Edgar Filing: OPTICARE HEALTH SYSTEMS INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
(AMENDMENT NO.1)

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR

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

COMMISSION FILE NUMBER 001-15223

OPTICARE HEALTH SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 76-0453392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

87 GRANDVIEW AVENUE, WATERBURY, CONNECTICUT 06708
(Address of Principal Executive Offices) (Zip Code)

(203) 596-2236
Registrant's Telephone Number, Including Area Code:

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

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.001 par value American 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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 ). [ ] Yes [X] No

The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) computed by reference to
the closing market price as reported on the American Stock Exchange on June 30,
2004, the last business day of the registrant's most recently completed second
fiscal quarter, was $4,116,126.

The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share, as of March 1, 2005, was 30,521,066 shares.

DOCUMENTS INCORPORATED BY REFERENCE

NONE.

EXPLANATORY NOTE

The purpose of this Amendment No. 1 (the "Amendment") to the Annual Report on
Form 10-K of OptiCare Health Systems, Inc. (the "Registrant") for the year ended
December 31, 2004 (the "Original Form 10-K") is to include the disclosure
required in Part III, Items 10, 11, 12, 13 and 14. Except for Items 10, 11, 12,
13 and 14 of Part III, no other information included in the Original Form 10-K
is amended by this Amendment.

FORM 10-K/A

TABLE OF CONTENTS

PAGE
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................ 4
ITEM 11. EXECUTIVE COMPENSATION......................................... 5
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS................... 9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 14
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES......................... 17

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES...................... 18

SIGNATURES ............................................................. 19

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

DIRECTORS AND EXECUTIVE OFFICERS

Our Certificate of Incorporation, as amended and Amended and Restated
By-laws provide that the number of directors which shall constitute our entire
Board of Directors shall be fixed and determined by resolution of the Board of
Directors. At December 31, 2004, we had eight directors, as fixed by the Board
of Directors pursuant to our By-laws.

Our directors are elected annually at the annual meeting of
stockholders. Their respective terms of office continue until the next annual
meeting of stockholders and until their successors have been elected and
qualified in accordance with our By-laws.

Pursuant to a restructure agreement among us, Palisade Concentrated
Equity Partnership, L.P., or Palisade and Dean J. Yimoyines, M.D. (the Chairman
of the Board of Directors and our former Chief Executive Officer), dated as of
December 17, 2001, as amended on January 5, 2002 and January 22, 2002, we have
agreed that, so long as Palisade owns more than 50% of the voting power of our
voting stock, it shall have the right to designate a majority of our Board of
Directors. Pursuant to this provision, Messrs. Bertrand, Hoffman, Johnson,
Meskin and Newman were nominated by the Board of Directors on the recommendation
of Palisade.

Information regarding our directors and executive officers is included
under the caption "Directors and Executive Officers of the Company" in Part I
Item. 4 of the Original Form 10-K and is incorporated into this Item 10 by
reference.

AUDIT COMMITTEE

The functions of the Audit Committee are to recommend to the Board of
Directors the appointment of our independent auditors, to analyze the reports
and recommendations of such auditors and to review our systems of internal
controls. The Audit Committee also monitors the adequacy and effectiveness of
our financial controls and reporting procedures. The Audit Committee is
comprised of Messrs. Drubner, Huber and Newman (Chairman). All members of the
Audit Committee are "independent directors" as required by the Securities and
Exchange Commission and the applicable listing standards of the American Stock
Exchange. Mr. Newman qualifies as an "audit committee financial expert" as
required by the Securities and Exchange Commission.

PROCEDURES FOR STOCKHOLDER NOMINATIONS TO OUR BOARD OF DIRECTORS

No material changes to the procedures for nominating directors by our
stockholders have been made in 2004.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Our records reflect that all reports which were required to be filed
pursuant to Section 16(a) of the Exchange Act were filed on a timely basis, with
the exception of one Form 4 report that was filed late by Dr. Yimoyines. The
late Form 4 filing covered an aggregate of 1,123,720 shares of Series D
preferred stock that are held indirectly by his spouse.

An Annual Statement of Beneficial Ownership on Form 5 is not required
to be filed if there are no previously unreported transactions or holdings to
report. Nevertheless, we are required to disclose the names of directors,
officers and 10% shareholders who did not file a Form 5 unless we have obtained
a written statement that no filing is required. At the date of this Form 10-K/A,
we had not received a written statement from any of our board of directors,
executive officers or greater than 10% shareholders, indicating that they did
not have to file a Form 5; and none of these individuals or shareholders filed a
Form 5.

CODE OF CONDUCT AND ETHICS

We have adopted a code of conduct and ethics that applies to all of our
employees, including our chief executive officer and chief financial and
accounting officer. The text of the code of conduct and ethics will be made
available to stockholders without charge, upon request, in writing to the
Corporate Secretary at OptiCare Health Systems, Inc., 87 Grandview Avenue,
Waterbury, Connecticut, 06708. Disclosure regarding any amendments to, or
waivers from, provisions of the code of conduct and ethics that apply to our
directors, principal executive and financial officers will be included in a
Current Report on Form 8-K within five business days following

the date of the amendment or waiver, unless website posting of such amendments
or waivers is then permitted by the rules of the American Stock Exchange, Inc.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Effective January 1, 2003, independent, non-employee directors of on
the Board of Directors as of the first day of the calendar year, receive an
annual non-qualified stock option to purchase 30,000 shares of our Common Stock
pursuant to our Amended and Restated 2002 Stock Incentive Plan (the "2002 Stock
Plan"). Independent, non-employee directors serving as members of committees of
the Board of Directors as of the first day of the calendar year receive an
annual non-qualified stock option to purchase 10,000 shares of our Common Stock,
pursuant to our 2002 Stock Plan, for each committee on which they serve. Options
for both Board and committee membership are exercisable starting on the last
calendar day of the calendar year provided the director is still serving on the
Board of Directors at that time at an exercise price equal to the fair market
value of the Common Stock on the date of grant. Directors who are also our
employees do not receive any additional compensation for their service as
directors.

SUMMARY COMPENSATION TABLE

The following summary compensation table sets forth information
concerning the annual and long-term compensation earned by our chief executive
officer and each of the five other most highly compensated executive officers
whose annual salary and bonus during 2004 exceeded $100,000 (collectively, the
"Named Executive Officers").

LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- --------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND BONUS COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($)(4) ($) (5) AWARDS ($) OPTIONS (#) ($)(7)
------------------ ---- ---------- ------ ------- ----------- ----------- ------

Christopher J. Walls (1) 2004 191,846 85,500 - - 600,000 3,839
Chief Executive Officer, 2003 159,731 50,000 - - 20,000 3,673
President and General 2002 126,923 34,640 - 4,000 (6) 125,000 202
Counsel

Dean J. Yimoyines, M.D. (2) 2004 354,808 - 45,906 - 150,000 26,663
Chairman of the Board of 2003 344,731 93,500 50,506 - 100,000 26,663
Directors and former Chief 2002 349,423 101,960 47,892 - 1,150,000 24,408
Chief Executive Officer

William A. Blaskiewicz 2004 172,067 34,000 - - 100,000 4,406
Vice President and 2003 149,866 50,000 - - 20,000 4,134
Chief Financial Officer 2002 145,000 34,640 - - 250,000 3,812

Jason M. Harrold 2004 180,000 48,000 - - 7,000 2,478
President of the Managed 2003 179,865 14,200 - - 22,500 3,375
Vision Division 2002 175,000 44,000 - - 150,000 2,985

Gordon A. Bishop 2004 150,000 5,750 - - 4,688
President of the Consumer 2003 132,500 40,000 - - 4,525
Vision Division 2002 125,000 39,000 - - 3,398

Lance A. Wilkes (3) 2004 200,596 - - - 100,000 4,187
Former President and Chief 2003 215,839 53,250 - - 40,500 1,954
Operating Officer 2002 113,077 81,800 - - 1,000,000 108

(1) Mr. Walls was hired as Vice President and General Counsel in February 2002.
His annual base salary for 2002 was $150,000. In October 2004, Mr. Walls
was named Chief Administrative Officer and his annual base salary was
increased to $240,000. In January 2005, Mr. Walls was named Chief Executive
Officer.

(2) Dr. Yimoyines was our Chief Executive Officer at December 31, 2004 but
resigned this position in January 2005. He is currently the Chairman of the
Board of Directors and is President and Chief Executive Officer of our
medical affiliate, OptiCare, P.C.

(3) Mr. Wilkes was hired as President and Chief Operating Officer in June 2002.
His annual base salary for 2002 was $210,000. Mr. Wilkes employment with us
was terminated in October 2004 and as a result, Mr. Wilkes was paid
severance of $56,250 for the period November 2004 through February 2005.

(4) Bonuses are awarded in the form of cash and/or shares of our Common Stock.
Awards of our Common Stock are valued at the market price as of the date of
grant. Bonuses for 2004 were in the form of cash, except for Mr. Bishop's
that was in the form of 25,000 shares of restricted stock that was valued
at $5,750. The 2003 bonus includes a transaction bonus, related to the
acquisition of Wise Optical and a performance bonus. The transaction bonus
was awarded in the form of shares of our Common Stock to: Dr. Yimoyines -
30,000 shares valued at $19,500; Mr. Blaskiewicz - 20,000 shares valued at
$13,000; Mr. Walls - 20,000 shares valued at $13,000; and Mr. Wilkes -
25,000 shares valued at $16,250. The 2003 performance bonus was awarded in
the form of cash and our Common Stock as follows: Dr. Yimoyines - $40,000
in cash and 50,000 common shares valued at $34,000; Mr. Bishop - $23,000 in
cash and 25,000 common shares valued at $17,000; Mr. Blaskiewicz - $20,000
in cash and 25,000 common shares valued at $17,000; Mr. Harrold - $4,000 in
cash and 15,000 common shares valued at $10,200; Mr. Walls - $20,000 in
cash and 25,000 common shares valued at $17,000; and Mr. Wilkes - $20,000
in cash and 25,000 common shares value at $17,000. Bonuses for 2002 were in
the form of cash, except for Dr. Yimoyines' which consisted of cash of
$36,960 and 100,000 common shares valued at $65,000.

(5) The amounts shown represent insurance premiums we paid for health and
disability insurance on behalf of the Named Executive Officer and also
includes automobile allowances.

(6) Represents an aggregate of 25,000 shares of restricted common stock valued
at the market price of our Common Stock as of the date of grant. Vested 25%
on March 19, 2003, 2004 and 2005. Vesting 25% on March 19, 2006. As of
March 31, 2005, Mr. Walls had 6,250 shares of unvested restricted stock
with a value of $1,750 based on the closing price of our Common Stock on
March 31, 2005.

(7) The amounts shown include, for the year ended December 31, 2004: (i)
matching contributions by us under a 401(k) retirement savings plan
maintained by us for each of Mr. Walls ($3,318); Dr. Yimoyines ($4,000);
Mr. Bishop ($3,571); Mr. Blaskiewicz ($3,931); Mr. Harrold ($2,217); and
Mr. Wilkes ($4,000); and (ii) insurance premiums paid by us for life
insurance on behalf of Mr. Walls ($521); Dr. Yimoyines ($22,663); Mr.
Bishop ($1,117); Mr. Blaskiewicz ($475); Mr. Harrold ($261); and Mr. Wilkes
($187).

OPTIONS GRANTED IN 2004

The following table shows grants of stock that we made during the
fiscal year ended December 31, 2004 to each of the Named Executive Officers.

INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF SHARES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION VALUE
NAME (#) FISCAL YEAR ($/SH) DATE ($) (3)
-------------------------------------------------------------------------------------------------------------

Christopher J. Walls 100,000 (1) 6.4% 0.68 3/31/14 $38,000
500,000 (2) 31.9% 0.29 10/06/14 $90,000
Dean J. Yimoyines, M.D. 150,000 (1) 9.6% 0.68 3/31/14 $57,000
Gordon A. Bishop 20,000 (1) 1.3% 0.68 3/31/14 $7,600
William A. Blaskiewicz 100,000 (1) 6.4% 0.68 3/31/14 $38,000
Jason M. Harrold 7,000 (1) 0.4% 0.68 3/31/14 $2,660
Lance A. Wilkes 100,000 (1) 6.4% 0.68 3/31/14 $38,000

(1) Vested 25% on March 31, 2005; Vesting 25% on March 31, 2006, March 31, 2007
and March 31, 2008.

(2) Vested 100% in January 2005 in connection with Mr. Walls' promotion to
Chief Executive Officer.

(3) The estimated values reported are based on the Black-Scholes pricing model
with the following assumptions: risk free interest rate of 3.3%, stock
price volatility of 67.5%, no dividends and a holding period of five years.
The estimated values are not intended as a forecast of the future
appreciation in the price of the Common Stock. If the Common Stock does not
increase in value above the exercise price of the stock options, then the
grants described in the table will have no value. There is no assurance
that the value realized by an executive will be at or near the values
estimated.

AGGREGATE OPTION EXERCISES IN 2004 AND YEAR END OPTION VALUES

The following table contains certain information regarding options to
purchase Common Stock held as of December 31, 2004, by each of the Named
Executive Officers. Mr. Wilkes exercised 50,000 options on May 21, 2004 and
realized value of $6,000 at the time of exercise. Mr. Wilkes was the only Named
Executive Officer to exercise options in the fiscal year ended December 31,
2004.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/04 (#) AT 12/31/04 ($) (1)
----------------------------- ------------------------------
NAME EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
---------------------------------------------------------------- ------------------------------

Christopher J. Walls 67,500 677,500 $12,500 $47,500
Dean J. Yimoyines, M.D. 1,336,450 675,000 $90,750 $38,250
Gordon A. Bishop 108,500 60,500 $16,550 $6,050
William A. Blaskiewicz 195,868 190,000 $35,500 $14,500
Jason M. Harrold 170,479 67,625 $21,688 $8,563
Lance A. Wilkes (2) 485,125 605,375 $27,500 $27,500

(1) The value of the in-the-money options was calculated as the difference
between the closing price of our Common Stock as reported on the American
Stock Exchange on December 31, 2004 and the exercise price of the options.

(2) Mr. Wilkes' employment with us was terminated in October 2004. All of Mr.
Wilkes options included in the above table were subsequently cancelled in
January 2005.

Compensation Committee Interlocks and Insider Participation

Messrs. Bertrand, Drubner, and Johnson served on the Compensation
Committee during 2004. Mr. Bertrand relinquished his seat on the Compensation
Committee to Mr. Huber on April 1, 2004. During 2004, none of our executive
officers (i) served as a member of the Compensation Committee (or other
committee of the Board of Directors performing similar functions or, in the
absence

of any such committee, the Board of Directors) of another entity, one of whose
executive officers served on our Compensation Committee, (ii) served as director
of another entity, one of whose executive officers served on our Compensation
Committee, or (iii) served as member of the Compensation Committee (or other
committee of the Board of Directors performing similar functions or, in the
absence of any such committee, the Board of Directors) of another entity, one of
whose executive officers served as a member of our Board of Directors.

REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE

Compensation Policy

The policy of the Compensation Committee is to determine or recommend
compensation of our officers reflecting the contribution of such officers to
growth in revenue and earnings, the implementation of strategic plans consistent
with long term growth objectives and the enhancement of stockholder value.
Contributions to the specific corporate and business unit objectives are
evaluated in setting compensation policy, including growth in revenue and
earnings in the development of new business opportunities and other strategic
initiatives. Our compensation program consists of base salary; bonus and
long-term incentive compensation comprised of the award of stock options and
restricted stock under our Amended and Restated 2002 Stock Incentive Plan and
our 2003 Incentive Compensation Plan. Compensation decisions, other than base
compensation for executive officers with multi-year contracts, are generally
made on a calendar year basis.

Compensation of the Chief Executive Officer

During the year ended December 31, 2004, Dr. Yimoyines, our former
Chief Executive Officer, received no compensation other than pursuant to his
employment agreement with us, which was approved by the Compensation Committee
and the Board of Directors during 1999. However, in connection with our Capital
Restructuring Transactions in January 2002, Dr. Yimoyines agreed in principle to
an adjustment to his annual base salary and guaranteed bonus, which, when later
implemented, reduced that salary from $410,000 to $335,000, effective March 4,
2002. Effective January 1, 2004, his annual base salary was increased to
$355,000.

During 2004, the Board of Directors awarded stock options and stock to
Dr. Yimoyines and certain of our other executive officers and key employees. The
options and stock, which were awarded under terms of the Amended and Restated
2002 Stock Incentive Plan and were intended to: (1) align executive interest
with stockholder interest by creating a direct link between compensation and
stockholder return; (2) assure that executives maintain a significant long-term
interest in our success; and (3) help retain key employees in a competitive
market.

On January 12, 2005, in connection with our sale of the Distribution
Division, Dr. Yimoyines resigned as our Chief Executive Officer and from all
other positions with our subsidiaries. Dr. Yimoyines continues to serve as the
Chairman of the Board of Directors and as President and Chief Executive Officer
of our medical affiliate, OptiCare P.C. Upon Dr. Yimoyines' resignation,
Christopher J. Walls was named Chief Executive Officer, in addition to his
duties as our President and General Counsel. In October 2004, Mr. Walls entered
into an employment agreement with us. Pursuant to such agreement, Mr. Walls'
annual salary was increased to $240,000 upon his appointment as our Chief
Administrative Officer.

Respectfully Submitted,

Clark A. Johnson (Chairman)
Richard Huber
Norman S. Drubner, Esq.

PERFORMANCE GRAPH

The following graph compares the performance of an investment of
$100.00 in our Common Stock with the performance of an investment of $100.00 in
the CRSP NASDAQ Health Index (a published industry index), and the American
Stock Exchange Composite Index, for the five year period from December 31, 1999
through December 31, 2004. The stock price performance shown on the graph is not
necessarily indicative of future price performance.

Comparison of Five - Year Cumulative Total Returns
Performance Graph for
OptiCare Health Systems, Inc.

[LINE CHART OMITTED]

Date Company Market Peer
Index Index Index
------------ ------- ------- -------
12/31/1999 100.000 100.000 100.000
01/31/2000 98.214 96.988 102.574
02/29/2000 92.857 106.590 107.027
03/31/2000 100.000 110.018 104.004
04/28/2000 85.714 101.247 95.336
05/31/2000 71.429 99.304 97.671
06/30/2000 57.143 103.081 106.121
07/31/2000 51.786 101.960 109.709
08/31/2000 35.714 107.238 113.093
09/29/2000 19.643 104.990 117.814
10/31/2000 26.786 99.760 119.575
11/30/2000 10.714 89.884 113.938
12/29/2000 14.286 92.760 137.271
01/31/2001 16.714 98.339 126.563
02/28/2001 13.714 91.401 135.957
03/30/2001 9.143 86.986 126.026
04/30/2001 7.429 94.161 130.956
05/31/2001 7.429 94.660 134.176
06/29/2001 7.429 93.385 151.433
07/31/2001 7.429 89.462 150.351
08/31/2001 7.429 85.154 151.756
09/28/2001 7.429 75.799 144.733
10/31/2001 7.429 79.904 131.490
11/30/2001 7.429 84.488 138.133
12/31/2001 12.381 86.341 148.409
01/31/2002 31.695 85.351 145.083
02/28/2002 13.470 83.844 141.255
03/28/2002 10.301 88.150 154.941
04/30/2002 16.640 85.811 168.993
05/31/2002 31.695 84.276 154.969
06/28/2002 25.356 77.910 148.709
07/31/2002 23.771 71.425 134.766
08/30/2002 21.790 72.131 131.206
09/30/2002 18.225 66.698 130.834
10/31/2002 20.998 70.409 133.066
11/29/2002 26.941 74.114 133.637
12/31/2002 30.111 70.573 127.876
01/31/2003 25.356 69.513 132.056
02/28/2003 51.505 69.135 122.498
03/31/2003 70.522 69.597 126.928
04/30/2003 59.429 74.685 129.853
05/30/2003 55.467 80.380 146.242
06/30/2003 41.204 82.008 156.548
07/31/2003 45.958 83.276 167.577
08/29/2003 48.335 85.867 170.724
09/30/2003 52.297 85.513 175.705
10/31/2003 64.183 89.775 185.894
11/28/2003 55.467 91.375 195.631
12/31/2003 60.221 95.522 195.548
01/30/2004 63.391 98.088 210.989
02/27/2004 56.259 99.207 218.568
03/31/2004 53.882 99.215 217.442
04/30/2004 40.411 95.692 223.499
05/28/2004 35.657 96.928 223.802
06/30/2004 33.280 99.455 232.449
07/30/2004 19.810 96.475 211.194
08/31/2004 20.602 96.412 203.279
09/30/2004 21.394 99.083 205.394
10/29/2004 19.017 101.171 210.067
11/30/2004 24.564 106.537 233.382
12/31/2004 28.526 110.380 246.443

-----------------------------------------------------------------------------------------------------------------
LEGEND

CRSP Total Returns Index for: 12/1999 12/2000 12/2001 12/2002 12/2003 12/2004
----------------------------- ------- ------- ------- ------- ------- -------

OptiCare Health Systems, Inc. 100.0 14.3 12.4 30.1 60.2 28.5
AMEX Stock Market (US Companies) 100.0 92.8 86.3 70.6 95.5 110.4
Nasdaq Health Services Stocks 100.0 137.3 148.4 127.9 195.5 246.4
SIC 8000-8099 U.S & Foreign

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP

As of March 31, 2005, there were 30,633,566 shares of our Common Stock
outstanding. In addition, there were 3,204,960 shares of Series B Preferred
Stock outstanding entitled to voting power equivalent to an aggregate of
46,664,555 shares of Common Stock (i.e., one vote for each of the ten shares of
Common Stock into which a share of Series B Preferred Stock and related accrued
dividends are convertible), 406,158 shares of Series C Preferred Stock
outstanding entitled to voting power equivalent to an aggregate of 20,307,900
shares of Common Stock (i.e., one vote for each of the 50 shares of Common Stock
into which a share of Series C Preferred Stock is convertible) and 280,618
shares of Series D Preferred Stock outstanding entitled to voting power
equivalent to an aggregate of 11,224,720 shares of Common Stock (i.e., one vote
for each of the 40 shares of Common Stock into which a share of Series D
Preferred Stock is convertible). Therefore, as of March 31, 2005, the aggregate
voting power of the outstanding Common Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock which were entitled to notice of,
and to vote, is equivalent to 108,830,741 shares of Common Stock.

The following table sets forth, as of March 31, 2005, certain
information regarding the beneficial ownership of the outstanding Voting Stock
by: (i) each person who is known by us to own 5% or more of any class of our
Voting Stock (the holdings of certain unrelated entities listed below are based
on shareholdings disclosed in their public filings), (ii) each of our current
directors, (iii) each Named Executive Officer set forth in the Summary
Compensation Table on page 11 and (iv) all of our current executive officers and
directors as a group. Unless otherwise indicated, each of the stockholders shown
in the table below has sole voting and investment power with respect to the
shares beneficially owned. Unless otherwise indicated, the address of each
person named in the table below is c/o OptiCare Health Systems, Inc., 87
Grandview Avenue, Waterbury, Connecticut 06708.

NAMES OF EXECUTIVE OFFICERS, DIRECTORS, SERIES B PREFERRED SERIES C PREFERRED SERIES D PREFERRED
NOMINEES AND 5% STOCKHOLDERS COMMON STOCK (1) STOCK (2) STOCK (3) STOCK (4)
------------------------------------------------------------------------------------------------------------------------------------
SHARES PERCENT SHARES PERCENT SHARES PERCENT SHARES PERCENT

Palisade Concentrated Equity Partnership, 91,980,638 89.2% 2,880,600 89.9% 403,256 99.3% 252,525 90.0%
L.P. (5)

Dean J. Yimoyines, M.D., Chairman and 8,157,912 21.4% 324,360 10.1% 2,902 0.7% 28,093 10.0%
former Chief Executive Officer (6)

Nicholas Berggruen (7) 2,454,026 7.4% -- -- -- -- -- --

Eric J. Bertrand, Director (8) 92,034,938 89.2% 2,880,600 89.9% 403,256 99.3% 252,525 90.0%

Gordon A. Bishop (19) 194,500 * -- -- -- -- -- --

William A. Blaskiewicz, Vice President and 335,155 1.1% -- -- -- -- -- --
Chief Financial Officer (9)

Norman S. Drubner, Esq., Director (10) 574,489 1.9% -- -- -- -- -- --

Jason M. Harrold, President, Managed 230,354 * -- -- -- -- -- --
Vision Division (11)

Mark S. Hoffman, Director (12) 91,980,638 89.2% 2,880,600 89.9% 403,256 99.3% 252,525 90.0%

Richard L. Huber, Director (13) 250,000 * -- -- -- -- -- --

Clark A. Johnson, Director (14) 266,000 * -- -- -- -- -- --

Melvin Meskin, Director (15) 230,000 * -- -- -- -- -- --

Mark S. Newman, Director (16) 240,000 *

Christopher J. Walls, Esq., Chief 705,000 2.2% -- -- -- -- -- --
Executive Officer, President and General
Counsel (17)

Lance A. Wilkes, former President and 75,000 * -- -- -- -- -- --
Chief Operating Officer (18)

All current executive officers and 103,272,648 91.4% 3,204,960 100.0% 406,158 100.0% 280,618 100.0%
directors as a group--13 persons.

--------------------
* Less than 1%

(1) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise, has or shares (a) the power to vote, or direct
the voting of, such security or (b) investment power which includes the
power to dispose, or to direct the disposition of, such security. In
addition, a person is deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of such security
within 60 days. Shares not outstanding but deemed beneficially owned by
virtue of the right of an individual to acquire them within 60 days upon
the exercise of an option are treated as outstanding for purposes of
determining beneficial ownership and the percent beneficially owned by such
individual and for the executive officers and directors as a group. The
percentage of outstanding Common Stock set forth opposite the name of each
stockholder has been determined in accordance with Securities and Exchange
Commission Rule 13d-3(d)(1), without regard to Common Stock acquirable
within 60 days hereafter under options, warrants, and convertible
securities beneficially owned by persons other than such stockholder.

(2) Each share of Series B Preferred Stock entitles the holder to one vote for
each of the ten shares of Common Stock into which it is convertible.

(3) Each share of Series C Preferred Stock entitles the holder to one vote for
each 50 shares of Common Stock into which it is convertible.

(4) Each share of Series D Preferred Stock entitles the holder to one vote for
each 40 shares of Common Stock into which it is convertible.

(5) Common Stock beneficially owned by Palisade Concentrated Equity
Partnership, L.P., or Palisade, consists of 19,375,000 shares of Common
Stock presently issued and outstanding; 400,000 shares of Common Stock
issuable upon exercise of warrants; 41,941,838 shares of Common Stock
issuable upon conversion of Series B Preferred Stock; 20,162,800 shares of
Common Stock issuable upon conversion of Series C Preferred Stock; and
10,101,000 shares of Common Stock issuable upon conversion of Series D
Preferred Stock. Palisade ownership represents 84.2% of the Voting Stock.
The address of Palisade is One Bridge Plaza, Suite 695, Fort Lee, NJ 07024.

(6) Includes 180,000 shares of Common Stock and 1,561,450 shares of Common
Stock issuable upon the exercise of outstanding options owned by Dr.
Yimoyines. Also includes the following securities held by Linda Yimoyines,
wife of Dr. Yimoyines: 374,925 shares of Common Stock; 4,722,717 shares of
Common Stock issuable upon conversion of Series B Preferred Stock; 145,100
shares of Common Stock issuable upon conversion of Series C Preferred
Stock; 1,123,720 shares of Common Stock issuable upon conversion of Series
D Preferred Stock; and 50,000 shares issuable upon exercise of warrants.
Dr. Yimoyines disclaims beneficial ownership of securities held by his
wife. Dr. Yimoyines ownership represents 0.2% of the Voting Stock and Ms.
Yimoyines ownership represents 5.8% of the Voting Stock.

(7) Consists of 2,300,000 shares of Common Stock issuable upon exercise of
warrants held by Medici I Investment Corp. and 154,026 shares of Common
Stock held by Alexander Enterprise Holdings Corp. Mr. Nicholas Berggruen
acts as an investment advisor to both Medici I Investment Corp. and
Alexander Enterprise. Mr. Berggruen disclaims beneficial ownership of such
shares. The address of Alexander Enterprise Holdings Corp. is: c/o Alpha
Investment Management, Inc., 499 Park Ave., 24th Floor, New York, NY 10022.

(8) Common Stock beneficially owned by Mr. Bertrand consists of 54,300 shares
of Common Stock held directly by Mr. Bertrand; 19,375,000 shares of Common
Stock owned by Palisade; 400,000 shares of Common Stock issuable upon
exercise of warrants held by Palisade; 41,941,838 shares of Common Stock
issuable upon conversion of Series B Preferred Stock owned by Palisade;
20,162,800 shares of Common Stock issuable upon conversion of Series C
Preferred Stock owned by Palisade; and 10,101,000 shares of Common Stock
issuable upon conversion of Series D Preferred Stock. Mr. Bertrand is a
director of Palisade Capital Management, LLC, an affiliate of Palisade.

(9) Includes 288,368 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Blaskiewicz.

(10) Includes 280,000 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Drubner.

(11) Includes of 215,354 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Harrold.

(12) Common Stock beneficially owned by Mr. Hoffman consists of 19,375,000
shares of Common Stock owned by Palisade; 400,000 shares of Common Stock
issuable upon exercise of warrants held by Palisade; 41,941,838 shares of
Common Stock issuable upon conversion of Series B Preferred Stock owned by
Palisade; 20,162,800 shares of Common Stock issuable upon conversion of
Series C Preferred Stock owned by Palisade; and 10,101,000 shares of Common
Stock issuable upon conversion of Series D Preferred Stock. Mr. Hoffman is
a managing director of Palisade Capital Management, LLC, an affiliate of
Palisade.

(13) Consists of 250,000 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Huber.

(14) Includes 40,000 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Johnson.

(15) Includes 80,000 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Meskin.

(16) Consists of 240,000 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Newman.

(17) Consists of 57,500 shares of common stock, 18,750 shares of restricted
common stock and 628,750 shares of Common Stock issuable upon the exercise
of outstanding options held by Mr. Walls.

(18) Mr. Wilkes employment with us terminated in October 2004.

(19) Includes 144,500 shares of Common Stock issuable upon the exercise of
outstanding options held by Mr. Bishop.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain aggregate information with respect
to all of our equity compensation plans in effect as of December 31, 2004.

---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
---------------------------------------------------------------------------------------------------------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding options remaining available for
outstanding options future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
---------------------------------------------------------------------------------------------------------------------------

Equity compensation plans 6,638,443 $0.90 1,721,348
approved by security
holders (1)
---------------------------------------------------------------------------------------------------------------------------
Equity compensation plans -- -- --
not approved by
security holders (2)
---------------------------------------------------------------------------------------------------------------------------
Total 6,638,443 $0.90 1,721,348
---------------------------------------------------------------------------------------------------------------------------

(1) These plans consist of the 1999 Performance Stock Program, the Amended
and Restated 1999 Employee Stock Purchase Plan, the 2000 Professional
Employee Stock Purchase Plan and the Amended and Restated 2002 Stock
Incentive Plan.

(2) There are no equity compensation plans that have not been approved by
stockholders.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

Key provisions of the employment agreements with the Named Executive
Officers are summarized below.

Christopher J. Walls, Chief Executive Officer, President and General
Counsel. We entered into an employment agreement with Mr. Walls on February 18,
2002 and on October 6, 2004; the agreement was amended and restated. Pursuant to
the amended and restated agreement, Mr. Walls served as our Chief Administrative
Officer until January 12, 2005. Under the amended and restated agreement, Mr.
Walls' initial base salary is $240,000 per year and he was entitled a bonus of
$46,000 for the fiscal year ending December 31, 2004, and thereafter, an annual
bonus based on performance measures, and additional bonus payments based on the
occurrence of certain specified events. In addition, pursuant to the amended and
restated agreement, Mr. Walls was granted an option to purchase up to 500,000
shares of our Common Stock at an exercise price equal to $0.29 per share. The
option will vest according to the terms set forth in the amended and restated
agreement and shall become fully vested upon a change of control. The amended
and restated agreement continues until otherwise terminated by us or Mr. Walls
with or without cause with at least thirty (30) days notice. If Mr. Walls is
terminated by us other than for cause or due to death or disability, he shall be
entitled to (i) continuation of salary for six months, (ii) continued benefits
for him and his family for six months, (iii) the immediate full vesting of the
options granted under the amended and restated agreement and (iv) the right to
exercise such options for up to one year following termination. Upon his joining
us in 2002, Mr. Walls received, pursuant to the 2002 Stock Incentive Plan,
options to purchase up to 125,000 shares of our Common Stock at an exercise
price of $0.16 per share, which options vest at the rate of 25% per year over
four years commencing March 19, 2003. Mr. Walls also received 25,000 shares of
restricted Common Stock, which shares vest at the rate of 25% per year over four
years commencing March 19, 2003.

Dean J. Yimoyines, Chairman and former Chief Executive Officer. The
Company entered into an employment agreement with Dr. Yimoyines on August 10,
1999. In connection with our sale of our Distribution Division, on January 12,
2005, we entered into a transition agreement with Dr. Yimoyines pursuant to
which Dr. Yimoyines resigned as our Chief Executive Officer and from all other
positions with us and our subsidiaries, except for his position as Chairman of
our Board of Directors and his position as the President and Chairman of our
medical affiliate, OptiCare P.C. Pursuant to the transition agreement, our
existing employment agreement with Dr. Yimoyines was terminated and Dr.
Yimoyines and we generally released each other from any and all claims we may
have had against each other, subject to certain exceptions. In addition, Dr.
Yimoyines generally agreed not to compete with us while employed at OptiCare
P.C. and for the 18-month period following the end of his employment at OptiCare
P.C.

In addition, on January 12, 2005, simultaneously with the closing of
our sale of our Distribution Division and the execution and delivery of the
transition agreement, OptiCare P.C., our medical affiliate, entered into an
employment agreement with Dr. Yimoyines. Pursuant to the terms of the employment
agreement, Dr. Yimoyines serves as OptiCare P.C.'s President and Chief Executive
Officer on an at will basis. Dr. Yimoyines initial base salary under this
agreement is $245,000 per year.

Gordon A. Bishop, President, Consumer Vision Division. We entered into
an employment agreement with Mr. Bishop on September 8, 1999, and on April 29,
2005, the agreement was amended. Pursuant to the agreement, as amended, Mr.
Bishop serves as the President of our Consumer Vision Division. Under the
agreement, as amended, Mr. Bishop's base salary is $150,000 per year and he is
entitled to bonuses as authorized by our Board of Directors. In addition,
pursuant to the agreement, Mr. Bishop was granted an option to purchase up to
25,000 shares of our Common Stock at an exercise price equal to $5.85 per share.
The agreement continues until February 28, 2006 unless otherwise terminated by
us for cause or without cause or by Mr. Bishop. If Mr. Bishop terminates his
employment or if we terminate his employment other than for cause, he shall be
entitled to continuation of salary until February 28, 2006, provided, that if we
terminate Mr. Bishop's employment other than for cause before August 31, 2005,
he shall be entitled to continuation of salary until August 31, 2006. In
addition, pursuant to the agreement, as amended, Mr. Bishop agreed not to
compete with us for a period of ten months.

William A. Blaskiewicz, Vice President, Chief Financial Officer. Mr.
Blaskiewicz' employment agreement began on September 1, 2001, and continues
until terminated by either party. Effective January 1, 2004, his base annual
salary, excluding the cost of certain perquisites, is $172,500. As provided in
our 2003 Incentive Compensation Plan, Mr. Blaskiewicz may receive discretionary
bonuses as authorized by the Board of Directors and as determined by the Chief
Executive Officer. Mr. Blaskiewicz may terminate the agreement for any reason
upon 90 days' notice. It shall be deemed a termination of the agreement if,
during the term of the agreement, we: (a) require Mr. Blaskiewicz to relocate
permanently outside of Connecticut, (b) require Mr. Blaskiewicz to render
services other than those customarily

performed by chief financial officers or (c) materially increase or decrease his
duties or responsibilities. In the event of a deemed termination, or if we
terminate Mr. Blaskiewicz' employment agreement without cause, then he shall
receive: (a) a severance payment equal to his base salary for 12 months from the
date of termination, and (b) payment for any benefits which are required to be
continued under COBRA during the 12 months from the date of termination.
Additionally, during the term of the agreement and for a period of 18 months
after termination, subject to certain exceptions, Mr. Blaskiewicz may not render
services directly or indirectly to any organization that competes with any of
our product, processes or services.

Jason M. Harrold, President, Managed Vision Division. We entered into
an employment agreement with Mr. Harrold on July 1, 2000. The initial term of
this agreement was two years, but it is automatically renewable for subsequent
one year terms unless either party gives the other six months' notice prior to
the renewal date. Pursuant to its terms, Mr. Harrold's employment agreement was
automatically renewed for one year to June 30, 2005. Effective January 1, 2004,
Mr. Harrold's annual base salary is $180,000. As provided in our 2003 Incentive
Compensation Plan, Mr. Harrold may receive discretionary bonuses of up to 100%
of base salary, as authorized by the Board of Directors and as determined by the
Chief Executive Officer. Mr. Harrold may terminate the agreement without cause
upon six months' notice and we may terminate the agreement without cause at any
time upon notice. If Mr. Harrold is terminated without cause, he is entitled to:
(a) a lump sum payment of 12 months' base salary, and (b) benefits for a
12-month period. If Mr. Harrold becomes disabled, he is entitled to full base
salary for the first three months, and, thereafter, as allowed by a long-term
disability policy provided by us, 60% of base salary plus performance-based
bonus earned as of the date of disability. During the term of the agreement and
for a period of 18 months after termination, subject to certain exceptions, Mr.
Harrold may not render services directly or indirectly to any organization which
is engaged in: (i) the managed eye care business, (ii) the optical buying group
business, or (iii) the business of owning or managing the practice of
ophthalmologists, optometrists, opticians, ambulatory or refractive surgery
facilities or providing services to such organizations. If, during the one year
period following a change in control, Mr. Harrold's duties are materially
diminished, his principal place of employment is moved more than 50 miles, or
his employment is terminated by us without cause or by non-renewal of the
agreement, he shall receive a lump sum payment equal to his annual base salary.

Lance A. Wilkes, former President and Chief Operating Officer. We
entered into an employment agreement with Mr. Wilkes on May 21, 2002 and he
terminated his employment with us on October 22, 2004 pursuant to the terms of
our employment agreement with him. Mr. Wilkes' employment began on June 10,
2002. Effective January 1, 2004, Mr. Wilkes' annual base salary, excluding the
cost of certain perquisites, is $225,000. As provided in the Company's 2003
Incentive Compensation Plan, Mr. Wilkes may receive discretionary bonuses as
authorized by the Board of Directors and as determined by the Chief Executive
Officer. Following Board of Director approval, Mr. Wilkes received, pursuant to
the Amended and Restated 2002 Stock Incentive Plan, options to purchase up to
600,000 shares of the Company's Common Stock at an exercise price of $0.26 per
share; options to purchase up to 200,000 shares of the Company's Common Stock at
an exercise price equal to $1.00 per share; and options to purchase up to
200,000 shares of the Company's Common Stock at an exercise price equal to $2.00
per share, all of which options vest at the rate of 25% per year over four years
commencing June 27, 2003. If the Company terminates Mr. Wilkes' employment
agreement without cause, then he shall receive: (a) a severance payment equal to
his base salary for three months from the date of termination, and (b) payment
for any benefits which are required to be continued under COBRA during such
period as is then mandated by law commencing with the date of termination. In
the event of a change in control of the Company, Mr. Wilkes' stock option grant
shall become immediately vested. During the term of the agreement and for a
period of 18 months after termination, subject to certain exceptions, Mr. Wilkes
may not render services directly or indirectly to any organization which is
engaged in: (i) the managed eye care business, (ii) the optical buying group
business, or (iii) the business of managing, owning or affiliating with the
practices of ophthalmologists, optometrists, opticians, ambulatory or refractive
surgery facilities or providing services to such facilities; and shall not,
without the prior written consent of the Company, render services to any
individual or organization which is engaged in researching, marketing or selling
any process or service which competes or would compete with a product, process
or service of the Company, its subsidiaries and affiliates.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

OPTICARE, P.C. PROFESSIONAL SERVICES AND SUPPORT AGREEMENT

OptiCare Eye Health Centers, Inc. is party to a Professional Services
and Support Agreement, dated December 1, 1995 with OptiCare, P.C., a Connecticut
professional corporation. Dr. Yimoyines, the Chairman of the Board and our
former Chief Executive Officer, and a beneficial holder of 18.5% of our
outstanding Voting Stock, is the sole stockholder of OptiCare, P.C. Pursuant to
that agreement, OptiCare, P.C. employs medical personnel and performs all
ophthalmology and optometry services at our facilities in Connecticut. We select
and provide the facilities at which the services are performed and the exclusive
provider of all administrative and support services for

the facilities for which OptiCare, P.C. provides medical personnel and performs
all ophthalmology and optometry services pursuant to this agreement. We bill and
receive payment for the services rendered by the medical personnel of OptiCare,
P.C., which totaled approximately $20.0 million in 2004, and OptiCare P.C. pays
its physicians compensation for such medical services rendered, which totaled
approximately $8.3 million in 2004. These amounts were included in consolidated
revenue and expense, respectively, for the year ended December 31, 2004.

On January 12, 2005, simultaneously with the closing of our sale of our
Distribution Division and the execution and delivery of the employment agreement
between OptiCare, P.C. and Dr. Yimoyines, we, together with our wholly-owned
subsidiary, OptiCare Eye Health Centers, Inc., entered into Amendment No. 1 to
Professional Services and Support Agreement. The Amendment amends the terms of
the Professional Services and Support Agreement to reduce the annual service fee
payable by OptiCare P.C. to us by $245,000. Under the Professional Services and
Support Agreement, as amended, if the annual service fee payable by OptiCare
P.C. is below $245,000, we must pay the amount of any shortfall to OptiCare P.C.

We own all the rights to the "OptiCare" name and, under the terms of
the agreement, if the agreement with OptiCare, P.C. is terminated, OptiCare,
P.C. must change its name and discontinue using the OptiCare name. The agreement
expired on December 1, 2002, but automatically renews for successive two year
terms unless either party terminates the agreement at least 180 days before the
next renewal date.

CERTAIN LEASES

We, through our subsidiaries, were, during 2004, party to certain
leases with entities in which present or former officers of ours have ownership
interests. All such leases which were in effect during all or part of 2004 are
listed below.

1. OptiCare Eye Health Centers, Inc. is the tenant under a Lease Agreement
dated September 1, 1995 with O.C. Realty Associates Limited
Partnership, as landlord. The leased premises are located in New
Milford, Connecticut and are used for the practice of ophthalmology and
optometry and incidental activities such as the sale of eyeglasses and
corrective lenses. The term of the lease is 15 years. Dr. Yimoyines,
Chairman of the Board and our former Chief Executive Officer of the
Company and John Yimoyines, brother of Dr. Yimoyines each owns a 4.11%
interest in O.C. Realty Associates Limited Partnership. In 2004,
OptiCare Eye Health Centers, Inc. paid $50,400 under the lease.

2. OptiCare Eye Health Centers, Inc. is the tenant under a Lease Agreement
dated September 1, 1995 with French's Mill Associates, as landlord. The
leased premises are located in Waterbury, CT and are used for the
practice of ophthalmology and optometry, an ambulatory surgery center,
and incidental activities such as the sale of eyeglasses and corrective
lenses. The term of the lease is fifteen years. In addition, OptiCare
Eye Health Centers, Inc. pays all taxes, assessments, utilities and
insurance related to the property being leased. Linda Yimoyines, wife
of Dr. Yimoyines, and John Yimoyines each owns a 14.28% interest in
French's Mill Associates. In 2004, OptiCare Eye Health Centers, Inc.
paid $816,209 under the lease.

3. OptiCare Eye Health Centers, Inc. is the tenant under a Lease dated
September 30, 1997 with French's Mill Associates II, LLP, as landlord.
The leased premises are located in Waterbury, CT and are the location
of our main headquarters. The term of the lease is fifteen years. Linda
Yimoyines and John Yimoyines each own a 12.5% interest in French's Mill
Associates II, LLP. In 2004, OptiCare Eye Health Centers, Inc. paid
$207,150 under the lease.

4. OptiCare Eye Health Centers, Inc. is also the tenant under a second
Lease Agreement dated September 1, 1995 with French's Mill Associates
II, L.L.P. as landlord. The leased premises are located in Waterbury,
CT and are also part of our main headquarters. The term of the lease is
fifteen years. In addition, OptiCare Eye Health Centers, Inc. pays all
taxes, assessments, utilities and insurance related to the property
being leased. Linda Yimoyines and John Yimoyines each own a 12.5%
interest in French's Mill Associates II, LLP. In 2004, OptiCare Eye
Health Centers, Inc. paid $58,960 under the lease.

5. O.N.B. Associates owns approximately a 25% interest in Cross Street
Medical Building Partnership, the landlord under a lease dated March 1,
2001. The leased premises are located in Norwalk, CT and are used for
the practice of ophthalmology and optometry and incidental activities
such as the sale of eyeglasses and corrective lenses. The term of the
lease is five years. Linda Yimoyines and John Yimoyines each own an 11%
interest in O.N.B. Associates. In 2004, OptiCare Eye Health Centers,
Inc. paid $129,033 under the lease.

6. PrimeVision Health, Inc., as a result of a merger with Cohen Systems,
Inc. (now known as CC Systems), was a tenant under a Lease Agreement
with Stephen Cohen, a former officer of ours, and Bente Jensen, Mr.
Cohen's wife. We sold the CC Systems, Inc. business to Stephen Cohen
on September 10, 2004. The leased premises were located in Largo, FL
and were used as the office for CC Systems' operations. The lease term
was five years beginning October 1, 1999. In 2004, PrimeVision Health,
Inc. paid $20,250 under the lease through September.

One of our subsidiaries remains a guarantor with respect to two leases
where the lessee is an entity owned by Drs. Harrold and Barker, two of our
former officers. The leased premises are used for the practice of optometry and
for the sale of eyeglasses and corrective lenses and expire in 2005. Aggregate
annual rent under the leases is $194,392. Each of the guarantees and its
underlying lease involved the professional optometry practice locations and
retail optical business we owned or operated in the State of North Carolina
which were sold to Optometric Eye Care Center, P.A. in August 2002. Although, in
connection with that sale, Optometric Eye Care Center, P.A. assumed from us any
obligations we or our subsidiaries or our affiliates may have had as lessee
under those leases, Optometric Eye Care Center, P.A. and we were unable to
obtain landlord consent to the assignment of our guarantees with respect to the
leases.

CONSULTING AGREEMENTS

In June 2002, we entered into a consulting agreement with Melvin
Meskin, a member of our Board of Directors. The consulting agreement expired on
February 28, 2003 and a new agreement was entered into effective March 1, 2003.
The March 1, 2003 agreement continued through 2004 under the same terms unless
either party provides 30 days prior written notice of a desire to terminate. The
consulting agreement was terminated on February 28, 2005 by mutual consent of
the parties. In 2004, we paid an aggregate of $72,000 to Mr. Meskin in
consideration of consulting services under these agreements.

CONVERSION OF LOANS TO SERIES C PREFERRED STOCK

In January 2002, Linda Yimoyines, wife of Dr. Yimoyines, participated in our
January 2002 capital restructuring by lending us $100,000 on a subordinated
basis. On May 12, 2003, Ms. Yimoyines exchanged the entire amount of principal
and interest due to her under that loan, totaling approximately $116,000 for
2,902 shares of Series C Preferred Stock.

Mr. Hoffman, a current director, is also an officer of Palisade Capital
Management, LLC, an affiliate of Palisade Concentrated Equity Partnership, LP,
or Palisade. Palisade, a holder of approximately 63% of our Common Stock and
which now holds approximately 84% of the voting power of our Voting Stock, also
participated in the January 2002 capital restructuring by lending us $13,900,000
on a subordinated basis. On May 12, 2003, Palisade exchanged the entire amount
of principal and interest due to them under that loan, totaling an aggregate of
approximately $16,135,000, for a total of 403,256 shares of Series C Preferred
Stock. Our director Mr. Bertrand was also an officer of Palisade Capital
Management, LLC until January 2005.
Rider 19

ISSUANCE AND SALE OF SERIES D PREFERRED STOCK

On January 12, 2005, pursuant to the terms of a Series B Preferred
Stock Purchase Agreement, we sold Palisade Concentrated Equity Partnership,
L.P., for approximately $4.0 million in cash, 252,525 shares of our newly
created Series D Preferred Stock, which were initially convertible into
10,101,000 shares of our Common Stock and Linda Yimoyines, for approximately
$0.445 million in cash, 28,093 shares of our Series D Preferred Stock, which
were initially convertible into 1,123,720 shares of our Common Stock. Each
holder of Series D Preferred Stock is entitled to vote, on an as converted
basis, on all matters with the holders of Common Stock and receive dividends
equally and ratably with the holders of Common Stock in an amount equal to the
dividends such holder would receive if it had converted its Series D Preferred
Stock into Common Stock on the date the dividends are declared.

SALE OF OUR DISTRIBUTION DIVISION

On January 12, 2005, our wholly-owned subsidiary, OptiCare Acquisition
Corp., entered into an Asset Purchase Agreement with Wise Optical, LLC and
AECC/Pearlman Buying Group, LLC, both entities formed by Dr. Yimoyines, pursuant
to which we sold, effective as of December 31, 2004, substantially all of the
assets and certain liabilities of our Distribution Division, which consisted of
our contact lens distributor, Wise Optical, and our Optical Buying Group, for an
aggregate purchase price of $4,150,000, less a working capital adjustment. The
assets disposed of include, but were not limited to, to the extent transferable,
all of the inventory, accounts receivable, equipment, leases, contracts,
intellectual property, deposits, business records, government approvals, claims
and goodwill of the Distribution Division.

In connection with our sale of the Distribution Division on January
12, 2005, we entered into a Supply Agreement with AECC/Pearlman Buying Group,
LLC and Wise Optical LLC. The Supply Agreement is a four year commitment to
purchase, on a non-exclusive basis, $4,200,000 of optical products per year
through AECC/Pearlman Buying Group, LLC from certain designated manufacturers
and suppliers. This annual commitment includes the purchase of $1,275,000 of
contact lenses a year from Wise Optical LLC. Under the Supply Agreement, we are
also obligated to pay AECC/Pearlman Buying Group, LLC an annual fee based on the
total of all purchases we make under the Supply Agreement. If the Supply
Agreement is terminated because of our default, we must make a buyout payment of
between $800,000 and $200,000 depending on when the Supply Agreement is
terminated.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte & Touche LLP has served as our independent accountants since
August 1999. Deloitte & Touche audited our financial statements for the fiscal
year ended December 31, 2004.

AUDIT AND NON-AUDIT FEES

The following table presents fees for professional audit services
rendered by Deloitte & Touche LLP for the audit of our consolidated financial
statements for the years ended December 31, 2004, and December 31, 2003, and
fees billed for other services rendered by Deloitte & Touche LLP during those
periods:

2004 2003
----------------- -----------------
Audit fees $ 430,000 $ 401,200
Audit-related fees 220,300 120,400
Tax fees 48,400 55,800
----------------- -----------------
Total $ 698,700 $ 577,400
================= =================

Audit Fees. Consists of fees we paid Deloitte & Touche LLP for
professional services for the audit of our consolidated financial statements
included in our Annual Report on Form 10-K and review of financial statements
included in our Quarterly Reports on Form 10-Q, or for services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements.

Audit-related fees. Represents fees billed by Deloitte & Touche LLP for
assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and primarily represent services
provided in connection with the restatement of the financial statements in 2004.
In 2003, the services provided relate to our acquisition of Wise Optical. In
addition, 2004 included fees paid to UHY LLP of $70,300 in connection with
Sarbanes-Oxley implementation and the audit of our 401(k) retirement plan.

Tax fees. Represents fees billed by UHY LLP for tax compliance and
related services.

All other fees. For the fiscal years ended December 31, 2004 and 2003,
there were no services provided by Deloitte & Touche LLP or UHY LLP in this
category.

The Audit Committee has considered whether the provision of non-audit
services by Deloitte & Touche LLP is compatible with maintaining their
independence and has concluded that it is.

The Audit Committee approves in advance all audit and permissible
non-audit services (including the fees and terms thereof) to be provided to us
and our subsidiaries by our independent accountants, subject to the de minimus
exceptions for non-audit services under the Securities Exchange Act of 1934.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed herewith:

EXHIBIT NUMBER DESCRIPTION
----------------- --------------

31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

May 2, 2005 OPTICARE HEALTH SYSTEMS, INC.

By: /s/ Christopher J. Walls
------------------------------
Christopher J. Walls
Chief Executive Officer,
President and General Counsel

EXHIBIT INDEX

31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.