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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

   (X)ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 For the fiscal year ended March 31, 1997

                                       or

   ( )TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

             For the transition period from __________ to _________

                         Commission File Number: 1-13606

                             SOLA INTERNATIONAL INC.

             (Exact name of registrant as specified in its charter)

          DELAWARE                                      94-3189941
(State or other jurisdiction of                      (I.R.S. employer
 incorporation or organization)                     identification no.)

              2420 SAND HILL ROAD, SUITE 200, MENLO PARK, CA   94025
               (Address of principal executive offices)      (Zip Code)

       Registrant's telephone number, including area code: (415) 324-6868

           Securities registered pursuant to Section 12(b) of the Act:

          Title of each class:             Name of exchange on which registered:

     Common Stock, Par Value $0.01                 New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

As of May  30,  1997,  the  aggregate  market  value  of  Common  Stock  held by
non-affiliates was approximately $682,382,845. For purposes of this computation,
shares held by directors  and  executive  officers of the  registrant  have been
excluded.  Such exclusion of shares held by directors and executive  officers is
not intended,  nor shall it be deemed,  to be an admission that such persons are
affiliates of the registrant.

As of May 30, 1997,  24,266,752  shares of the  registrant's  common stock,  par
value  $0.01  per  share,  which  is the  only  class  of  common  stock  of the
registrant,  were  outstanding.  The  Company's  stock is traded on the New York
Stock Exchange under the symbol SOL.
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<PAGE>


                             SOLA INTERNATIONAL INC.

                           ANNUAL REPORT ON FORM 10-K

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1997

                                                                            Page
PART I

Item 1.           Business...............................................     3
Item 2.           Properties.............................................     8
Item 3.           Legal Proceedings......................................    10
Item 4.           Submission of Matters to a Vote of Security Holders....    10

PART II

Item 5.           Market for the Registrant's Common Equity and Related
                       Stockholder Matters...............................    11
Item 6.           Selected Financial Data................................    12
Item 7.           Management's Discussion and Analysis of Financial
                       Condition and Results of Operations...............    13
Item 8.           Financial Statements and Supplementary Data............    20
Item 9.           Changes in and Disagreements with Accountants on
                       Accounting and Financial Disclosure...............    20

PART III

Item 10.          Directors and Executive Officers of the Registrant.....    21
Item 11.          Executive Compensation.................................    24
Item 12.          Security Ownership of Certain Beneficial Owners and
                       Management........................................    29
Item 13.          Certain Relationships and Related Transactions.........    30

PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports
                       on Form 8-K.......................................    31

                                       2

<PAGE>


                                     PART I

Item 1.    BUSINESS

General

     Sola International Inc., a Delaware corporation,  designs, manufactures and
distributes a broad range of plastic and glass eyeglass lenses.  Sola's business
commenced operations in 1960. Sola International Inc. acquired the Sola business
unit (the "Predecessor  Business") of Pilkington plc  ("Pilkington") on December
1, 1993 (the  "Acquisition").  In March 1995,  Sola  completed an initial public
offering of 5,403,305 shares of common stock (the "IPO").  On June 19, 1996 Sola
acquired  substantially all of the worldwide  ophthalmic  business (the "AO" and
"AO Acquisition") of American Optical  Corporation  ("AOC"). On July 2, 1996 the
Company acquired control of Neolens,  Inc.  ("Neolens"),  a Florida  corporation
that manufactures  polycarbonate eyeglass lenses and that has been a supplier to
the  Company.  Sola has  manufacturing  and  distribution  sites in three  major
regions  -- North  America,  Europe,  and Rest of  World  (comprising  primarily
Australia,  Asia and South America).  Unless the context otherwise requires, all
references to the "Company" or "Sola"  herein refer to Sola  International  Inc.
and its consolidated subsidiaries. The Company's fiscal year ends on March 31 of
each year.  The fiscal years ended March 31, 1997,  March 31, 1996 and March 31,
1995 are referred to herein as "fiscal  1997",  "fiscal 1996" and "fiscal 1995",
respectively.

Products

     The Company produces plastic and glass eyeglass lenses.  The Company's lens
products are  differentiated  by type of vision  correction,  lens design,  lens
material and coatings  applied to the lens. The Company's  lenses include single
vision  lenses  (lenses which have a constant  corrective  power at all points);
multifocal lenses (lenses which have more than one corrective  power,  including
bifocal lenses, which have two distinct areas of different corrective power, and
progressive  lenses,  which have a continuous  gradient of different  corrective
power);  and  plano  lenses  (lenses  which  have no  corrective  power  and are
primarily used for sunglasses).

     Although the Company's  lenses are  manufactured in both glass and plastic,
plastic  lenses  currently  account for  approximately  85% of the Company's net
sales.  Approximately 59% of net sales generated by plastic lenses are accounted
for by  conventional  hard  resin  plastics,  with the  remainder  derived  from
advanced  lens  materials  such as thinner  and  lighter  plastics  and  plastic
photochromics.  These  more  advanced  materials  have  accounted  for a growing
percentage of the Company's sales both by volume and revenue.  The two principal
materials  used by the Company to produce the thinner and lighter  plastics  are
polycarbonate and Spectralite(R).  Polycarbonate lenses have a higher refractive
index than conventional hard resin plastics and a far greater impact resistance.
Spectralite(R), a proprietary plastic material developed by the Company, is used
to produce  lenses that have  optical  characteristics  that are  comparable  to
lenses  manufactured  from  conventional hard resin plastics but are thinner and
lighter. The Company currently produces  Spectralite(R) in its own manufacturing
facilities  from materials  available from a number of chemical  suppliers.  The
Company has  manufactured  lenses from this material since late 1991. To further
improve the thinness and lightness of its lenses,  the Company has  increasingly
employed  aspheric  designs  (i.e.,   lenses  that  achieve  comparable  optical
performance  with a thinner  cross  section).  The  Company  also sells  plastic
photochromic  lenses,  which require processing by a third party. The technology
for such processing is currently proprietary to such third party.

     The Company also  manufactures  and sells glass lenses,  primarily in North
America and  Europe.  These  lenses are  manufactured  in plants  located in the
United  States,  Mexico and France.  The  Company's  strategy for the glass lens
market  is to  focus  on high  value-added  product  categories,  such as  glass
progressive  and higher  index  glass  lenses.  Since the  Company is  primarily
focused on plastic lenses, glass lenses represent a small and decreasing portion
of the Company's  sales.  The Company

                                       3

<PAGE>

sells  virtually no glass lenses in South  America and non-Japan  Asia,  markets
where glass is still the predominant material for eyeglass lenses.

     The Company  produces a variety of lens coatings,  which primarily  provide
scratch  resistance and  anti-reflection  properties.  The penetration of coated
lenses varies significantly from market to market.

     The Company has  recently  introduced  a number of new  products  and has a
number of products in development that are intended to maintain and increase the
Company's  operating  margins.  For  example,  the  Company  has  developed  and
successfully  marketed  proprietary  progressive lenses made from Spectralite(R)
(including  Percepta(R) and VIP Gold(R)),  which incorporate more complex design
features  than standard  products and  therefore  attract an above average gross
profit per pair.  The  Company  from time to time may also  market  products  or
technologies  of  third  parties  to  broaden  its  product  range  pursuant  to
contractual relationships with such third parties.

Marketing, Sales and Distribution

Marketing and Sales

     The Company develops and manages its marketing  strategy on a decentralized
basis.  The Company has sales offices in 18 countries  across its three regions.
Pricing,  promotion and distribution policies and some product branding policies
are primarily determined by regional and country management.

     The  Company  differentiates  its  products  from those of its  competitors
through lens design,  lens materials and coatings  formulations.  In response to
customer demand,  the Company's strategy is focused on providing a wide range of
quality  products  on short  notice.  In  developing  markets,  particularly  in
non-Japan Asia and Latin  America,  the Company seeks to expand its market share
by increasing local production,  attempting to develop brand recognition for its
products  and  marketing  to  customers  the  advantage  of  higher  value-added
products,  all of which are intended to help the Company compete on the basis of
quality and service rather than price.

Distribution

     In order to meet customer  demand for delivery of a broad range of products
within a short time,  the  Company has  established  a  widespread  distribution
network,  which is managed on a regional  basis.  The Company  operates 41 major
distribution centers located in 17 countries, covering all of its three regions.

     The Company utilizes three primary distribution  channels for its products.
Lenses with corrective power are distributed (i) through a wholesale  channel to
wholesale  distributors or to independent  processing  laboratories that process
the Company's  lenses and then resell them to retail  outlets and  practitioners
for resale to consumers,  (ii) through a retail channel to chains,  superoptical
retail stores (retail outlets with on-site lens processing capability) and other
retailers  (including "buying groups" consisting of a number of retailers acting
together  to  purchase  lenses)  who sell the lenses to  consumers  and (iii) in
certain markets in Asia and Europe,  direct to eyecare practitioners through the
Company's   processing   laboratories.   Plano  lenses  are  sold  primarily  to
manufacturers  of sunglasses.  In English  speaking  markets (the United States,
Australia and the United  Kingdom),  a  significant  percentage of the Company's
sales is to large retail chains and  superoptical  retail stores.  In most other
markets,  those  retail-oriented  channels  are  less  significant,  hence,  the
Company's sales are primarily oriented toward independent  wholesale  processing
laboratories, as well as eyecare practitioners served by Company-owned labs.

     Recently  the  Company  made  two  small   acquisitions   of   prescription
laboratories  outside of North  America,  where  development  of  expertise  and
capacity in Rx  distribution  is a key  strategy.  HL Optikk based in Norway was
acquired on behalf of AO in January,  1997 and De Muynck Optics N.V., one of the

                                        4

<PAGE>

largest Rx laboratories in Belgium,  joined the Company shortly after the end of
the fiscal year in May 1997.

Customers

     During  fiscal 1997,  the  Company's  ten largest  customers  accounted for
approximately 18% of net sales and the Company's largest customer  accounted for
less than 5% of net sales.  During fiscal 1997, six of the Company's ten largest
customers were located in North America and accounted for  approximately  13% of
net sales in the aggregate.

International Operations

     The Company  operates  manufacturing  and  distribution  sites in all major
regions of the world--North  America  (including  Mexico),  Europe,  and Rest of
World (comprising  primarily  Australia,  Asia and South  America)--and  derived
approximately  half of its net  sales in fiscal  1997 from the sale of  products
outside  the  United  States.  See Note 15 of Notes  to  Consolidated  Financial
Statements  included elsewhere herein. As a result, a significant portion of the
Company's sales and operations are subject to certain risks,  including  adverse
developments in the foreign political and economic environment,  exchange rates,
tariffs and other trade barriers,  staffing and managing foreign  operations and
potentially adverse tax consequences.  Although the Company and its predecessors
have been  successfully  conducting  business outside of the United States since
its inception in 1960,  there can be no assurance that any of these factors will
not have a material  adverse  effect on the  Company's  financial  condition  or
results of operations in the future.

Manufacturing Operations

     The  Company  has 19  manufacturing  facilities  located in its three major
regions,  including 17 lens manufacturing facilities.  The Company has sought to
make each operating region  self-sufficient  in the production of core products,
while manufacturing both high-volume plano lenses and newer, low-volume and more
complex products in fewer locations.  More centralized  manufacturing is pursued
where  appropriate  in order to  maximize  production  efficiencies  or maintain
strict  quality  controls  and research and  development  support.  For example,
during fiscal 1993 the Company completed the transfer of almost all of its plano
lens marketing and  distribution  to a new division and now  manufactures  plano
lenses  almost  exclusively  at  a  single  manufacturing  facility  located  in
Petropolis,   Brazil.  For  the  location  and  principal  operations  of  these
facilities, see "Properties".

     The principal  materials  used by the Company in the production of eyeglass
lenses are hard resins (a commodity plastic used in most plastic lenses), glass,
specialized  chemicals  used in many higher  index  plastic  lenses and monomers
mixed by the Company in the production of  Spectralite(R).  The Company believes
that these materials are currently  available from a variety of sources and that
the materials  necessary to produce the Company's coatings are readily available
from a number of potential  sources.  In order to reduce  materials  costs,  the
Company  coordinates  centrally  the  purchasing  of the monomers it uses in the
production  of  plastic  lenses and has  negotiated  more  favorable  purchasing
arrangements with its principal suppliers on an annual basis.

Research and Development

     The Company has  invested and  continues to invest  heavily in research and
development in order to continually  develop new and innovative  products and to
improve the efficiency of its  manufacturing  process.  At March 31, 1997, there
were  approximately  155  employees  involved  in  the  Company's  research  and
development  efforts.  The Company's  research and development  expenditures for
fiscal 1997, 1996 and 1995 were $17.5 million  (excluding the non-recurring $9.5
million in-process research and development  non-cash charge associated with the
AO Acquisition in fiscal 1997),  $13.3 million and $14.1 million,  respectively,
representing 3.6%, 3.6% and 4.1% of net sales for each of those years. The lower
charge to research and development  expenses in fiscal 1996 arose primarily from
the  transfer  of a 

                                       5

<PAGE>

new  product  out of  research  and  development  and into  production.  Because
research and development expenditure in AO as a percentage of net sales is lower
than  that of Sola on a  standalone  basis,  a  reduced  ratio of  research  and
development  expenses to net sales can be expected for the  combined  company in
the  future.  The  Company  has its own  research  and  development  centers  in
Petaluma,  California,  Southbridge,  Massachusetts,  and Adelaide, Australia. A
small process  automation  group is attached to the  manufacturing  operation in
Wexford,  Ireland.  The Company's research and development focuses on the design
and  development  of  innovative,  value-added  products,  on new materials with
superior characteristics, on technology that will deliver products to the market
more efficiently, and on technologies to improve productivity in the manufacture
of existing  products.  Recent  research and  development  programs  include the
successful  development of the Spectralite(R) thin and light lens material,  the
development  of  Spectralite(R)  with  photochromic  capabilities,   Percepta(R)
progressive design,  VIP/Graduate Gold progressive design,  Access enhanced near
vision lens design,  and the UltraGard and PermaGard Plus hard coatings.  Sola's
proprietary  Matrix  delivery  system is also being  installed at an  increasing
number of sites in the U.S. and foreign  locations,  with further  sites planned
over the next 12 months.  This system,  which creates finished  prescriptions by
bonding together thin lens wafers in a desktop  laminating  console,  allows the
rapid delivery of lenses with anti-reflection coating and potentially other high
margin add-ons.

Competition

     The eyeglass lens and coating industry is highly  competitive.  The Company
competes  principally on the basis of customer service,  the quality and breadth
of product  offerings,  and price.  The Company  believes that among its largest
global competitors are Essilor International and Hoya Corporation.  The eyeglass
lens and coating industry is characterized  by price  competition,  which can be
severe in certain markets, particularly for high volume, standard products. Sola
attempts,  to the extent possible,  to counter competition on the basis of price
by focusing  on  providing a rapid  response  to orders,  maintaining  high fill
rates,   developing   differentiated  new  products,  and  educating  processing
laboratories  and  eyecare  practitioners  on the  benefits  of Sola  lenses and
coatings.  There can be no assurance,  however,  that the Company's  competitors
will not develop  products or services that are more effective or less expensive
than the  Company's  products or which  could  render  certain of the  Company's
products  less  competitive.   Since  recently-developed   products  comprise  a
substantial  portion  of the  Company's  sales,  the  Company's  performance  is
dependent upon its continuing  ability to develop and market new products.  Some
of the Company's competitors have significantly greater financial resources than
the Company to fund expansion and research and development.  Within a particular
market,  certain  of  the  Company's  competitors  may  enjoy  a  "home-country"
advantage over foreign competition.  In addition,  in certain markets (primarily
Europe),  the  Company  also faces  competition  from a number of its  principal
competitors which are vertically integrated with processing centers to a greater
extent than the Company,  enabling them to customize  prescription  lenses. This
limits the number of independent lens processing  customers to which the Company
can market its products.

     In  addition to direct  competition  with other  manufacturers  of eyeglass
lenses, the Company competes indirectly with manufacturers of contact lenses and
providers of medical procedures for the correction of visual impairment. Contact
lenses and  eyeglasses  are not,  however,  perfect  substitutes  because of the
difficulty of developing  progressive  or bifocal  contact lenses for presbyopia
and the tendency of contact lens wearers to also own eyeglasses. Current medical
vision corrective  procedures also are ineffective in correcting  presbyopia and
many  patients  who have  undergone  medical  vision  correction  still  require
eyeglasses,  although  the  prescription  required  may be weaker.  The  Company
therefore  believes  that such  indirect  competition  will not have a  material
adverse effect on the Company's business in the foreseeable future.

Patents, Trademarks & Licenses

     The  Company  seeks to protect its  intellectual  property  throughout  the
world.  As of March 31, 1997, the Company had filed (or applied for) patents for
50 discrete inventions or technologies.  Many of the Company's patents have been
filed  in  multiple   countries,   and  they   include  31  patents  (or  patent

                                       6

<PAGE>

applications)  filed in the United States.  The Company has also  registered 433
trademarks in various countries,  representing  trademarks on 84 discrete names.
These include 49 trademarks  registered in the United  States.  The Company does
not believe  that it is  dependent  on any  particular  patent,  trade secret or
similar intellectual property and, in light of its manufacturing,  marketing and
distribution  strengths,  believes  that the loss of any  individual  trademark,
trade secret or patent would not have a material  adverse  effect on its results
of operations or financial condition.

     In addition to the  intellectual  property  described  above, in connection
with the AO Acquisition,  the acquisition of Neolens, and the ongoing R&D within
those  companies,  Sola has added 203 patents  (55 in the USA) to the  Company's
portfolio.  These  patents  are  currently  under  review  for  the  purpose  of
consolidating the overall portfolio. A total of 282 additional trademarks (22 in
the USA) was similarly acquired and is also under review.

Employees

     As of March  31,  1997,  the  Company  had  approximately  7,500  employees
throughout  the  world.  The  majority  of  the  Company's   employees  are  not
represented by labor unions. Labor relations are considered to be good and there
have been no significant labor disputes in the past ten years.

Environmental Matters

     The Company (together with the industry in which it operates) is subject to
United  States  and  foreign  environmental  laws  and  regulations   concerning
emissions  to the air,  waste water  discharges  and the  generation,  handling,
storage,  transportation and disposal of hazardous wastes, and to other federal,
state and foreign laws and  regulations.  The Company believes that it possesses
all material permits and licenses necessary for the continuing  operation of its
business and believes that its operations are in substantial compliance with the
terms  of  all  applicable  environmental  laws.  It is  impossible  to  predict
accurately  what effect these laws and  regulations  will have on the Company in
the future.

     Environmental  laws and  regulations  vary  among  countries  in which  the
Company  operates.  During  fiscal 1992,  the Company  adopted an  environmental
policy which includes an environmental auditing process designed to evaluate and
assist operating regions in their environmental compliance efforts.

     The  Company's  manufacturing  processes  generally  utilize  non-hazardous
chemicals where feasible. Certain processes, including those for cleaning lenses
and mold  assemblies,  and abrasion  resistant  and  anti-reflection  coating of
lenses,  use a variety  of  volatile  and other  hazardous  substances.  Company
developments  in  manufacturing   methods,   alternative   non-solvent  cleaning
processes and waste  reduction have been successful in reducing the use of these
chemicals  and/or  emissions  and  environmental  damage  from these  processes.
Programs to eliminate use of chlorinated  hydrocarbons  and  chlorofluorocarbons
("CFCs") in manufacturing processes have also been developed and the current use
of these substances in the Company's North American operations is minimal.

     Since 1988 the Company has  operated a ground water  remediation  system at
its Petaluma,  California  manufacturing  facility in accordance  with a consent
order  issued by the U.S.  Environmental  Protection  Agency  ("EPA")  under the
Comprehensive  Environmental  Response,  Compensation  and Liability Act of 1980
("CERCLA").  The system is designed to remediate a pre-1982 release of hazardous
substances. Analytical results indicate that contamination levels have decreased
significantly  over the past few  years.  The EPA is  scheduled  to  review  the
remediation  program during fiscal 1998. At the EPA's suggestion,  in March 1997
the Company shut down the remediation system for a test period of six months and
will monitor the effect of this shut down on  contaminant  levels.  Based on the
data  collected  during this period,  the EPA will determine  whether  continued
operation of the system is warranted.

     In 1994,  the  Company  entered  into a consent  decree  with the  Missouri
Department of Natural  Resources  ("MDNR")  related to a release from a disposal
site  operated  by a third  party  that was used  from 1986  until  1990 for the
disposal  of waste  water  sludge  containing  lead  from the  Company's  Eldon,

                                       7

<PAGE>

Missouri facility. To resolve alleged hazardous waste violations with respect to
management of the waste sludge, the Company agreed to pay $375,000 in penalties,
which the Company paid in 1994. The Company also performed certain remedial work
at a cost of approximately  $1.4 million and agreed to perform a risk assessment
to determine  whether  further  remedial steps were  warranted.  In fiscal 1996,
based on the risk assessment  performed by the Company, the MDNR determined that
the Company had satisfied all of its  obligations  under the consent  decree and
that no further  removal or  monitoring  work would be required at this site. In
addition, the MDNR offered to settle any potential claim it may have for natural
resource damages for $60,000.  The Company currently is negotiating a settlement
of this claim.

     Late in fiscal  1996,  the Company was  requested  by the MDNR to conduct a
removal  action at a  disposal  site near  Eldon,  Missouri  known as the Coburn
Optical  Industries Dump site,  which was allegedly used by a predecessor to the
Company for  disposal of waste water sludge  containing  lead from 1974 to 1986.
The MDNR has indicated that it considers the removal action at this site to be a
low  priority.  Nonetheless,  the Company has agreed to undertake  the requested
removal action pursuant to the MDNR's Voluntary  Cleanup  Program.  The MDNR has
approved  a removal  action  plan  submitted  by the  Company,  and the  Company
currently  anticipates  completing the work under this plan by the end of fiscal
1998.  The  Company  currently  estimates  costs of  approximately  $350,000  to
$450,000  associated  with  the  removal  work.  The  Company  and the  MDNR are
currently discussing whether additional investigation of this site is warranted.

     It  is  possible  that  the  Company  may  be  involved  in  other  similar
investigations  and actions  under state,  federal or foreign law in the future.
Based on currently available information,  the Company does not believe that its
share of costs,  either at the existing sites or at any future sites,  is likely
to result in a liability that will have a material adverse effect on its results
of operations or financial condition.

     It is the Company's policy to meet or exceed all applicable  environmental,
health and safety laws and regulations.  The complexity and continuing evolution
of environmental  regulation  (including certain programs for which implementing
regulations have not yet been finalized)  preclude precise  estimation of future
environmental  expenditures.  In fiscal 1997,  1996,  and 1995 the Company spent
approximately  $216,000,  $316,000  and $376,000 on  environmental  remediation,
respectively.   The  Company  anticipates  that  its  capital  expenditures  for
environmental  improvements during fiscal 1998 will not be material. The Company
cannot  accurately  predict capital  expenditure  requirements for environmental
remediation in future periods.

     In connection with the Acquisition,  Pilkington has agreed to indemnify the
Company  with  respect to  environmental  losses  based upon or  resulting  from
certain existing facts,  events,  conditions,  matters or issues, for (i) 50% of
such  losses to the extent  such  losses  exceed $1 million but are less than or
equal to $5 million, and (ii) 100% of such losses in excess of $5 million.

     See  Note  14  of  Notes  to  Consolidated  Financial  Statements  included
elsewhere herein.

<TABLE>
Item 2.    PROPERTIES

     The  following  table  sets  forth  certain  information  relating  to  the
Company's principal facilities.  The Company operates other smaller domestic and
foreign  manufacturing  facilities,  distribution  facilities  and sales offices
which are omitted from this table.
<CAPTION>

     Region and Location                 Principal Operations                                         Leased/Owned
     -------------------                 --------------------                                         ------------
<S>                                     <C>                                                               <C>
North America
     Menlo Park, California.........    Headquarters                                                      Leased

                                       8

<PAGE>



     Region and Location                 Principal Operations                                         Leased/Owned
     -------------------                 --------------------                                         ------------

     Petaluma, California...........    Manufactures hard resin, Spectralite(R)and polycarbonate          Part owned,
                                        lenses; marketing and distribution center; research and           part leased
                                        development facility; administrative offices for North
                                        American operations

     Eldon, Missouri................    Manufactures multifocal glass lenses, manufactures molds            Owned

     Southbridge, Massachusetts.....    Headquarters for American Optical and distribution center           Leased

     Tijuana, Mexico................    Three sites manufacturing hard resin and glass lenses,           Part owned,
                                        manufactures molds; distribution center                          part leased

Europe

     Goetzenbruck, France...........    Manufactures glass lenses; marketing and distribution center        Owned

     Fougeres, France...............    Prescription processing laboratory with anti-reflection
                                        coating capability                                                  Leased

     Wexford, Ireland...............    Manufactures hard resin lenses and Spectralite(R);                  Owned
                                        prescription processing laboratory; distribution center

     Varese, Italy................      Tinting operations; prescription processing laboratory with         Leased
                                        anti-reflection coating capability; marketing and
                                        distribution center

     Birmingham, United Kingdom.....    Prescription processing laboratory with anti-reflection             Leased
                                        coating capability; marketing and distribution center

Rest of World
   Asia

     Xian, China....................    Site owned by a joint venture managed by the Company in             Leased
                                        which the Company holds a 50% ownership interest;
                                        manufactures hard resin lenses

     Hong Kong......................    Prescription processing laboratory with anti-reflection             Leased
                                        coating capability; marketing and distribution center

     Osaka, Japan...................    Prescription processing laboratory with anti-reflection             Leased
                                        coating capability; marketing and distribution center

     Chung Li, Taiwan...............    Manufactures hard resin lenses; marketing and distribution          Leased
                                        center

     Singapore......................    Manufactures glass molds; marketing and distribution                Leased
                                        center; prescription processing facility with
                                        anti-reflection coating capability

   South America
     Petropolis, Brazil.............    Manufactures hard resin ophthalmic and plano lenses;                Owned
                                        regional administration office

     Villa de Cura, Venezuela.......    Manufactures hard resin lenses; distribution center                 Owned

                                                          9

<PAGE>

     Region and Location                 Principal Operations                                         Leased/Owned
     -------------------                 --------------------                                         ------------

   Australia
     Lonsdale, Australia............    Manufactures hard resin lenses and Spectralite(R);                Owned
                                        manufactures molds; research and development center;
                                        prescription processing laboratory with anti-reflection
                                        coating facility; marketing and distribution center;
                                        regional administrative offices for Australia and Asian
                                        regions
</TABLE>

     A  portion  of the  Company's  research  and  development  activities,  its
corporate headquarters and certain manufacturing and distribution operations are
located near major  earthquake  faults.  The  ultimate  impact on the Company is
unknown,  but operating  results could be materially  affected in the event of a
major  earthquake.  The  Company is  predominantly  self-insured  for losses and
interruptions caused by earthquakes.

     For further  information  concerning the Company's leased  properties,  see
Note 13 of Notes to Consolidated Financial Statements included elsewhere herein.
The Company's  operating leases have expirations  ranging from 1997 to 2012. The
Company does not  anticipate  any  difficulties  in renewing or  replacing  such
leases as they expire; however, there can be no assurances that the Company will
be able to  renew  or  replace  such  leases.  The  Company  believes  that  its
manufacturing capacity is sufficient for its current needs.

Item 3.    LEGAL PROCEEDINGS 

     In addition to the  proceedings  described  under "Business - Environmental
Matters",  the  Company is  involved  in routine  litigation  incidental  to its
business,  none of which it believes will have a material  adverse effect on its
results  of  operations  or  financial  condition.  See  Note  14  of  Notes  to
Consolidated Financial Statements included elsewhere herein.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the security  holders of the Company
during the last quarter of fiscal 1997.

                                       10

<PAGE>


                                     PART II

Item 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS

     The Company's  Common Stock has been listed on the New York Stock  Exchange
since February 23, 1995 under the symbol "SOL".  The following  table sets forth
on a per share  basis the  closing  high and low sales  prices for  consolidated
trading in the Common Stock as reported on the New York Stock Exchange Composite
Tape for the fiscal quarters indicated.

                                                                Common Stock
                                                                Price Range
                                                           ---------------------
                                                            High           Low
                                                           -------       -------
Fiscal Year Ended March 31, 1996:
     First Quarter ended June 30, 1995 ..............      $24 7/8       $21 1/8
     Second Quarter ended September 30, 1995 ........      $26 3/4       $20 5/8
     Third Quarter ended December 31, 1995 ..........      $27 3/8       $21 3/8
     Fourth Quarter ended March 31, 1996 ............      $32 1/4       $25 1/2
Fiscal Year Ended March 31, 1997:
     First Quarter ended June 30, 1996 ..............      $34 5/8       $27 3/4
     Second Quarter ended September 30, 1996 ........      $37 5/8       $28 1/4
     Third Quarter ended December 31, 1996 ..........      $38           $33
     Fourth Quarter ended March 31, 1997 ............      $38           $21 7/8

     On May 30, 1997, the closing price per share of the Company's  Common Stock
on the New York Stock  Exchange was $28 5/8. As of May 30, 1997,  there were 489
holders of record of the  Company's  Common  Stock,  which  excludes  beneficial
owners of Common Stock held in "street name".

     Since  the  Acquisition,  the  Company  has not  declared  or paid any cash
dividends  on its  Common  Stock.  The  Company's  credit  agreement,  among the
Company,  the lenders named therein and The Bank of America  National  Trust and
Savings Association,  for itself and as agent for a syndicate of other financial
institutions,  dated June 1996, and the Indenture by and between the Company and
The  Bank  of  New  York   (successor  to  NationsBank   of  Georgia,   National
Association), as Trustee, generally restrict, subject to certain exceptions, the
payment of dividends,  distributions  and other  payments.  The Company does not
anticipate  paying any cash dividends in the  foreseeable  future and intends to
retain  future  earnings for the  development  and  expansion  of its  business.
Subject to such restrictions,  any future determination to pay dividends will be
at the  discretion  of the  Company's  Board of Directors and subject to certain
limitations under the General  Corporation Law of the State of Delaware and will
depend upon the Company's  results of  operations,  financial  condition,  other
contractual  restrictions  and other  factors  deemed  relevant  by the Board of
Directors.

                                       11

<PAGE>

<TABLE>
Item 6.    SELECTED FINANCIAL DATA
<CAPTION>

                                                              Sola International Inc.                          Predecessor Business
                                                --------------------------------------------------------      ----------------------
                                               Fiscal Year   Fiscal Year   Fiscal Year       Four Months   Eight Months  Fiscal Year
                                                  Ended         Ended         Ended             Ended          Ended        Ended
                                                 March 31,     March 31,     March 31,         March 31,    November 30,   March 31,
                                                 1997 (3)        1996          1995             1994 (1)        1993         1993
                                                ---------     ---------      ---------         ---------      --------     ---------
<S>                                             <C>           <C>            <C>               <C>            <C>          <C>      
Statements of Operations Data
(in thousands, except per share data)
   Net sales ..............................     $ 488,689     $ 387,709      $ 345,631         $ 106,030      $ 200,025    $ 281,494
                                                =========     =========      =========         =========      =========    =========
   Income (loss) before
     extraordinary item ...................     $  30,897     $  34,588      $  13,640         $ (61,394)     $ 10,749     $  16,515
   Extraordinary item, write-off of
     debt issuance costs, net .............          --            (912)        (3,915)             --            --            --
                                                ---------     ---------      ---------         ---------      ---------    ---------
   Net income (loss) ......................     $  30,897     $  33,676      $   9,725(2)      $ (61,394)     $ 10,749     $  16,515
                                                =========     =========      =========         =========      =========    =========

Earnings (Loss) Per Share Data (4)
   Income (loss) before
     extraordinary item ...................     $    1.24     $    1.51      $    0.78         $   (3.75)
   Extraordinary item .....................          --           (0.04)         (0.22)             --  
                                                ---------     ---------      ---------         ---------
   Net income (loss) ......................     $    1.24     $    1.47      $    0.56         $   (3.75)
                                                =========     =========      =========         =========
   Weighted average number of
     shares outstanding ...................        24,859        22,944         17,516            16,353
                                                =========     =========      =========         =========

                                                              Sola International Inc.                    Predecessor Business
                                                -------------------------------------------------------- ----------------------
                                                                   As of March 31,
                                                                   ---------------
                                                  1997          1996           1995               1994          1993
                                                ---------     ---------      ---------         ---------      ---------
Balance Sheet Data
   Total assets..............                   $ 605,508     $ 416,849      $ 383,457         $ 360,631      $ 246,944
   Long-term debt............                     162,797        97,890        107,407           186,740          9,744
   Parent company investment.                        --            --            --                 --          117,129
   Total shareholders' equity                     284,298       192,241        159,433            63,495           --
<FN>
---------------------------
(1)  For the four  months  ended  March  31,  1994,  the  Company  recorded  two
     non-recurring,  non-cash  charges  associated with the  Acquisition:  (i) a
     $32.9  million  charge for the  amortization  associated  with an inventory
     write-up  to fair value  that was  reflected  in cost of sales;  and (ii) a
     $40.0  million  charge  for  the  write-off  of  in-process   research  and
     development  that was  reflected in  in-process  research  and  development
     expense.

(2)  For  fiscal  1995,  the  Company  recorded  two  non-recurring  charges  in
     connection  with the IPO: (i) a $3.0 million charge for the  termination of
     the AEA  Investors  Inc.  management  agreement  with the Company  that was
     reflected in general and administrative  expenses;  and (ii) a $3.9 million
     write-off of debt  issuance  costs,  that was  reflected in the  historical
     financial statements as an extraordinary item.

(3)  For  fiscal  1997,  the  Company  recorded  two  non-recurring  charges  in
     connection  with the AO  Acquisition:  (i) a $7.2  million  charge  for the
     amortization  associated with an inventory  write-up to fair value that was
     reflected  in  cost  of  sales;  and  (ii) a $9.5  million  charge  for the
     write-off of  in-process  research and  development  that was  reflected in
     in-process research and development expense.

(4)  Earnings per share are computed using the weighted average number of common
     shares and common  share  equivalents  outstanding  during the period,  for
     fiscal 1997, 1996, 1995, and 1994, after giving effect to the IPO.
</FN>
</TABLE>

                                       12

<PAGE>


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS

Overview

     The following  discussion of the Company's  financial condition and results
of operations  should be read in  conjunction  with the  Company's  consolidated
financial statements and notes thereto included elsewhere in this Form 10-K. The
financial  statements for the year ended March 31, 1997 reflect the consolidated
operations  of  the  Company  after   accounting   for  the   acquisition   ("AO
Acquisition") of substantially all of the worldwide  ophthalmic  business ("AO")
of American Optical Corporation ("AOC") on June 19, 1997 (see Note 1 of Notes to
Consolidated  Financial  Statements),  using the purchase  method of accounting.
Operating  results  subsequent  to the  AO  Acquisition  include  non-recurring,
non-cash  charges   relating  to  the  write-off  of  in-process   research  and
development  projects  ($9.5  million)  and  amortization   associated  with  an
inventory write-up to fair value ($7.2 million),  both of which were recorded in
connection  with the AO  Acquisition.  The years ended March 31, 1997,  1996 and
1995 are  referred  to herein as  fiscal  1997,  fiscal  1996 and  fiscal  1995,
respectively.

<TABLE>
     The following table reflects the results of operations for the three fiscal
years  1997,  1996 and 1995.  The  adjustment  column in  fiscal  1997  reflects
adjustments  to  present  results  of  operations  on a  more  comparable  basis
adjusting for the  non-recurring,  non-cash charges,  and tax effects thereof in
connection  with the AO  Acquisition,  noted above.  The  adjustment  column for
fiscal 1995 reflects the effect on the Company's operations arising from the IPO
in March  1995,  including a  reduction  in  interest  expense and the effect on
income  taxes  therefrom,  as if  these  transactions  had  taken  place  at the
beginning  of the period.  The fiscal 1995  adjustment  column also  includes an
adjustment of $3.9 million to general and administrative  expenses which relates
to the  elimination of a one-time $3.0 million charge for the termination of the
AEA management  agreement and the elimination of $0.9 million AEA management fee
recorded in fiscal 1995 and an adjustment of $3.9 million for the elimination of
the  extraordinary  charge  related to the write-off of debt  issuance  costs in
connection with the IPO.

<CAPTION>
                                              Fiscal                   Adjusted     Fiscal       Fiscal                   Adjusted
(In thousands)                                 1997     Adjustments      1997        1996         1995      Adjustments     1995
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>          <C>    
Net sales ...............................   $ 488,689                 $ 488,689    $ 387,709    $ 345,631                 $ 345,631
Cost of sales ...........................     264,535    $  (7,216)     257,319      201,991      185,626                   185,626
                                            ---------    ---------    ---------    ---------    ---------                 ---------
  Gross profit ..........................     224,154        7,216      231,370      185,718      160,005                   160,005
                                            ---------    ---------    ---------    ---------    ---------                 ---------
Research and development expenses .......      17,539                    17,539       13,329       14,051                    14,051
Selling and marketing expenses ..........      92,387                    92,387       66,345       61,143                    61,143
General and administrative
  expenses (including goodwill
  amortization)...........................     47,381                    47,381       45,291       45,067    $  (3,917)      41,150
In-process research and
  development expenses...................       9,500       (9,500)        --           --           --                        --
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
  Operating expenses ....................     166,807       (9,500)     157,307      124,965      120,261       (3,917)     116,344
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------

   Operating income .....................      57,347       16,716       74,063       60,753       39,744        3,917       43,661
Interest expense, net ...................     (15,961)                  (15,961)     (12,141)     (18,522)       6,372      (12,150)
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
Income before provision for income
  taxes, minority interest and
  extraordinary item..............             41,386       16,716       58,102       48,612       21,222       10,289       31,511
Provision for income taxes ..............      10,737        5,851       16,588       13,623        6,649          284        6,933
Minority interest .......................         248                       248         (401)        (933)                     (933)
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
Net income before extraordinary item.....      30,897       10,865       41,762       34,588       13,640       10,005       23,645
Extraordinary item, write-off of
debt issuance costs, net.................        --                        --           (912)      (3,915)       3,915         --
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
   Net income ...........................   $  30,897    $  10,865    $  41,762    $  33,676    $   9,725    $  13,920    $  23,645
                                            =========    =========    =========    =========    =========    =========    =========
</TABLE>

                                                                 13

<PAGE>


Results of Operations

     The  following  table sets  forth,  for the  fiscal  years  indicated,  the
Company's  results and adjusted  results of  operations  as a percentage  of net
sales.  Management's  discussion  of results of  operations  for the years ended
March 31, 1997 and 1995 is based on the adjusted  results of operations  and the
related  percentages  of net sales,  because,  in the opinion of the Company,  a
comparison of the  historical  results of operations for fiscal 1997 and 1995 is
not  meaningful  due to the effects of certain  transactions  and  non-recurring
charges as noted above.

                                                     Fiscal year ended March 31,
                                                      -------------------------
                                                       1997      1996      1995
                                                      -----     -----     -----
                                                        %         %         %
Net sales ........................................    100.0     100.0     100.0
Cost of sales ....................................     52.7      52.1      53.7
                                                      -----     -----     -----
   Gross profit ..................................     47.3      47.9      46.3
Research and development expenses ................      3.6       3.4       4.1
Selling and marketing expenses ...................     18.9      17.1      17.7
General and administrative expenses ..............      9.7      11.7      11.9
                                                      -----     -----     -----
   Operating expenses ............................     32.2      32.2      33.7
                                                      -----     -----     -----
      Operating income ...........................     15.1      15.7      12.6
Interest expense, net ............................     (3.2)     (3.1)     (3.5)
   Income before provision for income taxes
     and minority interest .......................     11.9      12.6       9.1
Provision for income taxes .......................      3.4       3.6       2.0
Minority interest ................................      0.0      (0.1)     (0.3)
Extraordinary item ...............................      0.0      (0.2)      0.0
                                                      -----     -----     -----
   Net income ....................................      8.5       8.7       6.8
                                                      =====     =====     =====

Net Sales

     Net sales were  $488.7  million in fiscal  1997,  $387.7  million in fiscal
1996,  and $345.6  million  in fiscal  1995,  reflecting  a growth of 26.0% from
fiscal  1996 to fiscal 1997 and 12.2% from  fiscal  1995 to fiscal  1996.  Using
constant exchange rates, the percentage increase from fiscal 1996 to fiscal 1997
was 25.6%,  and from fiscal 1995 to fiscal 1996 was 11.3%.  The AO  Acquisition,
with nine months of AO net sales, amounting to $64.4 million, included in fiscal
1997 net sales, has had a significant impact on the net sales growth from fiscal
1996 to  fiscal  1997.  In  addition,  higher  priced  product  growth  has also
contributed  to the  Company's  net sales growth from fiscal 1996 to fiscal 1997
and from fiscal 1995 to fiscal  1996,  led by the growth of  Spectralite(R)  and
plastic photochromic products, offset in part by price and volume erosion in net
sales  of  lower  priced   products.   Higher  priced  products   accounted  for
approximately  61% of net lens sales in fiscal  1997  compared  to 57% in fiscal
1996 and 53% in fiscal 1995. Plastic  photochromic  lenses were first introduced
in the United States in fiscal 1993, and launched in Europe, Australia and South
America in fiscal 1995.  Increased  marketing and customer  service efforts also
contributed to the growth in other higher priced products. Improvements in world
economies,  particularly  during fiscal 1995, also  contributed to the growth in
net sales during  fiscal 1996.  Net sales  increases  were achieved in all major
market areas from fiscal 1996 to 1997 as follows:  North America  22.7%,  Europe
40.6% and Rest of World  15.9%.  Net sales  increases in major market areas from
fiscal 1995 to 1996 were as follows:  North America 12.7%,  Europe 6.7% and Rest
of World 18.3%. At constant exchange rates, net sales increases from fiscal 1996
to fiscal 1997 were: North America 22.9%,  Europe 42.2% and Rest of World 12.1%,
and from fiscal 1995 to fiscal 1996 were:  North America 12.7%,  Europe 3.5% and
Rest of World 18.4%.

Gross Profit and Gross Margin

     Gross profit totaled $231.4 million,  as adjusted,  in fiscal 1997,  $185.7
million in fiscal 1996, and $160.0 million in fiscal 1995, reflecting growths of
24.6% from fiscal 1996 to fiscal 1997 and 16.1% from

                                       14

<PAGE>

fiscal 1995 to fiscal 1996.  Gross profit as a percentage of net sales in fiscal
1997, as adjusted,  fiscal 1996, and fiscal 1995, were 47.3%,  47.9%, and 46.3%,
respectively.  The gross  profit as a percentage  of net sales has  decreased in
fiscal 1997, as AO traditionally  operates at lower gross margins than Sola on a
standalone basis. In addition,  the Company has incurred  manufacturing start up
costs in its new finished  polycarbonate  manufacturing  operation acquired when
the Company  purchased  Neolens Inc. in July 1996, and ramp up costs  associated
with new product offerings.  Offsetting in part the  aforementioned  reductions,
has been a continued  shift towards higher value added  products,  and continued
benefits  from the  Company's  cost  reduction  program.  During fiscal 1996 the
Company  benefited  from  reduced  manufacturing  costs at its Mexican  facility
arising  from the  weakness of the Mexican  Peso,  and from the  Company's  cost
reduction   program.   In  addition,   improved  sales  mix  and   manufacturing
improvements,  offset in part by cost inflation in South America, contributed to
the improved  gross  profit as a percentage  of sales from fiscal 1995 to fiscal
1996. The Company continues to experience price competition, which can be severe
in certain markets, particularly for standard products.

Operating Expenses

     Operating  expenses  totaled $157.3 million,  as adjusted,  in fiscal 1997,
$125.0 million in fiscal 1996, and $116.3 million, as adjusted,  in fiscal 1995,
reflecting  increases  of 25.9% from  fiscal  1996 to fiscal  1997 and 7.5% from
fiscal 1995 to fiscal 1996.  Research and development  expenses for fiscal 1997,
1996 and 1995 represent 3.6%, 3.4% and 4.1%, respectively,  of annual net sales,
reflecting the Company's continued commitment to research and development of new
products,  new  materials  and  processes.   Because  research  and  development
expenditure  in AO as a percentage  of net sales is lower than that of Sola on a
standalone  basis, a reduced ratio of research and  development  expenses to net
sales can be expected for the combined  company in the future.  The lower charge
to research and  development  expenses in fiscal 1996 arose  primarily  from the
transfer of a new product out of research and development  and into  production.
Selling  and  marketing  expenses  were  18.9%,  17.1% and 17.7% of net sales in
fiscal 1997,  1996 and 1995,  respectively.  During the fourth quarter of fiscal
1997 the Company introduced a new progressive lens design,  Percepta(R),  with a
worldwide launch. Significant marketing expenditures associated with this launch
were  incurred  primarily in the last two quarters of the fiscal year.  The main
reasons for the percentage  decrease in selling and marketing expenses in fiscal
1996 over fiscal  1995 were  savings  achieved  from lower  distribution  costs,
primarily in North America,  which caused selling and marketing expenses to grow
at a slower  rate than net sales.  As a  percentage  of net sales,  general  and
administrative  expenses  decreased to 9.7% in fiscal 1997  compared to 11.7% in
fiscal  1996 and  11.9% in fiscal  1995.  The lower  percentage  in fiscal  1997
compared to fiscal 1996 is primarily due to lower  performance  based management
bonuses in fiscal 1997 and favorable  foreign  currency gains. In addition,  the
provisions  for doubtful  accounts in South America and Asia were  significantly
lower in fiscal 1997  compared to fiscal 1996.  The  decrease in  administrative
expenses  in fiscal 1996 over fiscal 1995  includes  reductions  in  performance
based  management  bonuses  offset by an increase  in  provisions  for  doubtful
accounts  reflecting the  lengthening  days sales  outstanding in parts of South
America and Asia.  Operating  expenses as a  percentage  of net sales in each of
fiscal  1997,  fiscal  1996  and  fiscal  1995  were  32.2%,  32.2%  and  33.7%,
respectively.

Operating Income

     Operating  income for fiscal 1997 totaled $74.1  million,  as adjusted,  an
increase of $13.3 million over fiscal 1996 operating income of $60.8 million, or
21.9%.  Operating income in fiscal 1996 reflected a growth of $17.1 million,  or
39.1% over operating income of $43.7 million for fiscal 1995, as adjusted.

Net Interest Expense

     Net interest  expense totaled $15.9 million for fiscal 1997,  $12.1 million
for fiscal  1996,  and $12.1  million,  as adjusted,  for fiscal 1995.  Interest
expense was higher in fiscal  1997 than the fiscal  1996 level by  approximately
$3.8 million  primarily as a result of  indebtedness  incurred to finance the AO
and Neolens  acquisitions offset by the lower interest rate under the New Credit
Agreement  and the  reduction

                                       15

<PAGE>

of debt from the proceeds of the equity public offering.  Simultaneous  with the
AO  Acquisition,  the Company  entered into a new bank credit  facility with The
Bank of America National Trust and Savings Association,  for itself and as agent
for a syndicate of other financial  institutions  (see  "--Liquidity and Capital
Resources").  In July 1996,  the Company  issued 2.32  million  shares of common
stock in a public  offering for which it received net proceeds of  approximately
$62.8 million.

Provision for Income Taxes

     The   Company's   combined   state,   federal  and  foreign  tax  rate  was
approximately  28.5% for fiscal 1997, as adjusted,  compared to 28.6% for fiscal
1996 and 22.0% for fiscal 1995,  as  adjusted.  The Company  provided  valuation
allowances  against fiscal 1994 net operating loss  carryforwards  in the United
States, primarily as a result of the Acquisition, and against fiscal 1997, 1996,
1995 and 1994 net operating  losses in Australia.  The utilization of the United
States  valuation  allowance  has resulted in a reduced  effective  tax rate for
fiscal 1997, 1996 and 1995. The net operating losses in Australia,  which do not
expire,  are expected to exceed taxable profits in Australia in fiscal 1998. The
valuation  allowances  provided  against United States  deferred tax assets have
been fully reversed as of March 31, 1997, and therefore the Company  expects its
effective  tax rate to  increase  in fiscal  1998 and  beyond.  The  Company has
deferred  tax assets on its  balance  sheet as of March 31,  1997  amounting  to
approximately  $19.2  million.  The ultimate  utilization  of these deferred tax
assets is dependent on the Company's  ability to generate  taxable income in the
future.

Extraordinary Item

     During  fiscal 1996 the Company  repurchased  approximately  $19.9  million
principal amount at maturity of its 9 5/8% Senior  Subordinated  Notes due 2003.
As a result of the repurchases the Company recorded an  extraordinary  charge of
$0.9 million for fiscal 1996 resulting  from the write-off of  unamortized  debt
issuance costs and premium over accreted value. The repurchase was partly funded
by borrowings  under the Company's prior credit agreement and partly from excess
cash arising from the IPO.

Net Income

     Net income for fiscal 1997 totaled $41.8 million, as adjusted,  compared to
$33.6 million for fiscal 1996 and $23.6 million,  as adjusted,  for fiscal 1995,
increases of $8.2  million and $10.0  million,  respectively.  The growth in net
income from fiscal 1996 to fiscal 1997, as adjusted, was 24.0% and from 1995, as
adjusted, to fiscal 1996 was 42.4%.

Liquidity and Capital Resources

     The following  analysis of the Company's cash flow  statement  reflects the
historical  results  of the  Company  which  have not been  adjusted  for the AO
Acquisition, Acquisition or IPO.

     Operating  activities  generated  $32.2  million  in cash in  fiscal  1997,
compared  with $30.8  million in fiscal 1996 and $18.5  million in fiscal  1995.
Improved  net income in fiscal 1997,  after  adding back one time  non-recurring
non-cash  charges  associated  with the AO  Acquisition,  was  offset in part by
increases in inventories  and accounts  receivable.  Accounts  payable in fiscal
1997 increased in line with inventory growth.  Significantly improved net income
in fiscal  1996 was offset in part by  increases  in  inventories  and  accounts
receivable. Accounts payable, which increased in line with inventory growth, was
partly offset by a reduction in accrued and other  liabilities,  primarily being
expenditures  on  the  Company's  reorganization,  provided  for  following  the
Acquisition in fiscal 1994.

     During fiscal 1997  inventories  as a percentage of net sales grew to 28.4%
(27.2% if a full year's net sales for AO are used) from 26.0% in the prior year.
The growth in inventory  levels has resulted from the  introduction and regional
spread of new products,  resulting in both finished goods  inventory  growth and
increased  mold  inventory  requirements.  The  primary  increase  was caused by
increases  in  inventories

                                       16

<PAGE>

and molds to support the  worldwide  launch of a new  progressive  lens  design,
Percepta(R),  in the fourth  quarter of fiscal 1997.  Accounts  receivable  as a
percentage of net sales increased to 21.5% (20.5% if a full year's net sales for
AO are used) in fiscal  1997  compared to 19.3% a year ago.  During  fiscal 1996
inventories  as a percentage  of net sales grew to 26.0% from 24.8% in the prior
year resulting from the  introduction of new products and regional spread of new
products,  causing both  finished  goods  inventory  growth and  increased  mold
inventory  requirements.  Accounts  receivable  as a  percentage  of  net  sales
decreased to 19.3% in fiscal 1996 compared to 20.2% in fiscal 1995. The accounts
receivable  growth  from  increased  net  sales in  fiscal  1996 was  offset  by
provisions  for  doubtful   accounts   reflecting  the  lengthening  days  sales
outstanding in parts of South America and Asia.

     During  fiscal 1997 net cash expended on investing  activities  amounted to
$154.8 million. On June 19, 1996, the Company acquired  substantially all of the
worldwide  ophthalmic  business  of AOC  pursuant  to the terms of the  Purchase
Agreement dated May 6, 1996 between the Company and AOC. The Company acquired AO
for cash  consideration  of $103.6  million  (together  with the  assumption  of
certain  liabilities)  (the "AO  Acquisition").  The AO  Acquisition  was funded
primarily  through  borrowings under the Company's New Credit  Agreement,  which
borrowings  were  subsequently  repaid in part with the  proceeds  of the equity
public offering during July 1996. On July 2, 1996 the Company acquired  Neolens,
Inc. ("Neolens"), a Florida corporation that manufactures polycarbonate eyeglass
lenses that has been a supplier to the Company. The Company acquired Neolens for
cash consideration of approximately  $15.5 million,  including the assumption of
Neolens debt ("Neolens Acquisition"). The Neolens Acquisition was funded through
borrowings under the Company's New Credit  Agreement.  In addition,  the Company
spent  approximately  $30.0  million on capital  expenditures  primarily  in the
United States,  Mexico, China and Brazil. The capital expenditure in fiscal 1997
were primarily to add production capacity.  During fiscal 1996 net cash expended
on investing  activities was primarily for capital  expenditures  and increasing
the  Company's   investment  in  its  Venezuela   joint  venture.   The  capital
expenditures in fiscal 1996 relate mainly to expansion of production capacity to
accommodate  higher volumes and the introduction of new products.  On October 5,
1995, the Company increased its investment in its Venezuela joint venture,  Sola
de Venezuela Industria Optica,  C.A. ("Sola Venezuela"),  from 45% to 80%, which
was  effective  from March 31,  1995.  In addition,  in March 1996,  the Company
exercised  its  option  to  acquire  the  remaining  20% of the  shares  in Sola
Venezuela.  The purchase price for all the shares, including the 20% option, and
acquisition  expenses,  amounted to  approximately  $3.6 million and was paid in
cash,  $2.0 million in October 1995, and $1.6 million in March 1996. In addition
to the $1.6 million cash purchase price of the final 20% of Sola Venezuela, Sola
may be  required  to pay a  contingent  payment  based on the  growth in the net
income of Sola Venezuela in fiscal 1998 over the net income of Sola Venezuela in
fiscal 1995,  although the  contingent  payment  could be based on an earlier 12
month period. During fiscal 1995 capital expenditures amounted to $11.6 million.
Management  anticipates  capital  expenditures  of $30  million  to $40  million
annually over the next several years, of which approximately $4 million annually
is viewed as discretionary.

     Financing  activities  generated $125.6 million in fiscal 1997. During July
1996 the Company sold 2,320,000 additional shares of common stock at $28.625 per
share  through  a  public  offering  ("Offering").  The net  proceeds  from  the
Offering,  after  deducting  expenses of the Offering,  including  discounts and
commissions paid to the  Underwriters,  were  approximately  $62.8 million.  The
Company used such net proceeds to repay indebtedness which it incurred under the
New Credit Agreement.  Simultaneous with the closing of the AO Acquisition,  the
Company entered into a bank credit  agreement with The Bank of America  National
Trust and Savings Association,  for itself and as agent for a syndicate of other
financial  institutions,  covering an aggregate amount of $180 million (the "New
Credit Agreement"),  replacing the Company's existing credit agreement.  The New
Credit Agreement is divided into three tranches which comprise: a five-year term
loan of $30 million, a renewable  three-year foreign currency revolving facility
of $30 million, and a five-year US dollar revolver of $120 million. The term and
revolving loan were made in order to finance a portion of the AO Acquisition and
refinance existing  facilities  generally used for working capital.  The foreign
currency  revolver  matures  on May 31,  1999  and the term  loan and US  dollar
revolver  both mature on May 31, 2001.  As of March 31, 1997,  $28.1 million was
outstanding  under  the term  loan,  and  $44.5  million  outstanding  under the
revolvers.  $105.5  million  was  available  for  future  borrowings  under  the
revolvers.

                                       17

<PAGE>

     Borrowings under the term loan facilities and the US dollar revolver (other
than swing line  loans,  which may only be Base Rate  Loans) may be made as Base
Rate Loans or LIBO Rate Loans.  Base Rate Loans bear interest at rates per annum
equal to the higher of (a) 0.50% per annum above the latest  Federal Funds Rate,
or (b) the Bank of America  Reference  Rate.  Base Rate  Loans  include a margin
varying from 0% to 0.125% based on the  Company's  Funded Debt to EBITDA  Ratio.
LIBO Rate Loans bear  interest  at a rate per annum equal to the sum of the LIBO
Rate and a margin  varying from 0.500% to 1.125% based on the  Company's  Funded
Debt to EBITDA  Ratio.  Borrowings  under the  foreign  currency  revolver  bear
interest at rates per annum equal to the referenced currency's local IBOR plus a
margin  varying  from  0.500% to 1.125%  based on the  Company's  Funded Debt to
EBITDA  Ratio.  Local  currency  Base Rate Loans are also  available  at spreads
similar to those described above for US Base Rate Loans.  The term loan and U.S.
dollar  revolver  currently bear interest at an initial rate of LIBOR plus 0.60%
(approximately  6.30% as of March 31,  1997) and the foreign  currency  revolver
bears an initial interest rate of the relevant local economy IBOR plus 0.60%.

     The New Credit Agreement contains a number of covenants,  including,  among
others,  covenants  restricting the Company and its subsidiaries with respect to
the incurrence of indebtedness (including contingent obligations),  the creation
of liens,  the making of certain  investments  and loans,  engaging in unrelated
businesses,   transactions   with   affiliates,   the  consummation  of  certain
transactions  such as sales of substantial  assets,  mergers or  consolidations,
margin stock  purchases  and other  transactions.  Additionally,  the New Credit
Agreement  restricts  significant  accounting  changes,   negative  pledges  and
designated  senior  indebtedness.  The New Credit  Agreement  also restricts the
ability of the Company and its  subsidiaries to make restricted  payments in the
nature of, among other  things,  (i)  declaring,  making or paying  dividends or
other distributions in excess of prescribed levels,  (ii) purchasing,  redeeming
or retiring  shares of the Company's  capital  stock,  and (iii) making  certain
payments,  purchases,  redemptions,  modifications or other  acquisitions of any
Subordinated Notes. The Company and its subsidiaries are also required to comply
with certain  financial tests and maintain  certain  financial  ratios.  The New
Credit Agreement includes standard events of default.

     Financing activities were an outflow of $4.7 million in fiscal 1996. During
the three months  ended June 1995 the Company  repurchased  approximately  $19.9
million principal amount at maturity of its 9 5/8% Senior Subordinated Notes due
2003.  The  repurchase  was partly funded by  borrowings  under the prior credit
agreement and partly from excess cash arising from the IPO. The Company may from
time to time  purchase  additional  Notes in the market or otherwise  subject to
market conditions. Net cash used in financing activities in fiscal 1995 amounted
to $4.1 million. Of this amount $81.2 million represented net cash proceeds from
the sale of  approximately  5.4 million  shares of common stock in the Company's
initial public  offering in March 1995. The funds derived from the IPO were used
to pay  down  borrowings  of $72.7  million  under  the  Company's  bank  credit
agreement and to pay AEA Investors Inc. $3.0 million for the  termination of its
management agreement with the Company,  with the excess of $5.5 million added to
working capital.

     On December 1, 1993, the Company issued $116.6 million  principal amount at
maturity of 9 5/8% Senior  Subordinated  Notes due 2003,  from which it received
gross proceeds of  approximately  $100 million and net proceeds of approximately
$97 million,  after  deducting fees and expenses.  Cash interest on the Notes is
payable  at the rate of 6% per  annum  of their  principal  amount  at  maturity
through and including  December 15, 1998,  and after such date is payable at the
rate of 9 5/8% per annum of their principal at maturity.  Interest is payable on
June 15 and December 15 of each year.  The Notes are redeemable at the option of
the  Company,  in whole or in part,  at any time on or after  December 15, 1998,
initially  at 104.813%  of their  principal  amount at  maturity,  plus  accrued
interest,  declining to 100% of their principal amount at maturity, plus accrued
interest,  on or after December 15, 2000. The Indenture  restricts the Company's
ability to, among other things, incur indebtedness,  declare or pay dividends or
make certain other payments,  create liens, utilize proceeds from an asset sale,
conduct   transactions   with   affiliates   and  issue  capital  stock  of  its
subsidiaries.

                                       18

<PAGE>

     The Company's  foreign  subsidiaries  maintain  local credit  facilities to
provide credit for overdraft,  working  capital and some fixed asset  investment
purposes.  As of March 31, 1997, the Company's total credit available under such
facilities  was  approximately  $30.0  million,  of which $9.4  million had been
utilized.

     The  Company  continues  to have  significant  liquidity  requirements.  In
addition  to working  capital  needs and capital  expenditures,  the Company has
substantial cash requirements for debt service. The Company expects that the New
Credit  Agreement and other overseas  credit  facilities,  together with cash on
hand and internally  generated funds, if available as anticipated,  will provide
sufficient  capital  resources  to  finance  the  Company's   operations,   fund
anticipated capital  expenditures,  and meet interest  requirements on its debt,
including the Notes, for the foreseeable  future. As the Company's debt matures,
the Company may need to refinance such debt. There can be no assurance that such
debt can be refinanced on terms acceptable to the Company.

Currency Exchange Rates

     As a result of the Company's worldwide  operations,  currency exchange rate
fluctuations  tend to affect the Company's  results of operations  and financial
position.  The two principal effects of currency exchange rates on the Company's
results of operations and financial position are (i) translation adjustments for
subsidiaries  where the  local  currency  is the  functional  currency  and (ii)
translation  adjustments  for  subsidiaries  in  hyper-inflationary   countries.
Translation  adjustments  for  functional  local  currencies  have  been made to
shareholders'  equity.  For the fiscal years ended March 31, 1997, 1996 and 1995
such translation  adjustments were approximately $(3.8) million, $(1.6) million,
$4.4 million, respectively.

     During fiscal 1996 the Company benefited from reduced  manufacturing  costs
at its Mexican  facility  arising  from the  weakness of the Mexican  Peso.  For
translation   adjustments   of   the   Company's   subsidiaries   operating   in
hyper-inflationary  countries,  until recently  primarily Brazil, the functional
currency is determined  to be the U.S.  dollar,  and  therefore all  translation
adjustments are reflected in the Company's Statements of Operations.  Commencing
with the fourth  quarter of fiscal 1997 the Company's  operations in Mexico have
been  accounted  for  as  hyper-inflationary  economies.  In  hyper-inflationary
environments,  the Company  generally  protects margins by methods which include
increasing prices monthly at a rate appropriate to cover anticipated  inflation,
compounding  interest  charges on sales invoices daily and holding cash balances
in U.S. dollar denominated accounts where possible.

     Because a majority of the Company's debt is U.S.  dollar  denominated,  the
Company  may hedge  against  certain  currency  fluctuations  by  entering  into
currency swaps (however certain  currencies,  such as the Brazilian Real, cannot
be hedged),  although no such swaps had been  entered into as of March 31, 1997.
As of March 31, 1997 certain of the Company's  foreign  subsidiaries had entered
into forward  contracts for intercompany  purchase  commitments in amounts other
than  their  home  currency.  The  carrying  amount  of  the  forward  contracts
approximates  fair value,  which has been  estimated  based on current  exchange
rates. For further  financial data of the Company's  performance by region,  see
Note 15 of Notes to Consolidated Financial Statements.

Seasonality

     The Company's  business is somewhat  seasonal,  with third quarter  results
generally weaker than the other three quarters as a result of lower sales during
the holiday season, and fourth quarter results generally the strongest.

Inflation

     Inflation  continues to affect the cost of the goods and  services  used by
the Company.  The  competitive  environment in many markets limits the Company's
ability to recover  higher  costs  through  increased  selling  prices,  and the
Company is subject to price erosion in many of its standard  product

                                       19

<PAGE>

lines.  The Company seeks to mitigate the adverse  effects of inflation  through
cost  containment  and  productivity  and  manufacturing  process  improvements.
Approximately  7.4% of the  Company's  net sales during fiscal 1997 were derived
from its operations in South America, the majority of which are in Brazil, which
has  experienced  periods  of  hyper-inflation.  In  June  1994,  the  Brazilian
Government  introduced a new currency,  the Real, and adopted certain  financial
plans to reduce  inflation in that  country.  From June 1994  through  March 31,
1997,  inflation has reduced to approximately 2% per month. For a description of
the effects of inflation on the Company's  reported revenues and profits and the
measures  taken  by  the  Company  in  response  to   inflationary   conditions,
see--"Currency Exchange Rates" above.

Information Relating to Forward-Looking Statements

     This Form 10-K of the Company includes  forward-looking  statements  within
the meaning of Section 21E of the  Securities  Exchange  Act of 1934,  including
statements  regarding,  among other items, (i) the Company's  development of new
products,  including,  among others, Percepta,  Spectralite,  Access and Matrix,
(ii) the availability of raw materials for the Company's products,  the costs of
product  introductions,  and trends in sales growth (including growth related to
new products),  (iii) anticipated trends in the Company's business  environment,
including  competitive  and pricing  pressures,  (iv) the  Company's  ability to
continue to control costs and maintain  adequate  standards of customer  service
and product quality and (v) future income tax rates and capital expenditures and
working  capital  requirements.  These forward  looking  statements  reflect the
Company's current views with respect to future events and financial performance.
The words "believe",  "expect",  "anticipate" and similar  expressions  identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these  forward-looking  statements,  which  speak  only as of their  dates.  The
Company   undertakes   no   obligation   to   publicly   update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events  or  otherwise.   Actual  results  could  differ   materially   from  the
forward-looking statements as a result of various factors including the "Factors
Affecting  Future Operating  Results"  included in Exhibit 99.1 of the Company's
Form 10-K for the fiscal year ended March 31, 1997 and the factors  described in
"Business--Environmental Matters."

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statements required by this item are set forth on pages F-1,
and F3 through F-27 and the related financial statement schedule is set forth on
page S-1.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE

     Not applicable.

                                       20

<PAGE>


                                    PART III

<TABLE>
Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  following  table  sets  forth the  names,  ages and  positions  of the
Company's directors and executive officers.  All directors hold office until the
annual meeting of stockholders of the Company  following their election or until
their successors are duly elected and qualified.  Officers are appointed by, and
serve at the discretion of, the Board of Directors.
<CAPTION>

                      Name                          Age             Position
                      ----                          ---             --------
<S>                                                 <C>    <C>                  
Irving S. Shapiro..............................     80     Chairman of the Board
Douglas D. Danforth............................     74     Director
Hamish Maxwell.................................     70     Director
Ruben F. Mettler...............................     73     Director
Maurice J. Cunniffe............................     64     Director
Jackson L. Schultz.............................     71     Director
A. William Hamill..............................     49     Director
John E. Heine..................................     53     President  and Chief Executive Officer, 
                                                              Director
James H. Cox...................................     48     Executive Vice President, Assistant
                                                              Secretary and Assistant Treasurer;
                                                              President, Sola Optical USA
Ian S. Gillies.................................     55     Vice President, Administration, Chief
                                                              Financial Officer, Secretary and
                                                              Treasurer
Stephen J. Lee.................................     44     Vice President, Human Resources
Barry J. Packham...............................     50     Vice President, Manufacturing
                                                              Development
Colin M. Perrott...............................     50     Vice President, Technology and
                                                              Development
John J. Bastian................................     45     Vice President, Regional Director, Australia
Theodore Gioia.................................     39     Vice President, Strategic Planning
Adrian Walker..................................     44     Vice President, Regional Director, Asia
Mark T. Mackenzie..............................     47     Vice President, Regional Director, Europe
Alan S. Vaughan................................     53     Vice President, Worldwide Rx Operations
</TABLE>

     The principal occupations and positions for at least the past five years of
each of the  directors  and  executive  officers  of the  Company are as follows
(references to the Company include its predecessors):

     Irving S.  Shapiro  has been  Chairman  of the Board of the  Company  since
December 1994. Mr. Shapiro is Of Counsel to Skadden, Arps, Slate, Meagher & Flom
LLP. He was Chairman and Chief Executive  Officer of E.I. du Pont de Nemours and
Company  from 1974 to 1981.  He is  Chairman  of the Board of the Howard  Hughes
Medical Institute and of Marvin & Palmer Associates,  Inc., and is a director of
J.P. Morgan Florida Federal  Savings Bank,  Pediatric  Services of America Inc.,
and Gliatech, Inc.

     Douglas D. Danforth has been a director of the Company since December 1994.
He was Chairman and Chief Executive Officer of Westinghouse Electric Corporation
from 1983 to 1987. He is a director of Travelers, Inc., and Daltile Inc.

                                       21

<PAGE>

     Hamish  Maxwell has been a director of the Company since December 1994. Mr.
Maxwell was  Chairman of the  Executive  Committee  of the Board of Directors of
Philip  Morris  Companies  Inc. from  September  1991 through April 1995 and was
Chairman and Chief Executive  Officer of such company from 1984 to 1991. He is a
director of Bankers Trust Company,  Bankers Trust New York  Corporation  and The
News Corporation Limited, and Chairman of WPP Group plc.

     Ruben F. Mettler has been a director of the Company since December 1994. He
was Chairman and Chief Executive Officer of TRW Inc. from 1977 to 1988.

     Maurice J.  Cunniffe  has been a director  of the Company  since  December,
1996.  He  is  Chairman  and  Chief  Executive   Officer  of  American   Optical
Corporation, a company of which he has been sole shareholder since 1982.

     Jackson L. Schultz has been a director of the Company since  November 1995.
Mr.  Schultz  joined  Wells Fargo Bank in 1970,  retiring in 1990 as Senior Vice
President responsible for Public and Governmental Affairs. Mr. Schultz remains a
consultant  to the bank.  Mr.  Schultz is also a director  of The San  Francisco
Company.

     A. William Hamill has been a director of the Company since December,  1996.
Mr. Hamill is Executive Vice President and Chief Financial Officer of Union Camp
Corporation,  which he joined in 1996.  From 1993 through 1996, he was a partner
in SCI  Investors  Inc. and a director of Custom  Papers Group Inc. From 1991 to
1993,  he was Senior Vice  President  and Chief  Financial  Officer of Specialty
Coatings  International Inc.. From 1975 through 1990, Mr. Hamill was with Morgan
Stanley & Co. Incorporated, where he was a Managing Director.

     John E. Heine has served as Chief  Executive  Officer and  President of the
Company  since  November 1981 and served as Chairman of the Board of the Company
from  September  1993 to December  1994. Mr. Heine joined the Company in 1981 as
Managing  Director of Sola  International  Holdings,  Ltd. and  previously  held
general  management  positions with Southern Farmers Holdings,  Ltd. in Adelaide
and H.J. Heinz in Melbourne, Australia.

     James H. Cox was  appointed  Executive  Vice  President  in December  1996,
Assistant Secretary and Assistant Treasurer of the Company in September 1993 and
President of Sola  Optical  USA, the  Company's  North  American  eyeglass  lens
business in 1991.  He joined the  Company as Vice  President,  Manufacturing  in
1985. Mr. Cox was formerly  Executive Vice President of Operations with Bausch &
Lomb's Consumer Products Division.

     Ian S. Gillies was appointed  Vice  President,  Administration  in December
1996, and continues as Chief  Financial  Officer,  Secretary and Treasurer.  Mr.
Gillies held the position of Vice President,  Finance,  Chief Financial  Officer
and  Treasurer of the Company from 1991 to 1996.  Prior to 1991 Mr.  Gillies was
the Regional Director of the Company's European operations and Managing Director
of Pilkington  Ophthalmic  Products.  Mr. Gillies joined Pilkington in 1966. Mr.
Gillies was appointed Secretary of the Company in September 1995.

     Stephen J. Lee was appointed Vice President, Human Resources of the Company
in 1988 and was formerly  Director of Personnel for Pilkington's  Ophthalmic and
Insulation Divisions. Mr. Lee joined the Pilkington Group in 1974.

     Barry J.  Packham  joined  the  Company  as Vice  President,  Manufacturing
Development in February 1993. Mr. Packham was Managing  Director of Ceramic Fuel
Cells Ltd., a research and  development  joint venture  consortium in Melbourne,
Australia,  from  1991 to 1993  and  formerly  held  manufacturing  and  general
management positions with Kodak and Leigh-Mardon Pty. Ltd.

                                       22

<PAGE>

     Colin  M.  Perrott  is the  Company's  Vice  President  of  Technology  and
Development.  Dr. Perrott joined the Company in 1984 and was formerly Officer in
Charge of the  Commonwealth  Scientific and Industrial  Research  Organization's
Manufacturing Technology Unit in Adelaide, South Australia.

     John J. Bastian has served as Regional Director,  Australia since 1987. Mr.
Bastian joined the Company in 1983 as Group General  Manager,  Marketing in Sola
International  Holdings,  South  Australia  following a six-year  career with PA
Management Consultants.

     Theodore Gioia has served as Vice President, Strategic Planning since 1992.
Mr. Gioia joined the Company as Director of Strategic  Planning in 1989,  having
sold the start-up recording company he founded in 1987. Mr. Gioia was previously
a consultant with McKinsey & Company and the Boston Consulting Group.

     Adrian P. Walker joined the Company as Regional Director,  Asia in November
1996. Mr. Walker held a number of general management positions with subsidiaries
of BTR plc.  from March 1980 to  November  1996.  He was most  recently  General
Manager of ACI Laminates and  Insulations,  based in Melbourne,  Australia  from
July  1995 to  October  1996.  From  August  1992 to July  1995 he was  Managing
Director of Dunlop  Slazenger  (Far East),  in Malaysia,  and from April 1985 to
July 1992 was General  Manager,  Serck Services  (Gulf) Ltd., in the United Arab
Emirates.

     Mark T. Mackenzie was appointed  Regional  Director,  Europe in April 1994.
Mr. Mackenzie  served as Group Marketing  Director of Tarkett Pegulan AG, and as
General  Manager of the  Residential  Flooring  Division,  based in Germany.  He
formerly held marketing and sales  positions with Gillette,  L'Oreal and Cadbury
Schweppes.

     Alan S. Vaughan was appointed  Vice  President,  Worldwide Rx Operations in
June 1994,  having  previously  served as European  Manufacturing  and Technical
Director.  Mr. Vaughan  joined the Company in 1978 as Managing  Director of Sola
ADC Lenses in Ireland.  He was previously  Director of Operations with Johnson &
Johnson (Ireland).

                                       23

<PAGE>


Item 11.      EXECUTIVE COMPENSATION

<TABLE>
     The  following  table sets forth in summary form all  compensation  for all
services rendered in all capacities to the Company paid or accrued during fiscal
1997,  1996 and 1995, to the Chief  Executive  Officer of the Company and to the
four other most highly compensated executive officers of the Company whose total
annual salary and bonus exceeds $100,000 (collectively, with the Chief Executive
Officer, the "Named Executive Officers").

<CAPTION>
                                                               Summary Compensation Table
                                                                                                        Long Term
                                                                                                      Compensation
                                                                                                          Awards
                                                                                                      --------------
                                                                    Annual  Compensation                Securities
                                                        ----------------------------------------------- Underlying
       Name and                                                                       Other Annual        Options/     All Other
  Principal Position                         Year       Salary ($)      Bonus ($)   Compensation (1)($)   SARs (#)  Compensation ($)
  ------------------                         ----       ----------      ---------   -------------------   --------  ----------------
<S>                                          <C>         <C>             <C>             <C>                <C>          <C>  
John E. Heine                                1997        $460,661        $206,057        $102,102            --            --  (2)
   President                                 1996         430,048         432,427         103,592            --            --
   and Chief                                 1995         425,240         704,521         148,463            --            --
   Executive Officer

James H. Cox                                 1997        $302,329        $ 81,540        $  4,810           5,000         4,500(3)
   Executive Vice                            1996         261,725         207,368           4,192            --           4,072
   President,                                1995         257,824         293,017           5,749            --           9,283
   Assistant
   Secretary and
   Assistant
   Treasurer;
   President, Sola
   Optical USA

Colin M. Perrott                             1997        $248,948        $ 85,422        $ 83,262            --            --  (2)
   Vice President,                           1996         235,870         168,961          93,756            --            --
   Technology                                1995         232,601         275,260         165,916            --            --
   and Development

Ian S. Gillies                               1997        $225,701        $ 77,340        $ 76,481            --          $4,500(3)
   Vice President,                           1996         213,624         152,075          96,290            --           4,620
   Finance, Chief                            1995         209,355         247,751          98,470            --           4,711
   Financial Officer,
   Secretary and
   Treasurer

Stephen J. Lee                               1997        $225,261        $ 76,346        $ 91,789            --          $4,500(3)
   Vice President,                           1996         209,923         150,151          89,473            --           4,500
   Human Resources                           1995         206,705         244,759         112,049            --           3,101

<FN>
----------
(1)  The amounts indicated for Messrs. Heine,  Perrott,  Gillies and Lee include
     an expatriate  accommodation  allowance  and benefits  package of $117,509,
     $112,584,  $73,534 and $77,791,  respectively,  for fiscal  1995,  $78,445,
     $67,277, $68,281, and $64,341,  respectively, for fiscal 1996, and $83,330,
     $58,853, $58,497, and $62,455, respectively, for fiscal 1997.

(2)  In lieu of participation in the Sola Optical Australia Superannuation Plan,
     Messrs.   Heine  and  Perrott  earn  equivalent   pensions  under  separate
     Expatriate  Superannuation  Agreements  with the  Company.  See  "--Pension
     Plan".

                                       24

<PAGE>

(3)  Messrs.  Cox,  Gillies,  and Lee deferred  portions of their annual  salary
     pursuant to the Sola Optical USA 401(K)  Savings  Plan.  The amounts  shown
     represent  cash  contributions  made by the  Company  to the  plan  for the
     account of such Named Executive  Officers for fiscal 1997 in the amounts of
     $4,500, $4,500, and $4,500, respectively.
</FN>
</TABLE>

Option Exercise Table

<TABLE>
     The  following  table  sets  forth the  number of  shares  covered  by both
exercisable and  unexercisable  options granted to the Named Executive  Officers
under the Company's option plans as of March 31, 1997. No options were exercised
by the Named Executive Officers during fiscal 1997.

<CAPTION>
                                Aggregated Option/SAR Exercises in Last Fiscal Year

                                       and Fiscal Year-End Option/SAR Values

                         Number of Securities Underlying Unexercised          Value of Unexercised In-the-Money
                               Options/SARs at Fiscal Year-End               Options/SARs at Fiscal Year-End (1)
                               -------------------------------               -----------------------------------

        Name                Exercisable            Unexercisable            Exercisable           Unexercisable
        ----                -----------            -------------            -----------           -------------
<S>                           <C>                       <C>                    <C>                    <C>      
John E. Heine                 317,809                   79,452                 4,263,402              1,065,850

James H. Cox                   90,816                   26,454                 1,204,882                301,220

Colin M. Perrott               69,093                   17,273                   926,875                231,719

Ian S. Gillies                 89,816                   22,454                 1,204,882                301,220

Stephen J. Lee                 69,093                   17,273                   926,880                231,720

<FN>
----------
(1)  Values for  "in-the-money"  Existing Options  represent the positive spread
     between $9.71, the exercise price of outstanding  Existing Options, and the
     closing  price of $23.125 per share of Common Stock of the Company at March
     31, 1997,  as reported on the New York Stock  Exchange.  Mr. Cox's  options
     under the  International  Stock Option Plan were not  "in-the-money"  as of
     March 31, 1997.
</FN>
</TABLE>


Option Grant Table

<TABLE>
    The  following  table sets forth the  number of  options  granted  the Named
    Executive  Officers under the Company's  option plans during fiscal 1997. No
    options were exercised by the Named Executive Officers during fiscal 1997.


<CAPTION>
                                         Option/SAR Grants in Last Fiscal Year


                                               Individual Grants
                         -----------------------------------------------------
                                                                                          Potential Realizable
                          Number of    Percent Of Total                                    Value At Assumed
                         Securities      Options/ SARs                                 Annual Rates Of  Stock Price
                         Underlying       Granted To     Exercise Or                   Appreciation For Options Term
                        Options/SARs     Employees In     Base Price   Expiration      -------------------------
         Name            Granted (#)      Fiscal Year       ($/Sh)        Date          5% ($)            10% ($)
         ----            -----------      -----------       ------        ----         -----             -------
<S>                         <C>              <C>           <C>          <C>            <C>                <C>    
John E. Heine                --               --             --           --             --                 --
James H. Cox                5,000            1.3%          $35.88       12/6/06        292,224            465,317
Colin M. Perrott             --               --             --           --             --                 --
Ian S. Gillies               --               --             --           --             --                 --
Stephen J. Lee               --               --             --           --             --                 --
</TABLE>

                                                25

<PAGE>

Employment Agreements

     The Company and Mr. Heine entered into a severance agreement dated November
20, 1996. If the Company elects to terminate Mr. Heine's  employment  other than
for Cause (cause is defined as, willful  misconduct;  neglect of duties,  or any
act or omission any or all of which  materially  adversely  affect the Company's
business;  or conviction of a felony) or if Mr. Heine  terminates his employment
under   certain   circumstances,   the  Company  is  required  to  continue  his
compensation,  including  annual  salary and an average of the past three  years
Management  Incentive  Plan  payments  made to him,  for a 24 month  period.  In
addition, for a 24 month period Mr. Heine may continue to participate in any and
all benefit plans the Company regularly provides its other executives including,
but not limited to, health,  dental, vision, pension and other retirement plans,
and receive outplacement assistance and consultation up to a maximum of $25,000.
If, within two years of a change in control (as defined in the  agreement),  the
Company  elects to terminate Mr. Heine's  employment  other than for cause or if
Mr.  Heine   terminates   his   employment   with  the  Company   under  certain
circumstances,  the Company  shall pay Mr. Heine in cash an amount equal to 2.99
times the sum of the amount of Mr. Heine's  annual salary in effect  immediately
prior  to the  date of such  termination  plus  the  average  of the  Management
Incentive Plan  compensation paid to him over the immediately prior three years.
The agreement also contains covenants not to compete,  covenants not to solicit,
and invention assignment, and confidentiality clauses.

     The Company and each of the Messrs. Cox, Perrott,  Gillies and Lee is party
to an employment  agreement,  each dated as of February 26, 1993. Each agreement
has an  initial  term  of  three  years  and is  automatically  extended  for an
indefinite  term unless  terminated  upon prior notice by either  party.  If the
Company  elects  not to  extend  the term of an  agreement  or to  terminate  an
agreement  subsequent to the initial term other than for Cause (i.e., a material
breach by the  officer  of the terms of his  employment  agreement,  failure  to
perform  his  duties as an  officer of the  Company  or  commission  of fraud or
willful  misconduct),  the Company is required to give 12 months'  notice.  Each
agreement provides for an annual base salary at a rate not less than the rate in
effect on the date of the agreement.  Such salaries are subject to discretionary
increases  in  accordance  with  the  Company's  normal  review  procedures  and
policies.  The agreements also provide for  participation in various other plans
and  programs  provided  by the  Company.  In the event of a transfer  of all or
substantially  all  of  the  stock  or  assets  of the  Company  in a  privately
negotiated  transaction,  the  Company  will  assign its  obligations  under the
employment agreements to the transferee. For purposes of assignment and transfer
provisions in the agreements, a sale of stock of the Company as part of a public
offering will not be treated as pursuant to a privately negotiated transaction.

     Each of the agreements provides that the Company has no further obligations
under such agreement  (other than for salary  through the officer's  termination
date) in the event of an officer's  termination by the Company for Cause, by the
officer  for  other  than  Good  Reason  (i.e.,   diminution  of  the  officer's
responsibilities  within the Company) or as a result of the  officer's  death or
disability.  If an officer is  terminated  by the Company for reason  other than
Cause or if the officer  terminates his employment for Good Reason,  the Company
is required to continue to pay the salary of such officer until the later of the
expiration of (i) the original term of the agreement or (ii) the 12-month period
commencing with the date of termination.

Pension Plan

     Prior to the  Acquisition,  Mr.  Cox was a  participant  in the  Pilkington
Visioncare  Pension  Plan.  In  connection  with the  Acquisition,  the  Company
implemented the Sola Optical Pension Plan, which is currently intended, together
with the Pilkington  Visioncare Pension Plan, to provide  substantially the same
benefit that would have been payable had Mr. Cox continued active  participation
under the Pilkington Visioncare Pension Plan, as it existed on December 1, 1993,
until retirement.  To that end,  retirement  benefits under the basic formula of
the Sola  Optical  Pension Plan  currently  are  substantially  identical to the
Pilkington  Visioncare  Pension  Plan  for a given  level  of  compensation  and
service.  Messrs.  Heine and  Perrott  do not  participate  in the Sola  Optical
Pension  Plan.  In lieu of their  participation  in the Sola  Optical  Australia
Superannuation  Plan, Messrs.  Heine and Perrott earn equivalent  pensions under
separate  Expatriate  Superannuation  Agreements  with the Company.  Under

                                       26

<PAGE>

those  agreements,  the Company  will be required to make a lump sum payment for
the  benefit of each of Messrs.  Heine and  Perrott  upon their  termination  of
service or  retirement  from the Company  based on the benefits  they would have
accrued  under the Sola Optical  Superannuation  Plan had they  continued  their
participation therein.  Payments under the Sola Optical Australia plan generally
are based on years of service and final average compensation. The estimated lump
sum benefits for the benefit of Messrs. Heine and Perrott upon normal retirement
from the Company at age 65 are Australian $2,288,000 and Australian  $1,385,000,
respectively (U.S. $1,790,000 and U.S. $1,034,000, based on a conversion rate of
1.278  Australian $ to the U.S. $). Mr. Gillies and Mr. Lee did not  participate
in the Pilkington  Visioncare Pension Plan; however,  they do participate in the
Sola Optical Pension Plan.

<TABLE>
     The following table shows estimated annual benefits payable upon retirement
to  Messrs.  Cox,  Gillies  and Lee  under  the  Sola  Optical  Pension  Plan in
combination (to the extent  applicable) with the Pilkington  Visioncare  Pension
Plan.  The Sola  Optical  Pension Plan will provide the amount of the benefit in
excess of a portion  of the  amount  accrued  under  the  Pilkington  Visioncare
Pension Plan as of December 1, 1993;  assuming  retirement at age 65, the amount
of annual benefit payable by the Pilkington  Visioncare  Pension Plan to Mr. Cox
which will be offset  from the Sola  Optical  Pension  Plan will be  $16,929.48.
Assets of the  Pilkington  Visioncare  Pension Plan were not  transferred to the
Company  from  Pilkington  in  connection  with  the  sale of the  Company  from
Pilkington  and the Company has no obligation  under the  Pilkington  Visioncare
Pension Plan.

<CAPTION>
                                                Pension Plan Table
                                                   Years of Service
      Remuneration              15               20                25                 30               35
      ------------          -----------      ----------        ----------        -----------      -----------
<S>     <C>                   <C>              <C>              <C>                <C>              <C>    
        $125,000              $26,740          $35,653          $44,566            $53,479          $62,392
         150,000               32,462           43,283           54,103             64,924           75,745
         175,000               32,462           43,283           54,103             64,924           75,745
         200,000               32,462           43,283           54,103             64,924           75,745
         225,000               32,462           43,283           54,103             64,924           75,745
         250,000               32,462           43,283           54,103             64,924           75,745
         300,000               32,462           43,283           54,103             64,924           75,745
         350,000               32,462           43,283           54,103             64,924           75,745
         400,000               32,462           43,283           54,103             64,924           75,745
         450,000               32,462           43,283           54,103             64,924           75,745
         500,000               32,462           43,283           54,103             64,924           75,745
</TABLE>

     The  years of  credited  service  as of March  31,  1996 for  Messrs.  Cox,
Gillies, and Lee are 11.25, 3.33, and 3.33 respectively.

     Benefits  under  the Sola  Optical  Pension  Plan are not  offset by Social
Security  benefits.  The  amounts  shown are  based  upon  certain  assumptions,
including  retirement  of the  employee  at exact age 65 on March  31,  1997 and
payment of the benefit under the basic form of the Sola Optical  Pension Plan, a
single life annuity for the life of the participant.  The amounts will change if
the payment is made under any other form  permitted by the Sola Optical  Pension
Plan,  or if an  employee's  retirement  occurs after March 31, 1997,  since the
Social  Security  Wage  Base of such an  employee  (one of the  factors  used in
computing the annual  retirement  benefits) will reflect higher Social  Security
tax bases for years after 1997. The Sola Optical  Pension Plan provides a higher
level of benefits for the portion of compensation above the compensation  levels
on which Social Security benefits are based.

     The  remuneration  levels shown  represent  the five year average of annual
compensation  covered by the Sola  Optical  Pension  Plan as of March 31,  1997.
Compensation  covered by the Sola  Optical  Pension Plan  includes  regular base
salary,  hourly wages, shift  differentials,  overtime,  vacation and sick leave
pay, commissions,  sales bonus, amounts deferred under any tax qualified plan of
the  Company  and  amounts  paid  pursuant  to  management  bonus plans or other
formally adopted incentive

                                       27

<PAGE>

compensation plans. The current compensation covered by the Sola Optical Pension
Plan for Messrs.  Cox, Gillies and Lee differs  substantially (by more than 10%)
from that set forth in the Summary Compensation Table under the aggregate of the
"Salary" and "Bonus"  columns  because the amount of  compensation  which may be
covered  under a tax qualified  pension plan is limited by the Internal  Revenue
Code.

     The pension amounts shown for  remuneration  in excess of the  compensation
cap  ($150,000  for 1996) are based upon the  compensation  cap in each year, as
required by law. The IRC Section 415 defined limit was $125,000 for 1997, but it
did not provide any further limitation on the amounts calculated.

Director Compensation

     Directors  who  are  full  time   employees  of  the  Company   receive  no
compensation  for serving on the Board of  Directors or its  committees.  During
fiscal  1997,  directors  received  an annual  fee of  $20,000,  except  for the
Chairman who received an annual fee of $40,000,  and $500 for each Board meeting
attended.  During fiscal 1998,  directors will receive an annual fee of $20,000,
except for the Chairman who will receive an annual fee of $40,000,  and $500 for
each Board meeting  attended.  In April 1996 the Board of Directors  amended the
International   Stock  Option  Plan,   which   amendment  was  ratified  by  the
Shareholders on August 16, 1996, to permit non-employee directors to receive all
or a portion of their retainer fee in options to acquire shares of Common Stock,
which  amendments were ratified by the shareholders of the Company at the annual
general meeting in August 1996. Directors are reimbursed for traveling costs and
other out-of-pocket expenses incurred in attending such meetings.  Directors who
serve on the Audit Committee or the Compensation Committee receive no additional
compensation for committee meetings held on the same date as a Board meeting and
received  $500 in fiscal 1997 (and will  receive  $500 in fiscal  1998) for each
committee meeting held on a date on which there is or was no Board meeting.

Compensation Committee Interlocks and Insider Participation

     Decisions  with  respect  to  compensation  are  made  by the  Compensation
Committee of the Company. The members of the Compensation  Committee as of March
31,  1997 were  Hamish  Maxwell,  Ruben F.  Mettler,  and Irving S.  Shapiro (an
officio).  Lawrence Za Yu Moh served as a member of the  Compensation  Committee
during part of fiscal 1997 and  resigned  as a director  for the Company  during
fiscal 1997.  Dr.  Mettler will not be standing for  re-election to the Board of
Directors.

                                       28

<PAGE>


Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of the  Company's  Common Stock by (a) each person who is known to the
Company to be the beneficial  owner of more than five percent as of May 30, 1997
of the Company's  Common Stock (based on a review by the Company of filings with
the Securities and Exchange  Commission),  (b) each director of the Company, (c)
each of the executive  officers named in the Summary  Compensation Table and (d)
all  directors  and  executive  officers  of the  Company as a group.  Except as
otherwise  indicated,  the persons or entities listed below have sole voting and
investment power with respect to all shares of Common Stock  beneficially  owned
by them, except to the extent such power may be shared with a spouse.

                                                    Number of Shares
                                                     Beneficially    Percentage
Name                                                    Owned        of Class(1)
----                                                    -----        -----------
5% Stockholders:
J. & W. Seligman & Co. Inc. ........................
     100 Park Avenue
     New York, NY 10007 ............................    1,378,435        5.7
John W. Bristol & Co. ..............................
     41st Floor, 233 Broadway
     New York, N.Y. 10279 ..........................    1,252,790        5.2
Directors:
Irving S. Shapiro(2) ...............................       20,036          *
Douglas D. Danforth(3) .............................       17,232          *
John E. Heine(4) ...................................      391,184        1.6
Hamish Maxwell(5) ..................................       70,083          *
Ruben F. Mettler(6) ................................       14,935          *
Maurice J. Cunniffe ................................       40,000
Jackson L. Schultz(7) ..............................        3,454          *
A. William Hamill ..................................        3,000
Named Executive Officers:
James H. Cox(8) ....................................      124,003          *
Ian S. Gillies(9) ..................................      116,466          *
Colin M. Perrott(10) ...............................       97,873          *
Stephen J. Lee(11) .................................       97,263
All directors and executive officers
     as a group (19 persons)(12) ...................    1,382,964        5.5
----------
  *    The  percentage  of shares of Common  Stock  beneficially  owned does not
       exceed one percent of the outstanding shares of Common Stock.

  (1)  Based on 24,266,752  shares of Common Stock  outstanding on May 30, 1997.
       Calculations of percentage of beneficial ownership assume the exercise by
       only the respective named  stockholder of all options for the purchase of
       Common Stock held by such  stockholder  which are  exercisable  within 60
       days of May 30, 1997.

                                       29

<PAGE>

  (2)  Mr.  Shapiro's  shares  are held by a trust of which Mr.  Shapiro is both
       trustee  and sole  beneficiary.  Includes  825  shares  of  Common  Stock
       issuable  upon  exercise of options that are  exercisable  within 60 days
       from May 30, 1997.

  (3)  Includes 413 shares of Common  Stock  issuable  upon  exercise of options
       that are exercisable within 60 days from May 30, 1997.

  (4)  Includes 317,809 shares of Common Stock issuable upon exercise of options
       that are  exercisable  within 60 days from May 30, 1997 and 73,375 shares
       of Common  Stock held by a trust for which Mr.  Heine and  members of his
       family  are  trustees  and  beneficiaries.  Mr.  Heine  is  also a  Named
       Executive Officer.

  (5)  Includes 83 shares of Common Stock issuable upon exercise of options that
       are exercisable within 60 days from May 30, 1997.

  (6)  Includes 413 shares of Common  Stock  issuable  upon  exercise of options
       that are  exercisable  within 60 days from May 30, 1997. Dr. Mettler will
       not be standing for re-election to the Board of Directors.

  (7)  Includes 454 shares of Common  Stock  issuable  upon  exercise of options
       that are exercisable within 60 days from May 30, 1997.

  (8)  Includes  90,816 shares of Common Stock issuable upon exercise of options
       that are exercisable within 60 days from May 30, 1997.

  (9)  Includes  89,816 shares of Common Stock issuable upon exercise of options
       that are exercisable within 60 days from May 30, 1997.

 (10)  Includes  69,093 shares of Common Stock issuable upon exercise of options
       that are exercisable within 60 days from May 30, 1997.

 (11)  Includes  69,093 shares of Common Stock issuable upon exercise of options
       that are exercisable within 60 days from May 30, 1997.

 (12)  Includes shares held by Mr. Peter Kendall,  who was an executive  officer
       on May 30,  1997 and  subsequently  terminated  his  employment  with the
       Company.

Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company has entered into agreements to provide  indemnification for its
directors and executive officers in addition to the indemnification provided for
in the Company's  Amended and Restated  Certificate of Incorporation and Amended
and Restated  By-Laws.  The Company has also  purchased  directors  and officers
insurance for its directors and executive officers.

     On June 19, 1996, the Company acquired  substantially  all of the worldwide
ophthalmic business of American Optical Corporation pursuant to the terms of the
Purchase  Agreement  dated as of May 6, 1996  between the  Company and AOC.  Mr.
Maurice J.  Cunniffe,  a director of the Company from  December 5, 1996, is sole
shareholder of AOC.

                                       30

<PAGE>

                                     PART IV

Item 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)  Documents Filed as Part of this Report:

         1.   Financial   Statements.   See  Index  to  Consolidated   Financial
              Statements and Financial Statement Schedules included on page F-1.

         2.   Financial  Statement  Schedules.  See "Schedule II - Valuation and
              Qualifying Accounts" included on page S-1.

         3.   List of Exhibits. See Index of Exhibits included on page E-1.

(b)  Reports on Form 8-K:

     During the quarter ended March 31, 1997,  there were no reports on Form 8-K
filed by the Company.

                                       31

<PAGE>


                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or  Section  15(d)  of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                            SOLA INTERNATIONAL INC.
                                            (Registrant)


Date: June 12, 1997                         By: /s/ Ian S. Gillies
                                               ------------------------
                                               Ian S. Gillies
                                               Vice  President,  Administration,
                                               Chief Financial Officer,
                                               Secretary and Treasurer

<TABLE>
     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  this Annual Report on Form 10-K has been signed below by the following
persons  on  behalf of the  registrant  and in the  capacities  and on the dates
indicated.

<CAPTION>

                  Signature                                      Title                                 Date
                  ---------                                      -----                                 ----

<S>                                             <C>                                               <C>
/s/ Irving S. Shapiro
---------------------                           Chairman of the Board                             June 12, 1997
Irving S. Shapiro    

/s/ John E. Heine
-----------------                               President and Chief Executive Officer,            June 12, 1997
John E. Heine                                   Director (Principal Executive Officer)

/s/ Ian S. Gillies
------------------                              Vice President, Administration, Chief             June 12, 1997
Ian S. Gillies                                  Financial Officer, Secretary and
                                                Treasurer (Principal Financial and
                                                Accounting Officer)

/s/ Douglas D. Danforth
-----------------------                         Director                                          June 12, 1997
Douglas D. Danforth    

/s/ Hamish Maxwell
------------------                              Director                                          June 12, 1997
Hamish Maxwell    

/s/ Ruben F. Mettler
--------------------                            Director                                          June 12, 1997
Ruben F. Mettler    

                                                  32

<PAGE>

/s/ Maurice J. Cunniffe
-----------------------                         Director                                          June 12, 1997
Maurice J. Cunniffe    

 /s/ A. William Hamill
----------------------                          Director                                          June 12, 1997
A. William Hamill     

/s/ Jackson L. Schultz
----------------------                          Director                                          June 12, 1997
Jackson L. Schultz    
</TABLE>

                                                    33

<PAGE>


                             SOLA INTERNATIONAL INC.



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----
   Report of Ernst & Young LLP, Independent Auditors........................F-2

   Consolidated Balance Sheets as of March 31, 1997 and 1996................F-3

   Consolidated Statements of Income for the years ended 
       March 31, 1997, 1996 and 1995........................................F-4

   Consolidated Statements of Shareholders' Equity for the
       years ended March 31, 1997, 1996 and 1995............................F-5

   Consolidated  Statements  of Cash Flows for the years 
       ended  March 31,  1997, 1996 and 1995................................F-6

   Notes to Consolidated Financial Statements...............................F-7

   Quarterly Financial Data (unaudited).....................................F-29

   Financial Statement Schedule.............................................S-1

                                      F-1

<PAGE>

                Report of Ernst & Young LLP, Independent Auditors



Board of Directors and Shareholders

Sola International Inc.

     We have  audited  the  accompanying  consolidated  balance  sheets  of Sola
International  Inc. as of March 31, 1997 and 1996, and the related  consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 31, 1997. Our audits also included the financial
statement  schedule  listed  in the  index  at item  14(a).  These  consolidated
financial  statements  and  schedule  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Sola  International  Inc.  as of March 31, 1997 and 1996,  and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended March 31, 1997, in conformity  with generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.


                                                /s/ ERNST & YOUNG LLP


Palo Alto, California

May 6, 1997

                                      F-2

<PAGE>


<TABLE>
                                              SOLA INTERNATIONAL INC.

                                            CONSOLIDATED BALANCE SHEETS
                                       (in thousands, except per share data)

<CAPTION>
                                                                                           March 31,
                                                                                   ------------------------
                              ASSETS                                                 1997            1996
                                                                                   --------        --------
<S>                                                                                <C>             <C>     
Current assets:
   Cash and cash equivalents...........................................            $ 24,401        $ 22,394
   Trade accounts receivable, less allowance for doubtful accounts of
      $4,030 and $5,424 at March 31, 1997 and 1996, respectively.......             104,960          74,845
   Inventories.........................................................             138,634         100,707
   Deferred income taxes...............................................              10,686           7,491
   Prepaids and other current assets...................................               3,539           1,861
                                                                                   --------        --------
      Total current assets.............................................             282,220         207,298
Property, plant and equipment, at cost, less accumulated depreciation
      and amortization.................................................             110,477          79,582
Deferred income taxes..................................................               8,557           6,800
Debt issuance costs, net...............................................               2,773           1,907
Goodwill and other intangibles, net....................................             200,734         120,352
Other assets...........................................................                 747             910
                                                                                   --------        --------
      Total assets.....................................................            $605,508        $416,849
                                                                                   ========        ========

               LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Current liabilities:
   Notes payable to banks..............................................             $ 9,422        $ 13,722
   Current portion of long-term debt...................................               9,991           3,681
   Accounts payable....................................................              56,747          39,415
   Accrued liabilities.................................................              29,557          20,167
   Accrued reorganization and acquisition expenses.....................               9,134           9,746
   Accrued payroll and related compensation............................              25,836          22,560
   Income taxes payable................................................                 467           1,090
   Deferred income taxes...............................................               1,261             461
                                                                                   --------        --------
      Total current liabilities........................................             142,415         110,842
Long-term debt, less current portion...................................               3,555           3,360
Bank debt, less current portion........................................              67,938           6,000
Senior subordinated notes..............................................              91,304          88,530
Deferred income taxes..................................................               4,384           4,990
Other liabilities......................................................              11,614          10,886
                                                                                   --------        --------
      Total liabilities................................................             321,210         224,608
Commitments and contingencies
Shareholders' equity
Preferred stock, $0.01 par value; 5,000 shares authorized; no shares                  --              --
      issued...........................................................
Common stock, $0.01 par value; 50,000 shares authorized; 24,263 shares
      (21,797 shares as of March 31, 1996) issued and outstanding......                 243             218
Additional paid-in capital.............................................             271,167         206,412
Equity participation loans.............................................                (270)           (421)
Retained earnings/(Accumulated deficit)................................              12,904         (17,993)
Cumulative foreign currency adjustments................................                 254           4,025
                                                                                   --------        --------
      Total shareholders' equity.......................................             284,298         192,241
      Total liabilities and shareholders' equity.......................            $605,508        $416,849
                                                                                   =========       ========

<FN>
                      The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                          F-3

<PAGE>

<TABLE>
                                                       SOLA INTERNATIONAL INC.


                                                  CONSOLIDATED STATEMENTS OF INCOME
                                                (in thousands, except per share data)
<CAPTION>

                                                                                 Year Ended          Year Ended           Year Ended
                                                                                  March 31,            March 31,           March 31,
                                                                                   1997                 1996                 1995
<S>                                                                             <C>                  <C>                  <C>      
Net sales ...........................................................           $ 488,689            $ 387,709            $ 345,631
Cost of sales .......................................................             264,535              201,991              185,626
                                                                                ---------            ---------            ---------
   Gross profit .....................................................             224,154              185,718              160,005
                                                                                ---------            ---------            ---------
Research and development expenses ...................................              17,539               13,329               14,051
Selling and marketing expenses ......................................              92,387               66,345               61,143
General and administrative expenses .................................              47,381               45,291               45,067
In-process research and development
   expense ..........................................................               9,500                 --                   --
                                                                                ---------            ---------            ---------
   Operating expenses ...............................................             166,807              124,965              120,261
                                                                                ---------            ---------            ---------
      Operating income ..............................................              57,347               60,753               39,744
Interest income .....................................................                 640                  544                  470
Interest expense ....................................................             (16,601)             (12,685)             (18,992)
                                                                                ---------            ---------            ---------
   Income before provision for income taxes,
      minority interest and extraordinary item ......................              41,386               48,612               21,222
Provision for income taxes ..........................................              10,737               13,623                6,649
Minority interest ...................................................                 248                 (401)                (933)
                                                                                ---------            ---------            ---------
   Income before extraordinary item .................................              30,897               34,588               13,640
Extraordinary item, repurchase of senior
   subordinated notes (1995 - write-off of
   debt issuance costs), net of tax .................................                --                   (912)              (3,915)
                                                                                ---------            ---------            ---------
Net income ..........................................................           $  30,897            $  33,676            $   9,725
                                                                                =========            =========            =========

Earnings (loss) per share:
      Income before extraordinary item ..............................           $    1.24            $    1.51            $    0.78
      Extraordinary item ............................................                --                  (0.04)               (0.22)
                                                                                ---------            ---------            ---------
      Net income ....................................................           $    1.24            $    1.47            $    0.56
                                                                                =========            =========            =========
Weighted average number of shares outstanding .......................              24,859               22,944               17,516
                                                                                =========            =========            =========

<FN>
                      The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                      F-4

<PAGE>


<TABLE>
                                              SOLA INTERNATIONAL INC.

                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                       (in thousands, except per share data)
<CAPTION>

                                                                                                    Cumulative
                                                                                    Retained         Foreign
                                                         Additional     Equity      Earnings/        Currency        Total
                                         Common Stock     Paid-in    Participation (Accumulated     Translation   Shareholders'
                                        Shares    Value   Capital        Loans       Deficit)       Adjustments      Equity
                                       -------- --------  --------      --------     --------         --------      ---------
<S>                                     <C>      <C>      <C>          <C>          <C>               <C>            <C>    
Balances, March 31, 1994 (restated)     16,319   $163     $124,779     $(1,304)     $(61,394)         $1,251         $63,495
58 shares of $0.01 par value common
   stock issued for cash and Equity
   participation loans..............        58      1          447         (86)                                          362
Repayment of Equity participation
   loans............................                                       295                                           295
Initial Public Offering of 5,403
   shares of $0.01 par value common
   stock, net of offering expenses..     5,403     54       81,127                                                    81,181
Cumulative translation adjustments..                                                                   4,385           4,385
Net income..........................                                                   9,725                           9,725
                                       -------- --------  --------      --------     --------         --------      ---------
Balances, March 31, 1995............    21,780    218      206,353      (1,095)      (51,669)          5,636         159,443
17 shares of $0.01 par value common
   stock issued under stock option
   plans............................        17    --            59                                                        59
Repayment of Equity participation
   loans............................                                       674                                           674
Cumulative translation adjustments..                                                                  (1,611)          (1,611)
Net income..........................                                                  33,676                           33,676
                                       -------- --------  --------      --------     --------         --------      ---------
Balances, March 31, 1996............    21,797    218      206,412        (421)      (17,993)          4,025          192,241
Public Offering of 2,320 shares of
   $0.01 par value common stock,
   net of offering expenses.........     2,320     23       62,742                                                     62,765
146 shares of $0.01 par value
   common stock issued under stock
   option plans.....................       146      2        1,747                                                      1,749
Tax benefit from exercise of stock
   options..........................                          266                                                         266
Repayment of Equity participation
   loans............................                                       151                                            151
Cumulative translation adjustments..                                                                  (3,771)          (3,771)
Net income..........................                                                  30,897                           30,897
                                       -------- --------  --------      --------     --------         --------      ---------
Balances, March 31, 1997............    24,263   $243     $271,167       $(270)      $12,904            $254         $284,298
                                       ======== ========  ========      ========     ========         ========      =========

<FN>
                      The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                                F-5

<PAGE>


<TABLE>
                                                       SOLA INTERNATIONAL INC.

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)


<CAPTION>
                                                                                 Year Ended          Year Ended          Year Ended
                                                                                  March 31,           March 31,           March 31,
                                                                                    1997                1996                1995
                                                                                  ---------           ---------           ---------
<S>                                                                               <C>                 <C>                 <C>      
Cash flows from operating activities:
Net income .............................................................          $  30,897           $  33,676           $   9,725
Adjustments  to  reconcile  net  income
    to  net  cash  provided  by  operating
    activities:
Depreciation and amortization ..........................................             21,595              17,247              20,981
Inventory write-up .....................................................              7,216                --                  --
In-process research and development ....................................              9,500                --                  --
Provision for excess and obsolete inventory ............................              1,593               1,090               1,981
Provision for doubtful accounts ........................................              1,258               2,846               2,442
Increase (decrease) in net deferred taxes ..............................             (3,644)              1,657              (1,404)
(Gain) loss on disposal/sale of property, plant
   and equipment .......................................................               (272)                (73)                 20
Changes in assets and liabilities:
   Trade accounts receivable ...........................................            (19,513)            (10,883)             (8,941)
   Inventories .........................................................            (24,464)            (16,222)             (4,405)
   Prepaids and other current assets ...................................                286                 127                (318)
   Other assets ........................................................             (1,011)                394                (151)
   Accounts payable--trade .............................................              6,258              10,010              (3,183)
   Accrued and other current liabilities ...............................              1,803              (9,750)              2,657
   Other long-term liabilities .........................................                650                 643                (950)
                                                                                  ---------           ---------           ---------
     Net cash provided by operating activities .........................             32,152              30,762              18,454
                                                                                  ---------           ---------           ---------
Cash flows from investing activities:
Acquisition of American Optical, less cash and
   cash equivalents of $3,365 ..........................................           (108,594)               --                  --
Acquisition of Neolens, less cash and cash .............................            (16,848)               --                  --
   equivalents of $12
Additional investment in Venezuela subsidiary ..........................               --                (3,561)               --
Capital expenditures ...................................................            (29,951)            (17,580)            (11,588)
Payments received on notes receivable from
   Pilkington and affiliates ...........................................               --                 1,585               1,200
Proceeds from sale of fixed assets .....................................                636                 585                 550
                                                                                  ---------           ---------           ---------
     Net cash used in investing activities .............................           (154,757)            (18,971)             (9,838)
                                                                                  ---------           ---------           ---------
Cash flows from financing activities:
Sale of common stock ...................................................             62,765                --                81,838
Payments on equity participation loans/exercise
   of stock options ....................................................              2,166                 733                --
Net receipts (payments) under notes payable to .........................             (4,789)              6,785                 396
   banks
Borrowings on long-term debt ...........................................              4,081               1,297               7,382
Payments on long-term debt .............................................             (5,278)             (1,735)            (11,487)
Net receipts (payments) under Bank debt ................................             66,626               6,000             (82,195)
Repurchase of senior subordinated notes ................................               --               (17,766)               --
                                                                                  ---------           ---------           ---------
     Net cash provided by (used in) financing activities................            125,571              (4,686)             (4,066)
Effect of exchange rate changes on cash and cash
   equivalents..........................................................               (959)               (859)                913
Net increase in cash and cash equivalents ..............................              2,007               6,246               5,463
Cash and cash equivalents at beginning of period .......................             22,394              16,148              10,685
                                                                                  ---------           ---------           ---------
Cash and cash equivalents at end of period .............................          $  24,401           $  22,394           $  16,148
                                                                                  =========           =========           =========

<FN>
                      The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                                F-6

<PAGE>


                             SOLA INTERNATIONAL INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Business and Basis of Presentation

     Sola  International  Inc.  ("Company" or "SII") designs,  manufactures  and
distributes  a broad range of eyeglass  lenses,  primarily  focusing on the fast
growing plastic lens segment of the global market. All significant  intercompany
transactions  have been eliminated in the  accompanying  consolidated  financial
statements. The Company operates in one business segment.

     On June 19, 1996, the Company acquired  substantially  all of the worldwide
ophthalmic  business ("AO") of American Optical  Corporation ("AOC") pursuant to
the terms of the Purchase  Agreement (the "Purchase  Agreement") dated as of May
6,  1996  between  the  Company  and  AOC.  The  Company  acquired  AO for  cash
consideration  of  $103.6  million  (together  with the  assumption  of  certain
liabilities)  (the "AO  Acquisition").  The AO Acquisition was funded  primarily
through  borrowings under the Company's New Credit Agreement (see Note 7), which
borrowings  were  subsequently  repaid  in part with the  proceeds  of the Stock
Offering  during July 1996 (see Note 9). The AO  Acquisition  has been accounted
for under the purchase  method of accounting  as of the closing date.  The total
purchase price of $110.2 million  (including  acquisition costs of $6.5 million)
exceeded the  historical  book value of the net assets  acquired and such excess
was allocated to the assets and liabilities based on their estimated fair values
as of the AO Acquisition  date,  including  in-process  research and development
with no  alternative  future  use.  Independent  appraisals  were  utilized  for
determining the amounts assigned to certain purchased assets including property,
plant and equipment and in-process research and development.

     The allocation of the AO purchase has been calculated as follows:

Purchase price.............................................         $103,659
Acquisition expenses.......................................            6,533
                                                                 -----------
Total acquisition cost.....................................         $110,192
                                                                 ===========

Historical net assets at acquisition date..................        $  24,649
Write-up of inventories....................................            7,216
Write-up of property, plant and equipment..................              506
Goodwill and other intangible assets.......................           69,155
Non-compete agreement......................................            1,500
In-process research and development........................            9,500
Relocation and exit costs..................................             (686)
Net deferred tax effects of certain of the above
   purchase accounting adjustments.........................          ( 1,648)
                                                                 -----------
                                                                    $110,192
                                                                 ===========

     See Note 16 regarding pro forma data pertaining to the AO Acquisition.

     On July 2, 1996 the Company acquired control of Neolens,  Inc. ("Neolens"),
a Florida corporation that manufactures  polycarbonate  eyeglass lenses and that
has been a supplier  to the  Company.  The  Company  acquired  Neolens  for cash
consideration  of  approximately  $15.5  million,  including  the  assumption of
Neolens debt (the "Neolens  Acquisition").  The Neolens  Acquisition  was funded
through  borrowings  under the Company's New Credit  Agreement (See Note 7). The
Neolens  Acquisition  has been  accounted  for  under  the  purchase  method  of
accounting as of the closing  date.  The total  purchase  price of $16.8 million
(including  acquisition  costs of $1.3 million) included $17.6 million allocated
to goodwill and other intangible assets. Results of Neolens prior to acquisition
were not material to the Company's consolidated results of operations.

                                      F-7

<PAGE>

                             SOLA INTERNATIONAL INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Business and Basis of Presentation - (Continued)

     On October 5, 1995 the Company  increased  its  investment in its Venezuela
joint venture, Sola de Venezuela Industria Optica, C.A. ("Sola Venezuela"), from
45% to 80%, which was effective from March 31, 1995. In addition, in March 1996,
the Company  exercised  its option to acquire the remaining 20% of the shares in
Sola Venezuela. The purchase price for all the shares, including the 20% option,
and acquisition expenses, amounted to approximately $3.6 million and was paid in
cash,  $2.0 million in October 1995, and $1.6 million in March 1996. In addition
to the $1.6 million cash purchase price of the final 20% of Sola Venezuela, Sola
may be  required  to pay a  contingent  payment  based on the  growth in the net
income of Sola Venezuela in fiscal 1998 over the net income of Sola Venezuela in
fiscal 1995. Under certain  circumstances the contingent  payment could be based
on an earlier 12 month period.  The acquisition has been accounted for under the
purchase method of accounting.

     On February 23, 1995, Sola Holdings  Inc.("SHI"),  SII's sole  shareholder,
was merged with and into Sola Investors Inc., SHI's parent,  with Sola Investors
Inc.  being the  surviving  corporation.  On the same day, Sola  Investors  Inc.
merged with its then wholly owned subsidiary,  Sola International Inc. with Sola
International Inc. being the surviving corporation ("Merger" or "Mergers").  The
simplified  corporate  structure was adopted to cause the Company's common stock
to be more  amenable to sale and trading in public equity  markets.  The Mergers
have been treated as a reorganization  of companies under common control and are
accounted  for similar to a pooling of interests  for  accounting  and financial
reporting purposes.

     The accompanying consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting  principles.  The
Company's  financial   statements   presented  herein  include  the  results  of
operations  and cash flows of the AO  business  for the nine months and ten days
ended March 31, 1997 and the results of operations and cash flows of the Neolens
business for the nine months ended March 31, 1997 subsequent to their respective
acquisitions.

2.   Summary of Significant Accounting Policies

     Principles of Consolidation:

     The consolidated  financial  statements include the accounts of the Company
and its  wholly-owned  and  controlled  foreign  subsidiaries.  All  significant
transactions between the entities have been eliminated.

     Cash and Cash Equivalents:

     Cash  equivalents  consist  primarily  of  short-term  investments  with an
original  maturity of three months or less,  carried at cost which  approximates
market.

     Inventories:

     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
market.

                                      F-8

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


2.   Summary of Significant Accounting Policies - (Continued)

     Property, Plant and Equipment:

     Property,  plant and equipment are stated at cost and are  depreciated on a
straight-line  basis  over the  estimated  useful  lives of the  related  assets
(buildings--15  to 50  years;  plant  and  office  equipment--2  to  10  years).
Leasehold  improvements  and leased  equipment are amortized  over the lesser of
their useful lives or the remaining term of the related leases.

     Impact of recently issued accounting standards:

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted in the year ended
March 31, 1998. At that time,  the Company will be required to change the method
currently  used to compute  earnings per share and to restate all prior periods.
Under the new  requirements  for  calculating  primary  earnings per share,  the
dilutive  effect of stock  options will be  excluded.  The impact is expected to
result in an increase in primary earnings per share for the year ended March 31,
1997 and March 31, 1996 to $1.27 and $1.54 per share,  respectively.  The impact
of Statement  128 on the  calculation  of fully  diluted  earnings per share for
these periods is not expected to be material.

     Also in February  1997,  the  Financial  Accounting  Standard  Board issued
Statement No. 129,  "Disclosure of Information  about Capital  Structure".  As a
publicly traded  company,  the Company has been required to make the disclosures
required by Statement 129, and therefore, this statement should have no impact.

     Intangible Assets:

     Intangible assets,  including trademarks,  patents and licenses, are stated
at cost and amortized on a straight-line basis over their estimated useful lives
of 2 to 17 years.  Legal costs  incurred by the Company in defending its patents
are  capitalized  to patent costs and amortized  over the remaining  life of the
patent.  Goodwill  is  amortized  over 40 years.  As of March 31,  1997 and 1996
accumulated amortization was $12.4 million and $7.3 million, respectively.

     Debt  issuance  costs are being  amortized  to  interest  expense  over the
respective lives of the debt instruments  which range from five to ten years. As
of March 31, 1997 and 1996,  accumulated  amortization was $1.5 million and $1.1
million,  respectively.  As a  result  of  repurchasing  $19.9  million  of  the
Company's  9 5/8%  Senior  Subordinated  Notes in fiscal  1996 (see Note 8), the
Company wrote off $0.4 million of debt issuance costs reflected on the statement
of income,  together with the premium over accreted value,  as an  extraordinary
item, net of tax.

     Foreign Currency Translation:

     The  assets  and  liabilities  and  revenue  and  expense  accounts  of the
Company's foreign subsidiaries  operating in non-highly  inflationary  economies
have been  translated  using the exchange rate at the balance sheet date and the
weighted average exchange rate for the period, respectively.

     The  net  effect  of the  translation  of  the  accounts  of the  Company's
subsidiaries  has  been  included  in  equity  as  cumulative  foreign  currency
translation  adjustments.  Adjustments  that arise from exchange rate changes on
transactions  denominated  in a  currency  other  than the  local  currency  are
included in income as incurred and are not material.

                                      F-9

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2.   Summary of Significant Accounting Policies - (Continued)

     The Company has operations in Brazil,  a  hyper-inflationary  country until
recently, for which the functional currency is the U.S. dollar.  Commencing with
the fourth  quarter of fiscal 1997 the Company's  operations in Mexico have been
accounted for as hyper-inflationary  economies.  All translation and transaction
adjustments are included in determining net income (loss).

     Revenue Recognition:

     Sales and related cost of sales are  recognized  upon  shipment of product.
The Company's  principal  customers are wholesale  distributors  and  processing
laboratories,  retail chains,  superoptical  retail stores,  independent eyecare
practitioners and sunglass  manufacturers.  No individual  customer accounts for
more than 10% of net sales.  The Company  generally does not require  collateral
from its customers, but performs on-going credit evaluations of its customers.

     Advertising and Promotion Costs:

     The Company's policy is to expense  advertising and promotion costs as they
are  incurred.   The   Company's   advertising   and  promotion   expenses  were
approximately  $12.5  million,  $9.4 million,  and $9.1 million for fiscal 1997,
1996, 1995, respectively.

     Income Taxes:

     The accompanying financial statements of the Company reflect the provisions
of FASB 109.

     Investment tax credits and research and  development  credits are accounted
for by the flow-through method.

     Reclassifications:

     Certain prior year items in the Notes to Consolidated  Financial Statements
have been reclassified to conform with the current year's presentation.

     Use of Estimates:

     The  preparation of the financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

     Concentration of Credit Risks:

     Cash and cash  equivalents are invested in deposits with major banks in the
United States and in countries  where  subsidiaries  operate.  Deposits in these
banks may exceed the amount of insurance provided on such deposits.  The Company
has not experienced any losses on its deposits of cash and cash equivalents.

                                      F-10

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2.   Summary of Significant Accounting Policies - (Continued)

     Financial Instruments With Off-Balance-Sheet Risk:

     The Company is a party to financial instruments with off-balance-sheet risk
in the normal  course of business to reduce its  exposure to market and interest
rate risk.  Gains and losses due to rate  fluctuations on such  transactions are
recognized currently.  Cash flows related to these gains and losses are reported
as operating  activities  in the  accompanying  consolidated  statements of cash
flows. As of March 31, 1997,  certain of the Company's foreign  subsidiaries had
entered into forward contracts for intercompany  purchase commitments in amounts
other than their home  currency.  The  carrying  amount of the foreign  exchange
contracts  approximates  fair value,  which has been estimated  based on current
exchange rates. The forward exchange contracts generally have varying maturities
up to 9 months. Unless noted otherwise,  the Company does not require collateral
or other security to support financial instruments with credit risk.

     Earnings (Loss) Per Share:

     Earnings  (loss)  per share  have been  computed  based  upon the  weighted
average  number  of  common  and  common  equivalent  shares  outstanding,  when
dilutive. Common equivalent shares result from dilutive stock options, using the
treasury  stock method.  Pursuant to Securities  and Exchange  Commission  (SEC)
rules, common and common equivalent shares issued by the Company at prices below
the public  offering  price during the twelve months  immediately  preceding the
Company's  initial  public  offering  (IPO) in March  1995 are  included  in the
calculation  (using the treasury  stock method and the initial  public  offering
price) as if they were outstanding for all periods prior to the offering date.

                                      F-11

<PAGE>

2.   Summary of Significant Accounting Policies - (Continued)

<TABLE>
     Supplemental pro forma earnings per share (unaudited), calculated as if the
Acquisition,  Mergers and IPO had taken place at the  beginning  of fiscal 1995,
and excluding Acquisition and IPO related non-recurring charges from net income,
was $1.05 for fiscal 1995, calculated as follows:
<CAPTION>

                                                                                          Year ended
                                                                                          March 31,
                                                                                             1995
                                                                                       -----------------
                                                                                         (in thousands,
                                                                                        except per share
                                                                                               data)
                                                                                           (unaudited)
<S>                                                                                          <C>     
      Net income, as reported...................................................             $  9,725

      Pro forma adjustments, primarily interest and AEA fees, assuming that the
           IPO occurred at the beginning of the period..........................               13,920
                                                                                            ---------

      Net Income used for supplemental pro forma earnings per share calculation.              $23,645
                                                                                            =========
      Weighted average number of shares outstanding, as reported................               17,516

      Adjustment necessary assuming shares issued in the IPO were outstanding
           for the full period..................................................                5,012
                                                                                            ---------

      Shares used in supplemental pro forma earnings per share calculation......               22,528
                                                                                            =========
      Supplemental pro forma earnings per share.................................            $    1.05
                                                                                            =========
</TABLE>


3.   Inventories

                                                            March 31,
                                                    ----------------------------
                                                      1997               1996
                                                    --------            --------
                                                           (in thousands)

Raw materials ..........................            $ 17,505            $ 10,595
Work in progress .......................               6,948               4,782
Finished goods .........................              76,936              59,595
Molds ..................................              37,245              25,735
                                                    --------            --------
                                                    $138,634            $100,707
                                                    ========            ========

     Molds comprise mainly finished goods for use by manufacturing affiliates in
the manufacture of spectacle lenses.

                                      F-12

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4.   Property, Plant and Equipment

                                                                 March 31,
                                                           ---------------------
                                                             1997         1996
                                                           --------     --------
                                                              (in thousands)
Land, buildings and leasehold improvements ...........     $ 29,749     $ 26,599
Machinery and office equipment .......................      115,943       78,882
Equipment under capital leases .......................          259          874
                                                           --------     --------
                                                            145,951      106,355
Less accumulated depreciation and amortization .......       35,474       26,773
                                                           --------     --------
                                                           $110,477     $ 79,582
                                                           ========     ========

     At March 31, 1997 and 1996,  equipment  acquired  under capital  leases had
related  accumulated   amortization  of  approximately   $13,000  and  $176,000,
respectively.  Depreciation  expense  for fiscal  1997,  1996 and 1995 was $13.3
million, $11.1 million and $10.7 million, respectively.

5.   Notes Payable to Banks

     Notes  payable to banks at March 31, 1997  represent  borrowings  generally
denominated in foreign  currencies under several foreign credit  agreements with
lenders at interest rates ranging from 1.63% to 12.00%, and 39.29% for Brazilian
Real based  borrowings.  The Brazilian  Real based  borrowings  were $545,000 at
March 31, 1997.  The weighted  average  interest  rates as of March 31, 1997 and
1996 were 8.68% and 8.47%,  respectively.  As of March 31, 1997, the Company had
total unused lines of credit  amounting to $20.4 million.  As of March 31, 1997,
the Company was in compliance with minimum net worth  requirements of agreements
with certain foreign banks.

                                      F-13

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6.   Long-Term Debt

                                                                    March 31,
                                                                       1997
                                                               -----------------
                                                                 (in thousands)
Uncollateralized term loans, interest rates varying from
   4.75% to 7.82% at March 31, 1997, principal and interest
   payable through December 2002 ....................................  $6,224

Loans collateralized by equipment and other assets, interest
   rates varying from  3.84% to 19.36% at March 31, 1997,
   principal and interest payable through July 2004 .................   2,465
                                                                       ------

Other ...............................................................     169
                                                                       ------
                                                                        8,858
Less current portion ................................................   5,303
                                                                       ------
Long-term debt, less current portion ................................  $3,555
                                                                       ======

Current portion, per above ..........................................   5,303
Term loan facility (current portion, see note 7) ....................   4,688
                                                                       ------
Current portion of long-term debt ...................................  $9,991
                                                                       ======

     Aggregate annual  maturities of long-term debt over the next five years and
thereafter are as follows:

    Period Ending March 31,                                       (in thousands)
    -----------------------
1998 ...................................................            $5,303
1999 ...................................................               830
2000 ...................................................               777
2001 ...................................................               637
2002 ...................................................               498
Thereafter .............................................               813

     The  Company  believes  that as of March 31,  1997,  the fair  value of its
long-term debt  approximates the carrying value of those  obligations.  The fair
value of the Company's long-term debt is estimated based on quoted market prices
for similar  issues with the same interest  rates that would be available to the
Company for similar debt obligations.

7.   Bank Credit Agreement

     Simultaneous  with the  closing  of the AO  Acquisition  (see Note 1),  the
Company  entered  into a new bank  credit  agreement  with  The Bank of  America
National Trust and Savings Association,  for itself and as agent for a syndicate
of other financial  institutions,  covering an aggregate  amount of $180 million
(the "New Credit  Agreement"),  replacing the Company's prior credit  agreement.
The New Credit  Agreement  is divided  into three  tranches  which  comprise:  a
five-year  term loan of $30 million,  a renewable  three-year  foreign  currency
revolving  facility of $30 million,  and a five-year US dollar  revolver of $120
million.  The term and revolving loan facilities were made in order to finance a
portion of the AO Acquisition  and to refinance  existing  facilities  generally
used for working capital.  The foreign currency revolver matures on May 31, 1999
and the term loan and U.S.  dollar revolver both mature on May 31, 2001. 

                                      F-14

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. Bank Credit Agreement - (Continued)

     Borrowings  under the term loan  facilities  and the U.S.  dollar  revolver
(other than swing line loans,  which may only be Base Rate Loans) may be made as
Base Rate Loans or LIBO Rate Loans.  Base Rate Loans bear  interest at rates per
annum equal to the higher of (a) 0.50% per annum above the latest  Federal Funds
Rate,  or (b) the Bank of America  Reference  Rate.  Base Rate  Loans  include a
margin  varying  from 0% to .125% based on the  Company's  Funded Debt to EBITDA
Ratio. LIBO Rate Loans bear interest at a rate per annum equal to the sum of the
LIBO  Rate and a margin  varying  from  .500% to 1.125%  based on the  Company's
Funded Debt to EBITDA Ratio.  Fixed rate borrowings  under the foreign  currency
revolver  bear  interest at rates per annum equal to the  referenced  currency's
local IBOR plus a margin  varying  from .500% to 1.125%  based on the  Company's
Funded Debt to EBITDA Ratio.  Borrowings under the foreign currency revolver are
also available at local Currency Base Rates at spreads similar to those for U.S.
Base Rate Loans. The term loan and U.S. dollar revolver  currently bear interest
at a rate of LIBOR plus 0.60% (approximately 6.30% as of March 31, 1997) and the
foreign  currency  revolver bears an interest rate of the relevant local economy
IBOR plus 0.60%.

     The US term loan  amortizes in  semiannual  installments  with total annual
principal repayments as follows:

Year Ended March 31
  (in thousands)

1998             $4,688
1999              5,625
2000              6,563
2001              7,500
2002              3,750

     Outstanding  unpaid  principal  amounts on both the US dollar  and  foreign
currency revolver are due on their respective maturity dates.

     Interest  on all the  above  loans is  payable  at the end of the  interest
period, or 90 days,  whichever is shorter.  Repayments of principal on the above
loans must be accompanied by a payment equal to the accrued interest  associated
with the principal being repaid.

     The New Credit Agreement contains a number of covenants,  including,  among
others,  covenants  restricting the Company and its subsidiaries with respect to
the incurrence of indebtedness (including contingent obligations),  the creation
of liens,  the making of certain  investments  and loans,  engaging in unrelated
businesses,   transactions   with   affiliates,   the  consummation  of  certain
transactions  such as sales of substantial  assets,  mergers or  consolidations,
margin stock  purchases  and other  transactions.  Additionally,  the New Credit
Agreement  restricts  significant  accounting  changes,   negative  pledges  and
designated  senior  indebtedness.  The New Credit  Agreement  also restricts the
ability of the Company and its  subsidiaries to make restricted  payments in the
nature of, among other  things,  (i)  declaring,  making or paying  dividends or
other distributions in excess of prescribed levels,  (ii) purchasing,  redeeming
or retiring  shares of the Company's  capital  stock,  and (iii) making  certain
payments,  purchases,  redemptions,  modifications or other  acquisitions of any
Subordinated Notes. The Company and its subsidiaries are also required to comply
with certain  financial tests and maintain  certain  financial  ratios.  The New
Credit Agreement includes standard events of default.

                                      F-15

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8.   Senior Subordinated Notes

     The Company's 9 5/8% Senior  Subordinated Notes ("Notes") were issued under
an indenture dated December 1, 1993,  among the Company and Bank of New York, as
Trustee  (the  "Indenture").   The  Notes  are  unsecured  senior   subordinated
obligations of the Company, limited to $116.6 million aggregate principal amount
at maturity,  and will mature on December 15, 2003.  Prior to December 15, 1998,
interest  will  accrue on the Notes and is payable in cash  semiannually  at the
rate of 6% per annum of the principal amount at maturity of the Notes on June 15
and December 15 of each year. In addition,  prior to December 15, 1998, original
issue discount will accrete on the Notes such that the yield to maturity will be
9 5/8% per annum,  compounded on the basis of semiannual  compounding.  From and
after  December  15,  1998,  interest on the Notes will accrue and be payable in
cash  semiannually  at the rate of 9 5/8% per annum of the  principal  amount at
maturity of the Notes on June 15 and December 15 of each year,  commencing  June
15, 1999.

     The Notes may be  redeemed  at the  option of the  Company,  in whole or in
part, at any time on or after December 15, 1998,  initially at 104.813% of their
principal  amount at maturity and declining to 100% of such principal  amount at
maturity on or after December 15, 2000, in each case plus accrued interest.

     The Indenture  contains certain  covenants that, among other things,  limit
the ability of the  Company  and its  subsidiaries  to incur  indebtedness,  pay
dividends,  redeem  capital  stock and make  other  restricted  payments,  issue
capital  stock of  subsidiaries,  create  liens,  permit  dividend  restrictions
affecting subsidiaries, engage in transactions with stockholders and affiliates,
sell assets and engage in mergers and consolidations.

     The Notes are  subordinated to all Senior  Indebtedness,  as defined in the
Indenture, of the Company and effectively subordinated to all liabilities of the
Company's subsidiaries. The Company believes that as of March 31, 1997, the fair
value of its Senior  Subordinated Notes approximates the carrying value of those
obligations.

     During  fiscal 1996 the Company  repurchased  approximately  $19.9  million
principal  amount at maturity of the Notes.  As a result of the  repurchases the
Company  recorded  an  extraordinary  charge of $0.9  million  for  fiscal  1996
resulting from the write-off of unamortized debt issuance costs and premium over
accreted value, net of tax. The repurchase was partly funded by borrowings under
the Bank Credit Agreement and partly from excess cash arising from the Company's
Initial Public Offering.  The Company may from time to time purchase  additional
Notes in the market or otherwise subject to market conditions.

9.   Common Stock

Common Stock

     The Company's common stock comprises 50 million  authorized shares at a par
value of $0.01 each.

     During July 1996 the Company  sold  2,320,000  additional  shares of common
stock at $28.625 per share through a public offering (the  "Offering").  The net
proceeds from the Offering, after deducting expenses of the Offering,  including
discounts and commissions paid to the  underwriters,  were  approximately  $62.8
million.  The  Company  used such net  proceeds to repay  indebtedness  which it
incurred under the New Credit Agreement (See Note 7).

                                      F-16

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9.   Common Stock - (Continued)

     The Company has entered into loan  agreements  with certain  members of the
Company's  management to enable them to invest in the Company's common stock. As
of March 31, 1997 and 1996,  loans  amounting to $0.3 million and $0.4  million,
respectively,  which bear  interest at 7.5% per annum,  payable  quarterly,  and
mature on December 1, 1998, were  outstanding  under this plan.  These loans are
secured  by  the  common  stock  and  have  been  reflected  as a  reduction  in
shareholders' equity on the consolidated balance sheet.

Stock Options

     The Company has elected to follow  Accounting  Principles Board Opinion No.
25,   "Accounting   for  Stock  Issued  to  Employees"   (APB  25)  and  related
Interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative fair value accounting  provided for under FASB
Statement No. 123, "Accounting for Stock-Based  Compensation"  ("Statement 123")
requires  use of option  valuation  models  that were not  developed  for use in
valuing employee stock options.  Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

     On February  23, 1995 all  outstanding  stock  options  under the  previous
corporate  structure  were assumed by the Company and converted  into options to
acquire shares of the Company's Common Stock,  with the number of shares subject
to such option and exercise price thereof adjusted  appropriately (the "Existing
Option Plan").  The Existing Option Plan has been amended to provide that no new
options will be granted thereunder.

     The  Company  adopted  the  Sola   International  Inc.  Stock  Option  Plan
("International  Plan"),  effective  February 15,  1995.  On August 16, 1996 the
shareholders  of the  Company  ratified  an increase of 500,000 to the number of
options available for issuance under the International  Plan. The maximum number
of shares of Common Stock with respect to which options may be granted under the
International  Plan is 1,355,868 shares plus, subject to the requirement of rule
16b-3 of the  Securities  Exchange  Act of 1934,  if  applicable,  the number of
shares of Common Stock  subject to existing  options  under the  Existing  Stock
Option Plan, which expire or terminate  without  exercise for any reason,  which
number of shares underlying  Existing Options shall not exceed 1,645,219.  Under
the International Plan certain key employees,  and non employee directors and/or
creditors  of  the  Company  and  its   subsidiaries  and  affiliates  (each  an
"Optionee")   are  eligible  to  receive   non-qualified   stock   options  (the
"International  Options")  to  acquire  shares of common  stock of the  Company.
International  Options  granted to an Optionee  are  evidenced  by an  agreement
between the Optionee and the Company which contains terms not inconsistent  with
the  International  Plan  which  the  committee   appointed  to  administer  the
International  Plan deemed  necessary or desirable  (the  "International  Option
Agreement").

                                      F-17

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9.   Common Stock - (Continued)

     Pursuant to the Existing Option Plan and the International  Plan ("Plans"),
unless  otherwise set forth in an Existing Option  Agreement or an International
Option Agreement,  20% of the Options granted to an Optionee vest on the date of
grant, with an additional 20% vesting on each successive one-year anniversary of
the date of grant.  Options not  previously  vested  become  fully vested in the
event of a sale or other  disposition of 80% or more of the outstanding  capital
stock or  substantially  all of the assets of the  Company,  or upon a Merger or
consolidation  of the Company and its  subsidiaries  and  affiliates  unless the
merger or consolidation is one in which the Company is the surviving corporation
or one in which control of the Company and its  subsidiaries and affiliates does
not change (a  "Termination  Event").  However,  Existing  Options which are not
exercised  on or prior to a  Termination  Event  lapse  upon  the  closing  of a
Termination  Event.  All  non-vested  Options  of an  Optionee  lapse  upon such
Optionee's  termination  of  employment  for any reason.  An  Optionee's  vested
Options lapse 45 days after  termination of such Optionee's  employment with the
Company and its  subsidiaries  and affiliates for any reason other than death or
disability,   in  which  case  such  options   terminate  180  days  after  such
termination; provided, however, that such options lapse immediately in the event
an Optionee's employment with the Company and its subsidiaries and affiliates is
terminated for cause.

Pro Forma Disclosures

     Pro Forma  information  regarding  net  income  and  earnings  per share is
required  by  Statement  123,  and has been  determined  as if the  Company  had
accounted  for its employee  stock  options  under the fair value method of that
Statement.  The fair value for these  options was estimated at the date of grant
using a  Black-Scholes  option  pricing  model with the  following  assumptions:
risk-free  interest rate of 6.67%, no dividend yield,  volatility  factor of the
expected   market  price  of  the  Company's   common  stock  of  .389,   and  a
weighted-average expected life of the option of 4 years.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma  information  follows  (in  thousands  except for  earnings  per share
information):

                                               1997                       1996
                                               ----                       ----
Pro forma net income..............            $30,251                    $33,603
Pro forma earnings per share:
   Primary........................              $1.22                      $1.46

     The pro forma effect on net income during the phase-in  period of Statement
123 may not be  representative  of the effects on pro forma net income in future
periods.

                                      F-18

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9.   Common Stock - (Continued)

Option Activity

     A summary of the Company's stock option activity,  and related  information
for fiscal 1995, 1996 and 1997 follows:


                                                        Number of
                                                       Securities
                                                        Underlying  Weighted-
                                                         Options     Average
                                                          (000)   Exercise Price
Options outstanding as of March 31, 1994 ...............  1,261        $ 9.71
   Options granted during fiscal 1995 ..................    905         13.62
                                                          ------

Options outstanding as of March 31, 1995 ...............  2,166         11.34
   Options granted during fiscal 1996 ..................    113         24.45
   Options exercised in fiscal 1996 ....................    (17)        12.70
   Options cancelled in fiscal 1996 ....................    (35)        13.81
                                                          ------

Options outstanding as of March 31, 1996 ...............  2,227         11.96
   Options granted during fiscal 1997 ..................    394         34.01
   Options exercised in fiscal 1997 ....................   (145)        12.02
   Options cancelled in fiscal 1997 ....................    (47)        17.98
                                                          ------

Options outstanding as of March 31, 1997 ...............  2,429         15.43
                                                          ======

Options exercisable as of March 31, 1997 ...............  1,486         12.47

Weighted - average fair value of options granted during
     the year .......................................... $13.65

     Options  exercisable  as of March 31, 1995 and March 31, 1996 in  thousands
were 685 and 1,119,  respectively.  Options  available for grant as of March 31,
1995,  March 31, 1996 and March 31,  1997 in  thousands  were 335,  257 and 409,
respectively. Exercise prices for options granted during fiscal 1997 ranged from
$28.00 to  $37.38.  The  weighted-average  remaining  contractual  life of those
options is four years.

10.  Defined Contribution Plans

     The  Company   sponsors   several  defined   contribution   plans  covering
substantially all U.S. and U.K. employees. The plans provide for limited Company
matching  of   participants'   contributions.   Contributions   to  all  defined
contribution  plans  charged to operations  were $1.0 million,  $0.9 million and
$0.8 million for fiscal 1997, 1996 and 1995, respectively.

                                      F-19

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11.  Defined Benefit Retirement Plans

     The Company  participates  in a defined  benefit  pension  plan  ("Domestic
Pension Plan") covering substantially all full-time domestic employees.  Benefit
payments under the plan are based  principally on earnings during the last five-
or ten-year period prior to retirement  and/or length of service.  New employees
are eligible to  participate  in the plan within one year of employment  and are
vested after five years of service. The Company's policy is to fund such amounts
as are  necessary,  on an  actuarial  basis,  to provide for the plan's  current
service  costs and the  plan's  prior  service  costs  over  their  amortization
periods.

     The Company also  participates  in a contributory  defined  benefit pension
plan covering  certain  Australian  employees  ("International  Pension  Plan").
Benefits are generally based on length of service and on compensation during the
last three years of service prior to retirement. The Company's policy is to fund
such amounts as are necessary,  on an actuarial basis, to provide for the plan's
current service costs and the plan's prior service costs over their amortization
periods.

     The  following  table  provides  information  on the status of the Domestic
Pension Plan and the International Pension Plan.

     Net periodic pension cost included the following:

                                                Year Ended Year Ended Year Ended
                                                 March 31,  March 31,  March 31,
                                                    1997      1996        1995
                                                 ---------  ---------  ---------
                                                          (in thousands)
Domestic Pension Plan:
Service cost-benefits earned during the period    $ 1,662    $ 1,370    $ 1,252
Interest cost on projected benefit obligation .       702        509        377
Actual return on plan assets ..................      (400)      (180)         1
Net amortization and deferral .................        83         25         (1)
                                                 ---------  ---------  ---------
Total net periodic pension costs ..............   $ 2,047    $ 1,724    $ 1,629
                                                 =========  =========  =========
International Pension Plan:
Service cost-benefits earned during the period.   $ 1,843    $ 1,539    $ 1,299
Interest cost on projected benefit obligation .       731        684        579
Actual return on plan assets ..................    (1,344)    (1,454)       134
Net amortization and deferral .................       308        583       (938)
                                                 ---------  ---------  ---------
Total net periodic pension costs ..............   $ 1,538    $ 1,352    $ 1,074
                                                 =========  =========  =========

                                      F-20

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11.  Defined Benefit Retirement Plans - (Continued)

     The significant  actuarial  assumptions for the following tables, as of the
period-end measurement dates, are as follows:

                                                            Year Ended March 31,
                                                            --------------------
                                                              1997   1996   1995
                                                            ------- ------ -----
Domestic Pension Plan:
   Discount rate .........................................    7.35%  7.0%   7.5%
   Expected long-term rate of return on plan assets ......    8.0%   8.0%   8.0%
   Rate of increase in future compensation levels ........    5.0%   5.0%   5.0%
International Pension Plan:
   Discount rate .........................................    7.5%   8.0%   7.5%
   Expected long-term rate of return on plan assets ......    8.0%   8.5%   8.0%
   Rate of increase in future compensation levels ........    5.0%   5.5%   5.5%

     The change in the actuarial assumptions for fiscal 1997, 1996 and 1995 have
not  had  a  significant  effect  on  the  funded  status  of  the  Domestic  or
International Pension Plans.

     At March 31, 1997, the Domestic Pension Plan and International Pension Plan
assets include cash equivalents, fixed income securities and common stock.

                                      F-21

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

<TABLE>
11.  Defined Benefit Retirement Plans - (Continued)

     The funded status as of the year-end measurement dates was as follows:
<CAPTION>

                                                                                                  Year Ended March 31,
                                                                                                  --------------------
                                                                                         1997              1996              1995
                                                                                       --------          --------          --------
                                                                                                     (in thousands)
<S>                                                                                    <C>               <C>               <C>     
Domestic Pension Plan:
  Actuarial present value of benefit obligations:
     Vested benefit obligation ...............................................         $  4,294          $  2,776          $    968
                                                                                       ========          ========          ========
     Accumulated benefit obligation ..........................................         $  4,652          $  3,091          $  1,262
                                                                                       ========          ========          ========
     Projected benefit obligation ............................................         $ 11,301          $  9,603          $  6,566
     Plan assets at fair value ...............................................            6,021             3,733                58
                                                                                       --------          --------          --------
     Projected benefit obligation in excess of plan assets....................            5,280             5,870             6,508
                                                                                       --------          --------          --------
     Unrecognized net loss ...................................................             (498)           (1,179)              (13)
     Unrecognized prior service cost .........................................             --                --                --
     Unrecognized transition asset, net ......................................             --                --                --
                                                                                       --------          --------          --------
     Accrued pension cost ....................................................         $  4,782          $  4,691          $  6,495
                                                                                       ========          ========          ========
International Pension Plan:
  Actuarial present value of benefit obligations:
     Vested benefit obligation ...............................................         $ 11,295          $ 10,480          $  3,518
                                                                                       ========          ========          ========
     Accumulated benefit obligation ..........................................         $ 11,297          $ 10,486          $  8,524
                                                                                       ========          ========          ========
     Projected benefit obligation ............................................         $ 11,446          $ 10,827          $  9,069
     Plan assets at fair value ...............................................           13,333            12,032             9,546
                                                                                       --------          --------          --------
     Projected benefit obligation less than plan assets ......................           (1,887)           (1,205)             (477)
     Unrecognized net gain ...................................................            1,657               947               208
     Unrecognized transition asset, net ......................................              230               258               269
                                                                                       --------          --------          --------
     Accrued pension cost ....................................................         $   --            $   --            $   --
                                                                                       ========          ========          ========
</TABLE>

                                                                F-22

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12.  Income Taxes

     The domestic and foreign  components of income before  provision for income
taxes are as follows:

                                      Year Ended       Year Ended     Year Ended
                                       March 31,        March 31,      March 31,
                                         1997             1996            1995
                                      ---------        ---------       ---------
                                                    (in thousands)
Domestic ....................          $14,351          $27,158          $ 9,746
Foreign .....................           27,035           21,454           11,476
                                      ---------        ---------       ---------
                                       $41,386          $48,612          $21,222
                                      =========        =========       =========

     The components of the provision (benefit) for income taxes are as follows:

                                      Year Ended       Year Ended     Year Ended
                                       March 31,        March 31,      March 31,
                                         1997             1996            1995
                                      ---------        ---------       ---------
                                                    (in thousands)
Current:
   Federal and State ................. $ 6,142          $ 3,756         $   157
   Foreign ...........................   7,178            8,210           7,896
Deferred:
   Federal and State .................   1,720            9,181           7,370
   Foreign ...........................   1,534            1,134          (4,795)
Valuation allowance adjustment .......  (9,837)          (9,858)         (6,779)
Tax benefit allocated to reduction of
   goodwill ..........................   4,000            1,200           2,800
                                      ---------        ---------       ---------
                                       $10,737          $13,623         $ 6,649
                                      =========        =========       =========

     A reconciliation between income tax provisions computed at the U.S. federal
statutory  rate and the effective  rate reflected in the statements of income is
as follows:

                                               Year Ended Year Ended  Year Ended
                                                March 31,  March 31,   March 31,
                                                  1997      1996         1995
                                                 -----      -----        -----

Provision (benefit) at statutory rate .........  35.0%      35.0%        34.0%
State tax provision, net of federal effect ....   4.0        3.6          2.7
Valuation allowance ........................... (23.8)     (15.2)       (11.7)
Tax benefit allocated to reduction of goodwill    9.7        2.5         16.2
Income (loss) of foreign subsidiaries tax
   provision or benefit at differing
   statutory rates ............................  (2.4)       9.3         (4.6)
Tax benefit from NOL utilization ..............   --        (5.1)          --
Other .........................................   3.4       (1.5)         1.8
                                                 -----      -----        -----
                                                 25.9%      28.6%        38.4%
                                                 =====      =====        =====

                                      F-23

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12.  Income Taxes - (Continued)

     The tax  effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax  liabilities  are presented
below:

                                                                March 31,
                                                           --------------------
                                                             1997        1996
                                                           --------    --------
                                                               (in thousands)
Deferred tax assets:
  Accounts receivable, principally due to allowances for
    doubtful accounts ..................................   $  2,249    $  3,008
  Inventories, principally due to reserves .............      3,591       8,626
  Property, plant and equipment, principally due to
    differences in depreciation ........................      5,868       2,823
  Accruals for employee benefits .......................      8,904       8,788
  In-process research and development ..................     13,225      10,827
  Other assets .........................................      4,746       4,400
  Net operating losses .................................     11,221       3,685
                                                           --------    --------
  Total gross deferred tax assets ......................     49,804      42,157
  Less valuation allowance .............................    (14,219)    (15,294)
                                                           --------    --------
  Net deferred tax assets ..............................   $ 35,585    $ 26,863
                                                           ========    ========
Deferred tax liabilities:
  Property, plant and equipment, principally due to
    differences in depreciation ........................   $  9,262    $  9,264
  Inventories ..........................................      2,641       2,252
  Amortization of goodwill .............................      3,999       2,247
  Unremitted income of foreign subsidiaries ............      2,700       2,400
  Other ................................................      3,385       1,860
                                                           --------    --------
  Net deferred tax liabilities .........................   $ 21,987    $ 18,023
                                                           ========    ========
  Net deferred tax assets less net deferred tax
    liabilities ........................................   $ 13,598    $  8,840
                                                           ========    ========
Included in:
  Current assets .......................................   $ 10,686    $  7,491
  Non current assets ...................................      8,557       6,800
  Current liabilities ..................................     (1,261)       (461)
  Non current liabilities ..............................     (4,384)     (4,990)
                                                           --------    --------
                                                           $ 13,598    $  8,840
                                                           ========    ========

     For balance sheet  presentation,  deferred tax assets and liabilities  have
been netted for each separate tax jurisdiction.

     The net changes in the total valuation  allowance for fiscal 1997, 1996 and
1995 were $(9.8) million,  $(9.9) million and $(6.8) million,  respectively.  In
addition,  in fiscal 1997 a valuation  allowance of $8.6 million was established
against  deferred tax assets  acquired in the AO  Acquisition.  Movements in the
valuation  allowances  in  fiscal  1997,  1996  and  1995  relate  primarily  to
realization of NOL's or changes in the Company's evaluation of the realizability
of deferred tax assets.

                                      F-24

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12.  Income Taxes - (Continued)

     For tax purposes,  the Company's foreign  subsidiaries,  at March 31, 1997,
had net operating loss  carryforwards  of $35.6 million.  Of this amount,  $31.7
million does not expire,  and $3.9 million  expires  between 2002 and 2007.  The
deferred  tax assets  reflected in the  Company's  accounts as of March 31, 1997
before valuation allowances reflect these NOL's.

     The  Company  has  not  provided  for  U.S.   federal  income  and  foreign
withholding  taxes  on  $11  million  of  non-U.S.  subsidiaries'  undistributed
earnings  as of  March  31,  1997  because  such  earnings  are  intended  to be
reinvested  indefinitely.  Upon  distribution  of those  earnings in the form of
dividends  or  otherwise,  the  Company  would be subject to U.S.  income  taxes
(subject to an adjustment for foreign tax credits).  Determination of the amount
of unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation. Where excess cash
has accumulated in the Company's  non-U.S.  subsidiaries  and it is advantageous
for tax or foreign exchange reasons, subsidiary earnings are remitted.

13.  Commitments

     The  Company  leases  certain  warehouse  and  office  facilities,   office
equipment and automobiles under non cancelable  operating leases which expire in
1997  through  2012.  The  Company  is  responsible  for  taxes,  insurance  and
maintenance  expenses  related  to the  leased  facilities.  Under  the terms of
certain lease agreements,  the leases may be extended,  at the Company's option,
and certain of the leases provide for adjustments of the minimum monthly rent.

     Future  minimum  annual lease  payments under the leases are as follows (in
thousands):

Period Ending March 31,
-----------------------
1998 ......................................................               $5,392
1999 ......................................................                4,193
2000 ......................................................                2,974
2001 ......................................................                1,564
2002 ......................................................                1,468
Thereafter ................................................                4,954

     Rent expense for fiscal 1997, 1996, and 1995 was $5.6 million, $5.4 million
and $5.1 million, respectively.

14.  Contingencies

     The Company is subject to  environmental  laws and  regulations  concerning
emissions  to the air,  discharges  to  surface  and  subsurface  waters and the
generation, handling, storage,  transportation,  treatment and disposal of waste
materials.

                                      F-25

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14.  Contingencies - (Continued)

     The Company is currently  participating in a remediation  program of one of
its  manufacturing  facilities under the Comprehensive  Environmental  Response,
Compensation  and Liability Act  ("CERCLA")  and the  Superfund  Amendments  and
Reauthorization Act of 1986. The Company estimates that, based on an independent
feasibility  report  prepared  in  accordance  with an EPA 1991  Consent  Order,
additional clean-up costs of approximately  $70,000 per annum for up to 15 years
may be incurred.  Under the current remediation program, the EPA has established
that  re-evaluation of the program be performed every five years,  with the next
scheduled review by the EPA being in fiscal 1998.

     The  Company is also  involved  in other  investigations  of  environmental
contamination  at  several  U.S.  sites.  Some  clean-up  activities  have  been
conducted  and  investigations  are  continuing  to  determine  future  remedial
requirements, if any.

     Under the terms of the sale agreement with  Pilkington plc  ("Pilkington"),
for  the  purchase  of the  Sola  business  in  December  1993  ("Acquisition"),
Pilkington has indemnified the Company with regard to expenditures subsequent to
the  Acquisition for certain  environmental  matters  relating to  circumstances
existing at the time of the Acquisition. Under the terms of the indemnification,
the Company is responsible for the first $1 million spent on such  environmental
matters,  Pilkington  and the  Company  share  equally  the cost of any  further
expenditures  between $1 million and $5 million,  and  Pilkington  retains  full
liability for any expenditures in excess of $5 million.

     As of March 31,  1997 and March 31,  1996,  the Company  has  provided  for
environmental  remediation costs in the amount of $2.3 million and $2.5 million,
respectively,  which is  included in the  balance  sheet  under other  long-term
liabilities.

     In the  ordinary  course of  business,  various  legal  actions  and claims
pending have been filed  against the Company.  While it is  reasonably  possible
that such  contingencies  may result in a cost greater than that provided for in
the  financial  statements,  it is the opinion of  management  that the ultimate
liability, if any, with respect to these matters, will not materially affect the
consolidated operations or financial position of the Company.

                                      F-26

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15.  Worldwide Operations

     The  Company  operates  in  the  ophthalmic  industry  in  the  design  and
manufacture of eyeglass lenses.

<TABLE>
     A summary of information about the Company's geographic areas is as follows
(in thousands):

<CAPTION>
                                                        North                          Rest of
                                                       America          Europe           World         Eliminations         Total
                                                    ------------     ------------     ------------     ------------     ------------
<S>                                                   <C>              <C>              <C>              <C>               <C>      
Year Ended March 31, 1997
Revenue:
   External ..................................        $ 234,173        $ 150,013        $ 104,503        $    --           $ 488,689
   Internal ..................................           30,129           59,455           43,894         (133,478)             --
Operating income .............................           21,416           19,414           16,245              272            57,347
Identifiable assets ..........................          327,590          151,033          131,906           (5,021)          605,508
Year Ended March 31, 1996
Revenue:
   External ..................................        $ 190,785        $ 106,726        $  90,198        $    --           $ 387,709
   Internal ..................................           12,414           57,300           38,950         (108,664)             --
Operating income (loss) ......................           35,318           16,645            9,612             (822)           60,753
Identifiable assets ..........................          204,733          115,205          105,096           (8,185)          416,849
Year Ended March 31, 1995
Revenue:
   External ..................................        $ 169,316        $ 100,045        $  76,270        $    --           $ 345,631
   Internal ..................................           13,357           52,524           37,180         (103,061)             --
Operating income (loss) ......................           18,391           12,443            9,010             (100)           39,744
Identifiable assets ..........................          192,425          106,916           90,281           (6,165)          383,457

</TABLE>
     Internal sales  represent  intercompany  sales between regions at a mark-up
from cost; the elimination of any profit arising from such sales is reflected in
eliminations in determining operating income (loss).

     For fiscal 1997,  1996 and 1995, the corporate  headquarters  costs of $6.9
million, $7.7 million and $11.7 million, respectively, are included in the North
American geographic area.  Included in fiscal 1995 corporate  headquarters costs
are the AEA management  fees and management  agreement  termination fee totaling
$3.9 million.

                                      F-27

<PAGE>

                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16.  Pro Forma Data

     The  following  pro forma data was  prepared to  illustrate  the  estimated
effect  of the AO  Acquisition  and the  financing  related  thereto,  as if the
Acquisition had occurred as of the beginning of each period presented:

                                                        Year Ended    Year Ended
                                                         March 31,     March 31,
                                                           1997          1996
                                                        ---------      --------
Net Sales .......................................       $ 507,713      $475,274
                                                        ---------      --------

Income before extraordinary item ................       $  41,968      $ 42,093
                                                        ---------      --------

Net income ......................................       $  41,968      $ 41,181
                                                        ---------      --------

Earnings per share:
   Income before extraordinary item .............       $    1.64      $   1.67
                                                        ---------      --------

   Net income ...................................       $    1.64      $   1.63
                                                        ---------      --------

     These pro forma  results of operations  have been  prepared for  comparison
purposes  only,  and do not purport to be  indicative  of what the results would
have been had the AO Acquisition  occurred at the beginning of the period or the
results  which may occur in the future.  As a result of the AO  Acquisition  the
Company has incurred two  non-recurring  charges  during fiscal 1997: (i) a $7.2
million  charge  to  cost  of  sales  for the  amortization  associated  with an
inventory write-up to fair value during the six months ended September 30, 1996;
and (ii) a $9.5  million  charge for the  write-off of  in-process  research and
development all of which was recorded in the quarter ended June 30, 1996.  These
charges, and the related provision for tax thereon,  have been excluded from the
pro forma results as they are  non-recurring.  The pro forma data above does not
include  pro forma  adjustments  for the Neolens  Acquisition  as the results of
Neolens prior to  acquisition  were not material to the  Company's  consolidated
results of operations.

17.  Supplementary Cash Flow Data (in thousands)

                                                Year Ended Year Ended Year Ended
                                                March 31,   March 31,  March 31,
                                                  1997        1996        1995
                                                 =======     =======     =======
Supplemental disclosures of cash flow
   information:
   Interest paid ...........................     $19,273     $11,220     $19,264
                                                 =======     =======     =======
   Taxes paid ..............................     $14,075     $11,486     $ 6,233
                                                 =======     =======     =======

Supplemental disclosures of non-cash
investing and financing activities:
   Capital expenditures accrued but
   not paid ................................     $ 3,701     $ 1,646     $ 2,541
                                                 =======     =======     =======

                                      F-28

<PAGE>

<TABLE>
                                                       SOLA INTERNATIONAL INC.

                                                      QUARTERLY FINANCIAL DATA
                                                (in thousands, except per share data)
                                                             (unaudited)
<CAPTION>

                                                                 Quarter Ended       Quarter Ended    Quarter Ended    Quarter Ended
                                                                    June 30,           Sept. 30,          Dec. 31,       March 31,
                                                                     1995                1995              1995            1996
                                                                -------------       -------------      -------------   -------------
<S>                                                               <C>                 <C>                <C>                <C>     
Net sales .............................................           $ 95,922            $ 95,866           $ 91,329           $104,592
Gross profit ..........................................             45,740              45,404             43,557             51,017
Operating income ......................................             13,668              15,565             11,461             20,059
Income before extraordinary
    item ..............................................              7,355               9,000              5,958             12,275
Net income ............................................              6,443               9,000              5,958             12,275
Earnings per share:
    Income before extraordinary
        item ..........................................               0.32                0.39               0.26               0.53
    Extraordinary item ................................              (0.04)               --                 --                 --
    Net income per share ..............................               0.28                0.39               0.26               0.53

</TABLE>

<TABLE>
<CAPTION>

                                                             Quarter Ended       Quarter Ended      Quarter Ended    Quarter Ended
                                                                June 30,           Sept. 30,           Dec. 31,         March 31,
                                                                  1996                1996               1996              1997
                                                              -------------       -------------      -------------     -------------
<S>                                                             <C>                 <C>                <C>                 <C>     
Net sales ..........................................            $109,536            $128,194           $119,721            $131,238
Gross profit .......................................              51,487              53,109             57,124              62,434
Operating income ...................................               6,082              13,975             15,261              22,029
Net income .........................................               2,162               6,969              7,840              13,926
Earnings per share:
    Net income per share ...........................                0.09                0.27                0.31                0.55
</TABLE>

                                                                F-29

<PAGE>

<TABLE>
                                                                                                         SCHEDULE II

                                              SOLA INTERNATIONAL INC.
                                         VALUATION AND QUALIFYING ACCOUNTS
                                                  (in thousands)
<CAPTION>

                                                 Balance,      Charged                                Balance,
                                                Beginning        to                                    End of
                                                of Period     Expenses     Deductions    Other(1)      Period
-----------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>         <C>            <C>          <C>   
Year ended March 31, 1997
  Allowance for doubtful accounts..........       $5,424        $1,258      $(2,652)       $   --       $4,030
                                                  ======        ======      ========       ======       ======
  Allowance for excess and obsolete
     inventory.............................       $3,434        $1,593      $  (556)       $   --       $4,471
                                                  ======        ======     =========       ======       ======
Year ended March 31, 1996
  Allowance for doubtful accounts..........       $2,854        $2,846      $  (230)       $  (46)      $5,424
                                                  ======        ======     =========      ========      ======
  Allowance for excess and obsolete
     inventory.............................       $2,534        $1,090      $  (201)       $   11       $3,434
                                                  ======        ======     =========      =======       ======
Year ended March 31, 1995
  Allowance for doubtful accounts..........       $  412        $2,442      $  (129)       $  129       $2,854
                                                 =======        ======     =========       ======       ======
  Allowance for excess and obsolete
     inventory.............................       $  604        $1,981      $   (65)       $   14       $2,534
                                                 =======        ======    ==========      =======       ======
<FN>
-------------------------

(1)  Other relates primarily to foreign currency translation adjustments.
(2)  Represents write-off and disposition of excess and obsolete inventories.
</FN>
</TABLE>

                                      S-1

<PAGE>

<TABLE>

                                INDEX OF EXHIBITS
<CAPTION>
                                                                                Page Number or
  Exhibit No.                       Description                          Incorporation by Reference to
  -----------                       -----------                          -----------------------------
<S>                   <C>                                          <C>
     2.1              Purchase agreement between Sola              Filed as Exhibit 2 to the Form 8-K of the
                      International Inc. and American Optical      Company, dated May 6, 1996, and
                      Corporation, dated as of May 6, 1996         incorporated herein by reference

     3.1              Amended and Restated Certificate of          Filed as Exhibit 3.1 to the Annual Report
                      Incorporation of the Company                 on Form 10-K of the Company for the fiscal
                                                                   year ending March 31, 1995, dated June 7,
                                                                   1995, and incorporated herein by reference

     3.2              Amended and Restated By-Laws of the          Filed as Exhibit 3.1 to the Company's
                      Company                                      Quarterly Report on Form 10-Q for the
                                                                   period ending September 30, 1995, and
                                                                   incorporated herein by reference

     10.1             Purchase Agreement, dated as of September    Filed as Exhibit 10.1 to the Registration
                      1, 1993 by and between Sola Holdings         Statement, as amended, on Form S-1 of the
                      Inc., Pilkington plc and certain of          Company (File No. 33-68824) and
                      Pilkington plc's subsidiaries                incorporated herein by reference

     10.2*            Confidential Severance Agreement between     Filed as Exhibit 10 to the Company's
                      Sola International, Inc. and John E.         Quarterly Report on Form 10-Q for the
                      Heine, dated as of November 20, 1996         period ending December 31, 1996, and
                                                                   incorporated herein by reference

     10.3*            Assignment and Amendment of Employment       Filed as Exhibit 10.3 to the Registration
                      Agreement, dated as of December 1, 1993,     Statement, as amended, on Form S-1 of the
                      among Sola Optical USA, Inc., Sola Group     Company (File No. 33-87892) and
                      Ltd. and John E. Heine                       incorporated herein by reference

     10.4*            Employment Agreement between Sola Optical    Filed as Exhibit 10.4 to the Registration
                      USA, Inc. and James H. Cox, dated as of      Statement, as amended, on Form S-1 of the
                      February 26, 1993                            Company (File No. 33-68824) and
                                                                   incorporated herein by reference

     10.5*            Assignment and Amendment of Employment       Filed as Exhibit 10.7 to the Registration
                      Agreement, dated as of December 1, 1993,     Statement, as amended, on Form S-1 of the
                      among Sola Optical USA, Inc., Sola Group     Company (File No. 33-87892) and
                      Ltd. and James H. Cox                        incorporated herein by reference

     10.6*            Employment Agreement between Sola Optical    Filed as Exhibit 10.5 to the Registration
                      USA, Inc. and Colin M. Perrott, dated as     Statement, as amended, on Form S-1 of the
                      of February 26, 1993                         Company (File No. 33-68824) and
                                                                   incorporated herein by reference

     10.7*            Assignment and Amendment of Employment       Filed as Exhibit 10.9 to the Registration
                      Agreement, dated as of December 1, 1993,     Statement, as amended, on Form S-1 of the
                      among Sola Optical USA, Inc., Sola Group     Company (File No. 33-87892) and
                      Ltd. and Colin M. Perrott                    incorporated herein by reference

     10.8*            Employment Agreement between Sola Optical    Filed as Exhibit 10.6 to the Registration
                      USA, Inc., and Ian S. Gillies, dated as      Statement, as amended, on Form S-1 of the
                      of February 26, 1993                         Company (File No. 33-68824) and
                                                                   incorporated herein by reference

                                       E-1

<PAGE>

                                INDEX OF EXHIBITS
                                  (continued)
                                                                                Page Number or
  Exhibit No.                       Description                          Incorporation by Reference to
  -----------                       -----------                          -----------------------------
     10.9*            Assignment and Amendment of Employment       Filed as Exhibit 10.11 to the Registration
                      Agreement, dated as of December 1, 1993,     Statement, as amended, on Form S-1 of the
                      among Sola Optical USA, Inc., Sola Group     Company (File No. 33-87892) and
                      Ltd. and Ian S. Gillies                      incorporated herein by reference

     10.10*           Assignment and Amendment of Employment       Filed as Exhibit 10.12 to the Registration
                      Agreement, dated as of December 1, 1993,     Statement, as amended, on Form S-1 of the
                      among Sola Optical USA, Inc., Sola Group     Company (File No. 33-87892) and
                      Ltd. and Stephen J. Lee                      incorporated herein by reference

     10.11            Multicurrency Credit Agreement, dated as     Filed as Exhibit 4 to the Report on Form
                      of June 14, 1996, among Sola                 8-K/A of the Company, dated May 6, 1996,
                      International Inc., and the other            and incorporated herein by reference
                      Borrowers as the Borrowers, the
                      Subsidiary Guarantors, Bank of America
                      National Trust and Savings Association,
                      as Agent and Letter of Credit Issuing
                      Bank, The First National Bank of Boston
                      and The Bank of Nova Scotia, as
                      Co-Agents, and the Other Financial
                      Institutions Party Thereto

     10.12            Lease Agreement, dated May 10, 1993,         Filed as Exhibit 10.9 to the Registration
                      between Sola Optical Taiwan Ltd. and         Statement, as amended, on Form S-1 of the
                      Chang Jin Co., Ltd. (including English       Company (File No. 33-68824) and
                      summary of principal terms)                  incorporated herein by reference

     10.13            Lease Agreement between Optical Sola de      Filed as Exhibit 10.10 to the Registration
                      Mexico and Messrs. Salvadore                 Statement, as amended, on Form S-1 of the
                      Luttenroth-Camou and Carlos                  Company (File No. 33-68824) and
                      Lutteroth-Lomeli (including English          incorporated herein by reference
                      summary of principal terms)

     10.14*           Sola Investors Inc. Stock Option Plan        Filed as Exhibit 10.11 to the Annual
                                                                   Report on Form 10-K of the Company, dated
                                                                   March 31, 1994, and incorporated herein by
                                                                   reference

     10.15*           Amendment Number One to Sola Investors       Filed as Exhibit 10.21 to the Registration
                      Inc. Stock Option Plan                       Statement, as amended, on Form S-1 of the
                                                                   Company (File No. 33-87892) and
                                                                   incorporated herein by reference

     10.16*           Sola International Inc. Stock Option Plan    Filed as Exhibit 10.22 to the Registration
                                                                   Statement, as amended, on Form S-1 of the
                                                                   Company (File No. 33-87892) and
                                                                   incorporated herein by reference

     10.17*           Sola International Inc. Stock Option         Filed as Exhibit A and Exhibit B to the
                      Plan, Amendment Number One and Amendment     fiscal 1996 Proxy Statement of Sola
                      Number Two                                   International Inc., dated July 12, 1996,
                                                                   and incorporated herein by reference

     10.18            Indenture by and between the Company and     Filed as Exhibit 10.23 to the Registration
                      NationsBank of Georgia, National             Statement, as amended, on Form S-1 of the
                      Association, as Trustee, with respect to     Company (File No. 33-87892) and
                      the 9 5/8% Senior Subordinated Notes due     incorporated herein by reference
                      2003 (including the form of Note)

                                      E-2

<PAGE>

                                INDEX OF EXHIBITS
                                  (continued)
                                                                                Page Number or
  Exhibit No.                       Description                          Incorporation by Reference to
  -----------                       -----------                          -----------------------------
     10.19*           Form of Indemnification Agreement between    Filed as Exhibit 10.24 to the Registration
                      the executive officers and directors of      Statement, as amended, on Form S-1 of the
                      the Company and the Company                  Company (File No. 33-87892) and
                                                                   incorporated herein by reference

     10.20*           Sola International Inc. Management           Filed as Exhibit 10.25 to the Registration
                      Incentive Plan                               Statement, as amended, on Form S-1 of the
                                                                   Company (File No. 33-87892) and
                                                                   incorporated herein by reference

     10.21            Sola Optical 401(k) Savings Plan             Filed as Exhibit 4.4 to the Registration
                                                                   Statement on Form S-8 of the Company (File
                                                                   No. 333-4489), filed with the Commission
                                                                   on May 23, 1996, and incorporated herein
                                                                   by reference

     10.22            Trust Agreement entered into as of May       Filed as Exhibit 4.5 to the Registration
                      15, 1996 between Sola Optical USA, Inc.      Statement on Form S-8 (File No. 333-4489)
                      and Chase Manhattan Bank, N.A.               of the Company, filed with the Commission
                                                                   on May 23, 1996, and incorporated herein
                                                                   by reference

     11.1             Statement regarding computation of per
                      share earnings

     12.1             Statement regarding ratio of earnings to
                      fixed charges

     21.1             List of subsidiaries of the Company

     23.1             Consent of Ernst & Young LLP Independent
                      Auditors

     27.1             Financial Data schedule

     99.1             Factors Affecting Future Operating Results

<FN>
-------------------------
*Compensatory plan or management agreement
</FN>
</TABLE>

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