THE PROCTER & GAMBLE COMPANY
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As filed with the Securities and Exchange Commission on May 10, 2005
Registration No. 333-123309
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
THE PROCTER & GAMBLE COMPANY
(Exact name of Registrant as specified in its charter)
         
Ohio   2840   31-0411980
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-1100
(Address, Including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)
James J. Johnson, Esq.
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-2069
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
 
Copies to:
             
Chris B. Walther, Esq.
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-7854
  Dennis J. Block, Esq.
Cadwalader, Wickersham & Taft LLP
One World Financial Center
New York, New York 10281
(212) 504-6000
  Richard K. Willard, Esq.
The Gillette Company
Prudential Tower Building
Boston, Massachusetts 02199
(617) 421-7000
  George R. Bason, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Ave.
New York, New York 10017
(212) 450-4000
     Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this registration statement and the effective time of the merger (the “Merger”) of Aquarium Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of The Procter & Gamble Company, an Ohio corporation (“Procter & Gamble”), with and into The Gillette Company, a Delaware corporation (“Gillette”), as described in the Agreement and Plan of Merger, dated as of January 27, 2005 (the “Merger Agreement”), attached as Annex A to the joint proxy statement/ prospectus forming part of this registration statement.
     If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o
     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o                          
     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o                          
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
 
 


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The information in this joint proxy statement/ prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary joint proxy statement/ prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated May 10, 2005
     
(PROCTER & GAMBLE LOGO)
  (GILLETTE LOGO)
MERGER PROPOSAL — YOUR VOTE IS IMPORTANT
      The boards of directors of The Procter & Gamble Company and The Gillette Company have approved a merger that will result in a company with world-class brands, technologies and capabilities. We believe the combined company will be able to create substantially more shareholder value than could be achieved by either company individually.
      If the merger is completed, Gillette shareholders will receive, for each share of Gillette common stock, 0.975 shares of Procter & Gamble common stock. Procter & Gamble shareholders will continue to own their existing Procter & Gamble shares. Upon completion of the merger, Procter & Gamble shareholders will own approximately 71% of the combined company on a fully diluted basis, and Gillette shareholders will own approximately 29% of the combined company on a fully diluted basis. The shares of the combined company will be traded on the New York Stock Exchange under the symbol “PG”.
      We are asking the Procter & Gamble shareholders to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger. Procter & Gamble’s special meeting will be held:
June 13, 2005
4:00 p.m., local time
Procter & Gamble General Offices
Two Procter & Gamble Plaza
Cincinnati, Ohio 45202
      Procter & Gamble’s board of directors unanimously recommends that Procter & Gamble shareholders vote FOR the adoption of the merger agreement and the approval of the issuance of Procter & Gamble common stock in the merger.
      We are asking the Gillette shareholders to adopt the merger agreement and approve the merger. Gillette’s special meeting will be held:
June 14, 2005
10:00 a.m., local time
Hotel du Pont
11th and Market Streets
Wilmington, Delaware 19801
      Gillette’s board of directors unanimously recommends that Gillette shareholders vote FOR the adoption of the merger agreement
and approval of the merger.
      We cannot complete the merger unless the shareholders of Gillette adopt the merger agreement and approve the merger and the shareholders of Procter & Gamble adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger. Your vote is important.
      We believe this merger will create a strong combined company that will deliver important benefits to its shareholders, customers and consumers.
     
-s- A.G. Lafley
  -s- James M. Kilts
A.G. Lafley
  James M. Kilts
Chairman of the Board, President
and Chief Executive
  Chairman of the Board, President
and Chief Executive Officer
The Procter & Gamble Company
  The Gillette Company
Consider the risks described on pages I-16 through I-18 of this document.
     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities to be issued under this joint proxy statement/ prospectus or determined if this joint proxy statement/ prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.
      This joint proxy statement/ prospectus is dated [          ], 2005, and is first being mailed to the shareholders of Procter & Gamble and Gillette on or about [          ], 2005.


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REFERENCES TO ADDITIONAL INFORMATION
      This joint proxy statement/ prospectus incorporates important business and financial information about Procter & Gamble and Gillette from other documents that are not included in or delivered with this joint proxy statement/ prospectus. This information is available to you without charge upon your written or oral request. You can obtain those documents incorporated by reference in this joint proxy statement/ prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:
             
if you are a Procter & Gamble shareholder:   if you are a Gillette shareholder:
By Mail:
  The Procter & Gamble Company   By Mail:   The Gillette Company
    P.O. Box 5572       Prudential Tower Building
    Cincinnati, OH 45201-5572       Boston, MA 02199-8004
    Attention: Shareholder Services       Attention: Office of the Secretary
By Telephone:
  (800) 764-7483   By Telephone:   (617) 421-7000
If you would like to request documents, please do so by June 2, 2005 in order to receive them before your special meeting.
See “Where You Can Find More Information” beginning on page V-2.
VOTING ELECTRONICALLY OR BY TELEPHONE
Procter & Gamble shareholders of record may submit their proxies:
  •  Through the Internet, by visiting a web site established for that purpose at www.proxyvote.com and following the instructions; or
 
  •  By telephone, by calling the toll-free number (800) 690-6903 in the United States, Canada or Puerto Rico on a touch-tone phone and following the recorded instructions; or
 
  •  By mail, by marking, signing, and dating your proxy and returning it in the postage-paid envelope provided or returning it to The Procter & Gamble Company, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
Gillette shareholders of record may submit their proxies:
  •  Through the Internet, by visiting a web site established for that purpose at www.proxyvote.com and following the instructions; or
 
  •  By telephone, by calling the number (800) 690-6903 in the United States, Canada or Puerto Rico on a touch-tone phone and following the recorded instructions; or
 
  •  By mail, by marking, signing, and dating your proxy and returning it in the postage-paid envelope provided or returning it to The Gillette Company, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
If you are a beneficial owner, please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you.


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(PROCTER & GAMBLE LOGO)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
THE PROCTER & GAMBLE COMPANY
       NOTICE IS HEREBY GIVEN that The Procter & Gamble Company will hold a special meeting of its shareholders on June 13, 2005 at 4:00 p.m., local time, at the Procter & Gamble General Offices, Two Procter & Gamble Plaza, Cincinnati, Ohio 45202. The purpose of the Procter & Gamble special meeting is to consider and vote upon the following matters:
  1.  A proposal to adopt the Agreement and Plan of Merger, dated as of January 27, 2005, among Procter & Gamble, Aquarium Acquisition Corp., a wholly owned subsidiary of Procter & Gamble, and Gillette, and approve the issuance of Procter & Gamble common stock in the merger. A copy of the merger agreement is attached as Annex A to the joint proxy statement/ prospectus accompanying this notice;
 
  2.  A proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger; and
 
  3.  To transact such other business as may properly come before the special meeting and any adjournment or postponement thereof.
      Holders of record of Procter & Gamble common stock, Series A ESOP Convertible Class A Preferred Stock, and Series B ESOP Convertible Class A Preferred Stock at the close of business on April 14, 2005 are entitled to receive this notice and vote their shares, as a single class, at the special meeting or any adjournment or postponement of that meeting. As of that date, there were 2,487,619,119 shares of common stock outstanding, 88,204,782 shares of Series A ESOP Convertible Class A Preferred Stock outstanding and 68,726,896 shares of Series B ESOP Convertible Class A Preferred Stock outstanding. Each share of stock is entitled to one vote on each matter properly brought before the meeting.
      If you plan to attend the special meeting, you should present the admission ticket included with the accompanying joint proxy statement/ prospectus in order to gain admittance to the meeting. This ticket admits only the shareholder listed on the reverse side and is not transferable. If the shares are held in the name of a broker, trust, bank or other nominee, you should bring with you a proxy or letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares. If you plan to vote via proxy and your shares are held in “street name”, please note that your broker will not be permitted to vote on the adoption of the merger agreement and approval of the issuance of Procter & Gamble common stock in the merger unless you provide your broker with instructions on how to vote. A failure to vote is the same as a vote against this proposal.
      Your Board of Directors unanimously recommends that you vote to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
  By Order of the Board of Directors
 
  James J. Johnson
  Secretary
Cincinnati, Ohio
May      , 2005
IMPORTANT
  Your vote is important. Please either (1) mark, sign, date and return the enclosed proxy card as promptly as possible in the enclosed postage-paid envelope; (2) use the telephone number shown on the proxy card to submit your proxy by telephone or (3) visit the web site noted on your proxy card to submit your proxy on the Internet. Remember, your vote is important, so please act today!


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(GILLETTE LOGO)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
THE GILLETTE COMPANY
       NOTICE IS HEREBY GIVEN that The Gillette Company will hold a special meeting of its shareholders at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801, at 10:00 a.m., local time, on June 14, 2005. The purpose of the Gillette special meeting is to consider and vote upon the following matters:
  1.  A proposal to adopt the Agreement and Plan of Merger, dated as of January 27, 2005, among Procter & Gamble, Aquarium Acquisition Corp., a wholly owned subsidiary of Procter & Gamble, and Gillette and approve the merger contemplated by the merger agreement. A copy of the merger agreement is attached as Annex A to the joint proxy statement/ prospectus accompanying this notice;
 
  2.  A proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the merger; and
 
  3.  To transact such other business as may properly come before the special meeting and any adjournment or postponement thereof.
      Holders of record of Gillette common stock at the close of business on April 18, 2005 are entitled to receive this notice and to vote their shares at the special meeting or any adjournment or postponement of that meeting. As of the record date, there were 996,411,427 shares of Gillette common stock outstanding. Each share of common stock is entitled to one vote on each matter properly brought before the meeting.
      If you owned shares on the record date and wish to attend the special meeting in person, proof of ownership of Gillette common stock, as well as a form of personal identification, may be requested in order to be admitted to the meeting. If you are a shareholder of record, your name can be verified against Gillette’s shareholder list. If your shares are held in the name of a bank, broker, or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be admitted to the meeting. If you plan to vote via proxy and your shares are held in “street name”, please note that your broker will not be permitted to vote on the adoption of the merger agreement and approval of the merger unless you provide your broker with instructions on how to vote. A failure to vote is the same as a vote against this proposal.
      Your Board of Directors unanimously recommends that you vote to adopt the merger agreement and approve the merger. Your attention is directed to the joint proxy statement/ prospectus accompanying this notice for a discussion of the merger and the merger agreement.
  By Order of the Board of Directors
  Peter M. Green
  Secretary
Boston, Massachusetts
May      , 2005
IMPORTANT
     Your vote is important. Please either (1) mark, sign, date and return the enclosed proxy card as promptly as possible in the enclosed postage-paid envelope; (2) use the telephone number shown on the proxy card to submit your proxy by telephone; or (3) visit the web site noted on your proxy card to submit your proxy on the Internet. Remember, your vote is important, so please act today!


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TABLE OF CONTENTS
       
   
  I-1
  I-3
    I-3
    I-3
    I-4
    I-4
    I-4
    I-5
    I-5
    I-5
    I-6
    I-6
    I-8
    I-8
    I-8
    I-9
    I-9
    1-9
    I-9
    I-10
    I-10
    I-10
    I-10
    I-11
    I-12
    I-12
    I-14
    I-15
  I-16
  I-19
  I-21
    I-21
    I-21
    I-21
    I-21
    I-28
    I-30
    I-34
    I-34
    I-36
    I-37
    I-39

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    I-39
    I-39
    I-40
  I-40
  I-42
    I-42
    I-42
  I-44
    I-44
    I-51
  I-65
    I-65
    I-68
    I-69
    I-69
    I-69
  I-71
    I-71
    I-71
    I-71
    I-72
    I-73
    I-73
    I-73
    I-77
    I-78
    I-79
    I-81
   
  II-1
  II-3
  II-4
  II-6
   
    III-1
    III-4
    III-4
    III-4
    III-6
    III-6
    III-7
    III-7
    III-7

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    III-8
    III-8
    III-8
    III-8
    III-9
   
  IV-1
    IV-1
    IV-1
    IV-2
    IV-2
    IV-3
    IV-4
    IV-4
    IV-6
    IV-6
    IV-6
    IV-6
    IV-7
    IV-7
    IV-7
    IV-7
    IV-8
  IV-9
    IV-9
    IV-9
    IV-9
    IV-10
    IV-12
  IV-12
  IV-12
  V-1
    V-1
    V-1
  V-2
ANNEXES
   
Annex A  Agreement and Plan of Merger
   
Annex B  Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
   
Annex C  Opinion of Goldman, Sachs & Co.
   
Annex D  Opinion of UBS Securities LLC
   
Annex E  Section 1701.85 of the Ohio Revised Code
   
 EX-8.1: FORM OF OPINION OF CADWALADER, WICKERSHAM & TAFT LLP
 EX-8.2: FORM OF OPINION OF DAVIS POLK & WARDWELL
 EX-23.1: CONSENT OF DELOITTE & TOUCHE LLP
 EX-23.2: CONSENT OF KPMG LLP
 EX-99.2: FORM OF THE GILLETTE COMPANY PROXY CARD
 EX-99.4: CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INC.
 EX-99.6: CONSENT OF GOLDMAN, SACHS & CO.
 EX-99.8: CONSENT OF UBS SECURITIES LLC

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CHAPTER ONE:
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
 
A: After you carefully read this document, mail your signed proxy card in the enclosed return envelope, or submit your proxy by telephone or on the Internet, as soon as possible, so that your shares may be represented at your meeting. In order to assure that your vote is obtained, please vote your proxy as instructed on your proxy card even if you currently plan to attend your meeting in person.
 
Q: Why is my vote important?
 
A: If you do not return your proxy card or submit your proxy by telephone or through the Internet or vote in person at your special meeting, it will be more difficult for Procter & Gamble and Gillette to obtain the necessary quorum to hold their special meetings. In addition, if you are a Procter & Gamble shareholder, your failure to vote will have the same effect as a vote against the merger agreement and the issuance of Procter & Gamble common stock in the merger. If you are a Gillette shareholder, your failure to vote will have the same effect as a vote against the merger agreement and the merger.
 
Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?
 
A: No. If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote them on either the adoption of the merger agreement and approval of the merger by Gillette shareholders or adoption of the merger agreement and approval of the issuance of Procter & Gamble common stock by Procter & Gamble shareholders. You should therefore be sure to provide your broker with instructions on how to vote your shares. Please check the voting form used by your broker to see if it offers telephone or Internet submission of proxies.
 
Q: What if I fail to instruct my broker?
 
A: If you fail to instruct your broker to vote your shares and the broker submits an unvoted proxy, the resulting broker “non-vote” will be counted toward a quorum at the respective special meeting, but it will otherwise have the consequences set forth above under “Why is my vote important?”
 
Q: How do I vote my shares if I am a participant in a Procter & Gamble employee benefit plan?
 
A: If you are a participant in The Procter & Gamble Shareholder Investment Program, you can vote shares of Procter & Gamble common stock held for your account through the Shareholder Investment Program Custodian.
 
If you are a participant in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, you can instruct the trustees how to vote the shares of stock that are allocated to your account. If you do not vote your shares, the trustees will vote them in proportion to those shares for which they have received voting instructions. Likewise, the trustees will vote shares that have not been allocated to any account in the same manner.
 
Q: Can I change my vote after I have mailed my proxy card?
 
A: Yes. You can change your vote at any time before your proxy is voted at your company’s special meeting. You can do this in one of three ways:
 
• timely delivery of a valid, later-dated proxy or a later-dated proxy by telephone or Internet;
 
• written notice to your company’s Secretary before the meeting that you have revoked your proxy; or
 
• voting by ballot at either the Procter & Gamble special meeting or the Gillette special meeting.
 
If you have instructed a broker to vote your shares, you must follow directions from your broker to change those instructions.

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Chapter One — The Merger
Q: Am I entitled to exercise any dissenters’ or appraisal rights in connection with the merger?
 
A: Under Delaware law, Gillette shareholders are not entitled to exercise appraisal rights in connection with the merger. Under Ohio law, however, Procter & Gamble shareholders are entitled to exercise dissenters’ rights provided they follow all of the legal requirements. You should review the section of this document entitled “Dissenters’ Rights” for further information.
 
Q: When and where are the special meetings?
 
A: The Procter & Gamble special meeting will take place on June 13, 2005 at the Procter & Gamble General Offices, Two Procter & Gamble Plaza, Cincinnati, Ohio 45202 at 4:00 p.m., local time.
 
The Gillette special meeting will take place on June 14, 2005 at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801 at 10:00 a.m., local time.
 
Q: Should I send in my stock certificates now?
 
A: No. After the merger is completed, Procter & Gamble will send Gillette shareholders written instructions for exchanging their stock certificates. Procter & Gamble shareholders will keep their existing stock certificates.
 
Q: When do you expect the merger to be completed?
 
A: Procter & Gamble and Gillette are working to complete the merger by the fall of 2005. However, it is possible that factors outside the control of both companies could result in the merger being completed at a later time. Procter & Gamble and Gillette hope to complete the merger as soon as reasonably practicable.
 
Q: Will Procter & Gamble shareholders receive any shares as a result of the merger?
 
A: No. Procter & Gamble shareholders will continue to hold the Procter & Gamble shares they currently own.
 
Q: Who do I call if I have questions about the meetings or the merger?
 
A: Procter & Gamble shareholders may call toll-free (800) 742-6253.
 
Gillette shareholders may call the Office of the Secretary at (617) 421-7000.

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Chapter One — The Merger
SUMMARY
      This summary highlights selected information from this joint proxy statement/ prospectus and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger agreement, you should carefully read this entire document and the documents referred to herein. See “Where You Can Find More Information” on page V-2.
The Companies (see page I-40)
  The Procter & Gamble Company
  One Procter & Gamble Plaza
  Cincinnati, Ohio 45202
  (513) 983-1100
  Internet address: www.pg.com
      Procter & Gamble is a recognized leader in the development, distribution, and marketing of superior Fabric Care, Home Care, Baby Care, Feminine Care, Family Care, Beauty Care, Health Care, and Snacks and Coffee products. Procter & Gamble has one of the largest and strongest portfolios of trusted brands, including Pampers®, Tide®, Ariel®, Always®, Pantene®, Head and Shoulders®, Wella®, Bounty®, Folgers®, Pringles®, Charmin®, Downy®, Iams®, Crest®, Actonel® and Olay®. Procter & Gamble employs approximately 110,000 people worldwide.
  The Gillette Company
  Prudential Tower Building
  Boston, Massachusetts 02199
  (617) 421-7000
  Internet address: www.gillette.com
      The Gillette Company is the global market leader in nearly a dozen major consumer products categories, principally in the grooming, alkaline battery and oral care businesses. Gillette’s leading consumer products include the Mach3® family, the Venus® family, Sensor®, Duracell®, Braun®, Gillette Complete Skincare®, Gillette Series®, Right Guard®, Soft & Dri®, Dry Idea®, Oral-B® and Rembrandt®. Gillette employs approximately 28,700 people worldwide.
What Gillette Shareholders Will Receive in the Merger (see page I-68)
      Gillette shareholders will receive 0.975 shares of Procter & Gamble common stock for each share of Gillette common stock. Procter & Gamble will not issue fractional shares in the merger. As a result, the total number of shares of Procter & Gamble common stock that each Gillette shareholder will receive in the merger will be rounded down to the nearest whole number, and each Gillette shareholder will receive a cash payment for the remaining fraction of a share of Procter & Gamble stock that he or she would otherwise receive, if any, based on the market value of Procter & Gamble common stock at the close of business on the date the merger becomes effective.
Example: If you currently own 100 shares of Gillette common stock, you will be entitled to receive 97 shares of Procter & Gamble common stock and a check for the market value of 0.5 shares of Procter & Gamble common stock at the close of business on the date the merger becomes effective.
      The number of shares of Procter & Gamble common stock issued in the merger for each share of Gillette common stock is fixed. Accordingly, shareholders of Gillette may receive more or less value depending on fluctuations in the price of Procter & Gamble common stock. The merger may not be completed until a significant period of time has passed after the Procter & Gamble and Gillette special meetings, and at the time of their respective special meetings, Procter & Gamble and Gillette shareholders will not know the exact value of the Procter & Gamble common stock that will be issued in connection with the merger.

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Chapter One — The Merger
Recommendations to Shareholders (see page I-29)
      To Procter & Gamble Shareholders:
      Procter & Gamble’s board of directors believes the merger is advisable and fair to you and in your best interests and recommends that you vote FOR the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger, and FOR the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies on the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
      To Gillette Shareholders:
      Gillette’s board of directors believes the merger is advisable and fair to you and in your best interests and recommends that you vote FOR the proposal to adopt the merger agreement and approve the merger, and FOR the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies on the proposal to adopt the merger agreement and approve the merger. When you consider the board of directors’ recommendation, you should be aware that Gillette’s directors may have interests in the merger that may be different from, or in addition to, your interests. These interests are described in “Interests of Certain Persons in the Merger”.
Reasons for the Merger (see page I-28)
      The boards of directors of Procter & Gamble and Gillette believe that this merger will create a leading global consumer products company with greater product diversity, geographic breadth, organizational capabilities and financial resources to take greater advantage of new opportunities and bring innovative new products to market faster.
      The boards of both companies believe that the combined company will be able to benefit from:
  •  complementary strengths in innovation, selling and go-to-market capabilities to improve sales growth;
 
  •  strengthened line-up of industry leading brands;
 
  •  increased scale for better consumer value and lower costs; and
 
  •  enhanced relationships with retail customers.
      As a result, the boards of directors of Procter & Gamble and Gillette believe the merger will lead to more consistent and stronger shareholder and consumer value creation over the long term.
Shareholder Votes Required (see page III-4)
      For Procter & Gamble Shareholders:
      Approval of the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger requires the affirmative vote of at least a majority of the outstanding shares of Procter & Gamble common stock, Series A ESOP Convertible Class A Preferred Stock and Series B ESOP Convertible Class A Preferred Stock, voting together as a single class. Approval of the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies requires the affirmative vote of a majority of the shares represented at the special meeting and entitled to vote.
      On the record date, directors and executive officers of Procter & Gamble and their affiliates beneficially owned or had the right to vote 11,639,437 shares of Procter & Gamble common stock, 182,244.8 shares of Series A ESOP Convertible Class A Preferred Stock and 2,294.7 shares of Series B ESOP Convertible Class A Preferred Stock, representing approximately .44% of the shares entitled to vote at the special meeting. While there are no voting agreements or arrangements with any directors, officers or other shareholders of Procter & Gamble relating to the merger, to Procter & Gamble’s knowledge, directors and executive officers of Procter & Gamble and their affiliates intend to vote their common stock, Series A ESOP Convertible Class A Preferred Stock and Series B ESOP Convertible Class A Preferred Stock in favor of the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.

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      For Gillette Shareholders:
      Adoption of the merger agreement and approval of the merger require the affirmative vote of at least a majority of the outstanding shares of Gillette common stock. Approval of the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies requires the affirmative vote of a majority of the shares represented at the special meeting and entitled to vote. On the record date, directors and executive officers of Gillette and their affiliates beneficially owned or had the right to vote 11,601,172 shares of Gillette common stock, representing approximately 1.2% of the shares of Gillette common stock outstanding on the record date. While there are no voting agreements or arrangements with any directors, officers or other shareholders of Gillette relating to the merger of which Gillette is aware, to Gillette’s knowledge, directors and executive officers of Gillette and their affiliates intend to vote their common stock in favor of the adoption of the merger agreement and approval of the merger.
      Warren E. Buffett, Chairman and Principal Executive Officer of Berkshire Hathaway, Inc., which beneficially owns approximately 10.1% of Gillette’s outstanding common stock, and approximately 0.025% of Procter & Gamble’s outstanding common stock, has informed Procter & Gamble and Gillette, and has publicly stated, that he supports the merger. However, Mr. Buffett’s statements are a reflection of intent only, and do not create any contractual or other legal obligation to vote in favor of the merger or otherwise hold or acquire shares of Gillette common stock or Procter & Gamble common stock following consummation of the merger.
The Merger (see page I-68)
      Under the terms of the proposed merger, Aquarium Acquisition Corp., a wholly owned subsidiary of Procter & Gamble formed for the purpose of the merger, will be merged with and into Gillette. As a result, Gillette will continue as the surviving corporation and will become a wholly owned subsidiary of Procter & Gamble upon completion of the merger. Accordingly, Gillette shares will no longer be publicly traded.
      The merger agreement is attached as Annex A to this joint proxy statement/ prospectus. Please read the merger agreement carefully and fully as it is the legal document that governs the merger. For a summary of the merger agreement, see “The Merger Agreement” on page I-68.
Treatment of Gillette Stock Options and Other Equity-Based Awards (see page I-68)
      Each outstanding Gillette stock option (other than stock options that Gillette anticipates granting in June 2005) will become fully-vested and exercisable immediately prior to the consummation of the merger. Each outstanding, exercisable Gillette stock option may be exercised, in whole or in part, at that time entitling the holder to receive, at his or her election, either: (1) shares of Procter & Gamble common stock equal to the number of Gillette shares deliverable upon exercise of the option multiplied by the exchange ratio of 0.975 or (2) a cash payment equal to the number of Procter & Gamble shares that would have been deliverable upon exercise.
      Each Gillette stock option which remains outstanding at the effective time (including any stock options granted in June 2005) will be converted into an option to purchase Procter & Gamble common stock as follows: the number of shares subject to the option will be multiplied by the exchange ratio of 0.975 and the exercise price will be divided by the exchange ratio of 0.975.
Ownership of Procter & Gamble After the Merger
      Procter & Gamble will issue approximately 1,048,455,357 shares of Procter & Gamble common stock to Gillette shareholders in the merger. At the completion of the merger, it is expected that there will be outstanding approximately 3.6 billion shares of the combined company. The shares of Procter & Gamble common stock to be issued to Gillette shareholders in the merger will represent approximately 29% of the outstanding Procter & Gamble common stock after the merger on a fully diluted basis. This information is

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based on the number of Procter & Gamble and Gillette shares and options outstanding on April 13, 2005, taking into consideration anticipated share repurchases before completion of the merger.
Conditions to the Completion of the Merger (see page I-75)
      The completion of the merger depends upon the satisfaction or waiver of a number of conditions, including the following:
  •  adoption of the merger agreement and approval of the merger by the Gillette shareholders and adoption of the merger agreement and approval of the issuance of Procter & Gamble common stock in the merger by the Procter & Gamble shareholders;
 
  •  expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval of the merger by the European Commission;
 
  •  absence of any law, order or injunction in the United States or European Union prohibiting the merger;
 
  •  receipt of opinions of counsel to Procter & Gamble and Gillette that the merger will qualify as a tax-free reorganization;
 
  •  absence of any pending action or proceeding by a governmental entity in the United States or European Union seeking to make the merger illegal or otherwise prohibiting consummation of the merger;
 
  •  material accuracy, as of the closing, of the representations and warranties made by the parties and material compliance by the parties with their respective obligations under the merger agreement;
 
  •  that neither party shall have suffered any change that would reasonably be expected to have a material adverse effect on that party; and
 
  •  holders of not more than 5% of the outstanding common stock of Procter & Gamble shall have exercised their dissenters’ rights under the Ohio General Corporation Law.
Termination of Merger Agreement (see page I-76)
      Right to Terminate. The merger agreement may be terminated at any time prior to the effective time in any of the following ways:
  •  by mutual written consent.
 
  •  by either company:
  •  if the merger has not been completed by November 30, 2005, or if the conditions to closing relating to antitrust or other governmental approvals of the merger have not been satisfied, but all other conditions to closing are satisfied or are capable of being satisfied, this date is automatically extended to February 28, 2006; except that a party may not terminate the merger agreement if the cause of the merger not being completed is that party’s failure to fulfill its material obligations under the merger agreement;
 
  •  if a governmental authority or a court in the United States or European Union permanently orders or prohibits the completion of the merger or a governmental authority in the United States or European Union fails to grant any necessary approval of the merger, except that a party may not terminate the merger agreement if the cause of the prohibition or failure to obtain approval is a result of that party’s failure to fulfill its obligations under the provision of the merger agreement, which among other requirements, requires each party to use its commercially reasonable efforts to obtain government approvals for the completion of the merger and requires each party to divest certain assets in response to requirements imposed by antitrust authorities;

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  •  if either Procter & Gamble’s shareholders fail to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger, or Gillette’s shareholders fail to adopt the merger agreement and approve the merger; or
 
  •  if either party has breached in any material respect any of its representations or warranties, or has failed to perform in any material respect any of its covenants or obligations under the merger agreement and such breach:
  •  would result in the failure of certain closing conditions to the merger being satisfied; and
 
  •  is incapable of being cured or remains uncured at November 30, 2005.
  •  by Procter & Gamble:
  •  if Gillette’s board of directors either fails to make or changes its recommendation in a manner adverse to Procter & Gamble, or fails to call the Gillette special meeting to vote on the merger in the manner contemplated by the merger agreement.
  •  by Gillette:
  •  if Procter & Gamble’s board of directors either fails to make or changes its recommendation in a manner adverse to Gillette, or fails to call the Procter & Gamble special meeting to vote on the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger in the manner contemplated by the merger agreement;
 
  •  if Gillette’s board of directors authorizes Gillette to enter into a written agreement concerning a transaction that Gillette’s board of directors has determined in accordance with the merger agreement is a superior proposal, except that Gillette cannot terminate the merger agreement for this reason unless (1) Gillette provides Procter & Gamble with notice of the existence and terms of the superior proposal, and a statement as to whether Gillette intends to enter into a definitive agreement for a business combination, (2) Procter & Gamble, within four business days of receiving such notice from Gillette, does not make an offer that the board of directors of Gillette determines is at least as favorable to the Gillette shareholders as the superior proposal Gillette received from the third party and (3) Gillette pays Procter & Gamble the termination fee described below in “— Termination Fee Payable by Gillette” at or prior to such termination.
      Termination Fee Payable by Gillette. Gillette has agreed to pay Procter & Gamble a termination fee of $1.92 billion (within one business day after the earlier of the date Gillette enters into a definitive agreement with respect to, or consummates, a business combination), if the merger agreement is terminated under one of the following circumstances:
  •  the merger agreement is (1) terminated by Procter & Gamble because the board of directors of Gillette withdraws or changes its recommendation in a manner adverse to Procter & Gamble or for any reason Gillette fails to call its shareholders’ meeting in accordance with the terms of the merger agreement and (2) within twelve months of the termination, Gillette enters into a definitive agreement or completes a transaction with respect to a business combination with a third party;
 
  •  the merger agreement is (1) terminated by Procter & Gamble or Gillette because Gillette’s shareholders failed to adopt the merger agreement and approve the merger (but only if, prior to the date of the Gillette special meeting, there was made public an offer or proposal for, or any public announcement with respect to, a business combination involving Gillette) and (2) within twelve months of the termination, Gillette enters into a definitive agreement or completes a transaction with respect to a business combination with a third party; or
 
  •  the merger agreement is (1) terminated by Procter & Gamble or Gillette because regulatory approvals required to complete the merger have not been obtained by November 30, 2005 (or February 28, 2006, if the termination date is extended), and at the time of termination Gillette has not yet obtained its shareholder approval, and prior to November 30, 2005 (or February 28, 2006, if

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  the termination date is extended) there has been an offer or proposal for, or announcement with respect to, a business combination involving Gillette, and (2) within twelve months of the termination Gillette enters into a definitive agreement or completes a transaction with respect to a business combination with a third party.
      Gillette also has agreed to pay Procter & Gamble the termination fee of $1.92 billion (at or prior to such termination), if Gillette terminates the merger agreement because Gillette’s board of directors has authorized Gillette to enter into a written agreement for a superior proposal and Procter & Gamble has not, within four business days of notice from Gillette, made an offer that the board of directors of Gillette determines is at least as favorable as the superior proposal Gillette has received from a third party.
Regulatory Approvals (see page I-36)
      Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the merger cannot be completed until the companies have made required notifications, given certain information and materials to the Federal Trade Commission or to the Antitrust Division of the United States Department of Justice and specified waiting period requirements have expired. Procter & Gamble and Gillette filed the required notification and report forms with the Antitrust Division and the Federal Trade Commission. On March 21, 2005, the Federal Trade Commission submitted a Request for Additional Information and Documentary Material, also referred to as a “second request,” to Procter & Gamble and Gillette. Procter & Gamble and Gillette are in the process of gathering information to respond to this second request, and are working cooperatively with the Federal Trade Commission as it reviews the merger.
      Procter & Gamble and Gillette each conduct business in member states of the European Union, and the merger therefore also requires the review of the European Commission. Procter & Gamble and Gillette intend to seek approval of the European Commission for the merger shortly.
      Procter & Gamble and Gillette are not permitted to complete the merger unless the regulatory conditions to completion of the merger described above are satisfied.
      Procter & Gamble and Gillette also have made or expect to make regulatory filings in a number of other countries including Mexico, China, Brazil, Canada, Argentina, Bulgaria, Colombia, Romania, Switzerland, Turkey and South Africa.
Material Federal Income Tax Consequences of the Merger (see page I-34)
      A Gillette shareholder’s receipt of Procter & Gamble common stock in the merger will be tax-free for United States federal income tax purposes, except for taxes which may result from any receipt of cash in lieu of fractional shares of Procter & Gamble common stock.
      There will be no United States federal income tax consequences to a holder of Procter & Gamble stock as a result of the merger, other than the United States federal income tax consequences to a holder of Procter & Gamble stock that exercises dissenters’ rights in connection with the merger. The exercise of dissenters’ rights by a holder of Procter & Gamble stock in connection with the merger will generally be a taxable transaction to such holder.
      The United States federal income tax consequences described above may not apply to some holders of Procter & Gamble and Gillette stock, including some types of holders specifically referred to on page I-35. Accordingly, please consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.
Transaction and Merger-Related Costs
      The transaction was valued at approximately $57 billion as of the date of its announcement. Procter & Gamble and Gillette also expect to incur costs associated with combining the operations of the two companies, including an anticipated cost of between $145 million and $155 million for transaction and merger-related costs (including filing and registration fees with the SEC and NYSE, printing and mailing costs associated with this joint proxy/registration statement, and legal, accounting, investment banking, consulting, public relations and proxy solicitation fees). James Kilts and Gillette’s other four most highly

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compensated executive officers will receive approximately $284.5 million in severance and change in control benefits and Gillette’s other executive officers will receive approximately $175.9 million in severance and change in control benefits. Additional costs may be incurred in the integration of the businesses of Procter & Gamble and Gillette.
Listing of Procter & Gamble Common Stock
      The shares of Procter & Gamble common stock to be issued in the merger will be listed on the New York Stock Exchange under the ticker symbol “PG”.
Dissenters’ Rights (see page I-36)
      Procter & Gamble shareholders who (1) do not vote to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger, and (2) deliver a written demand for payment of the fair cash value of their shares of Procter & Gamble stock not later than ten days after the Procter & Gamble special meeting, shall be entitled, if and when the merger is completed, to receive the fair cash value of their shares of Procter & Gamble common stock. The right as a Procter & Gamble shareholder to receive the fair cash value of Procter & Gamble shares of common stock, however, is contingent upon strict compliance by the dissenting Procter & Gamble shareholder with the procedures set forth in Ohio Revised Code Section 1701.85, a copy of which is attached to this document as Annex E. If you wish to submit a written demand for payment of the fair cash value of your Procter & Gamble common stock, you should deliver your demand no later than ten days after the Procter & Gamble special meeting. Under Delaware law, Gillette shareholders will not have appraisal rights.
Comparison of Procter & Gamble/Gillette Shareholder Rights (see page IV-1)
      The rights of Gillette shareholders are currently governed by the Delaware General Corporation Law and Gillette’s certificate of incorporation and bylaws. The rights of Procter & Gamble shareholders are governed by the Ohio General Corporation Law and Procter & Gamble’s articles of incorporation and regulations. Upon completion of the merger, shareholders of Gillette and shareholders of Procter & Gamble will all be shareholders of Procter & Gamble, and their rights will be governed by the Ohio General Corporation Law and by Procter & Gamble’s articles of incorporation and regulations. Neither Procter & Gamble’s articles of incorporation nor its regulations will be affected by the merger.
Interests of Certain Persons in the Merger (see page I-62)
      When Gillette shareholders consider their board of directors’ recommendation that they vote in favor of the adoption of the merger agreement and approval of the merger, Gillette shareholders should be aware that Gillette executive officers and directors may have interests in the merger that may be different from, or in addition to, their interests.
      Some of these interests include:
  •  compensatory payments and other benefits described in “Interests of Certain Persons in the Merger”; and
 
  •  the rights of James M. Kilts, Chairman, President and Chief Executive Officer of Gillette, under his amended employment agreement with Gillette pursuant to which Mr. Kilts has agreed to continue his employment with the combined company in the position of Vice Chairman of Procter & Gamble and to serve on the Procter & Gamble board of directors, in each case for one year following consummation of the merger. As Chairman of the Gillette board of directors, Mr. Kilts voted, along with all of Gillette’s other directors, to approve the merger.

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Chapter One — The Merger
Accounting Treatment of the Merger (see page I-33)
      Procter & Gamble will account for the merger under the purchase method of accounting for business combinations under accounting principles generally accepted in the United States of America.
Opinion of Procter & Gamble’s Financial Advisor (see page I-42)
      In connection with the merger, the Procter & Gamble board of directors considered the opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Procter & Gamble’s financial advisor. Merrill Lynch rendered a written opinion to the Procter & Gamble board of directors that, as of January 27, 2005, and based upon and subject to the factors and assumptions set forth therein, the exchange ratio of 0.975 was fair from a financial point of view to Procter & Gamble. This opinion, which is attached as Annex B, sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken by Merrill Lynch in providing its opinion. Please read this opinion carefully and in its entirety.
      This opinion is directed to the board of directors of Procter & Gamble and does not constitute a recommendation to any shareholder as to how that shareholder should vote on, or take any other action with respect to, the merger.
Opinions of Gillette’s Financial Advisors (see page I-48)
      Goldman, Sachs & Co. and UBS Securities LLC have rendered their respective opinions to the Gillette board of directors that, as of January 27, 2005, and based upon and subject to the factors, assumptions, procedures, limitations and qualifications set forth therein, the exchange ratio of 0.975 of a share of Procter & Gamble common stock to be received for each share of Gillette common stock pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Gillette common stock.
      The full text of the opinions of Goldman Sachs and UBS, each dated January 27, 2005, which set forth assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken in connection with the opinions, are attached as Annexes C and D to this joint proxy statement/ prospectus. The opinions should be read in their entirety. Goldman Sachs and UBS provided their opinions for the information and assistance of the Gillette board of directors in connection with its consideration of the merger. The Goldman Sachs and UBS opinions are not recommendations as to how any holder of shares of Gillette common stock should vote with respect to the merger.
Repurchase of Common Stock (see page I-39)
      On January 28, 2005, at the time the proposed merger was announced, Procter & Gamble announced a common stock repurchase program pursuant to which it and/or one or more of its subsidiaries plan to repurchase up to $18 billion to $22 billion of its common stock over a period of 12-18 months. Procter & Gamble determined that an all stock transaction coupled with a stock repurchase program would serve as an effective method to mitigate the potential dilutive impact on Procter & Gamble’s earnings per share as a result of the issuance of additional shares in an all stock merger while still providing for a tax-free transaction for Gillette shareholders. The repurchase of shares under this repurchase program commenced on January 28, 2005 pursuant to a Rule 10b5-1(c) plan. Procter & Gamble is not legally or contractually obligated to repurchase its shares of common stock.

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Selected Historical Financial Information
      The following financial information is provided to assist you in your analysis of the financial aspects of the merger. The annual Procter & Gamble historical information is derived from the audited consolidated financial statements of Procter & Gamble as of and for each of the years ended June 30, 2000 through 2004. The annual Gillette historical information is derived from the audited consolidated financial statements of Gillette as of and for each of the years ended December 31, 2000 through 2004. The Procter & Gamble data for the nine months ended March 31, 2005 and 2004, has been derived from interim unaudited financial statements of Procter & Gamble and, in the opinion of Procter & Gamble’s management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim period. The Gillette data for the three months ended March 31, 2005 and 2004, has been derived from the interim unaudited financial statements of Gillette and, in the opinion of Gillette’s management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim period. The information is only a summary and should be read in conjunction with each company’s historical consolidated financial statements and related notes contained in the Procter & Gamble annual report on Form 10-K for the year ended June 30, 2004, as conformed to organizational and segment measurement changes contained in the Procter & Gamble Form 8-K filed October 22, 2004, and as conformed to present the reclassification of certain investments from cash and cash equivalents to investment securities as contained in the Procter & Gamble Form 8-K filed March 14, 2005, and quarterly report on Form 10-Q for the quarter ended March 31, 2005, and the Gillette annual report on Form 10-K for the year ended December 31, 2004, and quarterly report on Form 10-Q for the quarter ended March 31, 2005, all of which are incorporated in this document by reference, as well as other information that has been filed with the SEC. See “Where You Can Find More Information” on page IV-2 for information on where you can obtain copies of this information. The historical results included below and elsewhere in this document are not indicative of the future performance of Procter & Gamble, Gillette or the combined company.
Procter & Gamble Historical Financial Information
                                                         
    As of and for the
     
    Nine Months Ended   Year Ended
    March 31,   June 30,
         
    2005   2004   2004   2003   2002   2001   2000
                             
    (in millions, except per share data)
Net Sales
  $ 42,483     $ 38,445     $ 51,407     $ 43,377     $ 40,238     $ 39,244     $ 39,951  
Operating Income
    8,628       7,688       9,827       7,853       6,678       4,736       5,954  
Net Earnings
    5,760       5,107       6,481       5,186       4,352       2,922       3,542  
Diluted Net Earnings per Common Share
    2.10       1.83       2.32       1.85       1.54       1.03       1.23  
Dividends per Common Share
    0.75       0.68       0.93       0.82       0.76       0.70       0.64  
Total Assets
    63,076       53,868       57,048       43,706       40,776       34,387       34,366  
Long-Term Debt
    12,936       13,349       12,554       11,475       11,201       9,792       9,012  

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Gillette Historical Financial Information
                                                         
    Three Months                    
    Ended    
    March 31,   As of and for the Year Ended December 31,
         
    2005   2004   2004   2003   2002   2001   2000
                             
    (in millions, except per share data)
Net Sales
  $ 2,610     $ 2,235     $ 10,477     $ 9,252     $ 8,453     $ 8,084     $ 8,310  
Operating Income
    640       556       2,465       2,003       1,809       1,498       1,512  
Net Earnings
    449       376       1,691       1,385       1,216       910       392  
Diluted Net Earnings per Common Share
    0.45       0.37       1.68       1.35       1.15       0.86       0.37  
Dividends per Common Share
    0.16       0.16       0.65       0.65       0.65       0.65       0.65  
Total Assets
    10,987       9,832       10,731       10,041       9,883       9,961       10,246  
Long-Term Debt
    2,125       2,453       2,142       2,453       2,457       1,654       1,650  
Selected Unaudited Pro Forma Combined Financial Information
      The merger will be accounted for under the purchase method of accounting, which means the assets and liabilities of Gillette will be recorded, as of completion of the merger, at their respective fair values and added to those of Procter & Gamble. For a more detailed description of purchase accounting, see “The Proposed Merger — Accounting Treatment” on page I-33.
      The selected unaudited pro forma combined financial information presented below reflects the purchase method of accounting and is for illustrative purposes only. The selected unaudited pro forma combined financial information may have been different had the companies actually been combined. The selected unaudited pro forma combined financial information does not reflect the effect of asset dispositions, if any, or revenue, cost or other operating synergies that may result from the merger, nor does it reflect the effects of any financing, liquidity or other balance sheet repositioning that may be undertaken in connection with or subsequent to the merger. You should not rely on the selected unaudited pro forma combined financial information as being indicative of the historical results that would have occurred had the companies been combined or the future results that may be achieved after the merger. The following selected unaudited pro forma combined financial information has been derived from, and should be read in conjunction with, the Unaudited Pro Forma Condensed Combined Financial Statements and related notes included in Chapter Two of this joint proxy statement/ prospectus.
                 
    As of and for the
     
    Nine Months    
    Ended    
    March 31, 2005   Year Ended June 30, 2004
         
    (in millions, except per share data)
Net Sales
  $ 50,892     $ 61,112  
Operating Income
    10,400       11,889  
Net Earnings
    6,983       7,903  
Diluted Net Earnings per Common Share
    1.87       2.09  
Dividends per Common Share
    0.75       0.93  
Total Assets
    129,009        
Long-Term Debt
    15,061        
 
Comparative Per Share Information
      The following table sets forth selected historical per share information of Procter & Gamble and Gillette and unaudited combined per share information after giving effect to the merger between Procter & Gamble and Gillette, under the purchase method of accounting, assuming that 0.975 shares of Procter & Gamble common stock had been issued in exchange for each outstanding share of Gillette common stock.

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You should read this information in conjunction with the selected historical financial information, included elsewhere in this document, and the historical financial statements of Procter & Gamble and Gillette and related notes that are incorporated in this document by reference. The unaudited pro forma combined per share information is derived from, and should be read in conjunction with, the Unaudited Pro Forma Condensed Combined Financial Statements and related notes included in Chapter Two of this joint proxy statement/ prospectus. The historical per share information is derived from audited financial statements as of and for the year ended June 30, 2004, and unaudited financial statements as of and for the nine months ended March 31, 2005 in the case of Procter & Gamble and from audited financial statements as of and for the year ended December 31, 2004 and unaudited financial statements as of and for the three months ended March 31, 2005, in the case of Gillette. The unaudited pro forma Procter & Gamble per share equivalents are calculated by combining the Procter & Gamble historical share amounts with pro forma amounts from Gillette, based on the exchange ratio of 0.975.
      The unaudited pro forma combined per share information does not purport to represent what the actual results of operations of Procter & Gamble and Gillette would have been had the companies been combined or to project Procter & Gamble’s and Gillette’s results of operations that may be achieved after the merger.
Procter & Gamble Historical Financial Data:
                 
    As of and for the
     
    Nine Months Ended   Year Ended
    March 31, 2005   June 30, 2004
         
Net Earnings per Common Share — Basic
  $ 2.24     $ 2.46  
Net Earnings per Common Share — Diluted
    2.10       2.32  
Cash Dividends
    0.75       0.93  
Book Value per Common Share — Basic
    7.51       6.79  
Gillette Historical Financial Data:
                 
    As of and for the
     
    Three Months Ended   Year Ended
    March 31, 2005   December 31, 2004
         
Net Earnings per Common Share — Basic
  $ 0.45     $ 1.69  
Net Earnings per Common Share — Diluted
    0.45       1.68  
Cash Dividends
    0.16       0.65  
Book Value per Common Share — Basic
    3.22       2.86  
Procter & Gamble Unaudited Pro Forma Combined Financial Data:
      The Procter & Gamble unaudited pro forma combined financial data has been prepared for the benefit of both companies’ shareholders. The data was prepared on the basis of the combined companies’ pro forma results and reflecting the share exchange ratio of 0.975 including the impacts of net shares issued to satisfy Gillette stock options using the treasury stock method.
                 
    As of and for the
     
    Nine Months Ended   Year Ended
    March 31, 2005   June 30, 2004
         
Net Earnings per Common Share — Basic
  $ 1.97     $ 2.19  
Net Earnings per Common Share — Diluted
    1.87       2.09  
Cash Dividends
    0.75       0.93  
Book Value per Common Share — Basic
    20.79        

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Gillette Equivalent Pro Forma Combined Financial Data:
      The Gillette equivalent pro forma financial data was prepared on the basis of the combined companies’ pro forma results and reflecting the share exchange ratio of 0.975.
                 
    As of and for the
     
    Nine Months Ended   Year Ended
    March 31, 2005   June 30, 2004
         
Net Earnings per Common Share — Basic
  $ 1.92     $ 2.14  
Net Earnings per Common Share — Diluted
    1.82       2.04  
Cash Dividends
    0.73       0.91  
Book Value per Common Share — Basic
    20.27        
Comparative Per Share Market Price and Dividend Information
      Procter & Gamble common stock and Gillette common stock are each listed on the New York Stock Exchange. Procter & Gamble’s and Gillette’s ticker symbols are “PG” and “G”, respectively. The following table shows, for the calendar quarters indicated, based on published financial sources: (1) the high and low sale prices of shares of Procter & Gamble and Gillette common stock as reported on the New York Stock Exchange Composite Transaction Tape and (2) the cash dividends per share of Procter & Gamble and Gillette common stock.
                                                   
    Procter & Gamble   Gillette
    Common Stock*   Common Stock
         
    High   Low   Dividends   High   Low   Dividends
                         
2003
                                               
 
First Quarter
  $ 45.00     $ 39.79     $ 0.205     $ 32.34     $ 28.00     $ 0.1625  
 
Second Quarter
    46.27       43.80       0.205       33.78       29.80       0.1625  
 
Third Quarter
    46.72       43.26       0.2275       33.57       29.75       0.1625  
 
Fourth Quarter
    49.97       46.41       0.2275       36.78       30.80       0.1625  
2004
                                               
 
First Quarter
  $ 53.61     $ 48.89     $ 0.2275     $ 39.95     $ 35.01     $ 0.1625  
 
Second Quarter
    56.34       51.64       0.25       43.78       37.75       0.1625  
 
Third Quarter
    56.95       51.50       0.25       43.30       37.77       0.1625  
 
Fourth Quarter
    57.40       50.53       0.25       45.70       39.10       0.1625  
2005
                                               
 
First Quarter
  $ 57.04     $ 51.16     $ 0.25     $ 51.90     $ 43.60     $ 0.1625  
 
Sales prices and dividends per share were adjusted, as needed, to reflect a 2 for 1 stock split effected May 21, 2004

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Recent Closing Prices
      The following table sets forth the closing prices per share of Procter & Gamble common stock and Gillette common stock as reported on the New York Stock Exchange Composite Transaction Tape on January 27, 2005, the last full trading day prior to the announcement of the merger agreement, and [          ], 2005, the most recent practicable date prior to the mailing of this joint proxy statement/ prospectus to Procter & Gamble’s and Gillette’s shareholders. This table also sets forth the equivalent price per share of Gillette common stock on those dates. The equivalent price per share is equal to the closing price of a share of Procter & Gamble common stock on that date multiplied by 0.975, the applicable exchange ratio in the merger. These prices will fluctuate prior to the special meetings and the merger, and shareholders are urged to obtain current market quotations prior to making any decision with respect to the merger.
                         
            Gillette Common
    Procter & Gamble   Gillette Common   Stock per share
Date   Common Stock   Stock   Equivalent
             
January 27, 2005
  $ 55.32     $ 45.85     $ 53.937  
[     ], 2005
    [      ]     [      ]     [      ]
      Although dividends are subject to future approval and declaration by Procter & Gamble’s and Gillette’s respective boards of directors, Procter & Gamble and Gillette each currently plan to continue to pay regular dividends on their common stock until closing of the merger. The dividend policy following the merger will be determined by Procter & Gamble’s board of directors.

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RISK FACTORS
      Procter & Gamble and Gillette shareholders should carefully consider the following factors before voting at their respective special meetings.
The Value of Procter & Gamble Shares Received Will Fluctuate; Shareholders of Gillette May Receive More or Less Value Depending on Fluctuations in the Price of Procter & Gamble Common Stock
      The number of shares of Procter & Gamble common stock issued in the merger for each share of Gillette common stock is fixed. The market prices of Procter & Gamble common stock and Gillette common stock when the merger is completed may vary from their market prices at the date of this document and at the date of the special meetings of Procter & Gamble and Gillette. Because the exchange ratio will not be adjusted to reflect any changes in the market value of Procter & Gamble common stock, the market value of Procter & Gamble common stock issued in the merger may be higher or lower than the value of such shares on earlier dates. During the 12-month period ending on [          ], 2005, the most recent practical date prior to the mailing of this joint proxy statement/ prospectus, Procter & Gamble common stock traded in a range from a low of $[          ] to a high of $[          ] and ended that period at $[          ], and Gillette common stock traded in a range from a low of $[          ] to a high of $[          ] and ended that period at $[          ]. See “Comparative Per Share Market Price and Dividend Information” on page I-14 for more detailed share price information.
      These variations may be the result of various factors including:
  •  changes in the business, operations or prospects of Procter & Gamble or Gillette;
 
  •  governmental and/or litigation developments and/or regulatory considerations;
 
  •  market assessments as to whether and when the merger will be consummated;
 
  •  governmental action affecting the consumer products industry generally; and
 
  •  general market and economic conditions.
      The merger may not be completed until a significant period of time has passed after the Procter & Gamble and Gillette special meetings. At the time of their respective special meetings, Procter & Gamble and Gillette shareholders will not know the exact value of the Procter & Gamble common stock that will be issued in connection with the merger.
      Shareholders of Procter & Gamble and Gillette are urged to obtain current market quotations for Procter & Gamble and Gillette common stock.
Gillette Shareholders Will Have a Reduced Ownership and Voting Interest After the Merger and Will Exercise Less Influence Over Management
      After the merger’s completion, Gillette shareholders will own a significantly smaller percentage of Procter & Gamble than they currently own of Gillette. Following completion of the merger, Gillette shareholders will own approximately 29% of the combined company on a fully-diluted basis. Consequently, Gillette shareholders may be able to exercise less influence over the management and policies of Procter & Gamble than they currently exercise over the management and policies of Gillette.
The Combined Company May Be Unable to Successfully Integrate Operations and Realize the Full Anticipated Cost Savings, Which May Harm the Value of Procter & Gamble Common Stock
      The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the companies’ operations include:
  •  the necessity of coordinating geographically separated organizations, systems and facilities; and
 
  •  integrating personnel with diverse business backgrounds.

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      The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of the combined company’s businesses and the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could result in the disruption of the combined company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that negatively affect the combined company’s ability to maintain relationships with customers, suppliers, employees and others with whom it has business dealings.
      Among the factors considered by the Procter & Gamble and the Gillette boards of directors in connection with their respective approvals of the merger agreement were the opportunities for operating efficiencies that could result from the merger. These savings may not be realized within the time periods contemplated or at all. If the combined company is not able to successfully achieve these savings, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.
The Combined Company Will Incur Significant Transaction and Merger-Related Costs in Connection with the Merger
      Procter & Gamble and Gillette expect to incur a number of non-recurring costs associated with combining the operations of the two companies. The substantial majority of non-recurring charges resulting from the merger will be comprised of employee termination costs and other exit costs related to the Gillette business to achieve desired synergies. Procter & Gamble and Gillette have just recently begun collecting information in order to formulate detailed integration plans to deliver planned synergies. Procter & Gamble and Gillette will also incur transaction fees and other costs related to the merger, anticipated to be between $145 million and $155 million. This amount is a preliminary estimate and subject to change. Additional unanticipated costs may be incurred in the integration of the businesses of Procter & Gamble and Gillette. Although Procter & Gamble and Gillette expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
The Merger May Cause Dilution to Procter & Gamble Earnings Per Share, Which May Harm the Market Price of Procter & Gamble Common Stock
      The merger and the transactions contemplated by the merger agreement are expected to have a dilutive effect on earnings per share of Procter & Gamble common stock of approximately 25-35 cents per share in the first year after completion of the merger and 5-10 cents per share in the second year. The majority of this dilution will be caused by the additional shares of Procter & Gamble common stock that will be issued in the merger. The remaining dilution relates primarily to non-recurring charges resulting from employee termination and other exit costs. Procter & Gamble and Gillette have just recently begun collecting information in order to formulate detailed integration plans to deliver planned synergies. Accordingly, these amounts are preliminary estimates and subject to change. Procter & Gamble and Gillette could also encounter other transaction and integration-related costs or other factors such as the failure to realize any benefit from synergies anticipated in the merger. All of these factors could harm the market price of Procter & Gamble common stock.
Obtaining Required Approvals and Satisfying Closing Conditions May Delay or Prevent Completion of the Merger or Reduce the Anticipated Benefits of the Merger
      Completion of the merger is conditioned upon the receipt of all material governmental authorizations, consents, orders and approvals, including the expiration or termination of the applicable waiting periods, and any extension of the waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval by the European Commission. Procter & Gamble and Gillette intend to pursue all required approvals in accordance with the merger agreement. These approvals may impose

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conditions on or require divestitures relating to the divisions, operations or assets of Procter & Gamble or Gillette. Such conditions or divestitures may jeopardize or delay completion of the merger or may reduce the anticipated benefits of the merger. See “The Merger Agreement — Conditions” on page I-75 for a discussion of the conditions to the completion of the merger and “The Proposed Merger — Regulatory Matters Relating to the Merger” on page I-36 for a description of the regulatory approvals necessary in connection with the merger.
Certain Directors and Executive Officers of Gillette May Have Potential Conflicts of Interests In Recommending That You Vote in Favor of the Merger
      Certain directors and executive officers may have interests that differ from yours. Following the completion of the merger, James M. Kilts will be a vice chairman of Procter & Gamble and entered into an amendment to his employment agreement concurrently with the execution of the merger agreement that is described under “The Proposed Merger — Interests of Certain Persons in the Merger.” Other executive officers of Gillette are subject to agreements and arrangements that may be affected by the merger in accordance with their terms that are also described under “The Proposed Merger — Interests of Certain Persons in the Merger.” Gillette directors will be entitled to continuation of indemnification and insurance arrangements under the merger agreement. See “Interests of Certain Persons in the Merger” for a description of the interests that Gillette’s directors and executive officers have in the merger, including the amounts of compensatory payments and other benefits to which they will be entitled to receive in connection with the merger. You should be aware of these interests when you consider your board of directors’ recommendation that you vote in favor of the merger.
Adverse Changes In Procter & Gamble’s Credit Ratings May Negatively Impact its Ability to Access Capital Markets
      Procter & Gamble has been notified by Standard & Poor’s, Moody’s and Fitch Ratings that borrowings associated with Procter & Gamble’s announced stock repurchase program have resulted in the re-examination and possible downgrading of its credit rating. While credit ratings reflect the opinions of the credit agencies issuing such ratings and may not necessarily reflect actual performance, a downgrade in Procter & Gamble’s credit rating could restrict or impede its ability to access capital markets at attractive rates and increase its borrowing costs.

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FORWARD-LOOKING STATEMENTS
      Procter & Gamble and Gillette have made forward-looking statements in this document, and in documents that are incorporated by reference in this document, that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of each company’s management. Generally, forward-looking statements include information concerning possible or assumed future actions, events or results of operations of Procter & Gamble, Gillette and the combined company. Forward-looking statements specifically include, without limitation, the information in this document regarding: projections; efficiencies/cost avoidance; cost savings; income and margins; earnings per share; growth; economies of scale; combined operations; the economy; future economic performance; conditions to, and the timetable for, completing the merger; future acquisitions and dispositions; litigation; potential and contingent liabilities; management’s plans; business portfolios; taxes; and merger and integration-related expenses.
      Forward-looking statements may be preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. Procter & Gamble and Gillette claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.
      Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed in “Risk Factors” above and elsewhere in this document, and in the documents which are incorporated by reference in this document, could affect the future results of Procter & Gamble and Gillette, and of the combined company after the completion of the merger, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements:
  •  the ability to achieve business plans, including with respect to lower income consumers and growing existing sales and volume profitably despite high levels of competitive activity, especially with respect to the product categories and geographical markets (including developing markets) in which the combined company has chosen to focus;
 
  •  the ability to successfully execute, manage and integrate key acquisitions and mergers, including Wella A.G. (in the case of Procter & Gamble) and the merger;
 
  •  the ability to manage and maintain key customer relationships;
 
  •  the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources);
 
  •  the ability to successfully manage regulatory, tax and legal matters (including product liability, patent and other intellectual property matters), and to resolve pending matters within current estimates;
 
  •  the ability to successfully implement, achieve and sustain cost improvement plans in manufacturing and overhead areas, including outsourcing projects;
 
  •  the ability to successfully manage currency (including currency issues in volatile countries), debt (including debt related to Procter & Gamble’s share repurchase plan), interest rate and certain commodity cost exposures;
 
  •  the ability to manage the continued global political and/or economic uncertainty and disruptions, especially in the combined company’s significant geographical markets, as well as any political and/or economic uncertainty and disruptions due to terrorist activities;
 
  •  the ability to successfully manage the pattern of its sales, including the variation in sales volume within periods;
 
  •  the ability to successfully manage competitive factors, including prices, promotional incentives and trade terms for its products;

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  •  the ability to obtain patents and respond to technological advances attained by competitors and patents granted to competitors;
 
  •  the ability to successfully manage increases in the prices of raw materials used to make the combined company’s products;
 
  •  the ability to stay close to consumers in an era of increased media fragmentation; and
 
  •  the ability to stay on the leading edge of innovation.

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THE PROPOSED MERGER
General
      Procter & Gamble’s board of directors is using this joint proxy statement/ prospectus to solicit proxies from the holders of Procter & Gamble common stock, Series A ESOP Convertible Class A Preferred Stock (“Series A ESOP Preferred Stock”), and Series B ESOP Convertible Class A Preferred Stock (“Series B ESOP Preferred Stock”) for use at the Procter & Gamble special meeting. Gillette’s board of directors is also using this document to solicit proxies from the holders of Gillette common stock for use at the Gillette special meeting.
Procter & Gamble Proposals
      At the Procter & Gamble special meeting, holders of Procter & Gamble common stock, Series A ESOP Preferred Stock, and Series B ESOP Preferred Stock will be asked to vote upon the adoption of the merger agreement and the approval of the issuance of Procter & Gamble common stock in the merger, and a proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
      The merger will not be completed unless Procter & Gamble’s shareholders adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
Gillette Proposals
      At the Gillette special meeting, holders of Gillette common stock will be asked to vote upon the adoption of the merger agreement and approval of the merger, and a proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the merger.
      The merger will not be completed unless Gillette’s shareholders adopt the merger agreement and approve the merger.
Background of the Merger
      During the past several years, senior management and the board of directors of Gillette have regularly reviewed the company’s strategic growth objectives and means of achieving those objectives, including potential strategic initiatives and various business combinations. In particular, Gillette’s senior management and board of directors have focused on Gillette’s long-term ability to compete in the consumer products market and Gillette’s reliance on its blades and razors business. Gillette’s senior management and board of directors considered whether an appropriate business combination would provide an increase in scale that would enable Gillette to more effectively address market demands, achieve cost and operating efficiencies, diversify its portfolio of products and obtain other benefits.
      In April of 2002, after discussion with, and approval of, the Gillette board of directors, James M. Kilts, Chairman, President and Chief Executive Officer of Gillette, approached the chief executive officer of a major consumer products company with respect to a potential business combination with that company. Given the complementary strengths of the two companies and the possible benefits of a business combination, senior management of the two companies engaged in preliminary discussions during the spring of 2002, and meetings were held between senior managements of the two companies. At the time, senior management of Gillette was considering a merger-of-equals approach to a possible transaction with that company. In the course of these discussions, the parties determined that they had substantially differing views as to their respective valuations and that significant differences existed regarding certain issues relating to the management and culture of the combined company. The parties therefore terminated discussions with respect to a possible transaction.
      In May of 2004, senior management of Gillette, together with its financial and legal advisors, re-examined the possibility of a business combination with the same company in connection with Gillette’s continuing strategic review of its business and prospects. Based on Gillette’s strong financial performance

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and progress with respect to its business initiatives, together with the performance of the potential merger partner since the period of the discussions in 2002, Gillette’s senior management proposed to renew its exploration of a business combination with that company but this time on the basis of an acquisition of that company by Gillette.
      On June 17, 2004, at a regularly scheduled meeting of the Gillette board of directors, Gillette’s senior management updated the board on the strategic implications and possible benefits and risks of a potential business combination. The board was supportive of management’s proposal to undertake a detailed analysis of the business combination and, if warranted following such analysis, re-engaging in discussions with that company to explore a possible business combination.
      During the summer of 2004, Mr. Kilts engaged in a discussion with the other company’s chief executive officer with respect to a possible acquisition by Gillette, but the parties were unable to make meaningful progress in that discussion due to valuation and other differences. Following this discussion, no further discussions were held between the parties due to the other party’s lack of response and the resulting judgment of Gillette’s management that pursuing such transaction was unlikely to be productive. Subsequently, Gillette’s senior management began to preliminarily consider other potential business combinations, including a transaction with Procter & Gamble.
      On September 23, 2004, at a regularly scheduled meeting of the Gillette board of directors, Gillette’s senior management updated the board on the lack of progress with the other consumer products company and the board of directors was informed that Gillette’s senior management did not recommend continuing to pursue the possibility of a business combination with that company. In addition, Gillette’s senior management discussed with the board the possibility of exploring a business combination with Procter & Gamble and the board of directors approved the suggestion that senior management move forward with its evaluation. Following the board meeting, Gillette’s senior management, together with its advisors, carefully considered a possible business combination with Procter & Gamble.
      Although Goldman Sachs and UBS had provided assistance to the senior management and the board of directors of Gillette in connection with the inquiries and analyses referred to above, in October 2004, Gillette formally engaged Goldman Sachs and UBS to act as its financial advisors in connection with the proposed merger. The Gillette board of directors decided to engage both financial advisors because of their substantial experience in similar transactions, their familiarity with Gillette and its business and the significance of the proposed transaction to Gillette.
      On October 21, 2004, at a regularly scheduled meeting of the Gillette board of directors, management provided its preliminary analysis of the possibility, risks and possible strategic and financial benefits of a business combination with Procter & Gamble. Goldman Sachs and UBS made presentations to the board concerning various aspects of such a combination. After representatives of Goldman Sachs and UBS left the board meeting, Davis Polk & Wardwell, legal counsel to Gillette, discussed the fiduciary duties of the directors as well as certain other legal issues in connection with such a combination. At the conclusion of the meeting, the board authorized Gillette’s senior management to initiate contact with Procter & Gamble concerning a possible business combination.
      In early November of 2004, Mr. Kilts called Warren E. Buffett, Chairman and Principal Executive Officer of Berkshire Hathaway, Inc., which at that time beneficially owned approximately 9.7% of Gillette’s outstanding common stock. During the call, Mr. Kilts asked Mr. Buffett if he would consent to the receipt of material non-public information, recognizing that this would restrict his flexibility to effect transactions in the securities of Gillette. After Mr. Buffett so consented, Mr. Kilts solicited his views with respect to a possible business combination between Gillette and Procter & Gamble. Mr. Kilts reviewed the strategic rationale, possible benefits and risks of the transaction and the analysis that Gillette had completed to date. Mr. Buffett indicated that he would be supportive of a transaction with Procter & Gamble that provided appropriate value to Gillette shareholders.
      On November 5, 2004, Mr. Kilts called A.G. Lafley, Chairman of the Board, President and Chief Executive of Procter & Gamble to propose that the companies explore a potential business combination. During this call, Mr. Lafley inquired as to whether Mr. Kilts had a specific price in mind. Mr. Kilts did

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not specify a price, but indicated that he was not expecting a price above $60 per Gillette share or below $50 per Gillette share. Based on this response, Mr. Lafley believed that Gillette expected an offer equivalent to about $55 per share. Mr. Lafley agreed to meet with Mr. Kilts to discuss the matter further.
      On November 12, 2004, Mr. Lafley and Mr. Kilts met and discussed a possible business combination. At this meeting, Mr. Kilts provided Mr. Lafley with certain publicly available information with respect to Gillette. Also at this meeting, Mr. Lafley and Mr. Kilts discussed Mr. Kilts’ willingness to continue his employment during a transition period with the combined company and to roll over his options into Procter & Gamble options and retain them for a reasonable period of time. Following this meeting, over the course of the next several days, at Mr. Lafley’s direction, certain senior executives of Procter & Gamble analyzed the potential acquisition. In 1999, Procter & Gamble had considered the possibility of acquiring Gillette and was generally familiar with Gillette’s brands and operations. Based on its prior knowledge of Gillette and the preliminary discussions with Mr. Kilts, the Procter & Gamble executives determined that the potential acquisition had strategic value.
      On November 15, 2004, Mr. Lafley informed Norman R. Augustine, Procter & Gamble’s Presiding Director and Chairman of its Compensation & Leadership Development Committee, about his discussions with Mr. Kilts.
      On November 16, 2004, Procter & Gamble and Gillette executed a confidentiality agreement, which included customary standstill provisions.
      Also, on November 16, 2004, Procter & Gamble engaged Merrill Lynch as its financial advisor to assist in the evaluation of the potential transaction with Gillette. Later that day, representatives from Procter & Gamble contacted the law firm of Cadwalader, Wickersham & Taft LLP, which was engaged, to assist Procter & Gamble with respect to legal matters related to the potential acquisition, and the law firm of Jones Day was retained to assist with antitrust and regulatory matters.
      On November 17, 2004, the board of directors of Procter & Gamble held a telephonic meeting during which Mr. Lafley and other members of Procter & Gamble’s management team updated the outside directors on Mr. Lafley’s discussions with Mr. Kilts and the possibility of acquiring Gillette. Management of Procter & Gamble discussed with members of the board of directors their initial assessment of Gillette’s business and the potential risks and benefits of a potential acquisition of Gillette. The board of directors then authorized Mr. Lafley and other members of senior management to continue discussions with Gillette and to move forward with the due diligence process.
      Later in the afternoon of November 17, 2004, members of the senior management of Procter & Gamble and representatives of Merrill Lynch met with members of the senior management of Gillette and representatives of Goldman Sachs and UBS to discuss Gillette’s financial performance and other due diligence matters. During this meeting, Gillette informed Procter & Gamble that it would have restricted access to Gillette’s personnel and technology throughout the due diligence process.
      On November 18, 2004, Procter & Gamble engaged McKinsey & Company to assist management in connection with its analysis of potential deal synergies to complement its own due diligence.
      Also, on November 18, 2004, members of the senior management of Gillette met with members of senior management of Procter & Gamble. The parties conducted preliminary due diligence and discussed a process and timing for additional due diligence. Following that meeting, Gillette provided additional due diligence materials to Procter & Gamble.
      On November 22, 2004, senior executives from Procter & Gamble and Gillette, along with their respective legal and financial advisors, met to conduct preliminary due diligence concerning legal and intellectual property matters, and to discuss other preliminary matters related to the potential acquisition.
      On November 23, 2004, members of the senior management of Procter & Gamble and representatives of McKinsey & Company and Merrill Lynch met with members of the senior management of Gillette and

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representatives from Goldman Sachs and UBS to conduct due diligence concerning technology and business plans for the blades and razors and batteries businesses.
      On November 26, 2004, members of the senior management of Procter & Gamble met with members of the senior management of Gillette to discuss outstanding issues resulting from the previous due diligence meetings.
      On November 30, 2004, Cadwalader, Wickersham & Taft LLP circulated an initial draft of the merger agreement to Davis Polk & Wardwell. On the same day, Procter & Gamble engaged the law firm of Covington & Burling to assist in certain matters related to the potential transaction.
      On December 1, 2004, a special meeting of the Procter & Gamble board of directors was held during which Mr. Lafley, Clayton C. Daley Jr., Procter & Gamble’s Chief Financial Officer, and other members of Procter & Gamble management updated the outside directors on the status of the negotiations with Gillette and reviewed and discussed considerations related to, and the potential merits of, the potential acquisition, including the strengths and weaknesses of each of Gillette’s business segments, potential legal and regulatory issues and matters related to valuation, including cost and revenue synergies. Management reported that it believed Gillette expected an offer equivalent to at least $55 per share. The board of directors then considered the strategic fit, potential dilution/accretion, stock price, valuation risks and credit rating impacts of the transaction at various price points, as well as alternative transactions that might be foreclosed by consummating a transaction with Gillette. After a lengthy discussion, management recommended, and the board of directors then agreed, to continue the process. The board of directors authorized management to make an offer to Gillette at a price roughly equivalent to $50 per share.
      Also, on December 1, 2004, representatives from Davis Polk & Wardwell and Cadwalader, Wickersham & Taft LLP discussed Gillette’s initial reactions to certain provisions contained in the draft merger agreement circulated by Cadwalader, Wickersham & Taft LLP the previous day and identified certain issues raised by the proposed draft.
      On December 2, 2004, Mr. Daley and representatives of Merrill Lynch met with Charles W. Cramb, Gillette’s Chief Financial Officer, and representatives of Goldman Sachs and UBS to discuss the potential transaction. During this meeting, Mr. Daley proposed to Mr. Cramb an all stock transaction at an exchange ratio of 0.915 shares of Procter & Gamble common stock for each outstanding Gillette share or a price equivalent to slightly more than $50 per Gillette share. Procter & Gamble had considered an all stock transaction without a buy back, but concluded it would be too dilutive for its existing shareholders. Procter & Gamble also considered a stock and cash merger structure, but ultimately determined that an all stock transaction coupled with a stock repurchase program would be more attractive in that it would provide Gillette shareholders with a wholly tax free transaction and allow all Gillette shareholders who wished to continue to participate in the combined company the opportunity to do so. Mr. Cramb responded that Gillette management would not recommend this transaction to the Gillette board of directors and indicated that a substantially higher value would be required for Gillette to proceed. Negotiations over the valuation issues continued over the next two days but the parties were unable to reach an agreement regarding valuation.
      On December 4, 2004, Mr. Kilts and Mr. Lafley held a phone discussion and agreed to terminate the discussions. Thereafter, on December 6, 2004, Gillette sent a letter to Procter & Gamble requesting in accordance with the terms of the confidentiality agreement that Procter & Gamble return all of the confidential information that Gillette had provided in connection with Procter & Gamble’s consideration of the transaction. Procter & Gamble also sent a similar request to Gillette. In addition, Mr. Kilts subsequently updated Mr. Buffett as to the termination of discussions with Procter & Gamble.
      On December 14, 2004, at a regular meeting of the Procter & Gamble board of directors, Messrs. Lafley and Daley informed the outside directors that discussions between the parties had terminated, but that management and Procter & Gamble’s financial advisors continued to analyze potential cost and growth synergies and monitor any future developments.

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      On December 16, 2004, at a meeting of the Gillette board of directors, senior management updated the board on the termination of the discussions with Procter & Gamble and the reasons therefor.
      On December 17, 2004, Messrs. Lafley and Daley met with Mr. Buffett in Omaha, Nebraska. Even though discussions between the parties had terminated, Procter & Gamble continued to analyze a potential transaction with Gillette and Messrs. Lafley and Daley sought Mr. Buffett’s views on Gillette’s blades, razors and batteries segments, which they discussed along with the general strategic attractiveness and growth potential of the Gillette businesses. Prior to this meeting, Mr. Kilts had advised Mr. Lafley that Mr. Buffett had advised him of his willingness to purchase additional shares of Gillette and Procter & Gamble common stock following the announcement of the transaction. Although Mr. Buffett did not make any recommendations regarding the appropriate value to be given to Gillette shareholders or the structure of the transaction, Mr. Buffett expressed his support for a potential acquisition if such a transaction could be concluded and confirmed his willingness to purchase additional shares of Gillette and/or Procter & Gamble common stock following the announcement of the merger.
      On January 4, 2005, Henry M. Paulson, Jr., Chairman of the Board and Chief Executive Officer of Goldman Sachs, as a part of Goldman Sachs’ continuing role in keeping open all channels of communication with Procter & Gamble and its advisors, called Mr. Lafley to discuss the long-term strategic value of the potential acquisition and to request that Procter & Gamble reconsider its position.
      Following Mr. Lafley’s conversation with Mr. Paulson, Procter & Gamble began to explore options for re-engaging with Gillette. On January 5, 2005, Mr. Lafley consulted with Mr. Augustine, who encouraged Procter & Gamble to re-open discussions.
      On January 11, 2005, at a regular meeting of the Procter & Gamble board of directors, Messrs. Lafley and Daley updated the outside directors about the recent discussions Mr. Lafley had with Mr. Paulson. The board of directors then authorized management to resume discussions with Gillette.
      At Mr. Lafley’s request, Rajat Gupta, the former Managing Director of McKinsey & Company, called Mr. Kilts on January 12, 2005, and met with him on January 13, 2005, to explore the possibility of resuming discussions between Gillette and Procter & Gamble. As a result of these discussions, on January 15, 2005, Mr. Kilts and Mr. Lafley had a phone conversation and agreed to recommence discussions with respect to a possible acquisition.
      On January 17, 2005, members of senior management of Gillette and Procter & Gamble met to discuss the potential acquisition synergies, other value creation opportunities and the state of Gillette’s technology, particularly in the blades and razors business. During this meeting, the two sides agreed to conduct the negotiations based on a fixed exchange ratio. Representatives of Gillette indicated they would consider an exchange ratio of one share of Procter & Gamble stock for each share of Gillette stock.
      On January 18, 2005, Mr. Lafley telephoned Mr. Kilts and proposed an exchange ratio of 0.950 shares of Procter & Gamble stock for each Gillette share. Mr. Kilts expressed disappointment that Procter & Gamble did not meet his request for a one-for-one exchange ratio, but indicated he would consider Mr. Lafley’s offer. Later that evening, after discussions with members of Gillette’s senior management and financial advisors, Mr. Kilts called Mr. Lafley and informed him that an exchange ratio of 0.950 did not appropriately value Gillette’s business, franchise and prospects. Following these calls, Mr. Lafley again updated Mr. Augustine.
      Between January 19, 2005 and January 21, 2005, Mr. Lafley had several telephone conversations with Mr. Paulson, Mr. Gupta and Mr. Stan O’Neal, Merrill Lynch’s Chief Executive Officer, regarding the strategic opportunities presented by the potential acquisition.
      On January 19, 2005, Procter & Gamble engaged Mr. Andrew Shore, a former analyst with Deutsche Bank, as a consultant on the potential transaction.
      On January, 20, 2005, Mr. Lafley sent a letter to the members of the board of directors of Procter & Gamble describing the status of the discussions with Gillette.
      On January 21, 2005, Mr. Kilts telephoned Mr. Lafley and proposed an exchange ratio of 0.975 shares of Procter & Gamble stock for each Gillette share. After consulting with Messrs. Augustine

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and Daley, Mr. Lafley agreed to recommend to Procter & Gamble’s board of directors the proposed financial terms offered by Mr. Kilts, subject to completion of due diligence and negotiation of a mutually acceptable merger agreement. Later that day, Davis Polk & Wardwell delivered a revised draft of the merger agreement to Cadwalader, Wickersham & Taft LLP.
      During the course of January 22-23, 2005, the parties and their advisors engaged in numerous discussions concerning the terms of the merger agreement. Throughout this period, Messrs. Augustine and Lafley spoke several times regarding the strategic importance of the proposed transaction.
      On January 22, 2005, Mr. Augustine, with assistance from members of Procter & Gamble management and later from Procter & Gamble’s Compensation & Leadership Development Committee’s special counsel for the transaction, Sullivan & Cromwell LLP and Cadwalader, Wickersham & Taft LLP, began negotiations concerning the amendment of Mr. Kilts’ existing employment agreement with Gillette. These negotiations focused on amending the employment agreement to reflect Procter & Gamble’s desire to provide that, following the consummation of the proposed merger, Mr. Kilts would be employed by Procter & Gamble during an integration period and become subject to certain non-competition restrictions following such employment and significant restrictions on his ability to exercise Procter & Gamble stock options or to sell any Procter & Gamble stock. The parties also discussed other terms of his employment, including his compensation and other benefits. The negotiations between Mr. Kilts and Procter & Gamble with respect to the terms of his post-merger employment continued until the signing of the amendment to the employment agreement on January 27, 2005, concurrently with the signing of the merger agreement.
      On January 23, 2005, at a special telephonic meeting of the Procter & Gamble board of directors, Mr. Lafley again updated the outside directors on the status of the potential acquisition. Members of the board of directors and management discussed additional value creation opportunities, revised dilution/accretion calculations, the status of contract negotiations and Procter & Gamble’s preliminary communication strategy. The board of directors also discussed plans for an additional meeting to be held on January 27, 2005.
      On January 25, 2005, a meeting was held between the senior managements of Gillette and Procter & Gamble and their respective financial advisors during which Gillette management conducted due diligence with respect to Procter & Gamble’s business, financial condition and operations, including a presentation by Mr. Lafley with respect to business and financial affairs of Procter & Gamble.
      Following this meeting, Mr. Lafley called Mr. Buffett to inform him that the parties had agreed in principle on the financial terms and to inquire as to whether Mr. Buffett would be willing to convey his views of the proposed transaction, portions of which would be used in the press release announcing the transaction and during analyst meetings. Mr. Buffett agreed to do so. The parties continued negotiations and their due diligence reviews until the signing of the merger agreement on January 27, 2005.
      Also, on January 25, 2005, the Gillette board of directors held a special meeting, which was attended by Gillette’s senior management and Gillette’s financial and legal advisors. Mr. Kilts advised the board of the events that had transpired since the December board meeting with respect to the potential transaction and the current status of the negotiations. Gillette’s senior management provided the board with a report on its review of Procter & Gamble’s business, strategy and financial information. After the financial advisors to Gillette were excused, representatives of Davis Polk & Wardwell discussed the directors’ fiduciary duties in connection with the proposed transaction and presented a detailed summary of the terms of the merger agreement. The board of directors, management and legal advisors discussed significant open issues. In connection with the discussion of the open issues, members of the board stated that without acceptable resolution of certain major issues relating to the certainty of closing, they would not support the transaction. In addition, representatives of Davis Polk & Wardwell summarized the discussions between Mr. Kilts and Procter & Gamble relating to the terms of Mr. Kilts’ post-merger employment agreement still being negotiated. Representatives of UBS and Goldman Sachs then returned to the meeting and reviewed with the board certain financial aspects of the transaction.
      On January 26, 2005, Mr. Lafley and other members of the management of Procter & Gamble met with Mr. Kilts and other members of the management of Gillette to discuss a communications strategy.

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Separately, other Procter & Gamble and Gillette managers and a representative from Deloitte & Touche LLP, Procter & Gamble’s independent registered public accounting firm and representatives from KPMG, LLP, Gillette’s independent registered public accounting firm, engaged in a telephonic due diligence discussion with respect to Gillette and Procter & Gamble. Later that day, following Mr. Lafley’s receipt of a transcript of Mr. Buffett’s comments on the proposed transaction which had been recorded in the form of a video clip earlier in the morning, Mr. Lafley called Mr. Buffett to confirm that Mr. Buffett consented to the use of his supporting statements from the video clip in the anticipated press release announcing the transaction as well as during analyst meetings.
      On the morning of January 27, 2005, Procter & Gamble’s Compensation & Leadership Development Committee held a meeting to consider Mr. Kilts’ proposed employment arrangements. The committee considered the important role Mr. Kilts was expected to play during the transition and integration, the consideration he would receive under his arrangements with Gillette as a result of the transaction, the terms of Mr. Kilts’ proposed post-closing compensation package (including its relationship to his current compensation arrangements with Gillette), the non-compete arrangements and consideration therefore and the history of the preceding discussions. The meeting was attended by representatives of senior management, Sullivan & Cromwell LLP and Frederic W. Cook & Co., Inc., the committee’s regular compensation advisory firm, each of whom discussed various aspects of Mr. Kilts’ proposed employment arrangements with the committee. Following the review and discussion, the committee approved the post-closing compensation package and the non-compete arrangements.
      Following the committee’s meeting, the board of directors of Procter & Gamble held a special meeting to review and consider the final terms of the proposed merger agreement. Also present at the meeting were members of Procter & Gamble’s senior management, Procter & Gamble’s legal advisors, financial advisors and independent accountants. After an update on the progress of the negotiations by Mr. Lafley, Procter & Gamble’s senior management presented its assessment of the proposed transaction, including revised synergy estimates, dilution/accretion calculations, potential stock price impacts and Mr. Kilts’ role as a Procter & Gamble executive. Procter & Gamble’s board of directors also considered the alternatives to completing a transaction with Gillette, which would allow for Procter & Gamble to pursue certain transactions that would be foreclosed by consummating a transaction with Gillette. Representatives of Merrill Lynch then reviewed its financial analysis and rendered to the board its oral opinion, which opinion was subsequently confirmed in writing, that, as of January 27, 2005 and based upon and subject to the assumptions, qualifications, and limitations set out in its written opinion, the exchange ratio in the merger was fair from a financial point of view to Procter & Gamble. See “Opinions of Financial Advisors — Opinion of Procter & Gamble’s Financial Advisor” on page I-42 for further information regarding this opinion. Representatives of Cadwalader, Wickersham & Taft LLP then reviewed the proposed merger agreement in detail with the members of the board of directors and discussed the fiduciary duties of the board of directors in considering the proposed acquisition, and a representative from Jones Day, Procter & Gamble’s regulatory counsel, discussed anti-trust and regulatory implications of the proposed deal. A representative of Deloitte & Touche LLP then updated the board of directors concerning the due diligence discussion with Gillette’s accountants. A representative from Covington & Burling discussed certain legal matters related to the proposed acquisition. Mr. Augustine then reported to the board of directors the Compensation & Leadership Development Committee’s deliberations and conclusions concerning Mr. Kilts’ post-closing compensation package. During these discussions, the board of directors asked questions of Procter & Gamble’s management, legal counsel and financial advisor. Following further review and discussion, the members of the board of directors voted unanimously to approve the merger agreement and the transactions contemplated thereby and resolved to recommend that its shareholders vote to adopt the merger agreement and approve the issuance of shares of Procter & Gamble common stock in the merger.
      Also, on January 27, 2005, the Gillette board of directors held a special meeting. Management and counsel described the resolution of the outstanding issues that had been discussed at the January 25 meeting. Representatives of Goldman Sachs and UBS reviewed their financial analyses and rendered to the board their respective oral opinions, which opinions were subsequently confirmed in writing, that as of January 27, 2005, based upon and subject to the factors, assumptions, procedures, limitations and qualifications set forth in such

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opinions, the exchange ratio to be received by shareholders of Gillette pursuant to the merger was fair from a financial point of view to such holders. See “Opinions of Financial Advisors — Opinions of Gillette’s Financial Advisors” on page I-48 for further information regarding these opinions. Thereafter, management and counsel, after excusing Mr. Kilts from the meeting, described the terms of Mr. Kilts’ post-merger employment agreement and the board engaged in a discussion of the foregoing. After excusing the management directors, the outside directors proceeded to discuss the merger agreement and the transactions contemplated by the merger agreement. After the management directors returned to the meeting, the board engaged in further discussions. Throughout these discussions, the board of directors asked questions of Gillette’s management, legal counsel and financial advisors. Following these discussions, the board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were fair and in the best interests of Gillette’s shareholders and voted unanimously to approve the merger agreement and to recommend that Gillette’s shareholders approve and adopt the merger agreement.
      Following the board meetings on January 27, 2005, Gillette and Procter & Gamble signed the merger agreement. Before the opening of trading on the New York Stock Exchange on January 28, 2005, Procter & Gamble and Gillette issued a joint press release announcing the proposed merger.
Reasons for the Merger
      While Procter & Gamble and Gillette each has strong growth potential and prospects for the near and long term as a stand-alone entity, both believe that a combination of the two companies will create a leading global consumer products company with greater product diversity, geographic breadth, organizational capabilities and financial resources that will have the opportunity to grow and enhance consumer value and shareholder value in ways that are unlikely to be achieved by Procter & Gamble or Gillette alone. The drivers of sustained growth and superior shareholder returns are the combination of more and faster innovation, delivered more affordably and profitably, brought to market with deeper local knowledge and stronger retail partnerships, and commercialized more successfully and consistently. The combined company will be uniquely positioned to improve on all of these drivers as a result of the following:
  •  complementary strengths in innovation, selling and go-to-market capabilities to improve sales growth;
 
  •  strengthened line-up of industry leading brands;
 
  •  increased scale for better consumer value and lower costs; and
 
  •  enhanced relationships with retail customers.
      Complementary Strengths in Innovation, Selling and Go-To-Market Capabilities. Both Procter & Gamble and Gillette believe that they can grow faster together by taking advantage of complementary strengths in innovation, selling and go-to-market capability, and that the proposed merger will enhance each of these core competencies for the following reasons:
  •  Both companies consider innovation as their “lifeblood.” Both companies are leaders in investments in research and development and creation of products which deliver new benefits, improved performance and quality as well as superior value to consumers. Procter & Gamble has increased the pace of innovation with its “Connect and Develop Strategy” which links innovation and technologies across businesses, geographies and disciplines. The merger will create the opportunity to take this strategy to a higher level due to Gillette’s complementary consumer knowledge and product technologies, particularly in shaving and hair removal, as well as their complementary innovation capabilities in the area of design. The combined company will be a preferred innovation partner in the consumer products industry because of its diversity of businesses, technologies and commercialization capability.
 
  •  The combination of Procter & Gamble’s existing distribution infrastructure and Gillette’s brands enhances the opportunity for the combined company to grow faster. Procter & Gamble can distribute leading brands like Gillette and Duracell more deeply and more cost-effectively through Procter & Gamble’s Market Development Organization, particularly in developing markets where

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  Procter & Gamble is about five times the size of Gillette. In many developing markets Procter & Gamble has built supply and distribution networks for key categories, such as detergents and shampoo. The combined company will be able to draw on this infrastructure to bring Gillette brands to more stores, which, in turn, will drive more trial usage, more household penetration, more regular usage and more repeat purchases. In addition, Procter & Gamble’s capabilities will be enhanced in markets such as India and Brazil where it is under-developed today. With greater scale in these countries, Procter & Gamble can build the kind of supply and distribution infrastructure it has built elsewhere, and thereby innovate more affordably and more profitably.
 
  •  Gillette’s expertise in trading consumers up to higher value added products and its in-store marketing capabilities will enhance the combined company’s ability to increase value from leading brands as well as new product launches. Many of Gillette’s global brands are leaders in categories with consistently high growth. Gillette’s marketing keeps these categories growing with leadership innovation, while continually increasing Gillette’s sales and margins. This expertise fits well with Procter & Gamble’s focus on creating similar product lines with broad consumer appeal such as: Olay, Tide and Pampers. Finally, Gillette brings innovation with great product launch expertise and in-store execution. As a result, Gillette people and Gillette brands will help Procter & Gamble do an even better job of reaching more consumers, more effectively and more profitably, in more aisles in more stores around the world.
      Strengthening Procter & Gamble’s Range of Brands. The combination of Gillette’s products and Procter & Gamble’s products will help shift the combined company’s brands toward faster-growing, higher-margin, more asset-efficient businesses. Gillette has five billion-dollar brands, three of which are leaders in health, beauty and personal care. The combined company will have 21 billion-dollar brands and about 50% of its sales will be in the health, beauty and personal care categories.
      Increased Scale. The proposed merger will combine two of the world’s leading consumer products companies. The enhanced leadership and scale of the combined company will provide opportunities to lower costs and to reinvest in branding and innovation, thereby providing better value to consumers and at the same time better returns to shareholders. The scale benefits and anticipated synergies will create opportunities to reduce non-value added costs. Procter & Gamble has identified more than $1 billion in synergies by the third year after closing. The combined company will have access to key business support functions through Procter & Gamble’s Global Business Services (“GBS”) group. GBS delivers best-in-class costs that are not available to Gillette on its own today. There are also synergy opportunities in purchasing, manufacturing, and logistics. The combined company will be able to reduce costs in these areas through increased scale, improved asset utilization, and coordinated global and regional purchasing. Further, the combined company will generate efficiencies in marketing and retail selling. The expected synergies to be derived from the transaction are preliminary and subject to change. Given the nature of the due diligence prior to the announcement of the transaction, both Procter & Gamble and Gillette are still currently working to further substantiate synergy projections and assumptions and to more clearly define integration and transition plans for delivering synergy targets.
      Enhancing Retail Relationships. Procter & Gamble and Gillette expect that the combined company will have stronger relationships with retail customers, as a result of synergies between Procter & Gamble’s customer business development organization and Gillette’s excellent in-store execution. Additionally, the combined company will be able to offer retailers a more diverse mix of brands, a stronger pool of consumer and shopper knowledge, a broader, deeper expertise in marketing to both men and women, industry leading product innovation, industry leading supply chain management, and the latest in supply chain innovation such as radio frequency identification (RFID).

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Factors Considered by, and Recommendation of, the Board of Directors of Procter & Gamble
      At a special meeting held on January 27, 2005, after due consideration and consultation with financial and other advisors, the Procter & Gamble board of directors:
  •  determined by a unanimous vote of the directors present at the meeting that the merger agreement and the transactions contemplated thereby, including the issuance of Procter & Gamble common stock in the merger, are advisable, fair to and in the best interests of Procter & Gamble and its shareholders;
 
  •  approved the merger agreement and the issuance of Procter & Gamble common stock in the merger;
 
  •  directed that the merger agreement and the issuance of Procter & Gamble common stock in the merger be submitted for consideration to the Procter & Gamble shareholders; and
 
  •  recommended that the Procter & Gamble shareholders vote FOR the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
      In the course of reaching its decision to approve the merger agreement, Procter & Gamble’s board of directors consulted with Procter & Gamble’s management, as well as its legal counsel and financial advisors, and considered the following material factors as generally supporting its decision:
  •  information concerning the financial performance and condition, results of operations, asset quality, prospects and businesses of each of Procter & Gamble and Gillette as separate entities and on a combined basis, including:
  •  the revenues of the companies, their complementary businesses and the potential for cost savings (of more than $1 billion per year anticipated to be achieved by the third year of closing) and revenue enhancement;
 
  •  value creation opportunities, including between $10-$11 billion of anticipated net present value opportunities from cost synergies and $4-5 billion of anticipated net present value opportunities from revenue synergies (which amounts were provided to, and used by, Merrill Lynch in connection with the preparation of Merrill Lynch’s fairness opinion), and
 
  •  the recent and historical stock price performance of Procter & Gamble common stock and Gillette common stock.
  •  the importance of market position, significant scale and scope and financial resources to a company’s ability to compete effectively in the global consumer products market;
 
  •  the strategic nature of the transaction, which combines Procter & Gamble’s and Gillette’s complementary businesses, and creates a broader company with enhanced global reach and greater resources, enhanced future operating flexibility and increased opportunity for growth;
 
  •  the potential benefits to be derived from a combination of the two companies as described under “Reasons for the Merger” on page I-28, including potential cost savings and efficiencies that could result from the merger;
 
  •  the agreement of Mr. Kilts to remain employed with the combined company through a period of integration and to agree to restrictions on his ability to exercise his options for, or sell his holdings of, Procter & Gamble stock;
 
  •  the current industry, economic and market conditions and trends;
 
  •  the fact that the customer and consumer bases to be served will be broader and more diverse;
 
  •  the opportunity for the shareholders of Procter & Gamble to participate in a larger company with a broader and more diverse product line and to benefit from future growth of the combined company;
 
  •  the opinion of Merrill Lynch, which is described below, under “Opinion of Financial Advisors — Opinion of Procter & Gamble’s Financial Advisor” on page I-42, to the effect that, as of the date of its opinion and based upon and subject to the assumptions, qualifications and limitations set out

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  in its written opinion, the exchange ratio in the merger was fair, from a financial point of view, to Procter & Gamble;
 
  •  the structure of the transaction as a tax-free reorganization for United States federal income tax purposes; and
 
  •  the ability to consummate the merger, including the conditions to the merger requiring receipt of necessary regulatory approvals in accordance with the terms of the merger agreement.
      The Procter & Gamble board of directors also considered a number of potentially negative factors in its deliberations concerning the merger agreement, including:
  •  the risk that, because the exchange ratio under the merger agreement would not be adjusted for changes in the market price of Procter & Gamble common stock or Gillette common stock, the per share value of the consideration to be paid to Gillette shareholders on consummation of the merger could be significantly more than the per share value of the consideration immediately prior to the announcement of the proposed merger;
 
  •  the risk that the merger might not receive all necessary regulatory approvals, or that any governmental authorities could attempt to condition their approval of the merger on the companies’ compliance with certain conditions, including the divestiture of assets, and the fact that the merger agreement provides that both companies must use commercially reasonable efforts to obtain regulatory approval and may be required to sell, hold separate or otherwise dispose of assets which generated, in calendar year 2004, up to $1.9 billion in net sales; and
 
  •  the risk factors described under “Risk Factors,” on page I-16, in particular the fact that the merger will have a dilutive effect on earnings per share of Procter & Gamble common stock for approximately two years following completion of the merger.
      In view of the variety of factors and the amount of information considered, Procter & Gamble’s board of directors did not find it practicable to and did not quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. The determination was made after consideration of all of the factors, both negative and positive, taken as a whole. In addition, individual members of Procter & Gamble’s board of directors may have given different weights to different factors. The Procter & Gamble board of directors believed the anticipated synergies which it considered in reaching its decision to approve the merger agreement to be reasonably prepared and reflected the best currently available estimates and judgments of management at the time they were prepared.
      Procter & Gamble’s board of directors considered all these factors in reaching the conclusions and recommendations described above. It should be noted that this explanation of the Procter & Gamble board’s reasoning and certain information presented in this section is forward-looking in nature and, therefore, such information should be read in light of the factors discussed under the heading “Forward-Looking Statements” on page I-19.
      The Procter & Gamble board of directors has unanimously approved the merger agreement, the merger, the issuance of Procter & Gamble common stock in the merger and the other transactions contemplated thereby and believes that the terms of the merger are fair to, and in the best interests of, Procter & Gamble and its shareholders. Accordingly, the Procter & Gamble board of directors unanimously recommends that the Procter & Gamble shareholders vote FOR the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
Factors Considered by, and Recommendation of, the Board of Directors of Gillette
      The Gillette board of directors unanimously determined that the merger agreement and the merger are advisable and fair to and in the best interests of Gillette and its shareholders. The Gillette board of directors recommends that Gillette’s shareholders vote “FOR” adoption of the merger agreement and approval of the merger. When Gillette’s shareholders consider their board of directors’ recommendation, Gillette’s shareholders should be aware that Gillette’s directors may have interests in the merger that may

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be different from, or in addition to, their interests. These interests are described in “Interests of Certain Persons in the Merger”.
      In the course of reaching its decision to approve the merger agreement and to recommend that Gillette’s shareholders vote to adopt the merger agreement and approve the merger, the Gillette board of directors considered a number of factors, including the following material factors:
  •  Strategic Benefits. The Gillette board of directors believes that the combination of Gillette with Procter & Gamble will create the best consumer products company in the world. The combined company will have combined annual sales of $62 billion and 21 global brands each with sales over $1 billion annually. Given the complementary brands and markets of Gillette and Procter & Gamble, the Gillette board of directors believes that the combined company will be well positioned to deliver superior sustainable growth for its shareholders. The Gillette board of directors also believes that the combined company will provide greater opportunities to accelerate brand growth and innovation by taking advantage of the combined company’s resources and highly developed infrastructure.
 
  •  Similar Culture, Vision and Values. The Gillette board of directors believes that Gillette and Procter & Gamble share similar corporate cultures, a vision of becoming the best consumer products company in the world and a number of important core values, including dedication to the highest standards of achievement, focus on innovation quality and cost reduction, commitment to employees and upgrading capabilities and adherence to the highest ethical standards.
 
  •  Complementary Brands and Markets. The Gillette board of directors believes that the expertise and product offerings of Gillette and Procter & Gamble are highly complementary and present significant opportunities for leveraging the combined company’s marketing and research and development capabilities. Gillette and Procter & Gamble both market their products around the world and have placed a high priority on growth in developing markets. The merger will enable the combined company to accelerate execution of Gillette’s and Procter & Gamble’s shared strategy of increasing growth in these developing markets.
 
  •  Synergies. The Gillette board of directors believes that, following the merger, the combined company will be able to use its combined scale to generate synergies to generate value for its shareholders.
 
  •  Participation in the Combined Company. The Gillette board of directors considered that Gillette shareholders in the aggregate will represent a significant equity percentage of the earnings and prospects of the combined company and will accordingly participate in the strategic and other benefits of the combination.
 
  •  Presentations and Opinion of Financial Advisors. The Gillette board of directors considered the presentations by and analyses of UBS and Goldman Sachs, financial advisors to Gillette, and the opinions of UBS and Goldman Sachs that as of January 27, 2005, and based upon and subject to the factors, assumptions, procedures, limitations and qualifications set forth in such opinions, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to the holders of Gillette’s common stock.
 
  •  Alternatives to the Merger. The Gillette board of directors considered the possibility, as alternatives to the merger, of not pursuing any transaction or of pursuing an acquisition of, or a business combination with, an entity other than Procter & Gamble. The Gillette board of directors concluded that a transaction with Procter & Gamble was more feasible and was expected to yield greater benefits than these alternatives.
 
  •  Valuation. The Gillette board of directors believes that the exchange ratio provided for in the merger agreement provides Gillette shareholders with an attractive valuation for their interest in Gillette, including a 18% premium over the closing price of Gillette’s common stock on January 27, 2005, the last trading day prior to the public announcement of the merger agreement, and a multiple of 18.8 times its EBITDA for 2004.

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  •  Due Diligence Review. The Gillette board of directors considered the results of the due diligence review conducted by members of Gillette’s senior management relating to Procter & Gamble’s businesses and operations, which were consistent with the expectations of the Gillette board of directors with respect to the strategic and financial benefits of the merger.
 
  •  Integration. The Gillette board of directors considered the fact that James M. Kilts will serve as a vice chairman of Procter & Gamble for at least one year following consummation of the merger and will also join the Procter & Gamble board of directors, which the Gillette board of directors considered to be of significant importance in ensuring an effective and timely integration of the two companies’ operations.
 
  •  Stock Purchase. The Gillette board of directors considered Procter & Gamble’s intent to repurchase up to $22 billion of Procter & Gamble shares by June 2006, with the resulting positive effects on the shareholder value.
 
  •  Financial Strength. The Gillette board of directors considered that the merger is expected to produce a combined company with greater financial strength than Gillette had on its own.
 
  •  Tax-Free Transaction. The Gillette board of directors considered that the merger is expected to be tax-free for U.S. federal income tax purposes to Gillette’s shareholders.
 
  •  Other Agreement Terms. The Gillette board of directors considered the terms and conditions of the merger agreement, including the conditions to closing, the termination fee payable under certain circumstances and the restrictions imposed on the conduct of business of Gillette and Procter & Gamble in the period prior to closing.
      The Gillette board of directors also considered potential risks associated with the merger in connection with its deliberations of the proposed transaction, including:
  •  Risk Factors. The Gillette board of directors considered the risk factors described under “Risk Factors,” including the challenges and costs inherent in integrating two businesses, the size of Gillette and Procter & Gamble, and the management time and effort from both Gillette and Procter & Gamble executives that will be required to successfully achieve that integration.
 
  •  Regulatory Approval. The Gillette board of directors considered the risk that the governmental agencies from which Gillette and Procter & Gamble will seek approval might seek to impose conditions on or enjoin or otherwise prevent or delay the merger, including requiring Gillette or Procter & Gamble to divest assets in connection with obtaining their approval.
 
  •  Fixed Exchange Ratio. The Gillette board of directors considered the risks associated with a fixed exchange ratio, which by its nature would not adjust upwards to compensate for declines (or downwards to compensate for increases) in Procter & Gamble’s stock price prior to the completion of the merger, and that the terms of the merger agreement did not include “collar” provisions or stock price-based termination rights that would be triggered by a decrease in the value of the merger consideration implied by the Procter & Gamble stock price.
 
  •  Transaction Risk. The Gillette board of directors considered the risk that the merger would not be consummated, whether as a result of regulatory actions or otherwise.
      In addition, the Gillette board of directors was aware of the interests of certain of its directors and executive officers described under “— Interests of Certain Persons in the Merger.”
      Due to the variety of factors and the quality and amount of information considered, the Gillette board of directors did not find it practicable to and did not make specific assessments of, quantify or assign relative weights to the specific factors considered in reaching its determination to approve the merger agreement and the merger. Instead, the Gillette board of directors made its determination after consideration of all factors taken together. In addition, individual members of the Gillette board of directors may have given different weight to different factors. Although the Gillette board of directors did

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not attempt to quantify or rely on any specific figures with respect to anticipated synergies, it believed the anticipated synergies that were used in the analyses prepared by Gillette’s financial advisors to be reasonably prepared.
      The Gillette board of directors unanimously determined that the merger agreement and the merger are advisable and fair to and in the best interests of Gillette and its shareholders. The Gillette board of directors recommends that Gillette’s shareholders vote “FOR” adoption of the merger agreement and approval of the merger. When Gillette’s shareholders consider their board of directors’ recommendation, Gillette’s shareholders should be aware that Gillette’s directors may have interests in the merger that may be different from, or in addition to, their interests. These interests are described in “Interests of Certain Persons in the Merger”.
Accounting Treatment
      The merger will be accounted for as a purchase by Procter & Gamble under accounting principles generally accepted in the United States of America. Under the purchase method of accounting, the assets and liabilities of Gillette will be recorded, as of completion of the merger, at their respective fair values and added to those of Procter & Gamble. Reported financial condition and results of operations of Procter & Gamble issued after completion of the merger will reflect Gillette’s balances and results after completion of the merger, but will not be restated retroactively to reflect the historical financial position or results of operations of Gillette. Following the completion of the merger, the earnings of the combined company will reflect purchase accounting adjustments, including increased depreciation and amortization expense for acquired tangible and intangible assets.
Material Federal Income Tax Consequences of the Merger
      The following discussion summarizes the material United States federal income tax consequences of the merger to holders of Procter & Gamble stock and Gillette common stock.
      This discussion addresses only those Procter & Gamble and Gillette shareholders that hold their Procter & Gamble stock and Gillette common stock as a capital asset and does not address all aspects of federal income taxation that may be relevant to a holder of Procter & Gamble stock or Gillette common stock in light of that shareholder’s particular circumstances or to a shareholder subject to special rules, such as:
  •  a shareholder that is not a citizen or resident of the United States;
 
  •  a financial institution or insurance company;
 
  •  a mutual fund;
 
  •  a tax-exempt organization;
 
  •  a dealer or broker in securities or foreign currencies;
 
  •  a trader in securities that elects to apply a mark-to-market method of accounting;
 
  •  a shareholder that holds its Procter & Gamble stock or Gillette common stock as part of a hedge, appreciated financial position, straddle, conversion, or other risk reduction transaction; or
 
  •  a shareholder that acquired its Procter & Gamble stock or Gillette common stock pursuant to the exercise of options or similar derivative securities or otherwise as compensation.
      If a partnership holds Procter & Gamble stock or Gillette common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. A partner in a partnership holding Procter & Gamble stock or Gillette common stock should consult its tax advisor.

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      The following discussion is not binding on the Internal Revenue Service. It is based on the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, administrative interpretations and court decisions, each as in effect as of the date of this joint proxy statement/ prospectus and all of which are subject to change, possibly with retroactive effect. The tax consequences under United States state and local and foreign laws and United States federal laws other than United States federal income tax laws are not addressed.
      Holders of Procter & Gamble stock and Gillette common stock are strongly urged to consult their tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of United States federal, state and local and foreign income and other tax laws in light of their particular circumstances.
      General. Procter & Gamble and Gillette have structured the merger to qualify as a reorganization for United States federal income tax purposes. On the date this registration statement becomes effective, Procter & Gamble will have received a written opinion from Cadwalader, Wickersham & Taft LLP, and Gillette will have received a written opinion from Davis Polk & Wardwell, both to the effect that for United States federal income tax purposes, the merger will constitute a reorganization within the meaning of section 368(a) of the Internal Revenue Code. It is a condition to the completion of the merger that Cadwalader, Wickersham & Taft LLP and Davis Polk & Wardwell confirm their respective opinions as of the closing date of the merger. Neither Procter & Gamble nor Gillette intends to waive this condition. If one or both of the tax opinions to be delivered as of the closing are materially different from the opinions respecting the United States federal income tax considerations expressed herein under the heading “Material Federal Income Tax Consequences of the Merger”, Procter & Gamble and Gillette would not effect the merger without recirculating this document after revising this discussion appropriately and resoliciting the approvals of their shareholders. These opinions each rely on assumptions, including assumptions regarding the absence of changes in existing facts and law and the completion of the merger in the manner contemplated by the merger agreement, and representations and covenants made by Procter & Gamble, Gillette and others, including those contained in certificates of officers of Procter & Gamble and Gillette. The accuracy of those representations, covenants or assumptions may affect the conclusions set forth in these opinions, in which case the tax consequences of the merger could differ from those discussed here. Opinions of counsel neither bind the IRS nor preclude the IRS from adopting a contrary position. No ruling has been or will be sought from the IRS on the tax consequences of the merger.
      United States Federal Income Tax Consequences to Gillette Shareholders Who Participate in the Merger. Subject to the qualifications and limitations set forth above under the heading “Material Federal Income Tax Consequences of the Merger — General”, the material United States federal income tax consequences of the merger will be as follows:
  •  A holder of Gillette common stock will not recognize any gain or loss upon the exchange of that shareholder’s shares of Gillette common stock for shares of Procter & Gamble common stock in the merger, except that gain or loss will be recognized on the receipt of cash instead of a fractional share of Procter & Gamble common stock;
 
  •  To the extent that a holder of Gillette common stock receives cash instead of a fractional share of Procter & Gamble common stock, the holder will be required to recognize gain or loss, measured by the difference between the amount of cash received and the portion of the tax basis of that holder’s shares of Gillette common stock allocable to that fractional share of Procter & Gamble common stock. This gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if the holding period for the share of Gillette common stock exchanged for the fractional share of Procter & Gamble common stock is more than one year at the completion of the merger;
 
  •  A holder of Gillette common stock will have a tax basis in the Procter & Gamble common stock received in the merger equal to (1) the tax basis of the Gillette common stock surrendered by that

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  holder in the merger, less (2) any tax basis of the Gillette common stock surrendered that is allocable to a fractional share of Procter & Gamble common stock for which cash is received; and
 
  •  The holding period for shares of Procter & Gamble common stock received in exchange for shares of Gillette common stock in the merger will include the holding period for the shares of Gillette common stock surrendered in the merger.
 
  •  In the case of a holder of Gillette common stock who holds shares of Gillette common stock with differing tax bases and/or holding periods, the preceding rules must be applied to each identifiable block of Gillette common stock.
      United States Federal Income Tax Consequences to Procter & Gamble Shareholders. There will be no United States federal income tax consequences to a holder of Procter & Gamble stock as a result of the merger, other than the United States federal income tax consequences to a holder of Procter & Gamble stock that exercises dissenters’ rights in connection with the merger.
      For United States federal income tax purposes any holder of Procter & Gamble stock that exercises dissenters’ rights in connection with the merger will generally be required to recognize gain or loss upon the exchange of that shareholder’s shares of Procter & Gamble stock for cash, measured by the difference between the amount of cash received and the tax basis of that holder’s shares of Procter & Gamble stock. This gain or loss will generally be a capital gain or loss and will be a long-term capital gain or loss if the holding period for the share of Procter & Gamble stock is more than one year at the date of the exchange.
      This discussion is intended to provide only a general summary of the material United States federal income tax consequences of the merger, and is not a complete analysis or description of all potential United States federal income tax consequences of the merger. This discussion does not address tax consequences that may vary with, or are contingent on, individual circumstances. In addition, it does not address any non-income tax or any foreign, state or local tax consequences of the merger. Accordingly, Procter & Gamble and Gillette strongly urge each holder of Procter & Gamble stock and Gillette common stock to consult his or her tax advisor to determine the particular United States federal, state or local or foreign income or other tax consequences to that shareholder of the merger.
Regulatory Matters Relating to the Merger
      United States Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and its associated rules, the merger may not be completed until notifications have been given and certain information and materials have been furnished to and reviewed by the Antitrust Division of the United States Department of Justice or the Federal Trade Commission and the required waiting period has expired or terminated. Procter & Gamble and Gillette filed the required notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with the Federal Trade Commission and the Department of Justice. On March 21, 2005, the Federal Trade Commission submitted to each of Procter & Gamble and Gillette a Request for Additional Information and Documentary Material, also referred to as a “second request”, thereby extending the pre-merger statutory waiting period until thirty days after Procter & Gamble and Gillette “substantially comply” with the Federal Trade Commission’s request, unless the waiting period is terminated earlier or extended with the consent of Procter & Gamble and Gillette. Procter & Gamble and Gillette are continuing to cooperate with the Federal Trade Commission as it reviews the merger. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, that it would not be successful. In addition, state antitrust authorities and private parties in certain circumstances may bring legal action under the antitrust laws seeking to enjoin the merger or seeking conditions to the completion of the merger.
      European Union. Both Procter & Gamble and Gillette conduct business in member states of the European Union. Council Regulation No. 139/2004 and accompanying regulations require notification to and approval by the European Commission of specific mergers or acquisitions involving parties with

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worldwide sales and individual European Union sales exceeding specified thresholds before these mergers and acquisitions can be implemented. Procter & Gamble and Gillette intend to seek approval of the European Commission for the merger shortly.
      Expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and gaining approval under Council Regulation No. 139/2004 are conditions to completing the merger.
      Other Jurisdictions. Procter & Gamble and Gillette each conduct operations in a number of jurisdictions where other regulatory approvals are required or advisable in connection with the completion of the merger. The companies recognize that some of these approvals, which are not required to be obtained under the merger agreement, may not be obtained prior to the completion of the merger and may impact the combined company’s ability to conduct business in those jurisdictions. However, Procter & Gamble is not required to complete the merger if the companies have failed to obtain any governmental approval and such failure would reasonably be expected, individually or in the aggregate, to have a material adverse effect on the combined company following the merger.
Dissenters’ Rights
      Shareholders of a corporation that is proposing to merge or consolidate with another entity are sometimes entitled under relevant state laws to appraisal or dissenters’ rights in connection with the proposed transaction depending on the circumstances.
      Under Delaware law, Gillette common shareholders are not entitled to appraisal rights in connection with the merger because on the Gillette record date Gillette common stock will be designated and quoted for trading on the New York Stock Exchange and will be converted into the right to receive Procter & Gamble common stock, which at the effective time of the merger will be listed on the New York Stock Exchange.
      Under Ohio law, Procter & Gamble common shareholders are entitled to dissenters’ rights in connection with the merger. However, Procter & Gamble shareholders are entitled to relief as a dissenting shareholder under Ohio Revised Code Section 1701.85 only if they strictly comply with all of the procedural and other requirements of Section 1701.85, a copy of which has been attached as Annex E to this document. The following is a description of the material terms of Section 1701.85.
      A Procter & Gamble shareholder who wishes to perfect his rights as a dissenting shareholder in the event the merger agreement is adopted:
  •  must be a record holder of the shares of Procter & Gamble common stock, Series A ESOP Preferred Stock, or Series B ESOP Preferred Stock as to which he or she seeks relief on the record date as of the date fixed for the determination of shareholders entitled to notice of the Procter & Gamble special meeting;
 
  •  must not vote his or her shares of Procter & Gamble common stock, Series A ESOP Preferred Stock, or Series B ESOP Preferred Stock in favor of adoption of the merger agreement and the issuance of Procter & Gamble common stock in the merger; and
 
  •  must deliver to Procter & Gamble, not later than ten days after the Procter & Gamble special meeting, a written demand for payment of the fair cash value of the shares as to which he or she seeks relief. The written demand must state the name of the shareholder, his or her address, the number and class of shares as to which he or she seeks relief and the amount claimed as the fair value for those shares.
      Voting against the approval of the merger agreement will not satisfy the requirements of a written demand for payment. Any written demand for payment should be mailed or delivered to The Procter & Gamble Company, P.O. Box 5572, Cincinnati, OH 45201-5572. Because the written demand must be delivered to Procter & Gamble within the ten-day period following the Procter & Gamble special meeting,

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Procter & Gamble recommends that a dissenting shareholder use certified or registered mail, return receipt requested, to confirm that he or she has made timely delivery.
      Procter & Gamble is required under the merger agreement to send the dissenting shareholder, at the address specified in his or her demand, a request for the certificate(s) representing his or her shares. The dissenting shareholder must deliver the certificate(s) to Procter & Gamble within 15 days of the date Procter & Gamble sent the request. Procter & Gamble will endorse the certificate(s) with a legend to the effect that the shareholder has demanded the fair cash value of the shares represented by the certificate(s). Procter & Gamble will then return such shares to the dissenting shareholder. If the shareholder fails to deliver the certificate(s) within 15 days of the request, Procter & Gamble will terminate his or her right to dissent. Procter & Gamble must notify the shareholder within 20 days after the lapse of the 15-day period.
      If the dissenting shareholder and Procter & Gamble cannot agree on the fair cash value per share of the shares of Procter & Gamble common stock, either may, within three months after the service of the written demand by the shareholder, file a petition in the Court of Common Pleas of Hamilton County, Ohio for a determination of the fair cash value of the dissenting shares. If the court finds that the shareholder is entitled to be paid the fair cash value of any shares, the court may appoint one or more appraisers to receive evidence and to recommend a decision on the amount of the fair cash value.
      The fair cash value of a share of Procter & Gamble common stock to which a dissenting shareholder is entitled under Section 1701.85 will be determined as of the day prior to the Procter & Gamble special meeting. Fair cash value will be computed as the amount a willing seller and willing buyer would accept or pay if neither was compelled to sell or buy, excluding any appreciation or depreciation in market value resulting from the merger. Notwithstanding the foregoing, the fair cash value may not exceed the amount specified in the shareholder’s written demand. The court will make a finding as to the fair cash value of a share and render judgment against Procter & Gamble for its payment with interest at such rate and from such date as the court considers equitable. The court will assess or apportion the costs of the proceedings as it considers equitable.
      The rights of any dissenting shareholder will terminate if:
  •  the dissenting shareholder has not complied with Section 1701.85, unless Procter & Gamble, by its board of directors, waives this failure (however, Procter and Gamble agreed pursuant to the terms of the merger agreement not to waive, without Gillette’s consent, any failure of a dissenting shareholder to comply with Section 1701.85);
 
  •  Procter & Gamble abandons or is finally enjoined or prevented from carrying out, or the shareholders of Procter & Gamble rescind their approval of, the merger agreement;
 
  •  the dissenting shareholder withdraws his or her written demand with the consent of Procter & Gamble, by its board of directors; or
 
  •  Procter & Gamble and the dissenting shareholder have not agreed upon the fair cash value per share of the Procter & Gamble common stock and neither has timely filed or joined in a petition in an appropriate court for a determination of the fair cash value of the shares.
      When a dissenting shareholder exercises his or her rights under Section 1701.85, all other rights with respect to such Procter & Gamble common stock will be suspended until Procter & Gamble purchases the shares, or the right to receive fair cash value is otherwise terminated. If during the suspension, any cash dividend is paid on shares of Procter & Gamble common stock, an amount equal to such dividend which, except for the suspension, would have been payable upon such shares of Procter & Gamble common stock will be paid to the holder of record as a credit upon the fair cash value of the shares. Such rights will be reinstated should the right to receive fair cash value be terminated other than by the purchase of the shares by Procter & Gamble, and all distributions which, except for the suspension, would have been made will be made to the holder of record of the shares at the time of termination.
      Because a proxy card which does not contain voting instructions regarding the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger will be

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voted for the adoption of the merger agreement and the approval of the issuance of Procter & Gamble common stock in the merger, a Procter & Gamble shareholder who wishes to exercise dissenters’ rights must either: (1) not sign and return the proxy card or otherwise vote at the Procter & Gamble special meeting, or (2) vote against or abstain from voting on the adoption of the merger agreement and the approval of the issuance of Procter & Gamble common stock in the merger.
Federal Securities Laws Consequences; Stock Transfer Restriction Agreements
      This registration statement of which this joint proxy statement/ prospectus is a part does not cover any resales of the Procter & Gamble common stock to be received by the shareholders of Gillette upon completion of the merger, and no person is authorized to make any use of this joint proxy statement/ prospectus in connection with any such resale.
      All shares of Procter & Gamble common stock received by Gillette shareholders in the merger will be freely transferable, except that shares of Procter & Gamble common stock received by persons who are deemed to be “affiliates” of Gillette under the Securities Act of 1933, as amended (the “Securities Act”), at the time of the Gillette special meeting may be resold by them only in transactions permitted by Rule 145 under the Securities Act or as otherwise permitted under the Securities Act. Persons who may be deemed to be affiliates of Gillette for such purposes generally include individuals or entities that control, are controlled by or are under common control with, Gillette, as the case may be, and include directors and certain executive officers of Gillette. The merger agreement requires that Gillette use commercially reasonable efforts to cause each affiliate to execute a written agreement to the effect that such persons will not offer, sell or otherwise dispose of any of the shares of Procter & Gamble common stock issued to them in the merger in violation of the Securities Act or the related SEC rules and regulations promulgated thereunder.
Repurchase of Common Stock
      Subject to applicable law, Procter & Gamble may, from time to time as price and conditions warrant, repurchase shares of Procter & Gamble common stock and Gillette may, from time to time as price and conditions warrant, repurchase shares of Gillette common stock.
      On January 28, 2005, at the time the proposed merger was announced, Procter & Gamble announced a common stock repurchase program pursuant to which it and/or one or more of its subsidiaries plan to repurchase up to $18 billion to $22 billion of its common stock over a period of 12-18 months. The repurchase of shares under this repurchase program commenced on January 28, 2005 pursuant to a plan intended to comply with the requirements of Rule 10b5-1(c) under the Exchange Act. As of April 14, 2005, 36,876,600 shares of Procter & Gamble common stock had been repurchased.
      Regulation M under the federal securities laws prohibits Procter & Gamble from bidding for or repurchasing its common stock during the period commencing with the mailing of this joint proxy statement/ prospectus through the date of Gillette’s special meeting. Accordingly, from the date of the mailing of this joint proxy statement/ prospectus through the date of Gillette’s special meeting, Procter & Gamble will suspend its repurchase program. Procter & Gamble anticipates recommencing its repurchase program following the date of Gillette’s special meeting.
Stock Exchange Listing; Delisting and Deregistration of Gillette Common Stock
      It is a condition to the merger that the shares of Procter & Gamble common stock issuable in the merger be approved for listing on the New York Stock Exchange, subject to official notice of issuance. If the merger is completed, Gillette common stock will cease to be listed on the New York Stock Exchange and its shares will be deregistered under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

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Recent Developments
      On February 10, 2005, a putative class action was filed in Delaware state court on behalf of Gillette’s shareholders, alleging breaches of fiduciary duties by the Gillette board of directors and senior management in connection with the proposed merger. The complaint alleges, among other things, that the proposed merger is “unduly favorable” to Procter & Gamble and that, if consummated, Gillette’s senior managers will receive excessive compensation. The plaintiff seeks injunctive relief barring consummation of the proposed merger or, in the alternative, rescission following consummation. The plaintiff also seeks compensatory damages.
      A second action was filed on February 11, 2005, and a third action was filed on February 28, 2005, both in Delaware state court. These actions are virtually identical to the action filed on February 10, 2005. A motion to consolidate the three actions was granted, lead counsel was appointed, and a consolidated amended complaint was filed on May 9, 2005.
      Gillette and the other named defendants believe the allegations are without merit and intend to vigorously defend the actions.
      After the announcement of the merger agreement, Gillette has received various inquiries from the Securities Division of the Secretary of the Commonwealth of Massachusetts (the “Secretary”). Following four separate productions of documents by Gillette on a voluntary basis, the Secretary issued subpoenas to Gillette and Gillette’s financial advisors seeking further documents and information. Gillette was continuing to seek an agreement on appropriate terms for the production of still further documentation. However, on April 15, 2005, the Secretary filed a complaint against Gillette to enforce its subpoena.
      On April 21, 2005, Gillette filed its own action seeking to quash the Secretary’s subpoena and also seeking a declaration by the court that the Secretary lacks jurisdiction over the merger. On April 28, 2005, the Massachusetts Superior Court (the “Court”) concluded that the Secretary does not have jurisdiction over the proposed merger generally and quashed the Secretary’s subpoena. The Court left open the possibility that the Secretary could issue a narrower subpoena relating to the fairness opinions given by Gillette’s financial advisors in connection with the proposed merger. The Secretary issued a new subpoena to Gillette relating to the Secretary’s inquiry into the fairness opinions. Gillette produced to the Secretary the documents that Gillette believed to be responsive to the Secretary’s narrower subpoena. However, on May 6, 2005, the Secretary submitted a request to the Court seeking the issuance of an order compelling Gillette to produce additional documents pursuant to the Secretary’s narrower subpoena. On May 9, 2005, Gillette filed a response with the Court asking the Court to deny the Secretary’s request for an order. Gillette believes that its document production was responsive to the Secretary’s narrower subpoena and will continue to assert that position vigorously in court as necessary.
PROJECTIONS
      In connection with the review of the merger, certain financial projections prepared by management of Gillette concerning Gillette on a stand-alone, pre-merger basis, were exchanged with Procter & Gamble.
      The projections are “forward-looking statements” and Gillette’s actual results may differ materially from those set forth in the projections. See “Forward-Looking Statements” for a discussion of the risks you should consider in reviewing the projections set forth in this joint proxy statement/ prospectus.

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      The material portions of the financial projections prepared by management of Gillette follow:
                         
    Annual Growth Rates
     
    2005   2006   2007
             
Sales
    4.0%       4.0%       4.0%  
Profit from Operations
    10.0%       10.0%       10.0%  
Earnings Per Share
    12.0%       12.0%       12.0%  
      These projections were not prepared with a view to public disclosure or compliance with published guidelines established by the SEC or the American Institute of Certified Public Accountants regarding projections. None of Procter & Gamble, Gillette or their respective affiliates or Procter & Gamble’s or Gillette’s independent registered public accounting firm assumes any responsibility for the accuracy of this information. The projections are subjective in many respects and thus susceptible to interpretation and periodic revision based on actual experience and recent developments. While presented with numeric specificity, the projections reflect numerous assumptions made by the management of Gillette with respect to industry performance and competition, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond the control of Gillette. For these reasons, the inclusion of the projections in this document should not be regarded as an indication that Procter & Gamble, Gillette, any recipient of the projections or their respective affiliates or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such. Actual results may be higher or lower than those estimated. Procter & Gamble and Gillette do not generally publish their respective business plans and strategies or make external disclosures of their respective anticipated financial position or results of operations. Accordingly, Procter & Gamble and Gillette do not intend to, and specifically decline any obligation to, update or otherwise revise the prospective financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even if any or all the underlying assumptions are shown to be in error. Also, Procter & Gamble and Gillette do not intend to, and specifically decline any obligation to, update or revise the prospective financial information to reflect changes in general economic or industry conditions. Neither Procter & Gamble’s auditors nor Gillette’s auditors, nor any other independent registered public accounting firm, have compiled, examined or performed any procedures with respect to these projections, nor have they expressed any opinion or any other form of assurance on this information or its achievability, and assume no responsibility for, and disclaim any association with, this prospective financial information.

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THE COMPANIES
Procter & Gamble
      The Procter & Gamble Company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. Today, Procter & Gamble manufactures and markets a broad range of consumer products. Procter & Gamble has operations in over 80 countries and markets in over 160 countries. Procter & Gamble’s principal executive offices are located at One Procter & Gamble Plaza, Cincinnati, Ohio 45202, and its telephone number is (513) 983-1100.
      Procter & Gamble’s business is organized into three product-based, business segments called Global Business Units. These units are: Household Care; Health, Baby and Family Care; and Beauty Care.
  •  Household Care includes the Fabric Care, Home Care, Snacks, Coffee and commercial services businesses. Fabric Care includes laundry detergents and fabric enhancers. Home Care includes dish care, surface care and air care.
 
  •  Health, Baby and Family Care includes the Health Care, Baby Care and Family Care businesses. Health Care includes oral care, personal health care, pharmaceuticals and pet health and nutrition. Baby Care includes diapers and baby wipes. Family Care includes bath tissue and kitchen towels.
 
  •  Beauty Care includes retail and professional hair care, skin care, feminine care, cosmetics, fine fragrances and personal cleansing.
      In the most recent fiscal year ended June 30, 2004, Beauty Care accounted for 33% of total net sales (excluding net sales and net earnings in corporate) and the Household Care segment accounted for 33% of total sales. Health, Baby and Family Care accounted for 34%.
Gillette
      Gillette is a Delaware corporation founded in 1901. As of December 31, 2004, Gillette had manufacturing operations at 31 facilities in 14 countries and its products are sold in over 200 countries and territories. Gillette’s principal executive offices are located at the Prudential Tower Building, Boston, Massachusetts 02199, and its telephone number is (617) 421-7000.
      Gillette manufactures and sells a wide variety of consumer products throughout the world. Gillette has five business segments: Blades and Razors, Duracell, Oral Care, Braun and Personal Care.
  •  Blades and Razors — Gillette is the world leader in blades and razors. Gillette sells male shaving systems under such brands as M3Power, Mach3Turbo, Mach3, Sensor3, SensorExcel, Sensor, Atra, and Trac II, and disposable razors under the Sensor3, Custom Plus, and Good News brands. In March 2005, Gillette launched the M3Power Nitro shaving system for men in North America. Gillette’s female shaving systems are sold under the Gillette for Women Venus and Venus Devine, SensorExcel for Women, and Sensor for Women brands, and its disposable razors are sold under the Agility and Daisy brands. In March 2005 and April 2005, respectively, Gillette launched the Venus disposable razor and Venus Vibrance shaving system for women in North America. Gillette also introduced Venus Divine disposable razors in December 2004, which is now available to consumers in select European markets.
 
  •  Duracell — Gillette is the world leader in alkaline batteries for consumers. Its products include Duracell CopperTop and Duracell Ultra alkaline batteries and Duracell primary lithium, zinc air, and rechargeable nickel-metal hydride batteries.
 
  •  Oral Care — Gillette is the world leader in manual and power toothbrushes. In the second quarter of 2004, Gillette acquired the Rembrandt brand at-home and professional teeth-whitening products and Zooth, Inc., a leader in licensed manual and power toothbrushes for children. In February

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  2005, Gillette introduced Oral-B Pulsar, a pulsating adult manual toothbrush, which is scheduled to be available to consumers in North America in July 2005.
 
  •  Braun — Gillette sells electric shavers under the Braun brand and hair epilators under the Braun Silk-Epil brand. These products include the number one foil electric shaver for men and the number one hair epilator for women. Gillette also sells small household and personal diagnostic appliances under the Braun brand.
 
  •  Personal Care — Gillette sells shaving preparations, skin care products, and antiperspirants/deodorants under brands such as Gillette Complete Skincare, Gillette Series, Foamy, Satin Care, Right Guard, Soft & Dri, and Dry Idea.

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OPINIONS OF FINANCIAL ADVISORS
      Procter & Gamble and Gillette each retained its own financial advisor or advisors to assist them and their respective boards of directors in the consideration of valuation, financial and other matters relating to the merger. Procter & Gamble retained Merrill Lynch as its financial advisor and Gillette retained Goldman Sachs and UBS as its financial advisors.
Opinion of Procter & Gamble’s Financial Advisor
      Procter & Gamble retained Merrill Lynch to act as its exclusive financial advisor in connection with the proposed merger. On January 27, 2005, Merrill Lynch delivered to the Procter & Gamble board of directors an oral opinion, which was confirmed by delivery of a written opinion dated the same date, to the effect that, as of that date, and based upon and subject to the factors and assumptions set forth in the opinion, the exchange ratio of 0.975 provided for in the merger was fair, from a financial point of view, to Procter & Gamble. Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion.
      The full text of Merrill Lynch’s opinion, dated January 27, 2005, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Merrill Lynch, is attached as Annex B to this joint proxy statement/ prospectus and is incorporated into this joint proxy statement/ prospectus by reference. The summary of Merrill Lynch’s opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Procter & Gamble shareholders are urged to read the opinion carefully in its entirety. Merrill Lynch’s opinion was delivered to the Procter & Gamble board of directors for its information and is directed only to the fairness, from a financial point of view, of the exchange ratio to Procter & Gamble, and does not address the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Procter & Gamble, or any other aspect of the merger, including the merits of the underlying decision by Procter & Gamble to engage in the merger. Merrill Lynch’s opinion does not constitute a recommendation to any Procter & Gamble shareholder as to how the shareholder should vote with respect to the proposed merger or any other matter.
      In preparing its opinion to the Procter & Gamble board of directors, Merrill Lynch performed various financial and comparative analyses, including those described below. The summary set forth below does not purport to be a complete description of the analyses underlying Merrill Lynch’s opinion or the presentation made by Merrill Lynch to the Procter & Gamble board of directors. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Merrill Lynch did not attribute any particular weight to any analysis or factor considered by it, but rather made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. Accordingly, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, or focusing on information presented in tabular format, without considering all of the analyses and factors or the narrative description of the analyses, would create a misleading or incomplete view of the process underlying its opinion.
      In performing its analyses, Merrill Lynch made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Merrill Lynch, Procter & Gamble or Gillette. Any estimates contained in the analyses performed by Merrill Lynch are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by such analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, as described above, Merrill Lynch’s opinion was among several factors taken into consideration by the Procter & Gamble board of directors in making its

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determination to approve the merger agreement and the issuance of shares of Procter & Gamble common stock in the merger. Consequently, Merrill Lynch’s analyses should not be viewed as determinative of the decision of the Procter & Gamble board of directors or Procter & Gamble management with respect to the fairness of the exchange ratio provided for in the merger agreement.
      In arriving at its opinion, Merrill Lynch, among other things, did the following:
  •  reviewed certain publicly available business and financial information relating to Procter & Gamble and Gillette that Merrill Lynch deemed to be relevant;
 
  •  reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Procter & Gamble and Gillette, including financial forecasts relating to Gillette prepared by the management of Gillette and Procter & Gamble, as well as the amount and timing of the cost savings and related expenses and synergies expected to result from the merger (the “Expected Synergies”) furnished to Merrill Lynch by Procter & Gamble;
 
  •  conducted discussions with members of senior management and representatives of Procter & Gamble and Gillette concerning the matters described in the first two bullets above, as well as their respective businesses and prospects before and after giving effect to the merger and the Expected Synergies;
 
  •  reviewed the market prices and valuation multiples for Procter & Gamble common stock and Gillette common stock and compared them with those of certain publicly traded companies that Merrill Lynch deemed to be relevant;
 
  •  reviewed the results of operations of Procter & Gamble and Gillette and compared them with those of certain publicly traded companies that Merrill Lynch deemed to be relevant;
 
  •  compared the proposed financial terms of the merger with the financial terms of other transactions that Merrill Lynch deemed to be relevant;
 
  •  participated in certain discussions and negotiations among representatives of Procter & Gamble and Gillette and their financial and legal advisors;
 
  •  reviewed the relative contributions of Procter & Gamble and Gillette to selected operational metrics of the combined company based on financial forecasts and estimates prepared by the management of Procter & Gamble;
 
  •  reviewed the potential pro forma impact of the merger, including the effects of Procter & Gamble’s share repurchase plans;
 
  •  reviewed a draft of the merger agreement dated January 26, 2005; and
 
  •  reviewed such other financial studies and analyses and took into account such other matters as Merrill Lynch deemed necessary, including Merrill Lynch’s assessment of general economic, market and monetary conditions.
      In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all of the information supplied or otherwise made available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly available. Merrill Lynch did not assume any responsibility for independently verifying this information and did not undertake an independent evaluation or appraisal of any of the assets or liabilities of Procter & Gamble or Gillette, nor was it furnished with any evaluations or appraisals. Merrill Lynch did not evaluate the solvency or fair value of Procter & Gamble or Gillette under any state or federal laws relating to bankruptcy, insolvency or similar matters. In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of the properties or facilities of Procter & Gamble or Gillette. With respect to the financial forecast information relating to Procter & Gamble and Gillette and the Expected Synergies prepared by the management of Procter & Gamble and Gillette and furnished to or discussed with Merrill Lynch by Procter & Gamble or Gillette, Merrill Lynch assumed,

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with the consent of the Procter & Gamble board of directors, that they were reasonably prepared and reflected the best currently available estimates and judgments of Procter & Gamble’s or Gillette’s management as to the expected future financial performance of Procter & Gamble or Gillette, as the case may be, and the Expected Synergies. Merrill Lynch further assumed that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes and that the final form of the merger agreement will be substantially similar to the last draft reviewed by it.
      Merrill Lynch’s opinion is necessarily based upon market, economic and other conditions as they existed on, and on the information made available to Merrill Lynch as of, January 27, 2005. Merrill Lynch assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have a material adverse effect on the contemplated benefits of the merger. Merrill Lynch did not express any opinion as to the prices at which Procter & Gamble common stock or Gillette common stock will trade following the announcement of the merger or the price at which Procter & Gamble common stock will trade following the completion of the merger. Although Merrill Lynch evaluated the fairness, from a financial point of view, of the exchange ratio, Merrill Lynch was not requested to, and did not, recommend the specific consideration payable in the merger, which consideration was determined through negotiations between Procter & Gamble and Gillette and approved by the Procter & Gamble board of directors. No other limitation was imposed on Merrill Lynch with respect to the investigations made or procedures followed by Merrill Lynch in rendering its opinion.
      Financial Analysis. The following is a summary of the material analyses performed by Merrill Lynch in connection with its opinion to the Procter & Gamble board of directors dated January 27, 2005. Some of the financial analyses summarized below include information presented in tabular format. In order to understand fully Merrill Lynch’s financial analyses, the tables must be read together with the text of the summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Merrill Lynch’s financial analyses.
      Sum-of-the-Parts Selected Comparable Acquisitions Analysis. Using publicly available information, Merrill Lynch analyzed, among other things, the purchase prices and implied transaction multiples paid in the following selected comparable transactions involving target companies in each of four segments in which Gillette operates:
Blades and Razors
     
Target   Acquirer
     
Dreyer’s Grand Ice-Cream Inc. 
  Nestlé SA
Gatorade (implied in The Quaker Oats Company)
  PepsiCo Inc.
Neutrogena Corporation
  Johnson & Johnson
Nivea (implied in Beiersdorf AG)
  Tchibo Holding AG
Duracell
     
Target   Acquirer
     
Duracell
  Gillette
Rayovac Corporation
  T.H. Lee Partners L.P.

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Oral & Personal Care
     
Target   Acquirer
     
Helene Curtis Industries, Inc. 
  Unilever NV
Clairol
  Procter & Gamble
Maybelline, Inc. 
  L’Oreal USA Inc.
Wella AG
  Procter & Gamble
Tambrands, Inc. 
  Procter & Gamble
Kolynos Corporation
  Colgate-Palmolive Company
The Dial Corporation
  Henkel Group
Braun
     
Target   Acquirer
     
Remington Products Company LLC
  Rayovac Corporation
      Merrill Lynch reviewed transaction values of the selected transactions as multiples of last twelve month trailing earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, for the target companies, deriving a range of selected multiples from these transactions, as follows:
     
Business Segment   Multiple Range
     
Blades and Razors
  19.0x — 24.0x
Duracell
  9.0x — 12.0x
Oral Care
  13.0x — 15.0x
Personal Care
  13.0x — 15.0x
Braun
  8.0x — 10.0x
      Merrill Lynch then applied the range of selected multiples derived from these transactions to calendar year 2004 estimated EBITDA of each of Gillette’s segments (except for Oral Care, for which 2005 estimated EBITDA was used in order to reflect the pro forma impact of Gillette’s acquisition of Zooth, Inc. and Rembrandt) in order to derive an implied per share equity value reference range for Gillette as a whole. All multiples for the selected transactions were based on financial information available at the time of the announcement of the relevant transaction. Estimated financial data for Gillette were based on Procter & Gamble management’s estimates. This analysis indicated an implied per share equity value reference range for Gillette of approximately $47.00 to $58.00, as compared to the per share equity value for Gillette implied in the merger of $54.05 based on the exchange ratio of 0.975 provided for in the merger and the closing price of Procter & Gamble common stock on January 26, 2005.
      No transaction used in the Sum-of-the-Parts Selected Comparable Acquisitions Analysis is identical to the proposed merger. Accordingly, an analysis of the results of the Sum-of-the-Parts Selected Comparable Acquisitions Analysis involves complex considerations of the companies involved and the transactions and other factors that could affect the acquisition value of the companies and Gillette.
      Discounted Cash Flow Analysis. Merrill Lynch estimated the present value of the stand-alone, unlevered, after-tax free cash flows that each of Gillette’s business segments could produce over the Gillette fiscal years 2005 through 2014 both before and after taking into account the Expected Synergies. Estimated financial data for each of Gillette’s business segments and the Expected Synergies were based on Procter & Gamble management’s estimates.

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      Ranges of terminal values were derived by applying a range of perpetuity growth rates to fiscal year 2014 estimated EBITDA for each Gillette business segment and the Expected Synergies as follows:
         
    Perpetuity Growth
Segment   Rate Range
     
Blades & Razors
    2.8% — 3.8%  
Personal Care
    1.5% — 2.5%  
Duracell
    (0.1%) — 0.9%  
Oral Care
    2.4% — 3.4%  
Braun
    0.5% — 1.5%  
Fixed Cost Savings
    2.5%  
Variable Cost Savings
    3.0%  
Revenue Synergies
    3.0% — 4.0%  
      The free cash flows and terminal values were then discounted to present value using discount rates within a range of 7.5% to 9.5% in order to derive implied per share equity value reference ranges for Gillette as a whole. This analysis indicated an implied per share equity value reference range for Gillette as a whole as follows:
         
    Equity Value
    Per Share
     
Standalone
    $40.75 — $56.00  
Standalone plus Expected Synergies resulting from cost savings
    $50.25 — $65.50  
Standalone plus total Expected Synergies
    $55.75 — $70.75  
      Each implied equity value per share is as compared to the per share equity value for Gillette implied in the merger of $54.05 based on the exchange ratio of 0.975 provided for in the merger and the closing price of Procter & Gamble common stock on January 26, 2005.
      Relative Contribution Analysis. Using estimated financial data for Procter & Gamble and Gillette provided by Procter & Gamble management, Merrill Lynch analyzed the relative contributions of each of Procter & Gamble and Gillette to the combined company’s net income and levered free cash flow for fiscal years 2005 through 2007. Merrill Lynch then computed exchange ratios implied by the ownership percentages of Procter & Gamble’s and Gillette’s stockholders in the combined company implied by Procter & Gamble’s and Gillette’s relative contributions for each operational metric observed, both before and after taking into account the Expected Synergies. This analysis indicated implied approximate exchange ratio reference ranges as follows:
                         
Before Taking into Account the Expected Synergies            
             
Net Income Contribution
    0.654             0.681  
Levered Free Cash Flow Contribution
    0.848             0.875  
                         
Attributing to Gillette 50% of the Expected Synergies            
             
Net Income Contribution
    0.876             0.886  
Levered Free Cash Flow Contribution
    1.108             1.152  
                         
Attributing to Gillette 2/3 of the Expected Synergies            
             
Net Income Contribution
    0.941             0.963  
Levered Free Cash Flow Contribution
    1.190             1.252  
      Merrill Lynch compared these implied exchange ratios with the exchange ratio of 0.975 provided for in the merger agreement.

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      Utilizing the high and the low standalone equity value per share derived pursuant to the discounted cash flow analysis, both before and after taking into account the Expected Synergies, as described above, Merrill Lynch computed the implied range of exchange ratios. This analysis indicated implied approximate exchange ratio reference ranges as follows:
                         
Before Taking into Account the Expected Synergies        
         
Relative DCF Contribution
    0.597             1.165  
                         
Attributing to Gillette 50% of the Expected Synergies        
         
Relative DCF Contribution
    0.713             1.326  
                         
Attributing to Gillette 2/3 of the Expected Synergies        
         
Relative DCF Contribution
    0.751             1.380  
      Merrill Lynch compared these implied exchange ratios with the exchange ratio of 0.975 provided for in the merger agreement.
      Pro Forma Merger Analysis. Merrill Lynch analyzed the pro forma impact of the proposed merger on Procter & Gamble’s earnings per share, earnings per share excluding one-time charges and earnings per share excluding one-time charges and new amortization for the fiscal years ending June 30, 2006, 2007 and 2008. For purposes of this analysis, Merrill Lynch used the financial information and projections and Expected Synergies provided by the management of Procter & Gamble and incorporated Merrill Lynch’s assumptions with respect to the value of identifiable intangibles created by the proposed merger and various structural considerations. In addition, Merrill Lynch assumed the repurchase of up to $20 billion of Procter & Gamble common stock at a range of assumed repurchase prices. This analysis yielded the following range of results:
             
    Accretion/(Dilution)
     
    Fiscal Year Ending June 30,
     
    2006E   2007E   2008E
             
Earnings per share
  $(0.25) — $(0.30)   $(0.10) — $0.05   $(0.05) — $0.15
Earnings per share excluding one-time charges
   (0.21) — (0.26)  
 (0.09) — 0.06
   
 (0.05) — 0.15
Earnings per share excluding one-time charges and new amortization
   (0.16) — (0.21)  
 (0.03) — 0.12
   
   0.00 — 0.20
      Other Factors. In the course of preparing its opinion, Merrill Lynch also reviewed and considered other information and data in addition to its valuation analyses, including the following:
      Public Market Reference Points. Merrill Lynch noted that the 52-week trading range for Gillette’s common stock was $45.70 to $35.01, as compared to the offer price of $54.05 implied by the exchange ratio of 0.975 provided for in the merger agreement, based on Procter & Gamble’s closing stock price on January 26, 2005. Additionally, Merrill Lynch noted that selected research analysts’ reports on Gillette included stock price targets which, when discounted back to present value at an estimated cost of equity of 10%, produced a range of $52.00 to $35.25, as compared to the offer price of $54.05 implied by the exchange ratio of 0.975 provided for in the merger agreement, based on Procter & Gamble’s closing stock price on January 26, 2005.

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      Selected Consumer Products Sector Transactions. Using publicly available information, Merrill Lynch calculated the premium paid over the stock price one day prior to announcement and one week prior to announcement in selected transactions in the consumer products sector as set forth below:
                                 
                Premium to
                Share Price
            Trans.    
Ann.           Value   1-Day   1-Week
Date   Acquiror   Target   ($ Bn)   Prior   Prior
                     
6/2000
  Philip Morris   Nabisco   $ 19.2       69.9 %     103.2 %
8/1994
  Johnson & Johnson   Neutrogena     1.0       63.0 %     76.3 %
11/2004
  Constellation Brands   Robert Mondavi     1.4       49.9 %     52.3 %
3/2003
  Procter & Gamble   Wella     7.0       44.5 %     47.3 %
10/2003
  Tchibo   Beiersdorf     13.0       51.2 %     45.7 %
6/2000
  Unilever   Bestfoods     23.7       44.4 %     39.9 %
12/2000
  PepsiCo   Quaker Oats     15.1       22.2 %     24.0 %
    Average                 49.3 %     55.5 %
      These results were compared to the 20.1% premium to be paid to Gillette shareholders based on the exchange ratio of 0.975 provided for in the merger agreement and Procter & Gamble’s and Gillette’s respective closing stock prices on January 19, 2005 and January 26, 2005.
      Fixed Value Assessment. Merrill Lynch noted that the combined equity value of Procter & Gamble and Gillette based on their respective closing stock prices on January 26, 2005, at the exchange ratio of 0.975 provided for in the merger agreement, implied a value per Procter & Gamble common share of $52.78, before taking into account any of the Expected Synergies, as compared to Procter & Gamble’s closing stock price on January 26, 2005 of $55.44. This illustrated a decrease in value of $2.66 per share of Procter & Gamble common stock, prior to taking into account the Expected Synergies.
      In addition, Merrill Lynch also reviewed and considered the following:
  •  trading characteristics of Procter & Gamble and Gillette;
 
  •  historical market prices for Procter & Gamble common stock and Gillette common stock; and
 
  •  financial, operating and stock market data of Procter & Gamble and Gillette, as compared to corresponding data of selected publicly traded companies in the consumer products industry, none of which was sufficiently similar to Procter & Gamble or Gillette to draw any conclusions with respect to such financial, operating and stock market data.
      Miscellaneous. Pursuant to the terms of Merrill Lynch’s engagement, Procter & Gamble has agreed to pay Merrill Lynch (a) a fee of $1.5 million upon the delivery of its opinion to the Procter & Gamble board of directors and (b) a fee in an amount that will be mutually agreed upon, in good faith, between Procter & Gamble and Merrill Lynch and all of which is contingent and payable only if the merger is completed and from which any fees previously paid will be deducted. Procter & Gamble also has agreed to reimburse Merrill Lynch for reasonable expenses incurred by Merrill Lynch in performing its services and to indemnify Merrill Lynch and related persons and entities against liabilities, including liabilities under the U.S. federal securities laws, arising out of Merrill Lynch’s engagement.
      Procter & Gamble retained Merrill Lynch based upon Merrill Lynch’s experience and expertise. Merrill Lynch is an internationally recognized investment banking and advisory firm. Merrill Lynch, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.
      Merrill Lynch has, in the past, provided financial advisory and financing services to Procter & Gamble and Gillette unrelated to the merger, including having acted as financial advisor to Procter & Gamble in

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its acquisition of Wella AG in 2003 and as an underwriter in Procter & Gamble’s $1 billion bond offering in November 2003. In 2003 and 2004, Procter & Gamble paid to Merrill Lynch an aggregate of approximately $8.2 million in fees for financial advisory and financing services and reimbursed Merrill Lynch for expenses it incurred. As of the date of its opinion, Merrill Lynch was mandated to be the sole lead arranger, book runner and syndication agent on a $2 billion revolving credit facility for the benefit of an affiliate of Procter & Gamble and was a lender in the credit facilities of both Procter & Gamble and Gillette. Merrill Lynch is also acting as broker in connection with Procter & Gamble’s Rule 10b5-1(c) share repurchase plan. In the ordinary course of business, Merrill Lynch and its affiliates may actively trade in the securities of Procter & Gamble and Gillette for their own accounts and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
Opinions of Gillette’s Financial Advisors
      Goldman Sachs. Goldman Sachs rendered its opinion to the Gillette board of directors that, as of January 27, 2005 and based upon and subject to the factors, assumptions, procedures, limitations and qualifications set forth in such opinion, the exchange ratio of 0.975 of a share of Procter & Gamble common stock to be received for each share of Gillette common stock pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Gillette common stock.
      The full text of the opinion of Goldman Sachs, dated January 27, 2005, which sets forth assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken in connection with the opinion, is attached as Annex C hereto and incorporated herein by reference. The opinion of Goldman Sachs should be read in its entirety. Goldman Sachs provided its opinion for the information and assistance of the Gillette board of directors in connection with its consideration of the transaction contemplated by the merger agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Gillette common stock should vote with respect to the merger agreement.
      In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
  •  the merger agreement;
 
  •  certain publicly available business and financial information relating to Gillette and Procter & Gamble;
 
  •  certain financial estimates and forecasts relating to the business and financial prospects of Gillette prepared by certain research analysts that were publicly available;
 
  •  certain internal financial information and other data relating to the business and financial prospects of Gillette, including financial analyses and forecasts for Gillette prepared by its management (the “Gillette Forecasts”), and certain after-tax cost savings and operating synergies of $1.05 billion per year phased in at 30%, 75% and 100% over 3 years, projected by the managements of Gillette and Procter & Gamble to result from the merger (collectively, the “Synergies”), in each case provided to Goldman Sachs by the management of Gillette and not publicly available;
 
  •  certain financial information and other data relating to the business of Procter & Gamble provided to Goldman Sachs by the managements of Gillette and Procter & Gamble, which were not publicly available, which information did not include forecasts for Procter & Gamble; and
 
  •  certain financial estimates and forecasts relating to the business and financial prospects of Procter & Gamble prepared by certain research analysts that were publicly available, as adjusted and provided to Goldman Sachs and UBS by the management of Gillette following their discussions with the management of Procter & Gamble as to public guidance expected to be given by Procter & Gamble contemporaneously with the announcement of the merger (the “Procter & Gamble Adjusted Street Forecasts”).
      Goldman Sachs also held discussions with members of the senior management of Gillette and Procter & Gamble regarding their assessment of the strategic rationale for, and the potential benefits of, the merger and the past and current business operations, financial condition and future prospects of

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Gillette and Procter & Gamble (including as a result of the significant stock buyback being announced by Procter & Gamble contemporaneously with the merger). In addition, Goldman Sachs reviewed the reported price and trading activity for the Gillette common stock and the Procter & Gamble common stock, compared certain publicly available financial and stock market information for Gillette and Procter & Gamble with similar financial and stock market information for certain other companies the securities of which are publicly traded, reviewed certain financial terms of certain recent publicly available business combinations in the consumer products industry specifically and in other industries generally, considered certain pro forma effects of the merger and performed such other studies and analyses, and considered such other factors, as Goldman Sachs considered appropriate.
      In connection with Goldman Sachs’ review, with the consent of the Gillette board of directors, Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by Goldman Sachs, with the consent of the Gillette board of directors, assumed such accuracy and completeness for purposes of rendering Goldman Sachs’ opinion, and with the consent of the Gillette board of directors did not assume any responsibility for independent verification of any of such information. With respect to the Gillette Forecasts, the Synergies, and any other estimates or pro forma effects discussed with or reviewed by Goldman Sachs, Goldman Sachs assumed at the direction of the Gillette board of directors that they have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of Gillette. With respect to the Synergies and such pro forma effects, Goldman Sachs assumed with the consent of the Gillette board of directors, that they will be realized in the amounts and time periods forecasted. Goldman Sachs was not provided Procter & Gamble’s internal financial analyses and forecasts for the year 2005 and beyond, and therefore Goldman Sachs did not consider such analyses and forecasts in connection with its review or the rendering of its opinion. Based on Goldman Sachs’ discussions with the Gillette board of directors and at the direction of the Gillette board of directors, Goldman Sachs assumed that the Procter & Gamble Adjusted Street Forecasts were a reasonable basis upon which to evaluate the future performance of Procter & Gamble, and at the direction of the Gillette board of directors Goldman Sachs used the Procter & Gamble Adjusted Street Forecasts for purposes of its analyses and its opinion. In addition, at the direction of the Gillette board of directors, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including, but not limited to any contingent, derivative or off-balance-sheet assets and liabilities) of Gillette or Procter & Gamble or any of their respective subsidiaries. No evaluation or appraisal of the assets or liabilities of Gillette or Procter & Gamble or any of their respective subsidiaries was furnished to Goldman Sachs. Goldman Sachs also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Gillette or Procter & Gamble or on the expected benefits of the merger in any way meaningful to its analyses. Goldman Sachs assumed that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes. In rendering its opinion, Goldman Sachs assumed that Gillette and Procter & Gamble will comply with all the material terms of the merger agreement.
      The Goldman Sachs opinion did not address the underlying business decision of Gillette to engage in the merger, nor did Goldman Sachs express any opinion as to the value of the Procter & Gamble common stock when and if issued in the merger or the prices at which shares of the Procter & Gamble common stock or the Gillette common stock will trade at any time. Goldman Sachs was not asked to, nor did it, offer any opinion as to the terms of the merger agreement (other than as to the fairness from a financial point of view of the exchange ratio of 0.975 of a share of Procter & Gamble common stock to be received for each share of Gillette common stock pursuant to the merger agreement by the holders of Gillette’s common stock as set forth in its opinion) or as to the form of the merger or any other matter. Goldman Sachs’ advisory services and opinion were provided for the information and assistance of the Gillette board of directors in connection with its consideration of the merger and such opinion did not constitute a recommendation as to how any holder of shares of Gillette common stock should vote with respect to such transaction. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other

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conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion.
      Subsequent developments may affect Goldman Sachs’ opinion, but Goldman Sachs does not have any obligation to update, revise or reaffirm its opinion.
      Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs has acted as financial advisor to Gillette in connection with, and has participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. In addition, Goldman Sachs’ commercial bank affiliate is a lender under credit facilities of Gillette and Goldman Sachs is familiar with Gillette having provided certain investment banking services to Gillette from time to time, including having acted as:
  •  Gillette’s financial advisor in connection with the acquisition of certain assets of Den-Mat Corporation in April 2004;
 
  •  sole manager with respect to a public offering of Gillette’s 4.125% Senior Notes due 2007 (aggregate principal amount $250,000,000) in August 2002; and
 
  •  joint lead manager with respect to a secondary public offering of 40,895,000 shares of Gillette common stock in July 2001.
      Goldman Sachs’ commercial bank affiliate is also a lender under credit facilities of Procter & Gamble and Goldman Sachs has provided certain investment banking services to Procter & Gamble from time to time, including having acted as:
  •  financial advisor in connection with the sale of Sunny Delight in August 2004;
 
  •  lead manager with respect to a public offering of Procter & Gamble’s 4.95% Senior Notes due 2014 and 5.8% Senior Notes due 2034 (aggregate principal amount $1,500,000,000) in August 2004;
 
  •  joint lead manager with respect to a public offering of Procter & Gamble’s Senior Floating Rate Notes Series A (aggregate principal amount $1,500,000,000) in August 2004;
 
  •  lead manager with respect to a public offering of Procter & Gamble’s 5.5% Notes due 2034 (aggregate principal amount $500,000,000) in January 2004;
 
  •  co-lead manager with respect to a public offering of Procter & Gamble’s 4.85% Notes due 2015 (aggregate principal amount $150,000,000) in December 2003;
 
  •  lead manager with respect to a public offering of Procter & Gamble’s 3.5% Notes due 2008 and 4.85% Notes due 2015 (aggregate principal amount $1,200,000,000) in November 2003;
 
  •  joint-lead manager with respect to a public offering of Procter & Gamble’s 4.3% Notes due 2008 (aggregate principal amount $500,000,000) in July 2002;
 
  •  agent in Procter & Gamble’s share repurchase program;
 
  •  agent in Procter & Gamble’s medium term note program; and
 
  •  dealer in Procter & Gamble’s commercial paper program.
Goldman Sachs also may provide investment-banking services to Gillette and Procter & Gamble in the future. In connection with the above-described investment banking services Goldman Sachs has received, and may receive, compensation. The aggregate fees received by Goldman Sachs since November 30, 2002 from the investment banking services it rendered to Gillette and its affiliates were approximately $1,900,000 (excluding fees in connection with the merger). The aggregate fees received by Goldman Sachs since November 30, 2002 from the investment banking services it rendered to Procter & Gamble and its affiliates were approximately $11,400,000.

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      Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide such services to Gillette, Procter & Gamble and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of Gillette and Procter & Gamble for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities.
      The Gillette board of directors selected Goldman Sachs as one of its financial advisors because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger and is familiar with Gillette and its business. Pursuant to a letter agreement dated October 19, 2004, Gillette engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, Gillette has agreed to pay Goldman Sachs a transaction fee of up to $30,000,000, payable upon the completion of the merger and substantially all of which is contingent and payable only if the merger is completed. In addition, Gillette has agreed to reimburse Goldman Sachs for its reasonable expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
      UBS. UBS rendered its opinion to the Gillette board of directors that, as of January 27, 2005 and based upon and subject to the factors, assumptions, procedures, limitations and qualifications set forth in such opinion, the exchange ratio of 0.975 of a share of Procter & Gamble common stock to be received for each share of Gillette common stock pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Gillette common stock.
      The full text of the opinion of UBS, dated January 27, 2005, which sets forth assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken in connection with the opinion, is attached as Annex D hereto and incorporated herein by reference. The opinion of UBS should be read in its entirety. UBS provided its opinion for the information and assistance of the Gillette board of directors in connection with its consideration of the transaction contemplated by the merger agreement. The UBS opinion is not a recommendation as to how any holder of shares of Gillette common stock should vote with respect to the merger agreement.
      In connection with rendering the opinion described above and performing its related financial analyses, UBS, among other things:
  •  reviewed the merger agreement;
 
  •  reviewed certain publicly available business and financial information relating to Gillette and Procter & Gamble;
 
  •  reviewed certain financial estimates and forecasts relating to the business and financial prospects of Gillette prepared by certain research analysts that were publicly available;
 
  •  reviewed certain internal financial information and other data relating to the business and financial prospects of Gillette, including the Gillette Forecasts, and the Synergies, in each case provided to UBS by the management of Gillette and not publicly available;
 
  •  reviewed certain financial information and other data relating to the business of Procter & Gamble provided to UBS by the managements of Gillette and Procter & Gamble, which were not publicly available, which information did not include forecasts for Procter & Gamble;
 
  •  reviewed the Procter & Gamble Adjusted Street Forecasts;
 
  •  reviewed the reported price and trading activity for the Gillette common stock and the Procter & Gamble common stock;

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  •  compared certain publicly available financial and stock market information for Gillette and Procter & Gamble with similar financial and stock market information with respect to certain other companies in lines of business UBS believed to be generally comparable to those of Gillette and Procter & Gamble;
 
  •  compared the financial terms of the merger with certain other transactions which UBS believed to be generally relevant;
 
  •  considered certain pro forma effects of the merger on Procter & Gamble’s financial statements;
 
  •  conducted discussions with members of the senior management of Gillette and Procter & Gamble concerning their assessment of the strategic rationale for, and the potential benefits of, the merger and the past and current business operations, financial condition and future prospects of Gillette and Procter & Gamble (including as a result of the significant stock buyback being announced by Procter & Gamble contemporaneously with the merger); and
 
  •  conducted such other financial studies, analyses, and investigations and considered such other information as UBS deemed necessary or appropriate.
      In connection with UBS’ review, with the consent of the Gillette board of directors, UBS relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by UBS, with the consent of the Gillette board of directors assumed such accuracy and completeness for purposes of rendering its opinion, and with the consent of the Gillette board of directors did not assume any responsibility for independent verification of any of such information. With respect to the Gillette Forecasts, the Synergies, and any other estimates or pro forma effects discussed with or reviewed by UBS, UBS assumed, at the direction of the Gillette board of directors, that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of Gillette. With respect to the Synergies and such pro forma effects, UBS assumed with the consent of the Gillette board of directors that they will be realized in the amounts and time periods forecasted. UBS was not provided Procter & Gamble’s internal financial analyses and forecasts for the year 2005 and beyond, and therefore UBS did not consider such analyses and forecasts in connection with its review or the rendering of its opinion. Based on UBS’ discussions with the Gillette board of directors and at the direction of the Gillette board of directors, UBS assumed that the Procter & Gamble Adjusted Street Forecasts were a reasonable basis upon which to evaluate the future performance of Procter & Gamble, and at the direction of the Gillette board of directors UBS used the Procter & Gamble Adjusted Street Forecasts for purposes of its analyses and its opinion. In addition, at the direction of the Gillette board of directors, UBS did not make an independent evaluation or appraisal of the assets and liabilities (contingent or otherwise) of Gillette or Procter & Gamble or any of their respective subsidiaries nor was it furnished with any such evaluation or appraisal. UBS also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Gillette or Procter & Gamble or on the expected benefits of the merger in any way meaningful to its analyses. UBS assumed that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes. In rendering its opinion, UBS assumed that Gillette and Procter & Gamble will comply with all the material terms of the merger agreement.
      The UBS opinion did not address the underlying business decision of Gillette to engage in the merger, nor did UBS express any opinion as to the value of the Procter & Gamble common stock when and if issued in the merger or the prices at which shares of Procter & Gamble common stock or Gillette common stock will trade at any time. UBS was not asked to, nor did it, offer any opinion as to the terms of the merger agreement (other than as to the fairness from a financial point of view of the exchange ratio of 0.975 pursuant to the merger agreement to the holders of shares of Gillette common stock as set forth in its opinion) or as to the form of the merger or any other matter. The UBS opinion was provided for the information and assistance of the Gillette board of directors in connection with its consideration of the merger and such opinion did not constitute a recommendation as to how any holder of shares of Gillette common stock should vote with respect to such merger. The UBS opinion was necessarily based on

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economic, monetary, market and other conditions as in effect on, and the information made available to UBS as of, the date of its opinion.
      Subsequent developments may affect UBS’ opinion, but UBS does not have any obligation to update, revise or reaffirm its opinion.
      In the past, UBS and its predecessors have provided investment banking services to Gillette and Procter & Gamble unrelated to the merger, including acting as Gillette’s financial advisor on its acquisition of Zooth, Inc. in June 2004 and acting as Gillette’s general strategic and financial advisor during 2002, 2003 and 2004, for which services UBS has received reasonable and customary compensation. The aggregate fees received by UBS during 2003, 2004 and 2005 from the services it rendered to Gillette and its affiliates were approximately $1,717,175.43 (excluding fees in connection with the merger). The aggregate fees received by UBS during 2003, 2004 and 2005 from the services it rendered to Procter & Gamble and its affiliates were approximately $53,161. In the ordinary course of business, UBS, its successors and affiliates may hold or trade securities of Gillette or Procter & Gamble or their respective affiliates for their own accounts and accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
      The Gillette board of directors selected UBS as one of its financial advisors in connection with the transaction because UBS is an internationally recognized investment banking firm with substantial experience in similar transactions and is familiar with Gillette and its business. UBS is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.
      Pursuant to a letter agreement dated November 23, 2004, Gillette engaged UBS to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, Gillette has agreed to pay UBS a transaction fee of up to $30,000,000, payable upon consummation of the merger and substantially all of which is contingent and payable only if the merger is completed. In addition, Gillette has agreed to reimburse UBS for its reasonable expenses, including attorneys’ fees and disbursements, and to indemnify UBS and related persons against various liabilities, including certain liabilities under the federal securities laws.
      Financial Analyses used by Goldman Sachs and UBS. The following is a summary of the material financial analyses relied upon by Goldman Sachs and UBS in connection with rendering the opinions described above and presented to the Gillette board of directors at the meeting held on January 27, 2005. Goldman Sachs and UBS collaborated in performing each of the financial analyses summarized below. The following summary, however, does not purport to be a complete description of such financial analyses. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of the financial analyses performed by Goldman Sachs and UBS. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 26, 2005 and is not necessarily indicative of current market conditions.
      Transaction Overview and Valuation Statistics. Goldman Sachs and UBS reviewed with the Gillette board of directors the basic structure of the transaction as described to Goldman Sachs and UBS by Gillette management, including the following:
  •  consideration in the form of 100% Procter & Gamble common stock;
 
  •  the fixed exchange ratio of 0.975 (Procter & Gamble share per Gillette share);
 
  •  the implied offer value of $54.05 per share (based on the closing price of Procter & Gamble’s common stock of $55.44 on January 26, 2005), representing equity value of $55 billion and enterprise value of $57 billion;

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  •  a premium of 20.1% (based on the closing price of Gillette’s common stock of $45.00 on January 26, 2005);
 
  •  pro forma ownership, based on fully diluted shares per treasury method, by current Procter & Gamble stockholders and current Gillette stockholders of 73.8% and 26.8%, respectively, of the combined company; and
 
  •  a pro forma dividend of $0.975 per share (an increase of 50% over the current dividend of $0.65 per share).
In addition, Goldman Sachs and UBS reviewed with the Gillette board of directors the fact that Gillette and Procter & Gamble had described to Goldman Sachs and UBS Procter & Gamble’s plan to execute approximately a $20 billion open-market share repurchase by June 2006 (to resume normal course repurchase thereafter of approximately $5 billion per annum).
      Goldman Sachs and UBS calculated for the Gillette board of directors various multiples and premiums resulting from the merger. The following table presents the results of Goldman Sachs’ and UBS’ calculations:
         
    Gillette at
January 26, 2005   offer price:
 
EV/ CY2004E Sales(1)
    5.5x  
EV/ CY2004E EBITDA(1)
    18.8  
CY2005E P/ E(1)
    28.5  
CY2006E P/ E(1)
    25.6  
Premium to(2):
       
1 day (based on Gillette closing price of $45.00 on 1/26/05)
    20.1 %
3 month average
    22.3 %
6 month average
    26.6 %
1 year average
    30.2 %
52 week high
    18.7 %
52 week low
    45.9 %
3 year average
    52.4 %
 
(1)  Estimates for Gillette at offer price per IBES, except for 2004E Sales, diluted shares and net debt, per Gillette’s management.
 
(2)  Averages based on trading days.
     Historical Stock Trading Analysis and Relative Trading. Goldman Sachs and UBS reviewed the historical trading prices for shares of Gillette common stock and Procter & Gamble common stock for the three-year period from January 26, 2002 through January 26, 2005 and the one-year period from January 26, 2004 to January 26, 2005. Goldman Sachs and UBS also analyzed the historical trading ratio of the respective common stock of Gillette and Procter & Gamble for various periods between January 26,

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2004 and January 26, 2005 as set forth in the table below, and compared it to the offer ratio of 0.975 to be paid pursuant to the merger agreement:
         
Current (Spot)   Average
 
January 26, 2005
    0.812x  
1 Week
    0.801x  
1 Month
    0.800x  
3 Months
    0.805x  
6 Months
    0.780x  
1 Year
    0.770x  
High
    0.829x  
Low
    0.703x  
      Discounted Cash Flow Analysis — Gillette. Goldman Sachs and UBS performed (a) a discounted cash flow analysis with respect to Gillette that used (i) consensus estimates with respect to Gillette provided by the Institutional Brokerage Estimate System, or IBES (a data service that compiles estimates issued by securities analysts) for fiscal years 2005 and 2006 and (ii) per Gillette management, annual earnings per share, or EPS, growth at the IBES long-term growth rate of 11.1% for 2007 through 2009 (the “Gillette Street Case”), which Gillette management had informed Goldman Sachs and UBS approximated Gillette management’s strategic plan re-based for earnings performance in the second half of 2004, as well as (b) a discounted cash flow analysis with respect to Gillette that used the internal financial forecasts prepared by Gillette management (“Gillette Management Upside Case”) for fiscal years 2005 through 2009 provided to Goldman Sachs and UBS by Gillette management. Goldman Sachs and UBS assumed discount rates ranging from 8.0% to 9.0%, calculated present values of the unleveraged after-tax cash flows generated over the period covered by the financial forecasts and then added terminal values assuming perpetuity growth rates ranging from 3.0% to 4.0%. This analysis indicated implied equity values per Gillette share ranging from $37.69 to $54.61, based on the Gillette Street Case for Gillette, and implied equity values per Gillette share ranging from $42.76 to $61.81, based on the Gillette Management Upside Case, as compared to the implied offer value of $54.05 per share (based on the closing price of Procter & Gamble’s common stock of $55.44 on January 26, 2005).
      Discounted Cash Flow Analysis — Procter & Gamble. Goldman Sachs and UBS performed a discounted cash flow analysis with respect to Procter & Gamble that used the Procter & Gamble Adjusted Street Forecasts (which reflect the IBES consensus estimate for 2005 for Procter & Gamble, adjusted to reflect revised Procter & Gamble management guidance given to the public on January 27, 2005 and EPS growth at IBES long-term growth rate of 10.9% thereafter, per Gillette’s management) for fiscal years 2005 through 2009, assumed discount rates ranging from 8.0% to 9.0%, calculated present values of the unleveraged after-tax cash flows generated over the period covered by the financial forecasts and then added terminal values assuming perpetuity growth rates ranging from 3.0% to 4.0%. This analysis indicated implied equity values per Procter & Gamble share ranging from $53.11 to $78.05, as compared to the closing price of $55.44 of the Procter & Gamble common stock on January 26, 2005.
      Selected Companies Analysis. Goldman Sachs and UBS reviewed certain financial information for Gillette and compared it to corresponding financial information, ratios and public market multiples for the following selected publicly traded companies in the consumer products industry:
  •  Avon;
 
  •  Clorox;
 
  •  Colgate-Palmolive;
 
  •  Estee Lauder;
 
  •  Kimberly Clark;

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  •  L’Oreal; and
 
  •  Reckitt Benckiser.
      Although none of the selected companies was directly comparable to Gillette, the companies included were chosen because they are publicly traded companies with businesses, end markets and operations that, for purposes of analysis, may be considered similar to certain businesses, end markets and operations of Gillette.
      Goldman Sachs and UBS calculated and compared various public market multiples and ratios of the selected companies based on information they obtained from company filings and IBES. As part of their analyses of the selected companies, Goldman Sachs and UBS derived medians, means and ranges for such multiples and ratios and then compared those to the comparable multiples and ratios for Gillette and Procter & Gamble. The multiples and ratios of the selected companies, of Procter & Gamble, and of Gillette at market were based on IBES consensus estimates and company filings. The Gillette Street Case estimates for Gillette were based on IBES consensus estimates, except for estimated 2004 sales, EBITDA (earnings before interest, taxes, depreciation and amortization), diluted shares and net debt, which were based on Gillette management’s estimates. The multiples and ratios of Procter & Gamble, of Gillette and of the selected companies were calculated using public trading market closing prices on January 26, 2005 and using the implied offer value of $54.05 per share (based on the closing price of Procter & Gamble’s common stock of $55.44 on January 26, 2005). With respect to Procter & Gamble, Gillette and the selected companies, Goldman Sachs and UBS calculated:
  •  the enterprise value, which is the market value of common equity plus the book value of debt plus the book value of minority interests less cash and investments and less investments in unconsolidated affiliates, as a multiple of estimated 2004 sales;
 
  •  the enterprise value as a multiple of estimated 2004 and 2005 EBITDA;
 
  •  the ratio of the price per share to the estimated 2005 and 2006 EPS (earnings per share), or P/ E multiple; and
 
  •  the ratio of the estimated 2005 P/ E multiple to year-over-year earnings growth rate, or PEG.
      The results of these analyses are summarized as follows:
                                                         
    Enterprise Value/CY:           CY    
                     
    Sales   EBITDA   CY P/E   2005E   LT
                    Growth
    2004E   2004E   2005E   2005E   2006E   PEG   Rate(1)
                             
Selected Companies in the Consumer Products Industry
                                                       
Median
    2.6 x     12.0 x     11.0 x     19.5 x     17.3 x     2.0 x     9.4%  
Mean
    2.5 x     12.2 x     11.4 x     19.7 x     17.6 x     2.0 x     10.2%  
Range
    1.8x-3.0 x     10.1x-14.7 x     9.7x-13.0 x     16.8x-22.2 x     15.5x-20.2 x     1.6x-2.3 x     8.1%- 13.0%  
Procter & Gamble
    3.2 x     13.9 x     12.8 x     20.2 x     18.3 x     1.9 x     10.9%  
Gillette at Jan. 26 2005 closing price
    4.7 x     16.2 x     14.6 x     23.7 x     21.3 x     2.1 x     11.1%  
Gillette at $54.05 (Gillette Street Case)
    5.5 x     18.8 x     17.4 x     28.5 x     25.6 x     2.6 x     11.1%  
Gillette at $54.05 (Gillette Mgmt. Upside Case)
    5.5 x     18.8 x     16.2 x     26.2 x     22.9 x     2.1 x     12.6%  
 
Note:  International companies converted at spot exchange rates of 1/26/05. International companies multiples adjusted for good will.
  (1)  Per IBES, except for Gillette Management Upside Case, which is per Gillette management.

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     Selected Transaction Analysis. Goldman Sachs and UBS analyzed certain information relating to the following selected transactions in the consumer products industry since 1997.
         
Date Announced   Acquirer   Target
 
Dec-2003
  Henkel   Dial
Oct-2003
  Tchibo   Beiersdorf
Mar-2003
  Procter & Gamble   Wella
Jan-2003
  Energizer   Schick-Wilkinson Sword (Pfizer)
Dec-2002
  Cadbury Schweppes   Adams (Pfizer)
Nov-2001
  Johnson Wax Professional   DiverseyLever (Unilever)
May 2001
  Procter & Gamble   Clairol (Bristol Myers Squibb)
Jan-2001
  Nestle S.A.   Ralston Purina
Dec-2000
  Pepsi   Quaker Oats
Oct-2000
  SmithKline Beecham   Block Drug
Jun-2000
  Philip Morris   Nabisco
Jun-2000
  Unilever   Bestfoods
Jul-1999
  Reckitt & Colman   Benckiser
Oct-1998
  Newell   Rubbermaid
Oct-1998
  Clorox   First Brands
Oct-1997
  S.C. Johnson & Son   DowBrands (Dow Chemical)
Apr-1997
  Procter & Gamble   Tambrands
      For each of the selected transactions and for the transaction contemplated by the merger agreement, Goldman Sachs and UBS calculated and compared the resulting:
  •  transaction value (enterprise value as if 100% of target was acquired);
 
  •  enterprise value as multiple of the LTM (last twelve months) sales and LTM EBITDA; and
 
  •  premium paid over the stock price one-week prior to announcement.
      For purposes of this analysis, enterprise value was calculated by determining each target company’s implied equity value and then adding the book value of each target company’s net debt and minority interest, or was obtained from other publicly disclosed information as of the respective announcement dates. LTM sales, EBITDA, net debt and minority interest were calculated using each target company’s most recent quarterly filing with the SEC or other publicly disclosed information as of the respective announcement dates.
      The following table presents the results of this analysis for the selected transactions over $5 billion:
             
    Multiple of LTM:    
    Sales   EBITDA   Premium to 1 Week Prior to Announcement
             
Median
  2.5x   15.6x   19.3%
Mean
  2.6x   15.6x   25.6%
Range
  1.9x-4.1x   13.7x-17.6x   5.3%-65.5%
Gillette at $54.05
  5.5x   18.8x   20.1%(1)
 
(1)  Relative to closing price on Wednesday January 19, 2005.

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     The following table presents the results of this analysis for all of the selected transactions:
             
    Multiple of LTM:    
    Sales   EBITDA   Premium to 1 Week Prior to Announcement
             
Median
  2.2x   13.0x   19.3%
Mean
  2.2x   13.2x   29.1%
Range
  1.1x-4.1x   8.4x-17.6x   5.3%-92.6%
Gillette at $54.05
  5.5x   18.8x   20.1%(1)
 
(1)  Relative to closing price on Wednesday January 19, 2005.
     Large Cap Transactions Premium Paid Analysis. Using publicly available information, Goldman Sachs and UBS calculated the premium paid over the stock price one week prior to announcement in selected all-stock transactions where the consideration paid exceeded $10 billion in each year from 2000 to 2004 as set forth below:
                 
    Median Premium   Range of Premiums
    Paid One Week Pre-   Paid One Week Pre-
    Announcement in   Announcement in
    Selected Large Cap   Selected Large Cap
Year   Transactions   Transactions
 
2004
    20.1 %     3.1%-31.5%  
2003
    21.3 %     17.6%-39.0%  
2002
    29.7 %     22.9%-36.6%  
2001
    28.0 %     10.2%-36.7%  
2000
    43.0 %     13.5%-74.7%  
      These results were compared to the 20.1% premium to be paid to Gillette shareholders based on the exchange ratio of 0.975 pursuant to the merger agreement times Procter & Gamble’s closing stock price on January 26, 2005 over Gillette’s closing stock price on January 19, 2005.
      Contribution Analysis. Goldman Sachs and UBS reviewed certain historical and estimated future operating and financial information, including among other things, sales, EBITDA, EBIT (earnings before interest and taxes), and net income for Procter & Gamble, Gillette and the pro forma combined company, based on publicly available information and information from Gillette management, IBES consensus estimates and, in the case of the “At Offer” analysis, the estimated amount of debt and number of shares outstanding for Gillette and Procter & Gamble as of December 31, 2004 as supplied by Gillette management. These relative contributions were compared to the equity value and enterprise value contributions based on the offer price (based on fully diluted shares per treasury method without including shares repurchased between signing and closing, and assuming no pro forma transaction effects). These

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analyses, the order of which does not necessarily reflect their relative significance, indicated the following contributions by Procter & Gamble and Gillette for the following periods:
                   
    Procter &    
    Gamble’s   Gillette’s
    Contribution to   Contribution to
    Combined   Combined
    Company   Company
     
Sales
               
 
CY 2004E
    83.6 %     16.4 %
 
CY 2005E
    83.8 %     16.2 %
EBITDA
               
 
CY 2004E
    80.0 %     20.0 %
 
CY 2005E
    79.1 %     20.9 %
EBIT
               
 
CY 2004E
    80.9 %     19.1 %
 
CY 2005E
    79.7 %     20.3 %
Net Income
               
 
CY 2004E
    80.3 %     19.7 %
 
CY 2005E
    78.9 %     21.1 %
 
Net Income CY 2006E
    78.4 %     21.6 %
 
Net Income CY 2007
    78.3 %     21.7 %
 
Net Income CY 2008
    78.3 %     21.7 %
At Market
               
 
Equity Value
    77.2 %     22.8 %
 
Enterprise Value
    77.9 %     22.1 %
At Offer
               
 
Equity Value
    73.8 %     26.2 %
 
Enterprise Value
    74.7 %     25.3 %
      Pro Forma Merger Analysis. Goldman Sachs and UBS analyzed the pro forma financial effects of the merger on Procter & Gamble’s estimated EPS. For Gillette, Goldman Sachs and UBS used the Gillette Street Case as well as the Gillette Management Upside Case. For Procter & Gamble, Goldman Sachs and UBS used the Adjusted Procter & Gamble Street Forecasts. These analyses are based on the following assumptions, per Gillette’s management:
  •  June 2005 closing date;
 
  •  the Synergies;
 
  •  cash cost to achieve synergies of $0.9 billion over two years (net of tax);
 
  •  approximately 8% of excess purchase price allocated to intangible assets and amortized over 17 years;
 
  •  approximately 2% of excess purchase price allocated to fixed assets and depreciated over 15 years;
 
  •  approximately $20 billion of shares repurchased by June 2006 (to resume normal course repurchase thereafter of approximately $5 billion per annum); and
 
  •  cost of debt based on spread over forward LIBOR curve (initial share repurchase financed with new debt).

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      The estimated financial impact on selected financial statistics of Procter & Gamble is as follows:
Gillette Street Case(1)
                                 
    2006E   2007E   2008E   2009E
     
EPS Accretion/(Dilution)
  $ (0.29 )   $ (0.07 )   $ 0.02     $ 0.02  
EPS Accretion/(Dilution) %
    (10.0 )%     (2.3 )%     0.7 %     0.5 %
Debt/ EBITDA
    2.1 x     1.8 x     1.5 x     1.3x  
 
(1)  Assumes June Fiscal Year
Gillette Management Upside Case(1)
                                 
    2006E   2007E   2008E   2009E
     
EPS Accretion/(Dilution)
  $ (0.25 )   $ (0.02 )   $ 0.09     $ 0.10  
EPS Accretion/(Dilution) %
    (8.7 )%     (0.7 )%     2.5 %     2.5 %
Debt/ EBITDA
    2.0 x     1.7 x     1.5 x     1.2x  
 
(1)  Assumes June Fiscal Year
     Pro Forma Discounted Cash Flow Analysis. Goldman Sachs and UBS performed a discounted cash flow analysis on the combined company in order to derive implied per share equity values for Gillette’s share of the combined company. For Gillette, Goldman Sachs and UBS used the Gillette Street Case as well as the Gillette Management Upside Case for fiscal years 2005 through 2009. For Procter & Gamble, Goldman Sachs and UBS used the Procter & Gamble Adjusted Street Forecasts for fiscal years 2005 through 2009. In performing these analyses, Goldman Sachs and UBS made the transaction assumptions described above. Goldman Sachs and UBS assumed discount rates ranging from 8.0% to 9.0%, calculated present values of the unleveraged after-tax cash flows generated over the period covered by the financial forecasts and then added terminal values assuming perpetuity growth rates ranging from 3.0% to 4.0%. This analysis indicated implied equity values per Gillette’s share of the combined company ranging from $51.94 to $77.81, as compared to implied equity values derived from the Gillette standalone DCF analysis ranging from $37.69 to $54.61, based on the Gillette Street Case, or ranging from $53.31 to $79.80, as compared to implied equity values derived from the Gillette standalone DCF analysis ranging from $42.76 to $61.81, based on the Gillette Management Upside Case.
      The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate methods of financial analysis and the application of those methods to the particular facts and circumstances, and therefore is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth herein, without considering the analyses as a whole, could create an incomplete view of the processes underlying the opinions of Goldman Sachs and UBS. In arriving at their respective fairness determinations, Goldman Sachs and UBS each separately considered the results of all of their analyses and did not form any conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, Goldman Sachs and UBS each made their respective determinations as to fairness on the basis of their experience and professional judgment after considering the results of all of their analyses assessed as a whole. No company or transaction referenced in the above analyses is directly comparable to Gillette or Procter & Gamble or the merger. Such comparative analyses necessarily involve complex considerations and judgments concerning financial and operating characteristics, market conditions and other factors that could affect the public trading of the selected companies or terms of the selected transactions. In addition, mathematical calculations such as determining the mean or median are not in themselves necessarily complete analyses of selected company or transaction data.
      Goldman Sachs and UBS prepared the analyses described herein for purposes of providing their respective opinions to the Gillette board of directors as to the fairness from a financial point of view to the

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holders of shares of Gillette common stock of the exchange ratio of 0.975 pursuant to the merger agreement. These analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Gillette, Procter & Gamble, Goldman Sachs, UBS or any other person assumes responsibility if future results are materially different from those forecast.
      As described above, each of the respective opinions of Goldman Sachs and UBS to the Gillette board of directors was one of many factors taken into consideration by the Gillette board of directors in making its determination to approve the transaction contemplated by the merger agreement. Goldman Sachs and UBS were not asked to, and did not, recommend the specific consideration payable in the merger, which consideration was determined through negotiations between Procter & Gamble and Gillette. The summary contained herein does not purport to be a complete description of the analyses performed by Goldman Sachs and UBS in connection with their respective fairness opinions and is qualified in its entirety by reference to the opinion of Goldman Sachs and the opinion of UBS attached as Annexes C and D, respectively.

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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interests of Certain Persons in the Merger
      Gillette’s directors and executive officers have interests in the merger as individuals in addition to, and that may be different from, their interests as shareholders. The Gillette board of directors was aware of these interests and considered them, among other matters, in its decision to approve the merger agreement.
      Equity Awards. Gillette’s executive officers and non-employee directors participate in the 1971 Stock Option Plan, the 2004 Long-Term Incentive Plan and other arrangements (which are referred to as the plans), under which stock options and restricted stock units have been granted. Option grants generally represent incentive opportunities made over long periods of time under which realization of any value is dependent upon increases in the value of a company’s common stock, and is therefore linked to and reflective of increases in shareholder value. Under the plans, consummation of the merger will constitute a change of control. Under the plans, upon a change of control:
  •  all equity awards vest and become exercisable; and
 
  •  if an employee participant is terminated for any reason other than for cause or terminates his employment for good reason (as those terms are defined in the applicable plan), or a non-employee director’s service terminates, during the two-year period following the change of control (any such termination being referred to as a no-fault termination), the applicable exercise period for all options (including substituted or assumed awards) granted to that participant will be the greater of two years from the date of termination or the post-termination exercise period that would have otherwise applied to those options, but in no event will any option be exercisable more than ten years after the applicable grant date.
      Participants in the plans are subject to restrictions on their ability to solicit Gillette employees or clients or work for a competitor of Gillette (in each case for at least an eighteen-month period following termination of employment), disclose confidential information, refuse to assign rights to inventions, or make disparaging or defamatory statements about Gillette, its subsidiaries, stockholders, directors, officers, employees, agents, representatives or successors. Following a change of control, under the plans, the restrictions on working for a competitor, soliciting Gillette employees and making disparaging or defamatory statements no longer apply to grants awarded before June 2005.
      Under the merger agreement all equity awards granted prior to January 27, 2005 will vest, as described above, and the holders of such options will have the choice as to each option of (1) exercising the option and, upon payment of the relevant exercise price, receiving, at the holders’ election, either (a) shares of Procter & Gamble common stock based on the same exchange ratio applicable to shareholders of Gillette in the merger or (b) the value in cash of the Procter & Gamble common stock that would otherwise have been delivered on exercise of the option or (2) exchanging the option for a replacement option to acquire Procter & Gamble common stock with the adjustments to the number of shares issuable upon the exercise of the option and the option exercise price reflecting the exchange ratio in the merger, all as more fully described under “Treatment of Gillette Stock Options.” Also, according to the merger agreement, the two-year exercise period has been extended to the shorter of the original exercise period or five years, in the event of termination for good reason or retirement. Options granted after January 27, 2005 will not vest on a change of control but will vest in the event of a no-fault termination, and in the merger will be converted into replacement options as described in (2) above.
      Employment Agreement with James M. Kilts. The employment agreement of James M. Kilts, the Chairman, Chief Executive Officer and President of Gillette as in effect prior to January 27, 2005 (which is referred to as the employment agreement), entitles Mr. Kilts to receive certain benefits summarized below in connection with a “change of control” (defined in the employment agreement, which includes the merger).
      Upon a change of control, under the employment agreement, consistent with the plans, all outstanding stock options held by Mr. Kilts would immediately become exercisable and all other equity awards would fully vest. All stock options, depending on the date of grant, would remain exercisable for a period equal to

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either (a) the lesser of the remainder of their originally scheduled terms and five years, or (b) the remainder of the originally scheduled terms.
      Under the terms of the employment agreement Mr. Kilts would be entitled to resign for good reason upon consummation of the merger and receive the following severance payments (which are referred to as “Severance Payments”):
  •  a payment equal to his prorated annual bonus for the year of the termination calculated based on the greater of his target annual bonus or his actual annual bonus for any of the prior three full fiscal years (the estimated amount of this payment is included in the “Severance and Change in Control Benefits” table below);
 
  •  a payment equal to three times the sum of his annual base salary and the greater of his target annual bonus or his actual annual bonus for any of the prior three full fiscal years (the estimated amount of this payment is included in the “Severance and Change in Control Benefits” table below);
 
  •  a payment of approximately $7,312,000 in respect of the actuarial equivalent of three years of additional service for purposes of determining the supplemental pension benefit to which he is entitled; and
 
  •  in the event he is subject to “parachute” excise tax under Section 4999 of the Code on any payments made to him, a make whole payment for such tax liability (the estimated amount of this payment is included in the “Severance and Change in Control Benefits” table below).
      Under the terms of the employment agreement, as amended as described below, Mr. Kilts will be paid the severance payments described above immediately prior to consummation of the merger. Mr. Kilts would also be entitled to receive severance benefits (which are referred to as “Severance Benefits”) consisting of continuation for three years of certain of the benefits in which he was participating on the date of the termination of his employment (consisting of life insurance, home security and disability coverage), as well as outplacement services. Following the termination of his one year employment term with Procter & Gamble described below, Mr. Kilts will receive the life insurance, home security, disability coverage and outplacement benefits described above and will have the continued use of an office and administrative support until age 65. The estimated value of these Severance Benefits is $1,661,830, and the estimated actuarial present value of Mr. Kilts’ pension and supplemental pension benefits, reduced by the lump sum payment noted above (i.e. $7,312,000), is $7,248,235.
      In connection with the execution of the merger agreement, on January 27, 2005, at the request of Procter & Gamble, Gillette and Mr. Kilts entered into an amendment to his employment agreement that is effective only upon consummation of the merger (which is referred to as the amendment and the employment agreement as so amended is referred to as the amended employment agreement). Pursuant to the amendment, Mr. Kilts agreed to one year of employment with the combined company following consummation of the merger in the position of Vice Chairman of Procter & Gamble. Mr. Kilts also agreed that, from the date of the merger agreement until eighteen months after consummation of the merger, he would not sell any shares of Gillette or Procter & Gamble common stock, exercise any Gillette stock options, or exercise any Procter & Gamble stock options into which his Gillette stock options will be converted in connection with the merger. In addition, Mr. Kilts agreed to a three year non-competition covenant following termination of employment and agreed that the non-competition covenant would apply to a specified list of competitors.
      In consideration for Mr. Kilts’ agreeing to the foregoing, upon consummation of the merger, pursuant to the terms of the amendment Procter & Gamble will grant Mr. Kilts options to purchase 1,000,000 shares of Procter & Gamble common stock (with an estimated value of $14,936,400 based on the January 27, 2005 value of Procter & Gamble stock), half of which will vest on the first anniversary of consummation of the merger and the other half of which will vest on the second anniversary thereof (unless he is terminated for cause or he terminates his employment without good reason). On the last day of Mr. Kilts’ one year post-merger employment period, Procter & Gamble will also grant Mr. Kilts

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150,000 restricted shares of Procter & Gamble common stock (unless he is terminated for cause or he terminates his employment without good reason), with an estimated value of $8,298,000 based on the January 27, 2005 value of Procter & Gamble stock and which shall vest at the end of his three-year non-competition period if Mr. Kilts has complied with the terms of his non-competition covenant. During his one-year term of employment, Mr. Kilts will be entitled to receive his then current annual base salary ($1,545,000 as of April 1, 2005), and an annual target bonus opportunity of $1,545,000 (as of April 1, 2005), the actual amount of which bonus will be determined based on the same performance criteria that apply to the determination of the annual bonus of Procter & Gamble’s chief executive officer during the same period. Mr. Kilts will also be entitled to participate on a pro rata basis for his one-year employment period in Procter & Gamble’s three-year long-term incentive plan on the same terms as Procter & Gamble’s chief executive officer, which will provide Mr. Kilts with a target payout of two times his annual base salary (i.e., $3,090,000 as of April 1, 2005). All of the other provisions of his employment agreement prior to amendment will continue to apply, including the requirement that he use corporate aircraft for travel, reimbursement for other travel and commutation, tax and financial counseling, and home security, and the company provided housing in the Boston area, the estimated aggregate annual cost of which is $503,614.
      In the event that after the merger and prior to the end of the one-year employment period, Mr. Kilts terminates his employment with Procter & Gamble for good reason, or Procter & Gamble terminates his employment without cause, in each case as defined in the amended employment agreement, Mr. Kilts will be entitled to receive payment of his unpaid base salary for the balance of the one-year employment period payable in a lump sum following such termination and his annual bonus and incentive plan payments for the one-year employment period, payable at the time such payments would have been made absent any such termination. Except as described above, Mr. Kilts will not be entitled to any other severance payments or benefits.
      Employment Agreements with Other Executive Officers. Each of Gillette’s other executive officers who are members of Gillette’s operating committee, including Edward F. DeGraan, Charles W. Cramb, Peter K. Hoffman and Mark Leckie, is a party to an employment agreement (which are referred to as the change of control agreements) that becomes effective upon a change of control (as that term is defined in those change of control agreements) and which supersedes any other employment agreement to which they are parties. The consummation of the merger will constitute a change of control.
      The change of control agreements have a term of two years following the change of control. Under the change of control agreements, these executive officers are entitled to receive severance benefits upon termination of their employment without “cause” or by the executive officer for “good reason” (as those terms are defined in the change of control agreements).
      Upon termination without cause or for good reason (including a voluntary termination during the 30-day period following the first anniversary of a change in control), each executive officer will be entitled to Severance Payments and Severance Benefits substantially the same as those described above for Mr. Kilts’ employment agreement.
      For purposes of the change of control agreements, “good reason” also includes:
  •  the assignment to the executive officer of any duties inconsistent with the executive officer’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as they existed immediately prior to the change of control; and
 
  •  relocation of the executive officer to an office more than 35 miles from where the executive officer’s office was located immediately prior to the change of control.
      It is expected that the merger will result in each of the executive officers of Gillette in this grade being entitled to terminate such executive officer’s employment for “good reason” with the resulting entitlement of such executive officer to his severance payments and severance benefits.

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      The estimated change in control and severance payments and benefits (including the intrinsic value of outstanding vested and unvested stock options and stock rights, the value of restricted stock vesting on the merger, and tax gross-up payments that would be payable if the employment of each executive officer was terminated immediately following the merger) payable to Mr. Kilts and to each of Messrs. DeGraan, Cramb, Hoffman and Leckie (who, together with Mr. Kilts were Gillette’s most highly compensated executive officers in 2005), and to all other Gillette executive officers as a group, are set forth below:
Severance and Change in Control Benefits
                           
        All Other   Estimated
    Net Equity   Payments and   Aggregate
Name and Principal Position   Award(1)   Benefits(1)   Dollar Value(1)
             
James M. Kilts
  $ 125,260,167     $ 39,272,025     $ 164,532,192  
  Chairman, President and
Chief Executive Officer
                       
Edward F. DeGraan
    29,711,715       15,655,483       45,367,198  
  Vice Chairman                        
Charles W. Cramb
    16,258,040       10,174,097       26,432,137  
  Senior Vice President                        
Peter K. Hoffman
    10,695,578       9,567,625       20,263,203  
  Vice President                        
Mark M. Leckie
    9,426,564       7,528,840       16,955,404  
  Vice President                        
All other Executive Officers as a group(12)
    96,073,693       79,795,179       175,868,872  
 
(1)  The estimated amounts are based, in part, on the respective per share values of Gillette and Procter & Gamble common stock on January 27, 2005. Also includes retirement enhancement and Severance Benefits which for Mr. Kilts are also separately quantified above.
      Employment Agreements with Other Key Employees. In addition, other key Gillette employees are covered by a change in control severance program. If the key employee terminates employment for “good reason,” as defined in the agreement, within the two-year period following the merger, the key employee would be entitled to receive a severance payment equal to two times the key employee’s base salary and specified bonus. The key employee would be entitled to receive other payments and benefits, including increased pension benefits in certain circumstances, continuation of employee welfare benefits, reimbursement of any “parachute” excise tax imposed on payments under the program, and reimbursement of legal expenses related to the program.
      Non-employee Director Compensation. Under the Gillette Deferred Compensation Plan for Outside Directors, one-half of each non-employee director’s annual retainer is deferred into Gillette stock units, and each non-employee director also has the opportunity to defer payment of any or all of the remaining portion of the retainer into a cash account or a Gillette stock unit account. The directors’ balances under this plan are 100% vested. Following a change of control (which the merger will constitute), all amounts deferred under the plan, including those deferred stock units into which benefits under a previously terminated director retirement plan were converted, will be paid in cash to the participants, either in a lump sum or in installments, as previously elected by the participant. The aggregate amounts previously deferred under the plan that would be payable under the plan following the merger, unadjusted to reflect the time of actual payment, is approximately $6,800,000.
      Procter & Gamble. Procter & Gamble directors and executive officers have no similar change of control or incentive compensation arrangements related to the closing of the merger.
Ownership of Common Stock; Stock Options
      Security Ownership of Procter & Gamble Executive Officers and Directors. As of April 14, 2005, directors and executive officers of Procter & Gamble beneficially owned an aggregate of 11,639,437 shares of Procter & Gamble common stock, 182,244.8 shares of Series A ESOP Convertible Class A Preferred

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Stock, and 2,294.7 shares of Series B ESOP Convertible Class A Preferred Stock, including options to purchase 8,644,606 shares of Procter & Gamble common stock exercisable within 60 days.
      Security Ownership of Gillette Executive Officers and Directors. As of April 18, 2005, directors and executive officers of Gillette beneficially owned an aggregate of 11,601,172 shares of Gillette common stock, including options to purchase 10,964,521 shares of Gillette common stock exercisable within 60 days.
Directors and Executive Officers
      For biographical information regarding Procter & Gamble’s directors and executive officers, information concerning the compensation paid to the chief executive officer and the other four most highly compensated executive officers of Procter & Gamble for the fiscal year ended June 30, 2004, as well as any information regarding certain relationships and related transactions involving Procter & Gamble’s directors and executive officers for the fiscal year ended June 30, 2004, see Procter & Gamble’s proxy statement used in connection with its 2004 annual meeting of shareholders.
      For biographical information regarding Gillette’s directors and executive officers, information concerning the compensation paid to the chief executive officer and the other four most highly compensated executive officers of Gillette for the 2004 fiscal year as well as any information regarding certain relationships and related transactions involving Gillette’s directors and executive officers for the 2004 fiscal year, see Gillette’s proxy statement used in connection with its 2005 annual meeting of shareholders.
Treatment of Gillette Stock Options
      Each outstanding Gillette stock option (other than any stock options that may be granted in June 2005) will become vested and fully exercisable immediately prior to the effective time of the merger and option holders will have the opportunity to exercise immediately prior to the effective time of the merger and receive either (i) the merger consideration with respect to the shares issuable as a result of such exercise (the “Merger Shares”) or (ii) a cash payment equal to the product of (a) the excess (if any) of the per share value of the Merger Shares over the per share exercise price and (b) the number of shares with respect to which such options are exercised. Each Gillette stock option remaining outstanding immediately prior to the effective time of the merger will be converted at the effective time of the merger into an option to acquire a number of shares of Procter & Gamble common stock. The number of shares of Procter & Gamble common stock underlying the new Procter & Gamble option will equal the number of shares of Gillette common stock to which the corresponding Gillette option was subject, multiplied by the exchange ratio. The per share exercise price of each new Procter & Gamble option will be equal to the exercise price of the corresponding Gillette option divided by the exchange ratio. Prior to the effective time, Gillette will amend its stock option plans to provide, and each option holder will enter into an agreement with Gillette agreeing to, the following: (i) each actively-employed option holder who receives an option grant in June 2005 will be bound by a non-compete agreement prohibiting such holder’s competing with any business conducted by Gillette immediately prior to the effective time or any business of Procter & Gamble or its affiliates in which the holder was employed, and which reflects terms and conditions of the non-compete agreement contained in Procter & Gamble’s stock option plan, and (ii) a termination of employment for “good reason” after the effective time will be treated for all purposes under Gillette’s stock option plans the same as “special separation” or “retirement” (in the case of a retirement-eligible holder) under Procter & Gamble’s stock option plan. The dollar amount of in-the-money options held by Gillette’s executive officers and directors that will become vested upon such adoption or completion, as the case may be, is approximately $[          ], based on a closing sale price of Gillette common stock on the New York Stock Exchange on [          ], 2005.
Indemnification; Directors’ and Officers’ Insurance
      Procter & Gamble is obligated, for six years after the merger, to maintain in effect Gillette’s current directors’ and officers’ liability insurance covering acts or omissions occurring prior to the completion of the merger, provided that the aggregate annual premium for such coverage does not exceed 250% of the

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current annual premium (in which case Procter & Gamble would be required to maintain the maximum coverage available at an annual premium equal to 250% of the current annual premium).
      Procter & Gamble is obligated to indemnify and hold harmless, and provide advancement of expenses to, each person who is or has been an officer, director or employee of Gillette or any of its subsidiaries with respect to acts or omissions by them in all of their capacities as officers, directors or employees of Gillette or any of its subsidiaries or taken at the request of Gillette or any of its subsidiaries at any time on or prior to the merger, including for acts and omissions occurring in connection with the approval of the merger and the merger agreement. Procter & Gamble will also cause the surviving corporation in the merger to maintain in its certificate of incorporation or bylaws the current provisions in Gillette’s certificate of incorporation and bylaws regarding indemnification of officers, directors and employees.

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THE MERGER AGREEMENT
      The following is a summary of the material terms of the merger agreement. This summary does not purport to describe all the terms of the merger agreement and is qualified by reference to the complete merger agreement which is attached as Annex A to this joint proxy statement/ prospectus and incorporated by reference. All shareholders of Procter & Gamble and Gillette are urged to read the merger agreement carefully and in its entirety.
Explanatory Note Regarding Summary of Merger Agreement and Representations and Warranties in the Merger Agreement
      The summary of the terms of the merger agreement is intended to provide information about the terms of the merger. The terms and information in the merger agreement should not be relied on as disclosures about Procter & Gamble or Gillette without consideration to the entirety of public disclosure by Procter & Gamble and Gillette as set forth in all of their respective public reports with the SEC. The merger agreement, although included as an appendix to this joint proxy statement/ prospectus, is not intended to change or supplement the disclosures in their other public reports filed with the SEC. This is particularly so because the terms of the merger agreement (such as the representations and warranties) are intended to govern the contractual rights and relationships, and allocate risks, between the parties in relation to the merger. In particular, the representations and warranties made by the parties to each other in the merger agreement have been negotiated between the parties with the principal purpose of setting forth their respective rights with respect to their obligation to close the merger should events or circumstances change or be different from those stated in the representations and warranties. It is understood that matters may change from the state of affairs contemplated by the representations and warranties. Procter & Gamble and Gillette have provided additional disclosure in their public reports to the extent that they are aware of the existence of any material facts that are required to be disclosed under federal securities law and that might otherwise contradict the representations and warranties contained in the merger agreement and will update such disclosure as required by federal securities laws.
General
      Under the merger agreement, a wholly owned subsidiary of Procter & Gamble will merge with and into Gillette, with Gillette continuing as the surviving corporation. As a result of the merger, Gillette will become a wholly owned subsidiary of Procter & Gamble.
Closing Matters
      Closing. Unless the parties agree otherwise, the closing of the merger will take place on the first business day after all closing conditions have been satisfied or waived, unless the merger agreement has been terminated or another time or date is agreed to in writing by the parties. See “— Conditions” below for a more complete description of the conditions that must be satisfied or waived prior to closing.
      Effective Time. As soon as practicable after the satisfaction or waiver of the conditions to the merger, Procter & Gamble and Gillette will file a certificate of merger with the Delaware Secretary of State in accordance with the relevant provisions of the Delaware General Corporation Law. The merger will become effective when the certificate of merger is filed or at such later time as Procter & Gamble and Gillette agree and specify in the certificate of merger.
Consideration to Be Received in the Merger; Treatment of Stock Options
      The merger agreement provides that, at the effective time of the merger:
  •  each share of Gillette common stock issued and outstanding immediately prior to the effective time of the merger, together with the associated rights issued under the Gillette rights agreement, but excluding shares of Gillette common stock owned by Procter & Gamble, Gillette or any of their

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  respective subsidiaries (other than those shares held by Gillette in a fiduciary or representative capacity), will be converted into 0.975 shares of Procter & Gamble common stock;
 
  •  each outstanding and unexercised option (other than any stock option that may be granted in June 2005) or right to purchase shares of Gillette common stock granted under the Gillette stock option plans will accelerate immediately prior to the effective time of the merger and option holders will have the opportunity to exercise and receive either (i) the merger consideration with respect to the shares issuable as a result of such exercise (the “Merger Shares”) or (ii) a cash payment equal to the product of (a) the excess (if any) of the per share value of the Merger Shares over the per share exercise price and (b) the number of shares with respect to which such options are exercised; and
 
  •  each Gillette stock option remaining outstanding at the effective time of the merger will be converted into an option to acquire on the same terms and conditions previously applicable, shares of Procter & Gamble common stock. The number of shares of Procter & Gamble common stock underlying the new Procter & Gamble option will equal the number of shares of Gillette common stock for which the corresponding Gillette option was exercisable, multiplied by 0.975 (rounded, if necessary, to the nearest whole share). The per share exercise price of each new Procter & Gamble option will equal the exercise price of the corresponding Gillette option divided by 0.975. Prior to the effective time, Gillette will amend its stock option plans to provide the following: (i) each actively employed option holder will be bound by a non-compete agreement prohibiting such holder’s competing with any business conducted by Gillette immediately prior to the effective time or any business of Procter & Gamble or its affiliates in which the holder was employed, and which otherwise generally parallels the terms and conditions of the non-compete agreement contained in Procter & Gamble’s stock option plan, and (ii) a termination of employment for “good reason” after the effective time will be treated for all purposes under Gillette’s stock option plans the same as “special separation” or “retirement” (in the case of a retirement-eligible holder) under Procter & Gamble’s stock option plan.
      For a further discussion of the treatment of Gillette stock options and other employee benefit plans under the merger agreement, see “— Covenants — Employee Matters” on page I-73 and “Interests of Certain Persons in the Merger” on page I-62.
Exchange of Certificates in the Merger
      Before the effective time of the merger, Procter & Gamble will appoint an exchange agent to handle the exchange of Gillette stock certificates for shares of Procter & Gamble common stock (which shares will be in uncertificated book-entry form unless a physical certificate is requested by such holder) and the payment of cash for fractional shares. Promptly after the effective time of the merger, the exchange agent will send a letter of transmittal, which is to be used to exchange Gillette stock certificates for shares of Procter & Gamble common stock, to each former Gillette shareholder who holds one or more stock certificates. The letter of transmittal will contain instructions explaining the procedure for surrendering Gillette stock certificates. You should not return certificates with the enclosed proxy card.
      Gillette shareholders who surrender their stock certificates, together with a properly completed letter of transmittal, will receive shares of Procter & Gamble common stock (which shares will be in uncertificated book-entry form unless a physical certificate is requested by such holder) into which the shares of Gillette common stock were converted in the merger. After the effective date of the merger, each certificate that previously represented shares of Gillette common stock will only represent the right to receive the shares of Procter & Gamble common stock (and cash in lieu of fractions thereof) into which those shares of Gillette common stock have been converted.
      After the completion of the merger, Procter & Gamble will not pay dividends with a record date after the effective time to any holder of any Gillette stock certificates until the holder surrenders the Gillette stock certificates. However, once those certificates are surrendered, Procter & Gamble will pay to the

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holder, without interest, any dividends that have been declared after the effective date of the merger on the shares into which those Gillette shares have been converted.
      Procter & Gamble shareholders do not need to exchange their stock certificates.
Fractional Shares
      No fractional shares of Procter & Gamble common stock will be issued in the merger. Instead, the exchange agent will pay each of those shareholders who would have otherwise been entitled to a fractional share of Procter & Gamble common stock an amount in cash determined by multiplying the fractional share interest by the closing price for a share of Procter & Gamble common stock on the New York Stock Exchange Composite Transaction Tape on the date of the effective time of the merger.
Listing of Procter & Gamble Stock
      Procter & Gamble has agreed to use its commercially reasonable efforts to cause the shares of Procter & Gamble common stock to be issued in the merger and the shares of Procter & Gamble common stock to be reserved for issuance upon exercise of the Gillette stock options to be approved for listing on the New York Stock Exchange, subject to official notice of issuance, prior to the effective time of the merger. Procter & Gamble’s symbol “PG” will be used for such shares, assuming the listing application is approved. Approval for listing on the New York Stock Exchange of the shares of Procter & Gamble common stock issuable to the Gillette shareholders in the merger, subject only to official notice of issuance, is a condition to the obligations of Procter & Gamble and Gillette to complete the merger.
Covenants
      Procter & Gamble and Gillette have each undertaken certain covenants in the merger agreement concerning the conduct of their respective businesses between the date the merger agreement was signed and the completion of the merger. The following summarizes the more significant of these covenants:
      No Solicitation. Gillette has agreed that Gillette, and any of its subsidiaries, officers or directors, will not, and will use commercially reasonable efforts to ensure that their respective employees, agents or representatives do not:
  •  initiate, solicit, encourage or knowingly facilitate, including by way of furnishing information, any inquiries or the making of any proposal or offer with respect to a third party “acquisition proposal” of the type described below;
 
  •  have any discussion with or provide any confidential information or data to any person relating to an acquisition proposal;
 
  •  engage in negotiations concerning an acquisition proposal;
 
  •  knowingly facilitate any effort or attempt to make or implement an acquisition proposal; or
 
  •  subject to Gillette’s right to terminate the merger agreement under certain circumstances described in “— Termination of Merger Agreement” if Gillette receives a superior proposal of the type described below, accept an acquisition proposal.
      However, Gillette is permitted to take and disclose to its shareholders its position with respect to any acquisition proposal as may be required under the federal securities laws.
      In addition, Gillette is permitted to engage in discussions and negotiations with, and provide information to, any person in response to an unsolicited acquisition proposal, if:
  •  its meeting of shareholders to vote on the adoption of the merger agreement has not occurred;
 
  •  its board of directors concludes in good faith (i) after consultation with its independent financial advisor, that there is a reasonable likelihood that the acquisition proposal could result in a “superior

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  proposal” of the type described below and (ii) after consultation with its outside legal counsel, that failure to take such action could be reasonably expected to result in a breach of its fiduciary duties;
 
  •  prior to providing any information or data to any person in connection with an acquisition proposal, the proposing party first signs a confidentiality agreement customary for such transactions; and
 
  •  Gillette notifies and keeps Procter & Gamble informed of the status and terms of the acquisition proposal and any discussions or negotiations relating to the acquisition proposal.
      An “acquisition proposal” for Gillette is any proposal or offer with respect to:
  •  a merger, reorganization, share exchange, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Gillette;
 
  •  any purchase or sale of the consolidated assets of Gillette and its subsidiaries, taken as a whole, having an aggregate value equal to 10% or more of the market capitalization of Gillette; or
 
  •  any purchase or sale of, or tender offer or exchange offer for, 10% or more of the equity securities of Gillette.
      A “superior proposal” for Gillette, is a bona fide written proposal which:
  •  is made by a third party in respect of a transaction or series of related transactions that if consummated would result in such third party acquiring, directly or indirectly, all or substantially all of Gillette’s voting securities or all or substantially all of the assets of Gillette and its subsidiaries;
 
  •  is not subject to any conditions to either party’s obligation to consummate the transaction (other than conditions that are in the aggregate as likely to result in the consummation of such transaction as the aggregate of the conditions contained in the merger agreement); and
 
  •  Gillette’s board of directors determines in its good faith judgment, after consulting with its financial advisor of nationally recognized reputation, is more favorable from a financial point of view to its shareholders than the merger with Procter & Gamble, taking into account any changes to the terms of the merger agreement offered by Procter & Gamble in response to the superior proposal or otherwise.
      Board of Directors’ Covenant to Recommend. Gillette has agreed that its board of directors will recommend adoption of the merger agreement to the Gillette shareholders. Similarly, Procter & Gamble has agreed that its board of directors will recommend adoption of the merger agreement and issuance of Procter & Gamble common stock in the merger to its shareholders.
      However, Gillette’s board is permitted to withdraw or to modify or to qualify in a manner adverse to Procter & Gamble this recommendation, before the Gillette special meeting if either:
  •  following receipt of any acquisition proposal with respect to which its board of directors believes in good faith, after consultation with its independent financial advisor, there is a reasonable likelihood that such acquisition proposal could result in a superior proposal; or
 
  •  if a material adverse effect has occurred with respect to Procter & Gamble
and, in either case, Gillette’s board of directors determines in good faith that the failure to effect a change in its recommendation could be reasonably expected to result in a breach of its fiduciary duties under applicable law.
      Similarly, Procter & Gamble’s board is permitted to withdraw or to modify or to qualify in a manner adverse to Gillette its recommendation, before its meeting if a material adverse effect has occurred with respect to Gillette.
      Even if the board of either company changes, withholds or modifies its recommendation of the merger, that company is still required to present the merger and related proposals at the special meeting of

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its shareholders for consideration, unless the merger agreement is otherwise terminated. See “— Termination of Merger Agreement” on page I-76 for a discussion of each party’s ability to terminate the merger agreement.
      Operations of Procter & Gamble and Gillette Pending Closing. Procter & Gamble and Gillette have each undertaken a separate covenant that places restrictions on their and their respective subsidiaries until either the effective time of the merger or the termination of the merger agreement. In general, the companies and their respective subsidiaries are each required to conduct their respective business in the ordinary course in all material respects substantially in the same manner as conducted prior to the date of the merger agreement and to use reasonable efforts to preserve intact their present lines of business and relationships with third parties. Each company has agreed to restrictions that, except as required by law, prohibit them and their respective subsidiaries from:
  •  declaring or paying dividends in amounts inconsistent with past practice;
 
  •  amending their respective governing documents (other than, in the case of Procter & Gamble, amendments related to the composition or structure of its board of directors or committees thereof or other governance-related matters);
 
  •  making acquisitions of, or investments in, other entities beyond specified amounts; or
 
  •  changing their respective accounting methods (other than to comply with changes in accounting principles) or fiscal year.
      In addition, subject to certain exceptions, Gillette has agreed to additional restrictions that prohibit it from:
  •  making changes in its share capital, including among other things, stock splits, combinations or reclassifications, except for any transaction by a wholly owned subsidiary of Gillette which remains a wholly owned subsidiary after the completion of the transaction;
 
  •  repurchasing or redeeming its capital stock, except (i) for any transaction by a wholly owned subsidiary of Gillette which remains a wholly owned subsidiary after the completion of the transaction, (ii) in connection with agreed-upon Section 965 dividend plans, (iii) the redemption or exchange of rights in accordance with the Gillette rights agreement and (iv) in the ordinary course of business in connection with its benefit plans;
 
  •  issuing, delivering or selling any shares of its capital stock or other equity interests, other than, among others, in connection with Gillette’s benefit plans or in connection with the exercise of options or other stock awards or stock option agreements and other than issuances by a wholly owned subsidiary of Gillette of capital stock to the subsidiary’s parent or another wholly owned subsidiary of Gillette;
 
  •  other than certain permitted expenditures, (i) entering into or terminating a material agreement (except for licensing agreements entered into for the purpose of settling or avoiding an action or claim against Gillette), (ii) entering into any new line of business, (iii) entering into a capital expenditure that is not otherwise permitted or (iv) entering into any contract or arrangement for the sale of inventories or the furnishing of services by Gillette which may give rise to commitments extending beyond twelve months unless it can be terminated with less than 60 days’ notice and results in no material detriment;
 
  •  disposing of any brands or lines of business, except in connection with internal reorganizations, as previously disclosed in prior SEC reports or, as required by or in conformance with a law or regulation in order to permit or facilitate the transaction;
 
  •  making loans, advances, capital contributions or investments in any other entity pursuant to a legal obligation not existing on January 27, 2005, other than in the ordinary course and consistent with

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  past practice, and other than loans, advances, capital contributions or investments by Gillette to its subsidiaries or from subsidiaries of Gillette to Gillette;
 
  •  increasing the compensation of or entering into any new agreements with any officers, directors or employees or issuing any additional stock options or adopting any additional benefit plans, other than in the ordinary course;
 
  •  making any material tax election, settling or compromising any material tax liability or changing its fiscal year, except with the written permission of Procter & Gamble;
 
  •  entering into any agreements containing restrictions that would limit or restrict Gillette or its subsidiaries, or after the effective time, Procter & Gamble, from competing or entering into any line of business or conducting business in any geographic area; and
 
  •  settling or compromising any material action, suit or claim without consultation with Procter & Gamble, and in the case of litigation arising after the date of the merger agreement, settling or compromising any material action, suit or claim without the consent of Procter & Gamble.
      Commercially Reasonable Efforts Covenant. Procter & Gamble and Gillette have agreed to use their commercially reasonable efforts to take all actions and do all things advisable or necessary under the merger agreement and applicable laws to complete the merger and the other transactions contemplated by the merger agreement.
      Commercially reasonable efforts include taking actions necessary to obtain regulatory approval, contesting and resisting an action or proceeding that would otherwise restrict the merger, or having vacated, lifted, reversed or overturned any decree, judgment, injunction or other order that would otherwise restrict the merger, including:
(1) Procter & Gamble selling, holding separate, licensing or disposing of assets, in response to the requirements imposed by antitrust authorities; and
 
(2) Gillette, at the direction of Procter & Gamble, selling, holding separate, licensing or disposing of assets, in response to the requirements imposed by antitrust authorities.
      However, neither party will be required for any reason to sell, hold separate or otherwise dispose of assets in accordance with (1) or (2) above, to the extent that the assets to be sold, held separate, licensed or otherwise disposed of generated, in calendar year 2004 (based on the internal financial records of Procter & Gamble or Gillette, as the case may be) more than $1.9 billion in net sales. To the extent that regulatory authorities require Procter & Gamble and/or Gillette to divest assets which generated in excess of $1.9 billion in net sales in calendar year 2004, the parties will assess such impact on the transaction to determine, as appropriate, whether it is prudent to proceed with the transaction, and either Procter & Gamble or Gillette could decline to close under the merger agreement.
      Employee Matters. In the merger agreement, the companies have agreed that, following the merger, Procter & Gamble will:
  •  maintain a substantially comparable aggregate level of benefits and compensation (excluding equity-based awards) for employees of Gillette and its subsidiaries (other than those subject to collective bargaining agreements) until the second anniversary of the effective time of the merger;
 
  •  maintain retiree welfare benefits for existing retirees of Gillette and its subsidiaries and employees of Gillette and its subsidiaries who are vested in such benefits immediately prior to the effective time of the merger and who retire prior to the second anniversary thereof that are no less favorable in the aggregate to those provided to such persons prior to the effective time, but only to the extent that Procter & Gamble continues to maintain its own retiree welfare benefits; provided that Procter & Gamble may reduce or terminate such retiree welfare benefits to the extent it reduces or terminates retiree welfare benefits for similarly situated employees of Procter & Gamble;

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  •  assume and honor all the terms of the benefit plans of Gillette and its subsidiaries and pay the benefits provided under such plans (and recognize that the consummation of the merger will constitute a “change in control” for purposes of such plans that have modifications to benefits in the event of a change in control); and
 
  •  provide credit for service with Gillette and its subsidiaries under Procter & Gamble plans in which employees of Gillette and its subsidiaries (other than employees subject to collective bargaining agreements whose service will be determined under such collective bargaining agreements) may participate to the same extent as their service was counted under similar Gillette plans, except where such credit would result in a duplication of benefit accrual.
      Section 965 Dividend. Gillette has agreed to use its best efforts to timely pay dividends from its foreign subsidiaries that qualify for the temporary dividends received deduction under section 965 of the Internal Revenue Code and to maximize, to the extent commercially practicable, the amount paid. Gillette and Procter & Gamble will use their best efforts to develop a mutually agreeable plan that provides for the method and amount in which such dividends will be paid and the use for the dividends received. If a plan cannot be mutually agreed to, Gillette will use its best efforts to implement a plan developed by Procter & Gamble once certain conditions are satisfied, or if such conditions are not satisfied Gillette will implement its own dividend plan upon receipt of Procter & Gamble’s consent.
      Dissenters’ Rights. Procter & Gamble has agreed to give Gillette prompt notice of any demands received for the fair cash value of Procter & Gamble common stock. Procter & Gamble has also agreed that it will (i) not, without the prior written consent of Gillette, waive any requirement under or compliance with the laws of the State of Ohio applicable to any shareholder demanding the fair cash value of shares and (ii) require each dissenting shareholder holding shares in certificated form to deliver such shares to Procter & Gamble for endorsement of a legend to the effect that a demand for the fair cash value of such shares has been made.
      Expenses. The companies have each agreed to pay their own costs and expenses incurred in connection with the merger and the merger agreement. Procter & Gamble and Gillette, however, will each pay 50% of any expenses incurred in connection with the filing, printing and mailing of this joint proxy statement/ prospectus and will each pay 50% of filing fees payable pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the “HSR Act”).
      Other Covenants. The merger agreement contains certain other covenants, including covenants relating to cooperation between Procter & Gamble and Gillette in the preparation of this joint proxy statement/ prospectus and other governmental filings, public announcements, and certain tax matters.
Representations and Warranties
      The merger agreement contains substantially reciprocal representations and warranties made by each company to the other. The representations and warranties relate to:
  •  corporate existence, qualification to conduct business and corporate standing and power;
 
  •  capital structure;
 
  •  corporate authority to enter into, and carry out the obligations under, the merger agreement and enforceability of the merger agreement;
 
  •  absence of a breach of the certificate of incorporation, bylaws, law or material agreements as a result of the merger;
 
  •  filings with the SEC and financial statements;
 
  •  information supplied for use in this joint proxy statement/ prospectus;
 
  •  board of directors approval;

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  •  required shareholder vote;
 
  •  litigation;
 
  •  compliance with laws;
 
  •  absence of certain changes or events;
 
  •  payment of fees to finders or brokers in connection with the merger agreement;
 
  •  opinions of financial advisors;
 
  •  tax matters;
 
  •  employee benefit plans; and
 
  •  material contracts.
      Representations and warranties made solely by Gillette relate to labor matters, non-competition agreements, inapplicability of Gillette’s rights agreement to the merger, environmental matters, intellectual property matters, compliance with the Foreign Corrupt Practices Act and international trade sanctions, inapplicability of anti-takeover statutes, product liability and recalls and disclosure.
      The merger agreement also contains certain representations and warranties of Procter & Gamble with respect to its wholly owned merger subsidiary, including organization, corporate authorization, absence of a breach of the certificate of incorporation and the bylaws, and no prior business activities of the merger subsidiary.
Conditions
      The companies’ respective obligations to complete the merger are subject to the satisfaction or, to the extent legally permissible, the waiver of the following conditions:
  •  the adoption of the merger agreement and approval of the merger by the Gillette shareholders, and the adoption of the merger agreement and approval of the issuance of Procter & Gamble common stock by the Procter & Gamble shareholders;
 
  •  the absence of any law, order or injunction prohibiting completion of the merger in the United States or European Union;
 
  •  the absence of any pending action or proceeding by any governmental authority of competent jurisdiction in the United States or European Union seeking to make the merger illegal or otherwise prohibiting consummation of the merger;
 
  •  Gillette’s rights agreement shall have been amended so that no event shall have occurred which would trigger a distribution;
 
  •  the expiration or termination of the applicable waiting periods under the HSR Act;
 
  •  the approval of the merger by the European Commission;
 
  •  the approval for listing by the New York Stock Exchange of the Procter & Gamble common stock to be issued in the merger, subject to official notice of issuance; and
 
  •  the SEC having declared effective the Procter & Gamble registration statement, of which this joint proxy statement/ prospectus forms a part.
      In addition, individually, the companies’ respective obligations to effect the merger are subject to the satisfaction or, to the extent legally permissible, the waiver of the following additional conditions:
  •  the representations and warranties of the other company contained in the merger agreement which are qualified as to material adverse effect, being true and correct as of the date of the agreement

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  and as of the closing date of the merger, except to the extent that such representation or warranty speaks as of another date and except as such representations and warranties are affected by actions explicitly permitted by the merger agreement;
 
  •  the representations and warranties of the other company which are not qualified as to material adverse effect being true and correct except where the failure to be true and correct, individually or in the aggregate, would not have a material adverse effect on the other company, as of the date of the merger agreement and as of the closing date of the merger as if they were made on that date, except to the extent that such representation or warranty speaks as of another date;
 
  •  each party has performed or complied with all agreements or covenants required to be performed by it under the merger agreement which are qualified as to material adverse effect and each party has performed or complied in all material respects with all other material agreements or covenants required to be performed by it under the merger agreement, in each case, at or prior to the closing date;
 
  •  the receipt of an opinion of each company’s counsel to the effect that the merger will qualify as a “reorganization” under the Internal Revenue Code; and
 
  •  the other party having not suffered from any change that would reasonably be expected to have a material adverse effect on such party.
      It is also a condition of Procter & Gamble’s obligations to effect the merger that the following additional conditions are satisfied or, to the extent legally permissible, waived:
  •  Gillette’s rights plan having been amended so that no event occurs which would trigger a distribution under Gillette’s rights agreement;
 
  •  the receipt of all other governmental and regulatory consents, approvals and authorizations necessary for the merger unless not obtaining those consents or approvals would not reasonably be expected to have a material adverse effect on the combined company, taken as a whole; and
 
  •  holders of not more than 5% of the outstanding common stock of Procter & Gamble having exercised their dissenters’ rights under the Ohio General Corporation Law.
Termination of Merger Agreement
      Right to Terminate. The merger agreement may be terminated at any time prior to the effective time in any of the following ways:
  •  by mutual written consent.
 
  •  by either company:
  •  if the merger has not been completed by November 30, 2005 or, if the conditions to closing relating to antitrust or other governmental approvals of the merger, have not been satisfied, but all other conditions to closing are satisfied or are capable of being satisfied, this date is automatically extended to February 28, 2006; except that a party may not terminate the merger agreement if the cause of the merger not being completed is that party’s failure to fulfill its obligations under the merger agreement;
 
  •  if a governmental authority or a court in the United States or European Union permanently orders or prohibits the completion of the merger or a governmental authority in the United States or European Union fails to grant any necessary approval of the merger and such decisions have become final and non-appealable, except that a party may not terminate the merger agreement if the cause of the prohibition or failure to obtain approval is a result of that party’s failure to fulfill its obligations under the provision of the merger agreement which, among other requirements, requires each party to use its commercially reasonable efforts to obtain government approvals for

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  the completion of the merger and requires each party to divest certain assets in response to requirements imposed by antitrust authorities; or
 
  •  if Procter & Gamble’s shareholders fail to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger or Gillette’s shareholders fail to adopt the merger agreement and approve the merger.
  •  by Procter & Gamble:
  •  if Gillette’s board of directors either changes its recommendation in a manner adverse to Procter & Gamble, or fails to call the Gillette special meeting to vote on the merger in the manner contemplated by the merger agreement; or
 
  •  if Gillette has breached in any material respect any of its representations or warranties, or has failed to perform in any material respect any of its covenants or obligations under the merger agreement and such breach:
  •  would result in the failure of certain closing conditions to the merger being satisfied; and
 
  •  is incapable of being cured or remains uncured at November 30, 2005 (or February 28, 2006, if the termination date is automatically extended).
  •  by Gillette:
  •  if Procter & Gamble’s board of directors changes its recommendation in a manner adverse to Gillette or fails to call the Procter & Gamble special meeting to vote on the merger in the manner contemplated by the merger agreement;
 
  •  if Procter & Gamble has breached in any material respect any of its representations or warranties, or has failed to perform in any material respect any of its covenants or obligations under the merger agreement and such breach:
  •  would result in the failure of certain closing conditions to the merger being satisfied; and
 
  •  is incapable of being cured or remains uncured at November 30, 2005 (or February 28, 2006, if the termination date is automatically extended); or
  •  if Gillette’s board of directors authorizes Gillette to enter into a written agreement concerning a transaction that Gillette’s board of directors has determined in accordance with the merger agreement is a superior proposal, except that Gillette cannot terminate the merger agreement for this reason unless (1) Gillette provides Procter & Gamble with notice of the existence and terms of the superior proposal, including the identity of the person making the superior proposal and a statement as to whether Gillette intends to enter into a definitive agreement for a business combination, (2) Procter & Gamble, within four business days of receiving such notice from Gillette, does not make an offer that the board of directors of Gillette determines is at least as favorable to the Gillette shareholders as the superior proposal Gillette received from the third party and (3) Gillette pays Procter & Gamble the fee described in “Termination Fee Payable by Gillette” at or prior to such termination.
      Termination Fee Payable by Gillette. Gillette has agreed to pay Procter & Gamble a termination fee of $1.92 billion (within one business day after the earlier of the date Gillette enters into a definitive agreement with respect to, or consummates, a business combination), if the merger agreement is terminated under one of the following circumstances:
  •  the merger agreement is (1) terminated by Procter & Gamble because the board of directors of Gillette withdraws or changes its recommendation in a manner adverse to Procter & Gamble or for any reason Gillette fails to call its shareholders’ meeting as contemplated by the merger agreement (but only if, on or before the date the agreement is terminated, there was an offer or proposal for, or announcement with respect to, a “business combination” involving Gillette) and (2) within

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  twelve months of the termination, Gillette enters into a definitive agreement or completes a transaction with respect to a business combination with a third party;
 
  •  the merger agreement is (1) terminated by Procter & Gamble or Gillette because Gillette’s shareholders failed to adopt the merger agreement (but only if, prior to the date of the Gillette special meeting there was an offer or proposal for, or any public announcement with respect to, a business combination involving Gillette) and (2) within twelve months of the termination, Gillette enters into a definitive agreement or completes a transaction with respect to a business combination with a third party; or
 
  •  the merger agreement is (1) terminated by Procter & Gamble or Gillette because the merger has not been completed by November 30, 2005 (or February 28, 2006, if the termination date is automatically extended), and at the time of termination Gillette has not yet obtained its shareholder approval and there has been an offer or proposal for, or announcement with respect to, a business combination involving Gillette and (2) within twelve months of the termination, Gillette enters into a definitive agreement or completes a transaction with respect to a business combination with a third party.
      Gillette also has agreed to pay Procter & Gamble a termination fee of $1.92 billion (at or prior to such termination), if Gillette terminates the merger agreement because Gillette’s board of directors has authorized Gillette to enter into a written agreement for a superior proposal and Procter & Gamble has not, within four business days of notice from Gillette, made an offer that the board of directors of Gillette determines is at least as favorable as the superior proposal Gillette has received from a third party.
      A “business combination” for Gillette is:
  (1)  a merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Gillette as a result of which either:
  •  Gillette’s shareholders prior to the transaction in the aggregate cease to own at least 50% of the voting securities of the entity surviving or resulting from the transaction;
 
  •  Any person beneficially owns at least 35% of the voting securities of the ultimate parent entity of the entity surviving or resulting from the transaction; or
 
  •  The individuals comprising the board of directors of Gillette prior to the transaction do not constitute a majority of the board of directors of the ultimate parent entity of the entity surviving or resulting from the transaction;
  (2)  a sale, lease, exchange, transfer or other disposition of at least 50% of the assets of Gillette; or
 
  (3)  the acquisition by a person of beneficial ownership of 35% or more of the common stock of Gillette (other than as described in (1) above).
      Obligations in Event of Termination. In the event of termination as provided for above, the merger agreement will become void and of no further force and effect (except with respect to certain designated sections in the merger agreement) and there will be no liability on behalf of Procter & Gamble or Gillette, except for liabilities arising from a willful breach of the merger agreement.
Amendments, Extensions and Waivers
      The merger agreement may be amended by the parties at any time before or after the shareholder meetings, except that any amendment after a shareholders’ meeting, which requires approval by shareholders, may not be made without such approval.

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Chapter Two — Selected Financial Data
CHAPTER TWO:
SELECTED FINANCIAL DATA
PROCTER & GAMBLE AND GILLETTE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
      The Unaudited Pro Forma Condensed Combined Statements of Earnings combine the historical consolidated statements of earnings of Procter & Gamble and Gillette, giving effect to the merger as if it had occurred on July 1, 2003. The Unaudited Pro Forma Condensed Combined Balance Sheet combines the historical consolidated balance sheet of Procter & Gamble and the historical consolidated balance sheet of Gillette, giving effect to the merger as if it had been consummated on March 31, 2005. You should read this information in conjunction with the:
  •  accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements;
 
  •  separate unaudited historical financial statements of Procter & Gamble as of and for the three- and nine-month periods ended March 31, 2005, included in the Procter & Gamble quarterly report on Form 10-Q for the three months ended March 31, 2005, which is incorporated by reference into this document;
 
  •  separate historical financial statements of Procter & Gamble as of and for the fiscal year ended June 30, 2004, included in the Procter & Gamble annual report on Form 10-K for the fiscal year ended June 30, 2004, as conformed to organizational and segment measurement changes contained in the Procter & Gamble Form 8-K filed October 22, 2004, and as conformed to present the reclassification of certain investments from cash and cash equivalents to investment securities as contained in the Procter & Gamble Form 8-K filed March 14, 2005, which is incorporated by reference into this document;
 
  •  separate unaudited historical financial statements of Gillette as of and for the three-month period ended March 31, 2005, including in the Gillette quarterly report on Form 10-Q for the three months ended March 31, 2005, which is incorporated by reference into this document; and
 
  •  separate historical financial statements of Gillette as of and for the year ended December 31, 2004, included in the Gillette annual report on Form 10-K for the year ended December 31, 2004, which is incorporated by reference into this document.
      The unaudited pro forma condensed combined financial information is provided for informational purposes only. The pro forma information is not necessarily indicative of what the companies’ financial position or results of operations actually would have been had the merger been completed at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.
      The unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting with Procter & Gamble treated as the acquirer. Accordingly, we have adjusted the historical consolidated financial information to give effect to the impact of the consideration issued in connection with the merger. In the Unaudited Pro Forma Condensed Combined Balance Sheet, Procter & Gamble’s cost to acquire Gillette has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of acquisition. Any differences between the fair value of the consideration issued and the fair value of the assets and liabilities acquired will be recorded as goodwill. The amounts allocated to acquired assets and liabilities in the Unaudited Pro Forma Condensed Combined Financial Statements are based on management’s preliminary internal valuation estimates. Definitive allocations will be performed and finalized based upon certain valuations and other studies that will be performed by Procter & Gamble with the services of outside valuation specialists after the closing date of the merger. Accordingly, the purchase allocation pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information and are subject to revision based on a final determination of fair value after the closing of the merger.

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Chapter Two — Selected Financial Data
      The Unaudited Pro Forma Condensed Combined Statements of Earnings also include certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results, such as increased depreciation and amortization expense on acquired tangible and intangible assets.
      The Unaudited Pro Forma Condensed Combined Statements of Earnings do not include the impacts of any revenue, cost or other operating synergies that may result from the merger. Procter & Gamble expects the transaction to generate $1 billion to $1.2 billion of annual before tax cost synergies by year three. Cost synergy opportunities in purchasing, manufacturing and logistics will be achieved through increased scale, improved asset utilization and coordinated procurement. Cost synergies in selling, general and administrative will be achieved through the elimination of the overlap between the two companies, the delivery of key support functions by Procter & Gamble’s global business services group and the integration of Gillette’s brands with minimal additional staff in corporate, market development organizations and global business service organizations. As a result, Procter & Gamble anticipates a reduction of about 6,000 positions, representing roughly four percent of the combined workforce of the two companies. Finally, Procter & Gamble anticipates economies of scale in retail selling and marketing, including media buying.
      The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the impact of financing, liquidity or other balance sheet repositioning that may be undertaken in connection with or subsequent to the merger. In connection with this transaction, Procter & Gamble also announced a common stock repurchase program pursuant to which it and/or one or more of its subsidiaries plan to repurchase up to $18 billion to $22 billion of its common stock over a period of 12-18 months. Procter & Gamble intends to finance such share repurchases by issuing a combination of long-term and short-term debt. Due to Procter & Gamble’s strong long-and short-term credit ratings, Procter & Gamble does not anticipate any significant issues in securing the required financing. In addition, Procter & Gamble does not anticipate any significant impacts on its overall liquidity as a result of the merger or share repurchases program.
      The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect nonrecurring charges resulting from the merger. The substantial majority of nonrecurring charges resulting from the merger will be comprised of employee termination costs and other exit costs related to the Gillette business that will be recognized in the opening balance sheet in accordance with EITF Issue No 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Other merger-related charges may be incurred that do not meet the criteria in EITF Issue No 95-3, including employee termination and exit costs related to the Procter & Gamble business, other integration-related costs, and the impacts of potential divestitures, if any, that may be required by governmental authorities. Procter & Gamble and Gillette have just recently begun collecting information in order to formulate detailed integration plans to deliver planned synergies. However, at this time, the status of the integration plans and the related merger-related costs are too uncertain to include in the pro forma financial information.
      Based on Procter & Gamble’s review of Gillette’s summary of significant accounting policies disclosed in Gillette’s financial statements, the nature and amount of any adjustments to the historical financial statements of Gillette to conform their accounting policies to those of Procter & Gamble are not expected to be significant. Upon consummation of the merger, further review of Gillette’s accounting policies and financial statements may result in required revisions to Gillette’s policies and classifications to conform to Procter & Gamble’s.
Conforming Year Ends
      Procter & Gamble has a fiscal year end of June 30 whereas Gillette has a December 31 calendar year end. In order to prepare the Unaudited Pro Forma Condensed Combined Statements of Earnings for the year ended June 30, 2004 and for the nine months ended March 31, 2005, Gillette’s operating results were first conformed to Procter & Gamble’s year-end. This was done utilizing Gillette’s historical financial statements as of and for the year ended December 31, 2004, and their historical unaudited financial statements as of and for the six-month period ended June 30, 2004 and as of and for the three-month period ended March 31, 2005.

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Chapter Two — Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Year Ended June 30, 2004
(in millions, except per share data)
                                 
    Procter &       Pro Forma   Pro Forma
    Gamble(a)   Gillette(b)   Adjustments   Combined(b)
                 
Net Sales
  $ 51,407     $ 9,705             $ 61,112  
Cost of products sold
    25,076       4,010       22 (c)     29,108  
Selling, general and administrative expense
    16,504       3,411       200 (d)     20,115  
                         
Operating Income
    9,827       2,284       (222 )     11,889  
Interest expense, net
    629       35               664  
Other non-operating income (expense), net
    152       (13 )             139  
                         
Earnings Before Income Taxes
    9,350       2,236       (222 )     11,364  
Income taxes
    2,869       660       (68 )(e)     3,461  
                         
NET EARNINGS
  $ 6,481     $ 1,576     $ (154 )   $ 7,903  
Preferred dividends, net of tax benefit
    (131 )                     (131 )
                         
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
  $ 6,350                     $ 7,772  
BASIC NET EARNINGS PER COMMON SHARE
  $ 2.46                     $ 2.19  
DILUTED NET EARNINGS PER COMMON SHARE
  $ 2.32                     $ 2.09  
DIVIDENDS PER COMMON SHARE
  $ 0.93                     $ 0.93  
Weighted Average Shares Outstanding (millions):
                               
Basic
    2,580               970 (f)     3,550  
Diluted
    2,790               992 (f)     3,782  

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Chapter Two — Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Nine Months Ended March 31, 2005
(in millions, except per share data)
                                 
    Procter &       Pro Forma   Pro Forma
    Gamble   Gillette(b)   Adjustments   Combined(b)
                 
Net Sales
  $ 42,483     $ 8,409             $ 50,892  
Cost of products sold
    20,515       3,510       17 (g)     24,042  
Selling, general and administrative expense
    13,340       2,960       150 (h)     16,450  
                         
Operating Income
    8,628       1,939       (167 )     10,400  
Interest expense, net
    603       28               631  
Other non-operating income (expense), net
    297       (33 )             264  
                         
Earnings Before Income Taxes
    8,322       1,878       (167 )     10,033  
Income taxes
    2,562       539       (51 )(e)     3,050  
                         
NET EARNINGS
  $ 5,760     $ 1,339     $ (116 )   $ 6,983  
Preferred dividends, net of tax benefit
    (98 )                     (98 )
                         
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
  $ 5,662                     $ 6,885  
BASIC NET EARNINGS PER COMMON SHARE
  $ 2.24                     $ 1.97  
DILUTED NET EARNINGS PER COMMON SHARE
  $ 2.10                     $ 1.87  
DIVIDENDS PER COMMON SHARE
  $ 0.75                     $ 0.75  
Weighted Average Shares Outstanding (millions):
                               
Basic
    2,527               970 (f)     3,497  
Diluted
    2,739               992 (f)     3,731  

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Chapter Two — Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF EARNINGS
(a)   On September 2, 2003, Procter & Gamble acquired a controlling interest in Wella AG (Wella). Procter & Gamble’s operating results include Wella after the acquisition date.
 
(b)   Certain reclassifications have been made to the historical presentation of Gillette to conform to the presentation used in the Unaudited Pro Forma Condensed Combined Balance Sheet and the Unaudited Pro Forma Condensed Combined Statements of Earnings.
 
(c)   Represents a $55 increase in depreciation expense resulting from the fair value adjustments to Gillette’s property, plant and equipment (see note (b2) to the Unaudited Pro Forma Condensed Combined Balance Sheet), partially offset by a $33 reduction in cost of sales attributable to the impact of the fair value adjustment to Gillette’s pension and other postretirement medical benefits obligations (see note (b6) to the Unaudited Pro Forma Condensed Combined Balance Sheet).
 
(d)   Represents an increase in intangible asset amortization expense of $250 resulting from the fair value adjustments to Gillette’s intangible assets (see note (b3) to the Unaudited Pro Forma Condensed Combined Balance Sheet), partially offset by a $50 reduction in selling, general and administrative costs attributable to fair value adjustments to Gillette’s pension and other postretirement medical benefits obligations (see note (b6) to the Unaudited Pro Forma Condensed Combined Balance Sheet).
 
     The unaudited pro forma condensed combined financial statements reflect a preliminary allocation to tangible assets, liabilities, goodwill and other intangible assets. The final purchase price allocation may result in a different allocation for tangible and intangible assets than that presented in these unaudited pro forma condensed combined financial statements.
 
(e)   Income tax impacts as a result of purchase accounting adjustments are estimated at the Procter & Gamble effective income tax rate for the periods presented, which reflects our best estimate of Procter & Gamble statutory income tax rates for all tax jurisdictions.
 
(f)   The pro forma combined per share amounts and weighted average common shares reflect the combined weighted average of Procter & Gamble common shares for each period presented and the Gillette common shares, adjusted to reflect the exchange ratio of 0.975 shares of Procter & Gamble common stock for each share of Gillette common stock, including the impact of net shares issued to satisfy Gillette stock options using the treasury stock method.
 
(g)   Represents a $42 increase in depreciation expense resulting from the fair value adjustments to Gillette’s property, plant and equipment (see note (b2) to the Unaudited Pro Forma Condensed Combined Balance Sheet), partially offset by a $25 reduction in cost of sales attributable to the impact of the fair value adjustments to Gillette’s pension and other postretirement medical benefits obligations (see note (b6) to the Unaudited Pro Forma Condensed Combined Balance Sheet).
 
(h)  Represents an increase in intangible asset amortization expense of $187 resulting from the fair value adjustments to Gillette’s intangible assets (see note (b3) to the Unaudited Pro Forma Condensed Combined Balance Sheet), partially offset by a $37 reduction in selling, general and administrative costs attributable to fair value adjustments to Gillette’s pension and other postretirement medical benefits obligations (see note (b6) to the Unaudited Pro Forma Condensed Combined Balance Sheet).

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Chapter Two — Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of March 31, 2005
(in millions)
                                     
    Procter &       Pro Forma   Pro Forma
    Gamble(a)   Gillette(a)   Adjustments   Combined
                 
ASSETS
                               
Cash and cash equivalents
  $ 7,072     $ 226             $ 7,298  
Investment securities
    1,706       1,061               2,767  
Accounts receivable
    4,396       851               5,247  
Total inventories
    5,270       1,405       63 (b1)     6,738  
Deferred income taxes
    1,304       296               1,600  
Prepaid expenses and other receivables
    1,843       666               2,509  
                         
TOTAL CURRENT ASSETS
    21,591       4,505       63       26,159  
NET PROPERTY, PLANT AND EQUIPMENT
    14,281       3,657       822 (b2)     18,760  
NET GOODWILL AND OTHER INTANGIBLE ASSETS
    24,902       1,595       54,061 (b3)     80,558  
OTHER NON-CURRENT ASSETS
    2,302       1,230               3,532  
                         
TOTAL ASSETS
  $ 63,076     $ 10,987     $ 54,946     $ 129,009  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
 
Accounts payable
  $ 3,407     $ 615     $ 150 (b4)     4,172  
 
Accrued and other liabilities
    7,979       1,860               9,839  
 
Taxes payable
    2,720       452               3,172  
 
Debt due within one year
    11,216       1,192               12,408  
                         
TOTAL CURRENT LIABILITIES
    25,322       4,119       150       29,591  
LONG-TERM DEBT
    12,936       2,125               15,061  
DEFERRED INCOME TAXES
    2,865       712       2,792 (b5)     6,369  
OTHER NON-CURRENT LIABILITIES
    3,223       829       1,447 (b6)     5,499  
                         
TOTAL LIABILITIES
    44,346       7,785       4,389       56,520  
SHAREHOLDERS’ EQUITY
                               
   
Preferred stock
    1,493       0               1,493  
   
Common stock
    2,494       995       (1 )(b7)     3,488  
   
Additional paid-in capital
    2,975       1,697       51,068 (b7)     55,740  
   
Reserve for ESOP debt retirement
    (1,255 )     0               (1,255 )
   
Accumulated other comprehensive income
    (838 )     (861 )     861 (b7)     (838 )
   
Retained earnings
    13,861       1,371       (1,371 ) (b7)     13,861  
                         
TOTAL SHAREHOLDERS’ EQUITY
    18,730       3,202       50,557 (b7)     72,489  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 63,076     $ 10,987     $ 54,946     $ 129,009  
See accompanying Notes to Consolidated Financial Statements

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Chapter Two — Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
(a)  Certain reclassifications have been made to the historical presentation of Procter & Gamble and Gillette to conform to the presentation used in the Unaudited Pro Forma Condensed Combined Balance Sheet.
 
(b)  Gillette shareholders will receive 0.975 shares of Procter & Gamble common stock for each share of Gillette common stock. Each outstanding Gillette stock option (other than any stock option that may be granted in June 2005) will become fully-vested and exercisable immediately prior to the merger and will be exchanged for an equivalent number of shares. Shares of Procter & Gamble common stock to be issued to Gillette shareholders in the merger will represent approximately 29% of the outstanding Procter & Gamble common stock after the merger on a fully diluted basis.
Under the purchase method of accounting, the total consideration was determined using the average Procter & Gamble closing stock prices beginning two days before and ending two days after January 28, 2005, the date the acquisition was agreed to and announced. The preliminary consideration is as follows:
                             
        Common        
        Shares   Capital in    
        (stated value   Excess of    
        $1.00 share)   Par Value   Total
                 
(b7)
  Issuance of Procter & Gamble shares to Gillette’s shareholders (991.9 million shares at $54.20), consisting of 970 million shares issued in exchange for outstanding Gillette common stock and 22 million net shares issued to satisfy Gillette stock options, calculated using the treasury stock method   $ 992     $ 52,767     $ 53,759  
(b4)
  Estimated Procter & Gamble transaction costs                     150  
                       
    Total consideration                   $ 53,909  
                       
  Procter & Gamble has not completed an assessment of the fair value of assets and liabilities of Gillette and the related business integration plans. The table below represents a preliminary allocation of the total consideration to Gillette’s tangible and intangible assets and liabilities based on management’s preliminary estimate of their respective fair value as of the date of the business combination.
             
(b7)
  Gillette’s historical net book value   $ 3,202  
(b3)
  Elimination of Gillette’s historical goodwill     (1,042 )
(b1)
  Adjustment to fair value inventory     63  
(b2)
  Adjustment to fair value property, plant and equipment     822  
(b3)
  Adjustment to fair value identifiable intangible assets     9,867  
(b6)
  Adjustment to fair value pension and post-retirement obligations     (1,447 )
(b5)
  Deferred tax impact of purchase accounting adjustments     (2,792 )
(b3)
  Residual goodwill created from the merger     45,236  
           
    Total consideration allocated   $ 53,909  
           
  Upon completion of the fair value assessment after the closing of the merger, Procter & Gamble anticipates that the ultimate purchase price allocation may differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to residual goodwill.
 
  For purposes of the preliminary allocation, Procter & Gamble has estimated a fair value adjustment for Gillette’s property, plant and equipment equal to 20% of Gillette’s accumulated depreciation,

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Chapter Two — Selected Financial Data
  based on valuation studies from other recent Procter & Gamble acquisitions. The fair value adjustment will be depreciated over an estimated weighted-average useful life of fifteen years.
 
  Procter & Gamble has estimated the fair value of Gillette’s identifiable intangible assets as $10,420. The preliminary allocation included in these pro forma financial statements is as follows:
                 
        Estimated
        average
    Increase   remaining
    in value   useful life
         
Asset class:
               
Brand Intangibles — indefinite lived
  $ 5,803       Indefinite  
Brand Intangibles — definite lived
    3,158       18 years  
Technology and customer relationships
    1,459       15 years  
             
    $ 10,420          
  The majority of this intangible valuation relates to brand intangibles, including Gillette, Duracell, Oral B, Braun and others. Procter & Gamble’s preliminary assessment as to brand intangibles that have an indefinite life and those that have a definite life was based on a number of factors, including the competitive environment, market share, brand history, operating plan and the macroeconomic environment of the countries in which the brand is sold. For perspective, if Procter & Gamble determines that 50 percent of the amount allocated to indefinite lived intangible assets is more appropriately allocated to definite lived intangible assets with an estimated weighted average useful life of fifteen years, the annual income statement impact is estimated as $135 after-tax, or $0.04 per share.
 
  Procter & Gamble has estimated the fair value of Gillette’s pension and post-retirement obligation based on Gillette’s unrecognized actuarial losses as of December 31, 2004. The recognition of the fair value of Gillette’s pension and post-retirement obligation eliminates the unrecognized actuarial loss and related amortization expense over the estimated weighted-average remaining service life of eighteen years.
 
  Deferred income tax impacts as a result of purchase accounting adjustments are estimated at the Procter & Gamble effective income tax rate for the periods presented, which reflects our best estimate of Procter & Gamble statutory income tax rates for all tax jurisdiction.

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Chapter Three — Information About the Meetings and Voting
CHAPTER THREE:
INFORMATION ABOUT THE MEETINGS AND VOTING
      The Procter & Gamble board of directors is using this joint proxy statement/ prospectus to solicit proxies from the holders of Procter & Gamble common stock, Series A ESOP Convertible Class A Preferred Stock and Series B ESOP Convertible Class A Preferred Stock for use at the special meeting of Procter & Gamble’s shareholders. The Gillette board of directors is using this document to solicit proxies from the holders of Gillette common stock for use at the special meeting of Gillette’s shareholders. The companies are first mailing this joint proxy statement/ prospectus and accompanying form of proxy to Procter & Gamble and Gillette shareholders on or about [          ], 2005.
Matters Relating to the Meetings
         
 
    Procter & Gamble Meeting   Gillette Meeting
 
Time and Place:
  June 13, 2005 at 4:00 p.m., local time, at the Procter & Gamble General Offices, Two Procter & Gamble Plaza, Cincinnati, OH 45202.   June 14, 2005 at 10:00 a.m., local time, at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801.
 
Admission
to Meeting:
  An admission ticket, which is required for entry into the Procter & Gamble special meeting, is included in the accompanying joint proxy statement/ prospectus. If you plan to attend the special meeting, please submit your proxy and present the admission ticket in order to gain admittance to the meeting. This ticket admits only the shareholder listed on the reverse side and is not transferable.
If your shares are held in the name of a broker, trust, bank, or other nominee and you plan to attend the meeting, you should bring with you a proxy or letter from that broker, trust, bank or nominee that confirms that you are the beneficial owner of those shares.
  Proof of ownership of Gillette common stock, as well as a form of personal identification, may be requested in order to be admitted to the special meeting
If you are a shareholder of record, your name can be verified against Gillette’s shareholder list. If your shares are held in the name of a bank, broker, or other holder of record, proof of your ownership of Gillette stock, such as a bank or brokerage account statement, may be requested to be admitted to the special meeting.
No cameras, recording equipment, or electronic devices will be permitted in the special meeting, and large bags, briefcases, or packages may be subject to inspection.
 

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Chapter Three — Information About the Meetings and Voting
         
 
    Procter & Gamble Meeting   Gillette Meeting
 
Purpose of Meeting
is to Vote on the
Following Items:
  1. To adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger, as described in “Chapter One — The Merger” on page I-1.
2. To approve a proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger.
3. To transact such other business as may properly come before the meeting, and any adjournment or postponement thereof.
  1. To adopt the merger agreement and approve the merger, as described in “Chapter One — The Merger” on page I- 1.
2. To approve a proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the merger.
3. To transact such other business as may properly come before the meeting, and any adjournment or postponement thereof.
 
Record Date:
  The record date for Procter & Gamble shares entitled to vote is April 14, 2005.   The record date for Gillette shares entitled to vote is April 18, 2005.
 
Outstanding
Shares Held:
  As of April 14, 2005, the record date for the Procter & Gamble special meeting, there were approximately 2,487,619,119 shares of Procter & Gamble common stock outstanding, 88,204,782 shares of Procter & Gamble Series A ESOP Preferred Stock outstanding, and 68,726,896 shares of Procter & Gamble Series B ESOP Preferred Stock outstanding.   As of April 18, the record date for the Gillette special meeting, there were approximately 996,411,427 shares of Gillette common stock outstanding.
 

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Chapter Three — Information About the Meetings and Voting
         
 
    Procter & Gamble Meeting   Gillette Meeting
 
Shares Entitled to
Vote:
  Shares entitled to vote at the Procter & Gamble special meeting are Procter & Gamble common stock, Series A ESOP Preferred Stock and Series B ESOP Preferred Stock held as of the close of business on the record date, April 14, 2005, voting together as a single class.
Each share of Procter & Gamble stock is entitled to one vote. Shares held by Procter & Gamble and its subsidiaries as treasury shares are not voted.
  Shares entitled to vote at the Gillette special meeting are Gillette common stock held as of the close of business on the record date, April 18, 2005.
Each share of Gillette common stock is entitled to one vote. Shares held by Gillette and its subsidiaries as treasury shares are not voted.
 
 
Quorum Requirement:
  A quorum of shareholders is necessary to hold a valid meeting. The presence in person or by proxy at the meeting of holders of a majority of the outstanding shares of Procter & Gamble stock entitled to vote at the meeting is a quorum.
Abstentions and broker non-votes count as present for establishing a quorum. Shares held by Procter & Gamble and its subsidiaries as treasury shares do not count toward a quorum.
A broker non-vote occurs on an item when a broker is not permitted to vote on that item without instruction from the beneficial owner of the shares and no instruction is given.
  A quorum of shareholders is necessary to hold a valid meeting. The presence in person or by proxy at the meeting of holders of a majority of the votes represented by outstanding shares of Gillette common stock entitled to vote at the meeting is a quorum.
Abstentions and broker non-votes count as present and entitled to vote for establishing a quorum. Shares held by Gillette in its treasury do not count toward a quorum.
A broker non-vote occurs on an item when a broker is not permitted to vote on that item without instruction from the beneficial owner of the shares and no instruction is given.
 
Shares Beneficially
Owned by Procter &
Gamble and Gillette
Directors and
Executive Officers as of Record Date:
  Procter & Gamble directors and officers beneficially owned 11,823,977 shares of Procter & Gamble common stock, Series A ESOP Preferred Stock, and Series B ESOP Preferred Stock on the record date, including exercisable options. These shares represent in total approximately .44% of the total voting power of Procter & Gamble’s voting securities.   Gillette directors and officers beneficially owned 11,601,172 shares of Gillette common stock on the record date, including exercisable options. These shares represent in total approximately 1.2% of the total voting power of Gillette’s voting securities.
 
Webcast of the Meeting:
  If you are not able to attend the meeting in person, you may listen to a live audiocast of the meeting on the Internet by visiting http://www.pg.com/investors at 4:00 p.m. Daylight Savings Time on June 13, 2005.    
 

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Chapter Three — Information About the Meetings and Voting
Vote Necessary to Approve the Procter & Gamble and Gillette Proposals
     
 
 Company   Vote Necessary
 
Procter &
Gamble
  Adoption of the merger agreement and approval of the issuance shares of Procter & Gamble common stock in the merger requires the affirmative vote of at least a majority of the outstanding shares of Procter & Gamble common stock, Series A ESOP Preferred Stock, and Series B ESOP Preferred Stock, voting together as a single class. Approval of the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies requires the affirmative vote of a majority of the shares represented at special meeting and entitled to vote. Abstentions and broker non-votes have the same effect as a vote against each of the proposals.
 
Gillette
  Adoption of the merger agreement and approval of the merger requires the affirmative vote of at least a majority of the outstanding shares of Gillette common stock. Approval of the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies requires the affirmative vote of a majority of the shares represented at special meeting and entitled to vote. Abstentions and broker non-votes have the same effect as a vote against each of the proposals.
 
 
Under New York Stock Exchange rules, if your broker holds your shares in its name, your broker may not vote your shares on, in the case of Procter & Gamble, the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger or the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies, or, in the case of Gillette, the proposal to adopt the merger agreement and approve the merger or the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies absent instructions from you. Without your voting instructions on those items, a broker non-vote will occur.
Proxies
      Submitting Your Proxy. You may vote in person by ballot at your special meeting or by submitting a proxy. Please submit your proxy even if you plan to attend your special meeting. If you attend the special meeting, you may vote by ballot, thereby canceling any proxy previously given.
      Voting instructions are included on your proxy card. If you properly give your proxy and submit it to Procter & Gamble or Gillette, as the case may be, in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against the proposals or abstain from voting.
How to Vote by Proxy
         
 
    Procter & Gamble   Gillette
 
By Mail:
  To submit your proxy by mail, simply mark your proxy, date and sign it, and if you are a shareholder of record, return it to ADP, in the postage-paid envelope provided. If the envelope is missing, please address your completed proxy card to The Procter & Gamble Company c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. If you are a beneficial owner, please refer to your proxy card or the information provided to you by your bank, broker, custodian or record holder.   To submit your proxy by mail, simply mark your proxy, date and sign it, and if you are a shareholder of record, return it to ADP, in the postage-paid envelope provided. If the envelope is missing, please address your completed proxy card to The Gillette Company c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. If you are a beneficial owner, please refer to your proxy card or the information provided to you by your bank, broker, custodian or record holder.
 

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Chapter Three — Information About the Meetings and Voting
         
 
    Procter & Gamble   Gillette
 
By Telephone:
  If you are a shareholder of record, you can submit your proxy by telephone by calling the toll-free telephone number on your proxy card. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. on June 12, 2005. Easy-to-follow voice prompts allow you to submit your proxy and confirm that your instructions have been properly recorded. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian or record holder for information on telephone voting. If you submit your proxy by telephone you do not need to return your proxy card. If you are located outside the United States, Canada and Puerto Rico, see your proxy card or other materials for additional instructions. If you hold shares through a broker or other custodian, please check the voting form used by that firm to see if it offers telephone voting.   If you are a shareholder of record, you can submit your proxy by telephone by calling the toll-free telephone number on your proxy card. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. on June 13, 2005. Easy-to-follow voice prompts allow you to submit your proxy and confirm that your instructions have been properly recorded. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian or record holder for information on telephone voting. If you submit your proxy by telephone you do not need to return your proxy card. If you are located outside the United States, Canada and Puerto Rico, see your proxy card or other materials for additional instructions. If you hold shares through a broker or other custodian, please check the voting form used by that firm to see if it offers telephone voting.
 
By Internet:
  You can also choose to submit your proxy on the Internet. If you are a shareholder of record, the web site for Internet voting is on your proxy card. Internet voting is available 24 hours a day, and will be accessible until 11:59 p.m. on June 12, 2005. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian or record holder for information on Internet voting. As with telephone voting, you will be given the opportunity to confirm that your instructions have been properly recorded. If you submit your proxy on the Internet, you do not need to return your proxy card. If you hold shares through a broker or other custodian, please check the voting form to see if it offers Internet voting.   You can also choose to submit your proxy on the Internet. If you are a shareholder of record, the web site for Internet voting is on your proxy card. Internet voting is available 24 hours a day, and will be accessible until 11:59 p.m. on June 13, 2005. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian or record holder for information on Internet voting. As with telephone voting, you will be given the opportunity to confirm that your instructions have been properly recorded. If you submit your proxy on the Internet, you do not need to return your proxy card. If you hold shares through a broker or other custodian, please check the voting form to see if it offers Internet voting.
 

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Chapter Three — Information About the Meetings and Voting
      If you submit your proxy but do not make specific choices, your proxy will follow the respective board of director recommendations and vote your shares:
     
Procter & Gamble   Gillette
     
•  “FOR” adoption of the merger agreement and the approval of the issuance of Procter & Gamble common stock in the merger
  •  “FOR” adoption of the merger agreement and approval of the merger
•  “FOR” the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies on the proposal to adopt the merger agreement and approve the issuance of Procter & Gamble common stock in the merger
  •  “FOR” the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies on the proposal to adopt the merger agreement and approve the merger
 
Proxies for Procter & Gamble Plan Participants
      If you are a participant in The Procter & Gamble Shareholder Investment Program (“SIP”), you can vote shares of common stock held for your account through the SIP Custodian.
      If you are a participant in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, you can instruct the trustees how to vote the shares of stock that are allocated to your account. If you do not vote your shares, the trustees will vote them in proportion to those shares for which they have received voting instructions. Likewise, the trustees will vote shares that have not been allocated to any account in the same manner.
Procter & Gamble Householding Information
      Procter & Gamble has adopted the procedure approved by the SEC called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of this joint prospectus/proxy statement unless one or more of these shareholders notifies Procter & Gamble that they wish to continue receiving individual copies. This procedure will reduce the printing costs and postage fees of Procter & Gamble and Gillette in connection with this joint prospectus/proxy statement and of Procter & Gamble and the combined company for future annual reports and proxy statements. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings.
      If you and other Procter & Gamble shareholders of record with whom you share an address currently receive multiple copies of annual reports and/or proxy statements, or if you hold stock in more than one account and in either case, you wish to receive only a single copy of future annual reports or proxy statements for your household, please contact Procter & Gamble at (800) 742-6253 in the U.S., or inform Procter & Gamble in writing at: The Procter & Gamble Company, Shareholder Services, P.O. Box 5572, Cincinnati, OH 45201-5572.
      If you participate in householding and wish to receive a separate copy of this joint prospectus/proxy statement, or if you do not wish to participate in householding and prefer to receive separate copies of future materials, please call Procter & Gamble toll-free at (800) 742-6253 in the U.S., or inform us in writing at: The Procter & Gamble Company, Shareholder Services, P.O. Box 5572, Cincinnati, OH 45201-5572. Procter & Gamble will deliver the requested documents to you promptly upon your request.
      Beneficial shareholders can request information about householding from their bank, broker, custodian or record holder of Procter & Gamble common stock.

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Chapter Three — Information About the Meetings and Voting
Proxies for Gillette Plan Participants
      If you are a participant in the Gillette Employees’ Savings Plan and/or the Employee Stock Ownership Plan, you will receive only one proxy card for all the shares of Gillette common stock held in your accounts.
      If you participate in the Gillette Employees’ Savings Plan, Gillette Canada Inc. Retirement Income Savings Plan, Employee Stock Ownership Plan, or Global Employee Stock Ownership Plan, you are entitled to give the plans’ trustees voting instructions for the shares held in your account. The proxy card will serve as a voting instruction card for the plans’ trustees. If you do not vote your shares or specify your voting instructions on your proxy card, the plans’ trustees will vote your shares in the same proportion as the shares for which voting instructions have been received from other participants of each plan.
      Because the trustee or custodian for the relevant plan must process voting instructions from participants before the date of the special meeting, you are urged to deliver your instructions well in advance of the special meeting so that the instructions are received no later than June 7, 2005.
Gillette Householding Information
      Gillette has adopted the procedure approved by the SEC called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of this joint prospectus/proxy statement, unless one or more of these shareholders notifies Gillette that they wish to continue receiving individual copies. This procedure will reduce the printing costs and postage fees of Procter & Gamble and Gillette in connection with this joint prospectus/proxy statement and of the combined company for future annual reports and proxy statements. Shareholders who participate in householding will continue to receive separate proxy cards.
      If you and other Gillette shareholders of record with whom you share an address currently receive multiple copies of annual reports and proxy statements, or if you hold stock in more than one account and wish to receive only a single copy of future annual reports and proxy statements for your household, please contact ADP, Householding Department, 51 Mercedes Way, Edgewood, NY 11717, or call toll-free (800) 542-1061.
      If you participate in householding and wish to receive a separate copy of this joint prospectus/proxy statement, or if you do not wish to participate in householding and prefer to receive separate copies of future materials, please contact ADP at the above address or phone number.
      Beneficial shareholders can request information about householding from their bank, broker, custodian or record holder of Gillette common stock.
Revoking Your Proxy
      If you submit a completed proxy card with instructions on how to vote your shares and then wish to revoke your instructions, you should submit a notice of revocation to Procter & Gamble or Gillette, as appropriate, as soon as possible. You may revoke your proxy by Internet, telephone or mail at any time before it is voted by:
  •  timely delivery of a valid, later-dated proxy or timely submission of a later-dated proxy by telephone or Internet;
 
  •  written notice to your company’s Secretary before the meeting that you have revoked your proxy; or
 
  •  voting by ballot at either the Procter & Gamble special meeting or Gillette special meeting.

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Chapter Three — Information About the Meetings and Voting
Voting in Person
      If you are a shareholder of record and you wish to vote in person at the Procter & Gamble or Gillette special meeting, a ballot will be provided at the meeting. However, if your shares are held in the name of your bank, broker, custodian or other record holder, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the meeting.
People with Disabilities
      For the Procter & Gamble special meeting, shareholders attending the special meeting who are hearing-impaired should identify themselves during registration so they can sit in a special section where an interpreter will be available.
Proxy Solicitation
      Procter & Gamble and Gillette will each pay its own costs of soliciting proxies.
      In addition to this mailing, proxies may be solicited by directors, officers or employees of Procter & Gamble and Gillette in person or by telephone or electronic transmission. None of the directors, officers or employees will be directly compensated for such services. Procter & Gamble has retained Georgeson Shareholder Communications, Inc. to assist in the distribution and solicitation of proxies. Procter & Gamble will pay Georgeson Shareholder Communications, Inc. a fee of $25,000, plus reasonable expenses, for these services. Gillette has also retained Georgeson Shareholder Communications, Inc. to assist in the distribution and solicitation of proxies. Gillette will pay Georgeson Shareholder Communications, Inc. a fee of $35,000, plus reasonable expenses, for these services.
      As described in the “Background of the Merger” section of this joint proxy statement/prospectus, Warren E. Buffett, Chairman and Chief Executive Officer of Berkshire Hathaway Inc., furnished Procter & Gamble with a statement (in the form of a video clip) of his views regarding the proposed transaction for Procter & Gamble to use in connection with its announcement of the proposed transaction. Solely as a result of Mr. Buffett having furnished this video clip, he may be deemed a participant in the solicitation of proxies for the proposed transaction. Mr. Buffett has not otherwise participated in the solicitation of proxies for the proposed transaction and has not participated in the preparation or review of this joint proxy statement/prospectus, with the exception of the “Background of the Merger” section (which he was afforded the opportunity to review prior to the filing of this joint proxy statement/prospectus for the limited purpose of confirming the accuracy of statements made regarding his communications with Gillette and Procter & Gamble).
      The extent to which these proxy soliciting efforts will be necessary depends entirely upon how promptly proxies are submitted. You should submit your proxy without delay by mail or by telephone or the Internet. The companies also reimburse brokers and other nominees for their expenses in sending these materials to you and getting your voting instructions.
      Do not send in any stock certificates with your proxy cards. The exchange agent will mail transmittal forms with instructions for the surrender of stock certificates for Gillette common stock to former Gillette shareholders as soon as practicable after the completion of the merger.
Other Business
      Procter & Gamble and Gillette are not currently aware of any other business to be acted upon at either meeting. If, however, other matters are properly brought before either meeting, or any adjourned meeting, your proxies include discretionary authority on the part of the individuals appointed to vote your shares or act on those matters according to their best judgment.

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Chapter Three — Information About the Meetings and Voting
Gillette Shareholder Account Maintenance
      Gillette’s Transfer Agent is The Bank of New York. All communications concerning accounts of shareholders of record, including address changes, name changes, inquiries as to requirements to transfer shares of common stock, and similar issues, should be made by calling the Bank’s toll-free number, 1-888-218-2841, or by e-mail at shareowners@bankofny.com. In addition, you can access your account through The Bank of New York’s web site. To access your account on the Internet, visit www.stockbny.com.

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Chapter Four — Certain Legal Information
CHAPTER FOUR:
CERTAIN LEGAL INFORMATION
COMPARISON OF PROCTER & GAMBLE/ GILLETTE
SHAREHOLDER RIGHTS
      As a result of the merger, Gillette shareholders will receive Procter & Gamble common stock in exchange for their shares of Gillette common stock. The following is a summary of material differences between the rights of holders of Gillette common stock and the rights of holders of Procter & Gamble common stock. These differences arise in part from the differences between the Delaware General Corporation Law (“Delaware Law”) and Ohio General Corporation Law (“Ohio Law”). Additional differences arise from the governing instruments of the two companies (in the case of Gillette, the Gillette certificate of incorporation (the “Gillette Certificate”) and the Gillette bylaws (the “Gillette Bylaws”), and, in the case of Procter & Gamble, the Procter & Gamble articles of incorporation (the “Procter & Gamble Articles”) and the Procter & Gamble Code of Regulations (the “Procter & Gamble Regulations”)). Although it is impractical to compare all of the aspects in which the Delaware Law and the Ohio Law and Gillette’s and Procter & Gamble’s governing instruments differ with respect to shareholders’ rights, the following discussion summarizes the material differences between them.
      All Gillette shareholders and Procter & Gamble shareholders are urged to read carefully the relevant provisions of Delaware Law and Ohio Law, as well as the Gillette Certificate, the Gillette Bylaws, the Procter & Gamble Articles and the Procter & Gamble Regulations, which are available to Gillette shareholders and Procter & Gamble shareholders upon request. See “Where You Can Find More Information.”
Material Differences in Shareholder Rights
Amendment and Repeal of Bylaws and Regulations
      Delaware. Delaware Law provides that holders of a majority of the voting power of a corporation, and, when provided for in the certificate of incorporation, the board of directors of the corporation, have the power to adopt, amend and repeal the bylaws of a corporation.
      Gillette. The Gillette Certificate grants the Gillette board of directors the power to amend and repeal the Gillette Bylaws. Amendments to the Gillette Bylaws are otherwise governed in accordance with Delaware Law.
      Ohio. Ohio Law provides that only holders of a majority of the voting power of a corporation if acting at a meeting of shareholders, or two-thirds of the voting power of the corporation if acting by written consent, have the power to adopt, amend and repeal the code of regulations of a corporation. Under certain circumstances, a majority vote of “disinterested” shares is also required to amend or repeal the code of regulations of a corporation.
      Procter & Gamble. Amendments to the Procter & Gamble Regulations are governed in accordance with Ohio Law. In contrast to Gillette, the Procter & Gamble board of directors does not have the power to amend and repeal the Procter & Gamble Regulations.
Removal of Directors
      Delaware. Delaware Law provides that a director or directors may be removed from office, with or without cause, by the holders of a majority of the voting power of a corporation, except that (i) in the case of a corporation that has a classified board, directors may be removed from office only for cause, unless the certificate of incorporation provides otherwise and (ii) in the case of a corporation having cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against such removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors or of the class of directors of which the director is a part.

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Chapter Four — Certain Legal Information
      Gillette. The Gillette Certificate and the Gillette Bylaws provide for a classified board and provide that a director may be removed only for cause. The Gillette Bylaws further provide that such removal for cause may only be by the affirmative vote of a majority of the then-outstanding shares entitled to vote for the election of such director.
      Ohio. Ohio Law provides that a director may be removed from office by the board of directors if (i) such director has been found to be of unsound mind by an order of court, (ii) such director is adjudicated bankrupt, or (iii) such director fails to meet any qualifications for office. Ohio Law further provides that a director may be removed from office, with or without cause, by the holders of a majority of the voting power of a corporation, except that, in the case of a corporation having cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against such removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors or of the class of directors of which the director is a part, unless the articles of incorporation provides otherwise. Directors serving on a classified board may only be removed for cause.
      Procter & Gamble and Ohio Law. In contrast to Gillette and Ohio Law, the Procter & Gamble Regulations provide that a director may be removed from office by the affirmative vote of holders of at least 80% of the voting power of Procter & Gamble; provided, however this provision may be amended by a majority vote of the outstanding shares. The removal of Procter & Gamble directors is otherwise governed in accordance with Ohio Law.
Right to Call Special Meetings of Shareholders
      Delaware. Delaware Law permits special meetings of shareholders to be called by the board of directors and such other persons, including shareholders, as the certificate of incorporation or bylaws may provide. Delaware Law does not require that shareholders be given the right to call special meetings.
      Gillette. The Gillette Bylaws provide that special meetings may be called by resolution of the Gillette board of directors, by a writing filed with the secretary and signed by the chief executive officer or by a majority of the directors. The Gillette Bylaws provide that, unless otherwise required by law, a special meeting of shareholders may not be called by any other person or persons.
      Ohio. Ohio Law provides that (i) the chairman of the board, the president or, in case of the president’s death or disability, the vice president authorized to exercise the authority of the president, (ii) the directors by action at a meeting or a majority of the directors acting without a meeting, or (iii) holders of at least 25% of the outstanding voting shares of a corporation, unless the corporation’s articles or regulations specifies another percentage for such purpose (which may not be greater than 50%), have the authority to call special meetings of shareholders.
      Procter & Gamble. The right to call a special meeting of Procter & Gamble shareholders is governed in accordance with Ohio Law. In contrast to Gillette, Procter & Gamble shareholders have the right to call a special meeting of shareholders in certain circumstances.
Shareholder Action Without a Meeting
      Delaware. Delaware Law provides that any action that may be taken at a meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if the holders of the outstanding stock having not less than the minimum number of votes otherwise required to authorize or take such action at a meeting of shareholders consent in writing, unless otherwise provided by a corporation’s certificate of incorporation.
      Gillette. Actions by Gillette shareholders without a meeting are governed in accordance with Delaware Law.
      Ohio. Except for the two-thirds requirement to amend or repeal the regulations, Ohio Law provides that any action that may be authorized or taken by shareholders of a corporation at a meeting of

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shareholders may be authorized or taken without a meeting with the unanimous written consent of all shareholders entitled to vote at such meeting.
      Procter & Gamble. Actions by Procter & Gamble shareholders without a meeting are governed in accordance with Ohio Law. In contrast to Gillette shareholders, Procter & Gamble shareholders may only take action without a meeting by unanimous written consent; provided, however, Procter & Gamble shareholders may amend the Procter & Gamble Regulations to permit action by less than unanimous written consent upon the approval of at least two-thirds of the outstanding shares.
Provisions Affecting Control Share Acquisitions and Business Combinations
      Delaware. Section 203 of the Delaware Law provides generally that any person who acquires 15% or more of a corporation’s voting stock (thereby becoming an “interested stockholder”) may not engage in a wide range of “business combinations” with the corporation for a period of three years following the date the person became an interested shareholder, unless (1) the board of directors of the corporation has approved, prior to that acquisition date, either the business combination or the transaction that resulted in the person becoming an interested shareholder, (2) upon consummation of the transaction that resulted in the person becoming an interested shareholder, that person owns at least 85% of the corporation’s voting stock outstanding at the time the transaction commenced (excluding shares owned by persons who are directors and also officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer), or (3) the business combination is approved by the board of directors and authorized by the affirmative vote (at an annual or special meeting and not by written consent) of at least 662/3% of the outstanding voting stock not owned by the interested shareholder.
      These restrictions on interested shareholders do not apply under certain circumstances, including, but not limited to, the following: (1) if the corporation’s original certificate of incorporation contains a provision expressly electing not to be governed by Section 203 of the Delaware Law, or (2) if the corporation, by action of its shareholders, adopts an amendment to its bylaws or certificate of incorporation expressly electing not to be governed by Section 203 of the Delaware Law, with such amendment to be effective 12 months thereafter.
      Gillette. Neither the Gillette Certificate nor the Gillette Bylaws contain a provision that exempts Gillette from Section 203 of the Delaware Law, and Gillette’s ability to enter into control share acquisition and business combinations is governed in accordance with Delaware Law.
      Ohio. Chapter 1704 of the Ohio Law prohibits an interested shareholder from engaging in a wide range of business combinations similar to those prohibited by Section 203 of the Delaware Law. However, in contrast to Section 203 of the Delaware Law, under Chapter 1704 of the Ohio Law, an “interested shareholder” includes a shareholder who, directly or indirectly, exercises or directs the exercise of 10% or more of the voting power of the corporation. Chapter 1704 restrictions do not apply under certain circumstances, including, but not limited to, the following: (1) if, prior to the interested shareholder’s share acquisition date, the directors of a corporation have approved the transaction or the purchase of shares on the share acquisition date, and (2) if a corporation, by action of its shareholders holding at least two-thirds of the voting power of the corporation, adopts an amendment to its articles of incorporation specifying that Chapter 1704 of the Ohio Law shall not be applicable to the corporation.
      Under Section 1701.831 of the Ohio Law, unless the articles of incorporation or code of regulations of a corporation otherwise provide, any control share acquisition of an issuing public corporation can only be made with the prior approval of the shareholders of the corporation. A “control share acquisition” is defined as any acquisition of shares of a corporation that, when added to all other shares of that corporation owned by the acquiring person, would enable a person to exercise levels of voting power in any of the following ranges: at least 20% but less than 331/3%; at least 331/3% but less than 50%; 50% or more.
      Procter & Gamble. Neither the Procter & Gamble Articles nor the Procter & Gamble Regulations contain a provision that exempts Procter & Gamble from Chapter 1704 of the Ohio Law, and Procter & Gamble’s ability to enter into control share acquisition and business combinations is governed in accordance with Ohio Law.

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Rights of Dissenting Shareholders
      Delaware. Delaware Law provides that appraisal rights are available to dissenting shareholders in connection with certain mergers or consolidations. However, unless a corporation’s certificate of incorporation otherwise provides, Delaware Law does not provide for appraisal rights if (1) the shares of the corporation are (x) listed on a national securities exchange or designated as a national market systems security on an interdealer quotations system by the National Association of Securities Dealers, Inc. or (y) held of record by more than 2,000 shareholders or (2) the corporation is the surviving corporation and no vote of its shareholders is required for the merger. See “Dissenters’ Rights” on page I-36. Delaware Law does not provide appraisal rights to shareholders who dissent from the sale of all or substantially all of a corporation’s assets or an amendment to a corporation’s certificate of incorporation, although a corporation’s certificate of incorporation may so provide.
      Delaware Law provides, among other procedural requirements, that a shareholder’s written demand for appraisal of shares must be received before the taking of the vote on the matter giving rise to appraisal rights.
      Gillette. The appraisal rights of Gillette shareholders are governed in accordance with Delaware Law.
      Ohio. Under Ohio Law, dissenting shareholders are entitled to dissenters’ rights in connection with certain amendments to a corporation’s articles of incorporation and the lease, sale, exchange, transfer or other disposition of all or substantially all of the assets of a corporation. Shareholders of an Ohio corporation being merged into or consolidated with another corporation are also entitled to dissenters’ rights. In addition, shareholders of an acquiring corporation are entitled to dissenters’ rights in any merger, combination or “majority share acquisition” in which such shareholders are entitled to voting rights. Ohio Law provides shareholders of an acquiring corporation with voting rights, and corresponding dissenters’ rights, if the acquisition involves the transfer of shares of the acquiring corporation entitling the recipients thereof to exercise one-sixth or more of the voting power of such acquiring corporation immediately after the consummation of the transaction.
      Ohio Law provides that a shareholder’s written demand must be delivered to a corporation not later than ten days after the taking of the vote on the matter giving rise to dissenters’ rights. See Annex E for the Ohio statute governing dissenters’ rights.
      Procter & Gamble. The dissenters’ rights of Procter & Gamble shareholders are governed in accordance with Ohio Law.
Director Liability and Indemnification
      Delaware. Delaware Law allows a corporation to include in its certificate of incorporation a provision eliminating the liability of a director for monetary damages for a breach of such director’s fiduciary duties as a director, except liability (1) for any breach of the director’s duty of loyalty to the corporation or the corporation’s shareholders, (2) for acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law, (3) under Section 174 of the Delaware Law (which deals generally with unlawful payments of dividends, stock repurchases and redemptions), and (4) for any transaction from which the director derived an improper personal benefit.
      Delaware Law permits a Delaware corporation to indemnify directors, officers, employees and agents under certain circumstances, and mandates indemnification under certain circumstances. Delaware Law permits a corporation to indemnify an officer, director, employee or agent for fines, judgments, or settlements, as well as for expenses in the context of actions other than derivative actions, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation or, in the case of a criminal proceeding, if such person had no reasonable cause to believe that such person’s conduct was unlawful. Indemnification against expenses incurred by a director, officer, employee or agent in connection with a proceeding against such person for actions in such

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capacity is mandatory to the extent that such person has been successful on the merits. If a director, officer, employee or agent is determined to be liable to the corporation, indemnification for expenses is not allowable, subject to limited exceptions when a court deems the award of expenses appropriate.
      Delaware Law grants express power to a Delaware corporation to purchase liability insurance for its directors, officers, employees and agents, regardless of whether any such person is otherwise eligible for indemnification by the corporation. Advancement of expenses is permitted, but a person receiving such advances must repay those expenses if it is ultimately determined that he is not entitled to indemnification.
      Gillette. The Gillette Certificate contains a provision which limits the liability of Gillette directors in accordance with Delaware Law. The Gillette Bylaws provide indemnification to the fullest extent provided by Delaware Law.
      Ohio. Ohio Law provides no comparable provision limiting the liability of officers, employees or agents of a corporation. However, unless a corporation’s articles of incorporation or code of regulations expressly states that such provision of Ohio Law is not applicable, a director is not liable for monetary damages unless it is proved by clear and convincing evidence that such director’s action or failure to act was undertaken with deliberate intent to cause injury to the corporation or with reckless disregard for the best interests of the corporation, although such provision does not limit a director’s liability for the approval of unlawful loans, dividends or distributions of assets.
      Ohio Law provides that a corporation may indemnify directors, officers, employees and agents within prescribed limits, and must indemnify them under certain circumstances. Ohio Law does not authorize payment by a corporation of judgments against a director, officer, employee or agent after a finding of negligence or misconduct in a derivative suit absent a court order. Indemnification is required, however, to the extent such person succeeds on the merits. In all other cases, if it is determined that a director, officer, employee, or agent acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, indemnification is discretionary, except as otherwise provided by a corporation’s articles of incorporation or code of regulations, or by contract, except with respect to the advancement of expenses to directors (as discussed in the next paragraph). The statutory right to indemnification is not exclusive in Ohio, and Ohio corporations may, among other things, purchase insurance to indemnify such persons.
      Ohio Law provides that a director (but not an officer, employee, or agent) is entitled to mandatory advancement of expenses, including attorneys’ fees, incurred in defending any action, including derivative actions, brought against the director, provided that the director agrees to cooperate with the corporation concerning the matter and to repay the amount advanced if it is proved by clear and convincing evidence that such director’s act or failure to act was done with deliberate intent to cause injury to the corporation or with reckless disregard for the corporation’s best interests.
      Procter & Gamble. The liability of Procter & Gamble directors is governed in accordance with Ohio Law.
      The Procter & Gamble Regulations provide for indemnification of Procter & Gamble directors and officers in a manner consistent with Ohio Law. The Procter & Gamble Regulations provide indemnification for each director and officer against all costs, expenses (including attorneys’ fees), judgments, and liabilities, reasonably incurred in connection with any action in which such director or officer is involved by reason of being a director or officer of Procter & Gamble. Procter & Gamble will not provide indemnification if the director or officer is finally adjudged to have been derelict in the performance of his duties.
      Procter & Gamble will provide indemnification when the adjudication in such action is other than on the merits and also when a settlement or compromise is effected if a majority of uninterested directors determines that such director or officer has not been derelict in the performance of his duties and adopts a resolution to that effect and, in cases of settlement or compromise, approves the same. In cases of

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settlement or compromise, Procter & Gamble will not reimburse any amounts which by the terms of the settlement or compromise are paid to Procter & Gamble itself by the director or officer.
Certain Similarities in Shareholder Rights
Public Markets for the Shares
      Shares of Procter & Gamble common stock and shares of Gillette common stock are quoted on the New York Stock Exchange. After the merger, shares of Procter & Gamble common stock, including those issued in connection with the merger, will be quoted on the New York Stock Exchange.
Amendment of Charter Documents
      Delaware. Delaware Law requires approval by holders of a majority of the voting power of a corporation or, in cases in which class voting is required, by holders a majority of the voting power of such class, in order to amend a corporation’s certificate of incorporation, unless otherwise specified in such corporation’s certificate of incorporation.
      Gillette. Amendments to the Gillette Certificate are governed in accordance with Delaware Law.
      Ohio. Ohio Law requires approval by holders of two-thirds of the voting power of a corporation or, in cases in which class voting is required, by holders of two-thirds of the voting power of such class to amend a corporation’s articles of incorporation, unless otherwise specified in such corporation’s articles of incorporation.
      Procter & Gamble. The Procter & Gamble Articles specify that the holders of a majority of the voting power of Procter & Gamble, or, when appropriate, the holders of a majority of the voting power of any class of shareholders, may amend the Procter & Gamble Articles.
Classification of Board of Directors
      Delaware. Delaware Law permits, but does not require, a classified board of directors, pursuant to which the directors can be divided into two or three classes with staggered terms of office, with only one class of directors standing for election each year.
      Gillette. The Gillette Certificate calls for the division of its board of directors into three classes, as nearly equal in size as possible, with one class being elected annually and with each director elected for a term of three years. Terms of four directors will expire at Gillette’s 2005 annual meeting. Gillette previously announced that the Gillette board of directors had voted to propose an amendment to the Gillette Certificate to declassify the board of directors and provide for the annual election of all directors. In light of the proposed merger, the Gillette board of directors decided not to submit the proposed amendment to the Gillette Certificate to the Gillette shareholders at the 2005 annual meeting.
      Ohio. Ohio Law permits, but does not require, a classified board of directors, pursuant to which the directors can be divided into two or three classes with staggered terms of office, with terms of office (which need not be uniform) that do not exceed three years and which consist of not less than three directors in each class, subject to certain exceptions.
      Procter & Gamble. The Procter & Gamble Regulations call for the division of its board of directors into three classes, as nearly equal in size as possible, with one class being elected annually and with each director elected for a term of three years. Terms of six directors will expire at Procter & Gamble’s 2005 annual meeting. On April 12, 2005, Procter & Gamble announced that its board of directors had unanimously agreed to submit and support a proposal at the annual meeting of shareholders in October 2005 to declassify its board structure and move to annual elections of directors. If approved by a majority of the shares outstanding, annual elections will be phased in during the next three years so that, by the annual meeting in 2008, all directors will be elected annually for one-year terms.
Vacancies on the Board
      Delaware. Delaware Law provides that vacancies and newly created directorships resulting from a resignation or any increase in the authorized number of directors to be elected by the shareholders having

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the right to vote as a single class may be filled by a majority of the directors then in office or by a sole remaining director, unless the governing documents of a corporation provide otherwise.
      Gillette. Vacancies on Gillette’s board of directors are governed in accordance with Delaware Law.
      Ohio. Ohio Law provides that vacancies on a corporation’s board of directors may be filled by a majority of the remaining directors of the corporation unless the governing documents of the corporation provide otherwise.
      Procter & Gamble. The Procter & Gamble Regulations provide that vacancies on the Procter & Gamble Board for any unexpired time may be filled by the Procter & Gamble board of directors.
Class Voting
      Delaware. Delaware Law provides that the holders of a particular class of shares are entitled to vote as a separate class with respect to amendments to a corporation’s certificate of incorporation, including, but not limited to, amendments that increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of shares of such class, or otherwise adversely affect the holders of such class.
      Gillette. Class voting by Gillette shareholders is governed in accordance with Delaware Law.
      Ohio. Ohio Law provides that the holders of a particular class of shares are entitled to vote as a separate class with respect to amendments to a corporation’s articles of incorporation, including, but not limited to, amendments that decrease the aggregate number of issued shares of such class, increase or decrease the par value of shares of such class, or are otherwise substantially prejudicial to the holders of such class.
      Procter & Gamble. Class voting by Procter & Gamble shareholders is governed in accordance with Ohio Law.
Cumulative Voting
      Delaware. Delaware Law provides that shareholders of a corporation do not have the right to cumulate their votes in the election of directors unless such right is granted in the certificate of incorporation of the corporation.
      Gillette. The Gillette Certificate does not grant Gillette shareholders the right to vote cumulatively in the election of directors.
      Ohio. Ohio Law provides that each shareholder of a corporation has the right to vote cumulatively in the election of directors if certain notice requirements are satisfied unless the articles of incorporation of a corporation are amended to eliminate cumulative voting for directors.
      Procter & Gamble. The Procter & Gamble Articles eliminate the right of Procter & Gamble shareholders to vote cumulatively in the election of directors.
Preemptive Rights of Shareholders
      Delaware. Delaware Law provides that no shareholder shall have any preemptive rights to purchase additional securities of a corporation unless the corporation’s certificate of incorporation expressly grants such rights.
      Gillette. The Gillette Certificate does not grant any preemptive rights to Gillette shareholders.
      Ohio. Ohio Law provides that no shareholder shall have any preemptive rights to purchase additional securities of a corporation unless the corporation’s articles of incorporation expressly grant such rights.
      Procter & Gamble. The Procter & Gamble Articles do not grant any preemptive rights to Procter & Gamble shareholders.
Mergers, Acquisitions, Share Purchases and Certain Other Transactions
      Delaware. Delaware Law requires approval of mergers, consolidations and dispositions of all or substantially all of a corporation’s assets (other than so-called “parent-subsidiary” mergers) by a majority

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of the voting power of the corporation, unless the corporation’s certificate of incorporation specifies a different percentage. Delaware Law does not require shareholder approval for majority share acquisitions or for combinations involving the issuance of less than 20% of the voting power of the corporation, except for business combinations subject to Section 203 of the Delaware Law.
      Gillette. The Gillette Bylaws require the approval of a majority of the shares entitled to vote before Gillette is permitted to purchase Gillette common stock from any person who has been the beneficial owner of more than 3% of Gillette’s outstanding voting equity securities for less than the last two years at a price that is above the average market price, unless the offer is made to all holders of such securities on the same terms and conditions. Approval of mergers, acquisitions, share purchases and certain other transactions is otherwise governed in accordance with Delaware Law.
      Ohio. Ohio Law requires approval of mergers, dissolutions, dispositions of all or substantially all of a corporation’s assets, and majority share acquisitions and combinations involving issuance of shares representing one-sixth or more of the voting power of the corporation immediately after the consummation of the transaction (other than so-called “parent-subsidiary” mergers), by two-thirds of the voting power of a corporation, unless the articles of incorporation specify a different proportion (but not less than a majority).
      Section 1701.59 of the Ohio Law permits a director of a corporation, in determining what such director reasonably believes to be in the best interests of the corporation, to consider, in addition to the interests of the corporation’s shareholders, any of the following (1) the interests of the corporation’s employees, suppliers, creditors, and customers, (2) the economy of the state and nation, (3) community and societal considerations, and (4) the long-term as well as short-term interests of the corporation and the corporation’s shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.
      Procter & Gamble. The Procter & Gamble Articles require the approval of a majority of the voting power before Procter & Gamble may enter into certain transactions with “related persons,” which is defined to include any person, entity or group that directly or indirectly beneficially owns 5% or more of the outstanding shares entitled to vote, and any affiliates or associates of such person, entities or groups. The Procter & Gamble Articles further provide that a majority of the outstanding voting power is required to approve mergers, acquisitions, share purchases and certain other transactions.
Dividends
      Delaware. Delaware Law provides that dividends may be paid in cash, property or shares of a corporation’s capital stock. Delaware Law further provides that a corporation may pay dividends out of any surplus, and, if it has no surplus, out of any net profits for the fiscal year in which the dividend was declared or for the preceding fiscal year (provided that such payment out of net profits will not reduce capital below the amount of capital represented by all classes of shares having a preference upon the distribution of assets).
      Gillette. Dividends granted to Gillette shareholders are governed in accordance with Delaware Law.
      Ohio. Ohio Law provides that dividends may be paid in cash, property or shares of a corporation’s capital stock. Ohio Law further provides that a corporation may pay dividends out of surplus and if a dividend is paid out of capital surplus, the corporation must notify its shareholders as to the kind of surplus out of which it is paid.
      Procter & Gamble. Dividends granted to Procter & Gamble shareholders are governed in accordance with Ohio Law.

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DESCRIPTION OF PROCTER & GAMBLE CAPITAL STOCK
      The following summary is a description of the material terms of the capital stock of Procter & Gamble before and after the merger and is not meant to be complete. You should also refer to the Procter & Gamble Articles, Procter & Gamble Regulations and the applicable provisions of Ohio Law. Copies of the Procter & Gamble Articles and Procter & Gamble Regulations will be sent to shareholders of Procter & Gamble and Gillette upon request. See “Where You Can Find More Information,” on page V-2.
Authorized Capital Stock
      Under the Procter & Gamble Articles, Procter & Gamble’s authorized capital stock consists of 10,000,000,000 shares of Procter & Gamble common stock, 600,000,000 shares of Class A Preferred Stock, and 200,000,000 shares of Class B Preferred Stock, all of which are without par value. As of December 31, 2004, there were 2,522,583,573 shares of common stock, 89,248,669 shares of Series A ESOP Preferred Stock, and 69,126,896 shares of Series B ESOP Preferred Stock issued and outstanding, and 453,866,904 shares of common stock were held in Procter & Gamble’s treasury.
Procter & Gamble Common Stock
      Procter & Gamble Common Stock Outstanding. The outstanding shares of Procter & Gamble common stock are, and the shares of Procter & Gamble common stock issued under the merger will be, duly authorized, validly issued, fully paid and non-assessable.
      Voting Rights. Each holder of Procter & Gamble common stock is entitled to one non-cumulative vote for each share of Procter & Gamble common stock held of record on the applicable record date on all matters submitted to a vote of shareholders.
      Dividend Rights; Rights Upon Liquidation. Each holder of Procter & Gamble common stock is entitled to receive, from funds legally available for the payment thereof, dividends when and as declared by resolution of Procter & Gamble’s board of directors, subject to any preferential dividend rights granted to the holders of any outstanding Procter & Gamble preferred stock. In the event of any liquidation, dissolution or winding up, each share of Procter & Gamble common stock is entitled to share pro rata in any distribution of Procter & Gamble’s assets after payment or providing for the payment of liabilities and the liquidation preference of any outstanding Procter & Gamble shares of Class A Preferred Stock and Class B Preferred Stock.
      Conversion. Holders of Procter & Gamble common stock do not have any conversion rights and such shares are not subject to any redemption provisions.
      Preemptive Rights. Holders of Procter & Gamble common stock have no preemptive rights to purchase, subscribe for or otherwise acquire any unissued or treasury shares or other securities. No shares of Procter & Gamble common stock are subject to any sinking fund provisions or to calls, assessments by, or liabilities of Procter & Gamble.
Procter & Gamble Preferred Stock
      Procter & Gamble Preferred Stock Outstanding. The outstanding shares of Procter & Gamble preferred stock are duly authorized, validly issued, fully paid and non-assessable.
      Voting Rights. Each holder of Procter & Gamble Class A Preferred Stock is entitled to one non-cumulative vote for each share of Procter & Gamble Class A Preferred Stock held of record on the applicable record date on all matters submitted to a vote of shareholders. The holders of Class B Preferred Stock are not entitled to vote other than as provided by law.
      Dividend Rights; Rights Upon Liquidation. The holders of Class A Preferred Stock and Class B Preferred Stock have the right to receive dividends prior to the payment of dividends on the common

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stock. Procter & Gamble’s board of directors is divided into three classes and has the power to determine certain terms relative to any Class A Preferred Stock and Class B Preferred Stock to be issued, such as the power to establish different series and to set dividend rates, the dates of payment of dividends, the cumulative dividend rights and dates, redemption rights and prices, sinking fund requirements, restrictions on the issuance of such shares or any series thereof, liquidation price and conversion rights. Also, Procter & Gamble’s board of directors may fix such other express terms as may be permitted or required by law.
      Series A ESOP Convertible Class A Preferred Stock. Procter & Gamble has designated 89,248,669 shares as “Series A ESOP Convertible Class A Preferred Stock.” Procter & Gamble’s Board has determined the terms of the Series A ESOP Preferred Stock, which can only be held by an employee stock ownership plan or other Procter & Gamble benefit plan. Upon transfer of Series A ESOP Preferred Stock to any other person, such transferred shares shall be automatically converted into shares of common stock. According to the Procter & Gamble Articles, each share of Series A ESOP Preferred Stock has a cumulative dividend of $0.5036075 per year and a liquidation price of $6.82 per share (as adjusted for the stock splits on October 20, 1989, May 15, 1992, August 22, 1997 and May  21, 2004), is redeemable by Procter & Gamble or the holder, is convertible at the option of the holder into one share of common stock and has certain anti-dilution protections associated with the conversion rights. Appropriate adjustments to dividends and liquidation price will be made to give effect to any stock splits, stock dividends or similar changes to the Series A ESOP Preferred Stock. Moreover, Procter & Gamble’s board of directors retains the right to declare dividends higher than those called for by the Procter & Gamble Articles. Procter & Gamble’s board of directors has exercised this right so that the dividend rate for the Series A ESOP Preferred Stock has been equal to the dividend rate for common stock.
      Series B ESOP Convertible Class A Preferred Stock. Procter & Gamble has also designated 69,126,896 shares as “Series B ESOP Convertible Class A Preferred Stock.” Procter & Gamble’s Board has determined the terms of the Series B ESOP Preferred Stock. According to the Procter & Gamble Articles, each share of Series B ESOP Preferred Stock has a cumulative dividend of $1.022 per year and a liquidation price of $12.96 per share (as adjusted for the stock splits on May 15, 1992, August 22, 1997 and May 21, 2004), is redeemable by Procter & Gamble or the holder under certain circumstances, is convertible at the option of the holder into one share of common stock and has certain anti-dilution protections associated with the conversion rights. Appropriate adjustments to dividends and liquidation price will be made to give effect to any stock splits, stock dividends or similar changes to the Series B ESOP Preferred Stock. Moreover, Procter & Gamble’s board of directors retains the right to declare dividends higher than those called for by the Procter & Gamble Articles. Procter & Gamble’s board of directors has not yet done so, however, because the dividend rate required by the Procter & Gamble Articles is roughly equal to the current rate for the common stock.
      Blank Check Preferred Stock. Under the Procter & Gamble Articles, Procter & Gamble’s board of directors has the authority, without shareholder approval, to create one or more classes or series within a class of preferred stock, to issue shares of preferred stock in such class or series up to the maximum number of shares of the relevant class or series of preferred stock authorized, and to determine the preferences, rights, privileges and restrictions of any such class or series, including the dividend rights, voting rights, the rights and terms of redemption, the rights and terms of conversion, liquidation preferences, the number of shares constituting any such class or series and the designation of such class or series.
Gillette Shareholder Rights Agreement
      The following is a summary description of the rights issued under the Gillette renewed rights agreement, as amended. Gillette shareholders are urged to read carefully the Gillette renewed rights agreement, as amended, and the description thereof, which are available to Gillette shareholders upon request. See “Where You Can Find More Information” on page V-2.

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Chapter Four — Certain Legal Information
      Gillette has entered into a renewed rights agreement under which each Gillette shareholder has one right for each outstanding share of Gillette common stock held. Each right entitles the holder to purchase one one-thousandth of a share of Gillette’s Series A Junior Participating Preferred Stock, without par value, at a purchase price of $250. The rights are attached to all common stock certificates currently outstanding, and no separate certificates representing them have been distributed. The rights will separate from the Gillette common stock, and be represented by separate certificates, upon the earlier of:
  •  10 business days following the date of any public announcement that a person (such person is referred to as an acquiring person), alone or together with a group of affiliated or associated persons, but excluding particular persons and entities, has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Gillette common stock, or
 
  •  10 business days following the commencement of a tender offer or an exchange offer that would result in an acquiring person beneficially owning 15% or more of the outstanding Gillette common stock.
      Each holder of a right not owned by an acquiring person or related persons will be entitled to exercise the right and to receive, upon exercise, Gillette common stock (or, in certain circumstances, cash, other securities of Gillette or other assets of Gillette) having a market value equal to two times the exercise price of the right.
      If at any time after a public announcement that a person has become an acquiring person,
  •  Gillette is acquired in a merger or other business combination,
 
  •  Gillette acquires a person in a merger or other business combination where any or all of Gillette common stock is exchanged for the stock or other securities of any other person or cash or any other property, or
 
  •  Gillette or one or more of its subsidiaries sells or otherwise transfers 50% or more of the assets or earning power of Gillette and its subsidiaries, taken as a whole,
each holder of a right will have the right to receive, upon exercise, common stock of the acquiring company having a market value equal to two times the exercise price of the right.
      At any time prior to the earlier of the close of business on the 10th business day following the date on which a person became an acquiring person or the close of business on December 14, 2005, the Gillette board of directors may redeem the rights in whole, but not in part, at a redemption price of $.01 per right. Immediately upon the Gillette board of directors’ ordering the redemption of the rights, the rights will terminate and the holders of the rights will be entitled to receive only this redemption price. Until a right is exercised, a holder of rights will have no rights as a Gillette shareholder, including the right to vote and to receive dividends, beyond its rights as an existing shareholder.
      In connection with the execution of the merger agreement, Gillette and The Bank of New York, as successor rights agent, entered into an amendment to the renewed rights agreement, dated as of January 27, 2005, pursuant to which neither Procter & Gamble nor Aquarium Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Procter & Gamble, nor any of their affiliates or associates will be deemed to be an acquiring person or an affiliate or associate of any acquiring person solely as a result of the execution and delivery of the merger agreement or the consummation of the merger or any of the other transactions contemplated by the merger agreement. In addition, pursuant to the amendment the execution of the merger agreement and the consummation of the merger or any of the other transactions contemplated by the merger agreement shall not be deemed to trigger the separation or exercise of the rights.

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Chapter Four — Certain Legal Information
Transfer Agent and Registrar
      The Procter & Gamble Company’s Shareholder Services Department is the transfer agent for Procter & Gamble common stock. The Bank of New York serves as registrar.
LEGAL MATTERS
      Prior to the date this registration statement becomes effective, Chris B. Walther, Associate General Counsel and Assistant Secretary of Procter & Gamble, will provide an opinion regarding the validity of the Procter & Gamble common stock to be issued to Gillette shareholders in the merger. Prior to the date this registration statement becomes effective, Procter & Gamble will have received a written opinion from Cadwalader, Wickersham & Taft LLP, and Gillette will have received a written opinion from Davis Polk & Wardwell, both to the effect that for United States federal income tax purposes, the merger will constitute a reorganization within the meaning of section 368(a) of the Internal Revenue Code. It is also a condition to the completion of the merger that Cadwalader, Wickersham & Taft LLP and Davis Polk & Wardwell confirm their respective opinions as of the closing date of the merger.
EXPERTS
      The consolidated financial statements of Procter & Gamble and subsidiaries, incorporated in this joint proxy statement/ prospectus in this Amendment No. 2 to Registration Statement No. 333-123309 by reference from the Procter & Gamble Form 8-K filed March 14, 2005, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
      The consolidated financial statements of Gillette and subsidiaries as of December 31, 2003 and 2004, and for each of the years in the three-year period ended December 31, 2004, have been incorporated by reference in this joint proxy statement/ prospectus from the Gillette Annual Report for the year ended December 31, 2004 on Form 10-K filed March 14, 2005, in reliance upon the report of KPMG LLP, independent registered public accountants, also incorporated by reference in this joint proxy statement/ prospectus upon the authority of said firm as experts in accounting and auditing.

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Chapter Five — Additional Information for Shareholders
CHAPTER FIVE:
ADDITIONAL INFORMATION FOR SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS
Procter & Gamble
      Pursuant to regulations issued by the SEC, to be considered for inclusion in Procter & Gamble’s proxy statement for presentation at Procter & Gamble’s 2005 annual meeting of shareholders, all shareholder proposals must be received by Procter & Gamble on or before the close of business on Friday, April 29, 2005. If a shareholder notifies Procter & Gamble after July 15, 2005 of an intent to present a proposal at the 2005 annual meeting of shareholders, Procter & Gamble will have the right to exercise its discretionary voting authority with respect to such proposal without including information regarding such proposal in its proxy materials.
      Procter & Gamble’s Governance & Public Responsibility Committee will consider shareholder recommendations for candidates for the board, which should be submitted to:
  Chairman of the Governance & Public Responsibility Committee
  The Procter & Gamble Company
  c/o Secretary
  One Procter & Gamble Plaza
  Cincinnati, OH 45202-3315
      Shareholder recommendations should include the name of the candidate, as well as relevant biographical information. The committee’s and board of directors’ minimum qualifications and preferred, specific qualities and skills required for Directors are set forth in Article II, Sections B through E of the Company’s Corporate Governance Guidelines. The committee considers all candidates using these criteria, regardless of the source of the recommendation. The committee’s process for evaluating candidates includes the considerations set forth in Article II, Section B of the Committee’s charter. After initial screening for minimum qualifications, the committee determines appropriate next steps, including requests for additional information, reference checks and interviews with potential candidates. In addition to shareholder recommendations, the committee also relies on recommendations from current directors, Company personnel and others. From time to time, the committee may engage the services of outside search firms to help identify candidates.
      Procter & Gamble’s annual meeting of shareholders is generally held on the second Tuesday of October. It is anticipated that the 2005 annual meeting of shareholders will be held on Tuesday, October 11, 2005.
      The Procter & Gamble board of directors is not aware of any matters that are expected to come before the special meeting other than those referred to in this joint proxy statement/ prospectus. If any other matter should come before the special meeting, the persons named in the accompanying proxy intend to vote the proxies in accordance with their best judgment.
      The chairman of the meeting may refuse to allow the transaction of any business not presented beforehand, or to acknowledge the nomination of any person not made in compliance with the foregoing procedures.
Gillette
      Gillette will hold its 2005 annual meeting of shareholders before the special meeting. In light of the expected timing of the effectiveness of the merger, Gillette does not currently expect to hold an annual meeting of its shareholders in 2006.

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Chapter Five — Additional Information for Shareholders
      If Gillette holds an annual meeting of shareholders in 2006, any shareholder who wishes to propose a matter for consideration at such annual meeting must submit the proposal in writing to The Gillette Company, Prudential Tower Building, 48th Floor, Boston, MA 02199, Attention: Office of the Secretary. To be eligible under Rule 14a-8 of the Exchange Act for inclusion in the annual meeting proxy statement, a proposal must be received no later than the 120th calendar day before the anniversary of the date on which the 2005 annual meeting proxy statement was released to shareholders (or if the annual meeting date has changed by more than 30 days, a reasonable time before Gillette begins to print and mail its proxy statement).
      In addition to these SEC rules, Gillette’s Bylaws require advance notice of business to be brought before a shareholders’ annual meeting, including nominations of persons for election as directors. To be timely, a shareholder’s notice to Gillette’s secretary must be received at least 90 days but not more than 120 days before the anniversary date of the 2005 annual meeting (or if the 2006 annual meeting is called for a date that is within 30 days before or after such anniversary date, notice must be received not more than 120 days prior to the 2006 annual meeting and not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the 2006 annual meeting was mailed or public announcement of the date of the 2006 annual meeting was made). Any such proposal should be submitted to The Gillette Company, Prudential Tower Building, 48th Floor, Boston, MA 02199, Attention: Office of the Secretary.
WHERE YOU CAN FIND MORE INFORMATION
      Procter & Gamble and Gillette file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed at the SEC’s public reference rooms located 450 Fifth Street, N.W., Washington D.C. 20549 and at Northwest Atrium Center, 5000 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Procter & Gamble’s and Gillette’s SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at www.sec.gov.
      Procter & Gamble has filed a registration statement on Form S-4 to register with the SEC the Procter & Gamble common stock to be issued to Gillette common shareholders upon completion of the merger. This joint proxy statement/ prospectus is a part of that registration statement and constitutes a prospectus of Procter & Gamble in addition to being a proxy statement of Procter & Gamble and Gillette