<PAGE>
[LOGO] Rayonier Corporate Headquarters
Over 70 Years of Growth
March 28, 1997
Dear Shareholder:
Enclosed are the Notice of Annual Meeting and Proxy Statement for the 1997
Annual Meeting of Shareholders of Rayonier.
As has been the case with our past Annual Meetings, this meeting is intended
to be a business only meeting with the one item on the agenda being the
tabulation and report of proxies and ballots for the election of five
directors. The accompanying Notice of Annual Meeting and Proxy Statement
provides information required by applicable laws and regulations, including
pertinent information about each nominee for election as director. Aside from
dealing with this agenda item, we plan to have only a brief presentation
summarizing information that is in our Annual Report for 1996 and will be in
our press release announcing earnings for the first quarter of 1997.
We urge you to complete and return the enclosed proxy as promptly as
possible. Your vote is important.
Sincerely yours,
/s/ Ronald M. Gross
RONALD M. GROSS
Chairman and
Chief Executive Officer
Rayonier Inc. . 1177 Summer Street . Stamford, CT 06905-5529
Telephone (203) 348-7000 . Fax (203) 964-4528
<PAGE>
[LOGO] Rayonier Corporate Headquarters
Over 70 Years of Growth
NOTICE OF ANNUAL MEETING
March 28, 1997
Notice is hereby given that the 1997 Annual Meeting of the Shareholders of
Rayonier Inc., a North Carolina corporation, will be held at the Sheraton
Stamford, One First Stamford Place, Stamford, Connecticut on Friday, May 16,
1997 at 9:00 A.M., local time, for the following purposes:
1. to elect one director of Class II and four directors of Class III; and
2. to act upon such other matters as may properly come before the
meeting.
Shareholders of record at the close of business on March 24, 1997 will be
entitled to vote at the meeting.
/s/ John B. Canning
JOHN B. CANNING
Corporate Secretary
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE SELF-ADDRESSED ENVELOPE (WHICH IS POSTAGE-PAID FOR SHAREHOLDERS
IN THE UNITED STATES, CANADA, AND UNITED KINGDOM) WHETHER OR NOT THEY EXPECT TO
ATTEND THE MEETING. A SHAREHOLDER MAY NEVERTHELESS VOTE IN PERSON IF HE OR SHE
DOES ATTEND.
Rayonier Inc. . 1177 Summer Street . Stamford, CT 06905-5529
Telephone (203) 348-7000 . Fax (203) 964-4528
<PAGE>
[LOGO] Rayonier
Over 70 Years of Growth
PROXY STATEMENT
Annual Meeting of Shareholders
Friday, May 16, 1997
This Proxy Statement and accompanying proxy are being mailed to shareholders
of Rayonier Inc. ("Rayonier" or the "Company") commencing March 28, 1997 in
connection with the solicitation of proxies by Rayonier for the 1997 Annual
Meeting of Shareholders to be held at the Sheraton Stamford, One First
Stamford Place, Stamford, Connecticut on Friday, May 16, 1997 at 9:00 A.M. or
at any adjournment thereof (the "Annual Meeting"). The enclosed proxy is
solicited on behalf of the Board of Directors of Rayonier.
When your proxy is returned properly executed, the shares it represents will
be voted in accordance with your specifications. If you sign and return your
proxy but do not specify any choices you will thereby confer discretionary
authority for your shares to be voted as recommended by the Board of
Directors. The proxy also confers discretionary authority on the individuals
named therein to vote the shares on any matter that was not known by the Board
of Directors on the date of this Proxy Statement but is properly presented at
the Annual Meeting.
Your vote is important, and the Board of Directors urges you to exercise
your right to vote.
The directors shall be elected by a plurality of the votes cast at the
Annual Meeting. Other matters voted on at the Annual Meeting shall be
determined by a majority of votes cast at the Annual Meeting in person or by
proxy by shareholders entitled to vote on the matter. Votes withheld,
abstentions and broker non-votes on returned proxies and ballots are not
considered votes cast and shall be counted as neither for nor against a matter
or nominee, but the shares represented by such a withheld vote, abstention or
broker non-vote shall be considered present at the Annual Meeting for quorum
purposes.
Whether or not you plan to attend the meeting, you can assure that your
shares are voted by completing, signing, dating and returning the enclosed
proxy. You may revoke your proxy at any time before it is exercised by giving
written notice to John B. Canning, Corporate Secretary of Rayonier, by
submitting a subsequently dated proxy or by attending the meeting, withdrawing
the proxy, and voting in person.
Each of the 29,145,989 Rayonier Common Shares ("Common Shares") outstanding
at the close of business on March 24, 1997 is entitled to one vote at the
Annual Meeting. The presence in person or by proxy of shareholders holding a
majority of the outstanding Common Shares will constitute a quorum for the
transaction of business at the Annual Meeting.
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table shows as of December 31, 1996 the beneficial ownership
of persons known to Rayonier to be the beneficial owners of more than five
percent of the Common Shares, the only outstanding voting securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP % OF CLASS(a)
- ------------------------------------ ----------------- -------------
<S> <C> <C>
Southeastern Asset Management, Inc............. 5,837,000(b) 19.9%
6075 Poplar Ave., Suite 900
Memphis TN 38119
MacKay-Shields Financial Corporation........... 1,886,433(c) 6.4%
9 West 57th Street
New York NY 10019
The Capital Group Companies, Inc. and
Capital Research and Management Company....... 1,843,600(d) 6.3%
333 South Hope Street
Los Angeles CA 90071
</TABLE>
- --------
(a) Based on 29,282,455 total Common Shares outstanding at December 31, 1996.
(b) Holdings as of December 31, 1996 as reported to the Securities and
Exchange Commission ("SEC") on Form 13G dated January 31, 1997. This
filing was made by Southeastern Asset Management, Inc. ("Southeastern"),
Longleaf Partners Fund and Mr. O. Mason Hawkins ("Hawkins"), Chairman of
the Board and C.E.O. of Southeastern. According to this filing, of the
5,837,000 shares referred to above, Southeastern has (i) sole voting power
and sole dispositive power as to 2,228,600 shares; (ii) no voting power
and sole dispositive power as to 447,400 shares and (iii) shared or no
voting power and shared dispositive power as to 3,161,000 shares. The
3,161,000 shares referred to in (iii) consist of 2,900,000 shares
(representing 9.9% of Rayonier's total outstanding Common Shares at
December 31, 1996) owned by Longleaf Partners Fund and 261,000 shares
owned by Longleaf Partners Realty Fund, both of which funds are series of
Longleaf Partners Fund Trust, an open-end management investment company
registered under the Investment Company Act of 1940. The report indicates
that all of the securities covered thereby are owned legally by
Southeastern's investment advisory clients and none are owned directly or
indirectly by Southeastern. The report also indicates that Hawkins is
identified as a filing person in the event he could be deemed to be a
controlling person of Southeastern as the result of his official positions
with Southeastern or ownership of its voting securities. The existence of
such control is expressly disclaimed. Both Southeastern and Hawkins
disclaim beneficial ownership of any of the securities covered by the
filing pursuant to SEC Rule 13d-4.
(c) Holdings as of December 31, 1996 as reported to the SEC on Form 13G dated
February 7, 1997. According to this filing, MacKay Shields Financial
Corporation had shared voting power and shared dispositive power as to
these shares. The filing also indicates that clients of the filing
investment manager have the right to receive and the ultimate power to
direct the receipt of dividends from, or the proceeds of the sale of, the
shares, and that no interest of any such clients relates to more than 5%
of the outstanding shares.
(d) Holdings as of December 31, 1996 as reported to the SEC on Form 13G dated
February 12, 1997. According to this filing, Capital Research and
Management Company, a registered investment adviser and an operating
2
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subsidiary of The Capital Group Companies, Inc., is the beneficial owner of
1,843,600 Common Shares as a result of acting as investment adviser to
various registered investment companies which own such shares. Said
subsidiary has no power to direct the vote of these shares. Both filing
parties disclaim beneficial ownership of these shares pursuant to SEC Rule
13d-4.
The following table sets forth information concerning Common Shares
beneficially owned as of March 24, 1997 by (a) each of the Company's current
directors, (b) each of the individuals who was one of the Company's five
highest paid executive officers in 1996 and (c) all current directors and
executive officers as a group. All Common Shares are owned directly by the
individual unless otherwise indicated. All the current directors and executive
officers as a group own approximately 1% of the outstanding Common Shares. The
number of shares deemed to be beneficially owned by all such individuals
(which includes exercisable stock options) represents approximately 2.4% of
the outstanding Common Shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------------------
EXERCISABLE STOCK TOTAL STOCK BASED
NAME OF BENEFICIAL OWNER COMMON SHARES OPTIONS (a) HOLDINGS (b)
- ------------------------ ------------- ----------------- -----------------
<S> <C> <C> <C>
Ronald M. Gross......... 103,786(c)(d) 143,894 369,627
Rand V. Araskog......... 74,651(e) 0 74,651
Donald W. Griffin....... 1,253 0 1,253
Paul G. Kirk Jr......... 1,809 0 1,809
Wallace L. Nutter....... 52,974(c)(d) 137,735 252,890
Katherine D. Ortega..... 1,900 0 1,900
Burnell R. Roberts...... 2,200 0 2,200
Carl S. Sloane.......... 1,100 0 1,100
Nicholas L. Trivisonno.. 1,700 0 1,700
Gordon I. Ulmer......... 3,200 0 3,200
William S. Berry........ 17,448(c)(d) 49,098 99,546
Gerald J. Pollack....... 13,207(c)(d) 43,539 87,413
Kevin S. O'Brien........ 5,955(c) 29,869 35,824
Current directors and
executive officers as a
group (15 persons)..... 290,254(c)(d)(e)(f) 406,871(f) 995,919(f)
</TABLE>
- --------
(a) Pursuant to regulations of the SEC, shares receivable by directors and
executive officers upon exercise of employee stock options exercisable
within 60 days after March 24, 1997 are deemed to be beneficially owned by
such directors and executive officers at said date.
(b) This column shows each individual's total stock-based holdings, including
stock options that become exercisable more than 60 days after March 24,
1997.
(c) All Common Shares are owned directly except as set forth in this Note (c).
The following amounts were allocated under the Rayonier Investment and
Savings Plan for Salaried Employees (the "Rayonier Savings Plan") as of
December 31, 1996 to the accounts of: Mr. Gross, 11,426 Common Shares; Mr.
Nutter, 15,826 Common Shares; Mr. Berry, 3,855 Common Shares; Mr. Pollack,
3,162 Common Shares; Mr. O'Brien, 484 Common Shares; and all current
directors and executive officers as a group, 37,341 Common Shares. In
addition, 5,719 Common Shares indicated for Mr. Nutter are owned by a
corporation of which he and his spouse are the sole stockholders.
(d) Includes a restricted stock award to Mr. Gross of 6,000 Common Shares and
2,000 Common Shares effective January 3, 1995 and January 2, 1997,
respectively, and restricted stock awards of the following
3
<PAGE>
amounts effective January 2, 1996 to: Mr. Gross, 11,000 Common Shares; Mr.
Nutter, 5,000 Common Shares; Mr. Berry, 3,500 Common Shares; Mr. Pollack,
3,500 Common Shares; and all current directors and executive officers as a
group, 25,500 Common Shares.
(e) All Common Shares are owned directly except for 1,614 Common Shares held
by Mr. Araskog's spouse, and 70,000 Common Shares held by a charitable
lead trust of which Mr. Araskog's spouse and daughter are co-trustees.
Beneficial ownership is disclaimed as to these shares.
(f) Totals for all current directors and executive officers as a group do not
include Mr. O'Brien, who retired effective December 31, 1996.
SECTION 16 REPORTS
The Federal securities laws require Rayonier's directors and executive
officers, and persons who own more than 10% of a registered class of
Rayonier's equity securities, to file with the Securities and Exchange
Commission and the New York Stock Exchange, Inc. initial reports of ownership
and reports of changes in ownership of any equity securities of Rayonier. To
Rayonier's knowledge, based solely on review of the copies of such reports
furnished to Rayonier and representations that no other reports were required,
the required reports have been filed on a timely basis on behalf of all
persons subject to these requirements, except that a Form 4 reporting a
transaction by Mr. Trivisonno in January 1997 was filed ten days late.
4
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SHARE OWNERSHIP BY DIRECTORS AND SENIOR MANAGEMENT
The Board of Directors of Rayonier believes that it is important for
directors and senior management to acquire a substantial ownership position in
Rayonier. Such share ownership is characteristic of successful public
companies and underscores the level of commitment that Rayonier's management
team has to the future success of the business.
Accordingly at a meeting on February 17, 1995, the Nominating Committee of
the Board of Directors adopted a guideline that encourages Rayonier share
ownership by directors at a level equal to two times their annual retainer.
The Management Development and Compensation Committee at a meeting on the same
date adopted guidelines for share ownership by senior management. The
guidelines, as revised in 1996 to reflect the creation of the position of
President and Chief Operating Officer, are as follows:
<TABLE>
<CAPTION>
SHARE OWNERSHIP GUIDELINES
POSITION/LEVEL AS MULTIPLE OF BASE SALARY
-------------- --------------------------
<S> <C>
Chairman and Chief Executive Officer.......... 4X
President and Chief Operating Officer......... 4X
Executive Vice President...................... 3X
Senior Vice Presidents........................ 2X
Vice Presidents............................... 1X
</TABLE>
Participation in the guidelines program is voluntary, with a strong company
preference on achieving ownership goals.
Target ownership levels are to be achieved over a 3-year period, ending
December 31, 1997 for all individuals who on February 17, 1995 were directors
or officers at the level of Vice President or above. Target levels for all
other individuals are to be achieved over a 3-year period following election
as director or advancement to Vice President. Ownership includes Rayonier
Incentive Stock Plan awards, such as vested restricted shares, vested
performance shares, options that have been exercised and shares held, awards
of restricted shares to directors, Rayonier Savings Plan shares, Rayonier
Dividend Reinvestment Plan shares and Common Shares purchased in the open
market.
5
<PAGE>
SHAREHOLDER RETURN
The table below represents a comparison of the performance in 1994, 1995 and
1996 of Common Shares (assuming reinvestment of dividends) with a broad based
market index (Standard & Poor's 500) and with the group of 12 comparative
forest products companies which form the comparison group for purposes of the
Contingent Performance Share awards described on page 15 and pages 20-21:
[GRAPHIC]
RAYONIER, INC. PEER GROUP S&P 500
-------------- ---------- -------
2/18/94 100 100 100
12/94 101 97 102
12/95 114 107 138
12/96 136 119 170
Notes: (a) February 18, 1994 was the first trading day for Rayonier Common
Shares on a when-issued basis. Regular way trading commenced on
February 25, 1994.
(b) The 12 comparative forest products companies are Boise Cascade
Corporation, Champion International Corporation, Georgia-Pacific
Corporation, International Paper Company, James River Corporation of
Virginia, The Mead Corporation, Mosinee Paper Corporation, Plum Creek
Timber Company, L.P., Union Camp Corporation, Westvaco Corporation,
Weyerhaeuser Company and Willamette Industries Inc. In order to comply
with applicable regulations of the Securities and Exchange Commission,
the return of each company for each period for which a return is
indicated is weighted in the group according to its stock market
capitalization at the beginning of each such period.
6
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors is responsible for establishing broad corporate
policies and for overseeing the overall performance of Rayonier. The Board
reviews significant developments affecting Rayonier and acts on matters
requiring Board approval.
Five directors are to be elected. The Company's Board of Directors is
divided into three classes serving staggered terms. The terms of the four
directors of Class III will expire at the 1997 Annual Meeting and each has
been nominated for reelection. In addition, one director was elected a
director of Class II by the directors in February 1997 and, in accordance with
Rayonier's Articles of Incorporation and the North Carolina Business
Corporation Act, must be elected by the shareholders for the remainder of his
term until the Annual Meeting of Shareholders in 1999. Unless there is a
contrary indication, the shares represented by valid proxies will be voted for
the election of all five nominees. The Board has no reason to believe that any
nominee will be unable to serve as a director. If for any reason a nominee
should become unable to serve, the shares represented by valid proxies will be
voted for the election of such other person as the Board may recommend.
The following pages present information about the persons who comprise
Rayonier's current Board of Directors, including the five nominees for
reelection.
During 1996, there were six meetings of the Board of Directors. No director
missed more than one meeting and the attendance rate at all meetings was
almost 97 percent.
INFORMATION AS TO NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
CLASS II, TERM EXPIRES IN 1999
CARL S. SLOANE, 60, Ernest L. Arbuckle Professor of Business Administration,
Harvard Graduate School of Business Administration--Prior to joining the
Harvard faculty in 1991, he spent thirty years in management consulting, the
last twenty with the firm he co-founded, Temple, Barker & Sloane, Inc., and
its successor firm, Mercer Management Consulting, where he served as Chairman
and Chief Executive. He is also a director of Ionics, Inc. and Sapient
Corporation. He is a graduate of Harvard College and the Harvard Graduate
School of Business Administration. He was first elected a director of Rayonier
effective February 24, 1997.
CLASS III, TERM EXPIRES IN 2000
RAND V. ARASKOG, 65, Chairman and Chief Executive Officer, ITT Corporation
(a diversified global corporation engaged in the hospitality and entertainment
businesses and the information services businesses)--He has been chief
executive of ITT Corporation (including a predecessor corporation of the same
name) since 1979 and chairman since 1980. He is also a director of ITT
Corporation, ITT Hartford Group, Inc., ITT Industries, Inc., ITT Educational
Services, Inc., Alcatel Alsthom of France, Dow Jones & Company, Inc., and
Shell Oil Company. Mr. Araskog is a member of The Business Council and The
Business Roundtable. He is also a trustee of the New York Zoological Society
and the Salk Institute. Mr. Araskog is a graduate of the U.S. Military Academy
at West Point and attended the Harvard Graduate School of Arts and Sciences.
He was first elected a director of Rayonier in 1994.
7
<PAGE>
DONALD W. GRIFFIN, 60, Chairman, President and Chief Executive Officer, Olin
Corporation (diversified manufacturing corporation)--He joined Olin in 1961
and was elected an Executive Vice President in 1987, a director in 1990, Vice
Chairman of the Board for Operations in 1993, President and Chief Operating
Officer in 1994, President and Chief Executive Officer effective January 1,
1996 and Chairman, President and Chief Executive Officer effective April 25,
1996. He is also a director of Rayonier Forest Resources Company ("RFR"), the
managing general partner of Rayonier Timberlands, L.P., a publicly traded
master limited partnership affiliated with the Company. In addition, he serves
as a director of ACNielsen Corporation, the Chemical Manufacturers
Association, the National Shooting Sports Foundation, the Small Arms and
Ammunition Manufacturers Association and the Wildlife Management Institute. He
is a trustee of the Buffalo Bill Historical Center and the Olin Charitable
Trust. He is a member of the Business Roundtable, the American Society of
Metals, the Association of the U.S. Army and the American Defense Preparedness
Association. He is a life member of the Navy League of the United States and
the Surface Navy Association. He is a graduate of the University of
Evansville, Evansville, Indiana, and has completed the Graduate School for
Sales and Marketing Managers at Syracuse University, Syracuse, N.Y. He was
first elected a director of Rayonier in 1994.
WALLACE L. NUTTER, 53, President and Chief Operating Officer, Rayonier--He
was elected to his current position on July 19, 1996, and was elected a
director of Rayonier on the same date. He joined Rayonier in 1967 in the
Northwest Forest Operations and was named Vice President and Director, Forest
Products Operations, in 1984, Senior Vice President, Operations, in 1985 and
Executive Vice President in 1987. Mr. Nutter is a director of RFR and a member
of the Board of Governors of the National Council for Air and Stream
Improvement. He graduated from the University of Washington and the Harvard
Graduate School of Business Administration Advanced Management Program.
NICHOLAS L. TRIVISONNO, 49, Chairman and Chief Executive Officer and a
director of ACNielsen Corporation (a global consumer marketing company)--He
has held this position since January 1996. He also served as Executive Vice
President and Chief Financial Officer of The Dun & Bradstreet Corporation
(marketer of information, software and services for business decision making)
from September 1995 until that corporation spun off ACNielsen in November
1996. From October 1993 until July 1995, he served as Executive Vice
President-Strategic Planning and Group President of GTE Corporation, a
telecommunications company, and served as Senior Vice President-Finance from
January 1989 until October 1993. He began his career with Arthur Andersen &
Co. in 1968, became a partner in 1979 and was appointed managing partner in
1986. Mr. Trivisonno is also a director of Yankee Energy Systems, Inc. He is
Chairman of the Business and Financial Affairs Committee and a member of the
Executive Committee at Babson College. He also serves on the Boards of Junior
Achievement and St. Joseph Medical Center. He is a member of the American
Institute of Certified Public Accountants and the New York, Connecticut and
Louisiana Societies of Certified Public Accountants. He earned his BBA degree
from St. Francis College. He was first elected a director of Rayonier in 1994.
INFORMATION AS TO OTHER DIRECTORS
CLASS I, TERM EXPIRES IN 1998
RONALD M. GROSS, 63, Chairman of the Board and Chief Executive Officer,
Rayonier--After joining Rayonier in March 1978 as President and Chief
Operating Officer and a director, he was elected Chief Executive Officer in
1981 and Chairman in 1984; he assumed his present position in July 1996. He
also serves as President
8
<PAGE>
and a director of RFR and is a director of Lukens Inc. and The Pittston
Company. Mr. Gross is a graduate of Ohio State University and the Harvard
Graduate School of Business Administration.
KATHERINE D. ORTEGA, 62, Former Treasurer of the United States--She served
as the 38th Treasurer of the United States from September 1983 through June
1989 and as Alternate Representative of the United States to the United
Nations General Assembly during 1990 to 1991. Prior to these appointments, she
served as a Commissioner on the Copyright Royalty Tribunal, and was a member
of the President's Advisory Committee on Small and Minority Business. Ms.
Ortega currently serves on the Boards of Directors of Ultramar Diamond
Shamrock Corporation, Ralston Purina Company, The Kroger Co., Long Island
Lighting Company, and The Paul Revere Corporation and is a member of the
United States Comptroller General's Consultant Panel. She is a graduate of
Eastern New Mexico University and holds three honorary Doctor of Law Degrees
and one honorary Doctor of Social Science Degree. She was first elected a
director of Rayonier in 1994.
BURNELL R. ROBERTS, 69, Chairman, Sweetheart Holdings, Inc. and Sweetheart
Cup Company (producer of plastic and paper disposable food service and food
packaging products)--He served as Chairman of the Board and Chief Executive
Officer of Mead Corporation (an integrated manufacturer of paper and forest
products) from April 1982 until his retirement in May 1992 and was a director
of Mead Corporation from October 1981 until May 1993. He serves as a director
of Armco Inc., Day International Group, Inc., DPL Inc., The Perkin-Elmer
Corporation, and Universal Protective Packaging, Inc., and a Limited Partner
of American Industrial Partners. He is a graduate of the University of
Wisconsin and the Harvard Graduate School of Business Administration. He was
first elected a director of Rayonier in 1994.
CLASS II, TERM EXPIRES IN 1999
PAUL G. KIRK, JR., 59, of Counsel to Sullivan & Worcester (law firm)--He
became a partner in the law firm of Sullivan & Worcester in 1977 and is
presently of Counsel to the firm. He served as Chairman of the Democratic
National Committee from 1985 to 1989. Mr. Kirk is a director of Kirk-Sheppard
& Co., Inc., of which he also is Chairman and Treasurer. He is a director of
ITT Corporation, ITT Hartford Group, Inc. and Bradley Real Estate, Inc. He is
co-chairman of the Commission on Presidential Debates, Chairman of the John F.
Kennedy Library Foundation Board of Directors, Chairman of the Board of
Directors of the National Democratic Institute for International Affairs, and
a trustee of Stonehill College and St. Sebastian's School. He is a graduate of
Harvard College and Harvard Law School. He was first elected a director of
Rayonier in 1994.
GORDON I. ULMER, 64, Former Chairman and Chief Executive Officer of
Connecticut Bank and Trust Company and Retired President of the Bank of New
England Corporation--He joined Connecticut Bank and Trust Company (CBT) in
1957 and held numerous positions before being elected President and director
in 1980 and Chairman and Chief Executive Officer in 1985. In 1988 he was
elected President of the Bank of New England Corporation (BNEC), the holding
company of CBT. He retired as President of BNEC in December 1990. Mr. Ulmer
also serves as a director of ITT Hartford Group, Inc. and the Old State House
Association. He is a graduate of Middlebury College, the American Institute of
Banking and the Harvard Graduate School of Business Administration Advanced
Management Program and attended New York University's Graduate School of
Engineering. He was first elected a director of Rayonier in 1994.
9
<PAGE>
COMMITTEES OF THE BOARD
The standing committees of the Board are the Audit, Compensation and
Management Development, Environmental and Legal Affairs and Nominating
Committees.
The Audit Committee supports the independence of the Company's external and
internal auditors and the objectivity of the Company's financial statements.
The Audit Committee (1) reviews the Company's principal policies for
accounting, internal control and financial reporting, (2) recommends to the
Company's Board of Directors the engagement or discharge of the external
auditors, (3) reviews with the external auditors the plan, scope and timing of
their audit, (4) reviews reports of the external auditors with management and
(5) reviews the auditors' fees.
The Audit Committee also reviews the annual financial statements of the
Company (before they are published), the independence of the external
auditors, the adequacy of the Company's internal accounting control system,
reports of the internal auditors, expense reports of the Company's senior
officers and fees paid to consultants. The Audit Committee also performs a
number of other review functions related to auditing the financial statements
and internal controls. The current members of the Audit Committee are Messrs.
Ulmer (Chairman), Kirk and Roberts. This Committee held five meetings during
1996, and all members attended all meetings.
The Compensation and Management Development Committee, which is comprised
entirely of non-employee directors, oversees the compensation and benefits of
employees, evaluates management performance and establishes executive
compensation. The Committee approves individual compensation actions for the
Chairman and Chief Executive Officer and all senior executives, including base
salaries, annual bonuses and long-term incentive awards. In the performance of
its functions, the Compensation and Management Development Committee has
access to independent legal and compensation counsel. The current members of
the Compensation and Management Development Committee are Messrs. Roberts
(Chairman) and Trivisonno and Ms. Ortega. The Committee held five meetings
during 1996, and all members attended all meetings except for one meeting
which was missed by Mr. Trivisonno.
The Environmental and Legal Affairs Committee (1) reviews and recommends to
the Company's Board of Directors proposed actions on major environmental
compliance and regulatory matters which could have a significant impact on the
business and strategic operating objectives of the Company and its
subsidiaries and (2) reviews and considers major claims and litigation, and
legal, regulatory, patent and related governmental policy matters affecting
the Company and its subsidiaries. In addition, the Committee reviews fees paid
to outside law firms and reviews and approves management policies and programs
relating to compliance with environmental matters, legal and regulatory
requirements, business ethics and integrity and conflicts of interest. The
current members of the Environmental and Legal Affairs Committee are Messrs.
Kirk (Chairman), Griffin and Ulmer. The Committee held three meetings during
1996, and all members attended all meetings.
The Nominating Committee makes recommendations concerning the organization,
size and composition of the Board of Directors and its Committees, proposes
nominees for election to the Board and its Committees and considers the
qualifications, compensation and retirement of directors. The current members
of the Nominating Committee are Ms. Ortega (Chairman) and Messrs. Griffin and
Trivisonno. The Committee held two meetings during 1996, and all members
attended all meetings.
10
<PAGE>
DIRECTORS' COMPENSATION
Members of the Board who are employees of Rayonier are not compensated for
service on the Board or its Committees. Non-employee directors receive an
annual retainer of $20,000 in cash plus an award of 100 Common Shares; in
addition, they receive a fee of $1,000 for attendance at each meeting of the
Board and a fee of $750 for attendance at each meeting of the Committees on
which such directors serve. The non-employee directors of Rayonier who serve
on the Board of Directors of RFR receive no additional retainer but receive
$750 for attendance at each meeting of such board.
DIRECTORS' CHARITABLE AWARD PROGRAM
To recognize the interest of Rayonier and its directors in supporting worthy
educational institutions and other charitable organizations, Rayonier during
1995 established the Director's Charitable Award Program which permits each
director to nominate up to five organizations to share a contribution of $1
million from The Rayonier Foundation, a tax-exempt charitable foundation
funded by Rayonier. These contributions will be made by the Foundation in ten
annual installments after the death of a director. The Foundation will not
make a donation on behalf of any director unless he or she (1) completes sixty
full months of service as a director, (2) dies or becomes disabled while
serving as a director or (3) is actively serving as a director if and when a
change in control occurs. Under this program, the Foundation has made the
first installment of a contribution to an institution designated by William J.
Alley, who died in July 1996 while serving as a director. There is no ultimate
cost to this program to Rayonier because Rayonier has acquired joint life
insurance contracts on the lives of its directors, and the proceeds from these
contracts will be adequate to fund Rayonier's contributions to the Foundation
related to the program and to fund the premium costs of the contracts.
Directors will receive no financial benefit from this program since the
charitable deduction and insurance proceeds accrue solely to Rayonier.
11
<PAGE>
EXECUTIVE COMPENSATION
----------------
REPORT OF THE RAYONIER
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
To Our Shareholders:
The Compensation and Management Development Committee (the "Committee")
oversees the compensation and benefits of Rayonier employees. The Committee
must approve individual compensation actions for the Chairman and Chief
Executive Officer and all senior executives. Specifically, the Committee must
approve base salaries, annual bonuses and long-term incentive awards. The
Committee has access to outside compensation expertise and outside legal
counsel.
The Committee is dedicated to implementing an executive compensation program
that emphasizes the following compensation policies:
Executive compensation decision making should reinforce Rayonier pay-for-
performance orientation by targeting base salaries at a discount from market
rates and insuring competitive aggregate compensation levels, by emphasizing
incentive rewards, only when the Company meets specific corporate and
individual performance goals.
Executive compensation programs should include bonus incentives and share
ownership opportunities to align the executive's interests with those of
shareholders.
Compensation packages should enhance the Company's ability to attract,
retain and encourage the development of exceptional, experienced managers by
providing compensation levels reflecting a blend of forest products and
general industry pay standards.
Components of Compensation
The key elements of the Company's executive compensation program are base
salary, annual bonus incentives and long-term compensation. These key elements
are addressed separately below. In determining each component of compensation,
the Committee considers all elements of an executive's total compensation
package, including insurance and other benefits.
The Committee believes that the Company's direct competitors for executive
talent, especially at senior levels, are to be found not only in the forest
products sector but also in the broader-based general industry. Therefore, the
Committee relates total compensation levels for the Company's senior
executives to the median compensation paid to executives of comparative
companies within the forest products and general industry sectors.
During the course of the year, the Committee directed that an independent
compensation consulting firm be retained to review certain aspects of the
Company's executive compensation programs. Specifically, the Committee
requested a competitive evaluation of the Company's executive salary structure
and the position of executive pay levels, bonus levels and stock program award
practices, relative to the market.
12
<PAGE>
Results of the study indicated that certain components of executive
compensation were behind competitive norms and out of line with the Company's
expressed philosophy on executive compensation. Several recommendations
presented by the compensation consultants were adopted by the Committee for
competitive positioning and are incorporated in the following discussion.
Base Salary
The Committee has oversight of the general administration of base salaries,
salary grades and salary range structure for the Company's 54 executives. The
Committee periodically reviews each senior executive's base salary. Base
salaries are conservative and are targeted below market levels. The Committee
authorizes base salary adjustments in recognition of the executive's level of
responsibilities, performance, prior experience, breadth of knowledge,
internal equity issues and external pay practices.
The normal interval between salary reviews for most executives is 12 months,
however, senior executive salary reviews are conducted at 15 to 18-month
intervals. The 1996 comparative executive compensation study revealed that
executive base salaries, on aggregate, were 26.4 percent behind the external,
size-adjusted median for the combined forest products and general industry
survey companies. Targeting a 15 percent base salary market median discount
factor, the Company adopted a 3-year base salary adjustment program to
overcome base salary inequities on a selective basis, limited to 10 to 12
affected executives. Executive salary actions, comprised of merit pay, equity
adjustments and promotional increases for 1996 averaged 6.4 percent on an
annualized basis for the Company's 54 executives. Merit increases averaged 3.9
percent.
As reflected in the Summary Compensation Table on page 17 and following an
18-month interval since his last salary review, Mr. Gross' base salary as
Chairman and Chief Executive Officer, was increased to $520,000, effective
April 1, 1996. The 6.9 percent annualized performance-based increase and base
salary positioning at 15 percent below the comparative group median is
consistent with the Company's philosophy of emphasizing incentive pay over
base pay fixed compensation.
Annual Bonus Incentive
The Rayonier Annual Incentive Bonus Plan ("Annual Plan") provides executives
and key managers with direct financial incentives in the form of cash bonuses
for achieving specific annual company, business unit and individual
performance goals.
The current Annual Plan formula measures actual net income, return on total
capital ("ROTC") and operating funds flow ("OFF") against the approved
budgeted amounts for the year for each performance measure. Net income, ROTC
and OFF performance are weighted 60%, 25% and 15%, respectively. The maximum
bonus pool is 150 percent of the aggregate standard bonus pool. Individual
bonus amounts within the authorized pool are determined on a discretionary
basis, taking into account specific personal contributions during the year.
Bonuses earned in the calendar year are paid out in the first quarter of the
subsequent year. Corporate performance in 1996 was below targeted financial
goals due primarily to market cyclicality associated with a downturn in demand
and prices affecting several product line areas. As a result bonuses were at
69 percent of target and were awarded accordingly on February 21, 1997.
13
<PAGE>
The 1996 comparative executive compensation study indicated that Company
bonus opportunities trailed industry standards by 38.4%, based upon actual
salary levels, which as noted above are behind market norms. The Committee
approved recommended modifications to the target bonus structure for 1996 in
order to move towards 50th percentile in total executive compensation relative
to comparative group compensation, with an emphasis on performance-based, at-
risk compensation and discounted base salaries.
For 1996 Mr. Gross' annual bonus payment represented 59 percent of his base
salary as of December 31, 1996. Under the Annual Plan, as reflected in the
Summary Compensation Table on page 17, Mr. Gross was paid $307,000 in
connection with 1996 Company and individual performance. Mr. Gross' bonus is
competitive with annual incentive compensation paid other executives at
comparable forest product and general industry sector companies.
Deferred Compensation
The Rayonier Inc. Excess Savings and Deferred Compensation Plan (the
"Savings Plan") provides eligible executives with contributions and savings
opportunities lost due to restrictions on defined contribution plans under
various provisions of the Internal Revenue Code. Additionally, the Plan
provides employees with an opportunity to defer that portion of base salary in
excess of qualified plan limitations and to defer all or any portion of bonus
otherwise payable for a Plan Year. The Plan is comprised of three major
"accounts"--an Excess Savings Account, an Excess Base Salary Deferral Account
and a Bonus Deferral Account. Deferred amounts are maintained as unsecured
promises on the Company's books and are, therefore, unfunded by the Company.
Effective January 1, 1997, the Excess Base Salary Deferral Account and the
Bonus Deferral Account under the Savings Plan were modified by the Committee
to provide a more competitive rate of return indexed to 10-year Treasury Notes
+ 1.5 percent in place of the lower earnings rate previously indexed to the
fixed income fund (approximately 5.8 percent on average) of the IRS Qualified
Rayonier Savings Plan (the "Qualified Plan"). Improving the growth rate for
these two accounts is competitive with industry standards and is cost
effective for the Company. The Excess Savings Account, which mirrors the fixed
income fund of the Qualified Plan, will continue to credit earnings as if the
amounts had been invested in the fixed income fund of the Qualified Plan. The
other provisions of the Savings Plan remain unchanged.
Long-Term Incentives
The Rayonier 1994 Incentive Stock Plan (the "Stock Plan") provides for the
award of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, performance shares or any combination
thereof to executives and key employees as long-term incentives.
In making awards under the Stock Plan, the Committee considers individual
performance criteria, levels of responsibility and prior experience, as well
as historical award data and compensation practices at comparable companies.
Long-term incentive grants for 1996 under the Stock Plan are reflective of
Rayonier's approach to total compensation, relative to market level pay
practices of comparable companies, with a greater emphasis on at-risk rewards
that closely align management performance with shareholder value.
14
<PAGE>
The Company's independent compensation consultants have confirmed to the
Committee that the Company's approach to long-term incentive grants and grant
practices delivers values reflective of market medians. The Committee will
continue to monitor the Company's stock award program to ensure that it
remains competitive to market norms.
Stock Options. Non-qualified stock options to acquire Rayonier Common Shares
are granted at an option price that is not less than the fair market value of
a Common Share on the date of grant. The size of the non-qualified option
grant is based primarily on competitive practice and is generally targeted to
be at the median of option values granted by comparative forest products and
general industry sector companies and adjusted based upon individual factors
and historical award data. In 1996, non-qualified stock option awards totaling
355,000 shares were granted to 81 executives and key employees.
On January 2, 1996 the Committee awarded to Mr. Gross non-qualified options
to acquire 45,000 Company shares at an exercise price of $33.38 as determined
by the market price on that day. Mr. Gross now owns 103,786 Common Shares and
options to acquire another 265,841 shares. The Committee believes this equity
interest reinforces the heavy weighting that Rayonier places on long-term
incentive compensation, relative to base salary and also provides appropriate
linkage to the interests of shareholders.
Performance Shares. In addition to traditional non-qualified stock options,
the Committee has used the flexibility provided under the Plan to grant long-
term incentives in the form of Contingent Performance Shares.
Contingent Performance Shares are awarded to senior executives responsible
for sustained Company Total Shareholder Return performance ("TSR"), as
measured against the average performance of a selection of 12 comparative
forest product peer group companies over a designated period. The awards are
contingent upon exceeding average peer group performance. The Share Award
Valuation Formula provides a 100 percent share award when Rayonier outperforms
the peer group companies by 20 percent. Failure to perform at 60 percent of
the peer group companies' average results in zero award.
TSR is calculated by measuring the growth in value of a hypothetical $100
investment in each of the forest sector peer companies over the performance
period, assuming all dividends are reinvested quarterly. Award payment is in
the form of Rayonier Common Shares and may range from zero to a maximum of 150
percent of the target awards, based upon TSR performance. The TSR goals
reflect the emphasis on creation of long-term shareholder value.
In determining the size of Contingent Performance Share grants, the
Committee considers the contingent value of the award, competitive practices
and the level of responsibility of each senior executive. A total of 32,000
Contingent Performance Shares was awarded to seven senior executives in 1996.
Grants were made for a 36-month performance period, commencing January 1, 1996
through December 31, 1998.
On January 2, 1996 the Committee awarded Mr. Gross 10,000 Contingent
Performance Shares which further emphasizes long-term rewards for Company
performance that enhances shareholder value.
Restricted Shares. The Stock Plan also provides for the grant by the
Committee of Restricted Common Shares.
15
<PAGE>
The Committee determined on July 21, 1994 to apply this feature of the Plan
to grant Mr. Gross 12,000 Restricted Shares, over a period of 3 years, in
recognition of personal performance and to have his total equity stake in the
Company be in keeping with the average of chief executive officers in the
forest products industry. The Committee awarded 6,000 Restricted Shares on
January 3, 1995 and 4,000 on January 2, 1996. The remaining balance of 2,000
Restricted Shares were awarded on January 2, 1997. All Shares vest on
December 31, 1998.
In recognition of the contributions made by the Company's senior management
team in support of 1995 financial and operating performance and to increase
equity ownership among senior management, the Committee on January 2, 1996
awarded 23,500 Restricted Common Shares to six executives, including Mr.
Gross. The Committee awarded 7,000 Restricted Shares to Mr. Gross. Restricted
Share Awards are subject to a 3-year restriction period through January 2,
1999, after which restrictions will lapse, consistent with Plan provisions.
Policy with Respect to the $1 Million Deduction Limit
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy to $1
million, unless certain requirements are met. Compensation payable solely on
account of the attainment of performance goals is excluded from the $1 million
limitation. Based upon an analysis of total executive compensation for 1996,
there are no executives within the Company whose non-performance based
compensation exceeds the deduction limitation threshold.
This report is furnished by the members of the Compensation and Management
Development Committee.
Burnell R. Roberts
Committee Chairman
Katherine D. Ortega
Nicholas L. Trivisonno
16
<PAGE>
EXECUTIVE COMPENSATION DATA
The following table discloses compensation received by Rayonier's Chief
Executive Officer and four remaining most highly paid executive officers for
the three fiscal years ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------- --------------------------------------------
RESTRICTED STOCK SECURITIES UNDER- LTIP ALL OTHER
AWARDS LYING OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (1)($) (2)(#) (3)($) (4)($)
- --------------------------- ---- ---------- --------- ---------------- ----------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald M. Gross......... 1996 506,320 307,000 367,125 45,000 1,241,100 27,447
Chairman & Chief 1995 470,600 390,200 180,000 44,000 21,663
Executive Officer 1994 439,057 388,000 40,000 20,370
Wallace L. Nutter....... 1996 289,914 140,000 166,875 28,000 531,900 12,665
President & Chief 1995 249,000 131,700 26,000 9,004
Operating Officer 1994 242,199 125,000 24,000 8,611
William S. Berry........ 1996 217,377 85,000 116,813 18,000 354,600 9,472
Executive Vice
President, 1995 196,108 91,500 15,000 7,233
Forest Resources & 1994 187,511 85,000 15,000 6,480
Corporate Development
Gerald J. Pollack....... 1996 197,961 70,000 116,813 16,000 319,140 8,611
Senior Vice President & 1995 183,244 83,900 15,000 6,798
Chief Financial Officer 1994 174,000 75,000 15,000 6,154
Kevin S. O'Brien........ 1996 194,500 55,000 10,000 354,600 8,167
Senior Vice President 1995 188,469 80,000 6,000 6,771
1994 182,971 55,000 8,000 6,027
</TABLE>
- --------
(1) On January 3, 1995, as discussed in the report of the Compensation and
Management Development Committee on pages 15-16, an award of 6,000
restricted shares was made to Mr. Gross. On January 2, 1996, as also
discussed in the report, awards of restricted shares were made as follows:
Mr. Gross, 11,000 shares; Mr. Nutter, 5,000 shares; Mr. Berry, 3,500
shares; and Mr. Pollack, 3,500 shares. No other awards of restricted
shares of Rayonier to these individuals were outstanding on December 31,
1996. The shares granted to Mr. Gross on January 3, 1995 and 4,000 of the
restricted shares granted to him on January 2, 1996 will vest on December
31, 1998 provided that he remains continuously in the employ of the
Company from the date of grant through the vesting date. All other
restricted shares granted on January 2, 1996 will vest on January 2, 1999,
provided that the recipient of the grant remains continuously in the
employ of the Company through the vesting date. All dividends paid on such
shares, or on shares issued as a dividend with respect to such shares, are
withheld and accumulated by the Company until such time the recipient of
the restricted share grant becomes vested with respect thereto. Upon
vesting, the Company is to pay the recipient an amount equal to all
dividends paid solely or partly in cash and accumulated with respect to
the shares then vesting, together with interest thereon at a rate equal to
the prime rate as reported in The Wall Street Journal, adjusted and
compounded annually. Certificates representing dividends in the form of
additional shares, if any, will be delivered to the recipient upon vesting
of the granted shares. The total value as of December 31, 1996 of
17
<PAGE>
the restricted stock holdings held by the executives named in the above
table were as follows: Mr. Gross, $652,375; Mr. Nutter, $191,875; Mr.
Berry, $134,313; Mr. Pollack, $134,313; and Mr. O'Brien, 0.
(2) Does not include Stock Options granted on March 21, 1994 under the
Rayonier Substitute Stock Option Plan in substitution for options ("ITT
Options") previously granted by ITT Industries, Inc. (formerly known as
ITT Corporation) ("ITT") prior to the March 1, 1994 spinoff of Rayonier
from ITT. The Substitute Stock Options granted pursuant to the Plan
maintain the economic value of each unexercised ITT Option, so that the
aggregate spread between the exercise price and the fair market value with
respect to the Rayonier Substitute Stock Options equals the aggregate
spread relative to the ITT Options, effective as of the spinoff. The
exercise dates and expiration dates of the Substitute Stock Options are
identical to those on the ITT Options for which they substitute.
(3) Represents payments made on February 16, 1996 under the Rayonier Long-Term
Performance Program, based upon Rayonier's return on equity ("ROE")
performance from January 1, 1993 through December 31, 1995, as measured
against a predetermined weighted average ROE goal of 12.54 percent (100%
of target). This program was a carryover of the ITT Long-Term Performance
Plan "1992 Class Awards" granted by ITT. For the 3-year period from
January 1, 1993 through December 31, 1995, Rayonier achieved an actual
weighted average ROE of 15.45 percent which was 123.2 percent of the 12.54
percent targeted, weighted average ROE goal. The corresponding
performance-based cash award payment earned under the program for
significantly exceeding targeted ROE was 177.3 percent of target.
(4) The amounts shown in this column for Mr. Gross include $5,355 in 1996,
$4,784 in 1995 and $5,003 in 1994 representing the term insurance portions
of the premiums paid by Rayonier in such years for the non-qualified,
split-dollar life insurance coverage for him described on page 23. The
remainder of the amounts shown in this column for Mr. Gross and all of the
amounts shown in this column for the other executives in all three years
are company contributions under the ITT Investment and Savings Plan and
the ITT Excess Savings Plan, which are defined contribution plans, for the
first two months of 1994 and under the Rayonier Savings Plan and Rayonier
Excess Plan, which are also defined contribution plans, for the last ten
months of 1994 and for 1995 and 1996. Rayonier has made matching
contributions to each of these plans in an amount in 1994 and through June
30, 1995 equal to 50% of an employee's contribution not to exceed three
percent of such employee's salary and since June 30, 1995 in an amount
equal to 60% of an employee's contribution not to exceed 3.6 percent of
such employee's salary. Under these plans, Rayonier also makes a non-
matching contribution equal to one-half of one percent of an employee's
salary.
18
<PAGE>
OPTION GRANTS TO RAYONIER EXECUTIVES IN LAST FISCAL YEAR
The following tables provide information on fiscal year 1996 awards to
Rayonier executives of options to purchase Common Shares:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
--------------------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL STOCK
SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN 1996
OPTIONS UNDER 1994 EXERCISE PRICE
NAME GRANTED (#) INCENTIVE STOCK PLAN ($/SHARE)(1) EXPIRATION DATE 5%($) 10%($)
---- ----------- -------------------- -------------- --------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald M. Gross......... 45,000 12.68% 33.38 1/4/2006 944,550 2,394,000
Wallace L. Nutter....... 28,000 7.89% 33.38 1/4/2006 587,720 1,489,600
William S. Berry........ 18,000 5.07% 33.38 1/4/2006 377,820 957,600
Gerald J. Pollack....... 16,000 4.51% 33.38 1/4/2006 335,840 851,200
Kevin S. O'Brien........ 10,000 2.82% 33.38 1/4/2006 209,900 532,000
</TABLE>
- --------
(1) The exercise price per share is 100% of the fair market value of Common
Shares on the date of grant, January 2, 1996. The exercise price may be
paid in cash or in Common Shares valued at their fair market value on the
date of exercise. Options granted to the named officers are exercisable as
to one-third on the first anniversary, two-thirds on the second
anniversary and in full on the third anniversary of the date of grant.
Notwithstanding any other provisions of the 1994 Incentive Stock Plan (the
"Plan"), upon the occurrence of a change of control of Rayonier (i.e, upon
the occurrence of an Acceleration Event as defined in the Plan), (a) all
options will generally become immediately exercisable for a period of 60
calendar days and (b) options will continue to be exercisable for a period
of seven months in the case of an employee whose employment is terminated
other than for cause or who voluntarily terminates employment because of a
good faith belief that such employee will not be able to discharge his or
her duties.
(2) At the end of the term of the options granted on January 2, 1996, the
projected price of a Common Share would be $54.37 at an assumed annual
appreciation rate of 5% and $86.58 at an assumed annual appreciation rate
of 10%. Gains to all shareholders at those assumed annual appreciation
rates would be approximately $615 million and $1,558 million,
respectively, over the term of the options.
19
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in 1996 by the
named Rayonier executives and the value of such executive's unexercised
options to acquire Common Shares at December 31, 1996.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS
OPTIONS EXERCISED DURING 1996 OPTIONS AT 12/31/96 HELD AT 12/31/96(2)
---------------------------------- ---------------------- -----------------
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE(#) UNEXERCISABLE($)
---- ------------------ --------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Ronald M. Gross......... 0 0 100,895/119,946 782,214/823,869
Wallace L. Nutter....... 5,000 115,275 111,735/ 60,181 1,764,226/409,124
William S. Berry........ 0 0 33,098/ 33,000 336,317/221,160
Gerald J. Pollack....... 0 0 28,206/ 31,000 229,647/211,170
Kevin S. O'Brien........ 0 0 13,202/ 16,667 108,653/108,777
</TABLE>
- --------
(1) Before taxes.
(2) The value reported in this column is based on the New York Stock Exchange
consolidated trading closing price of Common Shares of $38.375 at December
31, 1996.
LONG-TERM INCENTIVE AWARDS TO RAYONIER EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1996 long-term
incentive awards to Rayonier executives:
AWARDS OF CONTINGENT PERFORMANCE SHARES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS (3)
--------------------------------
MAXIMUM
NUMBER PERFORMANCE THRESHOLD TARGET SHARES
NAME OF SHARES (1) PERIOD (2) SHARES (#)(4) SHARES (#) (#)
---- ------------- ----------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Ronald M. Gross..... 10,000 36 months 5,000 10,000 15,000
Wallace L. Nutter... 6,000 36 months 3,000 6,000 9,000
William S. Berry.... 4,500 36 months 2,250 4,500 6,750
Gerald J. Pollack... 4,000 36 months 2,000 4,000 6,000
Kevin S. O'Brien.... -- N/A -- -- --
</TABLE>
- --------
(1) The numbers in this column represent the awards of Common Shares granted
under Total Shareholder Return ("TSR") based Contingent Performance Share
guidelines (forest products sector peer group performance which measures
stock appreciation price, plus dividends reinvested quarterly, during the
performance period).
(2) The performance period is for 36 months with TSR performance measured
against 12 forest products sector peer company grouping for the same
period. The 12 forest products companies in the group are the companies
specified in the Notes to the Total Shareholder Return chart on page 6 of
this Proxy Statement.
(3) Award payout is in the form of Common Shares, with a cash offset for tax
purposes, and may range from zero to a maximum of 150% of the target
award, based upon TSR performance. 100% of target is achieved when
Rayonier TSR achieves 120% of the TSR performance by peer group companies,
and the maximum
20
<PAGE>
150% of target is achieved when Rayonier achieves 160% of peer group
performance. A minimum payment of 50% of target is paid if Rayonier
achieves 60% of peer group performance, and there is no payout if Rayonier
falls below that level. Award payments for performance that falls between
the 60% and 120% performance hurdles, or between the 120% and 160%
performance hurdles, will be linearly interpolated.
(4) Award payout commences with 50% of target share award if Rayonier achieves
60% of peer group performance.
RAYONIER SENIOR EXECUTIVE SEVERANCE PAY PLAN
The Rayonier Senior Executive Severance Pay Plan (the "Plan") applies to
Rayonier senior executives, including the executives named in the Summary
Compensation Table, who are United States citizens or who are employed in the
United States. Under the Plan, if a participant's employment is terminated by
Rayonier, other than for cause or as a result of other occurrences specified
in the Plan, the participant is entitled to severance pay in an amount up to
24 months' base salary, depending upon his or her length of service, but in no
event more than the amount of base salary for the number of months remaining
between the termination of employment and the participant's normal retirement
date or two times the participant's total base salary annual compensation
during the year immediately preceding such termination.
Based upon their length of service, each of the aforementioned executive
officers is entitled to severance pay under the Plan in an amount up to 24
months' base salary, subject to the above mentioned limitation in the event of
an earlier retirement date. The Plan includes offset provisions for other
compensation from Rayonier and requirements on the part of executives with
respect to competition and compliance with the Rayonier Code of Corporate
Conduct. While under the Plan, severance payments would ordinarily be made
monthly over the scheduled term of such payments, Rayonier has the option to
make such payments in the form of a single lump-sum payment discounted to
present value. If within two years after a change in corporate control (as
defined in the Plan), a participant terminates employment or is terminated, he
or she will have the option to receive severance pay in a single discounted
lump-sum payment. The current aggregate amount of the annual base salaries of
such seven senior officers is approximately $1.86 million. The annual base
salaries of Messrs. Gross, Nutter, Berry and Pollack as of January 1, 1997
were $520,000, $310,000, $245,000, and $220,000, respectively. Mr. O'Brien
retired effective December 31, 1996.
21
<PAGE>
RETIREMENT PROGRAM
The following table illustrates the estimated annual benefits payable from
the Rayonier Salaried Employees Retirement Plan, a tax qualified retirement
plan, (the "Plan") and the Rayonier Excess Benefit Plan, a non-qualified
retirement plan, (the "Excess Plan") at retirement at age 65 based on the
assumptions set forth below. Calculation of benefits is uniform for all
participants in the Plan and the Excess Plan, including the five named
officers. The Plan covers substantially all eligible salaried employees of the
Company, including senior executive officers and other Rayonier executives,
and the cost of the Plan and the Excess Plan is borne entirely by the Company:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
AVERAGE
FINAL
COMPENSATION 20 25 30 35 40
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 20,000 $ 25,000 $ 28,750 $ 32,000 $ 36,250
100,000 40,000 50,000 57,500 65,000 72,500
300,000 120,000 150,000 172,500 195,000 217,500
500,000 200,000 250,000 287,500 325,000 362,500
750,000 300,000 375,000 431,250 487,500 543,750
1,000,000 400,000 500,000 575,000 650,000 725,000
</TABLE>
The Plan "mirror images" retirement benefits provided previously to eligible
Rayonier salaried employees and executives under the provisions of the ITT
Retirement Plan for Salaried Employees. Retirement benefits earned under the
former ITT plan continue on a dynamic credit basis under arrangements with ITT
for eligibility and benefit service prior to March 1, 1994.
The annual pension amounts to two percent of a member's average final
compensation for each of the first 25 years of benefit service, plus one and
one-half percent of a member's average final compensation for each of the next
15 years of benefit service, reduced by one and one-quarter percent of the
member's primary Social Security benefit for each year of benefit service to a
maximum of 40 years, provided that no more than one-half of the member's
primary Social Security benefit is used for such reduction. A member's average
final compensation (including salary plus approved bonus payments) is defined
under the Plan as the total of (1) a member's average annual base salary for
the five calendar years of the last 120 consecutive calendar months of
eligibility service affording the highest such average plus (2) a member's
average annual compensation not including base salary for the five calendar
years of the member's last 120 consecutive calendar months of eligibility
service affording the highest such average. For the executives named in the
Table on page 17, final compensation for purposes of pension calculations
consists of salary and bonus payments as set forth in such Table. The Plan
also provides for undiscounted early retirement pensions for members who
retire at or after age 60 following completion of 15 years of eligibility
service. A member is vested in benefits accrued under the Plan upon completion
of five years of eligibility service.
Applicable Federal legislation limits the amount of benefits that can be
paid and the compensation which may be recognized under a tax-qualified
retirement plan. In order to provide benefits at retirement that cannot be
paid from the qualified Retirement Plan, Rayonier has adopted the Excess Plan
to meet the retirement needs of
22
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this small segment of its salaried employee population affected by the
limiting Federal legislation. Where applicable, retirement benefits earned
under the former ITT excess plan have been carried forward to Rayonier and
have been incorporated in the Excess Plan. The practical effect of the Excess
Plan is to continue calculation of benefits after retirement to all employees
on a uniform basis.
Credited years of service as of March 3, 1997 are as follows: Ronald M.
Gross, 19.0 years; Wallace L. Nutter, 29.7 years; William S. Berry, 16.8
years; and Gerald J. Pollack, 14.8 years. Kevin S. O'Brien retired effective
December 31, 1996 with 37 years service.
SUPPLEMENTAL BENEFITS
Effective April 1, 1994, the Compensation and Management Development
Committee of the Rayonier Board of Directors approved non-qualified, split-
dollar life insurance coverage for Mr. Gross to age 65 and a deferred, post-
age 65 supplemental retirement benefit to provide competitive retirement
compensation on par with that of other chief executive officers in the forest
products industry. The combination of retirement benefits earned during Mr.
Gross' career with Rayonier and the supplemental retirement benefit is
competitive, on a post-age 65 retirement basis, as compared to the industry
practice of retirement income at 60% to 65% of the average last five years'
cash compensation for chief executive officers. Post-age 65 retirement
benefits for Mr. Gross under this arrangement are $132,000 of annual
retirement income through age 80. The arrangement makes use of split-dollar
life insurance, which has a 10-year premium cost of $1.7 million, which cost
is offset by a benefit payment to the Company upon Mr. Gross' death.
In addition to the coverage available generally to salaried employees under
the various Rayonier benefit plans, Mr. Gross also has company-provided long-
term disability coverage, which provides for a monthly benefit of $27,320 in
the event of total disability, and death benefits equal to his annual salary
during active employment and reduced coverage after retirement.
INDEPENDENT ACCOUNTANTS
In accordance with the recommendation of the Audit Committee, the Board of
Directors has reappointed Arthur Andersen LLP as independent auditors of the
Corporation for 1997. No ratification by the shareholders of the appointment
of such auditors is required by the North Carolina Business Corporation Act or
by the Articles of Incorporation or Bylaws of Rayonier.
Arthur Andersen LLP has served as independent auditors of Rayonier and its
subsidiaries for many years, and its long-term knowledge of Rayonier has
enabled it to carry out its audits with effectiveness and efficiency. In
keeping with the established policy of Arthur Andersen LLP, partners and
employees of the firm engaged in auditing Rayonier are periodically rotated,
thus giving Rayonier the benefit of new expertise and experience. Arthur
Andersen LLP personnel regularly attend meetings of the Audit Committee.
Representatives of Arthur Andersen LLP will attend the Annual Meeting, will
have the opportunity to make a statement if they desire to do so, and will be
available to respond to appropriate questions.
23
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SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Under Rayonier's Bylaws, for business proposed by a shareholder (other than
director nominations) to be a proper subject for action at an Annual
Shareholders' meeting, in addition to any requirement of law, the shareholder
must timely request (by Certified Mail--Return Receipt Requested) that the
proposal be included in the Corporation's proxy statement for the meeting, and
such request must satisfy all of the provisions of Rule 14a-8 under the
Securities Exchange Act of 1934, as amended. Rayonier received no such request
from any shareholder with respect to the 1997 Annual Meeting during the time
period specified by Rule 14a-8.
In order to be included in Rayonier's proxy statement and form of proxy for
the 1998 Annual Meeting of Shareholders and in order to be a proper subject
for action at that meeting, proposals of shareholders intended to be presented
to that meeting must be received at Rayonier's principal executive offices by
November 28, 1997. Shareholder proposals should be directed to the Corporate
Secretary, Rayonier, 1177 Summer Street, Stamford CT 06905-5529.
ANNUAL REPORTS
Shareholders of record on March 24, 1997 should have received a copy of
Rayonier's 1996 Annual Report to Shareholders either with this Proxy Statement
or prior to its receipt. If, upon receipt of this proxy material, you have not
received the Annual Report to Shareholders, please write to the Corporate
Secretary at the address below and a copy will be sent to you.
IN ADDITION, A COPY OF RAYONIER'S ANNUAL REPORT ON FORM 10-K (WITHOUT
EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 IS AVAILABLE TO EACH
RECORD AND BENEFICIAL OWNER OF RAYONIER'S COMMON SHARES WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE CORPORATE SECRETARY, RAYONIER, 1177 SUMMER STREET,
STAMFORD CT 06905-5529.
COST OF PROXY SOLICITATION
The entire cost of soliciting proxies will be borne by Rayonier including
the expense of preparing, printing and mailing this Proxy Statement.
Solicitation costs include payments to brokerage firms and others for
forwarding solicitation materials to beneficial owners of Common Shares and
reimbursement of out-of-pocket costs incurred by Rayonier's transfer agent for
any follow up mailings. Rayonier also has engaged Georgeson & Co., Inc. to
assist in the solicitation of proxies from shareholders at a fee of $6,500
plus reimbursement of out-of-pocket expenses. In addition to use of the mail,
proxies may be solicited personally or by telephone by present and former
officers, directors and other employees of Rayonier without additional
compensation, as well as by employees of Georgeson & Co., Inc.
By Order of the Board of Directors
JOHN B. CANNING
Corporate Secretary
Dated: March 28, 1997
24
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RAYONIER
PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF RAYONIER INC.
FOR THE ANNUAL MEETING ON MAY 16, 1997
By signing this card, I (we) hereby authorize RONALD M. GROSS, ROGER H.
WATTS and JOHN B. CANNING, or any of them, each with full power to appoint his
substitute, to vote as Proxy for me (us) at the Annual Meeting of Shareholders
of Rayonier to be held at the Sheraton Stamford, One First Stamford Place,
Stamford, Connecticut on Friday, May 16, 1997 at 9:00 A.M., or at any
adjournment thereof, the number of shares which I (we) would be entitled to vote
if personally present. The proxies shall vote subject to the directions
indicated on the reverse side of this card and proxies are authorized to vote in
their discretion upon such other business as may properly come before the
meeting and any adjournments thereof. BY SIGNING THIS CARD, I (WE) INSTRUCT THE
PROXIES TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS WHERE I (WE) DO NOT
SPECIFY A CHOICE.
FOR PARTICIPANTS IN THE RAYONIER INVESTMENT AND SAVINGS PLAN FOR
SALARIED EMPLOYEES, THE RAYONIER SAVINGS PLAN FOR NON-BARGAINING HOURLY
EMPLOYEES AT CERTAIN LOCATIONS, THE RAYONIER PORT ANGELES DIVISION SAVINGS PLAN
FOR HOURLY EMPLOYEES AND THE RAYONIER JESUP MILL SAVINGS PLAN FOR HOURLY
EMPLOYEES: As to those Common Shares of Rayonier, if any, that are held for me
in any aforementioned Plan, by signing this card, I instruct the Trustee of such
Plan to sign a proxy for me in substantially the form set forth on the reverse
side. THE TRUSTEE SHALL MARK THE PROXY AS I SPECIFY. BY SIGNING THIS CARD, I
INSTRUCT THE TRUSTEE TO MARK THE PROXY AS THE BOARD OF DIRECTORS RECOMMENDS
WHERE I DO NOT SPECIFY A CHOICE.
(Continued and to be dated RAYONIER INC.
and signed on the reverse side) P.O. BOX 11027
NEW YORK, N.Y. 10203-0027
<PAGE>
DETACH PROXY CARD HERE
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[ ]
1. Election of Directors FOR all nominees [X] WITHHOLD AUTHORITY to vote [X]
listed below for all nominees listed below
*EXCEPTIONS [X]
The Board pf Directors recommends a vote "FOR" the nominees listed below:
Nominees: Class II: Carl S. Sloane
Class III: Rand V. Araskog, Donald W. Griffin, Wallace L. Nutter,
Nicholas L. Trivisonno
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*Exceptions ________________________________________________________________
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
If you do not wish to receive an annual
report for this account please mark here. [X]
Change of Address and
or Comments Mark Here [X]
Please sign name exactly as it appears on this
card. Joint owners should each sign. Attorneys,
trustees, executors, administrators, conservators,
custodians, guardians or corporate officers should
give full name.
DATE:____________________________________________
SIGNATURE:_______________________________________
SIGNATURE:_______________________________________
VOTES MUST BE INDICATED
(x) IN BLACK OR BLUE INK. [X]
Please sign, date and return this proxy in the enclosed postage prepaid
envelope.
