Background

We believe that stock options are a valuable tool to align the interests of employees and shareholders. For this reason, we have offered employees worldwide stock options to recognize, reward and motivate their performance.

In 1998 and 2000, we issued stock options under the Kodak Stock Option Plan to all employees worldwide with the exception of our management-level employees. We also maintain another plan for all employees under which stock options may be granted periodically for exceptional, individual performance.

Under our management stock option plans, our policy has generally been to grant options to management-level employees at the time of their initial employment and to make annual grants of options to management-level employees.

At the time an option is awarded, we specify the number of shares of common stock that can be purchased upon exercise of the option and the price per share which the employee must pay in order to exercise the option. We do not grant stock options with an exercise price less than the current trading price of our common stock.

As of December 10, 2001, options to purchase an aggregate of 31,353,133 shares of common stock were eligible for exchange under the Stock Option Exchange Program with exercise prices ranging from $26.90 to $92.31. Approximately 61,000 employees worldwide hold these options. Each of these options was granted under one of the following plans: the Eastman Kodak Company 1990 Omnibus Long-Term Compensation Plan, the Eastman Kodak Company 1995 Omnibus Long-Term Compensation Plan, the 2000 Omnibus Long-Term Compensation Plan, the Wage Dividend Plan and the Kodak Stock Option Plan. The shares of common stock for which the new options will be exercisable have been registered with the Securities and Exchange Commission.

The new options will be granted from the same option plan under which the surrendered options were originally granted. The terms and conditions of the new options will generally be identical to the surrendered options they replace except for the exercise price and the number of shares underlying the options, as more fully described below. All new options granted under the Stock Option Exchange Program will be nonqualified stock options for U.S. federal income tax purposes.