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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, 1998

                                       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 identification no.)
    incorporation or organization)

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

       Registrant's telephone number, including area code: (650) 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  29,  1998,  the  aggregate  market  value  of  Common  Stock  held by
non-affiliates was approximately $965,050,713. 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 29, 1998,  24,738,165  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, 1998

                                                                            Page
PART I

Item 1.        Business......................................................  3
Item 2.        Properties....................................................  8
Item 3.        Legal Proceedings.............................................  9
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........................................ 23
Item 12.       Security Ownership of Certain Beneficial Owners and
                    Management............................................... 23
Item 13.       Certain Relationships and Related Transactions................ 23

PART IV

Item 14.       Exhibits, Financial Statement Schedules and Reports
                    on Form 8-K.............................................. 24

                                       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 its initial public
offering (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 Neolens,  Inc.
("Neolens"),   a  manufacturer  of  polycarbonate   eyeglass  lenses.  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,  1998,  March 31,  1997 and March 31,  1996 are
referred  to  herein  as  "fiscal  1998",   "fiscal  1997"  and  "fiscal  1996",
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 90% of the Company's net lens
sales.  Approximately  52% of ophthalmic  lens 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.  Sola
manufactures  and markets  several  advanced  thinner and lighter  plastic  lens
materials,   including  Spectralite(R),   Finalite  1.6(TM)  and  polycarbonate.
Spectralite(R)  and  Finalite  1.6(TM) are  proprietary  materials  developed by
Sola's research and development operation. Raw materials used in the manufacture
of  these  products  are  available   from  a  number  of  chemical   suppliers.
Polycarbonate is another thin and light material with greater impact resistance.
To further  improve the  thinness and  lightness of its lenses,  the Company has
increasingly  employed  aspheric and atoric 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  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.

                                       3

<PAGE>


     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 (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.  During
fiscal 1998 Sola's  proprietary  Matrix(R)  delivery  system was installed at an
increasing number of sites in the U.S. and foreign locations. 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-reflective
coating and potentially other high margin add-ons. 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 and Sales

     The Company develops and manages its marketing  strategy on a decentralized
basis and has sales  offices  in 20  countries  across  its three  regions.  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 52 major
distribution centers located in 20 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.

Customers

     During  fiscal 1998,  the  Company's  ten largest  customers  accounted for
approximately  19.6% of net sales and the Company's  largest customer  accounted
for 5.7% of net  sales.  During  fiscal  1998,  7 of the  Company's  10  largest
customers were located in North America and accounted for approximately 15.7% of
net sales in the aggregate.

     One  of  the  company's  largest  competitors,  Essilor  International,  is
extensively  vertically  integrated  into  wholesale  laboratories,  both in the
United States and other parts of the world.  Sola has sold and continues to sell
its products to these Essilor laboratories.

                                       4

<PAGE>


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  1998 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 20  manufacturing  facilities  located in its three major
regions,  including 18 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 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  new  materals  (including
monomers) 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, 1998, there
were  approximately  184  employees  involved  in  the  Company's  research  and
development  efforts.  The Company's  research and development  expenditures for
fiscal 1998,  1997 and 1996 were $18.3  million,  $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)  and  $13.3  million,
respectively,  representing  3.3%,  3.6% and 3.4% of net sales for each of those
years.  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, Access and Continurim enhanced near vision lens designs, and
ultra tough multi coat ("UTMC") and other coatings. Sola's proprietary Matrix(R)
delivery 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.  This
system is being  installed  at an  increasing  number  of sites in the U.S.  and
foreign locations.

                                       5

<PAGE>


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, 1998, the Company had filed (or applied for) patents for
54 discrete inventions or technologies.  Many of the Company's patents have been
filed  in  multiple   countries,   and  they   include  46  patents  (or  patent
applications)  filed in the United  States.  The  Company  has been  granted 250
trademarks in various countries, representing rights to 65 discrete names. These
include 47 trademarks  granted in the United States. A further 25 tradenames are
under  application.  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.

     As a result of the AO Acquisition and the ongoing  research and development
within that company, Sola acquired an additional portfolio of patents and patent
applications.  Upon consolidation  within the overall portfolio and after taking
account of the expiration of older  patents,  intellectual  property  protection
will be maintained over an additional 16 discrete  inventions and  technologies,
within the United States and multiple other countries.  An additional  trademark
portfolio was similarly  acquired.  This includes a total of 66 discrete  names,
representing  a total of 313  trademarks  in multiple  countries of which 66 are
granted in the United States.

                                       6

<PAGE>


Employees

     As of March  31,  1998,  the  Company  had  approximately  7,800  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
("CFC's") 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.
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.  In March 1997 the EPA  consented to the
Company  curtailing  clean-up  activities  for a six month period which ended in
September.  The Company  continued to monitor  contamination  levels  during the
curtailment  period.  During the  quarter  ended  December  31, 1997 a report on
contamination levels, and the impact of curtailed  activities,  was submitted to
the EPA,  and such report is currently  under  review.  The report  indicates no
significant  impact on the site from the curtailed  activities,  and the EPA has
consented to continued  curtailment  of activities  until such time as they have
concluded their review of the report. The Company expects continued reduction of
clean-up  activities due to relatively low levels of  contamination  existing at
the site.

     Late in fiscal 1996,  the Company was requested by the Missouri  Department
of Natural  Resources  ("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 agreed to undertake the requested  removal action pursuant to the MDNR's
Voluntary  Cleanup  Program.  The Company  completed its clean-up program during
fiscal 1998 and the MDNR issued a no further action letter in March 1998.

     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

                                       7

<PAGE>


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 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.

Item 2.    PROPERTIES

<TABLE>
     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

  Petaluma, California...........    Manufactures plastic lenses; marketing and distribution           Part owned,
                                     center; research and development facility; administrative         part leased
                                     offices for North American operations

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

  San Diego, California..........    Headquarters for American Optical                                   Leased

  Southbridge, Massachusetts.....    Distribution center                                                 Leased

  Miami, Florida.................    One site manufacturing finished polycarbonate lenses; the           Leased
                                     other site houses tinting and coating operations for plano
                                     lenses, and the Sunlens divisional head office

  Tijuana, Mexico................    Four sites manufacturing plastic 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             Leased
                                     coating capability

  Wexford, Ireland...............    Manufactures plastic lenses; prescription processing                Owned
                                     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

                                       8

<PAGE>


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

  Guangzhou, China...............    Two sites; China head office and second China manufacturing        Part owned,
                                     site for hard resin lenses                                         part leased

  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


Australia
  Lonsdale, Australia............    Manufactures plastic lenses; manufactures molds;                    Owned
                                     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 1998 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.

                                       9

<PAGE>


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 1998.

                                       10

<PAGE>


                                     PART II

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

<TABLE>
     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.

<CAPTION>
                                                                                          Common Stock
                                                                                           Price Rang
                                                                                      ---------------------
                                                                                      High              Low
                                                                                      ----              ---
<S>                                                                                  <C>               <C>
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
Fiscal Year Ended March 31, 1998:
     First Quarter ended June 30, 1997......................................         $33 1/2           $21 7/8
     Second Quarter ended September 30, 1997................................         $34 1/2           $30 1/8
     Third Quarter ended December 31, 1997..................................         $36 1/4           $29 1/2
     Fourth Quarter ended March 31, 1998....................................         $41 7/16          $30 3/16
</TABLE>


     On May 29, 1998, the closing price per share of the Company's  Common Stock
on the New York Stock Exchange was $39 9/16. As of May 29, 1998,  there were 408
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 as amended (the "Amended  Agreement"),  generally
restricts,   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 factors deemed relevant by the Board of Directors.

                                       11

<PAGE>


<TABLE>
Item 6.    SELECTED FINANCIAL DATA

<CAPTION>
                                                                                                                        Presecessor
                                                                 Sola Internation Inc.                                   Business
                                            ------------------------------------------------------------------------     ---------
                                          Fiscal Year     Fiscal Year     Fiscal Year    Fiscal Year     Four Months   Eight Months
                                             Ended           Ended           Ended          Ended           Ended           Ended
                                            March 31,       March 31,      March 31,       March 31,       March 31,    November 30,
                                              1998           1997 (3)        1996            1995          1994 (1)          1993
                                            ---------       ---------      ---------       ---------       ---------     ---------
<S>                                         <C>             <C>            <C>             <C>             <C>             <C>      
Statements of Operations Data
(in thousands, except per share data)
Net sales ............................      $ 547,735       $ 488,689      $ 387,709       $ 345,631       $ 106,030       $ 200,025
                                            =========       =========      =========       =========       =========       =========
Income (loss) before
  extraordinary item .................      $  51,092       $  30,897      $  34,588       $  13,640       $ (61,394)      $  10,749
Extraordinary item, net of
   taxes .............................         (5,939)(4)        --             (912)(4)      (3,915)(2)        --              --
                                            ---------       ---------      ---------       ---------       ---------       ---------
Net income (loss) ....................      $  45,153       $  30,897      $  33,676       $   9,725(2)    $ (61,394)      $  10,749
                                            =========       =========      =========       =========       =========       =========

Earnings (Loss) Per Share
Data basic (5)........................
   Income (loss) before extraordinary
     item.............................      $    2.09       $    1.31      $    1.59       $    0.82       $   (3.75)
   Extraordinary item.................          (0.24)           --            (0.04)          (0.23)           --
                                            ---------       ---------      ---------       ---------       ---------
   Net income (loss)..................      $    1.85       $    1.31      $    1.55       $    0.59       $   (3.75)
                                            =========       =========      =========       =========       =========
   Weighted average common 
     shares outstanding...............         24,400          23,561         21,785          16,710          16,353
                                            =========       =========      =========       =========       =========
Earnings (Loss) Per Share Data
diluted (6)...........................
   Income (loss) before extraordinary 
     item.............................      $    2.00       $    1.24      $    1.51       $    0.78       $   (3.75)
   Extraordinary item.................          (0.23)           --            (0.04)          (0.22)           --
                                            ---------       ---------      ---------       ---------       ---------
   Net income (loss)..................      $    1.77       $    1.24      $    1.47       $    0.56       $   (3.75)
                                            =========       =========      =========       =========       =========
   Weighted average common and
     dilutive securities outstanding..         25,547          24,859         22,944          17,516          16,353
                                            =========       =========      =========       =========       =========
</TABLE>


<TABLE>
<CAPTION>
                                                                                   Sola International Inc
                                                        ----------------------------------------------------------------------------
                                                                                      As of March 31,
                                                          1998             1997             1996             1995            1994
                                                        --------         --------         --------         --------         --------
<S>                                                     <C>              <C>              <C>              <C>              <C>     
Balance Sheet Data
Total assets ..................................         $684,058         $605,508         $416,849         $383,457         $360,631
Long-term debt ................................          196,386          162,797           97,890          107,407          186,740
Total shareholders' equity ....................          327,022          284,298          192,241          159,443           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)  For fiscal 1998 and fiscal 1996, the  extraordinary  items comprise  losses
     due to the repurchases of senior subordinated notes, net of tax.
(5)  Earnings  per share,  as restated for the adoption of FAS 128, are computed
     using the weighted average number of common shares  outstanding  during the
     period, for fiscal 1998, 1997, 1996, 1995, and 1994, after giving effect to
     the IPO.
(6)  Earnings  per share,  as restated for the adoption of FAS 128, are computed
     using the weighted average number of common shares and dilutive  securities
     outstanding during the period, for fiscal 1998, 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, 1996 (see Note 1 of Notes to
Consolidated  Financial  Statements),  using the purchase  method of accounting.
Operating  results  for fiscal 1997  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, 1998,  1997 and
1996 are  referred  to herein as  fiscal  1998,  fiscal  1997 and  fiscal  1996,
respectively.

<TABLE>
     The following table reflects the results of operations for the three fiscal
years  1998,  1997 and 1996.  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.

<CAPTION>
                                                                              Fiscal Year Ended March 31,
                                                      -----------------------------------------------------------------------------
                                                                                                         Adjusted
(In thousands)                                           1998            1997          Adjustments         1997             1996
                                                      ---------        ---------       -----------       ---------        ---------
<S>                                                   <C>              <C>              <C>              <C>              <C>      
Net sales .....................................       $ 547,735        $ 488,689                         $ 488,689        $ 387,709
Cost of sales .................................         289,677          264,535        $  (7,216)         257,319          201,991
                                                      ---------        ---------        ---------        ---------        ---------
  Gross profit ................................         258,058          224,154            7,216          231,370          185,718
                                                      ---------        ---------        ---------        ---------        ---------
Research and development
  expenses ....................................          18,303           17,539                            17,539           13,329
Selling and marketing expenses ................          93,993           92,387                            92,387           66,345
General and administrative
  expenses (including goodwill
  amortization) ...............................          53,056           47,381                            47,381           45,291
In-process research and
  development expenses ........................            --              9,500           (9,500)            --               --
                                                      ---------        ---------        ---------        ---------        ---------
  Operating expenses ..........................         165,352          166,807           (9,500)         157,307          124,965
                                                      ---------        ---------        ---------        ---------        ---------

  Operating income ............................          92,706           57,347           16,716           74,063           60,753
Interest expense, net .........................         (16,754)         (15,961)                          (15,961)         (12,141)
                                                      ---------        ---------        ---------        ---------        ---------
  Income before provision for
    income taxes, minority interest
    and extraordinary item ....................          75,952           41,386           16,716           58,102           48,612
Provision for income taxes ....................         (25,369)         (10,737)          (5,851)         (16,588)         (13,623)
Minority interest .............................             509              248                               248             (401)
                                                      ---------        ---------        ---------        ---------        ---------
  Income before extraordinary
  item ........................................          51,092           30,897           10,865           41,762           34,588
Extraordinary item, loss on
  repurchase of senior subordinated
  notes, net of tax ...........................          (5,939)            --                                --               (912)
                                                      ---------        ---------        ---------        ---------        ---------
  Net income ..................................       $  45,153        $  30,897        $  10,865        $  41,762        $  33,676
                                                      =========        =========        =========        =========        =========
</TABLE>

                                                                 13

<PAGE>


Results of Operations

<TABLE>
     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 year ended March
31,  1997 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 is not meaningful due to
the effects of certain transactions and non-recurring charges as noted above.

<CAPTION>
                                                                  Fiscal year ended March 31,
                                                               ---------------------------------
                                                               1998          1997          1996
                                                               -----         -----         -----
                                                                %             %             %
<S>                                                            <C>           <C>           <C>  
      Net sales.........................................       100.0         100.0         100.0
      Cost of sales.....................................        52.9          52.7          52.1
                                                               -----         -----         -----
        Gross profit....................................        47.1          47.3          47.9
                                                               -----         -----         -----
      Research and development expenses.................         3.3           3.6           3.4
      Selling and marketing expenses....................        17.2          18.9          17.1
      General and administrative expenses...............         9.7           9.7          11.7
                                                               -----         -----         -----
        Operating expenses..............................        30.2          32.2          32.2
                                                               -----         -----         -----
          Operating income .............................        16.9          15.1          15.7
      Interest expense, net.............................        (3.1)         (3.2)         (3.1)
        Income before provision for income taxes,
          minority interest and extraordinary item......        13.8          11.9          12.6
      Provision for income taxes........................        (4.6)         (3.4)         (3.6)
      Minority interest.................................         0.0           0.0          (0.1)
      Extraordinary item................................        (1.0)          0.0          (0.2)
                                                               -----         -----         -----
        Net income .....................................         8.2           8.5           8.7
                                                               =====         =====         =====
</TABLE>

Net Sales

     Net sales were  $547.7  million in fiscal  1998,  $488.7  million in fiscal
1997,  and $387.7  million  in fiscal  1996,  reflecting  a growth of 12.1% from
fiscal  1997 to fiscal 1998 and 26.0% from  fiscal  1996 to fiscal  1997.  Using
constant exchange rates, the percentage increase from fiscal 1997 to fiscal 1998
was 16.6%,  and from fiscal 1996 to fiscal 1997 was 25.6%.  The AO  Acquisition,
with nine months of AO net sales, amounting to $64.4 million, included in fiscal
1997 net sales,  had a  significant  impact on the net sales  growth from fiscal
1996 to fiscal  1997.  Higher  priced  product  growth  has  contributed  to the
Company's net sales growth in fiscal 1997 and fiscal 1998,  led by the growth of
Spectralite(R),  plastic photochromic and polycarbonate products, offset in part
by price and volume erosion in net sales of lower priced products. Higher priced
products  accounted  for  approximately  66% of net lens  sales in  fiscal  1998
compared to 61% in fiscal 1997 and 57% in fiscal 1996.  Increased  marketing and
customer  service  efforts have also  contributed  to the growth in other higher
priced products.  Net sales increases by region from fiscal 1997 to 1998 were as
follows:  North  America  20.1%,  Europe 7.1% and Rest of World 1.3%.  Net sales
increases in major market areas from fiscal 1996 to 1997 were as follows:  North
America 22.7%, Europe 40.6% and Rest of World 15.9%. At constant exchange rates,
net sales  increases from fiscal 1997 to fiscal 1998 were:  North America 20.1%,
Europe 16.0% and Rest of World 6.8%, and from fiscal 1996 to fiscal 1997 were:
North America 22.9%, Europe 42.2% and Rest of World 12.1%.

Gross Profit and Gross Margin

     Gross profit  totaled  $258.1 million in fiscal 1998,  $231.4  million,  as
adjusted,  in fiscal 1997 and $185.7 million in fiscal 1996,  reflecting growths
of 11.5% from  fiscal  1997 to fiscal  1998 and 24.6% from fiscal 1996 to fiscal
1997. Gross profit as a percentage of net sales ("gross margin") in fiscal 1998,
fiscal  1997,  as  adjusted  and fiscal  1996,  were  47.1%,  47.3%,  and 47.9%,
respectively.  The gross margin has decreased in fiscal 1998 and fiscal 1997, as
AO  traditionally  operates  at lower gross  margins  than Sola on a stand alone
basis. In addition,  the Company continues to incur manufacturing start up costs
in its

                                       14

<PAGE>


new finished  polycarbonate  manufacturing  operation  acquired when the Company
purchased  Neolens,  Inc. in July 1996,  and ramp up costs  associated  with new
product  offerings,  such as Matrix, the Company's new  anti-reflective  coating
delivery system.  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. The
Company  continues  to  experience  price  competition,  which  can be severe in
certain markets, particularly for standard products.

Operating Expenses

     Operating  expenses totaled $165.4 million in fiscal 1998,  $157.3 million,
as  adjusted,  in fiscal  1997 and  $125.0  million  in fiscal  1996  reflecting
increases  of 5.1% from fiscal 1997 to fiscal 1998 and 25.9% from fiscal 1996 to
fiscal 1997.  Research and  development  expenses for fiscal 1998, 1997 and 1996
represent 3.3%, 3.6% and 3.4%, respectively, of annual net sales, reflecting the
Company's  continued  commitment  to research and  development  of new products,
materials and processes. Because research and development expenditure in AO as a
percentage  of net sales is lower than that of Sola on a stand alone basis,  the
current  lower 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 17.2%, 18.9% and 17.1% of net sales in fiscal 1998, 1997
and 1996,  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 1997 fiscal year  resulting in higher
sales and  marketing  expenses as a percentage of net sales in fiscal 1997. As a
percentage  of net sales,  general and  administrative  expenses in fiscal 1998,
fiscal 1997 and fiscal 1996 were 9.7%, 9.7% and 11.7%, respectively.  The higher
percentage  in fiscal 1996 compared to fiscal 1998 and fiscal 1997 was primarily
due to higher  performance  based  management  bonuses in fiscal 1996 and higher
provisions for doubtful accounts in South America and Asia.

Operating Income

     Operating  income for fiscal 1998  totaled  $92.7  million,  an increase of
$18.6 million over fiscal 1997 operating income, as adjusted,  of $74.1 million,
or 25.2%.  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%.

Net Interest Expense

     Net interest  expense totaled $16.8 million for fiscal 1998,  $15.9 million
for fiscal 1997 and $12.1 million for fiscal 1996.  Interest  expense was higher
in  fiscal  1998  than  fiscal  1997,  primarily  due to a full  year of  higher
indebtedness  to fund the  acquisitions  of AO and  Neolens  in June and July of
1996, offset in part by lower interest rates on the Company's  revolving line of
credit,  and the repurchase of its 9 5/8% senior  subordinated notes in December
1997.  Interest  expense  was higher in fiscal 1997 than fiscal 1996 also due to
the AO and Neolens  acquisitions,  offset by the lower  interest  rate under the
Company's  new bank credit  facility and the reduction of debt from the proceeds
of the equity  public  offering.  Simultaneously  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  33.4% for  fiscal  1998  compared  to 28.5% for fiscal  1997,  as
adjusted,  and 28.0% for fiscal 1996. The utilization of

                                       15

<PAGE>


United States  valuation  allowances,  arising in fiscal 1994,  were the primary
reasons  for the lower  income  tax rates in fiscal  1997 and fiscal  1996.  The
Company  has  deferred  tax  assets on its  balance  sheet as of March 31,  1998
amounting to  approximately  $16.0  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 1998 the  Company  repurchased  all of its  remaining 9 5/8%
Senior  Subordinated  Notes  due  2003,  and  during  fiscal  1996  the  Company
repurchased  approximately  $19.9  million  principal  amount at maturity of the
Senior  Subordinated  notes. As a result of the repurchases the Company recorded
extraordinary  charges of $5.9  million for fiscal  1998,  and $0.9  million for
fiscal 1996,  in each case  resulting  from the  write-off of  unamortized  debt
issuance costs and premium over accreted value,  net of tax. The 1998 repurchase
was funded by  borrowings  under the  Company's  credit  agreement  and the 1996
repurchase  was partly  funded by borrowings  under the  Company's  prior credit
agreement and partly from cash arising from the IPO.

Net Income

     Net income for fiscal 1998 totaled $45.2 million compared to $41.8 million,
as adjusted,  for fiscal 1997 and $33.6  million for fiscal  1996,  increases of
$3.4  million  and $8.2  million,  respectively.  The growth in net income  from
fiscal 1997, as adjusted, to fiscal 1998 was 8.1% and from fiscal 1996 to fiscal
1997,  as adjusted,  was 24.0%.  If the  extraordinary  items in fiscal 1998 and
fiscal 1996 are excluded,  the growth from fiscal 1997,  as adjusted,  to fiscal
1998,  and from fiscal 1996 to fiscal 1997,  as adjusted,  would have been 22.3%
and 20.7%, respectively.

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.

     Operating  activities  generated  $20.9  million  in  cash in  fiscal  1998
compared  with $32.4  million in fiscal 1997 and $30.8  million in fiscal  1996.
Significantly  improved  net  income  in  fiscal  1998 was more  than  offset by
increases in inventories and accounts receivable. During fiscal 1998 the Company
decided to take  advantage of prompt pay  discounts  offered by suppliers in the
United  States  resulting in accounts  payable not  increasing  in line with the
increases in the business. 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.

     During fiscal 1998  inventories  as a percentage of net sales grew to 31.0%
from 28.4% in the prior year.  The increase in inventories is primarily a result
of building inventories to support new product launches, growth in higher priced
products as a  percentage  of net sales and  therefore of  inventories,  and the
projected overall increase in the business.  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 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 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 22.0% in  fiscal  1998  compared  to  21.5% a year  ago.  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% for fiscal
1996.

     During  fiscal 1998 net cash expended on investing  activities  amounted to
$41.2  million,  primarily  being  capital  expenditures.  The most  significant
capital expenditures,  primarily on additional production capacity, were made in
the United States, Mexico, Brazil, China, Venezuela and Australia. During fiscal
1997 net cash expended on investing  activities  amounted to $154.8 million.  On
June 19, 1996, the

                                       16

<PAGE>


Company acquired  substantially all of the worldwide  ophthalmic business of AOC
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 then existing credit agreement,
which  borrowings  were  subsequently  repaid in part with the proceeds from the
equity public  offering  during July 1996. On July 2, 1996 the Company  acquired
Neolens,  Inc.  ("Neolens"),  a Florida  corporation 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 then existing credit agreement.  During fiscal 1997, the Company spent
approximately  $30.0  million on capital  expenditures  primarily  in the United
States,  Mexico,  China and Brazil. The capital expenditures 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 related  mainly to expansion of production  capacity to  accommodate
higher  volumes and the  introduction  of new  products.  During fiscal 1996 the
Company  increased  its  investment  in its  Venezuela  joint  venture,  Sola de
Venezuela  Industria  Optica,  C.A.  ("Sola  Venezuela"),  from 45% to 100%. The
purchase  price  amounted to  approximately  $3.6  million and was paid in cash.
Management  anticipates  capital  expenditures  of $40  million  to $45  million
annually over the next several years, of which approximately $5 million annually
is viewed as discretionary.

     Financing activities generated $32.3 million in fiscal 1998, primarily from
additional  borrowings under the Amended Agreement and exercise of stock options
by employees. In the third quarter of fiscal 1998 the Company repurchased all of
its remaining 9 5/8% Senior  Subordinated  Notes due 2003. The notes  repurchase
was funded by borrowings  under the Amended  Agreement.  In conjunction with the
repurchase of its Senior  Subordinated Notes the Company amended its 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  ("Amended
Agreement").   The  Amended  Agreement  increased  the  Company's  multicurrency
revolving  facility  from $180 million to $300 million.  Borrowings  are divided
into two tranches. Tranche A permits borrowings up to $30 million in either U.S.
dollars or foreign  currencies,  to be used for working capital and consummating
certain  permitted  acquisitions.  Tranche  B permits  borrowings  of up to $270
million and can be used for working capital purposes, refinancing the term loans
under the existing bank credit  agreement,  repurchasing  the  Company's  Senior
Subordinated Notes, and consummating certain permitted acquisitions. The Tranche
A Facility matures on October 31, 2000 and the Tranche B Facility matures on May
31, 2001.  Among other things the Amended  Agreement  changed certain  financial
covenants,  removed the requirement for foreign subsidiary  guarantees under the
Tranche  A  facility,   increased  the  basket  for  incurring  other  unsecured
indebtedness to $150 million, and deleted the term facility portion.

     Borrowings  under the Tranche A and  Tranche B revolvers  (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.  LIBO Rate Loans bear  interest  at a rate per
annum  equal to the sum of the LIBO  Rate and a margin  varying  from  0.450% to
0.750% based on the Company's  leverage ratio.  Fixed rate borrowings in foreign
currencies  bear interest at rates per annum equal to the referenced  currency's
local IBOR plus a margin  varying from 0.450% to 0.750%  based on the  Company's
leverage  ratio.  Local  currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.

     During the fourth  quarter of fiscal 1998 the Company  issued 6 7/8% Senior
Notes  ("Notes") due 2008, for which the Company  received  approximately  $98.5
million net proceeds,  after discounts and issuance expenses.  Net proceeds were
used to pay down borrowings under the Amended Agreement. The Notes are unsecured
senior obligations of the Company,  limited to $100 million aggregate  principal
amount  at  maturity,  and will  mature  on March 15,  2008.  The Notes  will be
redeemable,  as a whole  or from  time to time in  part,  at the  option  of the
Company  on any date at a  redemption  price  equal to the  aggregate  principal
amount plus a make whole premium.

                                       17

<PAGE>


     Financing  activities  generated $125.3 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.  The net  proceeds  from  this  offer,  were
approximately  $62.8  million.  The  Company  used  such net  proceeds  to repay
indebtedness  which it incurred  under its then existing bank credit  agreement.
Simultaneously 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.

     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's  foreign  subsidiaries  maintain  local credit  facilities to
provide credit for overdraft,  working  capital and some fixed asset  investment
purposes.  As of March 31, 1998, the Company's total credit available under such
facilities  was  approximately  $29.9  million,  of which $10.1 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
Amended  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, 1998, 1997 and 1996
such translation adjustments were approximately $(10.0) million, $(3.8) million,
$(1.6) 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, 1998.
As of March 31, 1998 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.

                                       18

<PAGE>


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 lines.  The
Company  seeks to  mitigate  the  adverse  effects  of  inflation  through  cost
containment and  productivity  and  manufacturing  process  improvements.  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.

Year 2000

     The  Company  has  developed  preliminary  plans to  address  the  possible
exposures  related to the impact on its computer  systems of the Year 2000.  Key
financial, information and operational systems have been assessed and plans have
been developed to address systems  modifications  required by December 31, 1999.
Based on work to date,  and  assuming  that  project  plans,  which  continue to
evolve, can be implemented as planned,  management believes the financial impact
of making the required  systems  changes  will not be material to the  Company's
consolidated financial position, results of operations or cash flows.

     The Company is also in the  preliminary  stages of  assessing  the possible
effects on the Company's  operations of the Year 2000 readiness of key suppliers
and customers.  The Company's  reliance on suppliers and customers and therefore
on the proper functioning of their information systems and software,  means that
failure  to  address  Year  2000  issues  could  have a  material  impact on the
Company's  operations and financial results;  however,  the potential impact and
related costs are not known at this time.

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 (v) future  income tax rates and capital  expenditures  and
working capital  requirements and (vi) statements  regarding the adequacy of the
Company's planning for the Year 2000 computer  programming issues. 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,  1998 and the factors
described in "Business--Environmental Matters."

                                       19

<PAGE>


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

Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
     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..............................     81     Chairman of the Board
Douglas D. Danforth............................     75     Director
Hamish Maxwell.................................     71     Director
Maurice J. Cunniffe............................     65     Director
Jackson L. Schultz.............................     72     Director
A. William Hamill..............................     50     Director
John E. Heine..................................     54     President and Chief Executive Officer,
                                                              Director
James H. Cox...................................     49     Executive Vice President, Assistant
                                                              Secretary and Assistant Treasurer;
                                                              President, Sola Optical USA
Steven M. Neil.................................     45     Executive Vice President, Finance, Chief
                                                              Financial Officer, Secretary and Treasurer
Stephen J. Lee.................................     45     Vice President, Human Resources
Barry J. Packham...............................     51     Vice President, Manufacturing
                                                              Development
John J. Bastian................................     46     Vice President, Regional Director, Australia
Theodore Gioia.................................     40     Vice President, Strategic Planning
Adrian Walker..................................     45     Vice President, Regional Director, Asia
Mark T. Mackenzie..............................     48     Vice President, Regional Director, Europe
Alan S. Vaughan................................     54     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  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 Daltile Inc.

     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
Chairman of WPP Group plc.

                                       21

<PAGE>


     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.

     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.

     Steven M. Neil was  appointed  Executive  Vice  President,  Finance,  Chief
Financial  Officer,  Secretary and  Treasurer in October 1997.  Prior to joining
Sola, Mr. Neil was Vice President-Finance, Treasurer and Chief Financial Officer
of Perrigo  Company from May 1995 to September 1997. He also served as President
of  Perrigo  International,  Inc.  from  July  1996.  Mr.  Neil  served  as Vice
President-Controller  of Perrigo Company from January 1993 to May 1995. Prior to
that time he served as  Controller  and Chief  Accounting  Officer  with Applied
Magnetics  Corporation,  where he also served in other  positions of  increasing
responsibility  since  1983.  He is a  member  of  the  Board  of  Directors  of
Intelligent Solutions, Inc.

     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.

     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.

                                       22

<PAGE>


     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).

Item 11.      EXECUTIVE COMPENSATION

     Incorporated  by  reference  to the  material  included  under the  caption
"Compensation  of Executive  Officers" in the Company's  proxy statement for the
fiscal year ended March 31, 1998.

Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT

     Incorporated  by  reference  to the  material  included  under the  caption
"Security  Ownership of Certain Beneficial Owners and Managers" in the Company's
proxy statement for the fiscal year ended March 31, 1998.

Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated  by  reference  to the  material  included  under the  caption
"Certain  Transactions"  in the  Company's  proxy  statement for the fiscal year
ended March 31, 1998.

                                       23

<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.

              Schedules  other than those listed  above have been omitted  since
              they are either not required, not applicable or the information is
              otherwise included.

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

(b)  Reports on Form 8-K:

     The Company filed a report on Form 8-K,  dated  February 17, 1998 to report
     the  Company's  adoption  of FAS 128,  Earnings  per Share,  for its fiscal
     quarter ended December 31, 1997, and restating  certain  earnings per share
     information  previously  presented in the Company's Securities Exchange Act
     filings.

                                       24

<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 15th, 1998                         By: /s/Steven M. Neil
                                              ------------------
                                              Steven M. Neil
                                              Executive Vice President, Finance,
                                              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
--------------------
Irving S. Shapiro                     Chairman of the Board                                      June 15th, 1998

/s/John E. Heine
----------------
John E. Heine                         President and Chief Executive Officer,                     June 15th, 1998
                                      Director (Principal Executive Officer)

/s/Steven M. Neil
-----------------
Steven M. Neil                        Executive Vice President, Finance, Chief                   June 15th, 1998
                                      Financial Officer, Secretary and Treasurer
                                      (Principal Financial and Accounting Officer)

/s/Douglas D. Danforth
----------------------
Douglas D. Danforth                   Director                                                   June 15th, 1998

/s/Hamish Maxwell
-----------------
Hamish Maxwell                        Director                                                   June 15th, 1998

/s/Maurice J. Cunniffe
----------------------
Maurice J. Cunniffe                   Director                                                   June 15th, 1998

/s/A. William Hamill
--------------------
A. William Hamill                     Director                                                   June 15th, 1998

/s/Jackson L. Schultz
---------------------
Jackson L. Schultz                    Director                                                   June 15th, 1998
</TABLE>

                                                       25

<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, 1998 and 1997............... F-3
   Consolidated Statements of Income for the years ended March 31, 1998,
     1997 and 1996......................................................... F-4
   Consolidated Statements of Shareholders' Equity for the years ended 
     March 31, 1998, 1997 and 1996......................................... F-5
   Consolidated  Statements  of Cash Flows for the years ended   
     March 31,  1998, 1997 and 1996........................................ F-6
   Notes to Consolidated Financial Statements.............................. F-7
   Quarterly Financial Data (unaudited).................................... F-28
   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, 1998 and 1997, and the related  consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 31, 1998. 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, 1998 and 1997,  and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended March 31, 1998, 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, 1998

                                      F-2

<PAGE>


<TABLE>
                                                       SOLA INTERNATIONAL INC.

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

<CAPTION>
                                                                                                               March 31,
                                                                                                     ------------------------------
                                        ASSETS                                                          1998                 1997
                                                                                                     ---------            ---------
<S>                                                                                                  <C>                  <C>      
Current assets:
   Cash and cash equivalents .............................................................           $  34,444            $  24,401
   Trade accounts receivable, less allowance for doubtful accounts of
     $4,956 and $4,030 at March 31, 1998 and 1997, respectively ..........................             120,590              104,960
   Inventories ...........................................................................             169,756              138,634
   Other current assets ..................................................................              16,798               14,225
                                                                                                     ---------            ---------
     Total current assets ................................................................             341,588              282,220
Property, plant and equipment, at cost, less accumulated depreciation
     and amortization ....................................................................             132,778              110,477
Goodwill and other intangibles, net ......................................................             198,341              200,734
Other long-term assets ...................................................................              11,351               12,077
                                                                                                     ---------            ---------
     Total assets ........................................................................           $ 684,058            $ 605,508
                                                                                                     =========            =========

                           LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Current liabilities:
   Notes payable to banks and current portion of .........................................           $  12,600            $  19,413
   Accounts payable ......................................................................              60,254               56,747
   Accrued liabilities ...................................................................              35,462               29,557
   Accrued payroll and related compensation ..............................................              30,758               25,836
   Other current liabilities .............................................................               2,536               10,862
                                                                                                     ---------            ---------
     Total current liabilities ...........................................................             141,610              142,415
Long-term debt, less current portion .....................................................               1,790                3,555
Bank debt, less current portion ..........................................................              95,000               67,938
Senior notes .............................................................................              99,596                 --
Senior subordinated notes ................................................................                --                 91,304
Other long-term liabilities ..............................................................              19,040               15,998
                                                                                                     ---------            ---------
     Total liabilities ...................................................................             357,036              321,210
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; 24,723 shares
     (24,263 shares as of March 31, 1997) issued and outstanding .........................                 247                  243
Additional paid-in capital ...............................................................             278,688              271,167
Equity participation loans ...............................................................                (230)                (270)
Retained earnings ........................................................................              58,057               12,904
Cumulative foreign currency adjustments ..................................................              (9,740)                 254
                                                                                                     ---------            ---------
     Total shareholders' equity ..........................................................             327,022              284,298
     Total liabilities and shareholders' equity ..........................................           $ 684,058            $ 605,508
                                                                                                     =========            =========

<FN>
                              The accompanying notes are 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 March 31,
                                                                                    -----------------------------------------------
                                                                                      1998               1997               1996
                                                                                    ---------          ---------          ---------
<S>                                                                                 <C>                <C>                <C>      
Net sales .................................................................         $ 547,735          $ 488,689          $ 387,709
Cost of sales .............................................................           289,677            264,535            201,991
                                                                                    ---------          ---------          ---------
   Gross profit ...........................................................           258,058            224,154            185,718
                                                                                    ---------          ---------          ---------
Research and development expenses .........................................            18,303             17,539             13,329
Selling and marketing expenses ............................................            93,993             92,387             66,345
General and administrative expenses .......................................            53,056             47,381             45,291
In-process research and development
   expense ................................................................              --                9,500               --
                                                                                    ---------          ---------          ---------
   Operating expenses .....................................................           165,352            166,807            124,965
                                                                                    ---------          ---------          ---------
     Operating income .....................................................            92,706             57,347             60,753
Interest income ...........................................................               664                640                544
Interest expense ..........................................................           (17,418)           (16,601)           (12,685)
                                                                                    ---------          ---------          ---------
   Income before provision for income taxes,
     minority interest and extraordinary item .............................            75,952             41,386             48,612
Provision for income taxes ................................................           (25,369)           (10,737)           (13,623)
Minority interest .........................................................               509                248               (401)
                                                                                    ---------          ---------          ---------
   Income before extraordinary item .......................................            51,092             30,897             34,588
Extraordinary item, loss on repurchase of
   senior subordinated notes, net of tax ..................................            (5,939)              --                 (912)
                                                                                    ---------          ---------          ---------
Net income ................................................................         $  45,153          $  30,897          $  33,676
                                                                                    =========          =========          =========

Earnings (loss) per share - basic:
     Income before extraordinary item .....................................         $    2.09          $    1.31          $    1.59
     Extraordinary item ...................................................             (0.24)              --                (0.04)
                                                                                    ---------          ---------          ---------
     Net income ...........................................................         $    1.85          $    1.31          $    1.55
                                                                                    =========          =========          =========

Weighted average common shares
  outstanding .............................................................            24,400             23,561             21,785
                                                                                    =========          =========          =========

Earnings (loss) per share - diluted:
     Income before extraordinary item .....................................         $    2.00          $    1.24          $    1.51
     Extraordinary item ...................................................             (0.23)              --                (0.04)
                                                                                    ---------          ---------          ---------
     Net income ...........................................................         $    1.77          $    1.24          $    1.47
                                                                                    =========          =========          =========
Weighted average common and dilutivesecurities outstanding ................            25,547             24,859             22,944
                                                                                    =========          =========          =========

<FN>
                              The accompanying notes are 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>
                                                                                                                          Retained
                                                                                            Additional       Equity       Earnings/
                                                                      Common Stock            Paid-in     Participation (Accumulated
                                                                 Shares         Value         Capital        Loans         Deficit)
                                                                --------       --------       --------      --------       --------
<S>                                                               <C>          <C>            <C>           <C>            <C>      
Balances, March 31, 1995 .................................        21,780       $    218       $206,353      $ (1,095)      $(51,669)
17 shares of $0.01 par value common stock
  issued under stock option plans ........................            17                            59
Repayment of Equity participation loans ..................                                                       674
Cumulative translation adjustments
Net income ...............................................                                                                   33,676
                                                                --------       --------       --------      --------       --------
Balances, March 31, 1996 .................................        21,797            218        206,412          (421)       (17,993)

Public Offering of 2.320 shares of $0.01 par
  value common stock, net of offering expenses ...........         2,320             23         62,742
146 shares of $0.01 par value common stock
  issued under stock option plans ........................           146              2          1,747
Tax benefit from exercise of stock options ...............                                         266
Repayment of Equity participation loans ..................                                                       151
Cumulative translation adjustments
Net income ...............................................                                                                   30,897
                                                                --------       --------       --------      --------       --------
Balances, March 31, 1997 .................................        24,263            243        271,167          (270)        12,904

460 shares of $0.01 par value common stock
  issued under stock option plans ........................           460              4          5,330
Tax benefit from exercise of stock options ...............                                       2,191
Repayment of Equity participation loans ..................                                                        40
Cumulative translation adjustments .......................
Net income ...............................................                                                                   45,153
                                                                --------       --------       --------      --------       --------
Balances, March 31, 1998 .................................        24,723       $    247       $278,688      $   (230)      $ 58,057
                                                                ========       ========       ========      ========       ========
</TABLE>


                                                      Cumulative
                                                       Foreign
                                                       Currency       Total
                                                      Translation  Shareholders'
                                                      Adjustments     Equity
                                                       ---------     ---------
Balances, March 31, 1995 ..........................    $   5,636     $ 159,443
17 shares of $0.01 par value common stock
  issued under stock option plans .................                         59
Repayment of Equity participation loans ...........                        674
Cumulative translation adjustments ................       (1,611)       (1,611)
Net income ........................................                     33,676
                                                       ---------     ---------
Balances, March 31, 1996 ..........................        4,025       192,241

Public Offering of 2.320 shares of $0.01 par
  value common stock, net of offering expenses ....                     62,765
146 shares of $0.01 par value common stock
  issued under stock option plans .................                      1,749
Tax benefit from exercise of stock options ........                        266
Repayment of Equity participation loans ...........                        151
Cumulative translation adjustments ................       (3,771)       (3,771)
Net income ........................................                     30,897
                                                       ---------     ---------
Balances, March 31, 1997 ..........................          254       284,298

460 shares of $0.01 par value common stock
  issued under stock option plans .................                      5,334
Tax benefit from exercise of stock options ........                      2,191
Repayment of Equity participation loans ...........                         40
Cumulative translation adjustments ................       (9,994)       (9,994)
Net income ........................................                     45,153
                                                       ---------     ---------
Balances, March 31, 1998 ..........................    $  (9,740)    $ 327,022
                                                        =========     =========

     The accompanying notes are integral part of these financial statements.

                                      F-5

<PAGE>


<TABLE>
                                                       SOLA INTERNATIONAL INC.

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)

<CAPTION>
                                                                                             Year Ended March 31,
                                                                                  -------------------------------------------------
                                                                                    1998                1997               1996
                                                                                  ---------           ---------           ---------
<S>                                                                               <C>                 <C>                 <C>      
Cash flows from operating activities:
Net income .............................................................          $  45,153           $  30,897           $  33,676
Adjustments to reconcile net income to net cash
   provided by operating activities:
Depreciation and amortization ..........................................             22,140              21,595              17,247
Inventory write-up .....................................................               --                 7,216                --
In-process research and development ....................................               --                 9,500                --
Provision for excess and obsolete inventory ............................              1,833               1,593               1,090
Provision for doubtful accounts ........................................              1,337               1,258               2,846
Increase (decrease) in net deferred taxes ..............................              7,750              (3,644)              1,657
(Gain) on disposal/sale of property, plant and
   equipment ...........................................................                (82)               (272)                (73)
Changes in assets and liabilities:
   Trade accounts receivable ...........................................            (21,242)            (19,513)            (10,883)
   Inventories .........................................................            (38,231)            (24,464)            (16,222)
   Prepaids and other assets ...........................................             (6,022)               (725)                521
   Accounts payable--trade .............................................              2,710               6,258              10,010
   Accrued and other current liabilities ...............................              3,652               1,803              (9,750)
   Tax benefit from exercise of stock options ..........................              2,191                 266                --
   Other long-term liabilities .........................................               (335)                650                 643
                                                                                  ---------           ---------           ---------
     Net cash provided by operating activities .........................             20,854              32,418              30,762
                                                                                  ---------           ---------           ---------
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
   equivalents of $12 ..................................................               --               (16,848)               --
Additional investment in Venezuela subsidiary ..........................               --                  --                (3,561)
Capital expenditures ...................................................            (39,497)            (29,951)            (17,580)
Payments received on notes receivable from
   Pilkington and affiliates ...........................................               --                  --                 1,585
Other investing activities .............................................             (1,730)                636                 585
                                                                                  ---------           ---------           ---------
     Net cash used in investing activities .............................            (41,227)           (154,757)            (18,971)
                                                                                  ---------           ---------           ---------
Cash flows from financing activities:
Sale of common stock ...................................................               --                62,765                --
Payments on equity participation loans/exercise
   of stock options ....................................................              5,374               1,900                 733
Net receipts (payments) under notes payable to
   banks ...............................................................              2,731              (4,789)              6,785
Borrowings on long-term debt ...........................................               --                 4,081               1,297
Payments on long-term debt .............................................             (4,628)             (5,278)             (1,735)
Net receipts under bank debt ...........................................             22,374              66,626               6,000
Issuance of senior notes ...............................................             99,596                --                  --
Repurchase of senior subordinated notes ................................            (93,152)               --               (17,766)
                                                                                  ---------           ---------           ---------
     Net cash provided by (used in) financing activities ...............             32,295             125,305              (4,686)
                                                                                  ---------           ---------           ---------
Effect of exchange rate changes on cash and cash
   equivalents .........................................................             (1,879)               (959)               (859)
                                                                                  ---------           ---------           ---------
Net increase in cash and cash equivalents ..............................             10,043               2,007               6,246
Cash and cash equivalents at beginning of period .......................             24,401              22,394              16,148
                                                                                  ---------           ---------           ---------
Cash and cash equivalents at end of period .............................          $  34,444           $  24,401           $  22,394
                                                                                  =========           =========           =========

<FN>
                              The accompanying notes are 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") designs, manufactures and distributes a
broad range of eyeglass lenses,  primarily  focusing on the fast growing plastic
lens segment of the global market. The Company operates in one business segment.

     In June 1996,  the  Company  acquired  substantially  all of the  worldwide
ophthalmic   business   ("AO")  of  American   Optical   Corporation   for  cash
consideration  of  $103.6  million  (together  with the  assumption  of  certain
liabilities) (the "AO Acquisition").  The AO Acquisition was 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 ($9.5
million) 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.

     In July 1996 the Company acquired control of Neolens, Inc.  ("Neolens"),  a
Florida  corporation that manufactured  polycarbonate  eyeglass lenses and was 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")  and was  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.

     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%, and 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.  In  addition  to the cash
purchase  price of the final 20% of Sola  Venezuela,  Sola will 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,  and such payment is not
anticipated to be significant.  The acquisition has been accounted for under the
purchase method of accounting.

     The accompanying consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting  principles.  The
Company's fiscal 1997 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.

                                      F-7

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


2.   Summary of Significant Accounting Policies - (Continued)

     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 value.

     Inventories:

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

     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 June 1997, the FASB released Statement of Financial Accounting Standards
No. 130,  "Reporting  Comprehensive  Income"  ("FAS 130").  FAS 130  establishes
standards  for  the  reporting  and  display  of  comprehensive  income  and its
components  in a  full  set  of  general  purpose  financial  statements  and is
effective for fiscal years  beginning  after  December 15, 1997.  The Company is
currently  evaluating  the  impact  of the  application  of the new rules on the
Company's consolidated financial statements.

     In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131,  "Disclosures about Segments of an Enterprise and Related  Information"
("FAS  131").  FAS 131 will change the way  companies  report  selected  segment
information in annual financial  statements and also requires those companies to
report   selected   segment   information  in  interim   financial   reports  to
shareholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. The Company is currently  evaluating the impact of the  application of the
new rules on the Company's consolidated financial statements.

     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 successfully  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, 1998
and  1997  accumulated   amortization  was  $17.9  million  and  $12.4  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, 1998 and 1997,  accumulated  amortization was $0.4 million and $1.5
million,  respectively.  As a result of repurchasing the Company's 9 5/8% Senior
Subordinated  Notes in fiscal 1998 and 1996 (see Note 8), the Company  wrote off
$1.5 million and $0.4 million, respectively, of debt issuance costs reflected on
the statement of income,  together with the premium over accreted  value,  as an
extraordinary item, net of tax.

                                      F-8

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


2.   Summary of Significant Accounting Policies - (Continued)

     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.

     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.

     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  $12.3 million,  $12.5 million,  and $9.4 million for fiscal 1998,
1997, 1996, 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 have been reclassified to conform with the current
year's presentation.  These  reclassifications  had no impact on total assets or
net income.

     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.

                                      F-9

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


2.   Summary of Significant Accounting Policies - (Continued)

     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.

     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 or financing activities in the accompanying consolidated statements
of  cash  flows.  As of  March  31,  1998,  certain  of  the  Company's  foreign
subsidiaries  had entered  into  forward  contracts  for  intercompany  purchase
commitments,  which are not  significant,  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:

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 128,  "Earnings per Share" ("FAS 128"). FAS
128 replaced the  previously  reported  primary and fully  diluted  earnings per
share with basic and diluted  earnings per share.  Unlike  primary  earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously  reported fully diluted  earnings per share.  All earnings per
share amounts for all included periods have been presented, and where necessary,
restated to conform to the FAS 128 requirements.

                                      F-10

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


2.   Summary of Significant Accounting Policies - (Continued)

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share for the fiscal years ended March 31, 1998,  1997 and 1996 (in
thousands, except per share data):


                                                      Year Ended March 31,
                                                -------------------------------
                                                  1998        1997       1996
                                                --------    --------   --------
Numerator:
Income before extraordinary item ............   $ 51,092    $ 30,897   $ 34,588
Extraordinary item, loss on repurchase of
  senior subordinated notes, net of tax .....     (5,939)       --         (912)
                                                --------    --------   --------
   Net income ...............................   $ 45,153    $ 30,897   $ 33,676
                                                ========    ========   ========
Denominator:
  Denominator for basic earnings per
     share-
  Weighted average common shares
     outstanding.............................     24,400      23,561     21,785

  Effect of dilutive securities:
     Employee stock options..................      1,147       1,298      1,159
  Denominator for diluted earnings per
     share-
                                                --------    --------   --------
  Weighted average common shares and
     dilutive securities outstanding.........     25,547      24,859     22,944
                                                ========    ========   ========
Basic earnings (loss) per share:
Income before extraordinary item.............   $   2.09    $   1.31   $   1.59
Extraordinary item...........................      (0.24)       --        (0.04)
                                                --------    --------   --------
  Net income................................    $   1.85    $   1.31   $   1.55
                                                ========    ========   ========
Diluted earnings (loss) per share:
Income before extraordinary item.............   $   2.00    $   1.24   $   1.51
Extraordinary item...........................      (0.23)       --        (0.04)
                                                --------    --------   --------
  Net income................................    $   1.77    $   1.24   $   1.47
                                                ========    ========   ========

                                      F-11

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


3.   Inventories


                                                             March 31,
                                                    ----------------------------
                                                      1998                1997
                                                    --------            --------
                                                           (in thousands)

Raw materials ..........................            $ 16,714            $ 17,505
Work in progress .......................               6,872               6,948
Finished goods .........................             104,966              76,936
Molds ..................................              41,204              37,245
                                                    --------            --------
                                                    $169,756            $138,634
                                                    ========            ========


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

4.   Property, Plant and Equipment


                                                                   March 31,
                                                           ---------------------
                                                             1998         1997
                                                           --------     --------
                                                               (in thousands)

Land, buildings and leasehold improvements ...........     $ 40,467     $ 29,749
Machinery and office equipment .......................      136,218      115,943
Equipment under capital leases .......................          593          259
                                                           --------     --------
                                                            177,278      145,951
Less accumulated depreciation and amortization .......       44,500       35,474
                                                           --------     --------
                                                           $132,778     $110,477
                                                           ========     ========


     Depreciation  expense  for fiscal  1998,  1997 and 1996 was $14.3  million,
$13.3 million and $11.1 million, respectively.

5.   Notes Payable to Banks

     Notes  payable to banks at March 31, 1998  represent  borrowings  generally
denominated in foreign  currencies under several foreign credit  agreements with
lenders at interest  rates ranging from 1.63% to 8.63%,  and 24.0% for Brazilian
Real based  borrowings.  The Brazilian  Real based  borrowings  were $351,000 at
March 31, 1998.  The weighted  average  interest  rates as of March 31, 1998 and
1997 were 8.06% and 8.68%,  respectively.  As of March 31, 1998, the Company had
total unused lines of credit  amounting to $19.8  million and was in  compliance
with minimum net worth requirements of agreements with certain foreign banks.

                                      F-12

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


6.   Long-Term Debt

                                                                   March 31,
                                                                   ---------
                                                                      1998
                                                                      ----
                                                                  (in thousands)

Uncollateralized  term loans,  interest  rates  varying
   from 4.75% to 10.0% at March 31, 1998, principal and
   interest payable through December 2008 ......................... $ 3,939

Loans  collateralized  by equipment  and other  assets,
   interest  rates varying from 3.92% to 7.85% at March
   31, 1998,  principal  and interest  payable  through
   March 2001 .....................................................     246

   Other...........................................................     110
                                                                    -------
                                                                      4,295
   Less current portion (included in other current liabilities)....   2,505
                                                                    -------
   Long-term debt, less current portion............................ $ 1,790
                                                                    =======


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

    Period Ending March 31,                                       (in thousands)
    -----------------------
    1999.........................................................     $2,505
    2000.........................................................        678
    2001.........................................................        262
    2002.........................................................        191
    2003.........................................................        182
    Thereafter...................................................        477

     The  Company  believes  that as of March 31,  1998,  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

     In conjunction  with the repurchase of its Senior  Subordinated  Notes (see
Note 8) the Company  amended its 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  ("Amended  Agreement").  The Amended Agreement
increased the Company's  multicurrency  revolving  facility from $180 million to
$300  million.  Borrowings  are  divided  into two  tranches.  Tranche A permits
borrowings up to $30 million in either U.S. dollars or foreign currencies, to be
used for  working  capital  and  consummating  certain  permitted  acquisitions.
Tranche B permits  borrowings  of up to $270 million and can be used for working
capital  purposes,  refinancing  the term loans under the  existing  bank credit
agreement,  repurchasing the Company's Senior  Subordinated  Notes,  outstanding
letters of credit ($2.5 million as of March 31, 1998) and  consummating  certain
permitted  acquisitions.  The Tranche A Facility matures on October 31, 2000 and
the  Tranche B Facility  matures  on May 31,  2001.  In  addition,  the  Amended
Agreement  changed  certain  financial  covenants,  removed the  requirement for
foreign subsidiary guarantees under the

                                      F-13

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


7.    Bank Credit Agreement - (Continued)

Tranche  A  facility,   increased  the  basket  for  incurring  other  unsecured
indebtedness to $150 million, and deleted the term facility portion.

     Borrowings  under the Tranche A and  Tranche B revolvers  (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.  LIBO Rate Loans bear  interest  at a rate per
annum  equal to the sum of the LIBO  Rate and a margin  varying  from  0.450% to
0.750% based on the Company's  leverage ratio.  Fixed rate borrowings in foreign
currencies  bear interest at rates per annum equal to the referenced  currency's
local IBOR plus a margin  varying from 0.450% to 0.750%  based on the  Company's
leverage  ratio.  Local  currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.

     The Amended  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.  The Amended  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  and (ii)
purchasing,  redeeming  or retiring  shares of the  Company's  capital  stock in
excess of prescribed  levels. The Company and its subsidiaries are also required
to comply with certain financial tests and maintain certain financial ratios.

8.   Senior Subordinated Notes

     The Company's 6 7/8% Senior Notes  ("Notes") were issued under an indenture
dated March 19, 1998,  among the Company and State Street Bank and Trust Company
of  California,  N.A.,  as Trustee (the  "Indenture").  The Notes are  unsecured
senior obligations of the Company,  limited to $100 million aggregate  principal
amount at maturity,  and will mature on March 15, 2008. Interest on the notes is
payable  semiannually  on March 15 and  September  15 of each  year,  commencing
September 15, 1998.

     The Notes will be  redeemable,  as a whole or from time to time in part, at
the option of the  Company  on any date (a  "Redemption  Date") at a  redemption
price equal to the greater of (i) 100% of the  principal  amount of the Notes to
be  redeemed or (ii) the sum of the present  values of the  Remaining  Scheduled
Payments (as defined) thereon discounted to such Redemption Date on a semiannual
basis at the Treasury  Rate (as defined)  plus 20 basis  points,  plus in either
case accrued interest (as defined).

     The Notes rank pari passu to all other Senior  Indebtedness,  as defined in
the Indenture,  of the Company.  The Company believes that as of March 31, 1998,
the fair value of its Senior  Subordinated Notes approximates the carrying value
of those obligations.

     During  fiscal  1998  the  Company  repurchased  all of  its 9 5/8%  Senior
Subordinated Notes due 2003. As a result of the purchase the Company recorded an
extraordinary  charge  of $5.9  million  for  fiscal  1998  resulting  from  the
write-off of unamortized  debt issuance  costs and premium over accreted  value,
net of tax of $3.8 million.  The repurchase  was funded by borrowings  under the
Amended Agreement.

                                      F-14

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


9.   Common Stock

Common Stock

     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, 1998 and 1997,  loans  amounting to $0.2 million and $0.3  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 sheets.

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"  ("FAS  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 (the
"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  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").

     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").

                                      F-15

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


9. Common Stock - (Continued)

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 FAS 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 rates of 5.67%, 6.67% and 6.67%, no dividend yield,  volatility factors
of the expected  market price of the  Company's  common stock of .373,  .389 and
 .389, and a weighted-average  expected life of the option of 4 years, for fiscal
1998, 1997 and 1996, respectively.

     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):


                                                       Year Ended March 31,
                                               ---------------------------------
                                                1998         1997         1996
                                               -------      -------      -------
Pro forma net income ....................      $44,157      $30,312      $33,603
Pro forma earnings per share:
  Basic...........................             $  1.81      $  1.29      $  1.54
  Diluted.........................             $  1.73      $  1.22      $  1.46


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

                                      F-16

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


9.   Common Stock - (Continued)

Option Activity

<TABLE>
     A summary of the Company's stock option activity,  and related  information
for fiscal 1996, 1997 and 1998 follows:

<CAPTION>
                                                                                       Number of Securities        Weighted-
                                                                                        Underlying Options          Average
                                                                                           (in thousands)        Exercise Price
                                                                                           --------------        --------------
<S>                                                                                             <C>                <C>      
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 granted during fiscal 1998 .................................................            413                  33.08
  Options exercised in fiscal 1998 ...................................................           (460)                 11.53
  Options cancelled in fiscal 1998 ...................................................           (153)                 34.44

Options outstanding as of March 31, 1998 .............................................          2,229                  18.20

Options exercisable as of March 31, 1998 .............................................          1,568                  14.14

Weighted - average fair value of options granted during fiscal year:
  1998 ...............................................................................      $   12.46
  1997 ...............................................................................      $   13.65
</TABLE>

     Options  exercisable  as of March 31, 1996 and March 31, 1997 in  thousands
were 1,119 and 1,486, respectively.  Options available for grant as of March 31,
1996, 1997 and 1998 in thousands were 257, 409 and 149,  respectively.  Exercise
prices for options granted during fiscal 1998 ranged from $29.81 to $41.44.  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 $1.2 million,  $1.0 million and
$0.9 million for fiscal 1998, 1997 and 1996, respectively.

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

                                      F-17

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


11. Defined Benefit Retirement Plans - (Continued)

employee  compensation  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 employee  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.

<TABLE>
     Net periodic pension cost includes the following:

<CAPTION>
                                                                                            Year Ended March 31,
                                                                                   -------------------------------------------
                                                                                    1998              1997              1996
                                                                                   -------           -------           -------
                                                                                                 (in thousands)
     Domestic Pension Plan:
<S>                                                                                <C>               <C>               <C>    
     Service cost-benefits earned during the period .....................          $ 1,862           $ 1,662           $ 1,370
     Interest cost on projected benefit obligation ......................              810               702               509
     Actual return on plan assets .......................................           (2,381)             (400)             (180)
     Net amortization and deferral ......................................            1,805                83                25
                                                                                   -------           -------           -------
     Total net periodic pension cost ....................................          $ 2,096           $ 2,047           $ 1,724
                                                                                   =======           =======           =======
     International Pension Plan:
     Service cost-benefits earned during the period .....................          $ 1,433           $ 1,843           $ 1,539
     Interest cost on projected benefit obligation ......................              650               731               684
     Actual return on plan assets .......................................           (1,860)           (1,344)           (1,454)
     Net amortization and deferral ......................................              905               308               583
                                                                                   -------           -------           -------
     Total net periodic pension cost ....................................          $ 1,128           $ 1,538           $ 1,352
                                                                                   =======           =======           =======
</TABLE>

                                                                F-18

<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,
                                                             ------------------
                                                             1998    1997  1996
                                                             ----    ----  ----
     Domestic Pension Plan:
       Discount rate ..................................      6.35%   7.35%  7.0%
       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 ..................................      6.5%    7.5%   8.0%
       Expected long-term rate of return on plan assets      7.5%    8.0%   8.5%
       Rate of increase in future compensation
         levels .......................................      4.0%    5.0%   5.5%


     The change in the actuarial assumptions for fiscal 1998, 1997 and 1996 have
not  had  a  significant  effect  on  the  funded  status  of  the  Domestic  or
International Pension Plans.

     At March 31, 1998, the Domestic Pension Plan and International Pension Plan
assets include cash equivalents, fixed income securities and common stock.

                                      F-19

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


11.  Defined Benefit Retirement Plans - (Continued)

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

<CAPTION>
                                                                                             Year Ended March 31,
                                                                                    ------------------------------------------
                                                                                      1998             1997             1996
                                                                                    --------         --------         --------
                                                                                                 (in thousands)
<S>                                                                                 <C>              <C>              <C>     
       Domestic Pension Plan:
       Actuarial present value of benefit obligations:
         Vested benefit obligation .........................................        $  7,556         $  4,294         $  2,776
                                                                                    ========         ========         ========
         Accumulated benefit obligation ....................................        $  8,012         $  4,652         $  3,091
                                                                                    ========         ========         ========
         Projected benefit obligation ......................................        $ 16,884         $ 11,301         $  9,603
         Plan assets at fair value .........................................          10,441            6,021            3,733
                                                                                    --------         --------         --------
         Projected benefit obligation in excess of plan assets .............           6,443            5,280            5,870
         Unrecognized net loss .............................................          (1,754)            (498)          (1,179)
         Unrecognized prior service cost ...................................            --               --               --
         Unrecognized transition asset, net ................................            --               --               --
                                                                                    --------         --------         --------
         Accrued pension cost ..............................................        $  4,689         $  4,782         $  4,691
                                                                                    ========         ========         ========
     International Pension Plan:
       Actuarial present value of benefit obligations:
         Vested benefit obligation .........................................        $ 10,591         $ 11,295         $ 10,480
                                                                                    ========         ========         ========
         Accumulated benefit obligation ....................................        $ 10,625         $ 11,297         $ 10,486
                                                                                    ========         ========         ========
         Projected benefit obligation ......................................        $ 10,810         $ 11,446         $ 10,827
         Plan assets at fair value .........................................          12,612           13,333           12,032
                                                                                    --------         --------         --------
         Projected benefit obligation less than plan assets ................          (1,802)          (1,887)          (1,205)
         Unrecognized net gain .............................................           1,633            1,657              947
         Unrecognized transition asset, net ................................             169              230              258
                                                                                    --------         --------         --------
         Accrued pension cost ..............................................        $   --           $   --           $   --
                                                                                    ========         ========         ========
</TABLE>

                                                                F-20

<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, minority interest and extraordinary item are as follows:

                                                    Year Ended March 31,
                                       -----------------------------------------
                                         1998             1997             1996
                                       -------          -------          -------
                                                    (in thousands)
Domestic ....................          $42,918          $14,351          $27,158
Foreign .....................           33,034           27,035           21,454
                                       -------          -------          -------
                                       $75,952          $41,386          $48,612
                                       =======          =======          =======


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


                                                       Year Ended March 31,
                                               --------------------------------
                                                 1998        1997        1996
                                               --------    --------    --------
                                                        (in thousands)
Current:
  Federal and State ........................   $  9,082    $  6,142    $  3,756
  Foreign ..................................      8,006       7,178       8,210
Deferred:
  Federal and State ........................      7,808       1,720       9,181
  Foreign ..................................      4,891       1,534       1,134
Valuation allowance adjustment .............     (4,418)     (9,837)     (9,858)
Tax benefit allocated to reduction of
  goodwill .................................       --         4,000       1,200
                                               --------    --------    --------
                                               $ 25,369    $ 10,737    $ 13,623
                                               ========    ========    ========


     During fiscal 1998 and 1997,  the Company  recognized  certain tax benefits
related to stock option  plans in the amount of $2.2  million and $0.3  million,
respectively. Such benefits were recorded as a reduction of income taxes payable
and an increase in additional paid-in capital.

                                      F-21

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


12.  Income Taxes - (Continued)

     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 March 31,
                                                         ----------------------
                                                         1998     1997     1996
                                                         ----     ----     ----
Provision at statutory rate ........................     35.0%    35.0%    35.0%
State tax provision, net of federal effect .........      3.5      4.0      3.6
Valuation allowance ................................     (5.8)   (23.8)   (15.2)
Tax benefit allocated to reduction of goodwill .....      --       9.7      2.5
Income of foreign subsidiaries at differing
   statutory rates .................................     (1.3)    (2.4)     9.3
Tax benefit from NOL utilization ...................      --       --      (5.7)
Other ..............................................      2.0      3.4     (1.5)
                                                         ----     ----     ----
                                                         33.4%    25.9%    28.0%
                                                         ====     ====     ====

     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,
                                                               -----------------
                                                                1998       1997
                                                               -------   -------
                                                                 (in thousands)
Deferred tax assets:
  Accounts receivable, principally due to allowances for
    doubtful accounts ......................................   $ 2,064   $ 2,249
  Inventories, principally due to reserves .................     3,191     3,591
  Property, plant and equipment, principally due to
    differences in depreciation ............................     4,874     5,868
  Accruals for employee benefits ...........................     8,322     8,904
  In-process research and development ......................    12,281    13,225
  Other assets .............................................     3,610     4,746
  Net operating losses .....................................     9,188    11,221
                                                               -------   -------
  Total gross deferred tax assets ..........................    43,530    49,804
  Less valuation allowance .................................     9,801    14,219
                                                               -------   -------
  Net deferred tax assets ..................................   $33,729   $35,585
                                                               =======   =======
Deferred tax liabilities:
  Property, plant and equipment, principally due to
    differences in depreciation ............................   $12,102   $ 9,262
  Inventories ..............................................     2,752     2,641
  Amortization of goodwill .................................     5,653     3,999
  Unremitted income of foreign subsidiaries ................     3,834     2,700
  Other ....................................................     4,071     3,385
                                                               -------   -------
  Net deferred tax liabilities .............................   $28,412   $21,987
                                                               =======   =======
  Net deferred tax assets less net deferred tax
    liabilities ............................................   $ 5,317   $13,598
                                                               =======   =======

                                      F-22

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


12.  Income Taxes - (Continued)

     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  1998,  1997  and  1996  relate  primarily  to
realization of NOL's or changes in the Company's evaluation of the realizability
of deferred tax assets.

     For tax purposes,  the Company's foreign  subsidiaries,  at March 31, 1998,
had net operating loss  carryforwards  of $32.9 million.  Of this amount,  $31.0
million does not expire,  and $1.9 million  expires  between 2002 and 2007.  The
deferred  tax assets  reflected in the  Company's  accounts as of March 31, 1998
before valuation allowances reflect these NOL's.

     The  Company  has  not  provided  for  U.S.   federal  income  and  foreign
withholding  taxes  on  $21  million  of  non-U.S.  subsidiaries'  undistributed
earnings  as of  March  31,  1998  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.

13.  Commitments

     The  Company  leases  certain  warehouse  and  office  facilities,   office
equipment and automobiles under non cancelable  operating leases which expire in
1998  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:

Period Ending March 31,
-----------------------                                          (in thousands)
1999..........................................................       $4,774
2000..........................................................        3,909
2001..........................................................        2,730
2002..........................................................        2,540
2003..........................................................        2,563
Thereafter....................................................        5,449


     Rent expense for fiscal 1998, 1997, and 1996 was $7.8 million, $5.6 million
and $5.4 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-23

<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 and the Superfund  Amendments and Reauthorization
Act of 1986.  In March 1997 the U.S.  Environmental  Protection  Agency  ("EPA")
consented to the Company curtailing  clean-up  activities for a six month period
which ended in September.  The Company continued to monitor contamination levels
during the  curtailment  period.  During the quarter  ended  December 31, 1997 a
report on  contamination  levels,  and the impact of curtailed  activities,  was
submitted  to the EPA,  and such report is currently  under  review.  The report
indicates no significant impact on the site from the curtailed  activities,  and
the EPA has consented to continued  curtailment of activities until such time as
they have concluded their review of the report.  The Company  expects  continued
reduction of clean-up  activities due to relatively low levels of  contamination
existing at the site.

     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.

     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-24

<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, 1998
Revenue:
   External ..................................        $ 281,158        $ 160,697        $ 105,880        $    --           $ 547,735
   Internal ..................................           42,784           57,170           47,697         (147,651)             --
Operating income .............................           53,322           25,502           15,007           (1,125)           92,706
Identifiable assets ..........................          370,792          164,891          156,003           (7,628)          684,058
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 .............................           35,318           16,645            9,612             (822)           60,753
Identifiable assets ..........................          204,733          115,205          105,096           (8,185)          416,849
</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.

     For fiscal 1998,  1997 and 1996, the corporate  headquarters  costs of $9.7
million, $6.9 million and $7.7 million,  respectively, are included in the North
American geographic area.

                                      F-25

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


16.   Pro Forma Data

     The  following pro forma data, as restated for the adoption of FAS 128, 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 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 - basic:
  Income before extraordinary item ...........       $    1.72       $      1.75
                                                     =========       ===========

  Net income .................................       $    1.72       $      1.71
                                                     =========       ===========

Earnings per share - diluted:
  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 each  period
presented.  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.

                                      F-26

<PAGE>


                             SOLA INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


<TABLE>
17.  Supplementary Cash Flow Data (in thousands)

<CAPTION>
                                                                                                      Year Ended March 31,
                                                                                               -------------------------------------
                                                                                                1998            1997           1996
                                                                                               -------        -------        -------
<S>                                                                                            <C>            <C>            <C>    
Supplemental disclosures of cash flow information:
   Interest paid ......................................................................        $23,411        $19,273        $11,220
                                                                                               =======        =======        =======
   Taxes paid .........................................................................        $14,599        $14,075        $11,486
                                                                                               =======        =======        =======

Supplemental disclosures of non-cash investing and financing activities:
   Capital expenditures accrued but not paid ..........................................        $ 3,223        $ 3,701        $ 1,646
                                                                                               =======        =======        =======
</TABLE>

                                                                F-27

<PAGE>


                             SOLA INTERNATIONAL INC.

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


                                                     Quarter Ended
                                       -----------------------------------------
                                       June 30,   Sept. 30,   Dec. 31, March 31,
                                         1996       1996       1996       1997
                                       --------   --------   --------   --------
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 - basic (1):
  Net income .......................       0.10       0.29       0.32       0.57
Earnings per share - diluted (1):
  Net income .......................       0.09       0.27       0.31       0.55

(1) As restated for the adoption of FAS 128.


<TABLE>
<CAPTION>
                                                            Quarter Ended
                                           ---------------------------------------------
                                           June 30,   Sept. 30,     Dec. 31,    March 31,
                                             1997       1997         1997         1998
                                           --------   --------   -----------    --------
<S>                                        <C>        <C>        <C>            <C>     
Net sales ..............................   $137,621   $135,731   $   129,272    $145,111
Gross profit ...........................     64,827     63,839        62,367      67,025
Operating income .......................     21,257     21,883        20,983      28,583
Income before extraordinary item .......     11,089     11,778        11,235      16,990
Net income .............................     11,089     11,778         5,312      16,974
Earnings (loss) per share - basic (2):
  Income before extraordinary item .....       0.46       0.48          0.46        0.69
  Extraordinary item ...................       --         --           (0.24)       --
  Net income ...........................       0.46       0.48          0.22        0.69
Earnings (loss) per share - diluted (2):
  Income before extraordinary item .....       0.44       0.46          0.44        0.66
  Extraordinary item ...................       --         --           (0.23)       --
  Net income ...........................       0.44       0.46          0.21        0.66

<FN>
(2) The quarter end June 30 and  September  30, 1997 have been  restated for the
adoption of FAS 128.
</FN>
</TABLE>

                                      F-28

<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, 1998
  Allowance for doubtful accounts .....................       $ 4,030        $ 1,337        $  (254)        $   (157)       $ 4,956
                                                              =======        =======        =======         ========        =======
  Allowance for excess and obsolete
     inventory ........................................       $ 4,471        $ 1,833        $(1,578)        $   (366)       $ 4,360
                                                              =======        =======        =======         ========        =======
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
                                                              =======        =======        =======         ========        =======

<FN>
-------------------------
(1)  Other relates primarily to foreign currency translation adjustments.
</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*             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

    10.4*             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

    10.5*             Employment Agreement between Sola            Filed as Exhibit 10.2 to the Registration
                      International Inc. and Steven M. Neil,       Statement, as amended, on Form S-3 of the
                      dated as of September 2, 1997                Company (File No. 333-45929) and
                                                                   incorporated herein by reference

    10.6*             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

    10.7*             Employment Agreement between Sola Optical
                      USA, Inc. and Theodore Gioia dated as of
                      February 26, 1993

    10.8*             Assignment and Amendment of Employment
                      Agreement, dated as of December 1, 1993
                      among Sola Optical USA, Inc., Sola Group
                      Ltd. and Theodore Gioia

    10.9*             Employment Agreement between Sola Optical
                      UK Ltd. and Mark T. Mackenzie dated as of
                      May 16, 1996

                                                    E-1

<PAGE>


                                              INDEX OF EXHIBITS
                                                 (continued)

                                                                             Page Number or
   Exhibit No.                       Description                      Incorporation by Reference to
   -----------                       -----------                      -----------------------------
     10.10*           Employment Agreement between Sola
                      International Inc. and Mark T. Mackenzie
                      dated as of May 16, 1996

     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            Amendment No. 1 to the Multicurrency         Filed as Exhibit 10.1 to the Company's
                      Credit Agreement, dated as of June 14,       Quarterly Report on Form 10-Q for the
                      1996, among Sola International Inc., and     period ending December 31, 1997, and
                      the other Borrowers as the Borrowers, the    incorporated herein by reference
                      Subsidiary Guarantors, The 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

     10.13            Amendment No. 2 to the Multicurrency         As above except Exhibit 10.2
                      Credit Agreement, dated as of June 14,
                      1996, among Sola International Inc., and
                      the other Borrowers as the Borrowers, the
                      Subsidiary Guarantors, The 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

     10.14            Amendment No. 3 to the Multicurrency         Filed as Exhibit 10.1 to the Company's
                      Credit Agreement, dated as of June 14,       Registration Statement, as amended, on
                      1996, among Sola International Inc., and     Form S-3 of the Company (File No
                      the other Borrowers as the Borrowers, the    333-45929) and incorporated herein by
                      Subsidiary Guarantors, The Bank of           reference
                      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

     10.15            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

                                                    E-2

<PAGE>


                                              INDEX OF EXHIBITS
                                                 (continued)

                                                                             Page Number or
   Exhibit No.                       Description                      Incorporation by Reference to
   -----------                       -----------                      -----------------------------
     10.16            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)

     10.17*           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

     10.18*           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

     10.19*           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

     10.20*           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

     10.21            Indenture by and between the Company and
                      State Street Bank and Trust Company of
                      California, N.A., as Trustee, with
                      respect to the 6 7/8% Notes due 2008

     10.22*           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

     10.23*           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

     10.24            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

     10.25            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

     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

                                                    E-3

<PAGE>


                                              INDEX OF EXHIBITS
                                                 (continued)

                                                                             Page Number or
   Exhibit No.                       Description                      Incorporation by Reference to
   -----------                       -----------                      -----------------------------
     27.1             Financial Data schedule

     99.1             Factors Affecting Future Operating Results

<FN>
-------------------------

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

                                                    E-4