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                              TERRA INDUSTRIES INC.

                           INCENTIVE AWARD PROGRAM FOR
                            OFFICERS & KEY EMPLOYEES

                                      2002
                                      ----

I.   Purpose of the Plan
     -------------------

     The purpose of this Incentive Award Program is to motivate and reward
     officers and key employees of the Company toward achievement of goals and
     improved results.

II.  Eligibility in the Plan
     -----------------------

     Participation in this Incentive Award Program is limited to officers and
     key employees of Terra Industries Inc. and subsidiaries whose efforts are
     expected to contribute significantly to the success and accomplishment of
     the Company's goals.

III. Special Provisions and Considerations
     -------------------------------------

     Terra's incentive plan year coincides with the Company's fiscal year. The
     Chief Executive Officer will establish corporate financial goals, which are
     approved by the Board of Directors, which will be used to establish the
     2002 incentive pool. Each officer and key employee participating in this
     plan will be assigned a target incentive expressed as a percentage of
     year-end base salary.

     The Chief Executive Officer and his direct reports are responsible for
     approving each plan participant's individual goals as soon as practicable
     in 2002 (See Section IV below). The importance of each goal is reflected in
     the weight assigned to it; each participant's goals will sum to one hundred
     percent (100%). These individual goals will be used in determining the
     participant's final incentive payment. Each plan participant must
     periodically report on his/her goal achievement to the Chief Executive
     Officer.

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IV.  Funding the Officers and Key Employees Incentive Award Program
     --------------------------------------------------------------

     The 2002 Plan divides the incentive awards between a portion based upon
     Company financial performance and a portion based upon individual
     performance on personal goals (up to 34% of each participant's target
     bonus). However, awards for achieving individual performance goals may not
     be paid if the Personnel Committee of the Board of Directors and the Chief
     Executive Officer determine that the Company's financial performance does
     not justify such awards.

     The funding for the Company's financial performance portion of the
     incentive award pool is based on Terra Industries Inc.'s actual 2002
     results. Budgeted 2002 results, which is based on forecasts of nitrogen
     products and methanol selling prices and natural gas costs, does not
     justify an award. Consequently, the Company`s financial performance portion
     of the pool starts to fund at fifty percent (50%) when the Company's actual
     2002 income from continuing operations ("income") is $20 million and
     increases by one percent (1%) for each additional $0.5 million of net
     income. Any funding for actual 2002 income which is more than $95 million
     is at the discretion of the Personnel Committee of the Board of Directors
     and the Chief Executive Officer.

     Each participant will develop up to five goals that will be used as the
     measurement in determining payments under the personal goals section. These
     goals should be reviewed and approved by the Chief Executive Officer and,
     where applicable, his direct reports. Accordingly, a participant could earn
     the portion of his or her bonus based on achieving personal goals even if
     there is no funding of the Company performance portion of the pool.
     However, funding of the individual performance awards pool is at the
     discretion of the Personnel Committee of the Board of Directors and the
     Chief Executive Officer.

V.   Basis of the Incentive Award
     ----------------------------

     The starting point in determining each participant's incentive award is the
     evaluation of the individual goals. The participant's individual raw award
     is calculated by taking each participant's year-end salary times his/her
     targeted incentive percentage and then times his/her individual goal
     achievement.

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     The sum of all participants' adjusted raw awards creates an adjusted raw
     pool. This adjusted raw pool is compared with the sum of the plan
     participant's year-end salary, times their targeted percentage award (or a
     portion of his/her index used to calculate this pool) which is then
     adjusted by the Company's financial performance to form the incentive pool.
     This adjusted raw pool is adjusted up or down to match the incentive pool.
     All participant incentives are paid from the incentive pool.

     The Chief Executive Officer has the discretion to adjust any individual's
     participation up or down to reflect unusual or unplanned events or to
     reflect the degree of difficulty of the goals. He may adjust amounts
     between plan participants and may add amounts from any discretionary part
     of the pool. The Chief Executive Officer may also choose to award less than
     the full amount of the pool or add as much as 20% to the pool.

VI.  Review, Revision and Modification of the Goals
     ----------------------------------------------

     Under normal business conditions, the Company goals or individual
     objectives will not be altered or revised once established for the year.
     Unexpected and unforeseen developments during the course of the year may
     prompt re-examination of an officer's or key employee's established goals.
     It is the responsibility of each officer and key employee to note the
     conditions of change which would prompt such a review and take timely
     action. Such action would include review with the Chief Executive Officer
     for the need for revision of an established goal as soon as possible after
     the detected change. All changes are subject to final approval of the Chief
     Executive Officer.

VII. Payment of Award
     ----------------

     The incentive award will be paid to each officer and key employee by check
     as soon as possible after the close of the fiscal year and after approval
     of the Chief Executive Officer's recommendations by the Personnel Committee
     of the Board of Directors.

     To be eligible for full payment, the officer or key employee must have been
     in the employ of Terra Industries Inc. or one of its subsidiaries as of
     January 1 of the incentive plan year and must be actively employed by the
     Company on the date the incentive award is paid.

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VIII. Special Provisions
      ------------------

     A newly elected officer or key employee will participate in this incentive
     program in proportion to the number of full months worked as an officer or
     key employee during the incentive program year.

     A participant who retires, becomes permanently disabled or dies shall cease
     to participate in this program as of the end of the month coincident with
     retirement, disability or death. The proportionate incentive award will be
     paid as soon as possible after the close of the fiscal year. While it is
     the intent of the Company to make awards under this plan and to continue
     the plan from year to year, it reserves the right to amend or terminate the
     plan entirely at its discretion.

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