Exhibit 10.1

RAYONIER INC.

4,500,000 Common Shares

RAYONIER 1994 INCENTIVE STOCK PLAN

PLAN INFORMATION

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES

THAT HAVE BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933.

The Prospectus covers such additional securities as may be issuable as a result
of anti-dilution provisions

contained in the instruments pursuant to which securities covered by the
Prospectus are issued.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES

AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS

THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES

COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE

PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A

CRIMINAL OFFENSE.

As amended July 21, 2006

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Additional information about the Plan and its administration may be obtained by
writing the Manager of Stock Option Plan Administration, Rayonier Inc., 50 No.
Laura Street, Jacksonville, FL 32202, or telephoning the Manager at
(904) 357-9100.

Any statement contained in a document incorporated or deemed to be incorporated
by reference in the Prospectus shall be deemed to be modified or superseded for
purposes of the Prospectus to the extent that a statement contained in the
Prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in the Prospectus modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of the
Prospectus. Any such document, as well as Rayonier’s most recent annual report
to shareholders and any other report or communication distributed to Rayonier
shareholders generally, may be obtained without charge by written request to W.
Edwin Frazier, III, Corporate Secretary, Rayonier Inc., 50 No. Laura Street,
Jacksonville, FL 32202, or by telephoning W. Edwin Frazier, III at
(904) 357-9100.

TABLE OF CONTENTS

 

General Information

   3

The Plan

   3

Administration

   13

Federal Tax Treatment

   13

 

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GENERAL INFORMATION

The Rayonier 1994 Incentive Stock Plan (the “Plan”) was adopted by the Board of
Directors of Rayonier Inc. and approved by its shareholder to be effective
March 1, 1994.

The maximum number of common shares of Rayonier Inc. (the “Common Shares”) for
which incentive stock options may be issued under the Plan is one million
(1,000,000); the maximum number of shares available for issuance under the Plan
generally is determined annually as a function of a percentage of the total
number of outstanding Common Shares plus unused carryover from prior years,
pursuant to and subject to additional limitations set forth in, Section 3 of the
Plan. The Plan does not contain any limitation on the number of shares for which
options may be granted to any one employee, other than due to tax requirements
relating to incentive stock options. The total number of shares available under
the Plan registered currently on Form S-8 with the Securities & Exchange
Commission is four million five hundred thousand (4,500,000).

In addition to non-qualified stock options and incentive stock options, the
committee administering the Plan (the “Committee”) may grant stock appreciation
rights (“SAR’s”) in connection with options to those employees who are
considered directors or executive officers for purposes of Section 16(b) of the
Securities Exchange Act of 1934, as amended. The Plan permits the Committee to
award performance shares and restricted stock, as well as non-qualified stock
options, incentive stock options and SAR’s. Reference is made to the text of the
Plan herein for a complete description of awards permitted under the Plan and
the relevant provisions and conditions applicable thereto.

The prospectus does not cover resales of Common Shares acquired pursuant to the
provisions of the Plan. Resales may be subject to restrictions or limitations
imposed by the Securities Act of 1933 and the Securities Exchange Act of 1934.

The Plan is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974. Furthermore, Section 401 of the Internal Revenue
Code relating to certain qualified pension, profit-sharing and stock bonus plans
does not apply to the Plan.

Plan participants receive information with respect to their participation,
including the date of grant, the exercise price, the amount exercisable and the
expiration date, as well as applicable information concerning whatever
performance shares or restricted stock may be relevant to them.

1994 RAYONIER INCENTIVE STOCK PLAN

1. Purpose

The purpose of the 1994 Rayonier Incentive Stock Plan is to motivate and reward
superior performance on the part of employees of Rayonier and its subsidiaries
and to thereby attract and retain employees of superior ability. In addition,
the Plan is intended to further opportunities for stock ownership by such
employees in order to increase their proprietary interest in Rayonier and, as a
result, their interest in the success of the Company. Awards will be made, in
the discretion of the Committee, to Key Employees (including officers and
directors who are also employees) whose responsibilities and decisions directly
affect the performance of any Participating Company and its subsidiaries. Such
incentive awards may consist of stock options, stock appreciation rights payable
in stock or cash, performance shares, restricted stock or any combination of the
foregoing, as the Committee may determine.

 

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2. Definitions

When used herein, the following terms shall have the following meanings:

“Act” means the Securities Exchange Act of 1934.

“Award” means an award granted to any Key Employee in accordance with the
provisions of the Plan in the form of Options, Rights, Performance Shares or
Restricted Stock, or any combination of the foregoing.

“Award Agreement” means the written agreement evidencing each Award granted to a
Key Employee under the Plan.

“Beneficiary” means the beneficiary or beneficiaries designated pursuant to
Section 10 to receive the amount, if any, payable under the Plan upon the death
of a Key Employee.

“Board” means the Board of Directors of the Company.

“Change in Control” has the meaning specified in the Retirement Plan.

“Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter
amended. (All citations to sections of the Code are to such sections as they may
from time to time be amended or renumbered.)

“Committee” means the Compensation and Management Development Committee of the
Board or such other committee as may be designated by the Board to administer
the Plan.

“Company” means Rayonier Inc. and its successors and assigns.

“Fair Market Value”, unless otherwise indicated in the provisions of this Plan,
means, as of any date, the composite closing price for one share of Stock on the
New York Stock Exchange or, if no sales of Stock have taken place on such date,
the composite closing price on the most recent date on which selling prices were
quoted, the determination to be made in the discretion of the Committee.

“Incentive Stock Option” means a stock option qualified under Section 422 of the
Code.

“Key Employee” means an employee (including any officer or director who is also
an employee) of any Participating Company whose responsibilities and decisions,
in the judgment of the Committee, directly affect the performance of the Company
and its subsidiaries.

“Limited Stock Appreciation Right” means a stock appreciation right which shall
become exercisable automatically upon the occurrence of an Acceleration Event as
described in Section 9 of the Plan.

“Option” means an option awarded under Section 5 of the Plan to purchase Stock
of the Company, which option may be an Incentive Stock Option or a non-qualified
stock option.

“Participating Company” means the Company or any subsidiary or other affiliate
of the Company; provided, however, for Incentive Stock Options only,
“Participating Company” means the Company or any corporation which at the time
such Option is granted qualifies as a “subsidiary” of the Company under
Section 425(f) of the Code.

“Performance Share” means a performance share awarded under Section 6 of the
Plan.

“Plan” means the 1994 Rayonier Incentive Stock Plan, as the same may be amended,
administered or interpreted from time to time.

 

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“Plan Year” means the calendar year.

“Retirement” means eligibility to receive immediate retirement benefits under a
Participating Company pension plan.

“Restricted Stock” means Stock awarded under Section 7 of the Plan subject to
such restrictions as the Committee deems appropriate or desirable.

“Retirement Plan” means the Retirement Plan for Salaried Employees of Rayonier
Inc., as amended effective July 18, 1997, and as the same may be thereafter
amended from time to time prior to the occurrence of a Change in Control.

“Right” means a stock appreciation right awarded in connection with an option
under Section 5 of the Plan.

“Stock” means the common shares of the Company.

“Total Disability” means the complete and permanent inability of a Key Employee
to perform all of his or her duties under the terms of his or her employment
with any Participating Company, as determined by the Committee upon the basis of
such evidence, including independent medical reports and data, as the Committee
deems appropriate or necessary.

“Voting Securities” means any securities of the Company that vote generally in
the election of directors.

3. Shares Subject to the Plan

The aggregate number of shares of Stock which may be awarded under the Plan in
any Plan Year shall be subject to an annual limit. The maximum number of shares
of Stock for which Awards may be granted under the Plan in each Plan Year shall
be 1.5 percent (l.5%) of the total of the issued and outstanding shares of Stock
reported in the Annual Report on Form 10-K of the Company for the fiscal year
ending immediately prior to any Plan Year. Any unused portion of the annual
limit for any Plan Year shall be carried forward and be made available for
awards in succeeding Plan Years.

No more than twenty percent (20%) of such total number of shares on a cumulative
basis shall be available for restricted stock and performance shares Awards. In
addition to the foregoing, in no event shall more than one million
(1,000,000) shares of Stock be cumulatively available for Awards of incentive
stock options under the Plan. For any Plan Year, no individual employee may
receive an Award of stock options for more than ten percent (10%) of the annual
limit on available shares applicable to that Plan Year.

 

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Subject to the above limitations, shares of Stock to be issued under the Plan
may be made available from the authorized but unissued shares, or from shares
purchased in the open market. For the purpose of computing the total number of
shares of Stock available for Awards under the Plan, there shall be counted
against the foregoing limitations the number of shares of Stock which equal the
value of performance share Awards, in each case determined as at the dates on
which such Awards are granted. If any Awards under the Plan are forfeited,
terminated, expire unexercised, are settled in cash in lieu of Stock or are
exchanged for other Awards, the shares of Stock which were theretofore subject
to such Awards shall again be available for Awards under the Plan to the extent
of such forfeiture or expiration of such Awards. Further, any shares that are
exchanged (either actually or constructively) by optionees as full or partial
payment to the Company of the purchase price of shares being acquired through
the exercise of a stock option granted under the Plan may be available for
subsequent Awards, provided however, that such shares may be awarded only to
those participants who are not directors or executive officers (as that term is
defined in the rules and regulations under Section 16 of the Exchange Act).

4. Grant of Awards and Award Agreements

(a) Subject to the provisions of the Plan, the Committee shall (i) determine and
designate from time to time those Key Employees or groups of Key Employees to
whom Awards are to be granted; (ii) determine the form or forms of Award to be
granted to any Key Employee; (iii) determine the amount or number of shares of
Stock subject to each Award; and (iv) determine the terms and conditions of each
Award.

(b) Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Such agreement shall be subject to and incorporate the express terms
and conditions, if any, required under the Plan or required by the Committee.

5. Stock Options and Rights

(a) With respect to Options and Rights, the Committee shall (i) authorize the
granting of Incentive Stock Options, non-qualified stock options, or a
combination of Incentive Stock Options and non-qualified stock options;
(ii) authorize the granting of Rights which may be granted in connection with
all or part of any Option granted under this Plan, either concurrently with the
grant of the option or at any time thereafter during the term of the Option;
(iii) determine the number of shares of Stock subject to each Option or the
number of shares of Stock that shall be used to determine the value of a Right;
and (iv) determine the time or times when and the manner in which each Option or
Right shall be exercisable and the duration of the exercise period.

(b) Any option issued hereunder which is intended to qualify as an Incentive
Stock Option shall be subject to such limitations or requirements as may be
necessary for the purposes of Section 422 of the Code or any regulations and
rulings thereunder to the extent and in such form as determined by the Committee
in its discretion.

(c) Rights may be granted only to Key Employees who may be considered directors
or officers of the Company for purposes of Section 16 of the Act.

(d) The exercise period for a non-qualified stock option and any related Right
shall not exceed ten years and two days from the date of grant, and the exercise
period for an Incentive Stock Option and any related Right shall not exceed ten
years from the date of grant.

(e) The Option price per share shall be determined by the Committee at the time
any Option is granted and shall be not less than the Fair Market Value of one
share of Stock on the date the Option is granted.

(f) No part of any Option or Right may be exercised until the Key Employee who
has been granted the Award shall have remained in the employ of a Participating
Company for such period after the date of grant as the Committee may specify, if
any, and the Committee may further require exercisability in

 

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installments; provided, however, the period during which a Right is exercisable
shall commence no earlier than six months following the date the Option or Right
is granted.

(g) The purchase price of the shares as to which an Option shall be exercised
shall be paid to the Company at the time of exercise either in cash or Stock
already owned by the optionee having a total Fair Market Value equal to the
purchase price, or a combination of cash and Stock having a total fair market
value, as so determined, equal to the purchase price. The Committee shall
determine acceptable methods for tendering Stock as payment upon exercise of an
Option and may impose such limitations and prohibitions on the use of Stock to
exercise an Option as it deems appropriate.

(h) Unless Section 9 shall provide otherwise, Rights granted to a director or
officer shall terminate when such person ceases to be considered a director or
officer of the Company subject to Section 16 of the Act.

(i) In case of termination of employment, the following provisions shall apply:

(A) If a Key Employee who has been granted an Option shall die before such
Option has expired, his or her Option may be exercised in full by the person or
persons to whom the Key Employee’s rights under the Option pass by will, or if
no such person has such right, by his or her executors or administrators, at any
time, or from time to time, within five years after the date of the Key
Employee’s death or within such other period, and subject to such terms and
conditions as the Committee may specify, but not later than the expiration date
specified in Section 5(d) above.

(B) If the Key Employee’s employment by any Participating Company terminates
because of his or her Retirement or Total Disability, he or she may exercise his
or her Options in full at any time, or from time to time, within five years
after the date of the termination of his or her employment or within such other
period, and subject to such terms and conditions as the Committee may specify,
but not later than the expiration date specified in Section 5(d) above. Any such
Options not fully exercisable immediately prior to such optionee’s retirement
shall become fully exercisable upon such retirement unless the Committee, in its
sole discretion, shall otherwise determine.

(C) Except as provided in Section 9, if the Key Employee shall voluntarily
resign before eligibility for Retirement or he or she is terminated for cause as
determined by the Committee, the Options or Rights shall be cancelled coincident
with the effective date of the termination of employment.

(D) If the Key Employee’s employment terminates for any other reason, he or she
may exercise his or her Options, to the extent that he or she shall have been
entitled to do so at the date of the termination of his or her employment, at
any time, or from time to time, within three months after the date of the
termination of his or her employment or within such other period, and subject to
such terms and conditions as the Committee may specify, but not later than the
expiration date specified in Section 5(d) above.

(j) No Option or Right granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution. During the lifetime of the
optionee, an Option or Right shall be exercisable only by the Key Employee to
whom the Option or Right is granted.

(k) With respect to an Incentive Stock Option, the Committee shall specify such
terms and provisions as the Committee may determine to be necessary or desirable
in order to qualify such Option as an “incentive stock option” within the
meaning of Section 422 of the Code.

(1) With respect to the exercisability and settlement of Rights:

(i) Upon exercise of a Right, the Key Employee shall be entitled, subject to
such terms and conditions the Committee may specify, to receive upon exercise
thereof all or a

 

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portion of the excess of (A) the Fair Market Value of a specified number of
shares of Stock at the time of exercise, as determined by the Committee, over
(B) a specified amount which shall not, subject to Section 5(e), be less than
the Fair Market Value of such specified number of shares of Stock at the time
the Right is granted. Upon exercise of a Right, payment of such excess shall be
made as the Committee shall specify in cash, the issuance or transfer to the Key
Employee of whole shares of Stock with a Fair Market Value at such time equal to
any excess, or a combination of cash and shares of Stock with a combined Fair
Market Value at such time equal to any such excess, all as determined by the
Committee. The Company will not issue a fractional share of Stock and, if a
fractional share would otherwise be issuable, the Company shall pay cash equal
to the Fair Market Value of the fractional share of Stock at such time.

(ii) For the purposes of Subsection (i) of this Section 5(l), in the case of any
such Right or portion thereof, other than a Right related to an Incentive Stock
Option, exercised for cash during a “window period” specified by Rule 16b-3
under the Act, the Fair Market Value of the Stock at the time of such exercise
shall be the highest composite daily closing price of the Stock during such
window period.

(iii) In the event of the exercise of such Right, the Company’s obligation in
respect of any related Option or such portion thereof will be discharged by
payment of the Right so exercised.

6. Performance Shares

(a) Subject to the provisions of the Plan, the Committee shall (i) determine and
designate from time to time those Key Employees or groups of Key Employees to
whom Awards of Performance Shares are to be made, (ii) determine the Performance
Period (the “Performance Period”) and Performance Objectives (the “Performance
Objectives”) applicable to such Awards, (iii) determine the form of settlement
of a Performance Share and (iv) generally determine the terms and conditions of
each such Award. At any date, each Performance Share shall have a value equal to
the Fair Market Value of a share of Stock at such date; provided that the
Committee may limit the aggregate amount payable upon the settlement of any
Award.

(b) The Committee shall determine a Performance Period of not less than two nor
more than five years. Performance Periods may overlap and Key Employees may
participate simultaneously with respect to Performance Shares for which
different Performance Periods are prescribed.

(c) The Committee shall determine the Performance Objectives of Awards of
Performance Shares. Performance Objectives may vary from Key Employee to Key
Employee and between groups of Key Employees and shall be based upon such
performance criteria or combination of factor as the Committee may deem
appropriate, including, but not limited to, minimum earnings per share or return
on equity. If during the course of a Performance Period there shall occur
significant events which the Committee expects to have a substantial effect on
the applicable Performance Objectives during such period, the Committee may
revise such Performance Objectives.

(d) At the beginning of a Performance Period, the Committee shall determine for
each Key Employee or group of Key Employees the number of Performance Shares or
the percentage of Performance Shares which shall be paid to the Key Employee or
member of the group of Key Employees if Performance Objectives are met in whole
or in part.

(e) If a Key Employee terminates service with all Participating Companies during
a Performance Period because of death, Total Disability, Retirement, or under
other circumstances where the Committee in its sole discretion finds that a
waiver would be in the best interests of the Company, that Key Employee may, as
determined by the Committee, be entitled to an Award of Performance Shares at
the end of the Performance Period based upon the extent to which the Performance
Objectives were satisfied at the end of

 

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such period, which Award, in the discretion of the Committee, may be maintained
without change or reduced and prorated for the portion of the Performance Period
during which the Key Employee was employed by any Participating Company;
provided, however, the Committee may provide for an earlier payment in
settlement of such Performance Shares in such amount and under such terms and
conditions as the Committee deems appropriate or desirable. If a Key Employee
terminates service with all Participating Companies during a Performance Period
for any other reason, then such Key Employee shall not be entitled to any Award
with respect to that Performance Period unless the Committee shall otherwise
determine.

(f) Each Award of a Performance Share shall be paid in whole shares of Stock, or
cash, or a combination of Stock and cash either as a lump sum payment or in
annual installments, all as the Committee shall determine, with payment to
commence as soon as practicable after the end of the relevant Performance
Period.

7. Restricted Stock

(a) Restricted Stock shall be subject to a restriction period (after which
restrictions will lapse) which shall mean a period commencing on the date the
Award is granted and ending on such date as the Committee shall determine (the
“Restriction Period”). The Committee may provide for the lapse of restrictions
in installments where deemed appropriate.

(b) Except when the Committee determines otherwise pursuant to Section 7(d), if
a Key Employee terminates employment with all Participating Companies for any
reason before the expiration of the Restriction Period, all shares of Restricted
Stock still subject to restriction shall be forfeited by the Key Employee and
shall be reacquired by the Company.

(c) Except as otherwise provided in this Section 7, no shares of Restricted
Stock received by a Key Employee shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Restriction Period.

(d) In cases of death, Total Disability or Retirement or in cases of special
circumstances, the Committee may, in its sole discretion when it finds that a
waiver would be in the best interests of the Company, elect to waive any or all
remaining restrictions with respect to such Key Employee’s Restricted Stock.

(e) The Committee may require, under such terms and conditions as it deems
appropriate or desirable, that the certificates for Stock delivered under the
Plan may be held in custody by a bank or other institution, or that the Company
may itself hold such shares in custody until the Restriction Period expires or
until restrictions thereon otherwise lapse, and may require, as a condition of
any Award of Restricted Stock that the Key Employee shall have delivered a stock
power endorsed in blank relating to the Restricted Stock.

(f) Nothing in this Section 7 shall preclude a Key Employee from exchanging any
shares of Restricted Stock subject to the restrictions contained herein for any
other shares of Stock that are similarly restricted.

(g) Subject to Section 7(e) and Section 8, each Key Employee entitled to receive
Restricted Stock under the Plan shall be issued a certificate for the shares of
Stock. Such certificate shall be registered in the name of the Key Employee, and
shall bear an appropriate legend reciting the terms, conditions and
restrictions, if any, applicable to such Award and shall be subject to
appropriate stop-transfer orders.

8. Certificates for Awards of Stock

(a) The Company shall not be required to issue or deliver any certificates for
shares of Stock prior to (i) the listing of such shares on any stock exchange on
which the Stock may then be listed and (ii) the completion of any registration
or qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.

 

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(b) All certificates for shares of Stock delivered under the Plan shall also be
subject to such stop-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be placed on any such certificates to
make appropriate reference to such restrictions. The foregoing provisions of
this Section 8(b) shall not be effective if and to the extent that the shares of
Stock delivered under the Plan are covered by an effective and current
registration statement under the Securities Act of 1933, or if and so long as
the Committee determines that application of such provisions is no longer
required or desirable. In making such determination, the Committee may rely upon
an opinion of counsel for the Company.

(c) Except for the restrictions on Restricted Stock under Section 7, each Key
Employee who receives Stock in settlement of an Award of Stock, shall have all
of the rights of a shareholder with respect to such shares, including the right
to vote the shares and receive dividends and other distributions. No Key
Employee awarded an Option, a Right or Performance Share shall have any right as
a shareholder with respect to any shares covered by his or her Option, Right or
Performance Share prior to the date of issuance to him or her of a certificate
or certificates for such shares.

9. Change in Control

Notwithstanding any provisions in this Plan to the contrary:

(a) Each outstanding Option granted under the Plan shall become immediately
exercisable in full for the aggregate number of shares covered thereby and all
related Rights shall also become exercisable upon the occurrence of a Change in
Control and shall continue to be exercisable in full for cash for a period of 60
calendar days beginning on the date that such Change in Control occurs and
ending on the 60th calendar day following that date; provided, however, that
(A) no Right shall become exercisable earlier than six months following the date
the Right is granted, and (B) no Option or Right shall be exercisable beyond the
expiration date of its original term.

(b) Options and Rights shall not terminate and shall continue to be fully
exercisable for a period of seven months following the occurrence of a Change in
Control in the case of an employee who is terminated other than for just cause
or who voluntarily terminates his or her employment because he or she in good
faith believes that as a result of such Change in Control he or she is unable
effectively to discharge his or her present duties or the duties of the position
he or she occupied just prior to the occurrence of such Change in Control. For
purposes of Section 9 only, termination shall be for “just cause” only if such
termination is based on fraud, misappropriation or embezzlement on the part of
the employee which results in a final conviction of a felony. Under no
circumstances, however, shall any Option or Right be exercised beyond the
expiration date of its original term.

(c) Any Right or portion thereof may be exercised for cash within the
60-calendar-day period following the occurrence of a Change in Control with
settlement, except in the case of a Right related to an Incentive Stock Option,
based on the “Formula Price” which shall be the highest of (A) the highest
composite daily closing price of the Stock during the period beginning on the
60th calendar day prior to the date on which the Right is exercised and ending
on the date such Right is exercised, (B) the highest gross price paid for the
Stock during the same period of time, as reported in a report on Schedule 13D
filed with the Securities and Exchange Commission or (C) the highest gross price
paid or to be paid for a share of Stock (whether by way of exchange, conversion,
distribution upon merger, liquidation or otherwise) in any of the transactions
set forth in the definition of “Change in Control” in the Retirement Plan.

(d) Upon the occurrence of a Change in Control, Limited Stock Appreciation
Rights shall automatically be granted as to any Option with respect to which
Rights are not then outstanding;

 

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provided, however, that Limited Stock Appreciation Rights shall be provided at
the time of grant of any Incentive Stock Option subject to exercisability upon
the occurrence of a Change in Control. Limited Stock Appreciation Rights shall
entitle the holder thereof, upon exercise of such rights and surrender of the
related Option or any portion thereof, to receive, without payment to the
Company (except for applicable withholding taxes), an amount in cash equal to
the excess, if any, of the Formula Price as that term is defined in Section 9
over the option price of the Stock as provided in such Option; provided that in
the case of the exercise of any such Limited Stock Appreciation Right or portion
thereof related to an Incentive Stock Option, the Fair Market Value of the Stock
at the time of such exercise shall be substituted for the Formula Price. Each
such Limited Stock Appreciation Right shall be exercisable only during the
period beginning on the first business day following the occurrence of such
Change in Control and ending on the 60th calendar day following such date and
only to the same extent the related Option is exercisable. Upon exercise of a
Limited Stock Appreciation Right and surrender of the related Option, or portion
thereof, such Option, to the extent surrendered, shall not thereafter be
exercisable.

(e) The restrictions applicable to Awards of Restricted Stock issued pursuant to
Section 7 shall lapse upon the occurrence of a Change in Control and the Company
shall issue stock certificates without a restrictive legend. Key Employees
holding Restricted Stock on the date of a Change in Control may tender such
Restricted Stock to the Company which shall pay the Formula Price as that term
is defined in Section 9; provided, such Restricted Stock must be tendered to the
Company within 60 calendar days of the Change in Control.

(f) If a Change in Control occurs during the course of a Performance Period
applicable to an Award of Performance Shares pursuant to Section 6, then the Key
Employee shall be deemed to have satisfied the Performance Objectives and
settlement of such Performance Shares shall be based on the Formula Price, as
defined in this Section 9.

10. Beneficiary

(a) Each Key Employee shall file with the Company a written designation of one
or more persons as the Beneficiary who shall be entitled to receive the Award,
if any, payable under the Plan upon his or her death. A Key Employee may from
time-to-time revoke or change his or her Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the Company.
The last such designation received by the Company shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Company prior to the Key Employee’s death,
and in no event shall it be effective as of a date prior to such receipt.

(b) If no such Beneficiary designation is in effect at the time of a Key
Employee’s death, or if no designated Beneficiary survives the Key Employee or
if such designation conflicts with law, the Key Employee’s estate shall be
entitled to receive the Award, if any, payable under the Plan upon his or her
death. If the Committee is in doubt as to the right of any person to receive
such Award, the Company may retain such Award, without liability for any
interest thereon, until the Committee determines the rights thereto, or the
Company may pay such Award into any court of appropriate jurisdiction and such
payment shall be a complete discharge of the liability of the Company therefor.

11. Administration of the Plan

(a) Each member of the Committee shall be both a member of the Board and a
“non-employee director” within the meaning of Rule 16b-3(b)(3)(i) under the Act
or successor rule or regulation. No member of the Committee shall be, or shall
have been, eligible to receive an Award under the Plan or any other plan
maintained by any Participating Company to acquire stock, stock options, stock
appreciation rights, performance shares or restricted stock of a Participating
Company at any time within the one year immediately preceding the member’s
appointment to the Committee.

 

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(b) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in the
sole discretion of the Committee and shall be final, conclusive and binding on
all persons for all purposes.

(c) The Committee shall have full power, discretion and authority to interpret,
construe and administer the Plan and any part thereof, and its interpretations
and constructions thereof and actions taken thereunder shall be, except as
otherwise determined by the Board, final, conclusive and binding on all persons
for all purposes.

(d) The Committee’s decisions and determinations under the Plan need not be
uniform and may be made selectively among Key Employees, whether or not such Key
Employees are similarly situated.

(e) The Committee may, in its sole discretion, delegate such of its powers as it
deems appropriate.

(f) If a Change in Control has not occurred and if the Committee determines that
a Key Employee has taken action inimical to the best interests of any
Participating Company, the Committee may, in its sole discretion, terminate in
whole or in part such portion of any Option (including any related Right) as has
not yet become exercisable at the time of termination, terminate any Performance
Share Award for which the Performance Period has not been completed or terminate
any Award of Restricted Stock for which the Restriction Period has not lapsed.

12. Amendment, Extension or Termination

The Board may, at any time, amend or terminate the Plan and, specifically, may
make such modifications to the Plan as it deems necessary to avoid the
application of Section 162(m) of the Code and the Treasury regulations issued
thereunder. However, no amendment shall, without approval by a majority of the
Company’s stockholders, (a) alter the group of persons eligible to participate
in the Plan, (b) except as provided in Section 13 increase the maximum number of
shares of Stock which are available for Awards under the Plan or (c) extend the
period during which awards may be granted beyond December 31, 2003. If a Change
in Control has occurred, no amendment or termination shall impair the rights of
any person with respect to a prior Award.

13. Adjustments in Event of Change in Common Stock

I In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock or, stock dividend, merger or consolidation of
the Company or sale by the Company of all or a portion of its assets, the
Committee shall make such adjustments in the Stock subject to Awards, including
Stock subject to purchase by an Option, or the terms, conditions or restrictions
on Stock or Awards, including the price payable upon the exercise of such
Option, as the Committee deems equitable; provided however, that in the event of
a stock split, stock dividend or consolidation of shares, the number of shares
subject to an outstanding Option and the exercise price thereof, and the number
of outstanding Performance Shares, shall be proportionately adjusted to reflect
such action. The number of shares available for Awards shall be automatically
increased to reflect any additional shares issuable pursuant to the last clause
of the preceding sentence. With respect to Awards intended to qualify as
“performance-based compensation” under Section 162(m) of the Code, such
adjustments shall be make only to the extent that the Committee determines that
such adjustments may be made without a loss of deductibility of such Awards
under Section 162(m) of the Code.

14. Miscellaneous

(a) Except as provided in Section 9, nothing in this Plan or any Award granted
hereunder shall confer upon any employee any right to continue in the employ of
any Participating Company or interfere in any way with the right of any
Participating Company to terminate his or her employment at any time. No Award
payable under the Plan shall be deemed salary or compensation for the purpose of
computing benefits under any employee benefit plan or other arrangement of any
Participating Company for the benefit of its employees

 

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unless the Company shall determine otherwise. No Key Employee shall have any
claim to an Award until it is actually granted under the Plan. To the extent
that any person acquires a right to receive payments from the Company under this
Plan, such right shall be no greater than the right of an unsecured general
creditor of the Company. All payments to be made hereunder shall be paid from
the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as provided in Section 7(e) with respect to Restricted Stock.

(b) The Committee may cause to be made, as a condition precedent to the payment
of any Award, or otherwise, appropriate arrangements with the Key Employee or
his or her Beneficiary, for the withholding of any federal, state, local or
foreign taxes.

(c) The Plan and the grant of Awards shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required.

(d) The terms of the Plan shall be binding upon the Company and its successors
and assigns.

(e) Captions preceding the sections hereof are inserted solely as a matter of
convenience and in no way define or limit the scope or intent of any provision
hereof.

15. Effective Date, Term of Plan and Shareholder Approval

The effective date of the Plan was March 1, 1994 and was approved by the
Company’s shareholders within twelve months before such date. The Plan was
amended and restated effective October 16, 1998. No Award shall be granted under
this Plan after the Plan’s termination date. The Plan’s termination date shall
be December 31, 2003. The Plan will continue in effect for existing Awards as
long as any such Award is outstanding.

ADMINISTRATION

The Plan is administered by a Committee of the Board of Directors of Rayonier,
presently designated as the Compensation and Management Development Committee,
the members of which serve during the pleasure of the Board. The Committee is
composed of directors none of whom is an officer or employee of Rayonier and
none of whom is eligible to receive any award under the Plan.

FEDERAL INCOME TAX TREATMENT

The following is a brief summary of the current Federal income tax rules
generally applicable to options, stock appreciation rights, performance shares
and restricted stock. Recipients of Awards and Substitute Stock Options should
consult their own tax advisors as to the specific Federal, state and local tax
consequences applicable to them.

A. Options and Stock Appreciation Rights

Options granted under the Plan may be either non-qualified options or “incentive
stock options” qualifying under Section 422 of the Internal Revenue Code. The
Substitute Stock Options are non-qualified options.

 

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Non-qualified Options

An optionee is not subject to Federal income tax upon grant of a non-qualified
option. At the time of exercise, the optionee will realize compensation income
(subject to withholding) to the extent that the then fair market value of the
stock exceeds the option price. The amount of such income will constitute an
addition to the optionee’s tax basis in the optioned stock. Sale of the shares
will result in capital gain or loss (long-term or short-term depending on the
optionee’s holding period). Rayonier is entitled to a Federal tax deduction at
the same time and to the same extent that the optionee realizes compensation
income.

Incentive Stock Options (“ISOs”)

Options under the Plan denominated as ISOs are intended to constitute incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended. An optionee is not subject to Federal income tax upon either the grant
or exercise of an ISO. If the optionee holds the shares acquired upon exercise
for at least one year after issuance of the optioned shares and until at least
two years after grant of the option, then the difference between the amount
realized on a subsequent sale or other taxable disposition of the shares and the
option price will constitute long-term capital gain or loss. To obtain favorable
tax treatment, an ISO must be exercised within three months after termination of
employment (other than by retirement, disability, or death) with Rayonier or
subsidiary. To obtain favorable tax treatment, an ISO must be exercised within
three months of retirement or within one year of cessation of employment for
disability (with no limitation in the case of death), notwithstanding any longer
exercise period permitted under the terms of the Plan. Rayonier will not be
entitled to a Federal tax deduction with respect to the grant or exercise of the
ISO.

If the optionee disposes of the shares acquired under an ISO before the
requisite holding period, he or she will be deemed to have made a “disqualifying
disposition” of the shares and will realize compensation income in the year of
disposition equal to the lesser of the fair market value of the shares at
exercise or the amount realized on their disposition over the option price of
the shares. (However, if the disposition is by gift or by sale to a related
party, the compensation income must be measured by the value of the shares at
exercise over the option price.) Any gain recognized upon a disqualifying
disposition in excess of the ordinary income portion will constitute either
short-term or long-term capital gain. In the event of a disqualifying
disposition, Rayonier will be entitled to a Federal tax deduction in the amount
of the compensation income realized by the optionee.

The option spread on the exercise of an ISO is an adjustment in computing
alternative minimum taxable income. No adjustment is required, however, if the
optionee made a disqualifying disposition of the shares in the same year as he
or she is taxed on the exercise.

Stock Appreciation Rights (“SARs”)

SARs may be awarded to officers and directors of Rayonier subject to
Section 16(b) of the Securities Exchange Act of 1934 with respect to both
incentive stock options and non-qualified options granted under the Plan. An
optionee is not taxed upon the grant of SARs. An optionee exercising SARs for
cash will realize compensation income (subject to withholding) in the amount of
the cash received. Rayonier is entitled to a tax deduction at the same time and
to the same extent that the optionee realizes compensation income.

B. Performance Shares

A recipient of performance shares generally will realize compensation income
(subject to withholding) when and to the extent that payment is made, whether in
the form of cash or shares of Rayonier Common Shares. To the extent that payment
is made in the form of stock, income shall be measured by the then fair market
value of the shares, which shall constitute an addition to the recipient’s tax
basis in such shares. Rayonier will be entitled to a Federal tax deduction for
the value of payment at the time of payment.

 

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C. Restricted Stock

A recipient of restricted stock generally will realize compensation income
(subject to withholding) when and to the extent that the restrictions on the
shares lapse, as measured by the value of the shares at the time of lapse. The
recipient’s holding period for the shares will not commence until the date of
lapse, and dividends paid during the restriction period will be treated as
compensation. The income realized on lapse of the restrictions will constitute
an addition to the recipient’s tax basis in the shares.

In lieu of deferred recognition of income, the recipient may file an election
with the Internal Revenue Service, within 30 days of award, to realize
compensation income at the time of award, as measured by the fair market value
of the stock on the date of award determined without regard to the restrictions.
The income realized will constitute an addition to the tax basis of the shares.
In the case of such election, any appreciation (or depreciation) on the shares
during the restriction period will give rise to capital gain (or capital loss).
In the event that the recipient terminates employment during the restriction
period and forfeits his or her shares, no deduction may be claimed and the taxes
paid on award of the shares shall be forfeited.

Rayonier will be entitled to a Federal tax deduction at the same time and to the
same extent that the recipient realizes compensation income.

 

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