restrictions applicable to the Option Shares lapse over
     (b) the Exercise Price paid for the Option Shares. Any additional gain
     recognized upon the disqualifying disposition will be either short-term or
     long-term capital gain depending upon the period for which the Option
     Shares are held prior to the disposition.

          (iv) For purposes of the foregoing, the term "forfeiture restrictions"
     will include vesting requirements. The term "disqualifying disposition"
     means any sale or other disposition/1/ of the Option Shares within two (2)
     years after the Grant Date or within one (1) year after the exercise date
     of the Option.

----------
/1/ Generally, a disposition of shares purchased under an Incentive Stock Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if the Optionee remains one of the
joint owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Internal Revenue Code.

                                       11

<PAGE>

          (v) In the absence of final Treasury Regulations relating to Incentive
     Stock Options, it is not certain whether the Optionee may, in connection
     with the exercise of the Option for any Option Shares at the time subject
     to forfeiture restrictions, file a protective election under Internal
     Revenue Code Section 83(b) which would limit (a) the Optionee's alternative
     minimum taxable income upon exercise and (b) the Optionee's ordinary income
     upon a disqualifying disposition to the excess of the Fair Market Value of
     the Option Shares on the date the Option is exercised over the Exercise
     Price paid for the Option Shares. Accordingly, such election if properly
     filed will only be allowed to the extent the final Treasury Regulations
     permit such a protective election.

                                       12

<PAGE>

                             STAAR SURGICAL COMPANY
                         NOTICE OF GRANT OF STOCK OPTION
                         -------------------------------

     Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of STAAR Surgical Company, a Delaware
corporation (the "Company"):

     l. Optionee: David Bailey
        --------

     2. Grant Date: December 20, 2000
        ----------

     3. Vesting Commencement Date: On the Grant Date as to one-third; on the
        -------------------------
first anniversary of the Grant Date as to one-third; and on the second
anniversary of the Grant Date as to one-third.

     4. Exercise Price: $11.125 per share
        --------------

     5. Number of Option Shares: Five hundred thousand (500,000)
        -----------------------

     6. Expiration Date: The date which is the
        ---------------

                         [xx] tenth

                         [  ] fifth

        anniversary of the Grant Date.

     7. Type of Option:  [xx] Incentive Stock Option
        --------------

                         [  ] Non-Statutory Stock Option

     8. Date Exercisable: Immediately upon fulfillment of vesting conditions.
        ----------------

     9. Vesting Schedule: The shares shall fully vest over a three (3) year
        ----------------
period as follows: (a) 166,667 shares shall vest on the Grant Date; (b) 166,667
shares shall vest on the date which is the first anniversary of the Grant Date;
and (c) 166,666 shares shall vest on the date which is the second anniversary of
the Grant Date. Any fractional shares will be rounded upwards to the nearest
whole share, which in the aggregate shall not exceed the Number of Option
Shares. Any unvested shares shall fully vest in the event (x) the Company makes
an Election to Release the Optionee from providing service, (y) the Company
makes an Election to Terminate the Optionee's service, or (z) the Optionee's
service is Terminated as a result of a Corporate Transaction.

     10. No Employment or Service Contract. Nothing in this Notice or in the
         ---------------------------------
attached Stock Option Agreement shall confer upon Optionee any right to continue
in service in any capacity, including as an employee, for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Company (or any Parent or Subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's service and/or employment at any time for any reason, with or without

<PAGE>

cause, so long as such termination is pursuant to that certain Employment
Agreement executed by Optionee and the Company on December 20, 2000.

     11. Definitions. All capitalized terms in this Notice shall have the
         -----------
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.

Dated: November 13, 2001
                              STAAR Surgical Company

                              By: /s/ John S Santos
                                  ----------------------------------------------
                                 Name: John S Santos
                                 Title: VP CFO, Secretary

                              Optionee

                              By: /s/ David Bailey
                                  ----------------------------------------------
                                 Name: David Bailey
                                 Address:
                                         ---------------------------------------

                                         ---------------------------------------

ATTACHMENT: STAAR Surgical Company Stock Option Agreement

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