Document:

CACI Technnologies, Inc. Subcontract No. 601-04-S-0226 dated Aug. 9,2004

  
 Exhibit 10.14

  
 CACI TECHNOLOGIES, INC. 
  
 SUBCONTRACT NO. 601-04-S-0226 
  
 ISSUED TO 
  
 IRVINE SENSORS CORPORATION 
  
 (NVESD) TECHNICAL TASK ORDER NO: TTO-002 
  

							
	ISSUED TO:	  	Irvine Sensors Corporation	  	ISSUED BY:	  	CACI Technologies, Inc.
	 	  	3001 Redhill Avenue,	  	 	  	14151 Park Meadow Drive
	 	  	Costa Mesa, CA 92626	  	 	  	Chantilly.VA 20151

  
 This Technical Task Order is issued
pursuant to, and shall be performed in accordance with the terms and conditions of Subcontract No. 601-04-S-0226, between the parties hereto and shall be performed in accordance with the attached Statement of Work. Accordingly, the following
instructions are provided: 
  

			
	Prime Contract No:	 	DAAB07-03-D-C214 D.0.14
		
	TYPE CONTRACT:	 	T&M w/Award Fee / FFP/Technical Task Order (TTO)
		
	TITLE:	 	NVESD Engineering & Technical Services
		
	CACI REFERENCE:	 	06199
		
	DEFENSE PRIORITY RATING:	 	DO-A7
		
	PERIOD OF PERFORMANCE:	 	8/9/2004 TO 8/8/2005
		
	PLACE OF PERFORMANCE:	 	Costa Mesa, California
		
	F.O.B. POINT:	 	Destination
		
	INSPECTION & ACCEPTANCE:	 	Origin
		
	INVOICE INSTRUCTIONS:	 	See Subcontract Section G, Para G.1
		
	TECHNICAL MANAGER:	 	John Spadafore (703-704-1188)
		
	SUBCONTRACT ADMINISTRATOR:	 	Richard Scholz (703-679-665)
		
	GOVERNMENT FURNISHED PROPERTY:	 	N/A
		
	TOTAL FIXED-FIXED PRICE:	 	$1,316,800.00
		
	TOTAL FIRM FIXED PRICE OF THIS TASK ORDER IS:	 	$1,316,800.00

  
 The above limitations represent the
FFP funding only. Performance of this Task Order and the Statement of Work shall be in accordance with the Subcontract. Seller shall provide the necessary personnel and facilities to provide / perform the services specified in the attached Statement
of Work. The amount of effort expended and CACI’s liability therefore is limited to the effort expended as directed and approved by the Technical Manager. However, in no event shall the level of effort exceed the limit specified herein.

  

	1.	Milestone Payment Schedule: 

  
 PMTV II PAYMENT MILESTONE 
 SCHEDULE 
  

								
	 Milestone

	  	 Description

	  	Months
ARO

	  	Payment

	 1
	  	Raytheon Subcontract Turn On	  	0	  	$	200,000
	 2
	  	Long Lead Material	  	0	  	$	200,000
	 3
	  	Interface Requirements Specification	  	1	  	$	50,000
	 4
	  	Preliminary Design Report	  	3	  	$	100,000
	 5
	  	Raytheon ROIC Design Complete	  	4	  	$	100,000
	 6
	  	Critical Design Report	  	6	  	$	150,000
	 7
	  	Raytheon ROIC Fabrication Complete	  	6	  	$	239,246
	 8
	  	4 Pocket Scope prototypes	  	10	  	$	120,000
	 9
	  	4 Weapon Sight prototypes	  	12	  	$	120,000
	 10
	  	Final Technical report	  	12	  	$	37,554
	 	  	 	  	Total	  	$	1,316,800

  

	2.	STATEMENT OF WORK 

  
 Statement of Work 
 Personal Miniature Thermal Vision System 
  
 This Statement of Work defines the requirements for Irvine Sensors Corporation, herein
referred to as Irvine Sensors or “the subcontractor”, to perform as a subcontractor to CACI Technologies, Inc., herein referred to as CACI or “the Prime”, who will serve as the Prime Contractor for this effort under the High
Technology Engineering and Technical Services contract with the Night Vision and Electronic Sensors Directorate (NVESD). 
  
 1.0 Scope. 
  
 The Personal Miniature Thermal Vision system (PMTV) is an uncooled microbolometer based thermal imager with a multifunctional design that enables the user to have an ultra lightweight thermal weapon sight suitable for
Military Operations in Urban Terrain (MOUT) or a hand held Thermal Pocket Scope for reconnaissance and observation operations. The PMTV offers an increased resolution over other similarly sized thermal imagers without increasing the size of the
focal plane (320x240 25um pixel pitch vs. 160x120 50um pixel pitch). The primary goal of this continuing program is to enhance the state of the art PMTV by making it more robust and higher performance for use as a lightweight thermal weapon sight in
MOUT environments and to expand on its utility as a “Thermal Pocket Scope”. This effort will include integrating a collimated display so the PMTV can be mounted in front of an Army issue M68 Close Combat Optic (CCO) when mounted on an M4
carbine, a remote switch to turn the PMTV on/off, miniaturized electronics for less weight, volume, and power consumption, an offset of the objective lens and the display to overcome the front sight post interfering with the Field of View, a remote
display package, and Electronic Zoom on the 640x480 model. Another goal 

  

 
of the program is to demonstrate the PMTV 640x480 25um VOx focal plane array with two working prototypes. The PMTV program will demonstrate and evaluate
prototype hardware performance and suitability for enhancing the capability of the soldier. 
  
 Background. 
  
 The Army
environment has changed, mandating that the Army change as well. While the Army remains unchallenged in major theater war operations, the ability to rapidly respond to small-scale contingency operations is tenuous. Consequently, how these types of
operations are conducted will influence the Army’s ability to deter and coerce potential adversaries. The Army must possess an overwhelming technological advantage in many potential soldier environments to include urban terrain. New
technologies must be affordable and require significantly reduced operation and maintenance costs. The PMTV will give a soldier a truly lightweight thermal capability for both dismounted mobility and target acquisition. Demonstration of acceptable
performance with reduced power and weight compared to currently available thermal imagers is essential for future consideration. 
  
 2.0 Applicable Documents. 
  
 The following documents form a part of this Statement of Work to the extent specified herein. 
  

	 	2.1	Data Item Descriptions. 

  

			
	 DI-MGMT-80227
	  	Contractor’s Progress, Status, and Management Report
		
	 DI-MISC-80711A
	  	Scientific and Technical Report
		
	 DI-SESS-81002A
	  	Developmental Design Drawings and Associated Lists
		
	 DI-IPSC-81434A
	  	Interface Requirements Specification

  

	 	2.2	Military Specifications. 

  
 The following documents are to be used for guidance only 

			
	 MIL-STD-461E
	  	Electromagnetic Emission and Susceptibility Requirements for the Control of Electromagnetic Interference
		
	 AR 70-38
	  	Research, Development, Test, and Evaluation of Material for Extreme Climatic Conditions

  

	 	2.3	Order of Precedence. 

  
 In the event of a conflict between the text of this Statement of Work (SOW) and the references cited herein, the text of this SOW shall take precedence.
Nothing in this document, however, supersedes applicable laws and regulations unless a specific exemption has been obtained. 
  
 3.0 Requirements. 
  
 The subcontractor shall deliver five (4) functional 320x240 enhanced PMTVs in a Pocket Scope configuration, five (4) functional 320x240 enhanced PMTVs in a lightweight
thermal weapon sight configuration, and two (2) 640x480 PMTV prototypes in a lightweight thermal weapon sight configuration by contract end. The Advanced Sensor Test Facility at NVESD will perform a characterization of the enhanced PMTV that will be
compared to the baseline characterization completed in the Phase II Plus SBIR. Characterization will include weight, power consumption, Modulation Transfer Function (MTF), and Noise Equivalent Temperature Difference (NETD). 
  

 3.1 Performance Specification – 320x240 Pocket Scope Configuration. 
  
 This SOW specifically addresses development of a militarized thermal imager based on a
320x240 FPAwith approximately 25-micron pixel pitch. 
  
 The
units to be built shall meet the following performance parameters. 
  

					
	 	 	 Objective

	 	 Threshold

	NETD	 	40mk	 	70mk
	 	 	(both spatial and temporal noise included) at a 30 Hz frame rate using f/1 optics (or equivalent if other frame rates or f/# optics are chosen) at an ambient temperature of
25° C
			
	Weight	 	1.00 pounds	 	1.25 pounds
	 	 	(with battery and lens)
			
	System Power	 	1.0 Watts	 	1.50 Watts
	 	 	(when operating at 25° C, not to include power required for digital video out)

  
 The following requirements apply to
deliverables: 
  

	 	•	The PMTV shall have a diagonal FOV (± 5.0%) of 40°. 

  

	 	•	The PMTV shall have provisions for mounting to a Mil Std 1913 rail. 

  

	 	•	The PMTV shall be able to function with a front sight post present on an M4 carbine. 

  

	 	•	The PMTV shall be configured as a Pocket Scope with an integrated display and fixed focus eyepiece. 

  

	 	•	The PMTV shall have 1X magnification. 

  

	 	•	If able, a Collimated eyepiece compatible with the Army issue M68 CCO shall be incorporated for this configuration. 

  

	 	•	The PMTV shall have a remote display package that will allow the camera to be mounted on the side of an M4 carbine and the display to be mounted on the rear of the upper Picatinny
rail. 

  

	 	•	This may be a separate display to be carried until needed and plugged into the video out port, or a display that is removable from the PMTV main unit. User input will help develop
this concept. 

  

	 	•	The PMTV battery compartment shall easily allow changing of batteries in the field with no additional tools needed. 

  

	 	•	The PMTV battery compartment shall only accept batteries in the correct orientation. 

  

	 	•	The correct battery orientation shall be attainable in limited visibility. 

  

	 	•	The battery compartment shall accommodate either GOTS or COTS batteries. 

  

	 	•	The battery compartment shall meet safety requirements for the selected battery chemistry or technology. 

  

	 	•	The PMTV shall run continuously for 4 hours on the chosen battery at 25°C. 

  

	 	•	The PMTV shall have EMI protection to the levels of commercially available equipment, and be environmentally hardened for Basic Climate conditions (AR 70-38).

  

	 	•	The PMTV shall be hardened to survive the shock and vibe of M16/M4 weapon fire. 

  

	 	•	The PMTV shall be operable with and without chemical protective gloves. 

  

	 	•	The PMTV shall have a remote switch to turn the unit on and off, using a GOTS switch (PAC-4 type). 

  

	 	•	The PMTV shall operate from -40°C to 60°C. 

  

	 	•	The PMTV shall incorporate smaller, more efficient electronics to reduce size and power consumption. 

  

	 	•	The PMTV shall incorporate a digital high resolution algorithm to enhance the performance of the 320x240 to near 640x480 performance. 

  

 3.1.1 Subsystem Control Functions. 
  
 The following subsystem control functions for the weapon sight configuration shall be controllable through the user interface, which shall
be accessible as to allow for user operation without altering the PMTV configuration once mounted to his weapon: 
  
 Camera Power On/Off (on camera and remotely); 
  
 Auto Brightness (offset) and Contrast (gain); 
  
 Black/White hot; 
  
 3.1.2 Video Output. 
  
 The video output shall be capable of full sensor bandwidth simultaneous analog and/or digital video output. The analog output shall be RS170 and the
digital format shall be compliant with the Commander’s Digital Assistant (Hewlett-Packard iPaq 3970 Pocket PC handhelds) and be at least 10-bit resolution. A suitable commercially available connector(s) is acceptable; there may be more than one
video output connector. The PMTV shall provide H and V syncs for Genlocking each as individual outputs at an output connector; timing tolerances shall be standard RS170. 
  
 3.2 Performance Specification – 320x240 Lightweight Weapon Sight Configuration. 
  
 This SOW specifically addresses development of a militarized thermal imager based on a
320x240 FPA with approximately 25-micron pixel pitch. 
  
 The units to be built
shall meet the following performance parameters. 
  

					
	 	 	 Objective

	 	 Threshold

	NETD	 	40mk	 	70mk
	 	 	(both spatial and temporal noise included) at a 30 Hz frame rate using f/1 optics (or equivalent if other frame rates or f/# optics are chosen) at an ambient temperature of
25° C
			
	Weight	 	1.00 pounds	 	1.25 pounds
	 	 	(with battery and lens)
			
	System Power	 	1.0 Watts	 	1.50 Watts
	 	 	(when operating at 25° C, not to include power required for digital video out)

  
 The following requirements apply to
deliverables: 
  

	 	•	The PMTV shall have a diagonal FOV (± 5.0%) of 20°. 

  

	 	•	The PMTV shall have provisions for mounting to a Mil Std 1913 rail. 

  

	 	•	The PMTV shall be able to function with a front sight post present on an M4 carbine. 

  

	 	•	The PMTV shall be compatible with the Army issued M68 CCO via collimating eyepiece configuration. 

  

	 	•	The PMTV shall have 1X magnification. 

  

	 	•	If able, a fixed pupil eyepiece shall be incorporated for this configuration. 

  

	 	•	The PMTV shall have a remote display package that will allow the camera to be mounted on the side of an M4 carbine and the display to be mounted on the rear of the upper Picatinny
rail. 

  

	 	•	This may be a separate display to be carried until needed and plugged into the video out port, or a display that is removable from the PMTV main unit. User input will help develop
this concept. 

  

	 	•	The PMTV battery compartment shall easily allow changing of batteries in the field with no additional tools needed. 

  

	 	•	The PMTV battery compartment shall only accept batteries in the correct orientation. 

  

	 	•	The correct battery orientation shall be attainable in limited visibility. 

  

	 	•	The battery compartment shall accommodate either GOTS or COTS batteries. 

  

	 	•	The battery compartment shall meet safety requirements for the selected battery chemistry or technology. 

  

	 	•	The PMTV shall run continuously for 4 hours on the chosen battery at 25°C. 

  

	 	•	The PMTV shall have EMI protection to the levels of commercially available equipment, and be environmentally hardened for Basic Climate conditions (AR 70-38).

  

	 	•	The PMTV shall be hardened to survive the shock and vibe of M16/M4 weapon fire. 

  

	 	•	The PMTV shall be operable with and without chemical protective gloves. 

  

	 	•	The PMTV shall have a remote switch to turn the unit on and off, using a GOTS switch (PAC-4 type). 

  

	 	•	The PMTV shall operate from –40°C to 60°C. 

  

	 	•	The PMTV shall incorporate smaller, more efficient electronics to reduce size and power consumption. 

  

	 	•	The PMTV shall incorporate a digital high resolution algorithm to enhance the performance of the 320x240 to near 640x480 performance. 

  
 3.2.1 Subsystem Control Functions. 
  
 The following subsystem control functions for the weapon sight configuration
shall be controllable through the user interface, which shall be accessible as to allow for user operation without altering the PMTV configuration once mounted to his weapon: 
  

	 	a.	Camera Power On/Off (on camera and remotely); 

  

	 	b.	Auto Brightness (offset) and Contrast (gain); 

  

	 	c.	Reticle on/off and adjustment 

  

	 	d.	Black/White hot; 

  
 3.2.2 Video Output. 
  
 The video output shall be capable of full sensor bandwidth simultaneous analog and/or digital video output. The analog output shall be RS170 and the digital format shall be compliant with the Commander’s Digital Assistant
(Hewlett-Packard iPaq 3970 Pocket PC handhelds) and be at least 10-bit resolution. A suitable commercially available connector(s) is acceptable; there may be more than one video output connector. The PMTV shall provide H and V syncs for Genlocking
each as individual outputs at an output connector; timing tolerances shall be standard RS170. 
  
 3.3 Performance Specification – 640x480 Advanced Lightweight Weapon Sight. 
  
 This SOW specifically addresses development of a militarized thermal imager based on a 640x480 FPA with approximately 25-micron pixel pitch. 

 
 The units to be built shall meet the following performance parameters.

  

					
	 	 	 Objective

	 	 Threshold

	NETD	 	40mk	 	70mk
	 	 	(both spatial and temporal noise included) at a 30 Hz frame rate using f/1 optics (or equivalent if other frame rates or f/# optics are chosen) at an ambient temperature of
25° C
			
	Weight	 	1.25 pounds	 	1.50 pounds
	 	 	(with battery and lens)
			
	System Power	 	1.25 Watts	 	1.75 Watts
	 	 	(when operating at 25° C, not to include power reqiured for digital video out)

  
 The following requirements apply to
deliverables: 
  

	 	•	One PMTV shall have a diagonal FOV (± 5.0%) of 40° or 20° based on User Input. 

  

	 	•	The 640x480 PMTV shall incorporate an electronic zoom feature, simulating a 320x240 scene. 

  

	 	•	The PMTV shall have provisions for mounting to a Mil Std 1913 rail. 

  

	 	•	The PMTV shall be able to function with a front sight post present on an M4 carbine. 

  

	 	•	The PMTV shall be compatible with the Army issued M68 CCO via collimating eyepiece configuration. 

  

	 	•	The PMTV shall have 1X magnification. 

  

	 	•	If able, a fixed pupil eyepiece shall be incorporated for this configuration. 

  

	 	•	The PMTV shall have a remote display package that will allow the camera to be mounted on the side of an M4 carbine and the display to be mounted on the rear of the upper Picatinny
rail. 

  

	 	•	This may be a separate display to be carried until needed and plugged into the video out port, or a display that is removable from the PMTV main unit. User input will help develop
this concept. 

  

	 	•	The PMTV battery compartment shall easily allow changing of batteries in the field with no additional tools needed. 

  

	 	•	The PMTV battery compartment shall only accept batteries in the correct orientation. 

  

	 	•	The correct battery orientation shall be attainable in limited visibility. 

  

	 	•	The battery compartment shall accommodate either GOTS or COTS batteries. 

  

	 	•	The battery compartment shall meet safety requirements for the selected battery chemistry or technology. 

  

	 	•	The PMTV shall run continuously for 4 hours on the chosen battery at 25°C. 

  

	 	•	The PMTV shall have EMI protection to the levels of commercially available equipment, and be environmentally hardened for Basic Climate conditions (AR 70-38).

  

	 	•	The PMTV shall be hardened to survive the shock and vibe of M16/M4 weapon fire. 

  

	 	•	The PMTV shall be operable with and without chemical protective gloves. 

  

	 	•	The PMTV shall have a remote switch to turn the unit on and off, using a GOTS switch (PAC-4 type). 

  

	 	•	The PMTV shall operate from -40°C to 60°C. 

  

	 	•	The PMTV shall incorporate smaller, more efficient electronics to reduce size and power consumption. 

  

	 	•	If the CCO provision does not allow easy use as both a CCO and Pocket Scope, Irvine Sensors Corporation shall deliver one of each in 640x480. 

  

	 	•	If a separate display is not feasible, Irvine Sensors Corporation shall deliver PMTVs with fixed displays only, per the above requirements. 

  
 3.3.1 Subsystem Control Functions. 
  
 The following subsystem control functions for the weapon sight configuration
shall be controllable through the user interface, which shall be accessible as to allow for user operation without altering the PMTV configuration once mounted to his weapon: 
  

	 	a.	Camera Power On/Off (on camera and remotely); 

  

	 	b.	Auto Brightness (offset) and Contrast (gain); 

  

	 	c.	Reticle on/off and adjustment 

  

	 	d.	Black/White hot; 

  
 3.3.2 Video Output. 
  
 The video output shall be capable of full sensor bandwidth simultaneous analog and/or digital video output. The analog output shall be RS170 and the
digital format shall be compliant with the Commander’s Digital Assistant (Hewlett-Packard iPaq 3970 Pocket PC handhelds) and be at least 10-bit resolution. A suitable commercially available connector(s) is acceptable; there may be more than one
video output connector. The PMTV shall provide H and V syncs for Genlocking each as individual outputs at an output connector, timing tolerances shall be standard RS170. 
  

 3.4 Data Deliverables. 
  
 3.4.1 Contractor’s Progress Status and Management Report. 
  
 The subcontractor shall prepare and submit a monthly Contractor’s
Progress Status and Management Report in accordance with Data Item Number              , DI-MGMT-80227. 
  
 3.4.2 Scientific and Technical Reports. 
  
 The subcontractor shall prepare and submit a final Scientific and Technical Report in accordance with Data Item Number
            , DI-MISC-80711A, and include: system architecture design information, contractor performance testing results, safety assessment, and operating procedures for the system.
The report shall evaluate the safety risk assumed prior to test or operation of the system, and shall provide specific controls or precautions to be followed. 
  

3.4.3 Engineering Drawings -Three Dimensional Computer-Aided Design (3-D CAD) Model Submissions. 
  
 The subcontractor shall prepare and submit Developmental Design Drawings and
Associated Lists, in accordance with Data Item No.         , DI-DRPR-81002A, for all interfaces, and interconnection assemblies. These drawings shall represent all interconnection requirements between
modules, sub modules, assemblies, Line Replaceable Units (LRUs), and Shop Replaceable Units (SRUs). These interfaces and interconnection requirements shall include, but shall not be limited to, mechanical, electrical, electronic, and optical. The
developmental drawings shall be prepared using contractor format and shall have contractor drawing numbers and cage codes. All verbiage on the drawings shall be in English. The subcontractor shall select the types of drawings required and shall use
their standard drawing policies. Drawings shall use the English system of measurement unless otherwise stated in the contract. An acceptable file format is Pro/ENGINEER up to and including the version 2000 i or other format provided the
subcontractor provides software that allows for 3-D viewing and exporting of images to a Microsoft Windows supported format. 
  
 3.4.4 Interface Requirements Specification (IRS). 
  

The subcontractor shall prepare and submit an IRS in the format of their choice, in accordance with Data Item Number
            , DI-IPSC-81434A. The IRS shall address physical/mechanical, electrical, and software interfaces for the PMTV. 
  
 3.5 Program Reviews. 
  
 Reviews to be conducted will include a Kickoff meeting
within 30 days of contract award, and periodic reviews to include a Preliminary Design Review (90 days after contract award) and Critical Design Review (150 days after contract award). 
  
 4.0 Hardware Deliverables 
  

					
	 Item Description

	  	Quantity

	  	 Delivery Schedule

	 320x240 Pocket Scope Configuration
	  	4	  	 NLT 12 Months after award

	 320x240 Weapon Sight Configuration
	  	4	  	 NLT 12 Months after award

	 640x480 Weapon Sight Configuration
	  	2	  	 NLT 12 Months after award

  

			
	 APPX
	  	 ATTACHMENT 1

		
	 Acronym list
 3D CAD
	  	 Three Dimensional Computer-Aided Design

		
	 ACA
	  	 After Contract Award

		
	 ASEF
	  	 Advanced Sensor Evaluation Facility

		
	 CAD
	  	 Computer-Aided Design

		
	 CECOM
	  	 Communications-Electronics Command

		
	 COTR
	  	 Contracting Officer’s Technical Representative

		
	 COTS
	  	 Commercial Off The Shelf

		
	 DOD
	  	 Department of Defense

		
	 EMI
	  	 ElectroMagnetic Interference

		
	 FLIR
	  	 Forward Looking InfraRed Receiver

		
	 FOV
	  	 Field-of-View

		
	 FPA
	  	 Focal Plane Array

		
	 GOTS
	  	 Government Off The Shelf

		
	 HE
	  	 Human Engineering

		
	 IPR
	  	 In Process Review

		
	 IRS
	  	 Interface Requirement Specification

		
	 KO
	  	 Contracting Officer

		
	 LRU
	  	 Line Replaceable Unit

		
	 MOUT
	  	 Military Operations in Urban Terrain

		
	 MTF
	  	 Modulation Transfer Function

		
	 NETD
	  	 Noise Equivalent Temperature Difference

		
	 NVESD
	  	 Night Vision Electronics Sensor Directorate

		
	 QPR
	  	 Quarterly Program Reviews

		
	 SOW
	  	 Statement of Work

		
	 SRU
	  	 Shop Replaceable Unit

		
	 T&E
	  	 Test and Evaluation

		
	 U.S.
	  	 United States

		
	 VTC
	  	 Video Teleconference

  

 IN WITNESS WHEREOF, the parties, through their signatures, attest their agreement hereto:  
  

					
	CACI Technologies. Inc.	 	 	 	IRVINE SENSORS CORPORATION
			
	 /s/ Richard H. Scholz
	 	 	 	 /s/ D. L. Smetana

	 Signature
	 	 	 	 Signature

			
	 Richard H. Scholz
	 	 	 	 D. L. Smetana

	 Typed Name
	 	 	 	 Typed Name

			
	 Subcontracts Manager
	 	 	 	 Deputy COO

	 Title
	 	 	 	 Title

			
	 August 9, 2004
	 	 	 	 8/10/04

	 Date
	 	 	 	 DateForm of Registration Rights Agreement dated 12/13/2004

  
 Exhibit 10.1

  
 TERRA INDUSTRIES INC. 
  
 Lazard Frères & Co. LLC 
 30 Rockefeller Plaza 
 New York, NY 10020 
  
 December 13, 2004 
  
 Dear Ladies and Gentlemen: 
  
 This letter is being delivered to you in connection with the proposed private placement (the “Private Placement”) by Taurus Investments S.A.
(“Taurus”) of up to 25,060,725 shares (the “Designated Shares”) of common stock, with no par value (the “Common Stock”), of Terra Industries Inc., a Maryland corporation (the “Company” or “Terra”) in
which you will act as placement agent. 
  
 You have advised us
that the Designated Shares will be sold to qualified institutional buyers (the “New Purchasers”) pursuant to a stock purchase agreement (the “New Purchasers’ Agreement”) between Taurus on the one hand, and each such
purchaser on the other hand. In connection with the Private Placement, Terra and the New Purchasers are to enter into a Registration Rights Agreement (the “New Purchaser Registration Rights Agreement”) dated the date hereof, pursuant to
which Terra will agree to file a shelf registration statement for the resale by the New Purchasers of the Designated Shares. 
  
 Terra understands that entering into this Letter Agreement with you will facilitate the Private Placement. Accordingly, in order to facilitate the Private
Placement and for other good and for valuable consideration, the sufficiency of which is hereby acknowledged, Terra agrees with you, for your benefit and for the benefit of the New Purchasers, that it will not, without your prior written consent,
directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of, enter into any transaction which is designed to, or would reasonably be expected to, result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by Terra or any person controlled by Terra (or participate in the filing of) a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) in 

  

 
respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder with respect to, any shares of capital stock of Terra or any securities convertible into, or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction, until March 15, 2005, other than (i) the filing of one or more amendments to the registration statement contemplated by Section 1(a) of the Registration Rights Agreement (the
“Existing Registration Rights Agreement”), dated as of August 6, 2004, among Taurus, Terra and the other parties thereto (other than for the sale of any securities by Terra pursuant thereto), (ii) the issuance of up to 21,250,000 shares of
Common Stock and up to 6,250,000 Series B Cumulative Redeemable Preferred Shares (the “Series B Shares”), to be issued as consideration for the acquisition of Mississippi Chemical Corporation (“MCC”) as contemplated by the Stock
Purchase Agreement (the “Stock Purchase Agreement”) dated as of August 6, 2004, by and among MCC, Misschem Acquisition Inc. and Terra attached as Exhibit 99.2 to Terra’s Current Report on Form 8-K filed with the SEC on August 9, 2004,
and the filing of a registration statement (including any amendments) in respect thereof, (iii) the issuance of shares of Common Stock upon the redemption of the Series B Shares as contemplated by Exhibit D to the Stock Purchase Agreement, and the
filing of a registration statement (including any amendments) in respect thereof, (iv) the issuance of convertible subordinated debentures or shares of Common Stock issuable upon the conversion of the convertible subordinated debentures or the 4.25%
Series A Cumulative Perpetual Preferred Shares (the “Series A Shares”), as contemplated by the Series A Shares Purchase Agreement dated as October 7, 2004, among Citigroup Global Markets as representative of the initial purchasers named
therein and the Company, (v) the filing of a registration statement (including any amendments) contemplated by Section 2 of the Registration Rights Agreement (the “Convertible Preferred Registration Rights Agreement”), dated as of October
7, 2004, among Citigroup Global Markets as representative of the initial purchasers named therein and the Company (other than for the sale of any securities by Terra pursuant thereto), (vi) the issuance and sale of shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock, or options for such Common Stock or securities, in each case pursuant to any employee stock option plan, stock ownership plan or dividend reinvestment plan described in the
Terra’s Annual Report for the year ended December 31, 2003, on Form 10-K filed with the SEC on March 9, 2004, (vii) the issuance of warrants (the “MCC Warrants”) to purchase up to 4,000,000 shares of Common Stock upon the closing of
the transactions contemplated by the Stock Purchase Agreement as described in the Warrant Letter (the “Warrant Letter”), dated August 6, 2004, among Terra, Perry Principals Investments LLC and others and the issuance of the shares of
Common Stock issuable upon the exercise of the MCC Warrants, (viii) the filing of a registration statement (including any amendments) or contemplated by Section 1(c) of the Warrant Letter, and (ix) the filing of one or more registration statements
(including any amendments) contemplated by Section 2(a) of the New Purchaser Registration Rights Agreement. 
  

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 If for any reason the New Purchasers’ Agreements shall be terminated prior to the Closing Date (as
defined in the New Purchasers’ Agreement), the agreement set forth above shall likewise be terminated. 
  
 This letter is governed by and construed in accordance with the laws of the Sate of New York. 
  

			
	 Very truly yours,

	
	 TERRA INDUSTRIES INC.

		
	By:	 	 
	 Name:
	 	Francis G. Meyer
	 Title:
	 	Chief Financial Officer

  

 3

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