Document:

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                                                                    EXHIBIT 10.5

May 8, 2003

Dear Jim,

         Re: Amendment to Agreement

As you know, Williams-Sonoma, Inc. ("Williams-Sonoma") entered into an agreement
(the "Agreement") with you as of May 8, 2001, with regard to certain aspects of
your employment by it as Chief Operating Officer of Williams-Sonoma.
Williams-Sonoma is prepared to extend your rights under the Agreement on the
terms and conditions specified in this amendment to the Agreement (this
"Amendment"). (All capitalized terms that are not defined in this Amendment have
the definitions assigned to them in the Agreement.)

Specifically, you and Williams-Sonoma agree as follows:

1.       Covered Stock Options. The Agreement and this Amendment relate to the
         Unvested Options, and do not take into account, or in any way cover,
         any other stock options that Williams-Sonoma has granted to you before
         the date of this Amendment, or may grant to you after the date of this
         Amendment.

2.       Extension of Rights. In consideration of your agreement to continue to
         be employed by Williams-Sonoma until May 8, 2005 (the "Fourth
         Anniversary Date") and to continue to be bound by the provisions of the
         Agreement until the Fourth Anniversary Date, Williams-Sonoma has agreed
         to extend all of your rights under the Agreement until such date.
         Solely by way of example, if, at any time before the Fourth Anniversary
         Date, you voluntarily terminate your employment with Williams-Sonoma
         for any reason, or you are terminated without Cause, you agree that (i)
         within ninety days of such termination, you will exercise in full all
         of the Unvested Options and (ii) upon such exercise, Williams-Sonoma
         shall be obligated to pay you the difference, if any, between the
         Second Guaranteed Spread and the Spread on the date of exercise.

3.       No Stock Option Exercises. You represent and warrant that you have not
         exercised any of the Unvested Options as of the date of this Amendment,
         as required by the Agreement.

4.       Expiration of Rights. All of your rights under the Agreement, and all
         of Williams-Sonoma's obligations under the Agreement, shall expire
         automatically on the Fourth Anniversary Date, except that if your
         employment with Williams-Sonoma terminates on or before the Fourth
         Anniversary Date, all of your rights under the Agreement shall expire
         ninety days after the termination date.

5.       Miscellaneous. This Amendment shall be governed by, and construed and
         enforced in accordance with, the laws of the State of California
         applicable to contracts to be performed therein. This Amendment may not
         be modified without the written

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         consent of both parties. Except as expressly stated in this Amendment,
         the Agreement shall remain unchanged and in full force and effect.

Please indicate your agreement to the terms of this agreement by signing below
and returning the signed copy to me.

Sincerely,

Williams-Sonoma, Inc.

By: /s/ W. Howard Lester
    --------------------
    W. Howard Lester,
    its Chairman

ACCEPTED AND AGREED TO:

/s/ James E. Boike
------------------
James E. Boike

May 8, 2003
-----------
Date<PAGE>

                                 EXHIBIT (10-1)

        The Procter & Gamble 2001 Stock and Incentive Compensation Plan

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         THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN
                 (As Approved by the Shareholders on October 9,
                       2001 and Amended December 10, 2002)

ARTICLE A -- Purpose.

       The purposes of The Procter & Gamble 2001 Stock and Incentive
Compensation Plan (the "Plan") are to strengthen the alignment of interests
between those employees of The Procter & Gamble Company (the "Company") and its
subsidiaries who are largely responsible for the success of the business (the
"Participants") and the Company's shareholders through ownership behavior and
the increased ownership of shares of the Company's common stock (the "Common
Stock"), and to encourage the Participants to remain in the employ of the
Company and its subsidiaries. This will be accomplished through the granting of
options to purchase shares of Common Stock, the granting of performance related
awards, the payment of a portion of the Participants' remuneration in shares of
Common Stock, the granting of deferred awards related to the increase in the
price of Common Stock, and the granting of restricted stock units ("RSUs") or
other awards that are related to the price of Common Stock.

ARTICLE B -- Administration.

       1.     The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), or such
other committee as may be designated by the Board. The Committee shall consist
of not fewer than three (3) members of the Board who are "Non-Employee
Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), or any successor rule or definition adopted by the
Securities and Exchange Commission, to be appointed by the Board from time to
time and to serve at the discretion of the Board. The Committee may establish
such regulations, provisions, and procedures within the terms of the Plan as, in
its opinion, may be advisable for the administration and operation of the Plan,
and may designate the Secretary of the Company or other employees of the Company
to assist the Committee in the administration and operation of the Plan and may
grant authority to such persons to execute documents on behalf of the Committee.
The Committee shall report to the Board on the administration of the Plan not
less than once each year.

       2.     Subject to the express provisions of the Plan, the Committee shall
have authority: to grant nonstatutory and incentive stock options; to grant
stock appreciation rights either freestanding or in tandem with simultaneously
granted stock options; to grant Performance Awards (as defined in Article J); to
award a portion of a Participant's remuneration in shares of Common Stock
subject to such conditions or restrictions, if any, as the Committee may
determine; to award RSUs or other awards that are related to the price of Common
Stock; to determine all the terms and provisions of the respective stock option,
stock appreciation right, stock award, RSU, or other award agreements including
setting the dates when each stock option or stock appreciation right or part
thereof may be exercised and determining the conditions and restrictions, if
any, of any shares of Common Stock acquired through the exercise of any stock
option; to provide for special terms for any stock options, stock appreciation
rights, stock awards, RSUs or other awards granted to Participants who are
foreign nationals or who are employed by the Company or any of its subsidiaries
outside of the United States of America in order to fairly accommodate for
differences in local law, tax policy or custom and to approve such supplements
to or amendments, restatements or alternative versions of the Plan as the
Committee may consider necessary or appropriate for such purposes (without
affecting the terms of the Plan for any other purpose); and to make all other
determinations it deems necessary or advisable for administering the Plan. In
addition, at the time of grant the Committee shall have the further authority
to:

       (a)    waive the provisions of Article F, Paragraph 1(a);

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       (b)    waive the provisions of Article F, Paragraph 1(b);

       (c)    waive the provisions of Article G, Paragraph 4(a), 4(b) and 4(c);
              and

       (d)    impose conditions in lieu of those set forth in Article G,
              Paragraphs 4 through 7, for nonstatutory stock options, stock
              appreciation rights, stock awards, or Performance Awards which do
              not increase or extend the rights of the Participant.

ARTICLE C -- Participation.

       The Committee shall select as Participants those employees of the Company
and its subsidiaries who, in the opinion of the Committee, have demonstrated a
capacity for contributing in a substantial manner to the success of such
companies.

ARTICLE D -- Limitation on Number of Shares Available under the Plan.

       1.     Unless otherwise authorized by the shareholders and subject to
Paragraph 2 of this Article D, the maximum aggregate number of shares available
for award under the Plan shall be ninety-five million shares. Any of the
authorized shares may be used for any of the types of awards described in the
Plan, except that no more than fifteen percent (15%) of the authorized shares
may be awarded as restricted or unrestricted stock.

       2.     In addition to the shares authorized for award by Paragraph 1 of
this Article, the following shares may be awarded under the Plan:

              (a) shares that were authorized to be awarded under The Procter &
Gamble 1992 Stock Plan (the "1992 Plan"), but that were not awarded under the
1992 Plan;

              (b) shares awarded under the Plan or the 1992 Plan that are
subsequently forfeited in accordance with the Plan or the 1992 Plan,
respectively;

              (c) shares tendered by a Participant in payment of all or part of
the exercise price of a stock option awarded under the Plan or the 1992 Plan;

              (d) shares tendered by or withheld from a Participant in
satisfaction of withholding tax obligations with respect to a stock option
awarded under the Plan or the 1992 Plan.

ARTICLE E -- Shares Subject to Use under the Plan.

       1.     The shares to be delivered by the Company upon exercise of stock
options or stock appreciation rights shall be determined by the Board and may
consist, in whole or in part, of authorized but unissued shares or treasury
shares. In the case of redemption of stock appreciation rights by one of the
Company's subsidiaries, such shares shall be shares acquired by that subsidiary.

       2.     For purposes of the Plan, restricted or unrestricted stock awarded
under the terms of the Plan shall be authorized but unissued shares, treasury
shares, or shares acquired in the open market by the Company or a subsidiary, as
determined by the Board.

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ARTICLE F -- Stock Options and Stock Appreciation Rights.

       1.     In addition to such other conditions as may be established by the
Committee, in consideration of the granting of stock options or stock
appreciation rights under the terms of the Plan, each Participant agrees as
follows:

       (a)    The right to exercise any stock option or stock appreciation right
              shall be conditional upon certification by the Participant at time
              of exercise that the Participant intends to remain in the employ
              of the Company or one of its subsidiaries for at least one (1)
              year following the date of the exercise of the stock option or
              stock appreciation right (provided that termination of employment
              due to Retirement or Special Separation shall not constitute a
              breach of such certification), and,

       (b)    In order to better protect the goodwill of the Company and its
              subsidiaries and to prevent the disclosure of the Company's or its
              subsidiaries' trade secrets and confidential information and
              thereby help insure the long-term success of the business, the
              Participant, without prior written consent of the Company, will
              not engage in any activity or provide any services, whether as a
              director, manager, supervisor, employee, adviser, consultant or
              otherwise, for a period of three (3) years following the date of
              the Participant's termination of employment with the Company
              (except for terminations of employment resulting from Retirement
              or Special Separation), in connection with the manufacture,
              development, advertising, promotion, or sale of any product which
              is the same as or similar to or competitive with any products of
              the Company or its subsidiaries (including both existing products
              as well as products known to the Participant, as a consequence of
              the Participant's employment with the Company or one of its
              subsidiaries, to be in development):

              (1)   with respect to which the Participant's work has been
                    directly concerned at any time during the two (2) years
                    preceding termination of employment with the Company or one
                    of its subsidiaries or

              (2)   with respect to which during that period of time the
                    Participant, as a consequence of the Participant's job
                    performance and duties, acquired knowledge of trade secrets
                    or other confidential information of the Company or its
                    subsidiaries.

              For purposes of this paragraph, it shall be conclusively presumed
              that Participants have knowledge of information they were directly
              exposed to through actual receipt or review of memos or documents
              containing such information, or through actual attendance at
              meetings at which such information was discussed or disclosed.

       (c)    The provisions of this Article are not in lieu of, but are in
              addition to the continuing obligation of the Participant (which
              Participant hereby acknowledges) to not use or disclose the
              Company's or its subsidiaries' trade secrets and confidential
              information known to the Participant until any particular trade
              secret or confidential information become generally known (through
              no fault of the Participant), whereupon the restriction on use and
              disclosure shall cease as to that item. Information regarding
              products in development, in test marketing or being marketed or
              promoted in a discrete geographic region, which information the
              Company or one of its subsidiaries is considering for broader use,
              shall not be deemed generally known until such broader use is
              actually commercially implemented. As used in this Article,
              "generally known" means known throughout the domestic U. S.
              industry or, in the case of Participants who have job
              responsibilities outside of the United States, the appropriate
              foreign country or countries' industry.

<PAGE>

       (d)    By acceptance of any offered stock option or stock appreciation
              rights granted under the terms of the Plan, the Participant
              acknowledges that if the Participant were, without authority, to
              use or disclose the Company's or any of its subsidiaries' trade
              secrets or confidential information or threaten to do so, the
              Company or one of its subsidiaries would be entitled to injunctive
              and other appropriate relief to prevent the Participant from doing
              so. The Participant acknowledges that the harm caused to the
              Company by the breach or anticipated breach of this Article is by
              its nature irreparable because, among other things, it is not
              readily susceptible of proof as to the monetary harm that would
              ensue. The Participant consents that any interim or final
              equitable relief entered by a court of competent jurisdiction
              shall, at the request of the Company or one of its subsidiaries,
              be entered on consent and enforced by any court having
              jurisdiction over the Participant, without prejudice to any rights
              either party may have to appeal from the proceedings which
              resulted in any grant of such relief.

       (e)    If any of the provisions contained in this Article shall for any
              reason, whether by application of existing law or law which may
              develop after the Participant's acceptance of an offer of the
              granting of stock appreciation rights or stock options, be
              determined by a court of competent jurisdiction to be overly broad
              as to scope of activity, duration, or territory, the Participant
              agrees to join the Company or any of its subsidiaries in
              requesting such court to construe such provision by limiting or
              reducing it so as to be enforceable to the extent compatible with
              then applicable law. If any one or more of the terms, provisions,
              covenants, or restrictions of this Article shall be determined by
              a court of competent jurisdiction to be invalid, void or
              unenforceable, then the remainder of the terms, provisions,
              covenants, and restrictions of this Article shall remain in full
              force and effect and shall in no way be affected, impaired, or
              invalidated.

       2.     The fact that a Participant has been granted a stock option or a
stock appreciation right under the Plan shall not limit the right of the
employer to terminate the Participant's employment at any time. The Committee is
authorized to suspend or terminate any outstanding stock option or stock
appreciation right for actions taken by a Participant prior to termination of
employment if the Committee determines the Participant has acted significantly
contrary to the best interests of the Company or its subsidiaries.

       3.     The maximum number of shares with respect to which stock options
or stock appreciation rights may be granted to any Participant in any calendar
year shall not exceed 1,000,000 shares.

       4.     The aggregate fair market value (determined at the time when the
incentive stock option is exercisable for the first time by a Participant during
any calendar year) of the shares for which any Participant may be granted
incentive stock options under the Plan and all other stock option plans of the
Company and its subsidiaries in any calendar year shall not exceed $100,000 (or
such other amount as reflected in the limits imposed by Section 422(d) of the
Internal Revenue Code of 1986, as it may be amended from time to time).

       5.     If the Committee grants incentive stock options, all such stock
options shall contain such provisions as permit them to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as may be amended from time to time.

       6.     With respect to stock options granted in tandem with stock
appreciation rights, the exercise of either such stock options or such stock
appreciation rights will result in the simultaneous cancellation of the same
number of tandem stock appreciation rights or stock options, as the case may be.

<PAGE>

       7.     The exercise price for all stock options and stock appreciation
rights shall be established by the Committee at the time of their grant and
shall be not less than one hundred percent (100%) of the fair market value of
the Common Stock on the date of grant.

       8.     Unless otherwise authorized by the shareholders of the Company,
neither the Board nor the Committee shall authorize the amendment of any
outstanding stock option or stock appreciation right to reduce the exercise
price.

       9.     No stock option or stock appreciation right shall be cancelled and
replaced with awards having a lower exercise price without the prior approval of
the shareholders of the Company. This Article F, Paragraph 9 is intended to
prohibit the repricing of "underwater" stock options and stock appreciation
rights and shall not be construed to prohibit the adjustments permitted under
Article J of the Plan.

       10.    The Committee may require any Participant to accept any stock
options or stock appreciation rights by means of electronic signature.

ARTICLE G -- Exercise of Stock Options and Stock Appreciation Rights.

       1.     All stock options and stock appreciation rights granted hereunder
shall have a maximum life of no more than ten (10) years from the date of grant.

       2.     No stock options or stock appreciation rights shall be exercisable
within one (1) year from their date of grant, except in the case of the death of
the Participant.

       3.     Unless a transfer has been duly authorized by the Committee
pursuant to Article G, Paragraph 6 of the Plan, during the lifetime of the
Participant, stock options and stock appreciation rights may be exercised only
by the Participant personally, or, in the event of the legal incompetence of the
Participant, by the Participant's duly appointed legal guardian.

       4.     In the event that a Participant ceases to be an employee of the
Company or any of its subsidiaries while holding an unexercised stock option or
stock appreciation right:

       (a)    Any unexercisable portions thereof are then void, except in the
              case of: (1) death of the Participant; (2) Retirement or Special
              Separation that occurs more than six months from the date the
              options were granted; or (3) any option as to which the Committee
              has waived, at the time of grant, the provisions of this Article
              G, Paragraph 4(a).

       (b)    Any exercisable portions thereof are then void, except in the case
              of: (1) death of the Participant; (2) Retirement or Special
              Separation; or (3) any option as to which the Committee has
              waived, at the time of grant, the provisions of this Article G,
              Paragraph 4(b).

       (c)    In the case of Special Separation, any stock option or stock
              appreciation right must be exercised within the time specified in
              the original grant or five (5) years from the date of Special
              Separation, whichever is shorter.

       5.     In the case of the death of a Participant, the persons to whom the
stock options or stock appreciation rights have been transferred by will or the
laws of descent and distribution shall have the privilege of exercising
remaining stock options, stock appreciation rights or parts thereof, whether or
not exercisable on the date of death of such Participant, at any time prior to
the expiration date of the stock options or stock appreciation rights.

<PAGE>

       6.     Stock options and stock appreciation rights are not transferable
other than by will or by the laws of descent and distribution. For the purpose
of exercising stock options or stock appreciation rights after the death of the
Participant, the duly appointed executors and administrators of the estate of
the deceased Participant shall have the same rights with respect to the stock
options and stock appreciation rights as legatees or distributees would have
after distribution to them from the Participant's estate. Notwithstanding the
foregoing, the Committee may authorize the transfer of stock options and stock
appreciation rights upon such terms and conditions as the Committee may require.
Such transfer shall become effective only upon the Committee's complete
satisfaction that the proposed transferee has strictly complied with such terms
and conditions, and both the original Participant and the transferee shall be
subject to the same terms and conditions hereunder as the original Participant.

       7.     Upon the exercise of stock appreciation rights, the Participant
shall be entitled to receive a redemption differential for each such stock
appreciation right which shall be the difference between the then fair market
value of one share of Common Stock and the exercise price of one stock
appreciation right then being exercised. In the case of the redemption of stock
appreciation rights by a subsidiary of the Company not located in the United
States, the redemption differential shall be calculated in United States dollars
and converted to the appropriate local currency on the exercise date. As
determined by the Committee, the redemption differential may be paid in cash,
Common Stock to be valued at its fair market value on the date of exercise, any
other mode of payment deemed appropriate by the Committee or any combination
thereof.

       8.     Time spent on leave of absence shall be considered as employment
for the purposes of the Plan. Leave of absence means any period of time away
from work granted to any employee by his or her employer because of illness,
injury, or other reasons satisfactory to the employer.

       9.     The Company reserves the right from time to time to suspend the
exercise of any stock option or stock appreciation right where such suspension
is deemed by the Company as necessary or appropriate for corporate purposes. No
such suspension shall extend the life of the stock option or stock appreciation
right beyond its expiration date, and in no event will there be a suspension in
the five (5) calendar days immediately preceding the expiration date.

       10.    The Committee may require any Participant to exercise any stock
options or stock appreciation rights by means of electronic signature.

ARTICLE H -- Payment for Stock Options and Tax Withholding.

       Upon the exercise of a stock option, payment in full of the exercise
price shall be made by the Participant. As determined by the Committee, the
stock option exercise price may be paid by the Participant either in cash,
shares of Common Stock valued at their fair market value on the date of
exercise, a combination thereof, or such other method as determined by the
Committee. In addition to payment of the exercise price, the Committee may
authorize the Company to charge a reasonable administrative fee for the exercise
of any stock option. Furthermore, to the extent the Company is required to
withhold federal, state, local or foreign taxes in connection with any
Participant's stock option exercise, the Committee may require the Participant
to make such arrangements as the Company may deem necessary for the payment of
such taxes required to be withheld (including, without limitation,
relinquishment of a portion of such stock options or relinquishment of a portion
of the proceeds received by the Participant in a simultaneous exercise and sale
of stock during a "cashless" exercise). In no event, however, shall the
Committee be permitted to require payment from a Participant in excess of the
maximum required tax withholding rates.

<PAGE>

ARTICLE I -- Grant of Unrestricted or Restricted Stock.

       The Committee may grant Common Stock to Participants under the Plan
subject to such conditions or restrictions, if any, as the Committee may
determine. To the extent the Company is required to withhold federal, state,
local or foreign taxes in connection with the lapse of restrictions on any
Participant's shares of Common Stock, the Committee may require the Participant
to make such arrangements as the Company may deem necessary for the payment of
such taxes required to be withheld (including, without limitation,
relinquishment of a portion of such shares of Common Stock). In no event,
however, shall the Committee be permitted to require payment from a Participant
in excess of the maximum required tax withholding rates.

ARTICLE J -- Performance Related Awards.

       1.     The Committee, in its discretion, may establish performance goals
for selected Participants and authorize the granting of cash, stock options,
stock appreciation rights, Common Stock, RSUs or other awards that are related
to the price of Common Stock, other property, or any combination thereof
("Performance Awards") to such Participants upon achievement of such established
performance goals during a specified time period (the "Performance Period"). The
Committee, in its discretion, shall determine the Participants eligible for
Performance Awards, the performance goals to be achieved during each Performance
Period, the amount of any Performance Awards to be paid, and the method of
payment for any Performance Awards. Performance Awards may be granted either
alone or in addition to other grants made under the Plan.

       2.     Notwithstanding the foregoing, any Performance Awards granted to
the Chief Executive and the Company's other four highest paid executive officers
(as reported in the Company's proxy statement pursuant to Regulation S-K, Item
402(a)(3)) under Article J, Paragraph 1 shall comply with all of the following
requirements:

       (a)    Each grant shall specify the specific performance objectives (the
"Performance Objectives") which, if achieved, will result in payment or early
payment of the Performance Award. The Performance Objectives may be described in
terms of Company-wide objectives that are related to the individual Participant
or objectives that are related to a subsidiary, division, department, region,
function or business unit of the Company in which the Participant is employed,
and may consist of one or more or any combination of the following criteria:
stock price, market share, sales revenue, cash flow, earnings per share, return
on equity, total shareholder return, gross margin, and/or costs. The Performance
Objectives may be made relative to the performance of other corporations. The
Committee, in its discretion, may change or modify these criteria, however, at
all times the criterion must be valid performance criterion for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Committee may not change the criteria or Performance Objectives for any
Performance Period that has already been approved by the Committee. The
Committee may cancel a Performance Period or replace a Performance Period with a
new Performance Period, provided that any such cancellation or replacement shall
not cause the Performance Award to fail to meet the requirements of Section
162(m) of the Code.

       (b)    Each grant shall specify the minimum level of achievement required
by the Participant relative to the Performance Objectives to qualify for a
Performance Award. In doing so, the grant shall establish a formula for
determining the percentage of the Performance Award to be awarded if performance
is at or above the minimum level, but falls short of full achievement of the
specified Performance Objectives. Each grant may also establish a formula for
determining an additional award above and beyond the Performance Award to be
granted to the Participant if performance is at or above the specified
Performance Objectives. Such additional award shall also be established as a
percentage of

<PAGE>

the Performance Award. The Committee may decrease a Performance Award as
determined by the Performance Objectives, but in no case may the Committee
increase any Performance Award as determined by the Performance Objectives.

       (c)    The maximum Performance Award that may be granted to any
Participant for any one-year Performance Period shall not exceed $20,000,000 or
400,000 shares of Common Stock (the "Annual Maximum"). The maximum Performance
Award that may be granted to any Participant for a Performance Period greater
than one year shall not exceed the Annual Maximum multiplied by the number of
full years in the Performance Period.

ARTICLE K -- Adjustments.

         In the event of any future reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, rights
offering, share exchange, reclassification, distribution, spin-off or other
change affecting the corporate structure, capitalization or Common Stock of the
Company occuring after the date of approval of the Plan by the Company's
shareholders, (i) the amount of shares authorized to be issued under the Plan
and (ii) the number of shares and/or the exercise prices covered by outstanding
stock options and stock appreciation rights shall be adjusted appropriately and
equitably to prevent dilution or enlargement of rights under the Plan. Following
any such change, the term "Common Stock" shall be deemed to refer to such class
of shares or other securities as may be applicable.

ARTICLE L -- Additional Provisions and Definitions.

       1.     The Board may, at any time, repeal the Plan or may amend it except
that no such amendment may amend this paragraph, increase the total aggregate
number of shares subject to the Plan, reduce the price at which stock options or
stock appreciation rights may be granted or exercised, alter the class of
employees eligible to receive stock options, or increase the percentage of
shares authorized to be transferred as restricted or unrestricted stock.
Participants and the Company shall be bound by any such amendments as of their
effective dates, but if any outstanding stock options or stock appreciation
rights are materially affected adversely, notice thereof shall be given to the
Participants holding such stock options and stock appreciation rights and such
amendments shall not be applicable without such Participant's written consent.
If the Plan is repealed in its entirety, all theretofore granted unexercised
stock options or stock appreciation rights shall continue to be exercisable in
accordance with their terms and shares subject to conditions or restrictions
granted pursuant to the Plan shall continue to be subject to such conditions or
restrictions.

       2.     In the case of a Participant who is an employee of a subsidiary of
the Company, performance under the Plan, including the granting of shares of the
Company, may be by the subsidiary. Nothing in the Plan shall affect the right of
the Company or any subsidiary to terminate the employment of any employee with
or without cause. None of the Participants, either individually or as a group,
and no beneficiary, transferee or other person claiming under or through any
Participant, shall have any right, title, or interest in any shares of the
Company purchased or reserved for the purpose of the Plan except as to such
shares, if any, as shall have been granted or transferred to him or her. Nothing
in the Plan shall preclude the awarding or granting of shares of the Company to
employees under any other plan or arrangement now or hereafter in effect.

       3.     "Subsidiary" means any company in which more than fifty percent
(50%) of the total combined voting power of all classes of stock is owned,
directly or indirectly, by the Company or, if the company does not issue stock,
more than fifty percent (50%) of the total combined ownership interest is owned,
directly or indirectly, by the Company. In addition, the Board may designate for
participation in

<PAGE>

the Plan as a "subsidiary," except for the granting of incentive stock options,
those additional companies affiliated with the Company in which the Company's
direct or indirect stock ownership is fifty percent (50%) or less of the total
combined voting power of all classes of such company's stock, or, if the company
does not issue stock, the Company's direct or indirect ownership is fifty
percent (50%) or less of the company's total combined ownership interest.

       4.     Notwithstanding anything to the contrary in the Plan, stock
options and stock appreciation rights granted hereunder shall vest immediately
and any conditions or restrictions on Common Stock shall lapse upon a "Change in
Control." A "Change in Control" shall mean the occurrence of any of the
following:

       (a)    An acquisition (other than directly from the Company) of any
              voting securities of the Company (the "Voting Securities") by any
              "Person" (as the term person is used for purposes of Section 13(d)
              or 14(d) of the Exchange Act), immediately after which such Person
              has "Beneficial Ownership" (within the meaning of Rule 13d-3
              promulgated under the Exchange Act) of twenty percent (20%) or
              more of the then outstanding shares or the combined voting power
              of the Company's then outstanding Voting Securities; provided,
              however, in determining whether a Change in Control has occurred
              pursuant to this Paragraph 4(a), shares or Voting Securities which
              are acquired in a "Non-Control Acquisition" (as hereinafter
              defined) shall not constitute an acquisition which would cause a
              Change in Control. A "Non-Control Acquisition" shall mean an
              acquisition by (i) an employee benefit plan (or a trust forming a
              part thereof) maintained by (A) the Company or (B) any corporation
              or other Person of which a majority of its voting power or its
              voting equity securities or equity interest is owned, directly or
              indirectly, by the Company (for purposes of this definition, a
              "Related Entity"), (ii) the Company or any Related Entity, or
              (iii) any Person in connection with a "Non-Control Transaction"
              (as hereinafter defined);

       (b)    The individuals who, as of July 10, 2001 are members of the Board
              (the "Incumbent Board"), cease for any reason to constitute at
              least half of the members of the Board; or, following a Merger (as
              hereinafter defined) which results in a Parent Corporation (as
              hereinafter defined), the board of directors of the ultimate
              Parent Corporation; provided, however, that if the election, or
              nomination for election by the Company's common stockholders, of
              any new director was approved by a vote of at least two-thirds of
              the Incumbent Board, such new director shall, for purposes of the
              Plan, be considered as a member of the Incumbent Board; provided
              further, however, that no individual shall be considered a member
              of the Incumbent Board if such individual initially assumed office
              as a result of either an actual or threatened "Election Contest"
              (as described in Rule 14a-11 promulgated under the Exchange Act)
              or other actual or threatened solicitation of proxies or consents
              by or on behalf of a Person other than the Board (a "Proxy
              Contest") including by reason of any agreement intended to avoid
              or settle any Election Contest or Proxy Contest; or

       (c)    The consummation of:

              (i)    A merger, consolidation or reorganization with or into the
                     Company or in which securities of the Company are issued (a
                     "Merger"), unless such Merger is a "Non-Control
                     Transaction." A "Non-Control Transaction" shall mean a
                     Merger where:

                     (A)    the stockholders of the Company, immediately before
                            such Merger own directly or indirectly immediately
                            following such Merger at least fifty percent (50%)
                            of the combined voting power of the outstanding
                            voting securities of (x) the corporation resulting
                            from such Merger (the "Surviving Corporation") if
                            fifty

<PAGE>

                            percent (50%) or more of the combined voting power
                            of the then outstanding voting securities of the
                            Surviving Corporation is not Beneficially Owned,
                            directly or indirectly by another Person (a "Parent
                            Corporation"), or (y) if there is one or more Parent
                            Corporations, the ultimate Parent Corporation;

                     (B)    the individuals who were members of the Incumbent
                            Board immediately prior to the execution of the
                            agreement providing for such Merger constitute at
                            least half of the members of the board of directors
                            of (x) the Surviving Corporation, if there is no
                            Parent Corporation, or (y) if there is one or more
                            Parent Corporations, the ultimate Parent
                            Corporation; and

                     (C)    no Person other than (1) the Company, (2) any
                            Related Entity, (3) any employee benefit plan (or
                            any trust forming a part thereof) that, immediately
                            prior to such Merger was maintained by the Company
                            or any Related Entity, or (4) any Person who,
                            immediately prior to such merger, consolidation or
                            reorganization had Beneficial Ownership of twenty
                            percent (20%) or more of the then outstanding Voting
                            Securities or shares, has Beneficial Ownership of
                            twenty percent (20%) or more of the combined voting
                            power of the outstanding voting securities or common
                            stock of (x) the Surviving Corporation if there is
                            no Parent Corporation, or (y) if there is one or
                            more Parent Corporations, the ultimate Parent
                            Corporation;

              (ii)   A complete liquidation or dissolution of the Company; or

              (iii)  The sale or other disposition of all or substantially all
                     of the assets of the Company to any Person (other than a
                     transfer to a Related Entity or under conditions that would
                     constitute a Non-Control Transaction with the disposition
                     of assets being regarded as a Merger for this purpose or
                     the distribution to the Company's stockholders of the stock
                     of a Related Entity or any other assets).

       Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding shares or
Voting Securities as a result of the acquisition of shares or Voting Securities
by the Company which, by reducing the number of shares or Voting Securities then
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of shares or
Voting Securities by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any additional
shares or Voting Securities which increases the percentage of the then
outstanding shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.

       5.     The term "Special Separation" shall mean any termination of
employment that occurs prior to the time a Participant is eligible to retire,
except a termination for cause or a voluntary resignation that is not initiated
or encouraged by the Company.

       6.     The term "Retirement" shall mean: (a) retirement in accordance
with the provisions of any appropriate retirement plan of the Company or any of
its subsidiaries; or (b) termination of employment under the permanent
disability provision of any retirement plan of the Company or any of its
subsidiaries.

<PAGE>

ARTICLE M -- Consent.

       Every Participant who receives a stock option, stock appreciation right,
or grant of shares pursuant to the Plan shall be bound by the terms and
provisions of the Plan and of the stock option, stock appreciation right, or
grant of shares agreement referable thereto, and the acceptance of any stock
option, stock appreciation right, or grant of shares pursuant to the Plan shall
constitute a binding agreement between the Participant and the Company and its
subsidiaries and any successors in interest to any of them. Every Person who
receives a stock option, stock appreciation right, or grant of shares from a
Participant pursuant to the Plan shall, in addition to such terms and conditions
as the Committee may require upon such grant, be bound by the terms and
provisions of the Plan and of the stock option, stock appreciation right, or
grant of shares agreement referable thereto, and the acceptance of any stock
option, stock appreciation right, or grant of shares by such Person shall
constitute a binding agreement between such Person and the Company and its
subsidiaries and any successors in interest to any of them. The Plan shall be
governed by and construed in accordance with the laws of the State of Ohio,
United States of America.

ARTICLE N - Purchase of Shares or Stock Options.

       The Committee may authorize any Participant to convert cash compensation
otherwise payable to such Participant into stock options or shares of Common
Stock under the Plan upon such terms and conditions as the Committee, in its
discretion, shall determine. Notwithstanding the foregoing, in any such
conversion the shares of Common Stock shall be valued at no less than one
hundred percent (100%) of their fair market value.

ARTICLE O -- Duration of Plan.

         The Plan will terminate on July 10, 2011 unless a different termination
date is fixed by the shareholders or by action of the Board of Directors, but no
such termination shall affect the prior rights under the Plan of the Company (or
any subsidiary) or of anyone to whom stock options or stock appreciation rights
were granted prior thereto or to whom shares have been transferred prior to such
termination.

<PAGE>

                             ADDITIONAL INFORMATION

1.     Shares Awarded as a Portion of Remuneration

       Any shares of Common Stock of the Company awarded as a portion of a
participant's remuneration shall be valued at not less than one hundred percent
(100%) of the fair market value of the Company's Common Stock on the date of the
award. These shares may be subject to such conditions or restrictions as the
Committee may determine, including a requirement that the participant remain in
the employ of the Company or one of its subsidiaries for a set period of time,
or until retirement. Failure to abide by any applicable restriction will result
in forfeiture of the shares.

2.     U.S. Tax Effects

       Incentive Stock Options

              With regard to tax effects which may accrue to the optionee,
       counsel advises that if the optionee has continuously been an employee
       from the time an option has been granted until at least three months
       before it is exercised, under existing law no taxable income results to
       the optionee from the exercise of an incentive stock option at the time
       of exercise. However, the spread at exercise is an "adjustment" item for
       alternative minimum tax purposes.

              Any gain realized on the sale or other disposition of stock
       acquired on exercise of an incentive stock option is considered as
       long-term capital gain for tax purposes if the stock has been held more
       than two years after the date the option was granted and more than one
       year after the date of exercise of the option. If the stock is disposed
       of within one year after exercise, the lesser of any gain on such
       disposition or the spread at exercise (i.e., the excess of the fair
       market value of the stock on the date of exercise over the option price)
       is treated as ordinary income, and any appreciation after the date of
       exercise is considered long-term or short-term capital gain to the
       optionee depending on the holding period prior to sale. However, the
       spread at exercise (even if greater than the gain on the disposition) is
       treated as ordinary income if the disposition is one on which a loss, if
       sustained, is not recognized--e.g., a gift, a "wash" sale or a sale to a
       related party. The amount of ordinary income recognized by the optionee
       is treated as a tax deductible expense to the Company. No other amount
       relative to an incentive stock option is a tax deductible expense to the
       Company.

       Nonstatutory Stock Options

              With regard to tax effects which may accrue to the optionee,
       counsel advises that under existing tax law gain taxable as ordinary
       income to the optionee is deemed to be realized at the date of exercise
       of the option, the gain on each share being the difference between the
       market price on the date of exercise and the option price. This amount is
       treated as a tax deductible expense to the Company at the time of the
       exercise of the option. Any appreciation in the value of the stock after
       the date of exercise is considered a long-term or short-term capital gain
       to the optionee depending on whether or not the stock was held for the
       appropriate holding period prior to sale.

       Stock Appreciation Rights

              With regard to tax effects which may accrue to the recipient,
       counsel advises that "United States persons," as defined in the Internal
       Revenue Code of 1986 (the "I.R.C."), must

<PAGE>

       recognize ordinary income as of the date of exercise equal to the amount
       paid to the recipient, i.e., the difference between the grant price and
       the value of the shares on the date of exercise.

       Shares Awarded as a Portion of Remuneration

              With regard to tax effects which may accrue to the recipient,
       counsel advises that "United States persons" as defined in the Internal
       Revenue Code of 1986 (the "I.R.C."), must recognize ordinary income in
       the first taxable year in which the recipient's rights to the stock are
       transferable or are not subject to a substantial risk of forfeiture,
       whichever is applicable. Recipients who are "United States persons" may
       also elect to include the income in their tax returns for the taxable
       year in which they receive the shares by filing an election to do so with
       the appropriate office of the Internal Revenue Service within 30 days of
       the date the shares are transferred to them.

              The amount includable in income is the fair market value of the
       shares as of the day the shares are transferable or not subject to a
       substantial risk of forfeiture, whichever is applicable; if the recipient
       has elected to include the income in the year in which the shares are
       received, the amount of income includable is the fair market value of the
       shares at the time of transfer.

              For non-United States persons, the time when income is realized,
       its measurement and its taxation, will depend on the laws of the
       particular countries in which the recipients are residents and/or
       citizens at the time of transfer or when the shares are first
       transferable and not subject to a substantial risk of forfeiture, as the
       case may be. "United States persons" who receive shares awarded as a
       portion of remuneration may also have tax consequences with respect to
       the receipt of shares or the expiration of restrictions or substantial
       risk of forfeiture on such shares under the laws of the particular
       country other than the United States of which such person is a resident
       or citizen.

       Notwithstanding the above advice received by the Company, it is each
individual recipient's responsibility to check with his or her personal tax
adviser as to the tax effects and proper handling of stock options, stock
appreciation rights and Common Stock acquired. The above advice relates
specifically to the U.S. consequences of stock options, stock appreciation
rights and Common Stock acquired, including the U.S. consequences to "United
States persons" whether or not resident in the U.S. In addition to U.S. tax
consequences, for all persons who are not U.S. residents, the time when income,
if any, is realized, the measurement of such income and its taxation will also
depend on the laws of the particular country other than the U.S. of which such
persons are resident and/or citizens at the time of grant or the time of
exercise, as the case may be.

       The Plan is not subject to the qualification requirements of Section
401(a) of the I.R.C.

3.     Employee Retirement Income Security Act of 1974

       The Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended.

4.     Incorporation of Certain Documents by Reference

       The following documents filed by the Company with the Securities and
Exchange Commission (File No. 1-434) pursuant to the 1934 Act are incorporated
into this document by reference:

       1. The Company's Annual Report on Form 10-K for the fiscal year ended
          June 30, 2002;

<PAGE>

       2. The Company's Quarterly Report on Form 10-Q for the quarter ended
          September 30, 2002; and
       3. All other documents filed by the Company pursuant to Sections 13(a),
          13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus
          and prior to the filing of a post-effective amendment which indicates
          that all securities offered have been sold or which deregisters all
          securities then remaining unsold.

       The Company will provide without charge to each participant in the Plan,
upon oral or written request, a copy of any or all of these documents other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents. In addition, the Company will provide without
charge to such participants a copy of the Company's most recent annual report to
shareholders, proxy statement, and other communications distributed generally to
security holders of the Company. Requests for such copies should be directed to
Mr. James C. Ashley, Manager, Shareholder Services, The Procter & Gamble
Company, P.O. Box 5572, Cincinnati, Ohio 45201, (513) 983-3413.

5.     Additional Information

       Additional information about the Plan and its administrators may be
obtained from Ms. Sharon E. Abrams, Secretary, The Procter & Gamble Company, One
Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-7854.

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