Exhibit 10.21

RAYONIER INC.

4,500,000 Common Shares

2004 RAYONIER INCENTIVE STOCK

AND

MANAGEMENT BONUS 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 December 29, 2005

 

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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by reference in the Prospectus shall be deemed to be modified or superseded for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 Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of the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, Senior Vice President, Administration and 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

   4

Administration

   15

Federal Tax Treatment

   17

 

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GENERAL INFORMATION

The 2004 Rayonier Incentive Stock and Management Bonus Plan (the “Plan”) was
adopted by the Board of Directors of Rayonier Inc. and approved by its
shareholder to be effective January 1, 2004.

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 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, SAR’s, Restricted Stock units and senior
management bonus awards in stock or in cash. 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, applicable information concerning performance shares or
restricted stock and bonus awards that may be relevant to them.

The Plan contains a 1.16 million share limitation on the number of shares which
may be issued as restricted or performance share awards, as well as an annual
limitation on the number of shares which one employee may be awarded annually.

 

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2004 RAYONIER INCENTIVE STOCK AND MANAGEMENT BONUS PLAN

1. Purpose

The purpose of the 2004 Rayonier Incentive Stock and Management Bonus 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, performance bonus awards or any combination of the foregoing, as the
Committee may determine.

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,
Restricted Stock or Performance Bonus Awards, or any combination of the
foregoing.

“Award Agreement” means the written agreement evidencing each Award, other than
Performance Bonus Awards, granted to a Key Employee under the Plan.

“Beneficiary” means the estate of a Key Employee or such other beneficiary or
beneficiaries lawfully designated pursuant to Section 11 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 for the most recently completed trading day 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.

 

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“GAAP” means U.S. Generally Accepted Accounting Principles.

“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 that shall
become exercisable automatically upon the occurrence of a Change in Control as
described in Section 10 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 that at the time
such Option is granted qualifies as a “subsidiary” of the Company under
Section 425(f) of the Code.

“Participant” means each Key Employee of the Participating Company selected by
the Committee as eligible for a Performance Bonus Award who could potentially be
described in Section 162(m)(3) of the Code, as well as, in the discretion of the
Committee, the President and Chief Executive Officer and any Key Employee
reporting directly to the President and Chief Executive Officer.

“Performance Bonus Award” means the right of a Participant to receive cash
following the completion of a Performance Period based upon performance in
respect of one or more of the Performance Goals during such Performance Period,
as specified in Section 9.

“Performance Goals” means or may be expressed in terms of any, but not limited
to, of the following business criteria: (i) net income, (ii) earnings per share,
(iii) operating income, (iv) operating cash flow, (v) earnings before income
taxes and depreciation, (vi) earnings before interest, taxes, depreciation and
amortization, (vii) operating margins (viii) reductions in operating expenses,
(ix) sales or return on sales (x) total stockholder return (xi) return on
equity, (xii) return on total capital, (xiii) return on invested capital,
(xiv) return on assets, (xv) economic value added, (xvi) cost reductions and
savings, (xvii) increase in surplus, (xviii) productivity improvements, (xix) an
executive’s attainment of personal objectives with respect to any of the
foregoing criteria or other criteria such as growth and profitability, customer
satisfaction, leadership effectiveness, business development, negotiating
transactions and sales or developing long term business goals. A Performance
Goal may be measured over a Performance Period on a periodic, annual, cumulative
or average basis and may be established on a corporate-wide basis or established
with respect to one or more operating units, divisions, subsidiaries, acquired
businesses, minority investments, partnerships or joint ventures. Unless
otherwise determined by the Committee, the Performance Goals will be determined
using GAAP consistently applied during a Performance Period by no later than the
earlier of the date that is ninety days after the commencement of the
Performance Period or the day prior to the date on which twenty-five percent of
the Performance Period has elapsed.

“Performance Objective” means the level or levels of performance required to be
attained with respect to specified Performance Goals in order that a Key
Employee shall become entitled to specified rights in connection with a
Performance Share or Performance Bonus Award.

“Performance Period” means the calendar year, or such other shorter or longer
period designated by the Committee, during which performance will be measured in
order to determine a Key Employee’s entitlement to receive payment of a
Performance Share or Performance Bonus Award, respectively.

 

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

“Plan” means the 2004 Rayonier Incentive Stock and Management Bonus Plan, as the
same may be amended, administered or interpreted from time to time.

“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.

“Restricted Stock Unit” has the meaning set forth in Section 6 of the Plan.

“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.

“Share Limit” has the meaning set forth in Section 3.

“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 that may be awarded under the Plan is
4.5 million.

No more than 1.16 million of such total number of shares shall be available for
restricted stock and Performance Share 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 Options, Performance
Shares, Restricted Stock or Rights for more than four percent (4%) of the total
number of shares authorized under the Plan (with respect to any Key Employee,
his or her “Share Limit”). The number of shares available in each category
hereunder shall be subject to adjustment as provided in Section 14 in connection
with a Stock split, Stock dividend, or other extraordinary transaction affecting
the Stock.

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 that equal the
maximum number of Performance Share Awards issuable in any outstanding grant, 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
that were theretofore subject to such Awards shall again be available for Awards
under the Plan to the extent of such

 

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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.

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, other than Performance Bonus Awards, 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 that 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 that 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 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 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.

 

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(h) Unless Section 10 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 10, 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 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.

(l) 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 as the Committee may specify, to receive upon exercise
thereof all or a 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 that 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.

 

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(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 and 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 with respect to the award of Performance Shares.
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 Goals as the Committee may deem appropriate. The Performance
Objective shall be established by the Committee prior to, or reasonably promptly
following the inception of, a Performance Period but, to the extent required by
Section 162(m) of the Code, by no later than the earlier of the date that is
ninety days after the commencement of the Performance Period or the day prior to
the date on which twenty-five percent of the Performance Period has elapsed.

(d) Following the completion of each Performance Period, the Committee shall
certify in writing, in accordance with the requirements of Section 162(m) of the
Code to the extent applicable, whether the Performance Objective and other
material terms for paying amounts in respect of each Performance Share Award
related to that Performance Period have been achieved or met. Unless the
Committee determines otherwise, Performance Share Awards shall not be settled
until the Committee has made the certification specified under this
Section 6(d).

(e) The Committee is authorized at any time during or after a Performance Period
to reduce or eliminate the Performance Share Award of any Key Employee for any
reason, including, without limitation, changes in the position or duties of any
Key Employee with the Participating Company during or after a Performance
Period, whether due to any termination of employment (including death,
disability, retirement, voluntary termination or termination with or without
cause) or otherwise. In addition, to the extent necessary to preserve the
intended economic effects of the Plan to the Participating Company and the Key
Employee, the Committee shall adjust Performance Objectives, the Performance
Share Awards or both to take into account: (i) a change in corporate
capitalization, (ii) a corporate transaction, such as any merger of the Company
or any subsidiary into another corporation, any consolidation of the Company or
any subsidiary into another corporation, any separation of the Company or any
subsidiary (including a spin-off or the distribution of stock or property of the
Company or any subsidiary), any reorganization of the Company or any subsidiary
or a large, special and non-recurring dividend paid or distributed by the
Company (whether or not such reorganization comes within the definition of
Section 368 of the Code), (iii) any partial or complete liquidation of the
Company or any subsidiary or (iv) a change in accounting or other relevant rules
or regulations (any adjustment pursuant to this Clause (iv) shall be subject to
the timing requirements of the last sentence of the definition of

 

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Performance Goal set forth in Section 2 of the Plan); provided, however, that no
adjustment hereunder shall be authorized or made if and to the extent that the
Committee determines that such authority or the making of such adjustment would
cause the Performance Bonus Awards to fail to qualify as “qualified
performance-based compensation” under Section 162(m) of the Code with respect to
a particular Key Employee.

(f) 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 that 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.

(g) 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 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, but only to the extent consistent with the requirements of
Section 162(m) of the Code to the extent applicable in respect of such Key
Employee. 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.

(h) 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
but no earlier than following the determination made in Section 6(d) hereof.
Subject to the terms of the applicable program, the Award may also be paid in
shares of Stock or Restricted Stock.

(i) With respect to Performance Shares that may be settled through the grant of
Stock, a Key Employee shall not be granted Performance Shares for all of the
Performance Periods commencing in a calendar year that permit the Key Employee
to earn Stock covering more than the Share Limit in respect of such Key
Employee. In addition, separate and apart from the limit in the previous
sentence, with respect to Performance Share Awards to be settled in cash, a Key
Employee shall not be granted Performance Share Awards for all of the
Performance Periods commencing in a calendar year that permit the Key Employee
in the aggregate to earn a cash payment in excess of the Fair Market Value of
the Share Limit as of the first day of the first Performance Period commencing
in such calendar year.

(j) Performance Share Awards may be structured in the form of Restricted Stock
Units or any substantially similar instrument evidencing the right to receive a
share of Stock, or a cash payment equal to the Fair Market Value of a share of
Stock, at some future date upon the lapse of the applicable restrictions
established by the Committee or upon the satisfaction of any applicable
Performance Goals established by the Committee hereunder. To the extent provided
for by the Committee, the rules of Section 7 shall apply to Restricted Stock
Units payable in Stock.

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.

 

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(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 that the Company shall, in its sole
discretion, determine to be necessary or advisable.

(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.

 

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9. Management Performance Bonus Awards

(a) Form of Award. The Committee is authorized to grant Awards pursuant to this
Section 9. An Award shall represent the conditional right of the Participant to
receive cash, or at the discretion of the Committee (and subject to the
limitations in Section 3), in whole or in part in shares of stock, based upon
achievement of one or more pre-established Performance Objectives during a
Performance Period, subject to the terms of this Section 9 and the other
applicable terms of the Plan. Awards shall be subject to such conditions,
including deferral of settlement, risks of forfeiture, restrictions on
transferability and other terms and conditions as shall be specified by the
Committee. The Performance Bonus Award hereunder may take the form of a
percentage of a bonus pool the magnitude of which shall be determined in a
manner consistent with the determination of individual Performance Bonus Awards
based on individual Performance Objectives hereunder for all of the members in
the pool, with the time period for establishing the magnitude of the pool and
the fixing of the applicable percentage available to any individual determined
in accordance with the requirements of Section 162(m) of the Code applicable to
any such individuals in the pool.

(b) Performance Objectives. The Committee shall establish the Performance
Objective for each Performance Bonus Award, consisting of one or more business
criteria permitted as Performance Goals hereunder, one or more levels of
performance with respect to each such criteria, and the amount or amounts
payable or other rights that the Participant will be entitled to upon
achievement of such levels of performance. The Performance Objective shall be
established by the Committee prior to, or reasonably promptly following the
inception of, a Performance Period but, to the extent required by Section 162(m)
of the Code, by no later than the earlier of the date that is ninety days after
the commencement of the Performance Period or the day prior to the date on which
twenty-five percent of the Performance Period has elapsed.

(c) Additional Provisions Applicable to Performance Bonus Awards. More than one
Performance Goal may be incorporated in a Performance Objective, in which case
achievement with respect to each Performance Goal may be assessed individually
or in combination with each other. The Committee may, in connection with the
establishment of Performance Objectives for a Performance Period, establish a
matrix setting forth the relationship between performance on two or more
Performance Goals and the amount of the Performance Bonus Award payable for that
Performance Period. The level or levels of performance specified with respect to
a Performance Goal may be established in absolute terms, as objectives relative
to performance in prior periods, as an objective compared to the performance of
one or more comparable companies or an index covering multiple companies, or
otherwise as the Committee may determine. Performance Objectives shall be
objective and shall otherwise meet the requirements of Section 162(m) of the
Code. Performance Objectives may differ for Performance Bonus Awards granted to
any one Participant or to different Participants.

(d) Duration of the Performance Period. The Committee shall establish the
duration of each Performance Period at the time that it sets the Performance
Objectives applicable to that Performance Period. The Committee shall be
authorized to permit overlapping or consecutive Performance Periods.

(e) Certification. Following the completion of each Performance Period, the
Committee shall certify in writing, in accordance with the requirements of
Section 162(m) of the Code, whether the Performance Objective and other material
terms for paying amounts in respect of each Performance Bonus Award related to
that Performance Period have been achieved or met. Unless the Committee
determines otherwise, Performance Bonus Awards shall not be settled until the
Committee has made the certification specified under this Section 9(e).

(f) Adjustment. The Committee is authorized at any time during or after a
Performance Period to reduce or eliminate the Performance Bonus Award of any
Participant for any reason, including, without limitation, changes in the
position or duties of any Participant with the Participating Company during or
after a Performance Period, whether due to any termination of employment
(including death, disability, Retirement, voluntary termination or termination
with or without cause) or otherwise. In addition, to the extent necessary to
preserve the intended economic effects of the Plan to the Participating Company
and the Participants, the Committee shall adjust Performance Objectives, the
Performance Bonus Awards or both to

 

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take into account: (i) a change in corporate capitalization, (ii) a corporate
transaction, such as any merger of the Company or any subsidiary into another
corporation, any consolidation of the Company or any subsidiary into another
corporation, any separation of the Company or any subsidiary (including a
spin-off or the distribution of stock or property of the Company or any
subsidiary), any reorganization of the Company or any subsidiary or a large,
special and non-recurring dividend paid or distributed by the Company (whether
or not such reorganization comes within the definition of Section 368 of the
Code), (iii) any partial or complete liquidation of the Company or any
subsidiary or (iv) a change in accounting or other relevant rules or regulations
(any adjustment pursuant to this Clause (iv) shall be subject to the timing
requirements of the last sentence of the definition of Performance Goal set
forth in Section 2 of the Plan); provided, however, that no adjustment hereunder
shall be authorized or made if and to the extent that the Committee determines
that such authority or the making of such adjustment would cause the Performance
Bonus Awards to fail to qualify as “qualified performance-based compensation”
under Section 162(m) of the Code.

(g) Timing of Payment. Except as provided below, any amounts payable in respect
of Performance Bonus Awards for a Performance Period will generally be paid as
soon as practicable following the determination in respect thereof made pursuant
to Section 9(e).

(h) Deferral of Payments. Subject to such terms, conditions and administrative
guidelines as the Committee shall specify from time to time, a Participant shall
have the right to elect to defer receipt of part or all of any payment due with
respect to a Performance Bonus Award.

(i) Maximum Amount Payable Per Participant Under This Section 9. A Participant
shall not be granted Performance Bonus Awards for all of the Performance Periods
commencing in a calendar year that permit the Participant in the aggregate to
earn a payment in excess of 200% of the Participant’s base salary in effect at
the beginning of such calendar year.

(j) Termination of Employment. In the event a Participant terminates employment
for any reason during a Performance Period or prior to the Performance Bonus
Award payment, he or she (or his or her Beneficiary, in the case of death) shall
not be entitled to receive any Performance Bonus Award for such Performance
Period unless the Committee, in its sole and absolute discretion, elects to pay
all or any part of a Performance Bonus Award to such Participant.

10. 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 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 the duties of the position he or she occupied just
prior to the occurrence of such Change in Control. For purposes of Section 10
only, termination shall be for “just cause” only if such termination is based on
fraud, misappropriation or embezzlement on the part of the employee that 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

 

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related to an Incentive Stock Option, based on the “Formula Price” that 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; 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 10 over the exercise 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. Notwithstanding
anything to the contrary contained herein, the automatic grant of a Limited
Stock Appreciation Right pursuant to the first sentence of this Section 10(d) is
suspended effective December 31, 2005. However, the Committee may grant such
Limited Stock Appreciation Rights in connection with a Change in Control at any
time it deems appropriate, in its sole discretion. The Committee shall advise
the Board by no later than July 1, 2006 as to the Committee’s recommendation on
whether further amendment of this Section 10(d) to reinstate its original terms,
in whole or in part, or to substitute other terms consistent with the intent of
this provision is warranted, subject to the approval of the Board in its
discretion.

(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 that shall pay the Formula Price as that term is
defined in Section 10; 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 10.

11. Beneficiary

The Beneficiary of a Key Employee shall be the Key Employee’s estate, which
shall be entitled to receive the Award, if any, payable under the Plan upon his
or her death. A Key Employee may file with the Company a written designation of
one or more persons as a Beneficiary in lieu of his or her estate, who shall be
entitled to receive the Award, if any, payable under the Plan upon his or her
death, subject to the enforceability of the designation under applicable law at
that time. A Key Employee may from time-to-time revoke or change his or her
Beneficiary designation, with or without the consent of any prior Beneficiary as
required by applicable law, by filing a new designation with the Company.
Subject to the foregoing, 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

 

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death, and in no event shall it be effective as of a date prior to such receipt.
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 therefore.

12. Administration of the Plan

(a) Each member of the Committee shall be both a member of the Board, a
“non-employee director” within the meaning of Rule 16b-3(b)(3)(i) under the Act
or successor rule or regulation and an “outside director” within the meaning of
Section 162(m) of the Code.

(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; provided, however, that the Committee may not delegate its
responsibility (i) to make Awards to executive officers of the Company; (ii) to
make Awards that are intended to constitute “qualified performance-based
compensation” under Section 162(m) of the Code; or (iii) to certify the
satisfaction of Performance Objectives pursuant to Sections 6(d) or 9(e) in
accordance with Section 162(m) of the Code. The Committee may also appoint
agents to assist in the day-to-day administration of the Plan and may delegate
the authority to execute documents under the Plan to one or more members of the
Committee or to one or more officers of the Company.

(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.

13. 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 14 increase the maximum number of
shares of Stock that are available for Awards under the Plan, or (c) except for
adjustments pursuant to Section 14 or as otherwise provided for in the Plan,
decrease the Option price for any outstanding Option after the date the Option
is granted or accept the surrender of any outstanding Option as consideration
for the grant of a new Option with a lower price than the Option being
surrendered. If a Change in Control has occurred, no amendment or termination
shall impair the rights of any person with respect to a prior Award.

14. Adjustments in Event of Change in Common Stock

In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock or

 

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stock dividend, merger or consolidation of the Company or sale by the Company of
all or a portion of its assets, the Committee may 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. With
respect to Awards intended to qualify as “performance-based compensation” under
Section 162(m) of the Code, such adjustments shall be made only to the extent
that the Committee determines that such adjustments may be made without a loss
of deductibility for such Awards under Section 162(m) of the Code.

15. Forfeiture of Gains on Exercise. Except following a Change in Control, if
the Key Employee terminates employment in breach of any covenants and conditions
subsequent set forth in Section 16 and becomes employed by a competitor of the
Company within one year after the date of exercise of any Option or the receipt
of any Award, the Key Employee shall pay to the Company an amount equal to any
gain from the exercise of the Option or the value of the Award other than
Options, in each case measured by the amount reported as taxable compensation to
the Key Employee by the Company for federal income tax purposes and in the case
of Options that are incentive stock options, in an amount equal to the amount
that would have been reported as taxable income were such Options not incentive
stock options, and in each case without regard to any subsequent fluctuation in
the market price of the shares of common stock of the Company. Any such amount
due hereunder shall be paid by the Key Employee within thirty days of becoming
employed by a competitor. By accepting an Option or other Award hereunder, the
Key Employee is authorizing the Company to withhold, to the extent permitted by
law, the amount owed to the Company hereunder from any amounts that the Company
may owe to the Key Employee in any capacity whatsoever.

16. Conditions Subsequent. Except after a Change in Control, the exercise of any
Option or Right and the receipt of any Award shall be subject to the
satisfaction of the following conditions subsequent: (i) that Key Employee
refrain from engaging in any activity that in the opinion of the Committee is
competitive with any activity of the Company or any Subsidiary, excluding any
activity undertaken upon the written approval or request of the Company,
(ii) that Key Employee refrain from otherwise acting in a manner inimical or in
any way contrary to the best interests of the Company, and (iii) that the Key
Employee furnish the Company such information with respect to the satisfaction
of the foregoing conditions subsequent as the Committee shall reasonably
request. In addition, except as may otherwise be excused by action of the
Committee, the Key Employee by the exercise of the Option or the receipt of the
Award agrees to remain in the employ of the Company, unless earlier terminated
by the Company or by the Key Employee by reason of his or her death, disability
or retirement.

17. Miscellaneous

(a) Except as provided in Section 10, 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 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.

 

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(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.

(f) To the extent Awards issued under the Plan are intended to be exempt from
the application of Section 162(m) of the Code, which restricts under certain
circumstances the Federal income tax deduction for compensation paid by a public
company to named executives in excess of $1 million per year, the Committee may,
without stockholder approval, amend the Plan retroactively or prospectively to
the extent it determines necessary in order to comply with any subsequent
clarification of Section 162(m) of the Code required to preserve the Company’s
Federal income tax deduction for compensation paid pursuant to the Plan.

18. Effective Date, Term of Plan and Shareholder Approval

The effective date of the Plan is January 1, 2004. The Plan will continue in
effect for existing Awards as long as any such Award is outstanding. Unless the
Company determines otherwise, Section 6 and 9 of the Plan and the definition of
“Performance Goal” shall be submitted to the Company’s stockholders at the first
stockholder meeting that occurs in the fifth year following the year in which
the Plan was last approved by stockholders (or any earlier meeting designated by
the Board), in accordance with the requirements of Section 162(m) of the Code.

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.

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.

 

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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.

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.

 

18