10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

¨ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004 Commission file number: 1-8520

TERRA INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of incorporation or organization)

52-1145429

(I.R.S. Employer Identification No.)

Terra Centre 600 Fourth Street P.O. Box 6000 Sioux City, Iowa

(Address of principal executive offices)

51102-6000

(Zip Code)

Registrant’s telephone number, including area code: (712) 277-1340

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, without par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)    Yes  x    No  ¨

The aggregate market value of the voting and non-voting common shares held by non-affiliates computed by reference to the price at which the common shares were last sold, or the average bid and asked price of such common shares, as of the last business day of the registrant’s most recently completed second fiscal quarter was $218,011,931.28.

The number of shares of Common Shares, without par value, outstanding as of March 1, 2005 was 92,984,216.

Documents Incorporated by Reference

Certain portions of the proxy statement for the Annual Meeting of Shareholders of Registrant to be held on May 3, 2005 are incorporated herein by reference into Part III hereof.

TABLE OF CONTENTS

	PART I
Items 1 and 2.	Business and Properties	3
Item 3.	Legal Matters	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
	Executive Officers of Terra	17
	PART II
Item 5.	Market for Terra’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	83
Item 9A.	Controls and Procedures	83
Item 9B.	Other Information	86
	PART III
Item 10.	Directors and Executive Officers of Terra	86
Item 11.	Executive Compensation	87
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	87
Item 13.	Certain Relationships and Related Transactions	88
Item 14.	Principal Accountant Fees and Services	88
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	89
Signatures		100
Index to Financial Statement Schedules, Reports and Consents		S-1

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ITEMS 1 AND 2. BUSINESS AND PROPERTIES

Terra Industries Inc., a Maryland corporation, is referred to as “Terra,” “we” or “our” throughout this report. References to Terra also include the direct and indirect subsidiaries of Terra Industries Inc. where required by the context, including the recently acquired Mississippi Chemical Corporation. Subsidiaries not wholly-owned by Terra include a limited partnership, Terra Nitrogen Company, L.P., (“TNCLP”), which, through its subsidiary, Terra Nitrogen, Limited Partnership, operates Terra’s manufacturing facility in Verdigris, Oklahoma. Terra is the sole general partner and the majority limited partner in TNCLP. Terra’s principal corporate office is located at Terra Centre, 600 Fourth Street, P.O. Box 6000, Sioux City, Iowa 51102-6000 and its telephone number is (712) 277-1340.

Terra makes available free of charge through its web site, www.terraindustries.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Terra’s internet web site and the information contained or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

MCC Acquisition

On December 21, 2004, Terra completed its acquisition of Mississippi Chemical Corporation (“MCC”), which we refer to herein as the “MCC Acquisition.” Through MCC, we acquired nitrogen products manufacturing facilities at Donaldsonville, Louisiana and Yazoo City, Mississippi; a 50% equity interest in Point Lisas Nitrogen Limited, a 50/50 ammonia production joint venture with KNC Trinidad Limited; FMCL Limited Liability Company, a 50/50 ammonia shipping joint venture with KNC Trinidad Limited; and Houston Ammonia Terminal, L.P., a 50/50 ammonia storage joint venture with Potash Corporation of Saskatchewan. Simultaneously with the MCC Acquisition, MCC emerged from bankruptcy proceedings administered under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to MCC’s second amended and restated Plan of Reorganization, and prior to the consummation of the MCC Acquisition, MCC’s phosphate business was separated and transferred to certain creditors. Unless the context requires otherwise, statements in Items 1 and 2 of this report give effect to the MCC Acquisition.

Business Overview

Terra is a leading North American and U.K. producer and marketer of nitrogen products serving both agricultural and industrial end-use markets. In addition, we own a 50% interest in an ammonia production joint venture in the Republic of Trinidad and Tobago. Terra is one of the largest North American producers of ammonia, the basic building block of nitrogen fertilizers. We upgrade a significant portion of the ammonia we produce into higher value products, which are easier for agricultural end-users to transport, store and apply to crops than ammonia. We own nine manufacturing facilities in North America and the U.K. capable of producing nitrogen products. Two of these nine facilities (Beaumont, Texas and Woodward, Oklahoma) can also produce methanol. Our Beaumont, Texas facility, which historically has been a significant producer of methanol and also has the capability to produce ammonia, was mothballed in December, 2004 and is out of production.

Nitrogen is both a global and local commodity: global because it is both produced and traded in almost all regions of the world, local because local fertilizer customers display preferences for nitrogen in one of four basic forms based upon local conditions. The principal forms of nitrogen fertilizer products that are

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traded globally are ammonia (82% nitrogen by weight) and urea (46% nitrogen by weight). Ammonium nitrate (AN) (34% nitrogen by weight) is traded to a lesser extent, primarily in international markets. Urea ammonium nitrate (UAN) has only recently been traded in international markets. It is less likely to be traded internationally because it carries a high transportation cost due to its high water content. Because transportation is a significant component of a customer’s total cost, a key to competitiveness in the nitrogen business is to have the lowest delivered cost for the customer’s product of choice, while providing a reliable source of supply.

The locations of Terra’s North American production facilities provide Terra a competitive advantage in serving agricultural customers in the Corn Belt and other major agricultural areas in the United States and Canada. Terra’s U.K. facilities are able to serve competitively the entire British agricultural market. Our Point Lisas ammonia production facility in Trinidad and Tobago serves the international nitrogen markets and benefits from access to low-cost natural gas supplies. Terra’s facilities have the following production capacities:

	Annual Capacity1
Location	Ammonia2	UAN3	AN4	Urea5	Methanol6
Beaumont, Texas7	255,000	—	—	—	225,000,000
Donaldsonville, Louisiana	500,000	—	—	—	—
Port Neal, Iowa	370,000	840,000	—	60,000	—
Verdigris, Oklahoma	1,050,000	2,200,000	—	—	—
Woodward, Oklahoma8	440,000	340,000	—	25,000	40,000,000
Yazoo City, Mississippi9	500,000	600,000	775,000	7,000	—
Courtright, Ontario	480,000	400,000	—	175,000	—
Severnside, U.K.	265,000	—	500,000	—	—
Billingham, U.K.10	550,000	—	520,000	—	—
Point Lisas, Trinidad and Tobago11	360,000	—	—	—	—
Total	4,770,000	4,380,000	1,795,000	267,000	265,000,000

1. Annual capacity includes an allowance for planned maintenance shutdowns.

2. Measured in gross tons of ammonia produced; net tons available for sale will vary with upgrading requirements.

3. Measured in tons of UAN containing 28% nitrogen by weight.

4. Measured in tons.

5. Urea is sold as urea liquor from our Port Neal and Woodward facilities and as granular urea from the Courtright facility. Production capacities shown are for urea sold in tons.

6. Measured in gallons.

7. The Beaumont manufacturing plant was mothballed in December 2004, and is out of production. The Beaumont plant capacity depends on the product mix (ammonia/methanol).

8. Woodward’s plant capacity depends on the product mix (ammonia/methanol).

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9. The Yazoo City facility also produces merchant nitric acid; sales for the twelve months ended December 31, 2004 were 53,057 product tons.

10. The Billingham, England facility also produces merchant nitric acid; 2004 sales were 292,117 product tons.

11. The Point Lisas plant capacity represents Terra’s 50% interest.

The principal customers for Terra’s North American nitrogen products are national agricultural retail chains, farm cooperatives, independent dealers and industrial customers. Industrial customers use our products to manufacture chemicals and plastics such as acrylonitrile, polyurethanes, fibers, explosives and adhesives. Agricultural customers accounted for approximately 74% and industrial customers approximately 26% of Terra’s North American nitrogen product revenue in 2004 (excluding the plants acquired in the MCC Acquisition). In the U.K., revenues are evenly divided between agricultural and industrial customers.

Product	% of Total 2004 Terra Revenues1		U.S. Capacity Position		U.K. Capacity Position
Ammonia	25.6	%	2		1
UAN	33.6	%	1			*
AN	11.6	%		*	1
Urea	5.0	%	4			*
Methanol	12.4	%	1			*

1 Revenues from sales of carbon dioxide, nitric acid and other nitrogen products and services, as well as industrial sales in the U.K., represented 11.8% of our total revenues for 2004 (excluding the plants acquired in the MCC Acquisition.).

* Terra does not compete in these markets.

During December 2003, Terra entered into contracts with the Methanex Corporation (“Methanex”), providing it exclusive rights to all methanol production at the Beaumont facility for five years. In December 2004, this facility was mothballed. As long as the Beaumont facility remains idle through the December 2008 termination of the Methanex contract, we will continue to realize revenues relating to the facility of up to $16.4 million per year due to $4.4 million from annual amortization of deferred revenues plus one-half of the annual cash margin based on the plant’s methanol production capacity, reference prices and natural gas costs. Terra also entered into an agreement for Methanex to market, under a commission arrangement, all methanol produced at the Woodward facility. For more information on the methanol business, see the discussion under the caption “Methanol Business” below.

Nitrogen Business Segment

Terra is a leading producer and marketer of nitrogen products, principally fertilizers. We upgrade a significant portion of the ammonia that we produce into other nitrogen products, such as urea, ammonium nitrate (AN) and urea ammonium nitrate (UAN). Ammonia, AN, urea and UAN are the principal nitrogen products we produce and sell in North America. Terra produces and sells primarily ammonia and AN in the U.K. Our Point Lisas production facility in Trinidad provides ammonia for sale into the international nitrogen markets. Other important products that we manufacture include nitric acid, dinitrogen tetroxide and carbon dioxide. These products, along with a portion of our ammonia and urea production, are used in non-agricultural applications.

Although the different nitrogen products are interchangeable to some extent, each has its own characteristics which make one product or another preferable to the end-user. Terra’s plants are designed to provide the products preferred by end-users in the regions in which they are located. These preferences

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vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices, and the cost and availability of appropriate storage, handling and application equipment. Terra’s nitrogen products are described in greater detail below.

Ammonia

Ammonia is the simplest form of nitrogen fertilizer and is the feedstock for the production of other nitrogen fertilizers, including urea, AN and UAN. Ammonia is also widely used in industrial applications. With the MCC Acquisition, Terra is now the leading U.S. producer of ammonia. Ammonia is produced when natural gas reacts with steam and air at high temperatures and pressures in the presence of catalysts. Ammonia has a nitrogen content of 82% by weight and is generally the least expensive form of fertilizer on a per pound of contained nitrogen basis. Although generally the cheapest source of nitrogen available to agricultural customers, ammonia can be less desirable to end-users than UAN or urea because of the need for specialized application equipment and the lack of application flexibility.

Urea

Terra produces urea for both the fertilizer and animal feed markets by converting ammonia and carbon dioxide into liquid urea, which can be further processed into a solid, granular form. Urea is also used in industrial applications. Granular urea has a nitrogen content of 46% by weight, the highest level of any solid nitrogen product. Terra produces both a granulated form of urea, generally for the fertilizer market, and urea liquor (liquid) for animal feed supplements and industrial applications.

Ammonium Nitrate (AN)

Terra is the largest manufacturer and marketer of agricultural-grade AN fertilizer in the United States and produces AN at two facilities in the U.K. AN is produced by combining nitric acid and ammonia into a liquid form which is then converted to a solid, largely for fertilizer applications. The nitrogen content of AN is 34% by weight. AN is less subject to volatilization (evaporation) losses than other nitrogen products. Due to its stable nature, AN is the product of choice for such uses as pastures and no-till crops where fertilizer is spread upon the surface and is subject to volatilization losses.

Urea Ammonium Nitrate (UAN)

UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not require refrigeration or pressurization for transportation or storage. UAN is produced by combining liquid urea, liquid ammonium nitrate and water. The nitrogen content of UAN ranges from 28% to 32% by weight. Because of its high water content, UAN is relatively expensive to transport, making it largely a regionally distributed product.

UAN can be applied to crops directly or mixed with crop protection products, permitting the application of several materials simultaneously, reducing energy and labor costs and accelerating field preparation for planting. In addition, UAN may be applied from ordinary tanks and trucks and can be sprayed or injected into the soil, or applied through irrigation systems. UAN may be applied throughout the growing season, providing significant application flexibility. Due to its stability, UAN may be used for no-till row crops where fertilizer is spread on the surface of the soil but may be subject to evaporation losses.

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Manufacturing Facilities

Terra’s fertilizer manufacturing facilities, as well as the Point Lisas manufacturing facility in which we own a 50% interest, are designed to operate continuously, except for planned shutdowns (usually biennial) for maintenance and efficiency improvements. Capacity utilization (gross tons produced divided by capacity tons at expected operating rates and on-stream factors) of our nitrogen products manufacturing facilities (excluding 2004 production at the Blytheville, Arkansas plant, which closed in May, 2004, and the plants acquired in the MCC Acquisition) was 99%, 96% and 97% in 2004, 2003 and 2002, respectively.

Terra owns all of its manufacturing facilities, unless otherwise indicated below. (See “Methanol Business—Manufacturing Facilities” for a description of our Beaumont, Texas facility.) Substantially all of our manufacturing facilities are mortgaged to secure indebtedness under our credit agreements and our notes due in the years 2008 and 2010.

The Verdigris, Oklahoma facility is one of the largest UAN production facilities in North America. Located at the Verdigris facility are two ammonia plants, two nitric acid plants, two UAN plants and a port terminal. Terra owns the plants, while the port terminal is leased from the Tulsa-Rogers County Port Authority. The leasehold interest on the port terminal was renewed in April 2004, and Terra has an option to renew the lease for an additional five-year term. We also have UAN upgrading capability at our facilities in Port Neal, Iowa; Courtright, Ontario and Woodward, Oklahoma.

We believe we have some of the most efficient UAN plants in North America, including three of the five lowest-cost plants in terms of delivered cost to end-users. The location of our Port Neal, Iowa and Courtright, Ontario plants, with low-cost access to nearby Corn Belt markets, allows these plants to be among the most efficient in North America as measured by delivered cost to the end-user. Because of UAN’s relatively high transportation costs due to its water content, there is less competition from importers than for ammonia or urea. Four of our facilities are able to provide UAN locally by truck, which can offer a competitive advantage.

In May, 2004, Terra discontinued production at its Blytheville, Arkansas nitrogen products manufacturing facility and prepared to permanently close the production plants. Terra expects to operate the facility’s storage and distribution assets as a terminal for ammonia produced at its Verdigris, Oklahoma facility or obtained from other sources.

The Yazoo City, Mississippi facility includes two ammonia plants, five nitric acid plants, an AN plant, two urea plants, a UAN plant and a dinitrogen tetroxide production and storage facility. The Yazoo City facility is under contract through August 2007 as the sole provider of dinitrogen tetroxide for the United States Defense Energy Support Center. The Yazoo City plant and port facility have direct access to barge, rail and truck transportation and the plant is strategically located for the purchase of competitively priced natural gas.

The Donaldsonville, Louisiana facility includes two ammonia plants, a urea plant and two melamine crystal production plants. All of these plants, except for one ammonia plant, have been mothballed. No decision has been made regarding the sale or demolition of these plants. The facility has ready access to rail, truck and ammonia pipeline transportation. The plant is also equipped with a deep-water port facility on the Mississippi River, allowing for barge transportation and making Donaldsonville one of the northernmost points on the river capable of receiving economical ocean-going vessels.

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The Point Lisas Nitrogen facility, in the Republic of Trinidad and Tobago, is owned by a 50/50 joint venture with KNC Trinidad Limited. This facility has the capacity to produce annually 720,000 tons of ammonia from natural gas supplied under contract with the National Gas Company of Trinidad and Tobago. Terra is obligated to buy 50% of the joint venture’s ammonia output at market prices, which is mostly transported to the U.S. Gulf Coast and resold to Terra’s customers. The joint venture’s cost of natural gas has recently been significantly lower than U.S. natural gas costs, which has resulted in the joint venture being substantially more profitable than comparable North American facilities.

Marketing and Distribution

Terra’s customers are broadly segregated into two groups: (1) North American customers, which include those receiving shipments of imported product from the Point Lisas Nitrogen facility as well as purchases from other foreign producers, and (2) U.K. customers, which includes export sales to continental Europe.

The principal customers for Terra’s North American manufactured nitrogen products are independent dealers, national retail chains, cooperatives and industrial customers. Industrial customers accounted for approximately 26% of Terra’s North American nitrogen product revenues in 2004 (excluding the plants acquired in the MCC Acquisition).

Terra’s production facilities, combined with significant storage capacity at more than 50 locations throughout the major fertilizer consuming regions of the U.S. and Canada, position Terra to respond competitively to demand in our markets. Terra also owns and operates a storage and distribution terminal in Donaldsonville, Louisiana, one of the northernmost points on the Mississippi River capable of receiving ocean-going nitrogen vessels.

Terra’s U.K. sales are divided about equally between agricultural and industrial customers. Terra engages merchants and buying groups to sell its Nitram brand bagged AN fertilizer directly to British farmers. AN is also bagged for other U.K. suppliers and sold in bulk to suppliers who blend it with potash and phosphates, bag it and distribute it to farmers. A small quantity of AN is exported to continental Europe.

Terra’s U.K.’s industrial products include ammonia, nitric acid, and liquid carbon dioxide. Most industrial sales are to customers where Terra has a freight advantage.

Methanol Business

Recent Developments

During December 2003, we entered into contracts with Methanex Corporation (“Methanex”) providing it exclusive rights to all methanol production at our Beaumont, Texas facility for five years. Methanex paid $25 million for these rights and agreed to purchase production from us at amounts expected to approximate cash production costs. Methanex also agreed to pay us 50% of any gross profits earned from its sales of Beaumont product up to maximum payments of $12 million per year. Our agreement with Methanex gave Methanex the right to terminate Beaumont production during the term of the agreement, with Terra being responsible for the costs of shutting down the facility.

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On December 1, 2004, at the request of Methanex and under the terms of the agreement between the two companies, we ceased production at our Beaumont, Texas methanol manufacturing facility and began the process of mothballing the plant. Our agreement stipulates that, beginning two years from the date of the shutdown, Terra has the option to terminate the agreement by paying Methanex approximately $417,000 per month remaining on the contract. As long as the Beaumont facility remains idle through the December 2008 termination of the Methanex contract, we will continue to realize revenues relating to the facility of up to $16.4 million per year due to $4.4 million from annual amortization of deferred revenues plus one-half of the annual cash margin attributable to idled methanol production based on reference prices and natural gas costs.

Approximately 40 Terra employees were terminated after the methanol plant was mothballed. Terra has retained some employees to operate the methanol storage and distribution terminal and potentially to operate the ammonia plant.

Manufacturing Facilities

Terra owns the plant and processing equipment at the Beaumont facility, which has annual production capacity of 225 million gallons of methanol. The facility also contains an “ammonia loop” which provides an annual production capacity of 255,000 tons of ammonia. The facility’s real estate is leased from E.I. DuPont de Nemours and Company (“DuPont”) for a nominal annual rate under a lease agreement which expires in 2090. Because the Beaumont facility is entirely contained within an industrial complex owned and operated by DuPont, Terra depends on DuPont for access to the facility as well as certain essential services.

The Woodward, Oklahoma facility produced 33.8 million, 33.8 million and 37.3 million gallons of methanol in 2002, 2003 and 2004, respectively, and has an annual methanol production capacity of 40 million gallons.

Marketing and Distribution

In addition to the Beaumont production agreement, we also entered into an agreement with Methanex to market, under a commission arrangement, all methanol produced at the Woodward, Oklahoma facility. The customers served under these arrangements are primarily large domestic chemical producers.

Nitrogen Industry Overview

Overview

The three major nutrients required for plant growth are phosphorous, mined as phosphate rock; potassium, mined as potash; and nitrogen, produced from natural gas. Phosphorus plays a key role in the photosynthesis process. Potassium is an important regulator of plants’ physiological functions. Nitrogen is an essential element for most organic compounds in plants as it promotes protein formation. Nitrogen is also a major component of chlorophyll, which helps to promote green healthy growth and high yields.

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There are no substitutes for nitrogen fertilizers in the cultivation of high-yield crops. These three nutrients occur naturally in the soil to a certain extent but must be replaced as crops remove them from the soil. Nitrogen, to a greater extent than phosphate and potash, must be reapplied each year in areas of intense agricultural usage because of absorption by crops and its tendency to escape from the soil by evaporation or leaching. Consequently, demand for nitrogen fertilizer tends to be more consistent on a year-by-year per-acre-planted basis than is demand for phosphate or potash fertilizer.

Demand

Global demand for fertilizers typically grows at predictable rates and tends to correspond to growth in grain production. Global fertilizer demand is driven in the long term primarily by population growth, increases in disposable income and associated improvements in diet. Short-term demand depends on world economic growth rates and factors creating temporary imbalances in supply and demand. These factors include weather patterns, the level of world grain stocks relative to consumption, agricultural commodity prices, energy prices, crop mix, fertilizer application rates, farm income and temporary disruptions in fertilizer trade from government intervention, such as changes in the buying patterns of China or India.

Supply

Increased ammonia prices in 1995 led to capacity expansion projects globally that resulted in capacity growth that was, in the short term, substantially greater than demand, causing a structural imbalance in ammonia supply and demand. In addition, foreign government support for domestic production in India, China and the former Soviet Union has kept uneconomical plants running, further increasing supply.

This new global capacity has been partially offset by permanent plant closings in the U.S. and Europe since 1998. Recent increases in natural gas costs in many regions of the world have forced temporary plant closures which, in addition to permanent plant closures, have provided support for nitrogen prices.

Imports account for a significant portion of U.S. nitrogen product supply. Producers from the former Soviet Union, Canada, the Middle East, Trinidad and Venezuela are major exporters to the U.S. These export producers are often competitive in regions of close proximity to the point of entry for imports, primarily the Gulf Coast and East Coast of North America. Due to higher freight costs and limited distribution infrastructure, importers are less competitive in serving the main corn-growing regions of the U.S., which are more distant from these ports.

Methanol Industry Overview

Overview

Methanol is a liquid made primarily from natural gas that is used as a feedstock in the production of formaldehyde, acetic acid, MTBE, and a variety of other chemical intermediates which form the foundation of a large number of secondary derivatives. Formaldehyde is used to produce urea-formaldehyde and phenol-formaldehyde resins, which are used as wood adhesives for plywood, particleboard, oriented strand board, medium-density fiberboard and other engineered wood products. In addition, formaldehyde is used in the manufacture of elastomers, paints, foams, polyurethane and

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automotive products. Acetic acid is used as a chemical intermediate to produce adhesives, paper, paints, plastics, resins, solvents, and textiles. MTBE, an oxygenate and octane enhancer, is used to reduce hydrocarbon and carbon monoxide emissions from motor vehicles. Chemical intermediates are used to manufacture de-icer and windshield fluid, antifreeze, herbicides, pesticides, and poultry feed products.

Methanol is a typical commodity chemical and the methanol industry is characterized by cycles of oversupply resulting in lower prices and idled capacity, followed by periods of shortage and rapidly rising prices until increased prices justify new plant investments or the re-start of idled capacity. However, the expanding number of different uses for methanol and its derivatives over the last several years has resulted in the methanol industry becoming more complex and subject to increasingly diverse influences on supply and demand.

Demand

Due to an increasing range of end uses for methanol, demand has tended to move with the general level of economic activity in methanol’s major markets. The significant use of methanol for the production of chemicals used in the building products industry means that building and construction cycles are important factors in determining demand for methanol-based chemicals.

MTBE accounts for approximately 22% of global demand for methanol. MTBE is considered the preferred oxygenate by the refining industry and its production had grown rapidly until 2003 when initiatives in California and other states resulted in regulations that prohibit the addition of MTBE to gasoline.

Supply

Over the past several years significant industry restructuring has taken place with most North American methanol capacity shut down. New methanol production facilities have generally been constructed in locations with access to low-cost natural gas, although this advantage is partially offset by higher distribution costs due to distance from major markets.

Credit

Our credit terms are generally 15-30 days in the U.S. and 30 days in the U.K., but may be extended for longer periods during certain sales seasons consistent with industry practices.

Seasonality and Volatility

The fertilizer business is seasonal, based upon the planting, growing and harvesting cycles. Nitrogen fertilizer inventories must be accumulated to permit uninterrupted customer deliveries, and require significant storage capacity. This seasonality generally results in higher fertilizer prices during peak periods, with prices normally reaching their highest point in the spring, decreasing in the summer, and increasing again in the fall as depleted inventories are restored.

Nitrogen fertilizer prices can also be volatile as a result of a number of other factors. The most important of these factors are:

• Weather patterns and field conditions (particularly during periods of high fertilizer consumption);

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• Quantities of fertilizers imported to our primary markets;

• Current and projected grain inventories and prices, which are heavily influenced by U.S. exports and worldwide grain markets; and

• Price fluctuations in natural gas, the principal raw material used to produce nitrogen fertilizer.

Governmental policies may directly or indirectly influence the number of acres planted, the level of grain inventories, the mix of crops planted and crop prices.

While most U.S. methanol is sold pursuant to long-term contracts based on market index pricing and fixed volumes, the spot market price of methanol can be volatile. The industry has experienced cycles of oversupply, resulting in depressed prices and idled capacity, followed by periods of shortages and rapidly rising prices. Future demand for methanol will depend in part on the emerging regulatory environment with respect to reformulated gasoline.

Raw Materials

The principal raw material used to produce manufactured nitrogen products and methanol is natural gas. Natural gas costs in 2004 accounted for approximately 60% of our total costs and expenses (excluding the plants acquired in the MCC Acquisition). We believe there is a sufficient supply of natural gas for the foreseeable future and will, as opportunities present themselves, enter into firm transportation contracts to minimize the risk of interruption or curtailment of natural gas supplies during the peak-demand winter season.

As a result of the MCC Acquisition, we now own a 50% interest in Point Lisas Nitrogen Limited, a 50/50 ammonia production joint venture with KNC Trinidad Limited. Point Lisas Nitrogen Limited has a contract to purchase natural gas from the National Gas Company of Trinidad and Tobago. The joint venture’s cost of natural gas has recently been significantly lower than U.S. natural gas costs, which has resulted in the joint venture being substantially more profitable than comparable North American facilities.

Terra’s natural gas hedging policy is to fix or cap the price of 20% to 80% of our natural gas requirements for a rolling 12-month period, and up to 50% of our natural gas requirements for the subsequent 24-month period, provided that such arrangements would not result in costs greater than expected selling prices for our finished products. The Board of Directors is advised of any departures from this policy. We cap natural gas prices through various supply contracts, financial derivatives and other instruments. A significant portion of the global nitrogen products production occurs at facilities with access to fixed-priced natural gas supplies, such as at our Point Lisas Nitrogen Limited facility. These facilities’ natural gas costs have been and likely will continue to be substantially lower than those of our North American and U.K. facilities.

If natural gas prices rise, we may benefit from our use of forward-pricing techniques. Conversely, if natural gas prices fall, we may incur costs above the then-available spot market price. The settlement dates of forward-pricing contracts coincide with gas purchase dates. Forward-pricing contracts are based on a specified price referenced to spot market prices or appropriate NYMEX futures contract prices.

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Transportation

Terra uses several modes of transportation to distribute products to customers, including railroad cars, common carrier trucks, barges and common carrier pipelines. We use 53 liquid, dry and anhydrous ammonia fertilizer terminal storage facilities in 18 U.S. states and one Canadian province.

Railcars are the major mode of transportation at our North American manufacturing facilities. Terra leases approximately 2,100 railcars. Terra also owns 10 nitric acid railcars. In the U.K., Terra’s AN production is transported primarily by contract carrier trucks, and ammonia production is transported primarily by pipelines that we own.

Terra transports purchased natural gas to our Woodward, Oklahoma facility via both intrastate and interstate pipelines and to Terra’s Verdigris, Oklahoma facility via intrastate pipeline. The intrastate pipelines serving Woodward and Verdigris are not open-access carriers, but are nonetheless part of a widespread regional system through which Woodward and Verdigris can receive natural gas from any major Oklahoma source. Terra also has limited access to out-of-state natural gas supplies for these facilities. Terra’s Beaumont, Texas facility sources natural gas via four intrastate pipelines. The Courtright, Ontario facility sources natural gas at delivery points at Parkway and Dawn, Ontario and a local utility. We transport purchased natural gas for our Port Neal, Iowa facility via interstate, open-access pipelines. At the Billingham and Severnside, England locations, purchased natural gas is transported to the facilities via a nationwide, open-access pipeline system. Terra’s Donaldsonville facility sources purchased natural gas from two intrastate pipelines. Terra’s Yazoo City facility is served by three interstate pipelines and one intrastate pipeline.

FMCL Limited Liability Company, Terra’s 50/50 ammonia shipping joint venture with KNC Trinidad Limited, leases a vessel for the transportation of ammonia. Use of this vessel is shared between the joint venture partners.

Research and Development

We are currently not undertaking any significant, ongoing research and development efforts.

Competition

The markets in which Terra operates are highly competitive. Competition in agricultural input markets takes place largely on the basis of price, reliability of supply, delivery time and quality of service. Feedstock availability to production facilities and the cost and efficiency of production, transportation and storage facilities are also important competitive factors. Government intervention in international trade can distort the competitive environment. The relative cost and availability of natural gas are also important competitive factors. Significant determinants of a plant’s competitive position are the natural gas acquisition and transportation contracts negotiated with its major suppliers as well as proximity to natural gas sources and/or end-users.

Terra’s domestic competitors in the nitrogen fertilizer markets include a large production cooperative and other independent fertilizer companies. In addition, nitrogen fertilizers imported into the United States compete with domestically produced nitrogen fertilizers, including those produced by Terra. Countries with inexpensive sources of natural gas (whether as a result of government regulation or otherwise) can

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produce nitrogen fertilizers at a low cost. A substantial amount of new ammonia capacity is expected to be added abroad in the foreseeable future. Importers of this new supply will face higher transportation costs, which will reduce their advantage of inexpensive natural gas.

In the methanol segment, production and trade have become increasingly globalized and a number of foreign competitors produce methanol primarily for the export market. Many of these foreign competitors have access to favorably priced sources of natural gas and are relatively insensitive to raw material price fluctuations. However, because of low domestic demand, foreign competitors aggressively pursue the U.S. and other export markets.

Nitrogen sales are made through independent retailers, resellers, farmer co-operatives affiliated dealer organizations and brokers. Terra sells methanol through Methanex as described in the preceding Business Overview section.

Environmental and Other Regulatory Matters

Terra’s operations are subject to various federal, state and local environmental, health and safety laws and regulations, including laws relating to air quality, hazardous and solid wastes and water quality. Terra’s operations in Canada are subject to various federal and provincial regulations regarding such matters, including the Canadian Environmental Protection Act administered by Environment Canada, and the Ontario Environmental Protection Act administered by the Ontario Ministry of the Environment. Terra’s U.K. operations are subject to similar regulations under a variety of acts governing hazardous chemicals, transportation and worker health and safety. Terra’s facilities require operating permits that are subject to review by governmental agencies. We are also involved in the manufacture, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by federal, state, provincial or other regulatory agencies. We take precautions to reduce the likelihood of accidents involving these materials. If such materials have been or are disposed of at sites that are targeted for investigation and/or remediation by federal or state regulatory agencies, Terra may be responsible under CERCLA or analogous laws for all or part of the costs of such investigation and remediation, and damages to natural resources.

The State of Arizona designated Inspiration Consolidated Copper Company (“Inspiration”), a Terra subsidiary that disposed of its assets in 1988 and no longer operates a business, as a potentially responsible party (“PRP”) under the state Superfund law at the Pinal Creek Drainage Basin Site (“Pinal Site”) in Globe/Miami, Arizona, based upon Inspiration’s prior ownership and operation of copper mining and production facilities. Under state and federal Superfund laws, all PRPs may be jointly and severally liable for the costs of investigation and/or remediation of an environmentally impaired site regardless of fault or the legality of original disposals. The Pinal Site is the subject of ongoing investigation and cleanup to address releases of acidic metal-bearing solutions from past copper mining and production facilities. The remedial actions are governed by a 1997 consent decree between the Arizona Department of Environmental Quality and the two current owners/operators of the copper mining and production facilities (one of whom is the successor to Inspiration’s buyer) and Inspiration (collectively with Terra, the “Group”). The Group’s members are jointly and severally financing and performing the work, but Inspiration no longer owns assets at the Pinal Site. Also, the Group has filed an action for cost-recovery against other former owners and operators at the Pinal Site. In a related matter, residents in an area of the Pinal Site brought a class action against the Group seeking property damages and medical monitoring for

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potential personal injuries allegedly related to the acidic metal-bearing groundwater. All claims have been settled, although plaintiffs reserved the right to assert personal injury claims individually. After consideration of such factors as the number of PRPs and levels of financial responsibility, including the ongoing litigation, claims against historic insurance carriers, and contractual indemnities, we believe that our liability with respect to these matters will not be material. Existing contractual indemnities may be subject to legal challenge, however, and there can be no guarantee that they will be upheld or sufficient to cover all costs, or that material expenditures will not be incurred for these matters.

Terra retained a small number (less than 10%) of its retail locations after the sale of its distribution business in 1999. Some of these locations are now, or are expected in the future to be, the subject of environmental clean-up activities for which we have retained liability. We do not believe that such environmental costs and liabilities will have a material effect on our results of operations, financial position or net cash flows.

With respect to our Verdigris facility, Freeport-McMoRan Resource Partners, Limited Partnership (a former owner and operator of these facilities) retained liability for certain environmental matters. With respect to our Beaumont facility, DuPont retains responsibility for certain environmental costs and liabilities stemming from conditions or operations to the extent such conditions or operations existed or occurred prior to its sale of the facility in 1991. Likewise, with respect to our Billingham and Severnside, England facilities, the seller, ICI, indemnified us, subject to certain conditions, for pre-December 31, 1997 environmental contamination associated with the purchased assets. Known conditions are not expected to result in material expenditures but discovery of unknown conditions or the failure of prior owners and operators and indemnitors to meet their obligations could require significant expenditures.

Terra may be required to install additional air and water quality control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and continuous emission monitors, at certain facilities in order to maintain compliance with applicable environmental requirements. We estimate that the total cost of additional equipment to comply with these requirements in 2005 and the next two years will be less than $15 million.

Terra endeavors to comply in all material respects with applicable environmental, health and safety regulations and has incurred substantial costs in connection with such compliance. Because these regulations are expected to continue to change and generally to be more restrictive than current requirements, the costs of compliance will likely increase. We do not expect our compliance with such regulations to have a material adverse effect on our results of operations, financial position or net cash flows. However, there can be no guarantee that new regulations will not result in material costs.

Terra’s capital expenditures related to environmental control in 2004, 2003 and 2002 were approximately $2.4 million, $1.3 million and $3.6 million, respectively. Projected environmental capital expenditures are $5 million for 2005 and $6.1 million for 2006.

Terra believes that its policies and procedures now in effect are in compliance with applicable environmental laws and with the permits relating to the facilities in all material respects. However, in the normal course of its business, Terra is exposed to risks relating to possible releases of hazardous substances into the environment. Such releases could cause substantial damages or injuries. Although environmental expenditures have not been material during the past year, it is impossible to predict or quantify the impact of future environmental liabilities associated with releases of hazardous substances from Terra’s facilities.

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Revenues and Assets

Terra’s revenues from external customers, measure of profit and loss, total assets and revenues and assets according to geography for the years 2002-2004 is set forth in Item 8 of this Annual Report on Form 10-K under the caption “Note 23 – Industry Segment Data” contained in the “Notes to Consolidated Financial Statements.”

Employees

We had 1,323 full-time employees at December 31, 2004, with all 400 U.K. employees covered by a wage and working conditions arrangement similar to a collective bargaining agreement. In the 2005 first quarter, we will terminate the employment of approximately 80 employees who were assigned to acquired MCC locations or our Beaumont facility.

ITEM 3. LEGAL MATTERS

Appeals of a Federal court decision ordering our insurer to pay all of our past and future judgments, settlements and other associated costs arising from a 1998 recall of carbonated beverages containing carbon dioxide tainted with benzene were exhausted in our favor during 2004. Accordingly, we recorded the recovery of product claim costs totaling $17.9 million through the elimination of remaining reserves originally established for these claims and the receipt of additional amounts from the insurer for claims previously paid by us.

During 2003, $11.2 million in damages were awarded to a former Terra employee whose distribution and crop consulting business was acquired by Terra in 1997. The plaintiff alleged bad faith and fraud against Terra in connection with the sale of his business to Terra. During 2004, the Arizona Court of Appeals affirmed the trial court decision and the judgment was paid. Terra recorded the charge for the original verdict in its December 31, 2002 financial statements.

We are involved in various other legal actions and claims, including environmental matters, arising from the normal course of business. While it is not possible to predict with certainty the final outcome of these proceedings, we do not believe that these matters will have a material adverse effect on our results of operations, financial position or net cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of Terra during the fourth quarter of 2004.

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Executive Officers of Terra

The following paragraphs set forth the name, age and offices of each present executive officer of Terra, the period during which each executive officer has served as such and each executive officer’s business experience during the past five years:

Name	Present positions and offices with the company and principal occupations during the past five years
Michael L. Bennett	President and Chief Executive Officer of Terra since April 2001; Executive Vice President and Chief Operating Officer of Terra from February 1997 to April 2001; President and Chief Executive Officer of Terra Nitrogen Division since June 1998. Age 51.
Joe A. Ewing	Vice President, Human Resources and Corporate Communications of Terra since December 2004; Vice President, Human Resources of Mississippi Chemical Corporation from April 2003 to December 2004; Vice President, Marketing and Distribution of Mississippi Chemical Corporation from 1999 to April 2003. Age 54.
Joseph D. Giesler	Senior Vice President, Commercial Operations of Terra since December 2004; Vice President of Industrial Sales and Operations of Terra from December 2002 to December 2004; Global Director, Industrial Sales of Terra from September 2001 to December 2002; Director of Marketing of Terra from June 2000 to August 2001; and Director of Western Division of Terra from July 1998 to May 2000. Age 46.
Mark A. Kalafut	Vice President, General Counsel and Corporate Secretary of Terra since June 2001; Vice President and Associate General Counsel of Terra from April 1997 through June 2001. Age 51.
Francis G. Meyer	Senior Vice President and Chief Financial Officer of Terra since November 1995. Age 52.
W. Mark Rosenbury	Senior Vice President and Chief Administrative Officer of Terra since August 1999. Age 57.
Richard S. Sanders Jr.	Vice President, Manufacturing of Terra since August 2003; Plant Manager, Verdigris, Oklahoma manufacturing facility from 1995 to August, 2003. Age 47.
Wynn S. Stevenson	Vice President, Taxes and Corporate Development of Terra since May 1998. Age 50.
Paul Thompson	Vice President, Sales and Marketing of Terra since December 2004; Global Director, Ag Sales and Terra U.K. Managing Director from August 1999 to December 2004. Age 50.

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There are no family relationships among the executive officers and directors of Terra or arrangements or understandings between any executive officer and any other person pursuant to which any executive officer was selected as such. Officers of Terra are elected annually to serve until their respective successors are elected and qualified.

PART II

ITEM 5. MARKET FOR TERRA’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF SECURITIES

The main market in which Terra’s common shares are traded is the NYSE. Set forth below are the high and low sales prices of Terra’s common shares during each quarter specified as reported on the NYSE.

(per-share data and stock prices)	March 31		June 30		Sept. 30		Dec. 31
2004
Common Share Price:
High	$	6.66	$	6.55	$	8.95	$	9.38
Low		3.20		4.15		5.50		7.00
2003
Common Share Price:
High	$	1.77	$	1.69	$	2.23	$	3.55
Low		1.06		1.07		0.97		1.88

As of March 1, 2005 there were 9,328 record holders of Terra’s common stock.

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ITEM 6. SELECTED FINANCIAL DATA

Financial Summary

(in thousands, except per-share and employee data)	2004(1)			2003(2)			2002(3)			2001			2000
Financial Position
Working capital	$	251,050		$	132,948		$	85,902		$	136,378		$	199,008
Total assets		1,685,508			1,125,062			1,128,110			1,336,043			1,512,552
Long-term debt		435,238			402,206			400,358			436,534			473,354
Preferred shares		133,069			—			—			—			—
Common stockholders’ equity		459,405			265,131			257,864			500,779			610,797
Results of Operations
Revenues	$	1,509,110		$	1,351,055		$	1,043,983		$	1,037,310		$	1,063,010
Costs and expenses		(1,374,364	)		(1,374,615	)		(1,049,390	)		(1,099,128	)		(1,026,171	)
Interest expense, net		(49,827	)		(54,538	)		(53,257	)		(50,230	)		(47,642	)
Loss on early retirement of debt		(11,116	)		—			—			(3,042	)		—
Income tax benefit		5,000			57,000			24,000			33,000			6,000
Minority interest		(11,207	)		8,617			(1,510	)		2,247			(5,379	)
Income (loss) from continuing operations		67,596			(12,481	)		(36,174	)		(79,843	)		(10,182	)
Loss from discontinued operations		—			—			(16,183	)		—			—
Cumulative effect of change in accounting principle		—			—			(205,968	)		—			—
Net income (loss)		67,596			(12,481	)		(258,325	)		(79,843	)		(10,182	)
Preferred share dividends		(1,029	)		—			—			—			—
Income (loss) available to common stockholders	$	66,567		$	(12,481	)	$	(258,325	)	$	(79,843	)	$	(10,182	)
Basic Income (Loss) Per Share:
Continuing operations	$	0.87		$	(0.16	)	$	(0.48	)	$	(1.06	)	$	(0.14	)
Discontinued operations		—			—			(0.22	)		—			—
Cumulative effect of change in accounting principle		—			—			(2.73	)		—			—
Net income (loss) per share	$	0.87		$	(0.16	)	$	(3.43	)	$	(1.06	)	$	(0.14	)
Diluted Income (Loss) Per Share:
Continuing operations	$	0.85		$	(0.16	)	$	(0.48	)	$	(1.06	)	$	(0.14	)
Discontinued operations		—			—			(0.22	)		—			—
Cumulative effect of change in accounting principle		—			—			(2.73	)		—			—
Net income (loss) per share	$	0.85		$	(0.16	)	$	(3.43	)	$	(1.06	)	$	(0.14	)
Capital Expenditures	$	18,610		$	8,639		$	25,186		$	14,838		$	12,219
Full-time employees at end of period		1,323			1,138			1,207			1,248			1,279

(1) Includes effects of December 21, 2004 acquisition of Mississippi Chemical Corporation and issuance of preferred shares during the 2004 fourth quarter.

(2) 2003 costs and expenses included a $53.1 million charge for impairment of long-lived assets.

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(3) Our January 1, 2002 implementation of Statement of Financial Accounting Standard No. 142, “Goodwill and other intangible assets” was an accounting change that resulted in the determination that $206 million of assets classified as “excess of cost over net assets of acquired businesses” suffered impairment and had no value. In addition, we recorded a $16 million loss from discontinued operations to increase reserves for retiree medical obligations for former coal mining subsidiaries and a jury award to an employee of our former distribution business.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Terra Industries Inc. produces and markets nitrogen products for agricultural and industrial markets with production facilities located in North America and the United Kingdom. In addition, we own a 50% interest in an ammonia production joint venture in the Republic of Trinidad and Tobago. Nitrogen products are commodity chemicals that are sold at prices reflecting global supply and demand conditions. The nitrogen products industry has cycles of oversupply, resulting in lower prices and idled capacity, followed by supply shortages, resulting in high selling prices and higher industry-wide production rates. To be viable in this industry, a producer must be among the low-cost suppliers in the markets it serves and have a financial position that can sustain it during periods of oversupply.

On December 21, 2004, we acquired Mississippi Chemical Corporation. In order to achieve the full benefits of this acquisition, our management will emphasize the successful integration of MCC’s business with ours in a timely manner.

Natural gas is the most significant raw material in the production of nitrogen products. North American natural gas costs have increased substantially since 1999. Since some of our products compete with nitrogen products imported from regions with lower natural gas costs, we and other North American producers have not been able to increase selling prices to levels necessary to cover the natural gas cost increases. This has resulted in curtailments of North American nitrogen production. These curtailments contributed to reductions in global nitrogen product supplies.

Imports, most of which are produced at facilities with access to fixed-price natural gas supplies, account for a significant portion of U.S. nitrogen product supply. Imported products’ natural gas costs have been and could continue to be substantially lower than the delivered cost of natural gas to our facilities. Off-shore producers are most competitive in regions close to North American points of entry for imports, including the Gulf Coast and East Coast.

Our sales volumes depend primarily on our plants’ operating rates. We may purchase product from other manufacturers or importers for resale, but gross margins on those volumes are rarely significant. Profitability and cash flows from our nitrogen products business are affected by our ability to manage our costs and expenses (other than natural gas), most of which do not materially change for different levels of production or sales. Other factors affecting our nitrogen products results include the number of planted acres, transportation costs, weather conditions (particularly during planting season), grain prices and other variables described in Items 1 and 2 “Business and Properties” of this Annual Report on Form 10-K.

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We also produce methanol in the U.S. Similar to nitrogen products, methanol is a commodity chemical manufactured from natural gas. Consequently, natural gas costs and the supply/demand balance for methanol significantly affect methanol earnings and cash flows. A significant portion of U.S. methanol demand is met by imports from regions with natural gas costs lower than those available to U.S. producers. U.S. methanol demand has declined over the past year and is expected to continue to decline due to reduced U.S. consumption of MTBE, a gasoline oxygenate and octane enhancer that uses methanol as a feedstock. In December 2003, we entered into contracts with the Methanex Corporation (“Methanex”) assigning it our sales contracts and providing it exclusive rights to all methanol production at the Beaumont facility for five years as more fully described in Items 1 and 2 “Business and Properties” of this report. As permitted under these contracts, Methanex elected to shut down the Beaumont facility as of December 1, 2004. As long as the Beaumont facility remains idle through the December 2008 termination of the Methanex contract, we will continue to realize revenues relating to the facility of up to $16.4 million per year due to $4.4 million from annual amortization of deferred revenues plus one-half of the annual cash margin based on the plant’s methanol production capacity, methanol reference prices and natural gas costs.

Overview of Consolidated Results

Terra reported net income (loss) of $68 million in 2004, $(12) million in 2003 and $(258) million in 2002 with diluted earnings (loss) per share of $0.85, $(0.16) and $(3.43), respectively. Revenues from continuing operations totaled $1,509 million in 2004, $1,351 million in 2003 and $1,044 million in 2002.

Our 2002 net loss included a $206 million charge for the cumulative effect of a change in accounting for goodwill ($2.73 per share) and a $16 million loss from discontinued operations ($0.22 per share). At the beginning of 2002, we implemented Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” and determined that $206 million of assets classified as “excess of cost over net assets of acquired businesses” suffered impairment and had no value.

Income (loss) from continuing operations was $68 million in 2004, $(12) million in 2003 and $(36) million in 2002. The 2004 net income was increased by $27.9 million of income tax benefits due to a favorable settlement with a foreign taxing authority. The 2004 net income also included $11.6 million attributable to an insurance recovery of product claim costs (representing $17.9 million of operating income less $6.3 million of related income taxes) and an $11.1 million loss from the early retirement of long-term debt (there were no tax benefits associated with this loss).

During 2003, we recorded a $27.0 million net charge for the impairment of our Blytheville facility (representing a $53.1 million impairment charge to operating income less $9.9 million allocated to minority interest and $16.2 million of income tax benefit). The 2003 net loss was reduced by $36.4 million of income tax benefits for a reduced assessment by a foreign taxing authority and reversals of tax reserves that had been provided in prior years.

Other fluctuations to our income (loss) from continuing operations for 2002 through 2004 are primarily related to changes in the selling prices of nitrogen products and methanol and changes in the cost of natural gas, our primary raw material.

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Factors That Affect Operating Results

Factors that may affect our operating results include: the relative balance of supply and demand for nitrogen fertilizers, industrial nitrogen and methanol, the availability and cost of natural gas, the number of planted acres (which is affected by both worldwide demand and government policies), the types of crops planted, the effect of general weather patterns on the timing and duration of field work for crop planting and harvesting, the effect of environmental legislation on supply and demand for our products, the availability of financing sources to fund seasonal working capital needs, and the potential for interruption to operations due to accidents or natural disasters.

The principal raw material used to produce nitrogen products and methanol is natural gas. Natural gas costs in 2004 accounted for approximately 60% of our total costs and expenses (excluding the plants acquired in the MCC acquisition). A significant increase in the price of natural gas that is not hedged or recovered through an increase in the price of our nitrogen and methanol products would have an adverse effect on our business, financial condition and results. A portion of global nitrogen products and methanol production is at facilities with access to fixed-price natural gas supplies that have been, and could continue to be, substantially lower priced than natural gas costs at our North American and U.K. facilities. Our Point Lisas Nitrogen Limited facility is located in Trinidad with access to such lower-cost natural gas.

We enter into forward pricing contracts for some of our natural gas requirements when such arrangements would not result in costs greater than expected North American and U.K. selling prices for our finished products. Our current natural gas forward pricing policy is to fix or cap the price of between 20% and 80% of our natural gas requirements for a rolling 12-month period and up to 50% of our natural gas requirements for the subsequent 24-month period through supply contracts, financial derivatives and other instruments. We notify the Board of Directors when we deviate from the policy. Our December 31, 2004 forward positions covered 26% of our expected 2005 natural gas requirements and none beyond (excluding the natural gas requirements of Point Lisas Nitrogen Limited which purchases its gas under contract with the Natural Gas Company of Trinidad and Tobago).

Prices for nitrogen products are influenced by the world supply and demand balance for ammonia and other nitrogen-based products. Long-term demand is affected by population growth and rising living standards that determine food consumption. Short-term demand is affected by world economic conditions, international trade decisions and grain prices. Supply is affected by increasing worldwide capacity and the availability of nitrogen product exports from major producing regions such as the former Soviet Union, the Middle East and South America.

Methanol is used as a raw material in the production of formaldehyde, methyl tertiary-butyl ether (MTBE), acetic acid and numerous other chemical derivatives. The price of methanol is influenced by the supply and demand for each of these products. Environmental initiatives to ban or reduce the use of MTBE as a fuel additive, such as those currently underway in the United States, will affect demand for methanol.

Weather can have a significant effect on demand for our nitrogen products. Weather conditions that delay or intermittently disrupt field work during the planting and growing seasons may cause agricultural customers to use forms of nitrogen fertilizer that are more or less favorable to our sales. Weather conditions following harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop yields, which lowers the income of growers and could impair their ability to pay for crop inputs purchased from our dealer customers.

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Our nitrogen business segment is seasonal, with the majority of nitrogen products consumed during the second quarter in conjunction with spring planting activity. Due to the business’ seasonality and the relatively brief periods during which customers consume nitrogen products, our customers and we generally build inventories during the second half of the year in order to ensure product availability during the peak sales season. For our current level of sales, we require lines of credit to fund inventory increases and to support customer credit terms. We believe that our credit facilities are adequate for expected 2005 sales levels.

Our manufacturing operations may be subject to significant interruption if one or more of our facilities were to experience a major accident or were damaged by severe weather or other natural disaster. We currently maintain insurance, including business interruption insurance, which we believe is sufficient to allow us to cover major damage to any of our facilities.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for reporting purposes. The preparation of these financial statements requires us to make estimates and judgments that affect the amount of assets, liabilities, revenues and expenses at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that reflect significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are described below.

Impairment of Long-Lived Assets

We will record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of these items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions.

Estimates of future cash flows are subject to significant uncertainties and assumptions. Accordingly, actual results could vary significantly from such estimates. During 2004, events occurred that necessitated an evaluation of recoverability of assets at our Beaumont facility. At December 31, 2004, the Beaumont facility had a carrying value, net of $18 million of deferred revenues, of approximately $105 million. We estimated the remaining useful life of this facility at 14 years assuming normal investment in maintenance and replacement capital throughout this period. Our estimated cash flows over this period, based on our best estimate of future market and operating conditions at December 31, 2004, exceeded the carrying value of these assets and consequently, no impairment charge was recorded for the Beaumont facility.

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These cash flow estimates assume Beaumont will remain idle through the 2008 term of our contract with Methanex and, that once restarted, it will produce at historical rates and selling prices will be adequate to realize historical margins over natural gas. Actual results for the Beaumont facility could vary substantially from such estimates.

Equity Investments

Terra’s investments in companies that are accounted for on the equity method of accounting consist of the following: (1) 50% ownership interest in Point Lisas Nitrogen Limited, which operates an ammonia production plant in Trinidad (2) 50% interest in an ammonia storage joint venture located in Houston, Texas and (3) 50% interest in a joint venture in Oklahoma CO₂ Partnership, located in Verdigris, Oklahoma which produces CO₂ at Terra’s plant.

Equity investments are carried at original cost adjusted for our proportionate share of the investees’ income, losses and distributions. We periodically assess the carrying value of our equity investment and will record a loss on equity investments when management concludes a decline in the fair value of the investment is other than temporary.

Pension Assets and Liabilities

Pension assets and liabilities are affected by the estimated market value of plan assets, estimates of the expected return on plan assets and discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets will affect the amount of pension expense ultimately recognized. Our pension liabilities were $428 million at December 31, 2004, which was $139 million higher than pension plan assets. The December 31, 2004 liability was computed based on an average 5.7% discount rate, which was based on yields for high-quality corporate bonds with a maturity approximating the duration of our pension liability. In addition, the pension liability for our U.K. pension plan, which includes provisions to adjust benefit payments for general inflation rates, was estimated based on an average 3.0% annual inflation rate. Declines in comparable bond yields or higher U.K. inflation rates would increase our pension liability. Our net pension liability, after deduction of plan assets, could increase or decrease depending on the extent to which returns on pension plan assets are lower or higher than the discount rate.

Post-Retirement Benefits

Post-retirement benefits are determined on an actuarial basis and are affected by assumptions including the discount rate and expected trends in health care costs. Changes in the discount rate and differences between actual and expected health care costs will affect the recorded amount of post-retirement benefits expense ultimately recognized.

Accounting for Acquisitions

On December 21, 2004, we acquired Mississippi Chemical Corporation (“MCC”) for a purchase price valued at $210.6 million consisting of 15 million common shares, 172,690 Series B preferred shares and cash of $54.2 million, including costs directly related to the acquisition. The acquisition has been accounted for using the purchase method of accounting with the purchase price allocated to the net assets acquired based upon their estimated fair market values. This allocation was based on preliminary estimates and may be revised at a later date.

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Revenue Recognition

Revenue is recognized when title to finished product passes to the customer. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and trade allowances. Revenue includes amounts paid by customers for shipping and handling. Revenues include gains or losses associated with the settlement of nitrogen derivative contracts.

Deferred Income Taxes

Deferred income tax assets and liabilities reflect (a) differences between financial statement carrying amounts and corresponding tax bases and (b) temporary differences resulting from differing treatment of items for tax and accounting purposes. Deferred tax assets also include the expected benefits of carrying forward our net operating losses. We regularly review deferred tax assets for recoverability and reduce them if we can not sufficiently determine that they will be realized. We base this determination on projected future taxable income and the expected timing of the reversals of existing temporary differences.

At December 31, 2004, deferred tax assets representing future benefits for our U.S. net operating loss carryforwards totaled $213 million. Since we have not generated U.S. taxable income since 1997, we do not have a basis to conclude that future taxable earnings are likely to be available to utilize benefits associated with loss carryforwards. Accordingly, through December 31, 2004, we have reduced our deferred tax assets for U.S. operations by $56 million. Further, we do not expect to recognize additional U.S. tax benefits for future losses until we realize taxable income or generate additional deferred tax liabilities for temporary differences. If there is a material change in the effective tax rates or time period when temporary difference become taxable or deductible, we may have to additionally reduce all or a significant portion of our deferred tax assets.

Inventory Valuation

Inventories are stated at the lower of cost and estimated net realizable value. The average cost of inventories is determined by using the first-in, first-out method. The nitrogen and methanol industries are characterized by rapid change in both demand and pricing. Rapid declines in demand could result in temporary or permanent curtailment of production, while rapid declines in price could result in a lower cost or market adjustment.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from two to fourteen years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented.

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Derivative and Financial Instruments

Terra accounts for derivatives in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 requires the recognition of derivatives in the balance sheet and the measurement of these instruments at fair value. Changes in the fair value of derivatives are recorded in earnings unless the normal purchase or sale exception applies or hedge accounting is elected.

Terra enters into derivative instruments including future contracts, swap agreements, and purchased options to cap or fix prices for a portion of natural gas production requirements. Terra uses similar derivative instruments to fix or set floor prices for a portion of its nitrogen sales volumes. Terra has designated, documented and assessed accounting hedge relationships, which mostly resulted in cash flow hedges that require the recording of the derivative assets or liabilities at their fair value on the balance sheet with an offset in other comprehensive income. Amounts are removed from other comprehensive income as the underlying transactions occur and realized gains or losses are recorded.

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RESULTS OF CONTINUING OPERATIONS—2004 COMPARED WITH 2003

Consolidated Results

We reported 2004 net income of $67.6 million on revenues of $1,509 million compared with a 2003 net loss of $12.5 million on revenues of $1,351 million. Diluted income (loss) per share for 2004 was $0.85 compared with $(0.16) for 2003. Results for 2004 and 2003 were favorably affected by income tax benefits of $27.9 million and $36.4 million, respectively, for reduced assessments by a foreign taxing authority and reversals of tax reserves established in prior years.

The 2004 net income also included $11.6 million attributable to an insurance recovery of product claim costs (representing $17.9 million of operating income less $6.3 million of related income taxes) and a $11.1 million loss from the early retirement of long-term debt primarily related to our redemption of $70.7 million in Second Priority Senior Secured Notes due 2010 (there were no tax benefits associated with this loss).

The 2003 net loss included a $27.0 million net charge for the impairment of our Blytheville facility (representing $53.1 million impairment charge to operating income less $9.9 million allocated to minority interest and $16.2 million income tax benefit).

We classify our operations into two business segments: Nitrogen Products and Methanol. The Nitrogen Products segment represents the sale of nitrogen products including that produced at our ammonia manufacturing and upgrading facilities. The Methanol segment represents sales of methanol including that produced at our two methanol manufacturing facilities.

MCC revenues and expense are included from the December 21, 2004 acquisition date and are not material.

Total revenues and operating income (loss) by segment for the years ended December 31, 2004 and 2003 follow:

(in thousands)	2004			2003
Revenues:
Nitrogen products	$	1,320,142		$	1,139,379
Methanol		186,823			209,870
Other revenues		2,145			1,806
	$	1,509,110		$	1,351,055
Operating Income (Loss):
Nitrogen products	$	138,745		$	33,721
Impairment of long-lived assets (nitrogen products)		—			(53,091	)
Methanol		1,479			1,866
Other expense—net		(5,478	)		(6,056	)
	$	134,746		$	(23,560	)

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Nitrogen Products

Volumes and prices for 2004 and 2003 follow:

Volumes and Prices	2004			2003
(quantities in thousands of tons)	Sales Volumes	Average Unit Price*		Sales Volumes	Average Unit Price*
Ammonia	1,391	$	266	1,400	$	229
Nitrogen solutions	3,869		120	3,840		99
Urea	376		195	545		173
Ammonium nitrate	988		178	934		142

* After deducting outbound freight costs

Nitrogen products revenues increased by $181 million to $1,320 million for 2004 compared with $1,139 million for 2003 primarily as the result of higher sales prices. Selling prices were higher as the result of increased demand and lower fertilizer supplies caused by industry-wide production curtailments since mid-2003. Price increases also reflected higher imported product costs as the result of U.S. currency declines relative to other currencies and increased international freight rates. Sales volumes in 2004 were lower than those of the previous year due mostly to the Blytheville production facility’s permanent closure in May 2004.

Nitrogen products operating income, excluding 2003 charges for the impairment of long-lived assets, increased by $105.0 million to $138.7 million for 2004 from $33.7 million for 2003. Higher selling prices and recovery of product claim costs contributed $180.4 million and $17.9 million, respectively, to 2004 operating income. These factors were partly offset by higher natural gas costs and increased expenses.

Natural gas costs increased $76.1 million from 2004 as unit costs, net of forward pricing gains and losses, were $5.37 per million British thermal units (“MMBtu”) during 2004 compared to $4.76/MMBtu during 2003. As a result of forward price contracts, 2004 natural gas costs for the nitrogen products segment were $14.6 million lower than spot prices.

Selling, general and administrative expenses assigned to the nitrogen products business segment totaled $41.9 million for 2004 compared to $30.2 million for 2003. The increase is primarily due to incentive pay accruals based on net income, professional fees associated with Sarbanes-Oxley compliance and changes in the allocation methods of centralized expense centers between the nitrogen products and methanol business segments. During 2003, $5.6 million of our selling, general and administrative expenses were allocated to the methanol business segment. Those allocations were discontinued in 2004 as a result of contracts transferring the marketing rights for our methanol production to Methanex.

Impairment of Long-Lived Assets

During 2003, we recorded a $53.1 million charge for the impairment of the Blytheville facility as we concluded that future market conditions may not justify ongoing investment in the maintenance and replacement capital required to operate the Blytheville facility for its established useful life. The Blytheville production capabilities were permanently closed in May 2004.

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Methanol

Methanol revenues were $186 million for the year ended December 31,2004. Approximately 85% of 2004 methanol revenues were realized under a contract providing Methanex with exclusive rights to all methanol production at our Beaumont facility. That contract was executed in December 2003 and requires us to sell the Beaumont production to Methanex at a price which will generally approximate cash production costs. In addition, Methanex pays us one-half of the cash margin attributable to Beaumont’s production based on realized methanol prices and actual natural gas costs. Other contract-related 2004 revenues include amounts received at signing that are deferred and recognized over the life of the contract on a straight-line basis.

During 2004, we realized $8.2 million of margin-sharing and deferred revenues under the Methanex contract. Methanol 2004 operating income also includes depreciation charges related to the Beaumont facility and earnings realized on methanol sales from our Woodward facility.

During 2003, methanol segment revenues were derived from market-based sales to third-party customers. Operating income was largely a function of revenues over production costs, including natural gas, and operating expenses.

Other Operating Activities—Net

We had $5.5 million of charges from other operating activities in 2004 compared to $6.1 million in 2003. These losses represent charges for amortization of deferred financing costs and legal fees related to general corporate activities not allocable to any particular business segment.

Interest Expense—Net

Net interest expense was $49.8 million in 2004 compared with $54.5 million in 2003. The reduction in interest expense primarily related to higher cash balances and the fourth quarter $70.7 million redemption of Senior Notes due in 2010.

Minority Interest

Minority interest represents interest in the earnings of the publicly held common units of Terra Nitrogen Company, L.P. (TNCLP). The 2004 minority interest charge of $11.2 million reflected nitrogen earnings for TNCLP, which were included in their entirety in consolidated operating results. Minority interest benefits of $8.6 million were recorded in 2003 as the result of TNCLP losses, which included an impairment charge for the Blytheville facility. These amounts are directly related to TNCLP losses and earnings.

Income Taxes

Terra’s income tax benefit was $5.0 million in 2004 and included reductions to tax reserves totaling $27.9 million for a reduced assessment by a foreign taxing authority. The 2004 benefit was net of a $2.5 million charge to eliminate tax benefits associated with U.S. losses for reasons discussed more fully under “Critical Accounting Policies”.

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Terra’s income tax benefit was $57.0 million in 2003 and also included reductions to tax reserves totaling $36.4 million for a reduced assessment by a foreign taxing authority and reversal of tax reserves provided in prior years. The 2003 benefit was reduced $0.8 million to eliminate tax benefits associated with U.S. losses.

RESULTS OF CONTINUING OPERATIONS—2003 COMPARED WITH 2002

Consolidated Results

We reported a 2003 loss from continuing operations of $12.5 million on revenues of $1,351 million compared with a loss from continuing operation of $36.2 million on revenues of $1,044 million in 2002. Basic and diluted loss per share from continuing operations for 2003 was $0.16 compared with $0.48 for 2002. The 2003 net loss included a $27.0 million net charge for the impairment of our Blytheville facility (representing a $53.1 million impairment charge to operating income less $9.9 million allocated to minority interest and $16.2 million of income tax benefit). The 2003 net loss was reduced by $36.4 million of income tax benefits for a reduced assessment by a foreign taxing authority and reversals of tax reserves established in prior years.

Total revenues and operating income (loss) by segment for the years ended December 31, 2003 and 2002 follow:

(in thousands)	2003			2002
Revenues:
Nitrogen products	$	1,139,379		$	883,971
Methanol		209,870			158,458
Other revenues		1,806			1,554
	$	1,351,055		$	1,043,983
Operating Income (Loss):
Nitrogen products	$	33,721		$	(9,351	)
Impairment of long-lived assets (nitrogen products)		(53,091	)		—
Methanol		1,866			7,325
Other expense—net		(6,056	)		(3,381	)
	$	(23,560	)	$	(5,407	)

Nitrogen Products

Volumes and prices for 2003 and 2002 follow:

Volumes and Prices	2003			2002
(quantities in thousands of tons)	Sales Volumes	Average Unit Price*		Sales Volumes	Average Unit Price*
Ammonia	1,400	$	229	1,504	$	147
Nitrogen solutions	3,840		99	3,966		73
Urea	545		173	633		121
Ammonium nitrate	934		142	912		119

* After deducting outbound freight costs

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Nitrogen products revenues increased by $255 million to $1,139 million for 2003 compared with $884 million in 2002 as the result of higher sales prices, partially offset by lower sales volumes. Sales prices were higher as the result of lower fertilizer supplies caused by increased demand and industry-wide production curtailments. Sales volumes in 2004 were lower than the previous year due to our own production curtailments including a decision to suspend production during the 2003 third quarter at the Blytheville facility because of high natural gas costs and the seasonal decline in nitrogen fertilizer demand and prices.

Higher selling prices contributed $265 million to 2003 results and were only partially offset by higher natural gas costs. Natural gas costs increased $228 million from 2002 as unit costs, net of forward pricing gains and losses, were $4.76 per million British thermal units (“MMBtu”) during 2003 compared to $3.03/MMBtu during 2002. As a result of forward price contracts, 2003 natural gas costs for the nitrogen products segment were $5.4 million higher than spot prices.

Impairment of Long-Lived Assets

On June 26, 2003, we suspended production at our Blytheville facility due to expectations that the facility would not cover its cash costs because of continuing high natural gas costs and the seasonal decline in nitrogen fertilizer demand and prices. In response to this action, and as required by Statement of Financial Accounting Standards No. 144, “Accounting for the Disposal of Long-Lived Assets”, a $53.1 million charge was recorded during the second quarter as discussed more fully above.

Methanol

Methanol revenues were $210 million and $158 million for the years ended December 31, 2003 and 2002, respectively. Sales prices increased from $0.49/gallon in 2002 to $0.71/gallon in 2003, but sales volumes declined 10% from 2002 to 295 million gallons. The sales decline was due, in part, to production outages related to a scheduled plant turnaround.

The methanol segment generated $1.9 million operating income in 2003 compared to $7.3 million operating income in 2002. The lower 2003 operating income reflects increased costs and lower volumes, only partially offset by higher prices. The major cost increase was to natural gas costs which, net of $1.5 million of cost increases from forward pricing contracts, were $5.16/MMBtu for 2003 compared to $3.08/MMBtu for 2002.

Other Operating Activities—Net

We had $6.1 million of charges from other operating activities in 2003 compared to $3.4 million in 2002. These losses represent charges for amortization of deferred financing costs and legal fees related to general corporate activities not allocable to any particular business segment. The increased 2003 loss from 2002 was primarily due to amortization of financing costs on the 2003 refinancing of Senior Notes due in 2005.

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Interest Expense—Net

Net interest expense was $54.5 million in 2003 compared with $53.3 million in 2002. The increased interest expense primarily related to higher interest rates paid on the 2003 refinancing of Senior Notes due in 2005.

Minority Interest

Minority interest benefits of $8.6 million were recorded in 2003 as the result of TNCLP losses, which included an impairment charge for the Blytheville facility, that were included in their entirety in consolidated operating results. The 2002 minority interest charge of $1.5 million reflected nitrogen earnings for TNCLP, which were included in their entirety in consolidated operating results. These amounts are directly related to TNCLP losses and earnings.

Income Taxes

Income tax benefits were recorded at an effective rate of 82% for 2003 compared with 40% for 2002. The 2003 benefit includes reductions to tax reserves totaling $36.4 million for a reduced assessment by a foreign taxing authority and reversal of tax reserves provided in prior years. These benefits were offset by $0.8 million of income tax provisions that reduced our deferred tax assets to equal net deferred tax liabilities for reasons discussed more fully above under “Critical Accounting Policies”.

LIQUIDITY AND CAPITAL RESOURCES

Our primary uses of funds are to fund our working capital requirements, make payments on our debt and other obligations and make payments for plant turnarounds and capital expenditures. The principle sources of funds will be cash flow from operations and borrowings under available bank facilities.

During 2004, cash and short-term investments increased $146.5 million. Net cash provided by operating activities was $211.5 million. Cash provided from financing activities was $34.7 million, primarily for the $120 million issuance of Series A Perpetual Preferred Shares less the redemption of $70.7 million of Senior Notes due in 2010. Cash used for investing activities was $100.6 million, primarily for acquisition of Mississippi Chemical Corporation (“MCC”) as well as capital expenditures and plant turnaround costs.

Net cash provided by 2004 operating activities was $211.5 million, composed of $170.0 million of cash provided from operating activities and $41.5 million provided by lower net working capital balances. Net working capital balances declined primarily due to an increase in customer prepayments as the result of higher prices and demand for such arrangements. We had $115.3 million in customer prepayments at December 31, 2004 for the selling price and delivery costs of nitrogen products that we will deliver during the 2005 first half.

On December 21, 2004, we acquired the outstanding common stock of MCC for a combination of our common shares, Series B preferred shares and cash totaling $54.2 million. In addition, we assumed $125 million of MCC’s existing debt obligations, $34.1 million of unfunded pension liabilities and net deferred tax liabilities of $41.6 million. The Series B preferred shares have a liquidation value of $17.3 million and we have the option to redeem the Series B shares for 2.1 million common shares at any time before October 21, 2005. If the Series B preferred shares are not redeemed, the shares will earn a cumulative

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dividend equal to 1.75% plus the October 21, 2005 yield on our Second Priority Senior Secured Notes due 2010. The MCC debt obligations were amended to extend their maturity to December 21, 2008 and are repayable at 102.4% of par. The MCC debt obligations bear cash interest at the higher of a floating base rate plus 4.6% and 9.56%. We also provided the debt holders five-year warrants to purchase 4.0 million of our common shares at $5.48 per share, which were valued at $21.1 million at MCC closing. The MCC debt obligations, which are secured by certain MCC assets, also require that we adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates.

On February 22, 2005, we announced plans to prepay $50 million of the MCC debt obligations on March 21, 2005.

During the 2004 fourth quarter, we issued 4.25% Cumulative Convertible Perpetual Series A Preferred Shares with a liquidation value of $120 million for net proceeds of $115.8 million. The Series A preferred shares are not redeemable by us, are convertible into our common stock at a conversion price of $9.96 per common share at the option of the holder and may at our option be automatically converted to common shares after December 20, 2009 if the closing price for our common shares exceeds 140% of the conversion price for any twenty days within a consecutive thirty day period prior to such conversion. Upon the occurrence of a fundamental change to our capital structure, including a change of control, merger, or sale of the Company, holders of the Series A preferred shares may require us to purchase any or all of their shares at a price equal to their liquidation value plus any accumulated, but unpaid, dividends. We also have the right, under certain conditions, to require holders of the Series A preferred shares to exchange their shares for convertible subordinated debentures with similar terms.

On November 15, 2004, we redeemed $70.7 million Second Priority Senior Secured Notes due 2010 for $78.8 million, including redemption premiums.

During 2004 and 2003, we funded plant and equipment purchases of $18.5 million and $8.6 million, respectively, primarily for replacement or stay-in-business capital needs. We expect 2005 plant and equipment purchases to approximate $25 million consisting primarily of expenditures for replacement of equipment at manufacturing facilities.

Plant turnaround costs represent cash used for the periodic scheduled major maintenance of our continuous process production facilities that is performed at each plant generally every two years. We funded $28.9 million and $28.1 million of plant turnaround costs in 2004 and 2003. We estimate 2005 plant turnaround costs will approximate $35 million.

On December 21, 2004, we entered into revolving credit facilities totaling $200 million that expire in June 2008. Borrowing availability under the credit facility is generally based on eligible cash balances, 85% of eligible accounts receivable and 60% of eligible inventory, less outstanding letters of credit. These facilities include $50 million only available for the use of TNCLP, one of our consolidated subsidiaries. At December 31, 2004, borrowing availabilities exceeded the credit facilities’ $200 million maximum. There were no outstanding revolving credit borrowings and there were $31.0 million in outstanding letters of credit, resulting in remaining borrowing availability of approximately $169.0 million under the facilities. We are required to maintain a combined minimum unused borrowing availability of $30 million. The credit facility also requires that we adhere to certain limitations on

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additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. In addition, if our borrowing availability falls below a combined $60 million, we are required to have generated $60 million of operating cash flows, or earnings before interest income taxes, depreciation, amortization and other non-cash items (as defined in the credit facility) for the preceding four quarters.

Our ability to meet credit facility covenants will depend on future operating cash flows, working capital needs, receipt of customer prepayments and trade credit terms. Failure to meet these covenants could result in additional costs and fees to amend the credit facility or could result in termination of the facility. Access to adequate bank facilities is critical to funding our operating cash needs. Based on our December 31, 2004 financial position and current market conditions for our finished products and natural gas, we anticipate that we will be able to meet our covenants through 2005.

Our ability to manage our exposure to commodity price risk in the purchase of natural gas through the use of financial derivatives may be affected by limitations imposed by our bank agreement covenants.

Contractual obligations and commitments to make future payments were as follows at December 31, 2004:

	Payments Due In
(in millions)	Less than One Year		One to Three Years		Three to Five Years		Thereafter
Long-term debt	$	—	$	—	$	328.0	$	131.3
Operating leases		16.1		21.6		9.6		4.4
Capital lease obligations		0.2		—		—		—
Interest expense on fixed rate debt		52.8		105.6		61.5		7.5
Ammonia purchase contract (1)		96.0		192.0		192.0		80.0
Other purchase obligations		30.4		—		—		—
Total	$	195.5	$	319.2	$	591.1	$	223.2

(1) We have a contractual obligation to purchase one-half of the ammonia produced by Point Lisas Nitrogen Limited, our 50-50 joint venture ammonia plant located in Trinidad. The purchase price is based on the average market price of ammonia, F.O.B. Caribbean, less a discount. Obligations in the above table are based on purchasing 360,000 short tons per year at the December 2004 average price paid. This contract expires in October 2010.

Our pension liabilities were $428 million at December 31, 2004, which was $138 million higher than our pension plan assets. The pension liability was computed based on a 5.7% discount rate, which was based on yields for high-quality corporate bonds (Moody’s Investor Service “AA” rated or equivalent) with a maturity approximating the duration of our pension liability. Future declines in comparable bond yields would increase our pension liability and future increases in bond yields would decrease our pension liability. Our pension liability net of plan assets could increase or decrease depending on the extent that returns on pension plan assets are lower or higher than the discount rate. In addition, the pension liability for our U.K. pension plan, which includes provisions to adjust benefit payments for general inflation rates, was estimated based on a 3% inflation rate. Our pension liability could increase or decrease based on actual U.K. inflation rates. Our cash contributions to pension plans were $16.5 million in 2004 and are

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estimated at $10 million in 2005 and 2006. Actual contributions could vary from these estimates depending on actual returns for plan assets, legislative changes to pension funding requirements and/or plan amendments.

Expenditures related to environmental, health and safety regulation compliance are primarily composed of operating costs that totaled $13.8 million in 2004. Because environmental, health and safety regulations are expected to continue to change and generally to be more restrictive than current requirements, the costs of compliance will likely increase. We do not expect compliance with such regulations will have a material adverse effect on the results of operations, financial position or net cash flows.

We incurred $2.4 million of 2004 capital expenditures to ensure compliance with environmental, health and safety regulations. We may be required to install additional air and water quality control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and continuous emission monitors to continue to achieve compliance with the Clean Air Act and similar requirements. These equipment requirements typically apply to competitors as well. We estimate that the cost of complying with these existing requirements in 2005 and beyond will be less than $20 million, including the plants acquired in the MCC acquisition.

We own 75.1% of the common units of TNCLP which, in accordance with the partnership agreement, permits us to call all common units that we do not own.

During 2004, 2003 and 2002, we distributed $8.1 million, $1.2 million and $1.8 million, respectively, to the minority TNCLP common unitholders. In addition, $3.0 million of distributions are payable to the minority TNCLP common unitholders on February 28, 2005. TNCLP distributions are based on “Available Cash” (as defined in the Partnership Agreement).

Cash balances at December 31, 2004 were $233.8 million, all of which is unrestricted.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 2004, the Financial Accounting Standards Board (“FASB”) approved the consensus reached on the Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 are effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements are effective only for annual periods ending after June 15, 2004. The impact of the adoption on the company’s financial position or net income was not material.

In November 2004, the FASB issued Statement of Financial Standards (“SFAS”) No. 151 “An Amendment of ARB No. 43, Chapter 4”. The statement clarifies the abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) that should be recognized as current-period charges. In addition, the statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for fiscal years beginning after June 15, 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

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In December 2004, the FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets, an amendment of Accounting Principles Bulletin (“APB”) Opinion No. 29”. The statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges on nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the company are expected to change significantly as a result of the exchange. The statement is effective for fiscal periods beginning after June 15, 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This standard eliminated the alternative of accounting for share-based compensation using APB Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services based on the grant date fair value of equity or liability instruments issued. The effective date of the statement is effective for interim periods beginning after June 15, 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB issued FSP 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. Although detailed regulations necessary to implement the Act have not yet been finalized, the company believes that certain drug benefits offered under postretirement health care plans will qualify for the subsidy under Medicare Part D. The effects of the subsidy were factored into the 2004 annual year-end valuation. The reduction in the benefit obligation attributable to past service cost was approximately $429,000 and has been reflected as an actuarial gain.

FORWARD-LOOKING PRECAUTIONS

Information contained in this report, other than historical information, may be considered forward-looking. Forward-looking information reflects management’s current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to, the following: changes in financial markets, general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of nitrogen and methanol products and natural gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in weather conditions, changes in agricultural regulations, and other risks detailed in the “Factors that Affect Operating Results” section of this discussion.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management and Financial Instruments

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We use derivative financial instruments to manage risk in the areas of (a) foreign currency fluctuations, (b) changes in natural gas prices and (c) changes in nitrogen prices and (d) changes in interest rates. See Note 16 to the Consolidated Financial Statements for additional information on the use of derivative financial instruments.

Our policy is to avoid unnecessary risk and to limit, to the extent practical, risks associated with operating activities. Our management may not engage in activities that expose Terra to speculative or non-operating risks and is expected to limit risks to acceptable levels. The use of derivative financial instruments is consistent with our overall business objectives. Derivatives are used to manage operating risk within the limits established by our Board of Directors, and in response to identified exposures, provided they qualify as hedge activities. As such, derivative financial instruments are used to manage exposure to interest rate fluctuations, to hedge specific assets and liabilities denominated in foreign currency, to hedge firm commitments and forecasted natural gas purchase transactions, to set a floor for nitrogen selling prices and to protect against foreign exchange rate movements between different currencies that impact revenue and earnings expressed in U.S. dollars.

The use of derivative financial instruments subjects Terra to some inherent risks associated with future contractual commitments, including market and operational risks, credit risk associated with counterparties, product location (basis) differentials and market liquidity. Terra continuously monitors the valuation of identified risks and adjusts the portfolio based on current market conditions.

Foreign Currency Fluctuations

Our policy is to manage risk associated with foreign currency fluctuations by entering into forward exchange and option contracts covering specific currency obligations or net foreign currency operating requirements, as appropriate. Such hedging is limited to the amounts and duration of the specific obligations being hedged and, in the case of operating requirements, no more than 75% of the forecasted requirements. The primary currencies to which we are exposed are the Canadian dollar and the British pound. At December 31, 2004, we had nominal forward currency positions that were matched with committed capital expenditures.

Natural Gas Prices—North American Operations

Natural gas is the principal raw material used to manufacture nitrogen and methanol. Natural gas prices are volatile and we mitigate some of this volatility through the use of derivative commodity instruments. Our current policy is to hedge 20%-80% of our natural gas requirements for the upcoming 12 months and up to 50% of requirements for the following 24-month period, provided that such arrangements would not result in costs greater than expected selling prices for our finished products. We notify the Board of Directors when we deviate from this policy. Annual North American natural gas requirements are approximately 106 million MMBtu. We have hedged 28% of our expected 2005 North American requirements and none of our requirements beyond December 31, 2005. The fair value of these

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instruments is estimated based on quoted market prices from brokers, realized gains or losses and our computations. These instruments and other natural gas positions fixed natural gas prices at $16.8 million more than published prices for December 31, 2004 forward markets. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in price. As of December 31, 2004 our market risk exposure related to future natural gas requirements being hedged was $8.6 million based on a sensitivity analysis. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. Since we forward price only a portion of our natural gas requirements, this hypothetical adverse impact on natural gas derivative instruments would be more than offset by lower costs for all natural gas we purchase.

Natural Gas Prices—Trinidad Operation

The natural gas requirements of Point Lisas Nitrogen Limited, an ammonia production joint venture in which Terra has a 50% interest, are supplied under contract with the Natural Gas Company of Trinidad and Tobago. The cost of natural gas to the joint venture fluctuates based on changes in the market price of ammonia.

Natural Gas Prices—United Kingdom Operations

To meet natural gas production requirements at our United Kingdom production facilities, we generally enter into one- or two-year gas supply contracts and fix prices for 20%-80% of total volume requirements. Annual procurement requirements for U.K. natural gas are approximately 26 million MMBtu. As of December 31, 2004, we had fixed-price contracts for 19% of our expected 2005 U.K. natural gas requirements and none of our 2006 natural gas requirements. Our U.K. fixed-price contracts for 2005 natural gas purchases were at prices $1.3 million higher than published prices for December 31, 2004 forward markets. We do not use derivative commodity instruments for our United Kingdom natural gas needs.

Nitrogen Prices

The prices for nitrogen products can be volatile and we mitigate some of this volatility through the use of derivative commodity instruments. Our current policy is to hedge no more than 20% of our expected production for the upcoming 12 months and no more than 50% of any single month’s expected production. We notify the Board of Directors when we exceed this policy. We have hedged less than 4% of our expected 2005 North American sales of nitrogen solutions. The fair value of these instruments is estimated based on quoted market prices from brokers, realized gains or losses and our computations. These instruments fixed nitrogen solution prices at $1.6 million less than published prices for December 31, 2004 forward markets.

Interest Rate Fluctuations

The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. We had no financial derivatives outstanding at December 31, 2004.

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Interest Rate Sensitivity

	Expected Maturity Date
(in millions)	2005			2006			2007			2008			2009			Thereafter			Total		Fair Value
Long-Term Debt
Senior Secured Notes, fixed rate ($US)	$	—		$	—		$	—		$	200.0		$	—		$	—		$	200.0	$	204.3
Average interest rate		12.88	%		12.88	%		12.88	%		12.88	%		—			—			—		—
Senior Second Priority Secured Notes, fixed rate ($US)		—			—			—			—			—			131.3			131.3		125.7
Average interest rate		11.50	%		11.50	%		11.50	%		11.50	%		11.50	%		11.50	%		—		—
Term debt floating rate ($US)		—			—			—			128.0			—			—			128.0		125.0
average interest rate		14.91	%		14.91	%		14.91	%		14.91	%		—			—			—		—
Other debt, various rates ($US)		0.2			0.2			—			—			—			—			0.4		0.4
Average interest rate		9.78	%		9.96	%		—			—			—			—			—		—
Total Long-Term Debt	$	0.2		$	0.2		$	—		$	328.0		$	—		$	131.3		$	459.7	$	455.4
Short-Term Borrowings
Revolving credit facility, notional amount ($US)	$	150.0		$	150.0		$	150.0		$	150.0		$	—		$	—		$	—	$	—
Variable interest rate, LIBOR based		4.34	%		4.34	%		4.34	%		4.34	%		—			—			—		—
TNLP revolving credit facility, notional amount (U.S)	$	50.0		$	50.0		$	50.0		$	50.0			—			—			—		—
Variable interest rate, LIBOR based		4.34	%		4.34	%		4.34	%		4.34	%		—			—			—		—

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Financial Position

	At December 31,
(in thousands)	2004			2003
Assets
Cash and short-term investments	$	233,798		$	87,334
Accounts receivable, less allowance for doubtful accounts of $262 and $87		150,271			133,480
Inventories		148,808			90,869
Other current assets		58,106			43,319
Total current assets		590,983			355,002
Property, plant and equipment, net		797,978			707,665
Deferred plant turnaround costs		33,897			28,103
Equity investments		215,939			2,255
Intangible assets		24,884			3,769
Other assets		21,827			28,268
Total assets	$	1,685,508		$	1,125,062
Liabilities
Debt due within one year	$	167		$	153
Accounts payable		119,571			79,563
Accrued and other current liabilities		220,195			142,338
Total current liabilities		339,933			222,054
Long-term debt and capital lease obligations		435,238			402,206
Deferred income taxes		58,224			17,831
Pension liabilities		119,570			63,453
Other liabilities		47,872			65,325
Minority interest		92,197			89,062
Total liabilities and minority interest		1,093,034			859,931
Commitments and contingencies (Note 14)		—			—
Preferred Shares - $137,269 liquidation value		133,069			—
Common Stockholders’ Equity
Capital stock Common Shares, authorized 133,500 shares; 92,944 and 77,563 shares outstanding		144,531			128,968
Paid-in capital		681,639			555,529
Accumulated other comprehensive loss		(55,994	)		(44,596	)
Unearned compensation		(2,568	)		—
Accumulated deficit		(308,203	)		(374,770	)
Total stockholders’ equity		459,405			265,131
Total liabilities and stockholders’ equity	$	1,685,508		$	1,125,062

See accompanying Notes to the Consolidated Financial Statements

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Consolidated Statements of Operations

	Year ended December 31,
(in thousands, except per-share amounts)	2004			2003			2002
Revenues
Net sales	$	1,506,965		$	1,349,249		$	1,042,429
Other income, net		2,145			1,806			1,554
		1,509,110			1,351,055			1,043,983
Cost and Expenses
Cost of sales		1,348,077			1,281,663			1,009,970
Selling, general and administrative expense		44,190			39,861			39,420
Impairment of long-lived assets		—			53,091			—
Recovery of product claim costs		(17,903	)		—			—
		1,374,364			1,374,615			1,049,390
Income (loss) from operations		134,746			(23,560	)		(5,407	)
Interest income		3,307			534			543
Interest expense		(53,134	)		(55,072	)		(53,800	)
Loss on early retirement of debt		(11,116	)		—			—
Income (loss) before income taxes and minority interest		73,803			(78,098	)		(58,664	)
Income tax benefit		5,000			57,000			24,000
Minority interest		(11,207	)		8,617			(1,510	)
Income (loss) from continuing operations		67,596			(12,481	)		(36,174	)
Discontinued operations, net of income taxes of $9.5 million		—			—			(16,183	)
Cumulative effect of change in accounting principle		—			—			(205,968	)
Net income (loss)		67,596			(12,481	)		(258,325	)
Preferred share dividends		(1,029	)		—			—
Income (Loss) Available to Common Stockholders	$	66,567		$	(12,481	)	$	(258,325	)
Basic Income (Loss) Per Share:
Continuing operations	$	0.87		$	(0.16	)	$	(0.48	)
Discontinued operations		—			—			(0.22	)
Cumulative effect of change in accounting principle		—			—			(2.73	)
Basic Income (Loss) Per Share	$	0.87		$	(0.16	)	$	(3.43	)
Diluted Income (Loss) Per Share:
Continuing operations	$	0.85		$	(0.16	)	$	(0.48	)
Discontinued operations		—			—			(0.22	)
Cumulative effect of change in accounting principle		—			—			(2.73	)
Diluted Income (Loss) Per Share	$	0.85		$	(0.16	)	$	(3.43	)

See accompanying Notes to the Consolidated Financial Statements

41

Consolidated Statements of Cash Flows

	Year ended December 31,
(in thousands)	2004			2003			2002
Operating Activities
Net income (loss)	$	67,596		$	(12,481	)	$	(258,325	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Impairment of long-lived assets		—			53,091			—
Loss from discontinued operations		—			—			16,183
Cumulative effect of change in accounting principle		—			—			205,968
Loss on early retirement of debt		2,985			—			—
Depreciation and amortization		102,230			107,370			105,856
Deferred income taxes		(2,236	)		(60,516	)		(29,246	)
Minority interest in earnings (loss)		11,207			(8,617	)		1,510
Recovery of product claim costs		(12,874	)		—			—
Amortization of unearned compensation		1,513			—			—
Change in current assets and liabilities, net of acquisition:
Accounts receivable		27,647			(27,569	)		2,929
Inventories		(11,352	)		(354	)		24,263
Other current assets		(21,470	)		8,570			9,567
Accounts payable		8,046			(19,983	)		17,461
Accrued and other liabilities		38,599			18,585			52,931
Deferred revenue		—			25,000			—
Other		(385	)		(674	)		(2,861	)
Net Cash Flows from Operating Activities		211,506			82,422			146,236
Investing Activities
Purchase of property, plant and equipment		(18,472	)		(8,639	)		(25,186	)
Plant turnaround costs		(28,878	)		(28,080	)		(24,260	)
Acquisitions, net of cash acquired		(54,168	)		—			—
Other		966			(9,603	)		(6,632	)
Net Cash Flows from Investing Activities		(100,552	)		(46,322	)		(56,078	)
Financing Activities
Issuance of long-term debt		—			202,000			—
Principal payments on long-term debt and capital lease obligations		(70,854	)		(200,142	)		(36,101	)
Preferred share issuance, net of $4,200 issuance costs		115,800			—			—
Common stock issuance		447			68			37
Distributions to minority interests		(8,072	)		(1,153	)		(1,846	)
Deferred financing costs		(2,598	)		(8,581	)		(1,173	)
Net Cash Flows from Financing Activities		34,723			(7,808	)		(39,083	)
Effect of Exchange Rate Changes on Cash		787			563			279
Increase in Cash and Short-Term Investments		146,464			28,855			51,354
Cash and Short-Term Investments at Beginning of Year		87,334			58,479			7,125
Cash and Short-Term Investments at End of Year	$	233,798		$	87,334		$	58,479
Supplemental disclosure of cash flow information:
Interest Paid	$	50,455		$	50,983		$	54,267
Income Taxes Received (paid)	$	(1,123	)	$	(4,297	)	$	5,292
Supplemental schedule of non-cash investing and financing activities:
Consideration to fund acquisitions:
Common shares		135,750			—			—
Series B preferred shares		17,269			—			—
Assumed debt		125,000			—			—
Stock Incentive Plan		2,908			608			571
Capital Lease Obligations	$	—		$	—		$	292

See accompanying Notes to the Consolidated Financial Statements

42

Consolidated Statements of Changes in Common Stockholders’ Equity

(in thousands)	Comprehensive Income (Loss)			Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income (loss)			Unearned Compensation			Accumulated (Deficit)			Total
				Shares	Amount
January 1, 2002				76,451	$	128,363	$	554,850	$	(78,470	)		—		$	(103,964	)	$	500,779
Comprehensive Income (Loss):
Net loss	$	(258,325	)	—		—		—		—			—			(258,325	)		(258,325	)
Foreign currency translation adjustments		24,514		—		—		—		24,514			—			—			24,514
Change in fair value of derivatives, net of taxes of $5,414		8,490		—		—		—		8,490			—			—			8,490
Minimum pension liability, net of taxes of $10,053		(18,202	)	—		—		—		(18,202	)		—			—			(18,202	)
Total	$	(243,523	)
Exercise of stock options, net				26		26		11		—			—			—			37
Stock Incentive Plan				443		265		306		—			—			—			571
December 31, 2002				76,920		128,654		555,167		(63,668	)		—			(362,289	)		257,864
Comprehensive Income (Loss):
Net loss	$	(12,481	)	—		—		—		—			—			(12,481	)		(12,481	)
Foreign currency translation adjustments		27,631		—		—		—		27,631			—			—			27,631
Change in fair value of derivatives, net of taxes of $614		1		—		—		—		1			—			—			1
Minimum pension liability, net of taxes of $1,806		(8,560	)	—		—		—		(8,560	)		—			—			(8,560	)
Total	$	6,591
Exercise of stock—options, net				48		48		20		—			—			—			68
Stock Incentive Plan				595		266		342		—			—			—			608
December 31, 2003				77,563		128,968		555,529		(44,596	)		—			(374,770	)		265,131
Comprehensive Income (Loss):
Net income	$	67,596		—		—		—		—			—			67,596			67,596
Foreign currency translation adjustments		25,216		—		—		—		25,216			—			—			25,216
Change in fair value of derivatives, net of taxes of $690		(23,286	)	—		—		—		(23,286	)		—			—			(23,286	)
Minimum pension liability, net of taxes of $3,149		(13,328	)	—		—		—		(13,328	)		—			—			(13,328	)
Total	$	56,198
Preferred share dividends				—		—		—		—			—			(1,029	)		(1,029	)
Issuance of common stock				14,995		14,995		120,755		—			—			—			135,750
Exercise of stock options				198		198		249		—			—			—			447
Restricted stock				238		370		5,106		—			(4,081	)		—			1,395
Amortization of unearned compensation				—		—		—		—			1,513			—			1,513
December 31, 2004				92,994	$	144,531	$	681,639	$	(55,994	)	$	(2,568	)	$	(308,203	)	$	459,405

See accompanying Notes to the Consolidated Financial Statements

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of presentation: The Consolidated Financial Statements include the accounts of Terra Industries Inc. and all majority owned subsidiaries (Terra). All significant intercompany accounts and transactions have been eliminated. Minority interest in earnings and ownership has been recorded for the percentage of limited partnership common units not owned by Terra Industries Inc. for each respective period presented.

Description of business: Terra produces nitrogen products for agricultural dealers and industrial users, and methanol for industrial users.

Foreign exchange: Results of operations for the foreign subsidiaries are translated using average currency exchange rates during the period; assets and liabilities are translated using current rates. Resulting translation adjustments are recorded as foreign currency translation adjustments in accumulated other comprehensive income in stockholders’ equity. Intercompany accounts of foreign subsidiaries are translated at historical rates.

Cash and short-term investments: Terra considers short-term investments with an original maturity of three months or less to be cash equivalents, which are reflected at their approximate fair value.

Inventories: Inventories are stated at the lower of average cost and estimated net realizable value. The average cost of inventories is determined using the first-in, first-out method.

Property, plant and equipment: Expenditures for plant and equipment additions, replacements and major improvements are capitalized. Related depreciation is charged to expense on a straight-line basis over estimated useful lives ranging from 15 to 22 years for buildings and 3 to 18 years for plants and equipment. Equipment under capital leases is recorded in property with the corresponding obligations in long-term debt. The amount capitalized is the present value at the beginning of the lease term of the aggregate future minimum lease payments. Maintenance and repair costs are expensed as incurred.

Plant turnaround costs: Costs related to the periodic scheduled major maintenance of continuous process production facilities (plant turnarounds) are deferred and charged to product costs on a straight-line basis during the period until the next scheduled turnaround, generally two years.

Amortization expense of $24.1 million, $29.0 million and $24.3 million was recorded for the years ended December 31, 2004, 2003 and 2002, respectively.

Equity investments: Equity investments, as described in Note 8, are carried at original cost adjusted for our proportionate share of the investees’s income, losses and distributions. We periodically assess the carrying value of our equity investment and will record a loss on equity investments when management concludes a decline in the fair value of the investment is other than temporary.

Intangible assets: Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from two to fourteen years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented.

44

Debt issuance costs: The costs related to the issuance of debt are amortized over the life of the debt on a straight-line method, which approximates the effective interest method.

Amortization expense of deferred financing costs of $4.1 million, $3.8 million and $2.8 million was recorded for the years ended 2004, 2003 and 2002, respectively. The estimated amortization expense is $3.8 million, $3.8 million, $3.8 million, $2.6 million and $0.7 million for the years ending December 31, 2005, 2006, 2007, 2008 and 2009, respectively.

Impairment of long-lived assets: Terra reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the asset.

Derivatives and financial instruments: Terra accounts for derivatives in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 requires the recognition of derivatives in the balance sheet and the measurement of these instruments at fair value. Changes in the fair value of derivatives are recorded in earnings unless the normal purchase or sale exception applies or hedge accounting is elected.

Terra enters into derivative instruments including future contracts, swap agreements and purchased options to fix prices for a portion of future natural gas production requirements. Terra uses similar derivative instruments to fix or set floor prices for a portion of its nitrogen sales volumes. Terra has designated, documented and assessed for hedge relationships, which mostly resulted in cash flow hedges that require Terra to record the derivatives assets and liabilities at their fair value on the balance sheet with an offset in other comprehensive income as (“OCI”). Amounts are removed from other comprehensive income as the underlying transactions occur and realized gains or losses are recorded.

Accumulated other comprehensive (income) loss: Accumulated other comprehensive loss consisted of the following at December 31:

(in thousands)	2004			2003
Foreign currency translation adjustment	$	(14,287	)	$	10,927
Derivatives, net of taxes of $(2,575) and $(3,266)		19,307			(3,979	)
Minimum pension liability, net of taxes of $22,265 and $19,116		50,974			37,648
Total	$	55,994		$	44,596

Revenue recognition: Revenue is recognized when title to finished product passes to the customer. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and trade allowances. Revenues include amounts paid by customers for shipping and handling. Revenues include gains or losses associated with the settlement of nitrogen derivative contracts.

45

Cost of sales and hedging transactions: Realized gains and losses from hedging activities and premiums paid for option contracts are deferred and recognized in the month to which the hedged transactions relate (see Note 16—Derivative Financial Instruments).

Costs associated with settlement of natural gas purchase contracts and for shipping and handling are included in cost of sales.

Stock-based compensation: Terra accounts for its employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations, which utilizes the intrinsic value method. Terra follows the disclosure provisions and accounts for non-employee based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.”

The pro forma impact on net loss and diluted loss per share of accounting for stock-based compensation using the fair value method required by SFAS 123, follows:

(in thousands, except per-share data)	2004			2003			2002
Income (loss) available to common shareholders, as reported	$	66,567		$	(12,481	)	$	(258,325	)
Add: Stock based employee compensation expense included in reported income, net of related tax effects		1,205			1,224			900
Deduct: Stock based employee compensation expense determined under fair-value based method for all awards, net of related tax effects		(1,205	)		(1,224	)		(900	)
Pro forma income (loss) available to common shareholders	$	66,567		$	(12,481	)	$	(258,325	)
Earnings (loss) per share:
Basic – as reported	$	0.87		$	(0.16	)	$	(3.43	)
Basic – pro forma		0.87			(0.16	)		(3.43	)
Diluted – as reported	$	0.85		$	(0.16	)	$	(3.43	)
Diluted – pro forma		0.85			(0.16	)		(3.43	)

Per share results: Basic earnings per share data are based on the weighted-average number of Common Shares outstanding during the period. Diluted earnings per share data are based on the weighted-average number of Common Shares outstanding and the effect of all dilutive potential common shares including convertible preferred shares, stock options, restricted shares and contingent shares.

Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

46

Reclassifications: Certain reclassifications have been made to prior years’ financial statements and notes to conform with current year presentation.

Recently issued accounting standards: In March 2004, the Financial Accounting Standards Board (“FASB”) approved the consensus reached on the Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 are effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements are effective only for annual periods ending after June 15, 2004. The impact of the adoption on the company’s financial position or net income was not material.

In November 2004, the FASB issued Statement of Financial Standards (“SFAS”) No. 151 “An Amendment of ARB No. 43, Chapter 4”. The statement clarifies the abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) that should be recognized as current-period charges. In addition, the statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for fiscal years beginning after June 15, 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

In December 2004, the FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets, an amendment of Accounting Principles Bulletin (“APB”) Opinion No. 29”. The statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges on nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the company are expected to change significantly as a result of the exchange. The statement is effective for fiscal periods beginning after June 15, 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This standard eliminated the alternative of accounting for share-based compensation using APB Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services based on the grant date fair value of equity or liability instruments issued. The statement is effective for interim periods beginning after June 15, 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB issued FSP 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. Although detailed regulations necessary to implement the Act have not yet been finalized, the company believes that certain drug benefits offered under postretirement health care plans will qualify for the subsidy under Medicare Part D. The effects of the subsidy were factored into the 2004 annual year-end valuation. The reduction in the benefit obligation attributable to past service cost was approximately $429,000 and has been reflected as an actuarial gain.

47

2. Acquisition

On December 21, 2004, Terra acquired Mississippi Chemical Corporation (“MCC”) for a purchase price valued at $210.6 million consisting of 15 million common shares, 172,690 Series B preferred shares and cash of $54.2 million, including costs directly related to the acquisition. MCC manufactures nitrogen-based fertilizers and industrial use products and has a 50% ownership interest in Point Lisas Nitrogen Limited, which operates an ammonia production plant in Trinidad, and has a 50% interest in an ammonia storage joint venture located in Houston, Texas. In connection with the acquisition, Terra assumed $125.0 million of MCC long-term debt and $34.1 million of unfunded pension liabilities. The following table summarizes the estimated fair market values of the assets acquired and the liabilities assumed at the acquisition date:

(in thousands)
Current assets	$	97,278
Property, plant and equipment		124,528
Equity investments		213,300
Intangible assets		15,550
Total assets acquired		450,656
Current liabilities		37,169
Long-term debt		125,000
Pension and other long-term liabilities		36,314
Deferred income taxes		41,574
Total liabilities assumed		240,057
Net Assets acquired	$	210,599

Intangible assets acquired represent customer relationships that will be amortized on a straight-line basis over a period of approximately seven years.

MCC and certain of its subsidiaries had filed voluntary petitions to reorganize under Chapter 11 of the United States Bankruptcy Code in May 2003. MCC emerged from Chapter 11 effective with its acquisition by Terra. The acquisition has been accounted for using the purchase method of accounting with the purchase price allocated to the net assets acquired based upon their estimated fair market values. This allocation was based on preliminary estimates and may be revised at a later date.

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The following represents unaudited pro forma summary results of operations as if the acquisition of MCC had occurred at the beginning of 2003.

	Year ended December 31,
(in thousands, except per share data)	2004		2003
Revenues	$	1,886,953	$	1,637,873
Operating income (loss)		179,349		(81,016	)
Net income (loss)		78,204		(85,886	)
Basic income (loss) per share		0.85		(1.10	)
Selected costs included above:
Interest expense		72,639		74,575
Depreciation and amortization		117,994		124,005
Impairment losses included above		—		116,003

The pro forma operating results were adjusted to include depreciation of the fair value of acquired assets based on estimated useful lives at the acquisition dates, amortization of intangible assets, interest expense on acquisition borrowings, the issuance of common stock and the effect of income taxes. Pro forma operating results were also adjusted to exclude MCC discontinued operations as well as reorganization expenses and gains on the extinguishment of pre-petition liabilities in connection with its emergence from Chapter 11.

The pro forma information listed above does not purport to be indicative of the results that would have been obtained if the operations were combined during the above periods, and is not intended to be a projection of future operating results or trends.

3. Cumulative Effect of Change in Accounting Principle

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment on an annual basis. Adoption of these standards on January 1, 2002 resulted in the determination that $206 million of assets classified as “Excess of cost over net assets of acquired businesses” suffered impairment and had no value. Consequently, these assets were written off through a charge that was reported as a change in accounting principle during the 2002 first quarter. A reconciliation of the historical impact of the change in accounting principle to earnings per share follows:

(in thousands, except per-share data)	2001
Reported net loss	$	(79,843	)
Goodwill amortization, net of taxes		18,829
Adjusted net loss	$	(61,014	)
Reported basic and diluted loss per share	$	(1.06	)
Goodwill amortization, net of taxes		0.25
Adjusted basic and diluted loss per share	$	(0.81	)

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4. Earnings Per Share

The following table provides a calculation of Basic and Diluted Income (Loss) Per Share.

(in thousands, except per-share data)	2004			2003			2002
Basic income (loss) per share computation:
Income (loss) from continuing operations	$	67,596		$	(12,481	)	$	(36,174	)
Less: Preferred share dividends		(1,029	)		—			—
Income (loss) available to common shareholders		66,567			(12,481	)		(36,174	)
Discontinued operations		—			—			(16,183	)
Cumulative effect of change in accounting principle		—			—			(205,968	)
Income (loss) available to common shareholders	$	66,567		$	(12,481	)	$	(258,325	)
Weighted average shares outstanding		76,478			75,676			75,349
Basic income (loss) per common share:
Income (loss) from continuing operations	$	0.87		$	(0.16	)	$	(0.48	)
Discontinued operations		—			—			(0.22	)
Cumulative effect of change in accounting principle		—			—			(2.73	)
	$	0.87		$	(0.16	)	$	(3.43	)
Diluted income (loss) per share computation:
Income (loss) available to common shareholders	$	66,567		$	(12,481	)	$	(36,174	)
Add: Preferred share dividends		1,029			—			—
Income (loss) available to common shareholders		67,596			(12,481	)		(36,174	)
Discontinued operations		—			—			(16,183	)
Cumulative effect of change in accounting principle		—			—			(205,968	)
Income (loss) available to common shareholders and assumed conversions	$	67,596		$	(12,481	)	$	(258,325	)
Weighted average shares outstanding		76,478			75,676			75,349
Add incremental shares from assumed conversions:
4.25% Series A Cumulative Perpetual Preferred Shares		2,365			—			—
Restricted stock		750			—			—
Common stock options		208			—			—
Series B Redeemable Preferred Shares		58			—			—
Dilutive potential common shares		79,859			75,676			75,349
Diluted income (loss) per potential common share:
Income (loss) from continuing operations	$	0.85		$	(0.16	)	$	(0.48	)
Discontinued operations		—			—			(0.22	)
Cumulative effect of change in accounting principle		—			—			(2.73	)
	$	0.85		$	(0.16	)	$	(3.43	)

Common stock options totaling 0.1 million, 0.9 million and 1.7 million for the years ended December 31, 2004, 2003 and 2002, respectively were excluded from the computation of diluted earnings per share because the exercise prices of those options exceeded the average market price of Terra’s stock for the respective periods, and the effect of their inclusion would be antidilutive.

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5. Inventories

Inventories consisted of the following at December 31:

(in thousands)	2004		2003
Raw materials	$	38,386	$	22,937
Supplies		36,543		26,058
Finished goods		73,879		41,874
Total	$	148,808	$	90,869

6. Other Current Assets

Other current assets consisted of the following at December 31:

(in thousands)	2004		2003
Prepaid insurance	$	9,953	$	13,894
Prepaid natural gas		26,667		13,781
Deferred gains on natural gas hedges		—		8,164
Income taxes recoverable		11,500		—
Other current assets		9,986		7,480
Total	$	58,106	$	43,319

7. Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following at December 31:

(in thousands)	2004			2003
Land	$	29,981		$	14,153
Buildings and improvements		52,280			52,057
Plant and equipment		1,349,862			1,206,407
Capital lease assets		571			571
Construction in progress		15,346			6,457
		1,448,040			1,279,645
Less accumulated depreciation and amortization		(650,062	)		(571,980	)
Total	$	797,978		$	707,665

8. Equity Investments

Terra’s investments in companies that are accounted for on the equity method of accounting consist of the following: (1) 50% ownership interest in Point Lisas Nitrogen Limited, which operates an ammonia production plant in Trinidad (2) 50% interest in an ammonia storage joint venture located in Houston, Texas and (3) 50% interest in a joint venture in Oklahoma CO2, located in Verdigris, Oklahoma which produces CO2 at Terra’s plant. These investments amounted to $215.9 million and $2.3 million at December 31, 2004 and 2003, respectively.

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The combined results of operations and financial position of the Terra’s equity basis investments are summarized below:

(in thousands)	2004		2003
Condensed income statement information:
Net sales	$	6,664	$	4,328
Net income	$	1,788	$	1,608
Terra’s equity in net income of affiliates	$	893	$	803
Condensed balance sheet information:
Current assets	$	60,747	$	1,403
Long-lived assets		251,488		3,333
Total assets	$	312,235	$	4,736
Current liabilities	$	15,221	$	648
Long-term liabilities		527		978
Equity		296,487		3,110
Total liabilities and equity	$	312,235	$	4,736

The carrying value of these investments at December 31, 2004 was $67.7 million more than Terra’s share of the affiliates’ book value. The excess is attributable primarily to affiliate fixed asset values and will be amortized over a period of approximately 15 years.

9. Recovery of Product Claim Costs

Appeals of a Federal court decision ordering our insurer to pay all of our past and future judgments, settlements and other associated costs arising from a 1998 recall of carbonated beverages containing carbon dioxide tainted with benzene were exhausted in our favor during 2004. Accordingly, we recorded the recovery of product claim costs totaling $17.9 million through the elimination of remaining reserves originally established for these claims and the recognition of additional amounts received from the insurer for claims previously paid by us.

10. Current Maturities of Long-Term Debt and Capital Lease Obligations

Debt due within one year consisted of the following at December 31:

(in thousands)	2004		2003
Current maturities of long-term debt and capital lease obligations	$	167	$	153
Weighted average short-term borrowings	$	—	$	12,353
Weighted average interest rate		—		4.8	%

Terra has revolving credit facilities totaling $200 million that expire June 30, 2008. The revolving credit facility is secured by substantially all of the assets of Terra Industries Inc. and its subsidiaries other than the assets collateralizing the Senior Secured Notes. Borrowing availability is generally based on 100% of eligible cash balances, 85% of eligible accounts receivable and 60% of eligible finished goods inventory

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less outstanding letters of credit issued under the facility. These facilities include $50 million only available for the use of TNCLP, one of Terra’s consolidated subsidiaries. Borrowings under the revolving credit facility will bear interest at a floating rate, which can be either a base rate, or, at Terra’s option, a LIBOR rate, which was 2.4% at December 31, 2004. The base rate is the highest of (1) Citibank, N.A.’s base rate (2) the federal funds effective rate, plus one-half percent (0.50%) per annum and (3) the base three month certificate of deposit rate, plus one-half percent (0.50%) per annum, plus an applicable margin in each case. LIBOR loans will bear interest at LIBOR plus an applicable margin. The applicable margin for base rate loans and LIBOR loans are 0.50% and 1.75%, respectively, at December 31, 2004. The revolving credit facility requires an initial one-half percent (0.50%) commitment fee on the difference between committed amounts and amounts actually borrowed.

At December 31, 2004, Terra had no outstanding revolving credit borrowings and $31.0 million in outstanding letters of credit, resulting in remaining borrowing availability of approximately $169.0 million under the facilities. Terra expects the facility to be adequate to meet operating cash needs. The credit facilities also requires that Terra adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. If Terra’s borrowing availability falls below $60 million, Terra is required to have achieved minimum operating cash flows or earnings before interest, income taxes, depreciation, amortization and other non-cash items of $60 million during the most recent four quarters.

11. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following at December 31:

(in thousands)	2004		2003
Customer deposits	$	115,347	$	71,852
Deferred losses on natural gas hedges		16,852		4,526
Warrants issued in conjunction with acquisition		21,100		—
Payroll and benefit costs		19,208		6,602
Pension liabilities		9,641		20,403
Deferred taxes		5,133		3,230
Accrued jury award		—		12,220
Accrued interest		7,044		7,450
Deferred revenue		4,779		5,000
Other		21,091		11,055
Total	$	220,195	$	142,338

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12. Other Liabilities

Other liabilities consisted of the following at December 31:

(in thousands)	2004		2003
Discontinued operations reserve	$	25,356	$	26,149
Post retirement benefits		7,161		8,443
Product claim costs reserve and other		—		10,733
Deferred revenue		15,355		20,000
Total	$	47,872	$	65,325

13. Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consisted of the following at December 31:

(in thousands)	2004		2003
Senior Secured Notes, 12.875%, due 2008	$	200,000	$	200,000
Term loan, due 2008, net of $24.1 million unamortized discount		103,900		—
Second Priority Senior Secured Notes, 11.5%, due 2010		131,300		202,000
Other		205		359
	$	435,405	$	402,359
Less current maturities		167		153
Total	$	435,238	$	402,206

In connection with the December 2004 acquisition of MCC, Terra assumed obligations due under MCC’s $125.0 million bank term loan and provided the debt holders five-year warrants to purchase Terra’s common shares. The warrants were valued at $21.1 million, which was treated at a discount to the par value of the debt. The bank term loan bears cash interest on its par value at the higher of a floating base rate plus 4.6% and 9.56%. The loan is due December 21, 2008, is repayable at 102.4% of par and will cost 5.35% in addition to cash interest payments. The loan is secured by a first priority interest in ownership or leasehold interest in substantially all real property, machinery and equipment owned or leased by MCC and its subsidiaries. The MCC debt obligations also require that we adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates.

During 2003, Terra Capital, Inc., (“TCAPI”) a subsidiary of Terra Industries Inc., issued $202 million of 11.5% Second Priority Senior Secured Notes due June 1, 2010. The notes were priced at 99.402% to yield 11.625% and are unconditionally guaranteed by Terra Industries Inc. and its U.S. subsidiaries. Fees and expenses of the transaction totaled $6.7 million. Part of the proceeds were used to repay existing debt. Terra redeemed $70.7 million of the 2010 notes during 2004. These notes and guarantees are secured by a second priority security interest in all domestic inventory, domestic accounts receivable, intellectual property of Terra Industries Inc. and its domestic subsidiaries and certain subsidiary capital stock. The security interest is second in priority to a first priority security interest in the same assets in favor of the lenders under our revolving credit facility and is shared equally and ratably with our outstanding 12.875% Senior Secured Notes due 2008. The Indenture governing these notes contains covenants that limit, among other things, our ability to: incur additional debt, pay dividends on common stock of Terra

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Industries Inc. or repurchase shares of such common stock, make investments (other than in Terra Capital, Inc. or any guarantor), use assets as security in other transactions, sell any of our principal production facilities or sell other assets outside the ordinary course of business, enter into transactions with affiliates, limit dividends or other payments by our restricted subsidiaries to us, enter into sale and leaseback transactions, engage in other businesses, sell all or substantially all of our assets or merge with or into other companies, and reduce our insurance coverage. In addition, we are obligated to offer to repurchase these notes upon a Change of Control (as defined in the Indenture) at a cash price equal to 101% of the aggregate principal amount outstanding at that time, plus accrued interest to the date of purchase. The Indenture governing these notes contains events of default and remedies customary for a financing of this type.

On October 10, 2001, TCAPI issued $200 million of 12.875% Senior Secured Notes due in 2008. The notes were priced at 99.43% to yield 13%. Fees and expenses of the transaction totaled $11.4 million. The proceeds were used to repay existing debt. The notes are secured by a first priority interest in ownership or leasehold interest in substantially all real property, machinery and equipment owned or leased by TCAPI and the guaranteeing subsidiaries, the limited partnership’s interest in Terra Nitrogen Company, L.P. (“TNCLP”) owned by TCAPI an the guaranteeing subsidiaries, and certain intercompany notes issued to TCAPI by non-guaranteeing subsidiaries. Payment obligations under the Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis by Terra Industries Inc. (“Parent”) and its U.S. subsidiaries (“the Guarantor Subsidiaries”). Terra Nitrogen, Limited Partnership, TNCLP and the Parent’s foreign subsidiaries do not guarantee the notes (see Note 24—Guarantor Subsidiaries for condensed consolidating financial information). The Parents’ ability to receive dividends from its subsidiaries is limited by the revolving credit facility to amounts required for the funding of operating expenses and debt service (not to exceed $40 million per year), income tax payments on the earnings of TCAPI and its subsidiaries and liabilities associated with discontinued operations (not to exceed $5 million per year). The Indenture governing the Senior Secured Notes consists of covenants that limit, among other things, Terra’s ability to: incur additional debt, pay dividends on common stock of Terra Industries Inc. or repurchase shares of such common stock, make investments (other than in Terra Capital or any guarantor), use assets as security in other transactions, sell any of Terra’s principle production facilities or sell other assets outside the ordinary course of business, enter into transactions with affiliates, limit dividends or other payments by Terra’s restricted subsidiaries, enter into sale and leaseback transactions, engage in other businesses, sell all or substantially all of Terra’s assets or merge with or into other companies, and reduce Terra’s insurance coverage. In addition, Terra is obligated to offer to repurchase these notes upon a Change of Control (as defined in the Indenture) at a cash price equal to 101% of the aggregate principal amount, plus accrued interest to the date of purchase. The Indenture governing these notes contains events of default and remedies customary for a financing of this type.

Scheduled principal payments for each of the five years 2005 through 2009 are $0.2 million, $0.2 million, $0 million, $328.0 million and $0 million, respectively, and $131.3 million thereafter.

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14. Commitments and Contingencies

Terra and its subsidiaries are committed to various non-cancelable operating leases for equipment, railcars and production, office and storage facilities expiring on various dates through 2017.

Total minimum rental payments are as follows:

(in thousands)
2005	$	16,052
2006		11,315
2007		10,334
2008		5,672
2009		3,968
2010 and thereafter		4,322
Net minimum lease payments	$	51,663

Total rental expense under all leases, including short-term cancelable operating leases, was $14.5 million, $16.4 million and $15.6 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Following is a summary of future minimum payments under capital leases, together with the present value of the net minimum payments as of December 31, 2004:

(in thousands)
2005	$	179
2006		39
Total minimum lease payments	$	218
Less amount representing interest		13
Total present value of minimum payments	$	205
Less current portion of such obligations		167
Long-term lease obligation	$	38

The effective interest rates pertaining to the capital leases range from 6.8% to 13.9%.

Terra has a contractual agreement to purchase one-half of the ammonia produced by Point Lisas Nitrogen Limited, our 50-50 joint venture ammonia plant located in Trinidad. The purchase price is based on the average market price of ammonia, F.O.B. Caribbean, less a discount. Assuming we purchase 360,000 short tons per year at the December 2004 average price paid, the annual purchase obligation would be $96.0 million. The contract expires in October 2010.

Terra is liable for retiree medical benefits of employees of coal mining operations sold in 1993, under the Coal Industry Retiree Health Benefit Act of 1992, which mandated liability for certain retiree medical benefits for union coal miners. Terra has provided reserves adequate to cover the estimated present-value of these liabilities at December 31, 2004.

Terra’s discontinued operations reserves at December 31, 2004, includes $23.8 million for expected future payments for the coal operation’s retirees and other former employees. Terra may recover a portion of these payments through its rights in bankruptcy against Harman Coal Company (a former coal subsidiary), and subject to damages received by Harman Coal Company through its on-going litigation with Massey Energy Company. No provision for such recoveries has been made in Terra’s financial statements.

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Terra is involved in various legal actions and claims, including environmental matters, arising from the normal course of business. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the results of Terra’s operations, financial position or net cash flows.

15. Preferred Shares

The components of preferred shares outstanding at December 31, 2004 were as follows:

(in thousands)	Number of shares	Carrying Value
Series A Preferred Shares (120,000 shares authorized, $1,000 per share liquidation value)	120,000	$	115,800
Series B Preferred Shares (750,000 shares authorized, $100 per share liquidation value)	172,690		17,269
Total		$	133,069

During the 2004 fourth quarter, Terra issued 120,000 shares of cumulative convertible perpetual Series A preferred shares with a liquidation value of $1,000 per share for net proceeds of $115.8 million. Cumulative dividends of $10.625 per share are payable quarterly. The Series A preferred shares are not redeemable, but are convertible into Terra common stock at the option of the holder for a conversion price of $9.96 per common share. The Series A shares may automatically be converted to common shares after December 20, 2009 if the closing price for Terra’s common shares exceeds 140% of the conversion price for any twenty days within a consecutive thirty day period prior to such conversion. Upon the occurrence of a fundamental change to Terra’s capital structure, including a change of control, merger, or sale of the Company, holders of the Series A preferred shares may require Terra to purchase any or all of their shares at a price equal to their liquidation value plus any accumulated, but unpaid, dividends. Terra also has the right, under certain conditions, to require holders of the Series A preferred shares to exchange their shares for convertible subordinated debentures with similar terms.

In connection with the acquisition of Mississippi Chemical Corporation on December 21, 2004, Terra issued 172,690 Series B preferred shares with a liquidation value of $100 per share. Terra has the option, subject to approval by its common shareholders, to redeem the Series B shares for 2.1 million common shares at any time before October 21, 2005. If the Series B preferred shares are not redeemed, the shares will earn a cumulative dividend equal to 1.75% plus the October 21, 2005 yield on Terra’s Second Priority Senior Secured Notes due 2010. Series B preferred shareholders have the right to redeem their shares for cash in the event of a change in control.

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16. Derivative Financial Instruments

Terra manages risk using derivative financial instruments for (a) changes in natural gas supply prices (b) interest rate fluctuations (c) changes in nitrogen prices and (d) currency. Derivative financial instruments have credit risk and market risk.

To manage credit risk, Terra enters into derivative transactions only with counter-parties who are currently rated as BBB or better or equivalent as recognized by a national rating agency. Terra will not enter into transactions with a counter-party if the additional transaction will result in credit exposure exceeding $20 million. The credit rating of counter-parties may be modified through guarantees, letters of credit or other credit enhancement vehicles.

Terra classifies a derivative financial instrument as a hedge if all of the following conditions are met:

1. The item to be hedged must expose Terra to currency, interest or price risk.

2. It must be probable that the results of the hedge position substantially offset the effects of currency, interest or price changes on the hedged item (e.g., there is a high correlation between the hedge position and changes in market value of the hedge item).

3. The derivative financial instrument must be designated as a hedge of the item at the inception of the hedge.

Natural gas supplies to meet production requirements at Terra’s North American production facilities are purchased at market prices. Natural gas market prices are volatile and Terra effectively fixes prices for a portion of its natural gas production requirements and inventory through the use of futures contracts, swaps and options. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical price are frequently based on prices at the Henry Hub in Louisiana, the most common and financially liquid location of reference for financial derivatives related to natural gas. However, natural gas for Terra’s North American production facilities is purchased at locations other than Henry Hub, which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the change in the price of physical gas. The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period.

A swap is a contract between Terra and a third party to exchange cash based on a designated price. Option contracts give the holder the right to either own or sell a futures or swap contract. The futures contracts require maintenance of cash balances generally 10% to 20% of the contract value and option contracts require initial premium payments ranging from 2% to 5% of contract value. Basis swap contracts require payments to or from Terra for the amount, if any, that monthly published gas prices from the source specified in the contract differ from prices of NYMEX natural gas futures during a specified period. There are no initial cash requirements related to the swap and basis swap agreements.

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The following summarizes open natural gas derivative contracts at December 31, 2004 and 2003:

	2004				2003
(in thousands)	Contract MMBtu	Unrealized Gain (Loss)			Contract MMBtu	Unrealized Gain
Swaps	20,445	$	(11,623	)	14,000	$	9,275
Options	9,220		(1,320	)	4,790		(396	)
	29,665		(12,943	)	18,790		8,879

Gains and losses on settlement of these contracts and premium payments on option contracts are credited or charged to cost of sales in the month in which the hedged transaction closes. The risk and reward of outstanding natural gas positions are directly related to increases or decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices. Realized losses on closed contracts relating to future periods as of December 31, 2004 were $3.9 million. Cash flows related to natural gas hedging are reported as cash flows from operating activities.

Compared with spot prices, natural gas derivative activities reduced Terra’s 2004 natural gas costs by $19.4 million, increased 2003 natural gas costs by $6.9 million and reduced 2002 natural gas costs by $16.3 million.

The following table presents the carrying amounts and estimated fair values of Terra’s derivative financial instruments at December 31, 2004 and 2003. SFAS 107, “Disclosures about Fair Value of Financial Instruments” defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.

	2004						2003
(in millions)	Carrying Amount			Fair Value			Carrying Amount		Fair Value
Natural gas	$	(4.0	)	$	(16.8	)	$	3.6	$	12.5

The following methods and assumptions were used to estimate the fair value of each class of derivative financial instrument:

Natural gas futures, swaps, options and basis swaps: Estimated based on published referenced prices and quoted market prices from brokers.

The activity to other comprehensive income, net of income taxes, relating to current period hedging transactions for the periods ended December 31, 2004 and 2003 follow:

(in thousands)	2004			2003
Beginning accumulated gain (loss)	$	3,979		$	3,978
Reclassification into earnings		(7,244	)		(3,978	)
Net change associated with current period hedging transactions		(16,042	)		3,979
Ending accumulated gain (loss)	$	(19,307	)	$	3,979

Approximately $16.0 million of the accumulated loss at December 31, 2004 will be reclassified into earnings during 2005.

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17. Financial Instruments and Concentrations of Credit Risk

The following table represents the carrying amounts and estimated fair values of Terra’s financial instruments at December 31, 2004 and 2003. SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.

	2004				2003
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
Cash and short-term investments	$	233.8	$	233.8	$	87.3	$	87.3
Receivables		150.3		150.3		133.5		133.5
Equity and other investments		215.9		215.9		2.3		2.3
Financial liabilities
Long-term debt		435.2		455.4		402.2		399.2
Preferred shares		133.1		133.1		—		—

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

• Cash and receivables: The carrying amounts approximate fair value because of the short maturity of those instruments

• Equity and other investments: Investments in untraded companies are valued on the basis of management’s estimates and, when available, comparisons with similar companies whose shares are publicly traded.

• Short-term borrowings and long-term debt: The fair value of Terra’s short-term borrowings and long-term debt is estimated by discounting expected cash flows at the rates currently offered for debt of the same remaining maturities.

• Preferred shares: Preferred shares are valued on the basis of market quotes, when available and management estimates based on comparisons with similar instruments that are publicly traded.

Concentration of Credit Risk: Terra is subject to credit risk through trade receivables and short-term investments. Although a substantial portion of its debtors’ ability to pay depends upon the agribusiness economic sector, credit risk with respect to trade receivables generally is minimized due to its geographic dispersion. Short-term cash investments are placed in short duration corporate and government debt securities funds with well-capitalized, high quality financial institutions.

Financial Instruments: At December 31, 2004, Terra had letters of credit outstanding totaling $31.0 million, guaranteeing various insurance and financing activities.

18. Common Stockholders’ Equity

Terra allocates $1.00 per share upon the issuance of Common Shares to the Common Share capital account. The Common Shares have no par value. At December 31, 2004, 1.8 million common shares were reserved for issuance upon award of restricted shares and exercise of employee stock options.

During 2004 and in connection with the MCC acquisition, Terra issued warrants to purchase 4.0 million of its common shares at $5.48 per share. These warrants were valued at $21.1 million at MCC closing. The value of the warrants is carried as a current liability pending shareholder approval to issue the underlying shares. Upon such approval, the warrant value will be reclassified to common stockholders’ equity.

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Terra has authorized 16,500,000 Trust Shares for issuance. There were no Trust Shares outstanding at December 31, 2004.

19. Stock-Based Compensation

Terra accounts for its stock-based compensation under the provisions of Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees”, which utilizes the intrinsic value method. Compensation expense related to stock-based compensation was $1.2 million, $1.2 million and $0.9 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Terra’s Stock Incentive Plan of 2002 authorized granting directors and key employees awards in the form of options, rights, performance units or restricted stock. The aggregate number of Common Shares that may be subject to awards under the plan may not exceed 3.5 million shares. There were no outstanding rights or performance units at December 31, 2004. Options generally may not be exercised prior to one year or more than 10 years from the date of grant. Stock options and restricted shares vest over specified periods, or in some cases upon the attainment, prior to a termination date, of pre-established market price objectives for Terra’s Common Shares. The restricted shares are entitled to normal voting rights and earn dividends as declared during the performance periods. At December 31, 2004, 1.8 million Common Shares were available for grant under the 2002 plan.

A summary of Terra’s stock-based compensation activity related to stock options for the years ended December 31 follows:

(options in thousands)

	2004			2003			2002
	Number	Weighted Average Exercise Price		Number	Weighted Average Exercise Price		Number	Weighted Average Exercise Price
Outstanding—beginning of year	930	$	4.72	1,657	$	5.28	2,084	$	5.19
Expired/terminated	72		4.29	679		6.32	401		5.03
Exercised	198		2.26	48		1.43	26		1.43
Outstanding—end of year	660	$	5.51	930	$	4.72	1,657	$	5.28

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The following table summarizes information about stock options outstanding and exercisable at December 31, 2004:

(options in thousands)
	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$  1.00 -  $ 3.99	530	5.0 years	$	3.74	530	$	3.74
4.00 -     7.99	9	4.0		7.81	9		7.81
8.00 -   14.99	121	2.7		13.08	121		13.08
Total	660	4.6	$	5.51	660	$	5.51

No options were granted during 2004, 2003 and 2002.

There were 365,000 restricted shares granted during 2004 with a weighted average fair value of $5.99 per share, 684,000 restricted shares granted during 2003 with a weighted fair value of $1.46 per share and 599,000 restricted shares granted during 2001 with a weighted average fair value of $1.84 per share.

20. Retirement Benefit Plans

Terra and its subsidiaries maintain defined benefit pension plans that cover substantially all salaried and hourly employees. Benefits are based on a pay formula. The defined benefit plans’ assets consist principally of equity securities and corporate and government debt securities. Terra and its subsidiaries also have certain non-qualified pension plans covering executives, which are unfunded. Terra accrues pension costs based upon annual independent actuarial valuations for each plan and funds these costs in accordance with statutory requirements.

The components of net periodic pension expense follow:

(in thousands)	2004			2003			2002
Service cost	$	2,731		$	5,076		$	6,182
Interest cost		15,669			13,323			13,073
Expected return on plan assets		(12,280	)		(13,024	)		(12,629	)
Amortization of prior service cost		21			38			38
Amortization of actuarial loss		4,889			6,007			1,989
Amortization of net assets		49			(114	)		(306	)
Termination charge		—			1,773			1,535
Pension expense	$	11,079		$	13,079		$	9,882

Terra has defined benefit plans in each country in which it has operations, namely the U.S., Canada and the U.K. Terra administers its plans to comply with the laws set forth by each country’s regulators.

In connection with the 2004 acquisition of MCC, Terra assumed the obligations of MCC’s pension plan which increased pension projected benefit obligations by $125.9 million and increased pension plan assets by $91.8 million. The following table reconciles, by geographic location, the plans’ funded status to amounts included in the Consolidated Statements of Financial Position at December 31, 2004:

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(in thousands)	U.S.			Canada			U.K.			Total
Change in Projected Benefit Obligation Present Value
Projected benefit obligation—beginning of year	$	118,246		$	25,537		$	116,473		$	260,256
Service cost		1,947			784			—			2,731
Interest cost		7,123			1,610			6,936			15,669
Actuarial (gain) loss		6,208			—			13,072			19,280
Prior service cost		(428	)		—			—			(428	)
Acquisitions		125,931			—			—			125,931
Foreign currency exchange rate changes		—			1,862			9,620			11,482
Benefits paid		(5,095	)		(644	)		(1,113	)		(6,852	)
Projected benefit obligation—end of year		253,932			29,149			144,988			428,069
Change in Plan Assets
Fair value plan assets—beginning of year		60,396			21,667			83,087			165,150
Actual return on plan assets		3,448			1,670			8,986			14,104
Foreign currency exchange rate changes		—			1,631			6,762			8,393
Employer contribution		11,857			1,119			3,558			16,534
Participants’ contributions		—			—			7			7
Acquisitions		91,809			—			—			91,809
Benefits paid		(5,095	)		(644	)		(1,113	)		(6,852	)
Fair value plan assets—end of year		162,415			25,443			101,287			289,145
Funded Status		(91,517	)		(3,706	)		(43,701	)		(138,924	)
Unrecognized net actuarial loss		44,672			3,869			33,405			81,946
Unrecognized prior service cost		(383	)		—			—			(383	)
Contributions		163			—			—			163
Accrued benefit cost	$	(47,065	)	$	163		$	(10,296	)	$	(57,198	)

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The following table reconciles, by geographic location, the plans’ funded status to amounts included in the Consolidated Statements of Financial Position at December 31, 2003:

(in thousands)	U.S.			Canada			U.K.			Total
Change in Projected Benefit Obligation Present Value
Projected benefit obligation—beginning of year	$	101,942		$	18,608		$	105,102		$	225,652
Service cost		1,587			648			2,841			5,076
Interest cost		6,733			1,427			5,163			13,323
Participants’ contributions		—			—			306			306
Termination charge		—			—			1,773			1,773
Actuarial (gain) loss		12,695			1,072			(7,462	)		6,305
Foreign currency exchange rate changes		—			4,382			11,406			15,788
Benefits paid		(4,711	)		(600	)		(2,656	)		(7,967	)
Projected benefit obligation—end of year		118,246			25,537			116,473			260,256
Change in Plan Assets
Fair value plan assets—beginning of year		54,847			15,296			64,137			134,280
Actual return on plan assets		7,901			2,192			7,471			17,564
Foreign currency exchange rate changes		—			3,661			8,005			11,666
Employer contribution		2,359			1,118			5,824			9,301
Participants’ contributions		—			—			306			306
Benefits paid		(4,711	)		(600	)		(2,656	)		(7,967	)
Fair value plan assets—end of year		60,396			21,667			83,087			165,150
Funded Status		(57,850	)		(3,870	)		(33,386	)		(95,106	)
Unrecognized net actuarial loss		39,596			4,001			23,407			67,004
Unrecognized prior service cost		67			—			—			67
Unrecognized net transition asset		49			—			—			49
Contributions		416			—			764			1,180
Accrued benefit cost	$	(17,722	)	$	131		$	(9,215	)	$	(26,806	)

The amount recognized in the balance sheet for the plans described above are as follows:

(in thousands)	2004			2003
Accrued benefit cost	$	57,198		$	26,806
Accumulated other comprehensive income		50,974			37,648
Deferred tax asset		22,265			19,116
Funding subsequent to valuation		(1,226	)		(286	)
Amount recognized		129,211			83,856
Less: current portion		(9,641	)		(20,403	)
Pension liabilities	$	119,570		$	63,453

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The assumptions used to determine the actuarial present value of benefit obligations and pension expense during each of the years in the three-year period ended December 31 were as follows:

	2004		2003		2002
Weighted average discount rate	5.7	%	5.8	%	6.3	%
Long-term per annum compensation increase	3.5	%	3.5	%	3.9	%
Long-term return on plan assets	7.7	%	7.5	%	7.6	%

Terra employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and Terra’s corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.

Terra selects a long-term rate of return of each of its plans individually. Primarily, Terra consults with each of its three actuaries, as well as each of the fund’s money managers. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. While historical returns are taken into consideration, current market trends such as inflation and current equity and fixed income returns are also taken into consideration.

The percentage of the Fair Market Value of the total plan assets for each major asset category of the plan’s assets is as follows:

	September 30,
	2004		2003
Asset Allocation
Equities	54.9	%	50.8	%
Bonds	36.0	%	40.9	%
Cash equivalents	9.1	%	8.3	%
	100.0	%	100.0	%

Terra expects to contribute $10 million to its pension plan and other postretirement benefit plan in 2005.

Future benefit payments include benefits payable under the MCC pension plan. The expected benefits to be paid from the pension plan are as follows:

(in thousands)	Payments
Estimated Future Benefit Payments
2005	$	15,262
2006		15,720
2007		16,306
2008		16,799
2009		17,390
2010-2014		103,445

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Terra also sponsors defined contribution savings plans covering most full-time employees. Contributions made by participating employees are matched based on a specified percentage of employee contributions. The cost of Terra’s contributions to these plans totaled $1.5 million in 2004, $1.5 million in 2003 and $1.6 million in 2002.

21. Post-Retirement Benefits

Terra provides health care benefits for certain U.S. employees who retired on or before January 1, 2002. Participant contributions and co-payments are subject to escalation. The plan pays a stated percentage of most medical expenses reduced for any deductible and payments made by government programs. The plan is unfunded.

The following table indicates the components of the post-retirement medical benefits obligation included in Terra’s Consolidated Statements of Financial Position at December 31:

(in thousands)	2004			2003
Change in Benefit Obligation
Projected benefit obligation—beginning of year	$	2,986		$	3,031
Service cost		11			8
Interest cost		172			195
Participants’ contributions		238			260
Amendments		899			—
Actuarial (gain) loss		316			31
Foreign currency exchange rate changes		50			113
Benefits paid		(501	)		(652	)
Projected benefit obligation—end of year		4,171			2,986
Change in Plan Assets
Fair value plan assets—beginning of year		—			—
Employer contribution		263			392
Participants’ contributions		238			260
Benefits paid		(501	)		(652	)
Fair value plan assets—end of year		—			—
Funded Status		(4,171	)		(2,986	)
Unrecognized net actuarial gain		(536	)		(939	)
Unrecognized prior service cost		978			73
Employer contribution		60			93
Accrued benefit cost	$	(3,669	)	$	(3,759	)

Net periodic post-retirement medical benefit (income) expense consisted of the following components:

(in thousands)	2004			2003			2002
Service cost	$	11		$	8		$	8
Interest cost		172			195			215
Amortization of prior service cost		(43	)		(40	)		(36	)
Amortization of actuarial gain		(45	)		(43	)		(50	)
Post-retirement medical benefit expense	$	95		$	120		$	137

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Terra limits its future obligation for post-retirement medical benefits by capping at 5% the annual rate of increase in the cost of claims it assumes under the plan. The weighted average discount rate used in determining the accumulated post-retirement medical benefit obligation was 5.83% in 2004, 6.16% in 2003 and 6.75% in 2002. The assumed annual health care cost trend rate was 5% in 2002 and is assumed to remain at that level thereafter. The impact on the benefit obligation of a 1% increase in the assumed health care cost trend rate would be $22,000 while a 1% decline in the rate would decrease the benefit obligation by $379,000.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Although detailed regulations necessary to implement the Act have not yet been finalized, the company believes that certain drug benefits offered under postretirement health care plans will qualify for the subsidy under Medicare Part D. The subsidy will be based on approximately 28 percent of an individual beneficiary’s annual prescription drug costs between $250 and $5,000. The effects of the subsidy were factored into the 2004 annual year-end valuation. The reduction in the benefit obligation attributable to past service cost was approximately $429,000 and has been reflected as an actuarial gain.

Future benefit payments expected to be paid for post-retirement medical benefits are as follows:

(in thousands)	Payments
2005	$	397
2006		300
2007		277
2008		235
2009		213
2010-2014		1,261

22. Income Taxes

Components of the income tax provision (benefit) applicable to continuing operations are as follows:

(in thousands)	2004			2003			2002
Current:
Federal	$	—		$	—		$	(28,863	)
Foreign		1,058			398			218
State		—			—			(5,227	)
		1,058			398			(33,872	)
Deferred:
Federal		2,570			(79,400	)		9,284
Foreign		(8,628	)		22,002			(11	)
State		—			—			599
		(6,058	)		(57,398	)		9,872
Total income tax benefit	$	(5,000	)	$	(57,000	)	$	(24,000	)

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The following table reconciles the income tax provision (benefit) per the Consolidated Statements of Operations to the federal statutory provision:

(in thousands)	2004			2003			2002
Loss from continuing operations before taxes:
Domestic	$	(7,516	)	$	(100,117	)	$	(60,345	)
Foreign		70,112			30,636			171
		62,596			(69,481	)		(60,174	)
Statutory income tax provision (benefit):
Domestic		(2,631	)		(34,915	)		(21,121	)
Foreign		21,934			9,785			208
		19,303			(25,130	)		(20,913	)
Reduction to foreign tax assessments and reserves		(27,877	)		(36,421	)		—
Foreign exchange gains		1,548			4,883			—
Non-deductible expenses, primarily goodwill		—			—			70
State and local income taxes		—			—			(2,353	)
Valuation reserve		2,460			840			—
Other		(434	)		(1,172	)		(804	)
Income tax benefit	$	(5,000	)	$	(57,000	)	$	(24,000	)

The tax effect of net operating loss (NOL), tax credit carryforwards and significant temporary differences between reported and taxable earnings that gave rise to net deferred tax assets (liabilities) were as follows:

in thousands)	2004			2003
Current deferred tax liability
Accrued liabilities	$	(5,061	)	$	(3,106	)
Inventory valuation		(72	)		(124	)
Net current deferred tax liability		(5,133	)		(3,230	)
Non-current deferred tax liability
Depreciation		(213,753	)		(179,191	)
Investments in partnership		(5,127	)		(7,246	)
Investment in affiliates		(39,183	)		—
Foreign tax deposits		—			8,808
Unfunded employee benefits		10,465			17,751
Discontinued business costs		9,863			14,789
Valuation allowance		(56,490	)		(46,017	)
NOL, capital loss and tax credit carryforwards		212,954			154,471
Accumulated other comprehensive income		22,955			15,850
Other		92			2,954
Net noncurrent deferred tax liability		(58,224	)		(17,831	)
Net deferred tax liability	$	(63,357	)	$	(21,061	)

During 1996, after receiving a favorable ruling from Revenue Canada, Terra refreshed its tax basis in plants and equipment at its Canadian subsidiary by entering into a transaction with a Canadian subsidiary of Anglo American plc, resulting in a deferred tax asset. In 2000, Revenue Canada challenged the refreshed amount of this tax basis, and Terra established a reserve against the previously recorded tax

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asset. Terra contested Revenue Canada’s position and realized a reduction to the tax assessment during 2003 with a final settlement during 2004. In connection with the tax assessment reductions, final settlement of the issues and new company structure opportunities, Terra eliminated tax reserves of $27.9 million and $36.4 million in 2004 and 2003, respectively.

On December 20, 2004, Anglo American plc (“Anglo”), through its wholly-owned subsidiaries, completed sales of its interests in Terra. The sale of Anglo’s common shares resulted in a “change of control” (as defined in Section 382 of the Internal Revenue Code of 1986, as amended) for purposes of utilizing tax benefits from net operating loss carryforwards and certain other tax attributes available to us. As a result of the change of control, Terra will generally be limited to an annual loss carryforward utilization of $36.4 million. Consequently, realization of tax benefits from our operating loss carryforwards could be delayed by these limitations or could possibly be lost due to expiration of our carryforward periods beginning in 2018.

The American Jobs Creation Act of 2004 introduces special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. Terra has not yet completed its evaluation of the repatriation provision for purposes of applying statement 109. Terra plans to complete this process within the first half of 2005.

Terra does not expect to recognize additional U.S. tax benefits for future losses until it realizes taxable income or can realize additional deferred tax liabilities for temporary differences.

Components of income tax provision (benefit) included in net income other than from continuing operations are as follows:

(in thousands)	2004		2003		2002
Current:
Federal	$	—	$	—	$	(9,456	)
	$	—	$	—	$	(9,456	)

23. Industry Segment Data

Terra operates in two principal industry segments—Nitrogen Products and Methanol. The Nitrogen Products business produces and distributes ammonia, urea, nitrogen solutions, ammonium nitrate and other nitrogen products to agricultural and industrial users. The Methanol business manufactures and, prior to 2004, distributed methanol, which is principally used as a raw material in the production of a variety of chemical derivatives and in the production of methyl tertiary butyl ether (MTBE), an oxygenate and octane enhancer for gasoline. Management evaluates performance based on operating earnings of each segment. Terra does not allocate interest, income taxes or infrequent items to the business segments. Included in Other are general corporate activities not attributable to a specific industry segment.

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The following summarizes additional information about Terra’s industry segments:

(in thousands)	Nitrogen Products			Methanol		Other			Total
2004
Revenues	$	1,320,142		$	186,823	$	2,145		$	1,509,110
Operating income (loss)		138,745			1,479		(5,478	)		134,746
Total assets		1,440,103			122,273		123,132			1,685,508
Depreciation and amortization		76,175			13,019		13,036			102,230
Capital expenditures		17,038			53		1,381			18,472
Equity earnings		442			—		—			442
Equity investments		215,939			—		—			215,939
Minority interest in earnings		11,207			—		—			11,207
2003
Revenues	$	1,139,379		$	209,870	$	1,806		$	1,351,055
Operating income (loss)		(19,370	)		1,866		(6,056	)		(23,560	)
Total assets		898,437			157,187		69,438			1,125,062
Depreciation and amortization		80,246			13,242		13,882			107,370
Capital expenditures		6,708			1,571		360			8,639
Equity earnings		803			—		—			803
Equity investments		2,255			—		—			2,255
Minority interest in earnings		(8,617	)		—		—			(8,617	)
2002
Revenues	$	883,971		$	158,458	$	1,554		$	1,043,983
Operating income (loss)		(9,351	)		7,325		(3,381	)		(5,407	)
Total assets		938,559			152,735		36,816			1,128,110
Depreciation and amortization		82,774			13,047		10,035			105,856
Capital expenditures		22,267			749		2,170			25,186
Equity earnings		982			—		—			982
Equity investments		2,501			—		—			2,501
Minority interest in earnings		1,510			—		—			1,510

The following summarizes geographic information about Terra:

	Revenues						Long-lived Assets
(in thousands)	2004		2003		2002		2004		2003		2002
United States	$	1,061,261	$	983,936	$	756,946	$	570,031	$	461,690	$	554,466
Canada		61,395		57,618		42,138		51,036		55,010		47,403
United Kingdom		386,454		309,501		244,899		257,520		251,105		246,950
	$	1,509,110	$	1,351,055	$	1,043,983	$	878,587	$	767,805	$	848,819

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24. Guarantor Subsidiaries

The Parent files a consolidated United States federal income tax return. Beginning in 1995, the Parent adopted the tax sharing agreements, under which all domestic operating subsidiaries provide for and remit income taxes to the Parent based on their pretax accounting income, adjusted for permanent differences between pretax accounting income and taxable income. The tax sharing agreements allocated the benefits of operating losses and temporary differences between financial reporting and tax basis income to the Parent.

Condensed consolidating financial information regarding the Parent, TCAPI, the Guarantor Subsidiaries and subsidiaries of the Parent that are not guarantors of the Senior Secured Notes (see Note 13—Long-term Debt) for December 31, 2004, 2003 and 2002 are presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. The guarantees of the Guarantor Subsidiaries are full and unconditional. The Subsidiary issuer and the Guarantor Subsidiaries guarantees are joint and severalwith the Parent.

Guarantor subsidiaries include subsidiaries that own the Woodward, Oklahoma; Port Neal, Iowa and Beaumont, Texas plants as well as the corporate headquarters facility in Sioux City, Iowa. All other company facilities are owned by non-guarantor subsidiaries.

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Condensed Consolidating Statement of Financial Position for the Year Ended December 31, 2004:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and short-term investments	$	1		$	204,691		$	28,543		$	563		$	—		$	233,798
Accounts receivable		7			(75	)		31,181			119,158			—			150,271
Inventories		60			—			32,243			116,504			1			148,808
Other current assets		1,520			21,149			9,540			26,888			(991	)		58,106
Total current assets		1,588			225,765			101,507			263,113			(990	)		590,983
Property, plant and equipment, net		—			—			306,020			499,170			(7,212	)		797,978
Deferred plant turnaround costs, intangible and other assets		237			14,177			14,365			42,560			9,269			80,608
Equity investments		—			—			—			215,939			—			215,939
Investments in and advances to (from) affiliates		735,357			237,464			1,366,624			192,787			(2,532,232	)		—
Total Assets	$	737,182		$	477,406		$	1,788,516		$	1,213,569		$	(2,531,165	)	$	1,685,508
Liabilities
Debt due within one year	$	—		$	—		$	104		$	63		$	—		$	167
Accounts payable		515			1,600			26,385			94,218			—			122,718
Accrued and other liabilities		50,466			7,426			79,233			84,058			(988	)		220,195
Total current liabilities		50,981			9,026			105,722			178,339			(988	)		343,080
Long-term debt and capital lease obligations		—			331,300			26			103,912			—			435,238
Deferred income taxes		(19,322	)		—			—			75,488			2,057			58,223
Pension and other liabilities		112,020			—			15,343			36,935			(2	)		164,296
Minority interest		—			18,034			74,164			—			(1	)		92,197
Total liabilities and minority interest		143,678			358,360			195,255			394,674			1,066			1,093,034
Preferred Shares		133,069			—			—			—			—			133,069
Stockholders’ Equity
Common stock		144,531			—			72			49,709			(49,781	)		144,531
Paid in capital		681,639			150,218			1,750,879			892,400			(2,793,497	)		681,639
Accumulated other comprehensive income (loss)		(55,994	)		(52,994	)		—			21,885			31,109			(55,994	)
Unearned compensation		(2,568	)		—			—			—			—			(2,568	)
Retained earnings (deficit)		(307,174	)		21,822			(157,690	)		(145,099	)		279,938			(308,203	)
Total stockholders’ equity		460,434			119,046			1,593,261			818,895			(2,532,231	)		459,405
Total liabilities and stockholders’ equity	$	737,182		$	477,406		$	1,788,516		$	1,213,569		$	(2,531,165	)	$	1,685,508

72

Condensed Consolidating Statement of Operations for the Year Ended December 31, 2004:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Net sales	$	—		$	—		$	535,977		$	961,472		$	9,516		$	1,506,965
Other income, net		—			—			10,972			689			(9,516	)		2,145
Total revenues		—			—			546,949			962,161			—			1,509,110
Cost and Expense
Cost of sales		—			—			504,037			848,825			(4,785	)		1,348,077
Selling, general and administrative expenses		3,780			(9,823	)		30,173			11,294			8,766			44,190
Product claim costs		—			—			—			(17,903	)		—			(17,903	)
Equity in the (earnings) loss of subsidiaries		(45,792	)		(97,064	)		(74,338	)		(442	)		217,636			—
Total cost and expenses		(42,012	)		(106,887	)		459,872			841,774			221,617			1,374,364
Income (loss) from operations		42,012			106,887			87,077			120,387			(221,617	)		134,746
Interest income		1			1,856			4,261			1,838			(4,649	)		3,307
Interest expense		(3,077	)		(49,643	)		(29	)		(5,172	)		4,787			(53,134	)
Minority interest		—			(2,192	)		(9,015	)		—			—			(11,207	)
Loss on early retirement of debt		—			(11,116	)		—			—			—			(11.116	)
Income (loss) before income taxes		38,936			45,792			82,294			117,053			(221,479	)		62,596
Income tax benefit (provision)		28,660			—			—			(23,660	)		—			5,000
Net Income	$	67,596		$	45,792		$	82,294		$	93,393		$	(221,479	)	$	67,596

73

Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2004:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Net income (loss)	$	67,596		$	45,792		$	82,294		$	93,393		$	(221,479	)	$	67,596
Adjustments to reconcile net loss to net cash flows from operating activities:
Loss on early retirement of debt		—			2,985			—			—			—			2,985
Depreciation and amortization		—			4,086			47,676			50,468			—			102,230
Deferred income taxes		(49,601	)		—			—			46,362			1,003			(2,236	)
Minority interest in earnings		—			2,192			9,015			—			—			11,207
Equity in earnings (loss) of subsidiaries		45,792			97,064			74,338			442			(217,636	)		—
Unearned compensation		1,513			—			—			—			—			1,513
Change in operating assets and liabilities		32,801			(29,558	)		59,830			(9,735	)		(11,868	)		41,470
Claim cost recovery		—			—			—			(12,874	)		—			(12,874	)
Other		—			—			—			12,874			(13,258	)		(384	)
Net Cash Flows from Operating Activities		98,101			122,561			273,153			180,930			(463,238	)		211,507
Investing Activities
Purchase of property, plant and equipment	$	—		$	—		$	(4,250	)	$	(14,222	)		—			(18,472	)
Plant turnaround costs		—			—			(12,103	)		(16,775	)		—			(28,878	)
Acquisitions, net of cash received		175,250			—			—			(229,418	)		—			(54,168	)
Other		22,872			(4	)		(10,963	)		(13,672	)		2,733			966
Net Cash Flows from Investing Activities		198,122			(4	)		(27,316	)		(274,087	)		2,733			(100,552	)
Financing Activities
Principal payments on long-term debt		—			(70,700	)		(95	)		(59	)		—			(70,854	)
Stock issuance		116,246			—			—			—			—			116,246
Deferred financing costs		—			(2,598	)		—			—			—			(2,598	)
Distributions to minority interests		—			(1,575	)		(6,497	)		—			—			(8,072	)
Change in investments and advances from (to) affiliates		(412,468	)		82,376			(216,441	)		86,815			459,718			—
Net Cash Flows from Financing Activities		(296,222	)		7,503			(223,033	)		86,756			459,718			34,722
Effect of Foreign Exchange Rate on Cash		—			—			—			—			787			787
Increase (Decrease) in Cash and Short-term Investments		1			130,060			22,804			(6,401	)		—			146,464
Cash and Short-term Investments at Beginning of Year		—			74,631			5,739			6,964			—			87,334
Cash and Short-term Investments at End of Year	$	1		$	204,691		$	28,543		$	563		$	—		$	233,798

74

Condensed Consolidating Statement of Financial Position for the Year Ended December 31, 2003:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and short-term investments	$	—		$	74,631		$	5,739		$	6,964		$	—		$	87,334
Accounts receivable		—			—			49,642			83,838			—			133,480
Inventories		—			—			26,337			64,532			—			90,869
Other current assets		7,541			6,267			16,836			12,221			454			43,319
Total current assets		7,541			80,898			98,554			167,555			454			355,002
Property, plant and equipment, net		—			—			343,379			366,321			(2,035	)		707,665
Investment in and advanced to (from) affiliates		380,076			425,301			1,257,814			82,676			(2,145,867	)		—
Deferred plant turnaround costs, intangible and other assets		—			18,650			10,037			34,126			(418	)		62,395
Total Assets	$	387,617		$	524,849		$	1,709,784		$	650,678		$	(2,147,866	)	$	1,125,062
Liabilities
Debt due within one year	$	—		$	—		$	95		$	58		$	—		$	153
Accounts payable		669			—			29,426			49,468			—			79,563
Accrued and other liabilities		851			27,456			41,213			72,818			—			142,338
Total current liabilities		1,520			27,456			70,734			122,344			—			222,054
Long-term debt and capital lease obligations		—			402,000			130			76			—			402,206
Deferred income taxes		30,279			—			—			(12,448	)		—			17,831
Pension and other liabilities		90,687			(3,680	)		23,019			18,750			2			128,778
Minority interest		—			17,421			71,641			—			—			89,062
Total liabilities and minority interest		122,486			443,197			165,524			128,722			2			859,931
Stockholders’ Equity
Common stock		128,968			—			72			49,709			(49,781	)		128,968
Paid in capital		555,529			150,218			1,819,036			725,546			(2,694,800	)		555,529
Accumulated other comprehensive income (loss)		(44,596	)		(44,596	)		—			16,090			28,506			(44,596	)
Retained earnings (deficit)		(374,770	)		(23,970	)		(274,848	)		(269,389	)		568,207			(374,770	)
Total stockholders’ equity		265,131			81,652			1,544,260			521,956			(2,147,868	)		265,131
Total liabilities and stockholders’ equity	$	387,617		$	524,849		$	1,709,784		$	650,678		$	(2,147,866	)	$	1,125,062

75

Condensed Consolidating Statement of Operations for the Year Ended December 31, 2003:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Net sales	$	—		$	—		$	518,188		$	828,702		$	2,359		$	1,349,249
Other income, net		—			—			3,387			778			(2,359	)		1,806
Total revenues		—			—			521,575			829,480			—			1,351,055
Cost and Expense
Cost of sales		—			—			511,940			776,073			(6,350	)		1,281,663
Selling, general and administrative expenses		5,620			(1,046	)		24,403			11,240			(356	)		39,861
Impairment of long-lived assets		—			—			12,436			40,655			—			53,091
Equity in the (earnings) loss of subsidiaries		78,197			41,861			57,354			(804	)		(176,608	)		—
Total cost and expenses		83,817			40,815			606,133			827,164			(183,314	)		1,374,615
Income (loss) from continuing operations before income taxes		(83,817	)		(40,815	)		(84,558	)		2,316			183,314			(23,560	)
Interest income		47			3,043			3,989			145			(6,690	)		534
Interest expense		(12,911	)		(42,110	)		(39	)		(6,679	)		6,667			(55,072	)
Minority interest		—			1,685			6,932			—			—			8,617
Loss before income taxes		(96,681	)		(78,197	)		(73,676	)		(4,218	)		183,291			(69,481	)
Income tax benefit (provision)		84,200			—			—			(27,200	)		—			57,000
Net Loss	$	(12,481	)	$	(78,197	)	$	(73,676	)	$	(31,418	)	$	183,291		$	(12,481	)

76

Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2003:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Net loss	$	(12,481	)	$	(78,197	)	$	(73,676	)	$	(31,418	)	$	183,291		$	(12,481	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Impairment of long-lived assets		—			—			12,436			40,655			—			53,091
Depreciation and amortization		—			3,816			49,753			53,801			—			107,370
Deferred income taxes		(39,873	)		(19,422	)		—			4,379			(5,600	)		(60,516	)
Minority interest in earnings		—			(1,685	)		(6,932	)		—			—			(8,617	)
Equity in earnings (loss) of subsidiaries		(78,197	)		(41,861	)		(57,354	)		804			176,608			—
Change in operating assets and liabilities		(7,462	)		(1,893	)		(86,180	)		23,734			75,376			3,575
Net Cash Flows from Operating Activities		(138,013	)		(139,242	)		(161,953	)		91,955			429,675			82,422
Investing Activities
Purchase of property, plant and equipment	$	—		$	—		$	(2,831	)	$	(5,808	)	$	—		$	(8,639	)
Plant turnaround costs		—			—			(5,981	)		(22,099	)		—			(28,080	)
Pension contributions and other		(479	)		—			13,923			(1,538	)		(21,509	)		(9,603	)
Net Cash Flows from Investing Activities		(479	)		—			5,111			(29,445	)		(21,509	)		(46,322	)
Financing Activities
Principal payments on long-term debt		(200,000	)		—			(88	)		(54	)		—			(200,142	)
Change in investments and advances from (to) affiliates		338,423			5,291			163,597			(164,672	)		(342,639	)		—
Issuance of long-term debt		—			202,000			—			—			—			202,000
Deferred financing costs		—			(8,581	)		—			—			—			(8,581	)
Distributions to minority interests		—			(225	)		(928	)		—			—			(1,153	)
Stock issuance		68			—			—			—			—			68
Net Cash Flows from Financing Activities		138,491			198,485			162,581			(164,726	)		(342,639	)		(7,808	)
Effect of Foreign Exchange Rate on Cash		—			—			—			—			563			563
Increase (Decrease) in Cash and Short-term Investments		(1	)		59,243			5,739			(102,216	)		66,090			28,855
Cash and Short-term Investments at Beginning of Year		1			15,388			—			109,180			(66,090	)		58,479
Cash and Short-term Investments at End of Year	$	—		$	74,631		$	5,739		$	6,964		$	—		$	87,334

77

Condensed Consolidating Statement of Financial Position for the Year Ended December 31, 2002:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and short-term investments	$	1		$	15,388		$	—		$	109,180		$	(66,090	)	$	58,479
Accounts receivable		—			—			38,102			62,911			—			101,013
Inventories		—			—			25,475			63,123			—			88,598
Other current assets		6,391			—			6,950			18,213			(353	)		31,201
Total current assets	$	6,392		$	15,388		$	70,527		$	253,427		$	(66,443	)	$	279,291
Property, plant and equipment, net		—			—			396,722			397,753			(4,000	)		790,475
Investment in and advanced to (from) affiliates		621,231			397,043			1,438,412			(76,472	)		(2,380,214	)		—
Other assets and deferred plant turnaround costs		(479	)		13,886			11,560			33,377			—			58,344
Total Assets	$	627,144		$	426,317		$	1,917,221		$	608,085		$	(2,450,657	)	$	1,128,110
Liabilities
Debt due within one year	$	—		$	—		$	88		$	55		$	—		$	143
Accounts payable		201			1,525			107,647			51,985			(66,442	)		94,916
Accrued and other liabilities		25,695			5,676			34,802			32,157			—			98,330
Total current liabilities		25,896			7,201			142,537			84,197			(66,442	)		193,389
Long-term debt		200,000			200,000			225			133			—			400,358
Deferred income taxes		70,154			19,422			—			(16,828	)		—			72,748
Pension and other liabilities		73,230			12,202			2,668			16,818			1			104,919
Minority interest		—			19,332			79,500			—			—			98,832
Total liabilities		369,280			258,157			224,930			84,320			(66,441	)		870,246
Stockholders’ Equity
Common stock		128,654			—			73			49,709			(49,782	)		128,654
Paid in capital		555,167			150,218			1,817,591			724,088			(2,691,897	)		555,167
Accumulated other comprehensive income (loss)		(63,668	)		(36,285	)		—			(18,238	)		54,523			(63,668	)
Retained earnings (deficit)		(362,289	)		54,227			(125,373	)		(231,794	)		302,940			(362,289	)
Total stockholders’ equity		257,864			168,160			1,692,291			523,765			(2,384,216	)		257,864
Total liabilities and stockholders’ equity	$	627,144		$	426,317		$	1,917,221		$	608,085		$	(2,450,657	)	$	1,128,110

78

Condensed Consolidating Statement of Operations for the Year Ended December 31, 2002:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Net sales	$	—		$	—		$	391,516		$	643,745		$	7,168		$	1,042,429
Other income, net		—			—			4,640			4,082			(7,168	)		1,554
		—			—			396,156			647,827			—			1,043,983
Cost and Expense
Cost of sales		—			—			390,281			622,414			(2,725	)		1,009,970
Selling, general and administrative expenses		3,634			(1,062	)		25,627			10,159			1,062			39,420
		3,634			(1,062	)		415,908			632,573			(1,663	)		1,049,390
Loss from operations		(3,634	)		1,062			(19,752	)		15,254			1,663			(5,407	)
Interest income		47			4,682			5,238			140			(9,564	)		543
Interest expense		(22,134	)		(31,608	)		(48	)		(9,542	)		9,532			(53,800	)
Minority interest		—			(295	)		(1,215	)		—			—			(1,510	)
Equity in the earnings (loss) of subsidiaries		(240,629	)		(214,470	)		9,898			983			444,218			—
Loss from continuing operations before income taxes		(266,350	)		(240,629	)		(5,879	)		6,835			445,849			(60,174	)
Income tax benefit (provision)		24,208			—			—			(208	)		—			24,000
Income (loss) from continuing operations and cumulative effect of change in accounting principle		(242,142	)		(240,629	)		(5,879	)		6,627			445,849			(36,174	)
Discontinued operations, net of income taxes		(16,183	)		—			—			—			—			(16,183	)
Cumulative effect of change in accounting principle		—			—			(189,971	)		(15,997	)		—			(205,968	)
Net Loss	$	(258,325	)	$	(240,629	)	$	(195,850	)	$	(9,370	)	$	445,849		$	(258,325	)

79

Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2002:

(in thousands)	Parent			TCAPI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Net loss	$	(258,325	)	$	(240,629	)	$	(195,850	)	$	(9,370	)	$	445,849		$	(258,325	)
Cumulative effect of change in accounting principle		—			—			189,971			15,997			—			205,968
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		—			2,790			51,143			51,923			—			105,856
Deferred income taxes		(37,308	)		(380	)		3,370			(8,555	)		13,627			(29,246	)
Minority interest in earnings		—			295			1,215			—			—			1,510
Equity in earnings (loss) of subsidiaries		240,629			214,470			(9,898	)		(983	)		(444,218	)		—
Change in operating assets and liabilities		24,275			(35,532	)		94,027			65,320			(40,939	)		107,151
Discontinued operations		16,183			—			—			—			—			16,183
Other		(2,578	)		—			—			—			(283	)		(2,861	)
Net Cash Flows from Operating Activities		(17,124	)		(58,986	)		133,978			114,332			(25,964	)		146,236
Investing Activities
Purchase of property, plant and equipment	$	—		$	—		$	(3,004	)	$	(22,182	)	$	—		$	(25,186	)
Plant turnaround costs		—			—			(8,191	)		(16,069	)		—			(24,260	)
Pension contributions and other		571			—			8,099			5,806			(21,108	)		(6,632	)
Net Cash Flows from Investing Activities		571			—			(3,096	)		(32,445	)		(21,108	)		(56,078	)
Financing Activities
Principal payments on long-term debt		—			(36,277	)		(11	)		187			—			(36,101	)
Change in investments and advances from (to) affiliates		4,914			119,442			(137,668	)		38,385			(25,073	)		—
Stock issuance—net		37			—			—			—			—			37
Distributions to minority interests		—			(440	)		(1,406	)		—			—			(1,846	)
Deferred financing costs		—			(1,173	)		—			—			—			(1,173	)
Other		11,603			(7,178	)		(8,730	)		(36,024	)		40,329			—
Net Cash Flows from Financing Activities		16,554			74,374			(147,815	)		2,548			15,256			(39,083	)
Effect of Foreign Exchange Rate on Cash		—			—			—			—			279			279
Increase (Decrease) in Cash and Short-term     Investments		1			15,388			(16,933	)		84,435			(31,537	)		51,354
Cash and Short-term Investments at Beginning of     Year		—			—			16,933			24,745			(34,553	)		7,125
Cash and Short-term Investments at End of Year	$	1		$	15,388		$	—		$	109,180		$	(66,090	)	$	58,479

80

25. Agreements of Limited Partnerships

Terra Nitrogen Company L.P. (TNCLP)

Terra owns a 2% General Partnership interest and 75.1% of the Common Units of TNCLP at December 31, 2004. Terra consolidates TNCLP results with the publicly held TNCLP Common Units reflected in Terra’s financial statements as a minority interest.

In accordance with the TNCLP limited partnership agreement, quarterly distributions to unitholders and Terra are made in an amount equal to 100% of its available cash, as defined in the partnership agreement. The General Partner receives a combined minimum 2% of total cash distributions, and as an incentive, the general partner’s participation increases if cash distributions exceed specified target levels.

If at any time less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, TNCLP may call, or assign to the General Partner or its affiliates, its right to acquire all such outstanding units held by non-affiliated persons with at least 30 but not more than 60 days’ notice of its decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of any previous twenty trading days’ closing prices as of the date five days before the purchase is announced and (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

26. Related Party Transactions

At December 31, 2004, Perry Corp. and its affiliates (“Perry”) are the beneficial owners of 11.7% of Terra’s outstanding common shares.

On December 21, 2004, in connection with the MCC acquisition, MCC’s Term Loan, Revolving Credit, Guarantee and Security Agreement, dated July 1, 2004, was amended and Terra and certain of its subsidiaries became guarantors thereunder. Pursuant to the amended loan agreement, MCC repaid approximately $50 million of the loans, the revolving credit portion was cancelled and the credit facility continued as a $125 million term loan due in 2008 (see Note 13). An affiliate of Perry is co-joint lead arranger and a lender for the loan. On February 22, 2005, Terra announced plans to prepay $50 million of the $125 million term loan due in 2008.

In connection with this loan agreement amendment, Terra issued to the lenders thereunder, including the Perry affiliate, warrants to purchase Terra common shares at $5.48 (subject to anti-dilution adjustments) per share (see Note 18). The Perry affiliate received 1,860,000 of such warrants (covering 1,860,000 common shares).

Perry affiliates also own a portion of outstanding Series B preferred shares described at Note 15.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Terra Industries Inc.:

We have audited the accompanying consolidated statements of financial position of Terra Industries Inc. and subsidiaries (“Terra”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, cash flows and changes in stockholders’ equity for each of the three years in the period ended December 31, 2004. Our audits also included the consolidated financial statement schedule listed in the Index as Item 15. These financial statements and the financial statement schedule are the responsibility of Terra’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Terra Industries Inc. and subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in 2002 Terra changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No.142, “Goodwill and Other Intangible Assets”.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Terra’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of Terra’s internal control over financial reporting and an unqualified opinion on the effectiveness of Terra’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

Omaha, Nebraska

March 11, 2005

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QUARTERLY FINANCIAL DATA

(in thousands, except per-share data and stock prices)	March 31			June 30			Sept 30			Dec 31
2004
Total revenues	$	361,029		$	416,768		$	376,667		$	354,646
Operating income		45,587			39,284			25,288			24,587
Net income		18,230			17,865			6,453			24,019
Per Share:
Diluted income per share	$	0.23		$	0.23		$	0.08		$	0.28
2003
Total revenues	$	280,143		$	378,945		$	324,842		$	367,125
Operating income (loss)		(13,258	)		(45,910	)		5,904			29,704
Net income (loss)		(14,342	)		(31,091	)		(4,549	)		37,501
Per Share:
Diluted income (loss) per share	$	(0.19	)	$	(0.41	)	$	(0.06	)	$	0.48

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the filing date of this report, that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The evaluation did not include the Mississippi Chemical Corporation businesses acquired on December 21, 2004, which represented $450 million of our December 31, 2004 assets and $7.8 million of our 2004 revenues. Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2004, excluding the Mississippi Chemical Corporation businesses that were not included in the evaluation. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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Changes in Internal Controls Over Financial Reporting

Management, including our chief executive officer and our chief financial officer, has determined that there have been no significant changes to our internal controls over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Terra Industries Inc.:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Terra Industries Inc. and subsidiaries (“Terra”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from their assessment the internal control over financial reporting at Mississippi Chemical Corporation, which was acquired on December 21, 2004 and whose financial statements reflect total assets and revenues constituting 27 and .5 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2004. Accordingly, our audit did not include the internal control over financial reporting at Mississippi Chemical Corporation. Terra’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of Terra’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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In our opinion, management’s assessment that Terra maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated,; in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, Terra maintained, in all material respects, the effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of Terra and our reports dated March 11, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule.

DELOITTE & TOUCHE LLP

Omaha, Nebraska

March 11, 2005

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF TERRA

Information with respect to directors of Terra is set forth under the caption “Election of Directors” in the proxy statement for the Annual Meeting of Stockholders of Terra to be held on May 3, 2005, and is incorporated herein by reference. Mr. Philip M. Baum and Mr. Ben L. Keisler both served as directors during our fiscal year ended December 31, 2004, but because they are choosing not to stand for reelection to the board of directors, their information is not set forth in the proxy statement. Messrs. Baum and Keisler’s information is set forth below. Information with respect to executive officers of Terra is set forth under the caption “Executive Officers of Terra” in Part I hereof and is incorporated herein by reference.

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Name and Age	Present Positions and Offices with Terra and Principal Occupation During the Past Five Years	Year First Elected Director
Philip M. Baum (50)	Chief Executive Officer of the Ferrous Metals and Industries Division of Anglo American plc, and a member of its South African Executive Committee, since 2001; Chief Operating Officer of Anglo American Corporation of South Africa Ltd. from 2001 to 2003; Chief Executive of Anglo American Zimbabwe from 1996 to 2001.	2003
Ben L. Keisler (47)	Executive Vice President, General Counsel of Anglo American plc since May 1999; Senior Vice President and General Counsel of Minorco, from July 1997 to May 1999; Vice President, General Counsel and Secretary of Minorco (USA) Inc. from June 1993 to July 1997.	2002

Terra has a Code of Ethics and Business Conduct that applies to its principal executive officer and its principal financial officer. The code also applies to Terra’s other officers, directors and employees. The Code of Ethics and Business Conduct is posted on Terra’s web site, www.terraindustries.com, in the “Investor Information” section and is available on hard copy upon request. In addition, the information set forth under “Equity Security Ownership” in “Section 16(a) Beneficial Ownership Reporting Compliance” in the proxy statement is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive and director compensation is set forth under the captions “Executive Compensation and Other Information” and “Board of Directors and Committees” in “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the proxy statement for the Annual Meeting of Stockholders of Terra to be held on May 3, 2005, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information with respect to security ownership of certain beneficial owners and management under the caption “Equity Security Ownership” in the proxy statement for the Annual Meeting of Stockholders of Terra to be held on May 3, 2005 is incorporated herein by reference.

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Equity Compensation Plan Information

	(a)	(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	660,000	$	5.51	1,800,000
Equity compensation plans not approved by security holders	-0-		-0-	-0-
Total	660,000	$	5.51	1,800,000

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions is set forth under the caption “Certain Relationships and Related Transactions” in the proxy statement and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accountant Audit Fees and Services Fees

Information with respect to principal accountant audit fees and service fees is set forth under the caption “Proposal 2: Ratification of Selection of Independent Accounts—Principal Accountant Audit Fees and Service Fees” in the proxy statement, and is incorporated herein by reference.

Audit Committee Pre-Approval Policies and Procedures

Pursuant to its charter, the Audit Committee is responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement or relationship between Terra and its independent auditors. Deloitte & Touche LLP’s engagement to conduct the audit of Terra was approved by the Audit Committee on February 17, 2004. Additionally, each permissible non-audit engagement or relationship between Terra and services performed by Deloitte & Touch LLP since May 2003 has been reviewed and approved in advance by the Audit Committee, as provided in its charter.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents Filed as a Part of this Report

1. Consolidated Financial Statements of Terra and its subsidiaries is included in Item 8 herein.

2. Index to Financial Statement Schedules, Reports and Consents

3. Other Financial Statements

Individual financial statements of Terra’s subsidiaries are omitted because all such subsidiaries are included in the consolidated financial statements being filed. Individual financial statements of 50% or less owned persons accounted for on the equity method have been omitted because such 50% or less owned are persons considered in the aggregate, as a single subsidiary, would not constitute a significant subsidiary.

(b) Exhibits

2.1	Stock Purchase Agreement dated as of August 6, 2004 among Terra, MissChem Acquisition Inc. and Mississippi Chemical Corporation, filed as Exhibit 99.2 to Terra’s Form 8-K dated August 9, 2004, is incorporated herein by reference.
3.1.1	Articles of Restatement of Terra Industries as amended filed with the State of Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra Industries’ Form 10-K for the year ended December 31, 1990, is incorporated herein by reference.

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3.1.2	Articles of Amendment of Terra Industries filed with the State of Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries’ Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
3.1.3	Articles Supplementary of Terra Industries filed with the State of Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra Industries’ Form 8-K/A dated November 3, 1994, is incorporated herein by reference.
3.2	By-Laws of Terra Industries, as amended through August 7, 1991, filed as Exhibit 3 to Terra Industries’ Form 8-K dated September 30, 1991, is incorporated herein by reference.
3.3	Certificate of Incorporation of Terra Capital, Inc. filed as Exhibit 3.i.(a) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.4	Certificate of Incorporation of Beaumont Ammonia Inc. filed as Exhibit 3.i.(b) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.5	Certificate of Incorporation of Beaumont Holdings Corporation filed as Exhibit 3.i.(c) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.6	Certificate of Incorporation of BMC Holdings Inc. filed as Exhibit 3.i.(d) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.7	Certificate of Incorporation of Port Neal Corporation filed as Exhibit 3.i.(e) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.8	Certificate of Incorporation of Terra (UK) Holdings Inc. filed as Exhibit 3.i.(f) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.9	Certificate of Incorporation of Terra Capital Holdings, Inc. filed as Exhibit 3.i.(g) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.10	Certificate of Incorporation of Terra International (Oklahoma) Inc. filed as Exhibit 3.i.(k) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.

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3.11	Certificate of Incorporation of Terra International, Inc. filed as Exhibit 3.i.(l) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.12	Certificate of Incorporation of Terra Methanol Corporation filed as Exhibit 3.i.(m) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.13	Certificate of Incorporation of Terra Nitrogen Corporation filed as Exhibit 3.i.(n) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.14	Certificate of Incorporation of Terra Real Estate Corporation filed as Exhibit 3.i.(o) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.15	By-Laws of Terra Capital, Inc. filed as Exhibit 3.ii.(a) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.16	By-Laws of Beaumont Ammonia Inc. filed as Exhibit 3.ii.(b) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.17	By-Laws of Beaumont Holdings Corporation filed as Exhibit 3.ii.(c) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.18	By-Laws of BMC Holdings, Inc. filed as Exhibit 3.ii.(d) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.19	By-Laws of Port Neal Corporation filed as Exhibit 3.ii.(e) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.20	By-Laws of Terra (UK) Holdings Inc. filed as Exhibit 3.ii.(f) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.21	By-Laws of Terra Capital Holdings, Inc. filed as Exhibit 3.ii.(g) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.

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3.22	By-Laws of Terra International (Oklahoma) Inc. filed as Exhibit 3.ii.(i) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.23	By-Laws of Terra International, Inc. filed as Exhibit 3.ii.(j) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.24	By-Laws of Terra Methanol Corporation filed as Exhibit 3.ii.(k) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.25	By-Laws of Terra Nitrogen Corporation filed as Exhibit 3.ii.(l) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
3.26	By-Laws of Terra Real Estate Corporation filed as Exhibit 3.ii.(m) to Terra Capital, Inc.’s Registration Statement filed on Form S-4 on November 13, 2001, is incorporated herein by reference.
4.1	Indenture dated as of October 10, 2001 among Terra Capital, Inc., Certain guarantors and U.S. Bank National Association, as trustee, including the form of note, filed as Exhibit 4.1 to Terra Industries’ Form 8-K dated October 10, 2001, is incorporated herein by reference.
4.2	Amended and Restated Credit Agreement dated as of October 10, 2001 among Terra Capital, Inc., Terra Nitrogen (U.K.) Limited, and Terra Nitrogen, Limited Partnership, certain guarantors, certain lenders, certain issuing banks and Citicorp USA, Inc., filed as Exhibit 4.2 to Terra Industries’ Form 8-K dated October 10, 2001, is incorporated herein by reference.
4.3	Amendment No. 1 to Credit Agreement dated June 27, 2002, filed as Exhibit 4.1 to Terra Industries’ Form 8-K dated June 27, 2002, is incorporated herein by reference.
4.4	Amendment No. 2 to the Amended and Restated Credit Agreement dated May 12, 2003 among Terra Capital, Inc., Terra Nitrogen (U.K.) Limited, and Terra Nitrogen, Limited Partnership, certain guarantors, certain lenders, certain issuing banks and Citicorp USA Inc., filed as Exhibit 4.5 to Terra Industries’ Form 10-Q for the quarter ended June 30, 2003, is incorporated herein by reference.
4.5	Indenture dated May 21, 2003 between the Company, the guarantors party hereto, and U.S. National Bank Association as Trustee, with respect to the 11.5% Second Priority Senior Secured Notes due 2010 (including the form of

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	11.5% Second Priority Senior Secured Notes), previously filed as Exhibit 4.i to Amendment No. 1 to the Registrant’s Registration Statement of Form S-4 filed on June 12, 2003 and incorporated by reference herein, filed as Exhibit 4.6 to Terra Industries’ Form10-Q for the quarter ended June 30, 2003, is incorporated herein by reference.
4.6	Articles of Restatement of Terra filed with the State of Maryland on September 11, 1990, files as Exhibit 3.1 to Terra’s Form 10-K for the year ended December 31, 1990, is incorporated herein by reference.
4.7	Articles of Amendment of Terra files with the State of Maryland on May 6, 1992, files as Exhibit 3.1.2 to Terra’s Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
4.8	Articles Supplementary of Terra filed with the State of Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra’s Form 8-K/A dated November 3, 1994, is incorporated herein by reference.
4.9	Articles Supplementary of Terra filed with the State of Maryland on October 14, 2004, filed as Exhibit 3.1 to Terra’s Form 10-Q dated November 9, 2004, is incorporated herein by reference.
4.10	Articles Supplementary of Terra filed with the State of Maryland on December 20, 2004, filed as Exhibit 3.1 to Terra’s Form 8-K dated December 27, 2004, is incorporated herein by reference.
4.10.1	Certificate of Correction to Articles Supplementary dated December 20, 2004, filed with the State of Maryland on February 11, 2005, is incorporated herein by reference.
4.11	Articles Supplementary of Terra filed with the State of Maryland on February 18, 2005 filed as Exhibit 3.1 to Terra’s Form 8-K dated February 18, 2005, is incorporated herein by reference.
4.12	Registration Rights Agreement dated as of October 7, 2004, among Terra and Citigroup Global Markets Inc., as Representative of the Initial Purchasers, filed as Exhibit 4.6 to Terra’s Form S-3 dated January 4, 2005, is incorporated herein by reference.
4.13	Registration Rights Agreement, dated as of August 6, 2004, among Terra Industries Inc., Taurus Investments S.A. and the other shareholders named therein, filed as Exhibit 99.1 to Terra’s Form 8-K dated August 16, 2004, is incorporated herein by reference.

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4.14	Registration Rights Agreement, dated as of December 16, 2004, among Terra Industries Inc. and the initial purchasers named therein, filed as Exhibit 4.7 to Terra’s Form S-3/A filed February 9, 2005, is incorporated by reference.
4.15	Registration Rights Agreement, dated as of December 21, 2004, among Terra Industries Inc., Värde Investment Partners, L.P., Perry Principals Investments LLC, Citigroup Global Markets, Inc., filed as Exhibit 10.1 to Terra’s Form 8-K dated December 27, 2004, is incorporated by reference.
4.16	Form of Indenture relating to the 4.25% Convertible Subordinated Debentures, filed as Exhibit 4.7 to Terra’s Form S-3 dated January 4, 2005, is incorporated herein by reference.
4.17	Purchase Agreement, dated October 7, 2004, among Terra Industries Inc. and the initial purchasers named therein relating to the sale of Terra’s 4.25% Series A Cumulative Convertible Perpetual Preferred Shares, filed as Exhibit 1 to Terra’s Form S-3 filed on January 4, 2005, is incorporated by reference.
4.18 *	$150,000,000 Amended and Restated Credit Agreement dated as of December 21, 2004, among Terra Capital, Inc., Terra Nitrogen (U.K.) Limited, Mississippi Chemical Corporation, as Borrowers; Terra Industries Inc. and Terra Capital Holdings, Inc., as Guarantors; and the Lenders and Issuers Party thereto; and Citicorp USA, Inc., as Administrative Agent and Collateral Agent, Citigroup Global Markets Inc. as Lead Arranger and Sole Book Runner.
4.19 *	$50,000,000 Credit Agreement dated as of December 21, 2004 among Terra Nitrogen, Limited Partnership, as Borrower; Terra Nitrogen Company, L.P., as a Guarantor; and the Lenders and Issuers Party thereto; and Citicorp USA, Inc., as Administrative Agent and Collateral Agent; and Citigroup Global Markets Inc., as Lead Arranger and Sole Book Runner.
4.20	$182,000,000 Amended and Restated Term Loan, Guarantee and Security Agreement, amended and restated as of December 21, 2004, among Mississippi Chemical Corporation, as a reorganized debtor, its subsidiaries as guarantors, Terra Industries Inc. as a guarantor, its subsidiaries as guarantors, Citicorp North America, Inc., as administrative and collateral agent, Citigroup Global Markets Inc., as a joint lead arranger, Perry Principals Investments, LLC as a joint lead arranger and the lenders party thereto, filed as Exhibit 10.1 to Terra’s Form 8-K dated December 27, 2004, is incorporated by reference.
10.1.1	Resolution adopted by the Personnel Committee of the Board of Directors of Terra Industries with respect to supplemental retirement benefits for certain senior executive officers of Terra Industries, filed as Exhibit 10.4.2 to Terra Industries’ Form 10-Q for the fiscal quarter ended March 31, 1991, is incorporated herein by reference.

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10.1.2	1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries’ Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
10.1.3	Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries’ Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
10.1.4	Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries’ Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
10.1.5	Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra Industries’ Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
10.1.6	Excess Benefit Plan of Terra Industries, as amended effective as of January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries’ Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
10.1.6.a	Amendment to the Terra Industries Inc. Excess Benefit Plan, dated July 26, 2000, filed as Exhibit 10.1.6.a to Terra Industries’ Form 10-K for the year ended December 31, 2000, is incorporated herein by reference.
10.1.7	Terra Industries Inc. Supplemental Deferred Compensation Plan effective as of December 20, 1993 filed as Exhibit 10.1.9 to Terra Industries’ Form 10-K for the year ended December 31, 1993, is incorporated herein by reference.
10.1.8	Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries’ Form 10-Q for the quarter ended September 30, 1995, is incorporated herein by reference.
10.1.8.a	Amendment No. 2 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, dated July 26, 2000, filed as Exhibit 10.1.8.a to the Terra Industries’ Form 10-K for the year ended December 31, 2000, is incorporated herein by reference.
10.1.8.b	Amendment No. 3 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, dated March 29, 2002, filed as Exhibit 10.1.8.b. to the Terra Industries’ Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.
10.1.9	Revised Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.12 to Terra Industries’ Form 10-K for the year ended December 31, 1996, is incorporated herein by reference.

95

10.1.10	Revised Form of Nonqualified Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.13 to Terra Industries’ Form 10-K for the year ended December 31, 1996, is incorporated herein by reference.
10.1.11	1997 Stock Incentive Plan of Terra Industries, filed as Exhibit 10.1.14 to Terra Industries’ Form 10-K for the year ended December 31, 1996, is incorporated herein by reference.
10.1.12	Form of Incentive Stock Option Agreement of Terra Industries under its 1997 Stock Incentive Plan filed as Exhibit 10.1.13 to Terra Industries’ Form 10-K for the year ended December 31, 1999, is incorporated herein by reference.
10.1.13	Form of Nonqualified Stock Option Agreement of Terra Industries under its 1997 Stock Incentive Plan filed as Exhibit 10.1.14 to Terra Industries’ Form 10-K for the year ended December 31, 1999, is incorporated herein by reference.
10.1.14	Form of Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.15 to Terra Industries’ Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
10.1.15	Retirement and Consulting Agreement for Burton M. Joyce, dated April 26, 2001 filed as Exhibit 10.1.16 to Terra Industries’ Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.
10.1.16	Form of Executive Retention Agreement for Other Executive Officers, filed as Exhibit 10.1.19 to Terra Industries’ Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
10.1.17	Form of Non-Employee Director Stock Option Agreement under the 1997 Stock Incentive Plan, filed as Exhibit 10.2.21 to Terra Industries’ Form 10-Q for the quarter ended September 30, 1999, is incorporated herein by reference.
10.1.18	Amendment No. 1 dated as of February 20, 1997 to the 1997 Stock Incentive Plan filed as Exhibit 10.1.21 to Terra Industries’ Form 10-K for the year ended December 31, 1999, is incorporated herein by reference.
10.1.19	Form of Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, dated February 16, 2000, filed as Exhibit 10.1.22 of the Terra Industries’ Form 10-K for the year ended December 31, 2000, is incorporated herein by reference.

96

10.1.20	Form of Non-Employee Director Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, dated May 2, 2000, filed as Exhibit 10.1.23 to the Terra Industries’ Form 10-K for the year ended December 31, 2000, is incorporated herein by reference.
10.1.21	Terra Industries Inc. Stock Incentive Plan of 2002, filed as Exhibit 10.1.23 to the Terra Industries’ Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.
10.1.22	Form of Restricted Stock Award to Non-Employee Directors under the Terra Industries Inc. Stock Incentive Plan of 2002, filed as Exhibit 10.1.23 to the Terra Industries’ Form 10-K for the year ended December 31, 2002, is incorporated herein by reference.
10.1.23	Form of Restricted Stock Award to Officers and Other Key Employees under the Terra Industries Inc. Stock Incentive Plan of 2002, filed as Exhibit 10.1.24 to the Terra Industries’ Form 10-K for the year ended December 31, 2002, is incorporated herein by reference.
10.1.24*	Terra Industries Inc. 2005 Officers and Key Employees Incentive Plan
10.1.25*	Terra Industries Inc. Description of Compensatory Arrangements for 2005 Applicable to Named Executive Officers
10.2	Agreement of Limited Partnership of TNCLP (formerly known as Agricultural Minerals Company, L.P.) dated as of December 4, 1991, filed as Exhibit 99.3 to Terra Industries’ Registration Statement on Form S-3, as amended, is incorporated herein by reference.
10.3	Agreement of Limited Partnership of TNLP (formerly known as Agricultural Minerals, Limited Partnership) dated as of December 4, 1991, filed as Exhibit 99.4 to Terra Industries’ Registration Statement on Form S-3, as amended, is incorporated herein by reference.
10.4	General and Administrative Services Agreement Regarding Services by Terra Industries Inc., filed as Exhibit 10.11 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995, is incorporated herein by reference.
10.5	General and Administrative Services Agreement Regarding Services by Terra Nitrogen Corporation, filed as Exhibit 10.12 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995, is incorporated herein by reference.
10.6	Sale of Business Agreement dated November 20, 1997 between ICI Chemicals & Polymers Limited, Imperial Chemical Industries PLC, Terra Nitrogen (U.K.) Limited (f/k/a Terra Industries Limited) and Terra Industries Inc. filed as Exhibit 2 to Terra Industries’ Form 8-K/A dated December 31, 1997, is incorporated herein by reference.
10.7	Ammonium Nitrate Agreement dated December 31, 1997 between Terra International (Canada) Inc and ICI Chemicals & Polymers Limited filed as Exhibit 99 to Terra Industries’ Form 8-K/A dated December 31, 1997, is incorporated herein by reference.

97

10.8	Asset Sale and Purchase Agreement dated as of May 3, 1999 by and between Terra Industries Inc. and Cenex/Land O’Lakes Agronomy Company, filed as Exhibit 10.12 to Terra Industries’ Form 8-K dated May 3, 1999, is incorporated herein by reference.
10.9†	Asset Purchase and Methanol Exclusivity Agreement among Terra Industries Inc., BMC Holdings Inc., and Methanex Methanol Company dated December 15, 2003, filed as Exhibit 10.9 to Terra Industries’ From 10-K for the year ended December 31, 2003, is incorporated herein by reference.
10.9.1†	Services Agreement among Terra Industries Inc., BMC Holdings Inc., and Methanex Methanol Company dated December 15, 2003 included as Schedule E to Exhibit 10.9 herein, filed as Exhibit 10.91.1 to Terra Industries’ Form 10-K for the year ended December 31, 2003, is incorporated herein by reference.
10.10†	First Amendment to Asset Purchase and Methanol Exclusivity Agreement dated February 20, 2004, filed as Exhibit 10.10 to Terra Industries’ Form 10-K for the year ended December 31, 2003, is incorporated herein by reference.
10.11*	Warrant Agreement dated December 21, 2004 among Terra Industries Inc., Perry Principals Investments LLC, Citigroup Financial Products Inc. and Värde Investment Partners, L.P.
12.1*	Ratio of Earnings to Financial Charges
21*	Subsidiaries of Terra Industries Inc.
23.1*	Consent of Deloitte & Touche LLP
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

† Confidential treatment has been requested for portions of this document.

Exhibits 10.1.1 through 10.1.25 are management contracts or compensatory plans or arrangements.

98

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TERRA INDUSTRIES INC.
Date: March 11, 2005	By:	/s/ FRANCIS G. MEYER
		Francis G. Meyer
		Senior Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title
/s/ HENRY R. SLACK	Chairman of the Board
Henry R. Slack
/s/ MICHAEL L. BENNETT	Director, President and Chief Executive Officer
Michael L. Bennett	(Principal Executive Officer)
/s/ FRANCIS G. MEYER	Senior Vice President and Chief Financial Officer
Francis G. Meyer	(Principal Financial Officer and Controller/Principal Accounting Officer)
/s/ DAVID E. FISHER	Director
David E. Fisher
/s/ DOD A. FRASER	Director
Dod A. Fraser
/s/ MARTHA O. HESSE	Director
Martha O. Hesse
/s/ PETER S. JANSON	Director
Peter S. Janson

Date: March 11, 2005

100

INDEX TO FINANCIAL STATEMENT SCHEDULES

Schedule No.

I	Condensed Financial Information of Registrant, is included in Item 8 herein, Footnote 21, Column 1, “Parent.”
II	Valuation and Qualifying Accounts: Years Ended December 31, 2004, 2003 and 2002	S-2

Financial statement schedules not included in this report have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.

S-1

Schedule II

Terra Industries Inc.

Valuation and Qualifying Accounts

YEARS ENDED DECEMBER 31, 2004, 2003, and 2002

(IN THOUSANDS)

Description	Balance at Beginning of Period		Additions Charged to Costs and Expenses			Less Write- offs, and Transfers, Net of Recoveries			Balance at End of Period
Year Ended December 31, 2004:
Allowance for Doubtful Accounts	$	87	$	11		$	164		$	262
Year Ended December 31, 2003:
Allowance for Doubtful Accounts	$	135	$	1,510		$	(1,558	)	$	87
Year Ended December 31, 2002:
Allowance for Doubtful Accounts	$	936	$	(445	)	$	(336	)	$	135

S-2

EX-4.18

EXECUTION COPY

Exhibit 4.18

$150,000,000

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of December 21, 2004

among

TERRA CAPITAL, INC.

TERRA NITROGEN (U.K.) LIMITED

MISSISSIPPI CHEMICAL CORPORATION

as Borrowers

TERRA INDUSTRIES INC.

TERRA CAPITAL HOLDINGS INC.

as Guarantors

and

THE LENDERS AND ISSUERS PARTY HERETO

and

CITICORP USA, INC.

as Administrative Agent and

Collateral Agent

CITIGROUP GLOBAL MARKETS INC.

as Lead Arranger and Sole Book Runner

WEIL, GOTSHAL & MANGES LLP

767 FIFTH AVENUE

NEW YORK, NEW YORK 10153-0119

TABLE OF CONTENTS

		Page
Article I	Definitions, Interpretation And Accounting Terms	2
Section 1.1.	Defined Terms	2
Section 1.2.	Computation of Time Periods	36
Section 1.3.	Accounting Terms and Principles	36
Section 1.4.	Certain Terms	36
Article II	The Revolving Credit Facility	37
Section 2.1.	The Revolving Credit Commitments	37
Section 2.2.	Borrowing Procedures	37
Section 2.3.	Swing Loans	39
Section 2.4.	Letters of Credit	41
Section 2.5.	Reduction and Termination of the Revolving Credit Commitments	45
Section 2.6.	Repayment of Loans	45
Section 2.7.	Evidence of Debt, Obligations of Borrowers	45
Section 2.8.	Optional Prepayments	46
Section 2.9.	Mandatory Prepayments	46
Section 2.10.	Interest	47
Section 2.11.	Conversion/Continuation Option	48
Section 2.12.	Fees	49
Section 2.13.	Payments and Computations; Protective Advances	50
Section 2.14.	Special Provisions Governing Eurodollar Rate Loans	52
Section 2.15.	Capital Adequacy	54
Section 2.16.	Taxes	54
Section 2.17.	Substitution of Lenders	56
Section 2.18.	Assignment and Assumption of certain Commitments prior to the Effective Date	57
Article III	Conditions To Effectiveness Of This Agreement	57
Section 3.1.	Conditions Precedent to the Effectiveness of this Agreement	57
Section 3.2.	Conditions Precedent to Each Loan and Letter of Credit	62
Article IV	Representations And Warranties	63
Section 4.1.	Corporate Existence; Compliance with Law	63
Section 4.2.	Corporate Power; Authorization; Enforceable Obligations	63
Section 4.3.	Ownership of Subsidiaries	64

i

TABLE OF CONTENTS

(continued)

		Page
Section 4.4.	Financial Statements	64
Section 4.5.	Material Adverse Change	65
Section 4.6.	Solvency	65
Section 4.7.	Litigation	65
Section 4.8.	Taxes	65
Section 4.9.	Full Disclosure	66
Section 4.10.	Margin Regulations	66
Section 4.11.	No Burdensome Restrictions; No Defaults	66
Section 4.12.	Investment Company Act; Public Utility Holding Company Act	67
Section 4.13.	Use of Proceeds	67
Section 4.14.	Insurance	67
Section 4.15.	Labor Matters	67
Section 4.16.	ERISA	68
Section 4.17.	Environmental Matters	68
Section 4.18.	Intellectual Property	69
Section 4.19.	Title; Real Property	70
Section 4.20.	Pari Passu Obligations	71
Section 4.21.	No Immunity	71
Section 4.22.	Canadian and English Requirements	71
Article V	Financial Covenants	72
Section 5.1.	Minimum Cash Flow	72
Section 5.2.	Capital Expenditures and Joint Venture Investments	72
Section 5.3.	Minimum Liquidity	73
Article VI	Reporting Covenants	73
Section 6.1.	Financial Statements	73
Section 6.2.	Default Notices	75
Section 6.3.	Litigation	75
Section 6.4.	Asset Sales	75
Section 6.5.	SEC Filings; Press Releases	75
Section 6.6.	Labor Relations	75
Section 6.7.	Tax Returns	75
Section 6.8.	Insurance	76

ii

TABLE OF CONTENTS

(continued)

		Page
Section 6.9.	ERISA Matters	76
Section 6.10.	Environmental Matters	76
Section 6.11.	Borrowing Base Determination	77
Section 6.12.	Other Information	78
Section 6.13.	Material Documents	78
Section 6.14.	Foreign Benefit Plans	78
Article VII	Affirmative Covenants	78
Section 7.1.	Preservation of Corporate Existence, Etc.	78
Section 7.2.	Compliance with Laws, Etc.	78
Section 7.3.	Conduct of Business	79
Section 7.4.	Payment of Taxes, Etc.	79
Section 7.5.	Maintenance of Insurance	79
Section 7.6.	Access	79
Section 7.7.	Keeping of Books	80
Section 7.8.	Maintenance of Properties, Etc.	80
Section 7.9.	Application of Proceeds	80
Section 7.10.	Environmental	80
Section 7.11.	Additional Collateral and Guaranties; Further Assurances	80
Section 7.12.	Cash Collateral Accounts and Cash Management System	82
Section 7.13.	Real Estate	85
Section 7.14.	Hedging Contracts	85
Article VIII	Negative Covenants	85
Section 8.1.	Indebtedness	85
Section 8.2.	Liens, Etc.	86
Section 8.3.	Investments	88
Section 8.4.	Sale of Assets	90
Section 8.5.	Restricted Payments	91
Section 8.6.	Restriction on Fundamental Changes	91
Section 8.7.	Change in Nature of Business	92
Section 8.8.	Transactions with Affiliates	92
Section 8.9.	Restrictions on Subsidiary Distributions; No New Negative Pledge	92

iii

TABLE OF CONTENTS

(continued)

		Page
Section 8.10.	Modification of Constituent Documents	93
Section 8.11.	Modification of Material Documents	93
Section 8.12.	Long-Term Indebtedness	93
Section 8.13.	Accounting Changes; Fiscal Year	94
Section 8.14.	Margin Regulations	94
Section 8.15.	Operating Leases; Sale/Leasebacks	95
Section 8.16.	Cancellation of Indebtedness Owed	95
Section 8.17.	No Speculative Transactions	95
Section 8.18.	Compliance with ERISA and Foreign Plans	95
Section 8.19.	Environmental	95
Section 8.20.	Payments to Minority Interests	95
Article IX	Events Of Default	96
Section 9.1.	Events of Default	96
Section 9.2.	Remedies	98
Section 9.3.	Actions in Respect of Letters of Credit	98
Section 9.4.	Rescission	99
Article X	The Administrative Agent; The Other Agents	99
Section 10.1.	Authorization and Action	99
Section 10.2.	Administrative Agent’s Reliance, Etc.	100
Section 10.3.	The Administrative Agent Individually	100
Section 10.4.	Lender Credit Decision	100
Section 10.5.	Indemnification	101
Section 10.6.	Successor Administrative Agent	101
Section 10.7.	Concerning the Collateral and the Collateral Documents	102
Section 10.8.	Collateral Matters Relating to Related Obligations.	103
Section 10.9.	Other Agents	104
Section 10.10.	Posting of Approved Electronic Communications	104
Article XI	Miscellaneous	105
Section 11.1.	Amendments, Waivers, Etc.	105
Section 11.2.	Assignments and Participations	107
Section 11.3.	Costs and Expenses	109
Section 11.4.	Indemnities	110

iv

TABLE OF CONTENTS

(continued)

		Page
Section 11.5.	Limitation of Liability	111
Section 11.6.	Right of Set-off	111
Section 11.7.	Sharing of Payments, Etc.	112
Section 11.8.	Notices, Etc.	112
Section 11.9.	No Waiver; Remedies	115
Section 11.10.	Binding Effect	115
Section 11.11.	Governing Law	115
Section 11.12.	Submission to Jurisdiction; Service of Process	115
Section 11.13.	Waiver of Jury Trial	116
Section 11.14.	No Immunity	116
Section 11.15.	Judgment Currency	117
Section 11.16.	Marshaling; Payments Set Aside	117
Section 11.17.	Section Titles	117
Section 11.18.	Execution in Counterparts	117
Section 11.19.	Entire Agreement	118
Section 11.20.	Confidentiality	118
Section 11.21.	Refund of Tax Credits	118

SCHEDULES

Schedule I	-	Revolving Credit Commitments
Schedule II	-	Applicable Lending Offices and Addresses for Notices
Schedule III	-	Projections
Schedule 4.2	-	Consents
Schedule 4.3	-	Ownership of Subsidiaries
Schedule 4.4	-	Pro Forma Balance Sheet
Schedule 4.7	-	Litigation
Schedule 4.8	-	Taxes
Schedule 4.15	-	Labor Matters
Schedule 4.16	-	List of Plans
Schedule 4.17	-	Environmental Matters
Schedule 4.19	-	Real Property
Schedule 7.12	-	Accounts
Schedule 8.1	-	Existing Indebtedness
Schedule 8.2	-	Existing Liens
Schedule 8.3	-	Existing Investments

v

TABLE OF CONTENTS

(continued)

EXHIBITS

Exhibit A	-	Form of Assignment and Acceptance
Exhibit B	-	Form of Note
Exhibit C	-	Form of Notice of Borrowing
Exhibit D	-	Form of Letter of Credit Request
Exhibit E	-	Form of Borrowing Base Certificate
Exhibit F	-	Form of Notice of Conversion or Continuation
Exhibit G -1/-2/-3	-	Form of Opinions of Counsel for the Loan Parties
Exhibit H	-	Form of Guaranty
Exhibit I	-	Form of MCC Joinder Agreement
Exhibit J	-	Form of Amended and Restated Loan Purchase Agreement
Exhibit K -1/-2		Forms of MCC Intercreditor Agreements
Exhibit L		Form of Guaranty and Security Affirmation

vi

EXECUTION COPY

THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of December 21, 2004 (as amended, supplemented or otherwise modified from time to time, this “Agreement”), among TERRA CAPITAL, INC., a Delaware corporation (“Terra Capital”), Mississippi Chemical Corporation, a Mississippi corporation (“MCC “) and TERRA NITROGEN (U.K.), LIMITED, a company incorporated in England and Wales (“Terra UK”) (Terra Capital, MCC and Terra UK each a “Borrower” and, collectively, the “Borrowers”), TERRA INDUSTRIES INC., a Maryland corporation (“Terra Industries”), TERRA CAPITAL HOLDINGS INC. a Delaware corporation (“Terra Capital Holdings”), the Lenders (as defined below), the Issuers (as defined below) and CITICORP USA, INC. (“CUSA”), as administrative agent and collateral agent for the Lenders and the Issuers (in such capacities, the “Administrative Agent”), amends and restates in its entirety the Existing Credit Agreement (as defined below).

W I T N E S S E T H:

WHEREAS, the Borrowers, Terra Industries, the Administrative Agent, the Lenders and the Issuers are a party to a certain Amended and Restated Credit Agreement dated as of October 10, 2001 (the “Existing Credit Agreement”);

WHEREAS, the Borrowers have requested, among other things, that the Lenders (i) permanently reduce the Revolving Credit Commitments from $175,000,000 to $150,000,000, (ii) increase the Letter of Credit Sublimit from $35,000,000 to $50,000,000 and (iii) extend the Scheduled Termination Date from June 30, 2005 to June 30, 2008;

WHEREAS, MissChem Acquisition Inc., a Delaware corporation (“MissChem”) and a wholly-owned subsidiary of Terra Industries has entered into a certain Stock Purchase Agreement, dated as of August 6, 2004 (the “MCC Acquisition Agreement”), pursuant to which MissChem will acquire all of the issued and outstanding capital stock of Mississippi Chemical Corporation, a Mississippi corporation (“MCC”), on the effective date of the Plan of Reorganization (as defined below) (the “MCC Acquisition”);

WHEREAS, on the Effective Date (as defined below) MissChem shall be merged with and into MCC, with MCC as the surviving corporation;

WHEREAS, on the Effective Date of this Agreement (i) all Obligations owing by Terra Nitrogen, Limited Partnership, a Delaware limited partnership (“TNLP”), under the Existing Credit Agreement shall have been paid in full and each of TNLP and Terra Nitrogen Company, L.P. (“TNCLP”), a Delaware limited partnership, shall be released from their respective Obligations (and all Liens securing their Obligations shall be terminated) under the Existing Credit Agreement and the other Loan Documents (including under the existing Junior Loan Documents) and (ii) MCC will become a Borrower under this Agreement;

WHEREAS, in order to accommodate the amendments to the Existing Credit Agreement requested by the Borrowers, the parties hereto have agreed to amend and restate the Existing Credit Agreement on the terms set forth in this Agreement, which Agreement shall become effective upon satisfaction of certain conditions precedent set forth herein; and

WHEREAS, it is the intent of the parties hereto that this Agreement does not constitute a novation of the rights, obligations and liabilities of the respective parties (including the Obligations) existing under the Existing Credit Agreement or evidence payment of all or any of such obligations and liabilities (other than the repayment in full of all Obligations owing by

TNLCP and its Subsidiaries under the Existing Credit Agreement) and such rights, obligations and liabilities shall continue and remain outstanding, and that this Agreement amends and restates in its entirety the Existing Credit Agreement.

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS

Section 1.1. Defined Terms. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Account” has the meaning specified in the Pledge and Security Agreement.

“Account Debtor” has the meaning specified in the Pledge and Security Agreement.

“Account Triggering Event” means with respect to Terra Canada or Terra UK, the occurrence of (i) a Default (relating to the matters referred to in Sections 9.1(f) or (g)), (ii) an Event of Default and (iii) additionally with respect to Terra UK only, any of the events specified in Clause 5.3 of the Debenture.

“Administrative Agent” has the meaning specified in the preamble to this Agreement.

“Advance Rate” means, at any time, (i) up to 85% in the case of Eligible Receivables, (ii) up to the Seasonal Eligible Inventory Rate in the case of Eligible Non-Spare Parts Inventory, and (iii) up to 5% in the case of Eligible Spare Parts Inventory, in each case as such rates may be increased or decreased from time to time with respect to any class of Eligible Receivables, Eligible Non-Spare Parts Inventory or Eligible Spare Parts Inventory by the Administrative Agent in its sole discretion, with any change in such rates to be effective two (2) Business Days after written notice thereof from the Administrative Agent to the Borrower; provided, however, that the Administrative Agent shall not increase such rates above the rates set forth above as of the Effective Date without the consent of the Lenders.

“Affiliate” means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, each officer, director, general partner or joint-venturer of such Person, and each Person who is the beneficial owner of 10% or more of any class of Voting Stock of such Person. For the purposes of this definition, “control” means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning specified in the preamble to this Agreement.

“Ammonium Nitrate Hedging Agreement” means an agreement dated December 31, 1997 between ICI Chemicals and Polymers Limited and Terra Canada pursuant to

2

which Terra Canada agrees to pay certain amounts to ICI Chemicals and Polymers Limited by reference to ammonium nitrate prices.

“Anglo American” means Anglo American plc, a company incorporated in England and Wales with company number 03564138.

“Applicable Lending Office” means, with respect to each Lender, its Domestic Lending Office in the case of a Base Rate Loan, and its Eurodollar Lending Office in the case of a Eurodollar Rate Loan.

“Applicable Margin” means (a) during the period commencing on the Effective Date and ending on the first Business Day after receipt by the Administrative Agent of the Financial Statements required to be delivered by Section 6.1(c) for the Fiscal Year ending December 31, 2004, with respect to Loans maintained as (A) Base Rate Loans, a rate equal to 0.50% per annum and (B) Eurodollar Rate Loans, a rate equal to 1.75% per annum and (b) thereafter as of any date of determination, a per annum rate equal to the rate set forth below opposite the applicable type of Loan and the then applicable Leverage Ratio (determined for the twelve-month period ending on the last day of the most recent Fiscal Quarter or Fiscal Year, as applicable, for which Financial Statements have been delivered pursuant to Section 6.1) set forth below:

Leverage Ratio	Base Rate Loans	Eurodollar Rate Loans
Greater than 5.5 to 1	1.25%	2.50%
Less than or equal to 5.5 to 1 and greater than 5.0 to 1	1.00%	2.25%
Less than or equal to 5.0 to 1 and greater than 4.0 to 1	0.75%	2.00%
Less than or equal to 4.0 to 1	0.50%	1.75%

Subsequent changes in the Applicable Margin resulting from a change in the Leverage Ratio shall become effective as to all Revolving Loans on the first day of the month beginning after delivery by the Borrowers to the Administrative Agent of new consolidated financial statements pursuant to Section 6.1(b) for each of the first three Fiscal Quarters of each Fiscal Year and Section 6.1(c) for each Fiscal Year in each case, together with a notice from the Borrower to the Administrative Agent setting forth the “Applicable Margin” (determined in accordance with the foregoing) at such time. Notwithstanding anything to the contrary set forth in this Agreement (including the then effective Leverage Ratio), if the Borrowers shall fail to deliver such financial statements within the time periods specified in Section 6.1(b) or (c), as applicable, the Applicable Margin from and including the 46^th day after the end of such Fiscal Quarter or the 91^st day after the end of such Fiscal Year, as the case may be, to but not including the date the Borrowers deliver to the Administrative Agent such financial statements shall equal the highest Applicable Margin set forth above.

3

“Approved Deposit Account” means each bank account identified as an “Approved Deposit Account” on Schedule 7.12 and such other receivables collection accounts from time to time maintained by the Borrowers and Terra Canada with a bank acceptable to the Administrative Agent and subject to a Deposit Account Control Agreement.

“Approved Electronic Communications” means each notice, demand, communication, information, document and other material that any Loan Party provides to the Administrative Agent pursuant to any Loan Document or the transactions contemplated therein, including (a) any supplement to the Guaranty, any joinder to the Pledge and Security Agreement and any other written Contractual Obligation delivered or required to be delivered in respect of any Loan Document or the transactions contemplated therein and (b) any Financial Statement, financial and other report, notice, request, certificate and other information material; provided, however, that, “Approved Electronic Communication” shall exclude (i) any Notice of Borrowing, Letter of Credit Request, Swing Loan Request, Notice of Conversion or Continuation, and any other notice, demand, communication, information, document and other material relating to a request for a new, or a conversion of an existing, Borrowing, (ii) any notice pursuant to Section 2.8 (Optional Prepayments) and Section 2.9 (Mandatory Prepayments) and any other notice relating to the payment of any principal or other amount due under any Loan Document prior to the scheduled date therefor, (iii) all notices of any Default or Event of Default and (iv) any notice, demand, communication, information, document and other material required to be delivered to satisfy any of the conditions set forth in Article III (Conditions To Loans And Letters Of Credit) or Section 2.4(a) (Letters of Credit) or any other condition to any Borrowing or other extension of credit hereunder or any condition precedent to the effectiveness of this Agreement.

“Approved Electronic Platform” has the meaning specified in Section 10.10(a) (Posting of Approved Electronic Communications).

“Approved Fund” means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Arranger” means Citigroup Global Markets Inc., in its capacity as Lead Arranger and Sole Book Runner for the Revolving Credit Facility.

“Asset Sale” has the meaning specified in Section 8.4.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit A.

“Availability Reserve” means, with respect to any Borrower effective as of two Business Days after the date of written notice of any determination thereof to Terra Capital by the Administrative Agent, such amounts (without duplication as to amounts included in the determination of any Eligibility Reserve) as the Administrative Agent may from time to time establish against the Available Credit of such Borrower, in the Administrative Agent’s sole discretion, in order either (a) to preserve the value of the Collateral or the Administrative Agent’s Lien thereon, or (b) to provide for the payment of unanticipated liabilities of such Borrower or its Subsidiaries arising after the Effective Date; provided, however, that the Administrative Agent shall apply criteria in respect of the foregoing in accordance with its customary practice with regard to similar credit facilities.

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“Available Credit” means at any time in respect of (i) Terra Capital and MCC, the Terra Capital Available Credit and (ii) Terra UK, the Terra UK Available Credit.

“Bailee’s Letter” means a letter in form and substance acceptable to the Administrative Agent executed by any Person (other than a Loan Party) who is in possession of Inventory on behalf of the Borrower pursuant to which such Person acknowledges, among other things, the Administrative Agent’s Lien with respect thereto.

“Bankruptcy Code” means title 11, United States Code, as amended from time to time.

“Base Rate” means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall be equal at all times to the highest of:

(a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank’s base rate;

(b) the sum (adjusted to the nearest 0.25% or, if there is no nearest 0.25%, to the next higher 0.25%) of (i) 0.5% per annum plus (ii) the rate per annum obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) for Citibank in respect of liabilities consisting of or including (among other liabilities) three-month U.S. dollar nonpersonal time deposits in the United States, plus (iii) the average during such three-week period of the maximum annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar deposits in the United States; and

(c) the sum of (i) 0.5% per annum plus (ii) the Federal Funds Rate.

“Base Rate Loan” means any Loan during any period in which it bears interest based on the Base Rate.

“Beaumont Ammonia” means Beaumont Ammonia, Inc., a Delaware corporation and Subsidiary of Terra UK Holdings.

“Beaumont Holdings” means Beaumont Holdings Corporation, a Delaware corporation and wholly owned Subsidiary of BMCH.

“BMCH” means BMC Holdings, Inc., a Delaware corporation.

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“Borrowing” means a borrowing consisting of Loans made on the same day by the Lenders ratably according to their respective Revolving Credit Commitments.

“Borrowing Base” means, with respect to any Borrower (a) the sum of (i) the product of the Advance Rate then in effect for Eligible Receivables and the face amount of all Eligible Receivables of such Borrower’s Borrowing Base Contributors (calculated net of all finance charges, late fees and other fees which are unearned, sales, excise or similar taxes, and credits or allowances granted at such time), (ii) the product of the Advance Rate then in effect for each class of Eligible Non-Spare Parts Inventory and the Eligible Non-Spare Parts Inventory (valued at the lower of cost and market on a first-in, first-out basis) constituting such class at such time of such Borrower’s Borrowing Base Contributors, (iii) the product of the Advance Rate then in effect for Eligible Spare Parts Inventory and the Eligible Spare Parts Inventory of such Borrower’s Borrowing Base Contributors and (iv) 100% of cash maintained by such Borrower in a cash collateral account opened for such purpose with the Administrative Agent (including the L/C Cash Collateral Account and any other Cash Collateral Account referred to in Section 2.9 or Section 7.12(f)) on terms acceptable to, and subject to a perfected first priority Lien in favor of, the Administrative Agent less (b) any Eligibility Reserves applicable to such Borrower then in effect; provided, however that, for the purposes of calculating any of the foregoing amounts denominated in Sterling, Canadian Dollars or Euros, the Dollar Equivalent of such Sterling, Canadian Dollar or Euro amount shall be used.

“Borrowing Base Certificate” means a certificate of the Borrowers substantially in the form of Exhibit E.

“Borrowing Base Contributor” means (i) in respect of Terra Capital and MCC, each of Terra Capital, Terra Oklahoma, Port Neal, BMCH, Beaumont Ammonia and MCC and (ii) in respect of Terra UK, Terra UK and Terra Canada. Notwithstanding anything herein to the contrary, any Subsidiary of Terra Capital acquired or created after the Effective Date, including any Person acquired through a Permitted Acquisition, may become a Borrowing Base Contributor for purposes of calculating the Borrowing Base of any Borrower hereunder, if agreed to in writing by the Administrative Agent in its sole discretion.

“Borrowing Base Deficiency” means, at any time with respect to any Borrower, any time during which the Available Credit of such Borrower is less than zero.

“Business Day” means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to notices, determinations, fundings and payments in connection with the Eurodollar Rate or any Eurodollar Rate Loans, a day on which dealings in Dollar deposits are also carried on in the London interbank market.

“Canadian Dollars” means the lawful money of Canada.

“Canadian Employee Benefit Plan” means any employee benefit, pension, retirement or other equivalent or analogous plan or program established or maintained by the Borrower or any of its Canadian Subsidiaries.

“Capital Expenditures” means, with respect to any Person for any period, the aggregate of amounts that would be reflected as additions to property, plant or equipment on a

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consolidated balance sheet of such Person and its Subsidiaries prepared in conformity with GAAP, excluding interest capitalized during construction.

“Capital Lease” means, with respect to any Person, any lease of property by such Person as lessee which would be accounted for as a capital lease on a balance sheet of such Person prepared in conformity with GAAP.

“Capital Lease Obligations” means, with respect to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capital Leases, as determined on a consolidated basis in conformity with GAAP.

“Cash Collateral Account” means each Approved Deposit Account maintained at Citibank or an Affiliate of Citibank, each other bank account identified as a “Cash Collateral Account” on Schedule 7.12 and each other account maintained from time to time by any Loan Party with Citibank and designated a “Cash Collateral Account” by the Administrative Agent.

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; (b) repurchase agreements on obligations of the type specified in clause (a) above with respect to which, at the time of acquisition, the senior long-term debt of the party agreeing to repurchase such obligations is rated AAA (or better) by Standard & Poor’s Corporation (or its successors) or Aaa (or better) by Moody’s Investors Service, Inc. (or its successors); (c) domestic and Eurodollar certificates of deposit and time deposits, bankers’ acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor’s Corporation (or its successors) or P-1 (or better) by Moody’s Investors Service, Inc. (or its successors); (d) commercial paper of United States and foreign banks and bank holding companies and their subsidiaries and United States and foreign finance, commercial industrial or utility companies which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor’s Corporation (or its successors) or P-1 (or better) by Moody’s Investors Service, Inc. (or its successors); (e) marketable direct obligations of any state of the United States of America or any political subdivision of any such state given on the date of such investment the highest credit rating by Moody’s Investors Service, Inc. (or its successors) and Standard & Poor’s Corporation (or its successors); (f) Canadian Dollar denominated banker’s acceptances of Canadian banks, and Canadian dollar-denominated commercial paper, rated at least R-1-mid by Dominion Bond Rating Service and (g) securities of money market funds rated Am (or better) by Standard & Poor’s Corporation (or its successors) or A (or better) by Moody’s Investors Service, Inc. (or its successors); provided, that the maturities of any such Cash Equivalents referred to in clauses (a), (c), (d) and (e) shall not exceed 270 days.

“Cash Flow” means, with respect to Terra Industries and its Subsidiaries including TNCLP and its Subsidiaries, for any period, an amount equal to EBITDA of Terra Industries and its Subsidiaries including TNCLP and its subsidiaries for such period minus, to the extent not reflected in such calculation of EBITDA, the sum of (i) TNCLP Minority Interest Payments and (ii) provided such net cash amount is greater than zero, cash (net of cash in-flows in respect thereof) used to finance obligations of discontinued operations of Terra Industries and its Subsidiaries.

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“Change of Control” means any of the following: (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of more than 35% of the issued and outstanding Voting Stock of Terra Industries; (b) Terra Industries shall cease to own and control all of the economic and voting rights associated with all of the outstanding Stock of Terra Capital Holdings, (c) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Terra Industries (together with any new directors whose election by the board of directors of Terra Industries or whose nomination for election by the stockholders of Terra Industries was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose elections or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or (d) a “Change of Control” as defined in any Indenture shall have occurred.

“Chattel Paper” has the meaning specified in the Pledge and Security Agreement.

“Citibank” has the meaning specified in the recitals to this Agreement.

“Code” means the Internal Revenue Code of 1986 (or any successor legislation thereto), as amended from time to time.

“Collateral” means all property and interests in property and proceeds thereof now owned or hereafter acquired by any Loan Party in or upon which a Lien is granted under any of the Collateral Documents.

“Collateral Documents” means the Pledge and Security Agreement, the Debenture, the Senior Secured Note Intercreditor Agreement, the MCC Collateral Documents, the Terra UK Share Mortgage, the Terra Canada Collateral Documents, the Junior Collateral Documents and any other document executed and delivered by a Loan Party granting a Lien on any of its property to secure payment of the Obligations of such Loan Party.

“Common Unit Purchase” has the meaning specified in Section 8.3(h).

“Common Units” means the common units issued and outstanding under the Agreement of Limited Partnership dated as of December 4, 1991 of TNCLP.

“Compliance Certificate” has the meaning specified in Section 6.1(d).

“Confirmation Order” has the meaning specified in Section 3.1(c).

“Consolidated Net Income” means, for any Person for any period, the net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP; provided, however, that (a) the net income of any other Person in which such Person or one of its Subsidiaries has a joint interest with a third party (which interest does not cause the net income of such other Person to be consolidated into the net income of such Person in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to such Person or Subsidiary, (b) the net income of any Subsidiary of such

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Person that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than restrictions imposed on MCC and its Subsidiaries under the MCC Credit Agreement to the extent that, in each case, they are Loan Parties), shall be excluded to the extent of such restriction or limitation, and (c) any one-time increase or decrease to net income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP shall be excluded.

“Constituent Documents” means, with respect to any Person, (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such Person, (ii) the by-laws (or the equivalent governing documents) of such Person and (iii) any document setting forth the manner of election and duties of the directors or managing members of such Person (if any) and the designation, amount and/or relative rights, limitations and preferences of any class or series of such Person’s Stock.

“Contaminant” means any material, substance or waste that is classified, regulated or otherwise characterized under any Environmental Law as hazardous, toxic, a contaminant or a pollutant or by other words of similar meaning or regulatory effect, including any petroleum or petroleum-derived substance or waste, asbestos and polychlorinated biphenyls.

“Contractual Obligation” of any Person means any obligation, agreement, undertaking or similar provision of any Security issued by such Person or of any agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument (excluding any Loan Document but including any Material Document) to which such Person is a party or by which it or any of its property is bound or to which any of its properties is subject.

“CUSA” has the meaning specified in the preamble to this Agreement.

“Customary Permitted Liens” means, with respect to any Person, any of the following Liens:

(a) Liens with respect to the payment of taxes, customs duties, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP;

(b) Liens of landlords arising by statute and liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP;

(c) deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money) and surety, appeal, customs or performance bonds;

(d) encumbrances arising by reason of zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar encumbrances on the use of real property which do not materially

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detract from the value of such real property or interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;

(e) encumbrances arising under leases or subleases of real property which do not in the aggregate materially detract from the value of such real property or interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;

(f) financing statements of a lessor’s rights in and to personal property leased to such Person in the ordinary course of such Person’s business;

(g) expired financing statements and financing statements filed for precautionary purposes in respect of operating leases; and

(h) Liens in favor of banks which arise under Article 4 of the New York UCC on items in collection and documents relating thereto and proceeds thereof.

“Debenture” means the Amended and Restated English law Debenture dated as of the Initial Closing Date, in substantially the form of Exhibit N, executed by Terra UK in favor of the Administrative Agent.

“Debt Issuance” means the incurrence of Indebtedness of the type specified in clause (a) and (b) of the definition of “Indebtedness” by Terra Industries or any of its Subsidiaries.

“Default” means any event which with the passing of time or the giving of notice or both would become an Event of Default.

“Deposit Account Control Agreement” has the meaning specified in the Pledge and Security Agreement.

“Disbursement Accounts” means the bank accounts identified as such on Schedule 7.12 and each other account maintained from time to time by the Borrowers and Terra Canada with a bank acceptable to the Administrative Agent for the purposes of paying disbursements.

“Document” has the meaning specified in the Pledge and Security Agreement.

“Documentary Letter of Credit” means any letter of credit issued by an Issuer pursuant to Section 2.4 for the account of the Borrower, which is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Borrower or any of its Subsidiaries in the ordinary course of its business.

“Dollar Equivalent” means (a) with respect to any amount denominated in Dollars, such amount and (b) with respect to any amount denominated in a currency other than Dollars, at the time of determination thereof, the equivalent of such currency in Dollars determined by using the rate of exchange quoted by Citibank or an Affiliate thereof in New York, New York at 11:00 a.m. (New York time) on the date of determination to prime banks in New York for the spot purchase in the New York foreign exchange market of such amount of Dollars with such other currency, provided, however, that with respect to any Letter of Credit Obligations

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which are outstanding, the “Dollar Equivalent” thereof shall be determined as of the beginning of the most recent calendar month.

“Dollars” and the sign “$” each mean the lawful money of the United States of America.

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule II or on the Assignment and Acceptance by which it became a Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Borrowers and the Administrative Agent.

“Domestic Subsidiary” means any Subsidiary of Terra Industries organized under the laws of any state of the United States of America or the District of Columbia.

“EBITDA” means, with respect to any Person for any period, an amount equal to (a) Consolidated Net Income of such Person for such period plus (b) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income but without duplication, (i) any provision for income taxes, (ii) interest expense including net costs under Interest Rate Contracts, (iii) loss from extraordinary items, (iv) any aggregate net loss from the sale, exchange or other disposition of capital assets by such Person, (v) any other non-cash loss or other items, (vi) depreciation, depletion and amortization of intangibles or financing or acquisition costs and (vii) income allocation to minority interests minus (c) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income but without duplication, (i) any credit for income tax, (ii) interest income, (iii) gains from extraordinary items for such period, (iv) any aggregate net gain from the sale, exchange or other disposition of capital assets by such Person, (v) any other non-cash gains or other items and (vi) loss allocation to minority interests.

“Effective Date” has the meaning specified in Section 3.1.

“Eligibility Reserves” means, with respect to any Borrower, effective as of two Business Days after the date of written notice of any determination thereof to Terra Capital by the Administrative Agent, such amounts as the Administrative Agent, in its sole discretion, may from time to time establish against the gross amounts of Eligible Receivables, Eligible Non-Spare Parts Inventory and Eligible Spare Parts Inventory of such Borrower’s Borrowing Base Contributors to reflect risks or contingencies arising after the Effective Date which may affect any one or class of such items and which have not already been taken into account in the calculation of the Borrowing Base of such Borrower (including in respect of (a) preferential debts which under applicable law would be prior to the claims of the Secured Parties and (b) Inventory which is subject to title retention claims of the suppliers thereof); provided, however, that the Administrative Agent shall apply criteria in respect of the foregoing in accordance with its customary practice with regard to similar credit facilities.

“Eligible Assignee” means (a) a Lender or any Affiliate or Approved Fund of such Lender; (b) a commercial bank having total assets in excess of $5,000,000,000; (c) a finance company, insurance company, other financial institution or fund reasonably acceptable to the Administrative Agent, which is regularly engaged in making, purchasing or investing in loans including, with respect to any proposed assignment of all or a portion of a Lender’s Revolving Credit Commitment, revolving loans, and having total assets in excess of $250,000,000 or, to the extent assets are less than such amount, a finance company, insurance company, other financial

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institution or fund, reasonably acceptable to the Administrative Agent and the Borrowers; or (d) a savings and loan association or savings bank organized under the laws of the United States or any State thereof which has a net worth, determined in accordance with GAAP, in excess of $250,000,000.

“Eligible Finished Products” means Inventory comprised of finished products (which are classified, in accordance with past practice, as Eligible Finished Products in the Borrowers’ accounting systems) and is otherwise Eligible Inventory.

“Eligible Inventory” means, in respect of any Borrowing Base Contributor, the Inventory of such Borrowing Base Contributor (other than any Inventory which has been consigned by such Borrowing Base Contributor), including raw materials and finished goods (a) which is owned solely by such Borrowing Base Contributor, (b) with respect to which the Administrative Agent has a valid and perfected first priority Lien, (c) with respect to which no warranty contained in any of the Loan Documents has been breached, (d) which is not, in the Administrative Agent’s sole discretion, obsolete or unmerchantable, (e) with respect to which (in respect of any Inventory labeled with a brand name or trademark and sold by such Borrowing Base Contributor pursuant to a trademark owned by such Borrowing Base Contributor or a license granted to such Borrowing Base Contributor) the Administrative Agent would have rights under such trademark or license pursuant to the Pledge and Security Agreement or other agreement satisfactory to the Administrative Agent to sell such Inventory in connection with a liquidation thereof, and (f) which the Administrative Agent deems to be Eligible Inventory based on such credit and collateral considerations as the Administrative Agent may, in its sole discretion, deem appropriate. No Inventory of such Borrowing Base Contributor shall be Eligible Inventory if such Inventory is located, stored, used or held at the premises of a third party or premises that have been mortgaged in favor of a third party unless (i)(A) the Administrative Agent shall have received a Mortgagee Waiver (to the extent the subject Inventory is not located, stored or held at premises covered by the Senior Secured Note Intercreditor Agreement), Landlord Waiver or Bailee’s Letter or (B) in the case of Inventory located on a leased or mortgaged premises, an Eligibility Reserve satisfactory to the Administrative Agent shall have been established with respect thereto and (ii) an appropriate UCC-1 financing statement shall have been executed and properly filed in the United States and equivalent filings, as applicable, shall have been made in England & Wales and Canada, as applicable.

“Eligible Non-Spare Parts Inventory” means Inventory comprised of Eligible Finished Products and Eligible Raw Materials.

“Eligible Raw Materials” means Inventory comprised of raw materials (which are classified in accordance with past practice, as raw materials in the Borrowers’ accounting systems) and which is otherwise Eligible Inventory.

“Eligible Receivable” means, in respect of any Borrowing Base Contributor, the gross outstanding balance of those Accounts of such Borrowing Base Contributor which arise out of sales of merchandise, goods or services in the ordinary course of business, which are made by such Borrowing Base Contributor to a Person that is not an Affiliate of such Borrowing Base Contributor, which are not in dispute, and which constitute Collateral in which the Administrative Agent has a fully perfected first priority Lien; provided, however, that an Account shall in no event be an Eligible Receivable if:

(a) such Account is outstanding more than 60 days past the original due date thereof or more than 90 days from the invoice date thereof; or

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(b) any warranty contained in this Agreement or any other Loan Document with respect to such specific Account is not true and correct with respect to such Account; or

(c) the Account Debtor on such Account has disputed liability or made any claim with respect to any other Account due from such Account Debtor to such Borrowing Base Contributor but only to the extent of such dispute or claim; or

(d) the Account Debtor on such Account has: (i) filed a petition for bankruptcy or any other relief under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors; (ii) made an assignment for the benefit of creditors; (iii) had filed against it any petition or other application for relief under the Bankruptcy Code or any such other law; (iv) has failed, suspended business operations, become insolvent, called a meeting of its creditors for the purpose of obtaining any financial concession or accommodation; or (v) had or suffered a receiver or a trustee to be appointed for all or a significant portion of its assets or affairs; or

(e) the Account Debtor on such Account or any of its Affiliates is also a supplier to or creditor of such Borrowing Base Contributor unless, and to the extent that (in respect of such Account), such supplier or creditor has executed a no-offset letter satisfactory to the Administrative Agent, in its sole discretion; or

(f) the sale represented by such Account is to an Account Debtor located outside England, Scotland or Wales in respect of Terra UK or outside the United States or Canada in respect of any other Borrowing Base Contributor, unless the sale is on letter of credit or acceptance terms acceptable to the Administrative Agent, in its sole judgment; or

(g) the sale to such Account Debtor on such Account is on a bill-on-hold, guaranteed sale, sale-and-return, sale-on-approval or consignment basis; or

(h) such Account is subject to a Lien in favor of any Person other than the Administrative Agent for the benefit of the Secured Parties; or

(i) such Account is (but only to the extent that it is) subject to any deduction, offset, counterclaim, return privilege or other conditions other than volume sales discounts given in the ordinary course of such Borrowing Base Contributor’s business; or

(j) the Account Debtor on such Account is located, in respect of the Borrowing Base Contributors of Terra Capital, in New Jersey or Minnesota, unless such Borrowing Base Contributor (i) has received a certificate of authority to do business and is in good standing in such state or (ii) has filed a Notice of Business Activities Report with the appropriate office or agency of such state for the current year; or

(k) the Account Debtor on such Account is a Governmental Authority (other than the Tennessee Valley Authority, to the extent that the Borrowers

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deliver to the Administrative Agent reasonably satisfactory evidence that the Tennessee Valley Authority is not subject to the Assignment of Claims Act of 1940, as amended or similar applicable law), unless the Borrower has assigned its rights to payment of such Account to the Administrative Agent pursuant to the Assignment of Claims Act of 1940, as amended, in the case of a federal Governmental Authority, and pursuant to applicable law, if any, in the case of any other Governmental Authority, and such assignment has been accepted and acknowledged by the appropriate government officers; or

(l) the Administrative Agent, in accordance with its customary criteria, determines, in its sole discretion exercised reasonably, that such Account may not be paid or otherwise is ineligible; or

(m) 50% or more of the outstanding Accounts of the Account Debtor have become, or have been determined by the Administrative Agent, in accordance with the provisions hereof, to be, ineligible; or

(n) the sale represented by such Account is denominated in a currency other than (i) Dollars or Canadian Dollars in respect of Terra Canada, or any Borrowing Base Contributor of Terra Capital or (ii) Dollars, Sterling or Euros in respect of Terra UK; or

(o) such Account is not evidenced by an invoice or other writing in form acceptable to the Administrative Agent, in its sole discretion; or

(p) such Borrowing Base Contributor, in order to be entitled to collect such Account, is required to perform any additional service for, or perform or incur any additional obligation to, the Person to whom or to which it was made.

“Eligible Spare Parts Inventory” means Inventory comprised of spare parts (which are classified, in accordance with past practice, as spare parts in the Borrowers’ accounting system) and which is otherwise Eligible Inventory.

“Environmental Laws” means all applicable Requirements of Law now or hereafter in effect, as amended or supplemented from time to time, relating to pollution or the regulation or protection of occupational health and safety, the environment or natural resources, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C. § 180 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. § 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. § 6901 et seq.); the Toxic Substance Control Act, as amended (42 U.S.C. § 7401 et seq.); the Clean Air Act, as amended (42 U.S.C. § 740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. § 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. § 651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. § 300f et seq.); the Environmental Protection Act (Ontario); the Canadian Environmental Protection Act; the Ontario Water Resources Act; and their state and local counterparts or equivalents and any transfer of ownership notification or approval statute, including the Industrial Site Recovery Act (N.J. Stat. Ann. § 13:1K-6 et seq.) and any similar or equivalent Requirement of Law of any relevant jurisdiction.

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“Environmental Liabilities and Costs” means, with respect to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including any thereof arising under any Environmental Law, Permit, order or agreement with any Governmental Authority or other Person, which relate to any environmental, health or safety condition or a Release or threatened Release, and result from the past, present or future operations of, or ownership of property by, such Person or any of its Subsidiaries.

“Environmental Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.

“Equipment” has the meaning specified in the Pledge and Security Agreement.

“Equity Issuance” means the issue or sale of any Stock of Terra Industries, any Loan Party or any Subsidiary of any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control or treated as a single employer with the Borrower or any of its Material Subsidiaries within the meaning of Section 414 (b), (c), (m) or (o) of the Code.

“ERISA Event” means (i) a reportable event described in Section 4043(b) or 4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a Title IV Plan or a Multiemployer Plan as to which the 30 day notice requirement has not been waived under applicable regulations; (ii) the withdrawal of the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of the Borrower, any of its Subsidiaries or any ERISA Affiliate from any Multiemployer Plan; (iv) notice of reorganization or insolvency of a Multiemployer Plan; (v) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (vi) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (vii) the failure to make any required contribution to a Title IV Plan or Multiemployer Plan; (viii) the imposition of a lien under Section 412 of the Code or Section 302 of ERISA on the Borrower or any of its Subsidiaries or any ERISA Affiliate; or (ix) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA.

“Euro” means the single currency of the participating states of the European Union.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board, as in effect from time to time.

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“Eurodollar Base Rate” means the rate determined by the Administrative Agent to be the offered rate for deposits in Dollars for the applicable Interest Period which appears on the Dow Jones Markets Telerate Page 3750 as of 11:00 a.m., London time, on the second full Business Day next preceding the first day of each Interest Period. In the event that such rate does not appear on the Dow Jones Markets Telerate Page 3750 (or otherwise on the Dow Jones Markets screen), the Eurodollar Base Rate for the purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent, or, in the absence of such availability, the Eurodollar Base Rate shall be the rate of interest determined by the Administrative Agent to be the rate per annum at which deposits in Dollars are offered by the principal office of Citibank in London to major banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Loan of Citibank for a period equal to such Interest Period.

“Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule II or on the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Borrowers and the Administrative Agent.

“Eurodollar Rate” means, with respect to any Interest Period for any Eurodollar Rate Loan, an interest rate per annum equal to the rate per annum obtained by dividing (a) the Eurodollar Base Rate by (b) a percentage equal to 100% minus the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities which includes deposits by reference to which the Eurodollar Rate is determined) having a term equal to such Interest Period.

“Eurodollar Rate Loan” means any Loan that, for an Interest Period, bears interest based on the Eurodollar Rate.

“Event of Default” has the meaning specified in Section 9.1.

“Existing Collateral Agent” has the meaning specified in the recitals to this Agreement.

“Existing Credit Agreement” has the meaning specified in the recitals to this Agreement.

“Existing Lender” means each Revolving Credit Lender (as defined in the Existing Credit Agreement).

“Fair Market Value” means (a) with respect to any asset or group of assets (other than a marketable Security) at any date, the value of the consideration obtainable in a sale of such asset at such date assuming a sale by a willing seller to a willing purchaser dealing at arm’s length and arranged in an orderly manner over a reasonable period of time having regard to the nature and characteristics of such asset, as reasonably determined by the Board of Directors of the

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applicable Loan Party, or, if such asset shall have been the subject of a relatively contemporaneous appraisal by an independent third party appraiser, the basic assumptions underlying which have not materially changed since its date, the value set forth in such appraisal, and (b) with respect to any marketable Security at any date, the closing sale price of such Security on the Business Day next preceding such date, as appearing in any published list of any national securities exchange or the Nasdaq Stock Market or, if there is no such closing sale price of such Security, the final price for the purchase of such Security at face value quoted on such business day by a financial institution of recognized standing which regularly deals in securities of such type selected by the Administrative Agent.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System, or any successor thereto.

“Fee Letter” shall mean the letter dated as of the Effective Date, addressed to Terra Industries from CUSA and the Arranger and accepted by Terra Industries, with respect to certain fees to be paid from time to time to the Lenders, CUSA and the Arranger, which letter shall supersede the Fee Letter (as defined in the Existing Credit Agreement).

“Financial Statements” means the financial statements of Terra Industries and its Subsidiaries delivered in accordance with Sections 4.4 and 6.1.

“Fiscal Quarter” means each of the three month periods ending on March 31, June 30, September 30 and December 31.

“Fiscal Year” means the twelve month period ending on December 31.

“Foreign Plan” means each Canadian Employee Benefit Plan and each other retirement plan (including any statutory severance obligation requiring a payment upon an employee’s termination of employment for any reason other than “cause” based on the employee’s length of service) which is not subject to reporting in accordance with GAAP and Financial Accounting Standard Bulletin No. 87 or 106, and as to which Terra Industries or any of its Subsidiaries has any obligation or liability, contingent or otherwise.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination.

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“General Intangible” has the meaning specified in the Pledge and Security Agreement.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guarantor” means each of the Terra Capital Guarantors and the Terra UK Guarantors.

“Guaranty” means the Amended and Restated Guaranty dated as of the Effective Date, in substantially the form of Exhibit H, among each of the Guarantors and the Administrative Agent in respect of each Guarantor’s guaranty of certain of the Obligations and, following execution thereof by MCHI, the guaranty of the Obligations to be provided by MCHI pursuant to Section 7.11(b).

“Guaranty and Security Affirmation” means each confirmation substantially in the form of Exhibit L executed and delivered by each Loan Party (other than MCC and its Subsidiaries) with respect to the continuing effect of the existing Loan Documents to which it is a party.

“Guaranty Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness of another Person, if the purpose or intent of such Person in incurring the Guaranty Obligation is to provide assurance to the obligee of such Indebtedness that such Indebtedness will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Indebtedness will be protected (in whole or in part) against loss in respect thereof including, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of Indebtedness of another Person and (b) any liability of such Person for Indebtedness of another Person through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to provide funds for the payment or discharge of such Indebtedness (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency or any balance sheet item, level of income or financial condition of another Person, (iii) to make take-or-pay or similar payments, if required, regardless of non-performance by any other party or parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, or (v) to supply funds to or in any other manner invest in such other Person (including to pay for property or services irrespective of whether such property is received or such services are rendered), if in the case of any agreement described under subclause (i), (ii), (iii), (iv) or (v) of clause (b) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Guaranty Obligation shall be equal to the amount of the Indebtedness so guaranteed or otherwise supported.

“Hedging Contracts” means all Interest Rate Contracts, foreign exchange contracts, currency swap or option agreements, forward contracts, commodity swap, purchase or option agreements, other commodity price hedging arrangements, and all other similar agreements or arrangements designed to alter the risks of any Person arising from fluctuations in currency values or commodity prices.

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“Indebtedness” of any Person means without duplication (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments or which bear interest, (c) all reimbursement and all obligations with respect to letters of credit, bankers’ acceptances, surety bonds and performance bonds, whether or not matured, (d) all indebtedness for the deferred purchase price of property or services, other than trade payables and accrued expenses incurred in the ordinary course of business which are not overdue, (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (f) all Capital Lease Obligations and Major Operating Lease Obligations of such Person, (g) all Guaranty Obligations of such Person, (h) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Stock or Stock Equivalents of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (i) all payments that such Person would have to make in the event of an early termination on the date Indebtedness of such Person is being determined in respect of Hedging Contracts of such Person and (j) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including Accounts and General Intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

“Indemnitees” has the meaning specified in Section 11.4.

“Indentures” means (a) the Senior Note (2003) Indenture, (b) the Senior Note (2005) Indenture, (c) the Senior Second Lien Note Indenture and (d) the Senior Secured Note Indenture.

“Initial Closing Date” means the Closing Date (as defined in the Existing Credit Agreement).

“Instrument” has the meaning specified in the Pledge and Security Agreement.

“Intercompany Indebtedness” means Indebtedness owed by Terra Industries or one of its Subsidiaries to Terra Industries or one of its Subsidiaries.

“Interest Period” means, in the case of any Eurodollar Rate Loan, (a) initially, the period commencing on the date such Eurodollar Rate Loan is made or on the date of conversion of a Base Rate Loan to such Eurodollar Rate Loan and ending one, two, three or six months thereafter, as selected by a Borrower in its Notice of Borrowing or Notice of Conversion or Continuation given to the Administrative Agent pursuant to Section 2.2 or 2.11, and (b) thereafter, if such Loan is continued, in whole or in part, as a Eurodollar Rate Loan pursuant to Section 2.11, a period commencing on the last day of the immediately preceding Interest Period therefor and ending one, two, three or six months thereafter, as selected by a Borrower in its Notice of Conversion or Continuation given to the Administrative Agent pursuant to Section 2.11; provided, however, that all of the foregoing provisions relating to Interest Periods in respect of Eurodollar Rate Loans are subject to the following:

(i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business

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Day, unless the result of such extension would be to extend such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day;

(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month;

(iii) no Borrower may select any Interest Period that ends after the date of a scheduled principal payment on the Loans as set forth in Article II unless, after giving effect to such selection, the aggregate unpaid principal amount of the Loans for which Interest Periods end after such scheduled principal payment shall be equal to or less than the principal amount to which the Loans are required to be reduced after such scheduled principal payment is made; and

(iv) there shall be outstanding at any one time no more than seven Interest Periods in the aggregate.

“Interest Rate Contracts” means all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and interest rate insurance.

“Inventory” has the meaning specified in the Pledge and Security Agreement.

“Investment” means, with respect to any Person, (a) any purchase or other acquisition by that Person of (i) any Security issued by, (ii) a beneficial interest in any Security issued by, or (iii) any other equity ownership interest in, any other Person, (b) any purchase by that Person of all or a significant part of the assets of a business conducted by another Person, (c) any loan, advance (other than prepaid expenses, accounts receivable and similar items made or incurred in the ordinary course of business as presently conducted), or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business and (d) any deposit with a financial institution.

“Investment Property” has the meaning specified in the Pledge and Security Agreement.

“IRS” means the Internal Revenue Service of the United States or any successor thereto.

“Issuer” means each Lender or Affiliate of a Lender that (a) is listed on the signature pages hereof as an “Issuer” or (b) hereafter becomes an Issuer with the approval of the Administrative Agent and the Borrower by agreeing pursuant to an agreement with and in form and substance satisfactory to the Administrative Agent and the Borrowers to be bound by the terms hereof applicable to Issuers.

“Junior Collateral Documents” means (i) in respect of Terra UK’s obligations for the Terra UK Debt and the Terra UK Junior Guaranty, the debenture executed by Terra UK in favor of Terra Capital and the related Assignment Agreement and Subordination Agreement, each dated as of the Initial Closing Date, among Terra Capital, Terra UK and the Administrative Agent

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and (ii) in respect of the Terra Canada Debt and the Terra Canada Junior Guaranty, respectively, the Junior General Security Agreements and Assignments each dated as of the Initial Closing Date, executed by Terra Canada in favor of Terra Capital and accepted and agreed to by the Administrative Agent, each of the foregoing being assigned to the Administrative Agent.

“Junior Loan Documents” means (i) in respect of the Terra UK Debt, the Terra UK Debt Note and the Terra Canada Junior Guaranty and (ii) in respect of the Terra Canada Debt, the Terra Canada Debt Note and the Terra UK Junior Guaranty.

“Landlord Waiver” means a letter in form and substance reasonably acceptable to the Administrative Agent, executed by a landlord in respect of Inventory of any Borrowing Base Contributor located at any leased premises of such Borrowing Base Contributor pursuant to which such landlord, among other things, waives or subordinates any Lien such landlord may have in respect of such Inventory.

“L/C Cash Collateral Account” has the meaning specified in Section 9.3.

“Leases” means, with respect to any Person, all of those leasehold estates in real property of such Person, as lessee, as such may be amended, supplemented or otherwise modified from time to time.

“Lender” means each financial institution or other entity that (a) is listed on the signature pages hereof as a “Lender” or (b) from time to time becomes a party hereto by execution of an Assignment and Acceptance.

“Letter of Credit” means any letter of credit issued pursuant to Section 2.4 (including, prior to the Effective Date, pursuant to the Existing Credit Agreement).

“Letter of Credit Obligations” means, at any time, the aggregate of all liabilities at such time of each Borrower to all Issuers with respect to Letters of Credit, whether or not any such liability is contingent, and includes the sum of (a) the Reimbursement Obligations at such time and (b) the Letter of Credit Undrawn Amounts at such time.

“Letter of Credit Reimbursement Agreement” has the meaning specified in Section 2.4(e).

“Letter of Credit Request” has the meaning specified in Section 2.4(c).

“Letter of Credit Sublimit” has the meaning specified in Section 2.4(a)(iv).

“Letter of Credit Undrawn Amounts” means, at any time, the aggregate Dollar Equivalent of the undrawn face amount of all Letters of Credit outstanding at such time.

“Leverage Ratio” means, with respect to any Person for any period, the ratio of (a) Indebtedness of the type specified in clauses (a), (b), (d), (e), (f) and (h) of the definition of “Indebtedness” of such Person as of the last day of such period to (b) Cash Flow for such Person for such period.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, lien (statutory or other), security interest or

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preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or other obligation, including any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction naming the owner of the asset to which such Lien relates as debtor but excluding any right of set-off.

“Loan” means any loan made by any Lender under this Agreement, including each Revolving Loan and Swing Loan (including, prior to the Effective Date, pursuant to the Existing Credit Agreement).

“Loan Documents” means, collectively, this Agreement, the Affirmation of Liens and Guaranties, the Guarantor Consent, any Notes, each Guaranty, each Guaranty and Security Affirmation, the Fee Letter, each Letter of Credit Reimbursement Agreement, each Hedging Contract to which a Lender or an Affiliate of a Lender is a party, each agreement pursuant to which a Lender or an Affiliate of a Lender provides cash management services to a Loan Party, the Loan Purchase Agreement, the Collateral Documents, the Junior Loan Documents, and each Assignment and Acceptance and each certificate, agreement or document executed by a Loan Party and delivered to the Administrative Agent or any Lender in connection with or pursuant to any of the foregoing.

“Loan Party” means each Borrower, each Guarantor and each other Subsidiary of Terra Industries that executes and delivers a Loan Document.

“Loan Purchase Agreement” means the Amended and Restated Loan Purchase Agreement dated as of the Effective Date, in substantially the form of Exhibit J, between the Administrative Agent and Terra Industries.

“Lockbox” has the meaning specified in each applicable Deposit Account Control Agreement.

“Major Operating Lease Obligations” means, in respect of any Person, all obligations of such Person under an operating lease to pay required termination payments or like payments in an amount exceeding $7,000,000 and in an amount at least equal to 75% of the original acquisition cost of the property leased thereunder.

“Management Agreements” means each management agreement between Terra Industries and/or any of its Subsidiaries and other Persons providing for the performance by Terra Industries or any such Subsidiary of certain treasury, purchasing, legal and/or other services for its Subsidiaries and such other Persons, or such agreements as are in effect from time to time.

“Material Adverse Change” means a material adverse change in any of (a) the business, condition (financial or otherwise), operations, performance or properties of any Borrower, individually, or Terra Industries and its Subsidiaries, taken as a whole, (b) the legality, validity or enforceability of any Loan Document, (c) the perfection or priority of the Liens granted pursuant to the Collateral Documents (except as expressly permitted hereby or thereby), (d) the ability of the Borrowers to repay the Obligations or of the Loan Parties to perform their obligations under the Loan Documents, or (e) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents.

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“Material Adverse Effect” means an effect that results in or causes, or could reasonably be expected to result in or cause a Material Adverse Change.

“Material Documents” means the Management Agreements, the Indentures and the Ammonium Nitrate Hedging Agreement.

“Material Subsidiary” means, at any time, each Borrower, each Guarantor and any direct or indirect Subsidiary of Terra Industries owning at least $500,000 of assets or generating at least $100,000 gross income for the Fiscal Year most recently ended.

“Maximum Credit” means, at any time, (a) the lesser of (i) the Revolving Credit Commitments in effect at such time and (ii) the sum of the aggregate Borrowing Base of Terra Capital and Terra UK at such time, minus (b) the aggregate amount of Availability Reserves in effect at such time.

“Maximum Repurchase Amount” means during each Repurchase Period an amount (to be reset on the first day of each such Repurchase Period) equal to the excess (if any) of (i) the daily average (for the preceding 30-day period) of (A) the aggregate Borrowing Base of the Borrowers on each day during such preceding period less (B) the aggregate amount of past due payables of the Borrowers and the Guarantors on each such day over (ii) $125,000,000.

“MCC Acquisition” has the meaning specified in the preamble.

“MCC Acquisition Agreement” has the meaning specified in the preamble.

“MCC Acquisition Documents” means the MCC Acquisition Agreement and any other agreement or instrument entered into in connection with the MCC Acquisition.

“MCC Credit Agreement” means that certain amended and restated term loan, guarantee and security agreement dated as of the Effective Date by and among MCC and its Subsidiaries, Citigroup North America, Inc. as administrative agent and the lenders party thereto.

“MCC Collateral Documents” means the MCC Joinder Agreement, the MCC Intercreditor Agreements, each joinder agreement to the Senior Secured Note Intercreditor Agreement and the Senior Second Lien Note Intercreditor Agreement each executed by MCC and its Subsidiaries which are Guarantors and each other document pursuant to which MCC or any of its subsidiaries grants a security interest in favor of the Administrative Agent to secure any of the Obligations.

“MCC Intercreditor Agreements” means each intercreditor agreement substantially in the forms of the Exhibits K-1 and K-2 executed, or to be executed and delivered by the Administrative Agent, the administrative agent under the MCC Credit Agreement, MCC and each Subsidiary of MCC that is a Guarantor.

“MCC Joinder Agreement” means the joinder agreement to the Pledge and Security Agreement substantially in the form of Exhibit I, executed, or to be executed and delivered by MCC and each Subsidiary of MCC that is a Guarantor and the Administrative Agent.

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“MCHI” means Mississippi Chemical Holdings, Inc., a British Virgin Islands corporation.

“Mortgage” means a mortgage, deed of trust, charge, debenture, fixture filing or other real estate security document made or required to be made under the Senior Secured Note Indenture by any Loan Party, pursuant to which such Loan Party grants to the Senior Secured Note Trustee a first priority Lien (subject only to Liens permitted by the applicable mortgage, deed of trust, charge, debenture, fixture filing or other real estate security document) on Real Property.

“Mortgage Releases” means the releases and terminations executed by the Existing Collateral Agent releasing or terminating as appropriate the mortgages, deeds of trust, charges, debentures, fixture filings and other Liens it currently holds over Real Property that will be made subject to a Mortgage, duly executed and delivered by the Existing Collateral Agent and acknowledged by the relevant Loan Party mortgagor.

“Mortgagee Waiver” means a letter in form and substance reasonably acceptable to the Administrative Agent, executed by a mortgagee in respect of Inventory of any Borrowing Base Contributor located at any mortgaged premises of such Borrowing Base Contributor.

“Multiemployer Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which Terra Industries, any of its Subsidiaries or any ERISA Affiliate has any obligation or liability, contingent or otherwise.

“Net Cash Proceeds” means (a) proceeds received by Terra Industries or its Subsidiaries after the Effective Date in cash or Cash Equivalents from any Asset Sale of property constituting Collateral, other than Asset Sales permitted under clauses (a) through (e) of Section 8.4, net of (x) the reasonable cash costs of sale, assignment or other disposition, (y) taxes paid or payable within 22 months of the date of such Asset Sale as a result thereof (provided, however, that any such taxes which are so payable shall be deposited in a Cash Collateral Account acceptable to the Administrative Agent pending payment) and (z) any amount required to be paid or prepaid on Indebtedness (other than the Obligations) secured by the assets subject to such Asset Sale; provided, however, that the evidence of each of (x), (y) and (z) are provided to the Administrative Agent in form and substance satisfactory to it; (b) proceeds of insurance covering property constituting Collateral (net of (i) reasonable expenses incurred directly in the collection thereof and (ii) (to the extent permitted hereby) contractually required payments of Indebtedness (other than the Obligations) secured by a Lien on the insured property (that is prior to any Lien granted under the Collateral Documents)) on account of the loss of or damage to any such assets or property, and payments of compensation for any such assets or property taken by expropriation, condemnation or eminent domain, to the extent such proceeds or payments exceed $2,000,000 in the aggregate; and (c) proceeds received after the Effective Date by Terra Industries or its Subsidiaries in cash or Cash Equivalents from (i) any Equity Issuance (other than any such issuance of common Stock of Terra Industries occurring in the ordinary course of business to any director, member of the management or employee of Terra Industries or its Subsidiaries and other than any such issuance of Stock of TNCLP constituting Senior Secured Note Collateral), or (ii) any Debt Issuance (except for Indebtedness permitted under clauses (c) through (i) of Section 8.1), in each case net of brokers’ and advisors’ fees and other costs incurred in connection with such transaction; provided, however, that evidence of such costs is provided to the Administrative Agent.

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“Non-Funding Lender” has the meaning specified in Section 2.2(d).

“Non-Material Real Property” means any parcel of Real Property which has a Fair Market Value of less than $500,000 or (if leasehold) the lease rental payments in respect thereof are less than $500,000 per annum.

“Non-U.S. Lender” means each Lender or Administrative Agent that is not a United States person as defined in Section 7701(a)(30) of the Code.

“Note” means a promissory note of a Borrower (other than Terra UK), substantially in the form of Exhibit B, payable to the order of any Lender in a principal amount equal to the amount of such Lender’s Revolving Credit Commitment evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from the Revolving Loans owing to such Lender.

“Notice of Borrowing” has the meaning specified in Section 2.2(a).

“Notice of Conversion or Continuation” has the meaning specified in Section 2.11.

“Obligations” means the Loans, the Letter of Credit Obligations and all other advances, debts, liabilities, obligations, covenants and duties owing by the Loan Parties to the Administrative Agent, any Lender, any Issuer, any Affiliate of any of them or any Indemnitee, of every type and description, present or future, arising under this Agreement or under any other Loan Document or under or in respect of any credit cards issued for the account of such Person by the Administrative Agent or any of its Affiliates, by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification, foreign exchange transaction, Hedging Contract, cash management service or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising (including arising after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or similar proceeding, regardless of whether the same is allowable as a claim in such proceeding or by applicable law) and however acquired and whether or not evidenced by any note, guaranty or other instrument or for the payment of money. The term “Obligations” includes all letter of credit, cash management and other fees and expenses and all interest, charges, expenses, fees, attorneys’ fees and disbursements and other sums chargeable to the Loan Parties under this Agreement or any other Loan Document and all obligations of the Loan Parties to cash collateralize Letter of Credit Obligations.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

“Permit” means any permit, approval, authorization, license, variance or permission required from a Governmental Authority under an applicable Requirement of Law.

“Permitted Acquisition” means the acquisition by a Borrower or any of its Subsidiaries of all or substantially all of the assets or Stock of any Person or of any operating division thereof (the “Target”), or the merger of the Target with or into a Borrower or any Subsidiary of a Borrower (with such Borrower, in the case of a merger with such Borrower, being the surviving corporation) subject to the satisfaction of each of the following conditions:

(a) the Administrative Agent shall receive at least 30 days’ prior written notice of such acquisition, which notice shall include a reasonably detailed description of such acquisition;

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(b) such acquisition shall only involve assets comprising a business, or those assets of a business, of the type engaged in by the Borrowers and their Subsidiaries as of the Effective Date;

(c) such acquisition shall be consensual and shall have been approved by the Target’s board of directors;

(d) no additional Indebtedness shall be incurred, assumed or otherwise be reflected on a consolidated balance sheet of each Borrower and the Target after giving effect to such acquisition, except (i) Loans made hereunder, (ii) ordinary course trade payables and accrued expenses and (iii) Indebtedness permitted under Section 8.1 (Indebtedness);

(e) the Dollar Equivalent of the sum of all amounts payable in connection with such proposed acquisition and all other Permitted Acquisitions (other than the MCC Acquisition) (including all transaction costs and all Indebtedness, liabilities and Guaranty Obligations incurred or assumed in connection therewith or otherwise reflected in a consolidated balance sheet of Terra Industries and the Target) shall not exceed $50,000,000;

(f) the aggregate Available Credit shall be at least $100,000,000, after giving effect to a proposed acquisition (including on the date of the consummation of such proposed acquisition);

(g) at or prior to the date of consummation of such proposed acquisition, the applicable Borrower (or the Subsidiary making such acquisition) and the Target shall have executed such documents and taken such actions as may be required under Section 7.11 (Additional Collateral and Guaranties);

(h) the applicable Borrower shall have delivered to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent and promptly following its request (and, if so requested, not later than 15 days prior to such acquisition), such other financial information, financial analysis, documentation or other information relating to such acquisition as the Administrative Agent shall reasonably request;

(i) on or prior to the date of such acquisition, the Administrative Agent shall have received, in form and substance reasonably satisfactory to the Administrative Agent, copies of the acquisition agreement, related Contractual Obligations and instruments and all opinions, certificates, lien search results and other documents reasonably requested by the Administrative Agent; and

(j) a Responsible Officer to the Borrowers shall have delivered a certificate to the Administrative Agent to the effect that, on the date on which such acquisition is consummated and after giving effect thereto, (i) no Default or Event of Default shall have occurred and be continuing, (ii) all representations and warranties contained in Article IV

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(Representations and Warranties) and in the other Loan Documents shall be true and correct in all material respects and (iii) Terra Industries and its Subsidiaries shall be in compliance with each of the covenants set forth in Article V (Financial Covenants) on a pro forma basis after giving effect to such proposed acquisition and the assumption or incurrence of any Indebtedness in connection therewith.

“Person” means an individual, partnership, corporation (including a business trust), joint stock company, estate, trust, limited liability company, unincorporated association, joint venture or other entity, or a Governmental Authority.

“Plan of Reorganization” has the meaning specified in the MCC Acquisition Agreement.

“Pledge and Security Agreement” means the Amended and Restated Pledge and Security Agreement dated as of October 10, 2001, among Terra Industries, Terra Capital, each Guarantor that is a Domestic Subsidiary (other than MCC and its Subsidiaries) and the Administrative Agent.

“Port Neal” means Port Neal Corporation, a Delaware corporation.

“Pro Forma Balance Sheet” has the meaning specified in Section 4.4(d).

“Projections” means (i) up until the delivery of any update or restatement thereof pursuant to Section 6.1(e), those financial projections contained in Schedule III, covering the annual financial projections for Fiscal Years ending in 2005 through 2009, or (ii) thereafter, the most recent update or restatement of such projections delivered pursuant to Section 6.1(e).

“Purchase Event” means the occurrence of any of the following:

(a) any Subsidiary of Terra Industries has any outstanding Indebtedness owing to Terra Industries or any of its Subsidiaries, other than Indebtedness permitted to be outstanding under Section 8.1 (except clause (k) thereof); or

(b) Liens on or with respect to any property of any Subsidiary of Terra Industries have been created in favor of Terra Industries or any of its Subsidiaries, other than Liens permitted under Section 8.2 (except clause (i) thereof); or

(c) any Subsidiary of Terra Industries has made any Investments in Terra Industries or any of its Subsidiaries, other than Investments permitted under Section 8.3 (except clause (m) thereof); or

(d) any Subsidiary of Terra Industries has sold, transferred or otherwise disposed of any of its property to Terra Industries or any of its Subsidiaries, other than sales, transfers or other dispositions permitted under Section 8.4 (except clause (g) thereof); or

(e) Terra Industries or any of its Subsidiaries receive, declare, order, pay, make or set apart any Restricted Payment other than Restricted Payments permitted under Section 8.5 (except clause (d) thereof).

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“Qualifying Lender” means:

(a) a bank as defined in § 840A for the purposes of § 349(3)(a) of the UK Income and Corporation Taxes Act 1988 which is within the charge to United Kingdom corporation tax in respect of payments of interest received by it under this agreement and which is beneficially entitled to such interest; or

(b) a bank, financial institution or corporation which is resident in a country with which the United Kingdom has a double-taxation treaty under which that bank, financial institution or corporation is entitled, subject to completion of any necessary procedural formalities, to receive principal, interest and fees under this agreement without withholding of United Kingdom Income Tax.

“Ratable Portion” or “ratably” means, with respect to any Lender, the percentage obtained by dividing (a) the Revolving Credit Commitment of such Lender by (b) the aggregate Revolving Credit Commitments of all Lenders (or, at any time after the Revolving Credit Termination Date, the percentage obtained by dividing the aggregate outstanding principal balance of the Revolving Credit Outstandings owing to such Lender by the aggregate outstanding principal balance of the Revolving Credit Outstandings owing to all Lenders).

“Real Property” means all of those plots, pieces or parcels of land now owned, leased or hereafter acquired or leased by any Loan Party or any of its Subsidiaries (the “Land”), together with the right, title and interest of such Loan Party or Subsidiary, if any, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, the air space and development rights pertaining to the Land and the right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments and appurtenances belonging or in any way appertaining thereto, all fixtures, all easements now or hereafter benefiting the Land and all royalties and rights appertaining to the use and enjoyment of the Land, including all alley, vault, drainage, mineral, water, oil and gas rights, together with all of the buildings and other improvements now or hereafter erected on the Land, and any fixtures appurtenant thereto.

“Redemption Notice Period” has the meaning specified in Section 3.1(c).

“Register” has the meaning specified in Section 11.2(c).

“Reimbursement Obligations” means the Dollar Equivalent of all matured reimbursement or repayment obligations of the Borrower to any Issuer with respect to amounts drawn under Letters of Credit.

“Release” means, with respect to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration, in each case, of any Contaminant into the environment or into or out of any property owned by such Person, including the movement of Contaminants through or in the air, soil, surface water, ground water or property.

“Remedial Action” means all actions required to (a) clean up, remove, treat or in any other way address any Release of any Contaminant in the environment, (b) prevent the Release or threat of Release or minimize the further Release so that a Contaminant does not

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migrate or endanger or threaten to endanger public health or welfare or the environment or (c) perform pre-remedial studies and investigations and post-remedial monitoring and care.

“Repurchase Period” means each of the following periods during which Terra Capital may make open market purchases of Common Units, subject to the terms of Section 8.3(h) and Section 8.12: (a) the period beginning on the Effective Date and ending on July 14, 2005 and (b) each twelve month period beginning on July 15 of each year prior to the Scheduled Termination Date and ending on July 14 of the following year beginning on July 15, 2005.

“Requirement of Law” means, with respect to any Person, all federal, provincial, state, local and foreign laws, rules and regulations, orders, judgments, decrees and other determinations of any Governmental Authority or arbitrator, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Requisite Lenders” means those Lenders having more than fifty percent (50%) of the aggregate outstanding amount of the aggregate Revolving Credit Commitments or, after the Revolving Credit Termination Date, the aggregate Revolving Credit Outstandings. Prior to the Revolving Credit Termination Date, a Non-Funding Lender shall not be included in the calculation of “Requisite Lenders”.

“Responsible Officer” means, with respect to any Person, any of the principal executive officers, managing members or general partners of such Person, but in any event, with respect to financial matters, the chief financial officer, treasurer or controller of such Person.

“Restricted Payment” means (a) any dividend or other distribution, direct or indirect, on account of any Stock or Stock Equivalents of Terra Industries or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in Stock or Stock Equivalents or a dividend or distribution payable solely to any Borrower and/or one or more Subsidiary Guarantors, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Stock or Stock Equivalents of Terra Industries or any of its Subsidiaries now or hereafter outstanding other than one payable solely to Terra Industries and/or one or more Subsidiary Guarantors or any cashless exercise of warrants or options in respect of the foregoing, and (c) any payment or prepayment of principal, premium (if any), interest, fees (including fees to obtain any waiver or consent in connection with any Security) or other charges on, or redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Debt, other than any required redemptions, retirement, purchases or other payments, in each case to the extent permitted to be made by the terms of such Indebtedness after giving effect to any applicable subordination provisions.

“Revolving Credit Commitment” means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and acquire interests in other Revolving Credit Outstandings in the aggregate principal amount outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule I under the caption “Revolving Credit Commitment,” as amended to reflect each Assignment and Acceptance executed by such Lender and as such amount may be reduced pursuant to this Agreement.

“Revolving Credit Facility” means the Revolving Credit Commitments and the provisions herein related to the Revolving Loans, Swing Loans and Letters of Credit.

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“Revolving Credit Outstandings” means, at any particular time, the sum of (a) the principal amount of the Revolving Loans outstanding at such time plus (b) the Letter of Credit Obligations outstanding at such time plus (c) the principal amount of Swing Loans outstanding at such time.

“Revolving Credit Termination Date” shall mean the earliest of (a) the Scheduled Termination Date, (b) the date of termination of the Revolving Credit Commitments pursuant to Section 2.5 and (c) the date on which the Obligations become due and payable pursuant to Section 9.2.

“Revolving Loan” has the meaning specified in Section 2.1.

“Scheduled Termination Date” means June 30, 2008.

“Seasonal Eligible Inventory Rate” means, in any calendar month with respect to each type of Eligible Non-Spare Parts Inventory set forth below, the applicable percentage set forth opposite such month under such type of Eligible Non-Spare Parts Inventory:

Calendar Month	Ammonia/ Ammonia Nitrate	UAN 28	Urea	Methanol	Natural Gas	Precious Metals	Other
January	71%	56%	58%	50%	56%	60%	64%
February	75%	59%	60%	53%	56%	60%	68%
March	75%	59%	60%	53%	56%	60%	68%
April	75%	59%	60%	53%	56%	60%	68%
May	75%	59%	60%	53%	56%	60%	68%
June	75%	59%	60%	53%	56%	60%	68%
July	75%	59%	60%	53%	56%	60%	68%
August	71%	56%	58%	50%	56%	60%	64%
September	71%	56%	58%	50%	56%	60%	64%
October	71%	56%	58%	50%	56%	60%	64%
November	71%	56%	58%	50%	56%	60%	64%
December	71%	56%	58%	50%	56%	60%	64%

“Secured Parties” means the Lenders, the Issuers, the Administrative Agent and any other holder of any of the Obligations.

“Security” means any Stock, Stock Equivalent, voting trust certificate, bond, debenture, note or other evidence of Indebtedness, whether secured, unsecured, convertible or subordinated, or any certificate of interest, share or participation in, or any temporary or interim certificate for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing, but shall not include any evidence of the Obligations.

“Senior Second Lien Note Documents” has the meaning specified in the Senior Second Lien Note Intercreditor Agreement, and includes the Senior Second Lien Notes and the Senior Second Lien Note Indenture.

“Senior Second Lien Note Indenture” means the Senior Note Indenture entered or to be entered into between Terra Capital and the Senior Second Lien Note Trustee.

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“Senior Second Lien Note Intercreditor Agreement” means the Intercreditor Agreement to be dated as of the date of the Senior Second Lien Note Indenture, (with such changes thereto as the Administrative Agent may approve), among the Borrowers and certain Guarantors, the Administrative Agent, the Senior Second Lien Note Trustee and the Senior Secured Note Trustee.

“Senior Second Lien Note Trustee” means the trustee, together with its successors and assigns in such capacity, appointed in accordance with the provisions of the Senior Secured Note Indenture to act for the benefit of the holders of the Senior Second Lien Notes.

“Senior Second Lien Notes” means the Senior Secured Notes (including the Initial Notes and the Exchange Notes, as such terms are defined in the Senior Secured Note Indenture) issued or to be issued by Terra Capital pursuant to the Senior Secured Note Indenture.

“Senior Secured Note Collateral” has the meaning specified in the Senior Secured Note Intercreditor Agreement.

“Senior Secured Note Documents” has the meaning specified in the Senior Secured Note Intercreditor Agreement, and includes the Senior Secured Notes and the Senior Secured Note Indenture.

“Senior Secured Note Indenture” means the 12-7/8% Senior Note Indenture dated October 10, 2001 between Terra Capital and the Senior Secured Note Trustee.

“Senior Secured Note Intercreditor Agreement” means the Access, Use and Intercreditor Agreement, dated as of the Initial Closing Date, among the Borrowers (other than MCC) and Guarantors, the Administrative Agent and the Senior Secured Note Trustee.

“Senior Secured Note Trustee” means the trustee, together with its successors and assigns in such capacity, appointed in accordance with the provisions of the Senior Secured Note Indenture to act for the benefit of the holders of the Senior Secured Notes.

“Senior Secured Notes” means the 12-7/8% Senior Secured Notes (including the Initial Notes and the Exchange Notes, as such terms are defined in the Senior Secured Note Indenture) due 2008 issued or to be issued by Terra Capital pursuant to the Senior Secured Note Indenture.

“Shared Collateral” has the meaning specified in the Senior Secured Note Intercreditor Agreement.

“Shared Current Asset Collateral” means the “Shared Collateral” as defined in the Senior Second Lien Note Intercreditor Agreement.

“Solvent” means, with respect to any Person, that the value of the assets of such Person (both at fair value and present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and does not have unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at

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the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Standby Letter of Credit” means any letter of credit issued pursuant to Section 2.4 which is not a Documentary Letter of Credit.

“Sterling” and “£” means the lawful money of the United Kingdom.

“Stock” means shares of capital stock (whether denominated as common stock or preferred stock), beneficial, partnership or membership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity, whether voting or non-voting.

“Stock Equivalents” means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently convertible, exchangeable or exercisable.

“Subordinated Debt” means all Indebtedness of Terra Industries and its Subsidiaries which is subordinated in right of payment to the prior payment in full of the Obligations.

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company or other business entity (a) of which an aggregate of more than 50% of the outstanding Voting Stock is, at the time, directly or indirectly, owned or controlled by such Person and/or one or more Subsidiaries of such Person, or (b) the ordinary power to appoint the majority of the members of the board of directors, managers, trustees or other controlling Person of which is held by such Person and/or one or more Subsidiaries of such Person. Each reference to a “Subsidiary” of Terra Industries or any of its Subsidiaries shall be deemed to exclude TNCLP and its Subsidiaries except (i) for purposes of Sections 8.1(k), 8.2(i), 8.3(m), 8.4(g) and 8.5(d) or (ii) as otherwise indicated.

“Subsidiary Guarantor” means, in respect of any Borrower, a Subsidiary of such Borrower which has guaranteed all of such Borrower’s Obligations.

“Swing Loan” has the meaning specified in Section 2.3.

“Swing Loan Borrowing” means a borrowing consisting of a Swing Loan.

“Swing Loan Lender” means CUSA.

“Swing Loan Request” has the meaning specified in Section 2.3(b).

“Syndication Agent” has the meaning specified at the beginning of this Agreement.

“Tax Affiliate” means, with respect to any Person, (a) any Subsidiary of such Person, and (b) any Affiliate of such Person with which such Person files or is eligible to file consolidated, combined or unitary Tax Returns.

“Tax Return” has the meaning specified in Section 4.8(a).

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“Taxes” has the meaning specified in Section 2.16(a).

“Terra Canada” means Terra International (Canada) Inc., a corporation governed by the laws of Ontario and an indirect wholly owned Subsidiary of Terra Capital.

“Terra Canada Collateral Documents” means, collectively, the Terra Canada Security Agreement and each security agreement or other grant of security now or hereafter made by Terra Canada to secure any of its Obligations, and all recordings, registrations and other filings required by this Agreement or any of the foregoing to be filed with respect to the Liens created pursuant thereto.

“Terra Canada Credit Agreement” means the Credit Agreement dated as of December 31, 1997 and amended and restated as of March 31, 1998, as of June 25, 1999 and on April 7, 2000 among Terra Canada, the lenders party thereto and Citibank, as administrative agent for said lenders.

“Terra Canada Debt” means Intercompany Indebtedness, in an initial principal amount of $47,301,147 outstanding as of October 10, 2001, owed by Terra Canada to Terra Capital.

“Terra Canada Debt Note” means the promissory note issued by Terra Canada evidencing the Terra Canada Debt, dated as of the Effective Date.

“Terra Canada Junior Guaranty” means the Junior Guaranty dated as of the Effective Date, executed by Terra Canada in favor of Terra Capital in respect of the Terra UK Debt, and assigned to the Administrative Agent.

“Terra Canada Mortgage” means the collateral charge dated December 31, 1997 in favor of the Administrative Agent covering (inter alia) Terra Canada’s Courtright, Ontario manufacturing facility.

“Terra Canada Security Agreement” means the Amended and Restated General Security Agreement dated as of the Effective Date, in substantially the form of Exhibit O, executed by Terra Canada in favor of the Administrative Agent.

“Terra Capital Available Credit” means, at any time, an amount equal to (a) the lesser of (i) the then effective Revolving Credit Commitments and (ii) the Borrowing Base of Terra Capital at such time minus (b) the sum of (i) the aggregate Revolving Credit Outstandings owing by Terra Capital at such time and (ii) any Availability Reserve applicable to Terra Capital in effect at such time.

“Terra Capital Guarantors” means each of (i) Terra Industries, (ii) the Borrowing Base Contributors of Terra Capital, (iii) Terra Capital Holdings, (iv) TNC, (v) TI, (vi) BMCH, (vii) Beaumont Holdings, (viii) TMC, (ix) Terra UK Holdings, (x) Terra Real Estate, (xi) MCC and it Subsidiaries and (xii) any other Domestic Subsidiary that, in each case, is or becomes party to a Guaranty in respect of the Obligations of Terra Capital.

“Terra Capital Holdings” means Terra Capital Holdings, Inc., a Delaware corporation.

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“Terra Oklahoma” means Terra International (Oklahoma) Inc., a Delaware corporation and a wholly owned Subsidiary of TI.

“Terra Real Estate” means Terra Real Estate Corp., an Iowa corporation and a wholly owned Subsidiary of TI.

“Terra UK Available Credit” means, at any time, an amount equal to (a) the lesser of (i) the then effective Revolving Credit Commitments and (ii) the Borrowing Base of Terra UK at such time minus (b) the sum of (i) the aggregate Revolving Credit Outstandings owing by Terra UK at such time and (ii) any Availability Reserve applicable to Terra UK in effect at such time.

“Terra UK Customer Debt” means Indebtedness for borrowed money of a customer of Terra UK owing to Capital Bank Plc or another financial institution in the United Kingdom, provided that:

(a) such customer uses the entire principal proceeds of such Indebtedness to pay for goods and services purchased from Terra UK;

(b) such customer is required to repay such Indebtedness in full within 12 months of the date on which such Indebtedness is incurred;

(c) in the reasonable opinion of Terra UK, such customer is creditworthy; and

(d) it is a condition of the extension of credit by Capital Bank Plc (or such other financial institution) to such customer that Terra UK guarantee a portion of such Indebtedness.

“Terra UK Debt” means Intercompany Indebtedness, in an initial principal amount of $49,161,408 outstanding as of October 10, 2001, owed by Terra UK to Terra Capital, and excluding the Terra UK Fixed Asset Secured Debt.

“Terra UK Debt Note” means the promissory note issued by Terra UK evidencing the Terra UK Debt, dated as of the Initial Closing Date.

“Terra UK Fixed Asset Secured Debt” means the Intercompany Indebtedness owing from Terra UK to Terra UK Holdings in a maximum principal amount of $100,000,000, the promissory note, guarantees, security interests and other supporting obligations in respect of which constitute Senior Secured Note Collateral.

“Terra UK Guarantors” means each of (i) Terra Capital, (ii) the Terra Capital Guarantors and (iii) Terra Canada.

“Terra UK Holdings” means Terra (U.K.) Holdings, Inc., a Delaware corporation and a direct Subsidiary of Beaumont Holdings and TMC.

“Terra UK Junior Guaranty” means the Junior Guaranty dated as of the Initial Closing Date, executed by Terra UK in favor of Terra Capital in respect of the Terra Canada Debt, and assigned to the Administrative Agent.

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“Terra UK Share Mortgage” means the share mortgage executed by Terra Canada dated June 30, 1999 in respect of the Stock of Terra UK.

“TI” means Terra International, Inc., a Delaware corporation and a wholly owned Subsidiary of Terra Industries.

“Title IV Plan” means a pension plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA to which the Borrower, any of its Subsidiaries or any ERISA Affiliate has any obligation or liability (contingent or otherwise).

“TMC” means Terra Methanol Corporation, a Delaware corporation.

“TNC” means Terra Nitrogen Corporation, a Delaware corporation and a wholly owned Subsidiary of Terra Capital.

“TNCLP” means Terra Nitrogen Company, L.P., a Delaware limited partnership and a Subsidiary of Terra Capital.

“TNCLP Minority Interest Payments” means dividends and distributions which are legally required to be paid to holders of Common Units (other than Terra Industries and its Subsidiaries).

“TNLP” means Terra Nitrogen, Limited Partnership, a Delaware limited partnership and a Subsidiary of TNCLP.

“TNLP Credit Agreement” means that certain Credit Agreement dated as of the Effective Date, among TNCLP and certain of its Subsidiaries, the Administrative Agent and the lenders and issuers party thereto pursuant to which such lenders have provided TNLP a revolving credit facility in the aggregate principal amount of $50,000,000.

“Total Assets” of any Person means, at any date, the total assets of such Person and its Subsidiaries at such date determined on a consolidated basis in conformity with GAAP minus (a) any minority interest in non-wholly-owned Subsidiaries that would be reflected on a consolidated balance sheet of such person and its Subsidiaries at such date prepared in conformity with GAAP and (b) any Securities issued by such Person held as treasury securities.

“UCC” has the meaning specified in the Pledge and Security Agreement.

“Unfunded Pension Liability” means, with respect to the Borrower at any time, the sum of (a) the amount, if any, by which the present value of all accrued benefits under each Title IV Plan (other than any Title IV Plan subject to Section 4063 of ERISA) exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, as determined as of the most recent valuation date for such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, and (b) the aggregate amount of withdrawal liability that could be assessed under Section 4063 with respect to each Title IV Plan subject to such Section, separately calculated for each such Title IV Plan as of its most recent valuation date and (c) for a period of five years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by the Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of such transaction.

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“United Kingdom” and “UK” each means the territory known as the United Kingdoms of England, Scotland, Wales and Northern Ireland.

“US Concentration Account” means the concentration account opened with Citibank in New York, New York set forth on Schedule 7.12.

“Voting Stock” means Stock of any Person having ordinary power to vote in the election of members of the board of directors, managers, trustees or other controlling Persons, of such Person (irrespective of whether, at the time, Stock of any other class or classes of such entity shall have or might have voting power by reason of the happening of any contingency).

“Withdrawal Liability” means, with respect to the Borrower at any time, the aggregate liability incurred (whether or not assessed) with respect to all Multiemployer Plans pursuant to Section 4201 of ERISA or for increases in contributions required to be made pursuant to Section 4243 of ERISA.

Section 1.2. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding” and the word “through” means “to and including.”

Section 1.3. Accounting Terms and Principles.

(a) Except as set forth below, all accounting terms not specifically defined herein shall be construed in conformity with GAAP and all accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in conformity with GAAP.

(b) If any change in the accounting principles used in the preparation of the most recent Financial Statements referred to in Section 6.1 is hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successors thereto) and such change is adopted by the Borrowers with the agreement of its independent public accountants and results in a change in the results of any of the calculations required by Article V or Article VIII which would not have occurred had such accounting change not occurred, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such change with the desired result that the criteria for evaluating compliance with such covenants by the Borrowers shall be the same after such change as if such change had not been made; provided, however, that no change in GAAP that would affect a calculation that measures compliance with any covenant contained in Article V or Article VIII shall be given effect until such provisions are amended to reflect such changes in GAAP.

Section 1.4. Certain Terms.

(a) The words “herein,” “hereof” and “hereunder” and similar words refer to this Agreement as a whole, and not to any particular Article, Section, subsection or clause in, this Agreement.

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(b) References in this Agreement to an Exhibit, Schedule, Article, Section, subsection or clause refer to the appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in this Agreement.

(c) Each agreement defined in this Article I shall include all appendices, exhibits and schedules thereto. Unless the prior written consent of the Requisite Lenders (or such other combination of Lenders as may be required hereunder) is required hereunder for an amendment, restatement, supplement or other modification to any such agreement and such consent is not obtained, references in this Agreement to such agreement shall be to such agreement as so amended, restated, supplemented or modified.

(d) References in this Agreement to any statute shall be to such statute as amended or modified and in effect at the time any such reference is operative.

(e) The term “including” when used in any Loan Document means “including without limitation” except when used in the computation of time periods.

(f) The terms “Lender”, “Issuer” and “Administrative Agent” include their respective successors.

(g) Upon the appointment of any successor Administrative Agent pursuant to Section 10.6, references to CUSA in Section 10.3 and to Citibank in the definitions of Base Rate and Eurodollar Rate shall be deemed to refer to the financial institution then acting as the Administrative Agent or one of its Affiliates if it so designates.

ARTICLE II

THE REVOLVING CREDIT FACILITY

Section 2.1. The Revolving Credit Commitments. On the terms and subject to the conditions contained in this Agreement, each Lender severally agrees to make loans (each, a “Revolving Loan”) to each Borrower from time to time on any Business Day during the period from the Effective Date until the Revolving Credit Termination Date in an aggregate amount not to exceed at any time outstanding for all such loans by such Lender such Lender’s Revolving Credit Commitment; provided, however, that at any time no Lender shall be obligated to make a Revolving Loan to any Borrower (i) in excess of such Lender’s Ratable Portion of the Available Credit of such Borrower at such time and (ii) to the extent that the aggregate Revolving Credit Outstandings, after giving effect to such Revolving Loans, would exceed the Maximum Credit in effect at such time. Within the limits of each Lender’s Revolving Credit Commitment, amounts of Revolving Loans repaid may be reborrowed under this Section 2.1.

Section 2.2. Borrowing Procedures.

(a) Each Borrowing shall be made on notice given by any Borrower to the Administrative Agent not later than 11:00 A.M. (New York City time) (i) one Business Day, in the case of a Borrowing of Base Rate Loans and (ii) three Business Days, in the case of a Borrowing of Eurodollar Rate Loans, prior to the date of the proposed Borrowing; provided, however, in respect of Revolving Loans made on the Effective Date (x) the Notice of Borrowing (as defined below) in respect thereof may be given by 11:00 A.M. (New York City time) on the Effective Date and (y) such Revolving Loans shall be made as Base Rate Loans and thereafter

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may be converted to Eurodollar Rate Loans pursuant to Section 2.11. Each such notice shall be in substantially the form of Exhibit C (a “Notice of Borrowing”), specifying (A) the proposed Borrower, (B) the date of such proposed Borrowing, (C) the amount of such Borrower’s Available Credit (in respect of which the Borrowing Base component thereof may be calculated by reference to the Borrowing Base Certificate most recently delivered to the Administrative Agent hereunder), (D) the amount of the Revolving Loans then outstanding to each Borrower, (E) the aggregate amount of such proposed Borrowing, (F) whether any portion of the proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans and (G) the initial Interest Period or Periods for any such Eurodollar Rate Loans, if applicable. The Revolving Loans shall be made as Base Rate Loans unless (subject to Section 2.14) the Notice of Borrowing specifies that all or a portion thereof shall be Eurodollar Rate Loans. Each Borrowing, or portion thereof, which is a Eurodollar Rate Loan shall be in an aggregate amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. In the event that a Borrower requests a Base Rate Loan in an amount of less than $5,000,000 the Administrative Agent may (at its option) require such Borrowing, or the relevant portion thereof, to be made as a Swing Loan; provided, however, that to do so would not conflict with the provisions of Section 2.3.

(b) The Administrative Agent shall give to each Lender prompt notice of the Administrative Agent’s receipt of a Notice of Borrowing and, if Eurodollar Rate Loans are properly requested in such Notice of Borrowing, the applicable interest rate determined pursuant to Section 2.14(a). Each Lender shall, before 11:00 A.M. (New York City time) on the date of the proposed Borrowing, make available to the Administrative Agent at its address referred to in Section 11.8, in immediately available funds, such Lender’s Ratable Portion of such proposed Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Sections 3.1 and 3.2, the Administrative Agent will make such funds available to the relevant Borrower in such Borrower’s Disbursement Account.

(c) Unless the Administrative Agent shall have received notice from any Lender prior to the date of any proposed Borrowing that such Lender will not make available to the Administrative Agent such Lender’s Ratable Portion of such Borrowing, the Administrative Agent may assume that such Lender has made such Ratable Portion available to the Administrative Agent on the date of such Borrowing in accordance with this Section 2.2 and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such Ratable Portion available to the Administrative Agent, such Lender and the applicable Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the applicable Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the applicable Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for the first Business Day and thereafter at the interest rate applicable at the time to the Loans comprising such Borrowing. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender’s Loan as part of such Borrowing for purposes of this Agreement. If the applicable Borrower shall repay to the Administrative Agent such corresponding amount, such payment shall not relieve such Lender of any obligation it may have hereunder to such Borrower.

(d) The failure of any Lender to make a Revolving Loan or any payment required by it on the date specified (a “Non-Funding Lender”), including any payment in respect

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of its participation in Swing Loans and Letter of Credit Obligations, shall not relieve any other Lender of its obligations to make such Loan or payment on such date but no such other Lender shall be responsible for the failure of any Non-Funding Lender to make a Revolving Loan or payment required under this Agreement.

(e) On the Effective Date, (i) all Revolving Loans under the Existing Credit Agreement shall be deemed to be Revolving Loans outstanding under this Agreement, (ii) the Revolving Credit Commitments shall be permanently reduced from $175,000,000 to $150,000,000, (iii) that portion of the Revolving Credit Commitments of the Existing Lenders that are not party to this Agreement shall be deemed to be assigned to the Lenders party to this Agreement, and each such Existing Lender shall cease to be a party to this Agreement, (iv) the Revolving Credit Commitment of each Lender party to the Existing Credit Agreement that is a party to this Agreement shall be adjusted from such Lender’s revolving credit commitment under the Existing Credit Agreement to the amount set forth opposite such Lender’s name under the heading “Revolving Credit Commitment” on Schedule I and (v) each Lender whose Ratable Portion of the Revolving Loans outstanding on the Effective Date exceeds the amount of the Revolving Loans held by it on such date shall purchase Revolving Loans from such other Lenders such that after giving effect to such purchase, each Lender shall hold Revolving Loans equal to its Ratable Portion of the Revolving Loans outstanding on such date.

Section 2.3. Swing Loans.

(a) On the terms and subject to the conditions contained in this Agreement, the Swing Loan Lender may in its sole discretion make loans (each, a “Swing Loan”) otherwise available to any Borrower under the Revolving Credit Facility from time to time on any Business Day during the period from the Effective Date until the Revolving Credit Termination Date in an aggregate amount at any time outstanding at any time not to exceed the lesser of (i) $15,000,000 and (ii) the Swing Loan Lender’s Ratable Portion of the amount by which the Maximum Credit exceeds the Revolving Credit Outstandings at such time; provided, however, that no Swing Loan may be made that, after giving effect thereto, would result in a Borrowing Base Deficiency. The Swing Loan Lender shall be entitled to rely on the most recent Borrowing Base Certificate delivered to the Administrative Agent. Each Swing Loan shall be a Base Rate Loan and (subject to Sections 2.6 and 2.9) shall be repaid upon any Borrowing of a Revolving Loan or from time to time at the discretion of the Swing Loan Lender but in any event no later than the Scheduled Termination Date. Within the limits set forth in the first sentence of this Section 2.3(a), amounts of Swing Loans repaid may be reborrowed under this Section 2.3(a).

(b) In order to request a Swing Loan, the relevant Borrower shall telecopy to the Swing Loan Lender a duly completed request setting forth the requested amount and date of the Swing Loan (a “Swing Loan Request”), to be received by the Swing Loan Lender not later than 1:00 p.m. (New York City time) on the day of the proposed Borrowing. Subject to the terms of this Agreement, the Swing Loan Lender shall make its Swing Loan available to the Borrower on the date of the relevant Swing Loan Request. The Swing Loan Lender shall not make any Swing Loan in the period commencing on the first Business Day after it receives written notice from any Lender that one or more of the conditions precedent contained in Section 3.2 shall not on such date be satisfied, and ending when such conditions are satisfied. The Swing Loan Lender shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 3.2 hereof have been satisfied in connection with the making of any Swing Loan.

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(c) The Swing Loan Lender may demand at any time that each Lender pay to the Swing Loan Lender (for its account), in the manner provided in subsection (d) below, such Lender’s Ratable Portion of all or a portion of the outstanding Swing Loans, which demand shall be in writing and shall specify the outstanding principal amount of Swing Loans demanded to be paid.

(d) Each demand referred to in clause (c) above to each Lender shall be accompanied by a statement prepared by the Swing Loan Lender specifying the amount of each Lender’s Ratable Portion of the aggregate principal amount of the Swing Loans stated to be outstanding in such notice or demanded to be paid pursuant to such demand, and, notwithstanding whether or not the conditions precedent set forth in Section 3.2 shall have been satisfied (which conditions precedent the Lenders for this purpose hereby irrevocably waive), each Lender shall, before 11:00 a.m. (New York City time) on the Business Day next succeeding the date of such Lender’s receipt of such written statement, make available to the Swing Loan Lender, in immediately available funds, for the account of the Swing Loan Lender, the amount specified in such statement. Upon such payment by a Lender, such Lender shall, except as provided in clause (f) below, be deemed to have made a Revolving Loan to the applicable Borrower. The Swing Loan Lender shall use such funds to repay the Swing Loans owing to it. To the extent that any Lender fails to make such payment available to the Swing Loan Lender, the applicable Borrower shall repay such Swing Loan on demand.

(e) Upon the occurrence of a Default under Section 9.1(g), each Lender shall acquire, without recourse or warranty, an undivided participation in each Swing Loan otherwise required to be repaid by such Lender pursuant to clause (d) above, which participation shall be in a principal amount equal to such Lender’s Ratable Portion of such Swing Loan, by paying to the Swing Loan Lender on the date on which such Lender would otherwise have been required to make a payment in respect of such Swing Loan pursuant to clause (d) above, in immediately available funds, an amount equal to such Lender’s Ratable Portion of such Swing Loan. If such amount is not in fact made available by such Lender to the Swing Loan Lender on such date, the Swing Loan Lender shall be entitled to recover such amount on demand from such Lender together with interest accrued from such date at the Federal Funds Rate for the first Business Day after such payment was due and thereafter at the rate of interest then applicable to Base Rate Loans.

(f) From and after the date on which any Lender is deemed to have made a Revolving Loan pursuant to clause (d) above with respect to any Swing Loan or purchases an undivided participation interest in a Swing Loan pursuant to clause (e) above, the Swing Loan Lender shall promptly distribute to such Lender such Lender’s Ratable Portion of all payments of principal of and interest received by the Swing Loan Lender on account of such Swing Loan other than those received from a Lender pursuant to clause (d) or (e) above.

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Section 2.4. Letters of Credit.

(a) On the terms and subject to the conditions contained in this Agreement, each Issuer agrees to issue one or more Letters of Credit at the request of any Borrower for the account of such Borrower from time to time during the period commencing on the Effective Date and ending on the earlier of the Revolving Credit Termination Date and 30 days prior to the Scheduled Termination Date; provided, however, that no Issuer shall be under any obligation to issue any Letter of Credit if:

(i) any order, judgment or decree of any Governmental Authority or arbitrator shall purport by its terms to enjoin or restrain such Issuer from issuing such Letter of Credit or any Requirement of Law applicable to such Issuer or any request or directive (whether or not having the force of law but in relation with which such Issuer customarily complies) from any Governmental Authority with jurisdiction over such Issuer shall prohibit, or request that such Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuer with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuer is not otherwise compensated) not in effect on the date of this Agreement or result in any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuer as of the date of this Agreement and which such Issuer in good faith deems material to it;

(ii) such Issuer shall have received written notice from the Administrative Agent, any Lender or the applicable Borrower, on or prior to the requested date of issuance of such Letter of Credit, that one or more of the applicable conditions contained in Sections 3.1 and 3.2 is not then satisfied;

(iii) after giving effect to the issuance of such Letter of Credit, (A) the aggregate Revolving Credit Outstandings would exceed the Maximum Credit in effect at such time or (B) a Borrowing Base Deficiency would result with respect to any Borrower;

(iv) after giving effect to the issuance of such Letter of Credit, the sum of (i) the Letter of Credit Undrawn Amounts at such time and (ii) the Reimbursement Obligations at such time exceeds $50,000,000 (the “Letter of Credit Sublimit”); or

(v) any fees due in connection with a requested issuance have not been paid.

None of the Lenders (other than the Issuers in their capacity as such) shall have any obligation to issue any Letter of Credit.

(b) In no event shall the expiration date of any Letter of Credit be more than one year after the date of issuance thereof; provided, however, that (i) any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods and (ii) by not later than the Revolving Credit Termination Date each Borrower shall provide cash collateral in respect of any outstanding Letters of Credit issued for its account at such date in accordance with Section 9.3.

(c) In connection with the issuance of each Letter of Credit, the applicable Borrower shall give the relevant Issuer and the Administrative Agent at least two Business Days’ prior written notice (a “Letter of Credit Request”), in substantially the form of Exhibit D (or in such other written or electronic form as is acceptable to the Issuer), of the requested issuance of such Letter of Credit. Such notice shall be irrevocable and shall specify the applicable Borrower, the Issuer of such Letter of Credit, the stated amount of the Letter of Credit requested, the date of issuance of such requested Letter of Credit (which day shall be a Business Day), the date on which such Letter of Credit is to expire (which date shall be a Business Day), and the Person for whose benefit the requested Letter of Credit is to be issued. Such notice, to be effective, must be

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received by the relevant Issuer and the Administrative Agent not later than 11:00 A.M. (New York City time) on the second Business Day prior to the requested issuance of such Letter of Credit.

(d) Subject to the satisfaction of the conditions set forth in this Section 2.4, the relevant Issuer shall, on the requested date, issue a Letter of Credit on behalf of any Borrower in accordance with such Issuer’s usual and customary business practices. No Issuer shall issue any Letter of Credit in the period commencing on the first Business Day after it receives written notice from any Lender that one or more of the conditions precedent contained in Section 3.2 shall not on such date be satisfied, and ending when such conditions are satisfied. The relevant Issuer shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 3.2 have been satisfied in connection with the issuance of any Letter of Credit.

(e) If requested by the relevant Issuer, prior to the issuance of each Letter of Credit by such Issuer, and as a condition of such issuance and of the participation of each Lender in the Letter of Credit Obligations arising with respect thereto, the applicable Borrower shall have delivered to such Issuer a letter of credit reimbursement agreement, in such form as the Issuer may employ in its ordinary course of business for its own account (a “Letter of Credit Reimbursement Agreement”), signed by the applicable Borrower, and such other documents or items as may be required pursuant to the terms thereof. In the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall govern.

(f) Each Issuer shall:

(i) give the Administrative Agent written notice (or notice by telephone, confirmed promptly thereafter in writing, which may be by telecopier) of the issuance or renewal of a Letter of Credit issued by it, of all drawings under a Letter of Credit issued by it and the payment (or the failure to pay when due) by the applicable Borrower of any Reimbursement Obligation when due (which notice the Administrative Agent shall promptly transmit by telecopy or similar transmission to each Lender).

(ii) upon the request of any Lender, furnish to such Lender copies of any Letter of Credit Reimbursement Agreement to which such Issuer is a party and such other documentation as may reasonably be requested by such Lender; and

(iii) no later than the first Business Day following the last day of each calendar month, provide to the Administrative Agent (and the Administrative Agent shall provide a copy to each Lender requesting the same) and the Borrowers separate schedules for Documentary and Standby Letters of Credit issued by it, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate Letter of Credit Obligations outstanding at the end of each month and any information requested by the Borrowers or the Administrative Agent relating thereto.

(g) Immediately upon the issuance by an Issuer of a Letter of Credit in accordance with the terms and conditions of this Agreement, such Issuer shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender’s Ratable Portion of the

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Revolving Credit Commitments, in such Letter of Credit and the obligations of the Borrowers with respect thereto (including all Letter of Credit Obligations with respect thereto) and any security therefor and guaranty pertaining thereto.

(h) Each Borrower agrees to pay to the Issuer of any Letter of Credit the amount of all Reimbursement Obligations owing to such Issuer under any Letter of Credit issued for its account when such amounts are due and payable, irrespective of any claim, set-off, defense or other right which such Borrower may have at any time against such Issuer or any other Person. In the event that any Issuer makes any payment under any Letter of Credit and such Borrower shall not have repaid such amount to such Issuer pursuant to this clause (h) above or such payment is rescinded or set aside for any reason, such Reimbursement Obligation shall be payable on demand with interest thereon computed from the date on which such Reimbursement Obligation arose to the date of repayment in full at the rate of interest applicable to past due Revolving Loans bearing interest at a rate based on the Base Rate during such period, and such Issuer shall promptly notify the Administrative Agent, which shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuer the amount of such Lender’s Ratable Portion of such payment in Dollars and in immediately available funds. If the Administrative Agent so notifies such Lender prior to 11:00 A.M. (New York City time) on any Business Day, such Lender shall make available to the Administrative Agent for the account of such Issuer its Ratable Portion of the amount of such payment on such Business Day in immediately available funds. Upon such payment by a Lender, such Lender shall, except during the continuance of a Default or Event of Default under Section 9.1(g) and notwithstanding whether or not the conditions precedent set forth in Section 3.2 shall have been satisfied (which conditions precedent the Lenders hereby irrevocably waive) be deemed to have made a Revolving Loan to the applicable Borrower in the principal amount of such payment. Whenever any Issuer receives from a Borrower a payment of a Reimbursement Obligation as to which the Administrative Agent has received for the account of such Issuer any payment from a Lender pursuant to this clause (h) above, such Issuer shall pay to the Administrative Agent and the Administrative Agent shall promptly pay to each Lender, in immediately available funds, an amount equal to such Lender’s Ratable Portion of the amount of such payment adjusted, if necessary, to reflect the respective amounts the Lenders have paid in respect of such Reimbursement Obligation.

(i) Each Borrower’s obligation to pay each Reimbursement Obligation and the obligations of the Lenders to make payments to the Administrative Agent for the account of the Issuers with respect to Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, including the occurrence of any Default or Event of Default, and irrespective of:

(i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein;

(ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document;

(iii) the existence of any claim, set off, defense or other right that any Borrower, any Loan Party, or other party guaranteeing, or otherwise obligated with, such Borrower, any Subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary under any Letter of Credit, Issuer, the Administrative Agent

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or any Lender or any other Person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction;

(iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(v) payment by the Issuer under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

(vi) any other act or omission to act or delay of any kind of the Issuer, the Lenders, the Administrative Agent or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of any Borrower’s obligations hereunder.

Any action taken or omitted to be taken by the relevant Issuer under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not put such Issuer under any resulting liability to any Borrower or any Lender. In determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof, the Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit the Issuer may rely exclusively on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute willful misconduct or gross negligence of the Issuer.

(j) If and to the extent such Lender shall not have so made its Ratable Portion of the amount of the payment required by clause (i) above available to the Administrative Agent for the account of such Issuer, such Lender agrees to pay to the Administrative Agent for the account of such Issuer forthwith on demand such amount together with interest thereon, for the first Business Day after payment was first due at the Federal Funds Rate, and thereafter until such amount is repaid to the Administrative Agent for the account of such Issuer, at the rate per annum applicable to Base Rate Loans under the Revolving Credit Facility. The failure of any Lender to make available to the Administrative Agent for the account of such Issuer its Ratable Portion of any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuer its Ratable Portion of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent for the account of the Issuer such other Lender’s Ratable Portion of any such payment.

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Section 2.5. Reduction and Termination of the Revolving Credit Commitments. The Borrowers may upon at least three Business Days’ prior notice to the Administrative Agent, terminate in whole or reduce in part ratably the unused portions of the respective Revolving Credit Commitments of the Lenders; provided, however, that each partial reduction shall be in the aggregate amount of not less than $10,000,000 or an integral multiple of $5,000,000 in excess thereof.

Section 2.6. Repayment of Loans. Each Borrower shall repay the entire unpaid principal amount of its Revolving Loans on the Scheduled Termination Date.

Section 2.7. Evidence of Debt, Obligations of Borrowers.

(a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing Indebtedness of each Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement.

(b) The Administrative Agent shall maintain accounts in accordance with its usual practice in which it will record (i) the amount of each Loan made and, if a Eurodollar Rate Loan, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable by each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from each Borrower and each Lender’s share thereof, if applicable.

(c) The entries made in the accounts maintained pursuant to clauses (a) and (b) of this Section 2.7 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations recorded therein; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrowers to repay the Loans in accordance with their terms.

(d) Notwithstanding any other provision of the Agreement, in the event that any Lender requests that any Borrower execute and deliver a promissory note or notes payable to such Lender in order to evidence the Indebtedness owing to such Lender by such Borrower hereunder, each such Borrower will promptly execute and deliver a Note or Notes to such Lender evidencing any Revolving Loans of such Lender, substantially in the form of Exhibit B, and the interests evidenced by such note or notes shall at all times (including after assignment of all or part of such interests) be evidenced by one or more Notes payable to the order of the payee named therein; provided, however, that Terra UK shall not be required to execute and deliver any promissory note or notes hereunder and that each Existing Lender that was issued a Note previously shall be issued a new Note to reflect the amendment and restatement of the Existing Credit Agreement and any change in the Revolving Credit Commitments of such Existing Lender.

(e) Without affecting any guaranty or collateral obligation of any Borrower or other Loan Party under any Loan Document, each Borrower is severally liable in respect of its Obligations hereunder (in respect of principal and interest only) and, as a Borrower, is not obligated in such capacity to repay any Loan (or pay interest thereon) of another Borrower hereunder. All other Obligations of the Borrowers hereunder are joint and several.

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Section 2.8. Optional Prepayments. The Borrowers may (in addition to the obligations under Section 2.9(e)), upon, (i) in respect of Swing Loans, same day notice, (ii) in respect of Base Rate Loans, at least one Business Day’s prior notice, and (iii) in respect of Eurodollar Rate Loans, at least four Business Days’ prior notice, to the Administrative Agent, stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of the Revolving Loans in whole or in part; provided, however, that if any prepayment of any Eurodollar Rate Loan is made by any Borrower other than on the last day of an Interest Period for such Loan, such Borrower shall also pay any amounts owing pursuant to Section 2.14(e); and, provided, further, that each partial prepayment (other than in respect of Swing Loans or as required under Section 2.9) shall be in an aggregate principal amount not less than $5,000,000 or integral multiples of $1,000,000 in excess thereof. Upon the giving of such notice of prepayment, the principal amount of Loans specified to be prepaid shall become due and payable on the date specified for such prepayment.

Section 2.9. Mandatory Prepayments.

(a) Upon receipt by Terra Industries, the Borrowers or any of their respective Subsidiaries of Net Cash Proceeds (other than, with respect to MCC and its Subsidiaries to the extent that (x) the administrative agent and the lenders under the MCC Credit Agreement have a first priority Lien on and right to such Net Cash Proceeds pursuant to the MCC Intercreditor Agreements and (y) such Net Cash Proceeds are used to prepay the MCC Credit Agreement) arising (i) from an Asset Sale or a Debt Issuance, each Borrower shall immediately prepay its Loans (or provide cash collateral in respect of Letters of Credit) such that the aggregate amount of all such payments is equal to 100% of such Net Cash Proceeds, (ii) from an Equity Issuance each Borrower shall immediately prepay its Loans (or provide cash collateral in respect of Letters of Credit) such that the aggregate amount of all such payments is equal to 50% of such Net Cash Proceeds, or (iii) from an insured loss or casualty event (being, other than proceeds in respect of business interruption, “Insurance Proceeds”), each Borrower shall immediately prepay its Loans (or provide cash collateral in respect of Letters of Credit) such that the aggregate amount of all such payments is equal to 100% of such Net Cash Proceeds; provided, however, any Insurance Proceeds (which do not exceed $20,000,000 in respect of any single loss or event) may (provided, and for so long as, no Default or Event of Default shall have occurred and be continuing), at the request of the Borrowers, be applied in replacing or reinstating the affected assets; provided further that (A) such Net Cash Proceeds are so applied (or contractually committed to be so applied) within 360 days (the “Reinstatement Date”) following the occurrence of the event giving rise to such Net Cash Proceeds, (B) such Net Cash Proceeds are deposited in a Cash Collateral Account maintained with, and subject to a perfected first priority Lien in favor of, the Administrative Agent (which cash collateral may be included in the calculation of relevant Borrowing Base pending its application hereunder) and (notwithstanding Section 11.1(a)(ix)) any Net Cash Proceeds deposited in such account for such purpose may not subsequently be withdrawn without the approval of the Administrative Agent and (C) any such Net Cash Proceeds or any portion thereof not applied in replacement or reinstatement of the affected assets (x) by the Reinstatement Date or (y) at any time during the continuance of a Default or Event of Default at any time prior to the Reinstatement Date, shall be applied as mandatory prepayment of the Loans (or as cash collateral in respect of Letters of Credit) at such time. Any such mandatory prepayment shall be applied in accordance with Section 2.9(c) below.

(b) Any prepayments made by the Borrowers required to be applied in accordance with this Section 2.9 shall be applied as follows: first, to repay the outstanding

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principal balance of the Swing Loans until such Swing Loans shall have been repaid in full; second, to repay the outstanding principal balance of the Revolving Loans until such Revolving Loans shall have been paid in full; and then, to provide cash collateral for any Letter of Credit Obligations in the manner set forth in Section 9.3 until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth therein.

(c) If at any time, either (i) the aggregate principal amount of Revolving Credit Outstandings exceeds the Maximum Credit at such time or (ii) a Borrowing Base Deficiency exists in respect of any Borrower, each Borrower shall forthwith (or if such Borrowing Base Deficiency has occurred through Accounts which were previously classified as Eligible Receivables being reclassified as ineligible, in which case upon the expiration of two Business Days during which such Borrowing Base Deficiency remains continuing) prepay its Swing Loans first and then its Revolving Loans then outstanding such that the aggregate amount of all such payments is equal to such excess or otherwise sufficient to eliminate such deficiency. If any such excess or deficiency remains after repayment in full of the aggregate outstanding Swing Loans and Revolving Loans, each Borrower shall provide cash collateral for its Letter of Credit Obligations in the manner set forth in Section 9.3 to the extent required to eliminate such excess or deficiency.

(d) Each Borrower agrees that all available funds (others than those funds representing Net Cash Proceeds which are to be otherwise applied pursuant to this Section 2.9) in a Cash Collateral Account of such Borrower shall (subject, in the case of Terra UK, to Section 7.12(d)(iii)) be applied on a daily basis; first to repay the outstanding principal amount of its Swing Loans until its Swing Loans shall have been repaid in full; second to repay the outstanding principal balance of its Revolving Loans until its Revolving Loans shall have been repaid in full; and third to any other Obligations then due and payable. If there are no Loans outstanding and no other Obligations are then due and payable, then the funds in such Cash Collateral Account shall be retained in such Cash Collateral Account, or (if required by the Administrative Agent) transferred to the L/C Cash Collateral Account, to cash collateralize the Letter of Credit Obligations then outstanding and any contingent obligations which such Borrower may have under any Guaranty); provided, however, that (subject to the consent of the Administrative Agent in accordance with Section 7.12(d)(iii) in respect of Terra UK) if on any Business Day after giving effect to the foregoing applications any funds are on deposit in its Cash Collateral Account and no Default or Event of Default shall have occurred and be continuing, the applicable Borrower may direct the Administrative Agent to (and the Administrative Agent shall) disburse such funds to such Borrower’s Disbursement Account.

Section 2.10. Interest.

(a) Rate of Interest. All Loans and the outstanding amount of all other Obligations shall bear interest, in the case of Loans, on the unpaid principal amount thereof from the date such Loans are made and, in the case of such other Obligations, from the date such other Obligations are due and payable until, in all cases, paid in full, except as otherwise provided in Section 2.10(c), as follows:

(i) if a Base Rate Loan or such other Obligation, at a rate per annum equal to the sum of (A) the Base Rate as in effect from time to time, plus (B) the Applicable Margin; and

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(ii) if a Eurodollar Rate Loan, at a rate per annum equal to the sum of (A) the Eurodollar Rate determined for the applicable Interest Period, plus (B) the Applicable Margin in effect from time to time during such Eurodollar Interest Period.

(b) Interest Payments. (i) Interest accrued on each Base Rate Loan (including Swing Loans) shall be payable in arrears (A) on the first day of each calendar month, commencing on the first such day following the making of such Base Rate Loan, and (B) if not previously paid in full, at maturity (whether by acceleration or otherwise) of such Base Rate Loan; (ii) interest accrued on each Eurodollar Rate Loan shall be payable in arrears (A) on the last day of each Interest Period applicable to such Loan and, in respect of any Interest Period of six months’ duration, on the day which is three months following commencement of such Interest Period and also on the last day of such Interest Period, (B) upon the payment or prepayment thereof in full or in part, and (C) if not previously paid in full, at maturity (whether by acceleration or otherwise) of such Eurodollar Rate Loan; and (iii) interest accrued on the amount of all other Obligations shall be payable on demand from and after the time such Obligation, becomes due and payable (whether by acceleration or otherwise).

(c) Default Interest. Notwithstanding the rates of interest specified in Section 2.10(a) or elsewhere herein, effective immediately upon the occurrence of an Event of Default, and for as long thereafter as such Event of Default shall be continuing, the principal balance of all Loans and the amount of all other Obligations shall bear interest at a rate which is two percent per annum in excess of the rate of interest applicable to such Obligations from time to time.

Section 2.11. Conversion/Continuation Option.

(a) The Borrowers may elect (i) at any time to convert Base Rate Loans (other than Swing Loans) or any portion thereof to Eurodollar Rate Loans, or (ii) at the end of any applicable Interest Period, to convert Eurodollar Rate Loans or any portion thereof into Base Rate Loans or to continue such Eurodollar Rate Loans or any portion thereof for an additional Interest Period; provided, however, that the aggregate amount of the Eurodollar Loans for each Interest Period complies with the provisions of Section 2.2(a). Each conversion or continuation shall be allocated among the Loans of each Lender in accordance with its Ratable Portion. Each such election shall be in substantially the form of Exhibit F hereto (a “Notice of Conversion or Continuation”) and shall be made by giving the Administrative Agent at least three Business Days’ prior written notice specifying (A) the amount and type of Loan being converted or continued, (B) in the case of a conversion to or a continuation of Eurodollar Rate Loans, the applicable Interest Period, and (C) in the case of a conversion, the date of conversion (which date shall be a Business Day and, if a conversion from Eurodollar Rate Loans, shall also be the last day of the applicable Interest Period).

(b) The Administrative Agent shall promptly notify each Lender of its receipt of a Notice of Conversion or Continuation and of the options selected therein. Notwithstanding the foregoing, no conversion in whole or in part of Base Rate Loans to Eurodollar Rate Loans, and no continuation in whole or in part of Eurodollar Rate Loans upon the expiration of any applicable Interest Period, shall be permitted at any time at which (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the continuation of, or conversion into, would violate any of the provisions of Section 2.14. If, within the time period required under the terms of this Section 2.11, the Administrative Agent does not receive a Notice

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of Conversion or Continuation from any Borrower containing a permitted election to continue any Eurodollar Rate Loans for an additional Interest Period or to convert any such Loans, then, upon the expiration of the applicable Interest Period, such Loans will be automatically converted to Base Rate Loans. Each Notice of Conversion or Continuation shall be irrevocable.

Section 2.12. Fees.

(a) Unused Commitment Fee. The Borrowers agree to pay to each Lender a commitment fee on the actual amount by which the Revolving Credit Commitment of such Lender exceeds the sum of (i) such Lender’s Ratable Portion of the outstanding Revolving Loans and outstanding Letter of Credit Obligations and (ii) the outstanding portion of any Swing Loans made by such Lender (the “Unused Commitment Fee”) on each day from the date hereof until the Revolving Credit Termination Date equal to 0.50% per annum, payable in arrears (x) on the first day of each calendar month, commencing on the first such day following the date of this Agreement and (y) on the Revolving Credit Termination Date.

(b) Letter of Credit Fees. The Borrowers agree to pay the following amounts with respect to Letters of Credit issued by any Issuer:

(i) to the Administrative Agent for the account of each Issuer of a Letter of Credit, with respect to each Letter of Credit issued by such Issuer, an issuance fee equal to 0.50% per annum of the maximum amount available from time to time to be drawn under such Letter of Credit, payable in arrears (A) on the first day of each calendar month, commencing on the first such day following the issuance of such Letter of Credit and (B) on the Revolving Credit Termination Date;

(ii) to the Administrative Agent for the ratable benefit of the Lenders, with respect to each Letter of Credit, a fee accruing at a rate per annum equal to the Applicable Margin for Revolving Loans that are Eurodollar Rate Loans of the maximum amount available from time to time to be drawn under such Letter of Credit, payable in arrears (A) on the first day of each calendar month commencing on the first such day following the issuance of such Letter of Credit and (B) on the Revolving Credit Termination Date; provided, however that during the continuance of an Event of Default, such fee shall be increased by two percent per annum and shall be payable on demand; and

(iii) to the Issuer of any Letter of Credit, with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with such Issuer’s standard schedule for such charges in effect at the time of issuance, amendment, transfer or drawing, as the case may be.

(c) Additional Fees. The Borrowers have agreed to pay to the Lenders, the Administrative Agent and the Arranger additional fees, the amount and dates of payment of which are embodied in the Fee Letter. Any cash management fees payable by or on behalf of any Loan Party shall be payable irrespective of whether accounts are opened in the name of any Loan Party or by the Administrative Agent or any of its Affiliates in its name in respect of any Loan Party.

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Section 2.13. Payments and Computations; Protective Advances.

(a) The Borrowers shall make each payment hereunder (including fees and expenses) not later than 11:00 A.M. (New York City time) (provided, however, that repayments of Swing Loans shall be made not later than 4:00 P.M. (New York City time)) on the day when due, in Dollars, to the Administrative Agent at its address referred to in Section 11.8 in immediately available funds without set-off or counterclaim. The Administrative Agent will promptly thereafter cause to be distributed immediately available funds relating to the payment of principal or interest or fees to the Lenders, in accordance with the application of payments set forth in clauses (e) and (f) of this Section 2.13, as applicable, for the account of their respective Applicable Lending Offices; provided, however, that amounts payable pursuant to Section 2.14(c), 2.14(e), 2.15 or 2.16 shall be paid only to the affected Lender or Lenders and amounts payable with respect to Swing Loans shall be paid only to the Swing Loan Lender. Payments received by the Administrative Agent after 11:00 A.M. (New York City time) shall be deemed to be received on the next Business Day.

(b) All computations of interest and fees shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest and fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

(c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of any Eurodollar Rate Loan to be made in the next calendar month, such payment shall be made on the immediately preceding Business Day. All repayments of any Revolving Loans shall be applied first to repay such Loans outstanding as Base Rate Loans and then to repay such Loans outstanding as Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier expiring Eurodollar Interest Periods being repaid prior to those which have later expiring Eurodollar Interest Periods.

(d) Unless the Administrative Agent shall have received notice from the Borrowers to the Lenders prior to the date on which any payment is due hereunder that the Borrowers will not make such payment in full, the Administrative Agent may assume that the Borrowers have made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon at the Federal Funds Rate, for the first Business Day, and, thereafter, at the rate applicable to Base Rate Loans, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent.

(e) Subject to the provisions of clause (f) of this Section 2.13 and (except as otherwise provided in Section 2.9), all payments and any other amounts received by the Administrative Agent from or for the benefit of any Borrower shall be applied first, to pay

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principal of and interest on any portion of the Loans which the Administrative Agent may have advanced to such Borrower pursuant to the express provisions of this Agreement on behalf of any Lender, for which the Administrative Agent has not then been reimbursed by such Lender or such Borrower; second, to pay all other Obligations owing by such Borrower then due and payable; and third, as such Borrower so designate. Payments in respect of Swing Loans received by the Administrative Agent shall be distributed to the Swing Loan Lender; payments in respect of Revolving Loans received by the Administrative Agent shall be distributed to each Lender in accordance with such Lender’s Ratable Portion of the Revolving Credit Commitments; and all payments of fees and all other payments in respect of any other Obligation shall be allocated among such of the Lenders and Issuers as are entitled thereto, and, if to the Lenders, in proportion to their respective Ratable Portions.

(f) After the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably waives the right to direct the application of any and all payments in respect of the Obligations owing by such Borrower and any proceeds of Collateral of such Borrower, and agrees that the Administrative Agent may, and shall upon either (A) the written direction of the Requisite Lenders or (B) the acceleration of the Obligations pursuant to Section 9.2, apply all payments in respect of any Obligations and all funds on deposit in any Cash Collateral Account (including all proceeds arising in connection with a Reinstatement Date that are held in the Cash Collateral Account pending application of such proceeds as specified in Section 2.9(a)) and all other proceeds of Collateral in the following order:

(i) first, to pay interest on and then principal of any portion of the Revolving Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrowers;

(ii) second, to pay interest on and then principal of any Swing Loan;

(iii) third, to pay Obligations in respect of any expense reimbursements or indemnities then due the Administrative Agent;

(iv) fourth, to pay Obligations in respect of any expense reimbursements or indemnities then due to the Lenders and the Issuers;

(v) fifth, to pay Obligations in respect of any fees then due to the Administrative Agent, the Lenders and the Issuers;

(vi) sixth, to pay interest then due and payable in respect of the Revolving Loans and Reimbursement Obligations;

(vii) seventh, to pay or prepay principal payments on the Revolving Loans and Reimbursement Obligations and to provide cash collateral for outstanding Letter of Credit Undrawn Amounts in the manner described in Section 9.3, and to pay Obligations owing to the Administrative Agent with respect to cash management services in connection with Approved Deposit Accounts, Cash Collateral Accounts, and any other collection, disbursement or payroll account, ratably to the aggregate principal amount of such Revolving Loans, Reimbursement Obligations and Letter of Credit Undrawn Amounts and amounts due in respect of such cash management services;

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(viii) eighth, to the ratable payment of all Obligations owing to any Lender or any Affiliate of a Lender with respect to Hedging Contracts; and

(ix) ninth, to the ratable payment of all other Obligations;

provided, however, that if sufficient funds are not available to fund all payments to be made in respect of any of the Obligations described in any of the foregoing clauses first through eighth, the available funds being applied with respect to any such Obligations (unless otherwise specified in such clause) shall be allocated to the payment of such Obligations ratably, based on the proportion of the Administrative Agent’s and each Lender’s or Issuer’s interest in the aggregate outstanding Obligations described in such clauses. The order of priority set forth in clauses first through eighth of this Section 2.13(f) may at any time and from time to time be changed by the agreement of the Requisite Lenders without necessity of notice to or consent of or approval by the Borrower, any Secured Party that is not a Lender or Issuer, or any other Person. The order of priority set forth in clauses first through fifth of this Section 2.13(f) may be changed only with the prior written consent of the Administrative Agent in addition to the Requisite Lenders.

(g) All payments of Reimbursement Obligations, interest, fees, expenses and other sums due and payable in respect of the Loans of any Borrower and all expenses, disbursements and advances incurred by the Administrative Agent pursuant to the Loan Documents after the occurrence and during the continuance of an Event of Default which the Administrative Agent, in its sole discretion, deems necessary or desirable to preserve or protect the Collateral of such Borrower or any portion thereof or to enhance the likelihood or maximize the amount of repayment of the Obligations owing by such Borrower may, at the option of the Administrative Agent, be paid from the proceeds of Swing Loans or Revolving Loans. Each Borrower hereby authorizes the Swing Loan Lender to make Swing Loans pursuant to Section 2.3(a) and the Lenders to make Revolving Loans pursuant to Section 2.2(a), from time to time in the Swing Loan Lender’s or such Lender’s discretion, which are in the amounts of any and all principal payable with respect to the interest, fees, expenses and other sums payable in respect of the Loans of such Borrower, and further authorizes the Administrative Agent to give the Lenders notice of any Borrowing with respect to such Loans and to distribute the proceeds of such Loans to pay such amounts. Each Borrower agrees that all such Loans so made shall be deemed to have been requested by it, as applicable, (irrespective of the satisfaction of the conditions in Section 3.2, which conditions the Lenders irrevocably waive) and directs that all proceeds thereof shall be used to pay such amounts.

Section 2.14. Special Provisions Governing Eurodollar Rate Loans.

(a) Determination of Interest Rate. The Eurodollar Rate for each Interest Period for Eurodollar Rate Loans shall be determined by the Administrative Agent pursuant to the procedures set forth in the definition of “Eurodollar Rate.” The Administrative Agent’s determination shall be presumed to be correct, absent manifest error, and shall be binding on the Borrowers.

(b) Interest Rate Unascertainable, Inadequate or Unfair. In the event that: (i) the Administrative Agent reasonably determines that adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which the Eurodollar Rate then being determined is to be fixed; or (ii) the Requisite Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period will not adequately reflect the cost to the Lenders of making or maintaining such Loans for such Interest Period, the Administrative Agent shall

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forthwith so notify the Borrowers and the Lenders, whereupon each Eurodollar Loan will automatically, on the last day of the current Interest Period for such Loan, convert into a Base Rate Loan and the obligations of the Lenders to make Eurodollar Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended until the Administrative Agent shall notify the Borrowers that the Requisite Lenders have determined that the circumstances causing such suspension no longer exist.

(c) Increased Costs. If at any time any Lender shall reasonably determine that the introduction of or any change (where such introduction or change occurs after the date of this Agreement) in or in the interpretation of any law, treaty or governmental rule, regulation or order (other than any change by way of imposition or increase of reserve requirements included in determining the Eurodollar Rate Reserve Percentage and other than any change in the rate of tax on, or determined by reference to, the net income or profits of such Lender (including franchise taxes) or capital of such Lender) or the compliance by such Lender with any guideline, request or directive (where such guideline, request or directive is issued after the date of this Agreement) from any central bank or other Governmental Authority (whether or not having the force of law but in relation to which such Lender customarily complies), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans made to any Borrower, then such Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the applicable Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

(d) Illegality. Notwithstanding any other provision of this Agreement, if any Lender determines that the introduction of or any change in or in the interpretation of any law, treaty or governmental rule, regulation or order after the date of this Agreement shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Administrative Agent, (i) the obligation of such Lender to make or to continue Eurodollar Rate Loans and to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended, and each such Lender shall make a Base Rate Loan as part of any requested Borrowing of Eurodollar Rate Loans and (ii) if the affected Eurodollar Rate Loans are then outstanding, each applicable Borrower shall immediately (or, if lawful to do so, on the last day of the current Interest Period relating thereto) convert each such Loan into a Base Rate Loan. If at any time after a Lender gives notice under this Section 2.14(d) such Lender determines that it may lawfully make Eurodollar Rate Loans, such Lender shall promptly give notice of that determination to the applicable Borrower and the Administrative Agent, and the Administrative Agent shall promptly transmit the notice to each other Lender. Each Borrower’s right to request, and such Lender’s obligation, if any, to make Eurodollar Rate Loans shall thereupon be restored.

(e) Breakage Costs. In addition to all amounts required to be paid by the Borrowers pursuant to Section 2.10, each Borrower shall compensate each Lender, upon demand, for all losses, expenses and liabilities (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender’s Eurodollar Rate Loans to such Borrower but excluding any loss of the Applicable Margin on the relevant Loans) which that Lender may sustain (i) if for any reason

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(other than under Section 2.14(b)) a proposed Borrowing, conversion into or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion or Continuation given by such Borrower or in a telephonic request by it for borrowing or conversion or continuation or a successive Interest Period does not commence after notice therefor is given pursuant to Section 2.11, (ii) if for any reason any Eurodollar Rate Loan is prepaid (including mandatorily pursuant to Section 2.9) on a date which is not the last day of the applicable Interest Period, (iii) as a consequence of a required conversion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 2.14(d), or (iv) as a consequence of any failure by a Borrower to repay Eurodollar Rate Loans when required by the terms hereof. The Lender making demand for such compensation shall deliver to the applicable Borrower concurrently with such demand a written statement as to such losses, expenses and liabilities, and this statement shall be conclusive as to the amount of compensation due to that Lender, absent manifest error.

(f) Excluded Period. No Lender or Issuer shall be entitled to make a claim under Clauses 2.14(c), 2.15 or 2.16 unless it has notified the Administrative Agent of its intention to make such claim within 180 days of such Lender or Issuer becoming aware of the circumstances giving rise to such claim.

Section 2.15. Capital Adequacy. If at any time any Lender reasonably determines that (a) the adoption of or any change in or in the interpretation of any law, treaty or governmental rule, regulation or order after the date of this Agreement regarding capital adequacy, (b) compliance with any such law, treaty, rule, regulation, or order, or (c) compliance with any guideline or request or directive issued after the date hereof from any central bank or other Governmental Authority (whether or not having the force of law) shall have the effect of reducing the rate of return on such Lender’s (or any corporation controlling such Lender’s) capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change, compliance or interpretation, then, upon demand from time to time by such Lender (with a copy of such demand to the Administrative Agent), the applicable Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to such amounts submitted to the applicable Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes absent manifest error.

Section 2.16. Taxes.

(a) Subject to Section 2.16(f) below, any and all payments by the Borrowers under each Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) in the case of each Lender and the Administrative Agent (A) taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or in which it maintains any office or operations and (B) any United States withholding taxes payable with respect to payments under the Loan Documents under laws (including any statute, treaty or regulation) in effect on the Initial Closing Date (or, in the case of an Eligible Assignee, the date of the Assignment and Acceptance) applicable to such Lender or the Administrative Agent, as the case may be, but not excluding any United States withholding payable as a result of any change in such laws occurring after the

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Initial Closing Date (or the date of such Assignment and Acceptance) (but excluding taxes set forth in clause (A) above) and (ii) in the case of each Lender, taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction in which such Lender’s Applicable Lending Office is located (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If any Taxes shall be required by law to be deducted from or in respect of any sum payable by any Borrower under any Loan Document to any Lender or the Administrative Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, (iii) such Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law, and (iv) such Borrower shall deliver to the Administrative Agent evidence of such payment.

(b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States or any political subdivision thereof or any applicable foreign jurisdiction, and all liabilities with respect thereto, which arise from any payment made by such Borrower or any of its Subsidiaries under any Loan Document or from the execution, delivery or registration of, or otherwise with respect to, any Loan Document (collectively, “Other Taxes”).

(c) Each Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including for penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor.

(d) Within 30 days after the date of any payment of Taxes or Other Taxes, the applicable Borrower will furnish to the Administrative Agent, at its address referred to in Section 11.8, the original or a certified copy of a receipt evidencing payment thereof.

(e) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 2.16 shall survive the payment in full of the Obligations.

(f) On the date of the Assignment and Acceptance pursuant to which any Non-U.S. Lender becomes a Lender after the Initial Closing Date, if requested by the Borrowers or the Administrative Agent, each Non-U.S. Lender that is entitled at such time to an exemption from United States withholding tax shall provide the Administrative Agent and the Borrowers with two completed copies of IRS Form W-8 (Ben or ECI as appropriate including any required certifications) or other applicable form, certificate or document prescribed by the IRS certifying as to such Non-U.S. Lender’s entitlement to such exemption from United States withholding tax with respect to all payments to be made to such Non-U.S. Lender under the Loan Documents. Unless the Borrowers and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments under any Loan Document to or for a Non-U.S.

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Lender are not subject to United States withholding tax, the Borrowers or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate.

(g) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which would be payable or may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. If any Lender is not, with reasonable efforts, able to change the jurisdiction of its Applicable Lending Office in accordance with this Section 2.16(g), then such Lender shall use its reasonable efforts to complete such tax forms and make such filings as would avoid the need for, or reduce the amount of, any such additional amounts which would be payable or may thereafter accrue; provided, however, that completion of such forms and making of such filings would not in the sole discretion of such Lender be disadvantageous to it.

(h) (i) As at the date of this Agreement, the Administrative Agent and each Lender represents and warrants to the Loan Parties that (to the extent that any payments are to be made to it hereunder by Terra UK) it is a Qualifying Lender, (ii) if a Lender ceases to be a Qualifying Lender (except as a result of the introduction of, change in, or change in the interpretation, administration or application of, any law or regulation or any practice or concession of the United Kingdom Inland Revenue occurring after the date of this Agreement) or any transfer, sale, negotiation or assignment is made pursuant to Section 11.2 to a non-Qualifying Lender, then the Loan Parties shall not be liable to pay any amount under Section 2.16(a) in excess of the amount which it would have been obliged to pay if that Lender had remained a Qualifying Lender. Each Lender shall notify the Administrative Agent who in turn shall notify Terra Capital as soon as reasonably practicable after it becomes aware that it has ceased to be a Qualifying Lender.

Section 2.17. Substitution of Lenders. In the event that (a) (i) any Lender makes a claim under Section 2.14 (c) or Section 2.15, or (ii) it becomes illegal for any Lender to continue to fund or make any Eurodollar Rate Loan and such Lender notifies the Borrowers pursuant to Section 2.14(d), or (iii) the Borrowers are required to make any payment pursuant to Section 2.16 that is attributable to any Lender, or (iv) any Lender is a Non-Funding Lender, (b) in the case of clause (a)(i) above, as a consequence of increased costs in respect of which such claim is made, the effective rate of interest payable to such Lender under this Agreement with respect to its Loans materially exceeds the effective average annual rate of interest payable to the Requisite Lenders under this Agreement and (c) Lenders holding at least 75% of the Revolving Credit Commitments are not subject to such increased costs or illegality, payment or proceedings (any such Lender, an “Affected Lender”), the Borrowers may substitute another financial institution for such Affected Lender hereunder, upon reasonable prior written notice (which written notice must be given within 90 days following the occurrence of any of the events described in clauses (a)(i), (ii), (iii) or (iv)) by the Borrowers to the Administrative Agent and the Affected Lender that the Borrowers intend to make such substitution, which substitute financial institution must be an Eligible Assignee and, if not a Lender, reasonably acceptable to the Administrative Agent; provided, however, that if more than one Lender claims increased costs, illegality or right to payment arising from the same act or condition and such claims are received by the Borrowers within 30 days of each other then the Borrowers may substitute all, but not (except to the extent the Borrowers have already substituted one of such Affected Lenders before the Borrowers’

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receipt of the other Affected Lenders’ claim) less than all, Lenders making such claims. In the event that the proposed substitute financial institution or other entity is reasonably acceptable to the Administrative Agent and the written notice was properly issued under this Section 2.17, the Affected Lender shall sell and the substitute financial institution or other entity shall purchase, pursuant to an Assignment and Acceptance, all rights and claims of such Affected Lender under the Loan Documents and the substitute financial institution or other entity shall assume and the Affected Lender shall be relieved of its Revolving Credit Commitments and all other prior unperformed obligations of the Affected Lender under the Loan Documents (other than in respect of any damages (other than exemplary or punitive damages, to the extent permitted by applicable law) in respect of any such unperformed obligations). Upon the effectiveness of such sale, purchase and assumption (which, in any event shall be conditioned upon the payment in full by the Borrowers to the Affected Lender in cash of all fees, unreimbursed costs and expenses and indemnities accrued and unpaid through such effective date), the substitute financial institution or other entity shall become a “Lender” hereunder for all purposes of this Agreement having a Revolving Credit Commitment (if applicable) in the amount of such Affected Lender’s Revolving Credit Commitment assumed by it and such Revolving Credit Commitment (if applicable) of the Affected Lender shall be terminated, provided that all indemnities under the Loan Documents shall continue in favor of such Affected Lender.

Section 2.18. Assignment and Assumption of certain Commitments prior to the Effective Date. Pursuant to an Assignment and Acceptance effective immediately prior to the Effective Date, PNC Business Credit (“PNC”) has sold and assigned to CUSA, and CUSA has purchased and assumed from PNC, all of PNC’s Revolving Credit Commitments and related rights and obligations under the Existing Credit Agreement (the “PNC Interest”). Effective immediately upon the Effective Date, CUSA is hereby deemed to have sold and assigned to the other Lenders party hereto, and the Lenders are hereby deemed to have purchased and assumed from CUSA, a portion of the PNC Interest, in each case to the extent necessary such that each Lender’s Revolving Credit Commitment on the Effective Date shall be as set forth on Schedule I with respect to such Lender.

ARTICLE III

CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT

Section 3.1. Conditions Precedent to the Effectiveness of this Agreement. This Agreement shall become effective on the date (the “Effective Date”) on which all of the following conditions precedent have been first satisfied (unless waived by the Requisite Lenders or the time for satisfaction thereof has been extended by the Administrative Agent):

(a) Certain Documents. The Administrative Agent shall have received on the Effective Date each of the following, each dated the Effective Date unless otherwise indicated or agreed to by the Administrative Agent, in form and substance satisfactory to the Administrative Agent and in sufficient originally executed copies for each Lender:

(i) this Agreement, duly executed and delivered by the Borrowers, Terra Industries, the Administrative Agent and each Lender;

(ii) a Guaranty and Security Affirmation, duly executed by the Borrowers and Guarantors (other than MCC and its Subsidiaries);

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(iii) a Guaranty supplement (in the form of Exhibit A attached to the Guaranty), duly executed and delivered by MCC and each of its Material Subsidiaries which are Domestic Subsidiaries, and the Administrative Agent pursuant to which MCC and such Material Subsidiaries have become parties to the Guaranty as Subsidiary Guarantors;

(iv) the MCC Joinder Agreement duly executed and delivered by MCC and its Subsidiaries which are Guarantors and the Administrative Agent, together with each of the following:

Evidence reasonably satisfactory to the Administrative Agent that, upon the filing and recording of instruments delivered at the Effective Date, the Administrative Agent (for the benefit of the Secured Parties) shall have a valid and perfected first priority security interest in the Collateral owned by MCC or its Subsidiaries (other than with respect to priority (i) Collateral securing the MCC Credit Agreement, with respect to which the Secured Parties’ Lien shall be subject only to the Lien granted in favor of the lenders under the MCC Credit Agreement and (ii) Liens permitted hereunder), including (x) such documents duly executed by each Loan Party as the Administrative Agent may reasonably request with respect to the perfection of its security interests in the Collateral owned by MCC and its Subsidiaries (including financing statements under the UCC, patent, trademark and copyright security agreements suitable for filing with the Patent and Trademark Office or the Copyright Office, as the case may be, and other applicable documents under the laws of any jurisdiction with respect to the perfection of Liens created by the Pledge and Security Agreement) and (y) copies of UCC search reports (i) with respect to all Loan Parties (other than MCC and its Subsidiaries) as of the date the previous search reports were delivered to the Administrative Agent or its counsel at the Initial Closing Date and (ii) with respect to MCC and its Subsidiaries, as of a recent date listing all effective financing statements that name MCC or any of its Subsidiaries each as a debtor, together with copies of such financing statements, in each case in clauses (i) and (ii) above, none of which shall cover the Collateral except for those that shall be terminated on the Effective Date or are otherwise permitted hereunder;

(v) such documents duly executed by each Loan Party, to the extent such Loan Party’s signature is required under Requirements of Law, as the Administrative Agent may request with respect to the perfection of its security interests, including for the purposes of maintaining and/or continuing the priority thereof, in the Collateral (including new financing statements, each under the UCC, with respect to the perfection of Liens created by the Pledge and Security Agreement with respect to MCC and its Subsidiaries);

(vi) a satisfactory appraisal report of the Inventory of the Borrowing Base Contributors;

(vii) each (x) MCC Intercreditor Agreement duly executed and delivered by each party thereto and (y) joinder agreement to the Senior Secured Note Intercreditor Agreement and the Senior Second Lien Note Intercreditor Agreement executed by MCC and its Subsidiaries which are Guarantors;

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(viii) a favorable opinion of (A) Kirkland & Ellis LLP, counsel to each of the Loan Parties, in substantially the form of Exhibit G-1 and (B) counsel to the Loan Parties in England and Canada, in substantially the form of Exhibit G-2 and Exhibit G-3, respectively, addressed to the Administrative Agent and the Lenders and Issuer;

(ix) certified copies of each of the MCC Acquisition Documents and each other document and instrument executed and delivered in connection therewith, duly executed by the parties thereto and each in form and substance reasonably satisfactory to the Administrative Agent, together with a certificate of the Secretary or an Assistant Secretary of Terra Capital that, as at the Effective Date, such MCC Acquisition Documents and other documents and instruments of which are attached thereto (A) are true and complete copies of the originals thereof and (B) are in full force and effect and have not been modified or amended from such attached copies;

(x) a certificate of the Secretary or an Assistant Secretary of each Loan Party certifying and attaching (A) the names and true signatures of each officer of such Loan Party authorized to execute and deliver any Loan Document or other document required hereunder to be executed and delivered by or on behalf of such Loan Party, (B) the resolutions of such Loan Party’s Board of Directors (or equivalent governing body) approving and authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party and the transactions contemplated by this Agreement, (C) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its formation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, together with a certificate, as of recent date, of the Secretary of State of the jurisdiction of its formation and of each jurisdiction in which such Loan Party conducts business, attesting to the good standing of each such Loan Party in each such jurisdiction and (D) a copy of the Constituent Documents of each Loan Party, certified as of a recent date by the Secretary of State of the state or jurisdiction of formation of such Loan Party or by another Person acceptable to the Administrative Agent, to the extent the Secretary or the Assistant Secretary is unable to certify that the Constituent Documents of such Loan Party have not been amended, revised or modified in any way since the Initial Closing Date;

(xi) a certificate of the Chief Financial Officer of each Borrower, stating that such Borrower is Solvent after giving effect to transactions contemplated in this Agreement, including the MCC Acquisition and the payment of all estimated legal, accounting and other fees related hereto and thereto;

(xii) a certificate of a Responsible Officer to the effect that (A) the condition set forth in Section 3.2(b) has been satisfied, (B) no litigation not listed on Schedule 4.7 shall have been commenced against any Loan Party or any of its Subsidiaries which is reasonably likely to be adversely determined and, if adversely determined, would have a Material Adverse Effect and (C) no Material Adverse Change has occurred since December 31, 2003;

(xiii) the financial statements required to be delivered pursuant to clause (a) of Section 4.4;

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(xiv) evidence satisfactory to the Administrative Agent and the Lenders that the insurance policies required by Section 7.5 and any Collateral Documents are in full force and effect, together with (A) in the case where such insurance policies cover property constituting solely Collateral, endorsements naming the Administrative Agent, on behalf of the Secured Parties, (B) in the case where such insurance policies cover property constituting both Collateral and Senior Secured Note Collateral, endorsements naming both the Administrative Agent and the Senior Secured Note Trustee as their respective interests may appear and (C) in the case where such insurance policies cover property constituting solely Senior Secured Note Collateral, endorsements naming the Senior Secured Note Trustee, in each case, as additional insured and/or loss payee under the subject insurance policies to be maintained with respect to the properties of Terra Industries, the Borrowers and each of their Subsidiaries;

(xv) the Loan Purchase Agreement, duly executed and delivered by Terra Industries and the Administrative Agent; and

(xvi) such other certificates, documents, agreements and information respecting any Loan Party as any Lender through the Administrative Agent may reasonably request.

(b) MCC Acquisition Documents. The Administrative Agent shall be reasonably satisfied that (i) the MCC Acquisition Documents are in form and substance reasonably satisfactory to the Administrative Agent and its counsel, (ii) the terms and conditions of the MCC Acquisition Documents shall not have been amended, waived or modified without the approval of the Administrative Agent (other than non-material amendments, waivers and modifications to such terms that do not, in the aggregate, materially adversely affect the interests of the Administrative Agent and the Lenders), (iii) the MCC Acquisition Documents shall have been approved by all corporate action of Terra Industries and each of the other parties thereto, shall be in full force and effect and there shall not have occurred and be continuing any material breach or default thereunder, (iv) all conditions precedent to the consummation of the MCC Acquisition shall have been satisfied or waived with the consent of the Administrative Agent to the extent required under clause (ii) above, (v) the MCC Acquisition shall have been consummated in accordance with the MCC Acquisition Agreement and the Plan of Reorganization and all applicable Requirements of Law and all representations and warranties contained in the MCC Acquisition Agreement and the other MCC Acquisition Documents shall be true and correct in all material respects on the Effective Date and (vi) good and marketable title to the assets purported to be transferred as of the Effective Date by the terms of the MCC Acquisition Agreement and the MCC Acquisition Documents, free and clear of all Liens (other than Liens permitted hereunder), shall be transferred to MCC concurrently with this Agreement. The MCC Acquisitions Documents have been duly executed by the relevant Loan Party and the sellers and all such agreements are in form and substance reasonably satisfactory to the Administrative Agent.

(c) Confirmation Order. The United States Bankruptcy Court for the Southern District of Mississippi shall have entered a final non-appealable order confirming the Plan of Reorganization of MCC and its Subsidiaries (as more fully set forth in the MCC Acquisition Documents) (the “Confirmation Order”), in form and substance reasonably satisfactory to the Administrative Agent, authorizing and approving the MCC Acquisition Documents (including, without limitation, the MCC Acquisition Agreement) and the transactions contemplated thereby, and such Confirmation Order shall be in full force and effect as of the

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Effective Date, shall not have been reversed, vacated or stayed and shall not have been amended, supplemented or otherwise modified without the prior written consent of the Administrative Agent.

(d) Corporate Structure of Terra Industries. The Administrative Agent and its counsel shall be reasonably satisfied with the corporate and capital structure of Terra Industries and its Subsidiaries, before and after giving effect to the MCC Acquisition, and all legal and tax aspects relating thereto.

(e) Refinancing of MCC Indebtedness. All documentation relating to the commitments made in respect to MCC’s emergence out of bankruptcy in particular the MCC Credit Agreement (including, without limitation, all collateral documents and an intercreditor agreement) shall be in form and substance reasonably satisfactory to the Administrative Agent and its counsel, including the following terms:

(i) the MCC Credit Agreement shall be (i) guaranteed on an unsecured basis by the Material Subsidiaries of Terra Industries that are Domestic Subsidiaries (other than MCC and its Subsidiaries) and (ii) secured and guaranteed by MCC and certain of its Subsidiaries, as applicable; and

(ii) the MCC Intercreditor Agreements, duly executed and delivered by MCC and its Subsidiaries, Citicorp North America, Inc. as the administrative agent under the MCC Credit Agreement and the Administrative Agent.

(f) Fees and Expenses Paid. There shall have been paid to the Administrative Agent, for the account of the Administrative Agent, and the Lenders, as applicable, all fees due and payable on or before the Effective Date (including all such fees described in the Fee Letter and the Existing Credit Agreement), and all expenses due and payable on or before the Effective Date (including expenses under the Existing Credit Agreement).

(g) Consents, Etc. Each Loan Party shall have received all consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all consents and authorizations of, and effected all notices to and filings with, any Governmental Authority, in each case, as may be necessary to allow each of the Loan Parties lawfully (A) to execute, deliver and perform, in all material respects, their respective obligations hereunder, the Loan Documents and Senior Secured Note Documents to which each of them, respectively, is, or shall be, a party and each other agreement or instrument to be executed and delivered by each of them, respectively, pursuant thereto or in connection therewith, and (B) to create and perfect the Liens on the Collateral to be owned by each of them in the manner and for the purpose contemplated by the Loan Documents and the Senior Secured Note Documents.

(h) On the Effective Date, (i) all obligations owing by TNLP under the Existing Credit Agreement shall be paid in full, each of TNLP and TNCLP shall be released from its respective obligations (and all Liens securing such obligations shall be terminated) under the Existing Credit Agreement and the other Loan Documents (including the Junior Loan Documents), and there shall be no letters of credit issued and outstanding pursuant to the Existing Credit Agreement for the benefit of or for the account of TNLP and its subsidiaries and (ii) the TNLP Credit Agreement and all “Loan Documents” as defined thereto shall be in form and

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substance reasonably satisfactory to the Administrative Agent and the “Effective Date” as defined therein shall have occurred.

Section 3.2. Conditions Precedent to Each Loan and Letter of Credit. The obligation of each Lender on any date (including the Effective Date) to make any Loan and of each Issuer on any date (including the Effective Date) to issue any Letter of Credit is subject to the satisfaction of all of the following conditions precedent:

(a) Request for Borrowing or Issuance of Letter of Credit. With respect to any Loan, the Administrative Agent shall have received a duly executed Notice of Borrowing or, in the case of Swing Loans, a duly executed Swing Loan Request and with respect to any Letter of Credit, the Administrative Agent and the Issuer shall have received a duly executed Letter of Credit Request.

(b) Representations and Warranties; No Defaults. The following statements shall be true on the date of such Loan or issuance, both before and after giving effect thereto and to the application of the proceeds from any such Loan and to such issuance:

(i) The representations and warranties set forth in Article IV and in the other Loan Documents shall be true and correct on and as of the Effective Date and shall be true and correct in all material respects on and as of any such date after the Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date;

(ii) no Default or Event of Default has occurred and is continuing;

(iii) there shall have occurred no Material Adverse Change or any event or circumstances which would have a Material Adverse Effect; and

(iv) the applicable Borrower shall have delivered the Borrowing Base Certificate required by Section 6.11(a).

(c) Borrowing Base. After giving effect to the Revolving Loans or Letters of Credit requested to be made or issued on any such date and the use of proceeds thereof, (i) no Borrowing Base Deficiency shall exist, (ii) the Revolving Credit Outstandings on such date shall not exceed the Maximum Credit in effect on such date and (iii) the aggregate Available Credit of the Borrowers shall not be less than $30,000,000.

(d) No Legal Impediments. The making of the Loans or the issuance of such Letter of Credit on such date does not violate any Requirement of Law on the date of or immediately following such Loan or issuance and is not enjoined, temporarily, preliminarily or permanently.

Each submission by a Borrower to the Administrative Agent of a Notice of Borrowing or a Swing Loan Request and the acceptance by such Borrower of the proceeds of each Loan requested therein, and each submission by a Borrower to an Issuer of a Letter of Credit Request and the issuance of each Letter of Credit requested therein, shall be deemed to constitute a representation and warranty by such Borrower as to the matters specified in Section 3.2(b) on the date of the making of such Loan or the issuance of such Letter of Credit.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

To induce the Lenders, the Issuers and the Administrative Agent to enter into this Agreement, Terra Industries and each of the Borrowers represent and warrant to the Lenders, the Issuers and the Administrative Agent that, on and as of the Effective Date, after giving effect to the MCC Acquisition and to the making, or the continuation, of the Loans and other financial accommodations on the Effective Date and on and as of each date as required by Section 3.2(b)(i):

Section 4.1. Corporate Existence; Compliance with Law. Each Loan Party (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where such qualification is necessary, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect; (c) has all requisite power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (d) is in compliance with its Constituent Documents; (e) is in compliance with all applicable Requirements of Law except where the failure to be in compliance would not in the aggregate have a Material Adverse Effect; and (f) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents, approvals or filings which can be obtained or made by the taking of ministerial action to secure the grant or transfer thereof or the failure to obtain or make would not in the aggregate have a Material Adverse Effect.

Section 4.2. Corporate Power; Authorization; Enforceable Obligations.

(a) The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party and the consummation of the transactions contemplated thereby:

(i) are within such Loan Party’s corporate, limited liability company, partnership or other powers;

(ii) have been duly authorized by all necessary corporate action, including the consent of shareholders where required;

(iii) do not and will not (A) contravene any Loan Party’s or any of its Subsidiaries’ respective Constituent Documents, (B) violate any other applicable Requirement of Law applicable to any Loan Party (including Regulations U and X of the Federal Reserve Board), or any order or decree of any Governmental Authority or arbitrator applicable to any Loan Party, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any Contractual Obligation of any Loan Party or any of its Subsidiaries, or (D) result in the creation or imposition of any Lien upon any of the property of any Loan Party or any of its Subsidiaries, other than those in favor of the Secured Parties pursuant to the Collateral Documents and Liens securing the MCC Credit Agreement, the Senior Second Lien Note Documents and the Senior Secured Note Documents; and

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(iv) do not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person, other than those listed on Schedule 4.2 and which, prior to the Effective Date, have been obtained or made, copies of which have been or will be delivered to the Administrative Agent pursuant to Section 3.1, and each of which on the Effective Date will be in full force and effect and, with respect to the Collateral, filings required to perfect the Liens created by the Collateral Documents.

(b) This Agreement has been, and each of the other Loan Documents will have been upon delivery thereof pursuant to the terms of this Agreement, duly executed and delivered by each Loan Party thereto. This Agreement is, and the other Loan Documents will be, when delivered hereunder, the legal, valid and binding obligation of each Loan Party thereto, enforceable against such Loan Party in accordance with its terms.

Section 4.3. Ownership of Subsidiaries.

Set forth on Part I of Schedule 4.3 hereto is a complete and accurate list showing, as of the Effective Date, all Material Subsidiaries of Terra Industries and, as to each such Subsidiary, the jurisdiction of its incorporation, the number of shares of each class of Stock authorized (if applicable), the number outstanding on the Effective Date and the number and percentage of the outstanding shares of each such class owned (directly or indirectly) by Terra Industries. No Stock of any Subsidiary of Terra Industries is subject to any outstanding option, warrant, right of conversion or purchase or any similar right (except in respect of the Common Units). All of the outstanding Stock of each Subsidiary of Terra Industries owned (directly or indirectly) by Terra Industries has been validly issued, is fully paid and non-assessable and is owned by Terra Industries or a Subsidiary of Terra Industries, free and clear of all Liens (other than the Lien in favor of the Secured Parties created pursuant to the Collateral Documents and, with respect to the Common Units, other than the Liens securing the Senior Secured Notes created pursuant to the Senior Secured Note Documents). Except as set forth in Schedule 4.3, neither Terra Industries nor any such Subsidiary is a party to, or has knowledge of, any agreement binding on it which restricts the transfer or hypothecation of any Stock of any such Subsidiary, other than the Loan Documents. Terra Industries does not own or hold, directly or indirectly, any Stock of any Person other than such Subsidiaries and Investments permitted by Section 8.3.

Section 4.4. Financial Statements.

(a) The consolidated balance sheet of Terra Industries and its Subsidiaries as at December 31, 2003, and the related consolidated statements of income, retained earnings and cash flows of Terra Industries and its Subsidiaries for the fiscal year then ended, certified by Deloitte & Touche LLP, and the consolidated balance sheets of Terra Industries and its Subsidiaries as at September 30, 2004, and the related consolidated statements of income, retained earnings and cash flows of Terra Industries and its Subsidiaries for the nine months then ended, copies of which have been furnished to each Lender, fairly present (in all material respects), subject, in the case of said balance sheets as at September 30, 2004, and said statements of income, retained earnings and cash flows for nine months then ended, to the absence of footnote disclosure and normal recurring year-end audit adjustments, the consolidated financial condition of Terra Industries and its Subsidiaries as at such dates and the consolidated results of the operations of Terra Industries and its Subsidiaries for the period ended on such dates, all in conformity with GAAP.

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(b) Neither Terra Industries nor any of its Subsidiaries has any material obligation, contingent liability or liability for taxes, long-term leases or unusual forward or long-term commitment which is not either (i) reflected in the Financial Statements referred to in clause (a) above or in the notes thereto or (ii) permitted by this Agreement.

(c) The Projections have been prepared by Terra Industries in light of the past operations of its business, and reflect projections for the fiscal periods covered thereby on a month by month basis for the first year and on a year by year basis thereafter. The Projections are based upon estimates and assumptions stated therein, all of which Terra Industries believes to be reasonable and fair in light of current conditions and current facts known to Terra Industries and at the time such Projections were prepared and reflect Terra Industries’ good faith and reasonable estimates of the future financial performance of Terra Industries and its Subsidiaries and of the other information projected therein for the periods set forth therein (it being understood that no representation is made that such Projections will be realized).

(d) The unaudited pro forma consolidated and consolidating balance sheet of Terra Industries and its Subsidiaries (the “Pro Forma Balance Sheet”) contained in Schedule 4.4, has been prepared as of September 30, 2004, reflects as of such date, on a pro forma basis, the consolidated financial condition of Terra Industries and its Subsidiaries after giving effect to the MCC Acquisition, and the assumptions expressed therein were reasonable based on the information available to Terra Industries at the time so prepared and on the Effective Date.

Section 4.5. Material Adverse Change. Since December 31, 2003, there has been no Material Adverse Change and there have been no events or developments that in the aggregate have had a Material Adverse Effect.

Section 4.6. Solvency. Both before and after giving effect to (a) the Loans and Letter of Credit Obligations to be made or extended on the Effective Date or such other date as Loans and Letter of Credit Obligations requested hereunder are made or extended, (b) the disbursement of the proceeds of such Loans pursuant to the instructions of the Borrower, and the consummation of the other financing transactions contemplated hereby, (c) the payment and accrual of all transaction costs in connection with the foregoing and (d) the MCC Acquisition, including all transaction costs in connection therewith, each Loan Party is Solvent.

Section 4.7. Litigation. There are no pending or, to the knowledge of Terra Industries or any Borrower, threatened actions, investigations or proceedings affecting Terra Industries or any of its Material Subsidiaries before any court, Governmental Authority or arbitrator which would reasonably be expected to be adversely determined and which, if adversely determined, would have a Material Adverse Effect. The performance of any action by any Loan Party required or contemplated by any of the Loan Documents is not restrained or enjoined (either temporarily, preliminarily or permanently). Schedule 4.7 lists all litigation pending against any Loan Party at the date hereof which, if adversely determined, would have a Material Adverse Effect.

Section 4.8. Taxes.

(a) All federal, state, provincial, local and foreign income and franchise and other material tax returns, reports and statements (collectively, the “Tax Returns”) required to be filed by Terra Industries and each of its Subsidiaries and its Tax Affiliates have been filed with

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the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed, all such Tax Returns are true and correct in all material respects, and all material taxes, charges and other impositions reflected therein or otherwise due and payable have been paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for non-payment thereof except where contested in good faith and by appropriate proceedings if adequate reserves therefor have been established on the books of Terra Industries and each of its Subsidiaries or such Tax Affiliate in conformity with GAAP. Except as set forth on Schedule 4.8 (or as otherwise notified from time to time after the Effective Date in writing to the Administrative Agent) no Tax Return is under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes has been given or made by any Governmental Authority. Proper and accurate amounts have been withheld by each Loan Party and each of its Tax Affiliates from their respective employees for all periods in compliance (in all material respects) with the tax, social security and unemployment withholding provisions of applicable Requirements of Law and such withholdings have been timely paid to the respective Governmental Authorities.

(b) Neither Terra Industries, any of its Subsidiaries or any of its Tax Affiliates has (i) except as set forth on Schedule 4.8 (or as otherwise notified from time to time after the Effective Date in writing to the Administrative Agent) executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for the filing of any Tax Return or the assessment or collection of any charges; (ii) any obligation under any tax sharing agreement or arrangement other than that to which the Administrative Agent has a copy prior to the Initial Closing Date; or (iii) been a member of an affiliated, combined or unitary group other than the group of which Terra Industries is the common parent.

Section 4.9. Full Disclosure.

The written information prepared or furnished by the Loan Parties or on their behalf (by their officers or advisors (including legal, environmental and financial advisors and consultants)) in connection with this Agreement, the MCC Acquisition, the MCC Acquisition Documents or the consummation of the financing when taken as a whole does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein or herein not misleading.

Section 4.10. Margin Regulations. Neither Terra Industries nor its Material Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board), and no proceeds of any Borrowing will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock in contravention of Regulation U or X of the Federal Reserve Board.

Section 4.11. No Burdensome Restrictions; No Defaults.

(a) Neither Terra Industries nor any of its Subsidiaries (i) is a party to any Contractual Obligation the compliance with which would have a Material Adverse Effect or the performance of which by any thereof, either unconditionally or upon the happening of an event, will result in the creation of a Lien (other than a Lien permitted under Section 8.2) on the property

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or assets of any thereof or (ii) is subject to any charter or corporate restriction which would have a Material Adverse Effect.

(b) Neither Terra Industries nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation owed by it and, to the knowledge of Terra Industries and the Borrowers, no other party is in default under or with respect to any Contractual Obligation owed to Terra Industries or its Subsidiaries, other than, in either case, those defaults which in the aggregate would not have a Material Adverse Effect.

(c) No Default or Event of Default has occurred and is continuing.

(d) To the best knowledge of Terra Industries and the Borrowers, there is no Requirement of Law applicable to any Loan Party the compliance with which by such Loan Party would have a Material Adverse Effect.

Section 4.12. Investment Company Act; Public Utility Holding Company Act. Neither Terra Industries nor any of its Subsidiaries is (a) an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended or (b) a “holding company,” or an “affiliate” or a “holding company” or a “subsidiary company” of a “holding company,” as each such term is defined and used in the Public Utility Holding Act of 1935, as amended.

Section 4.13. Use of Proceeds. The proceeds of the Loans and the Letters of Credit are being used by the Borrowers solely to refinance existing Indebtedness of the Borrowers and their Subsidiaries, and for the payment of related transaction costs, fees and expenses; and for their working capital and general corporate purposes.

Section 4.14. Insurance. All policies of insurance of any kind or nature of Terra Industries or any of its Subsidiaries, including policies of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers’ compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by businesses of the size and character of such Person. None of Terra Industries or any of its Subsidiaries has been refused insurance for any material coverage for which it had applied or had any policy of insurance terminated (other than at its request).

Section 4.15. Labor Matters.

(a) There are no strikes, work stoppages, slowdowns or lockouts pending or threatened against or involving Terra Industries or any of its Subsidiaries, other than those which in the aggregate would not have a Material Adverse Effect.

(b) There are no unfair labor practices, grievances or complaints pending, or, to the Borrowers’ knowledge, threatened against or involving Terra Industries or any of its Subsidiaries, nor are there any arbitrations or grievances threatened involving Terra Industries or any of its Subsidiaries, other than those which, in the aggregate, if resolved adversely to Terra Industries or such Subsidiary, would not have a Material Adverse Effect.

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(c) Except as set forth on Schedule 4.15, as of the Effective Date, there is no collective bargaining agreement covering any of the employees of Terra Industries or its Subsidiaries.

(d) Schedule 4.15 sets forth as of the date hereof, all material consulting agreements, executive employment agreements, executive compensation plans, deferred compensation agreements, employee stock purchase and stock option plans and severance plans of Terra Industries and any of its Subsidiaries.

Section 4.16. ERISA.

(a) Schedule 4.16 separately identifies as of the date hereof all Title IV Plans, all Multiemployer Plans and all Foreign Plans.

(b) Each employee benefit plan of Terra Industries or any of its Subsidiaries which is intended to qualify under Section 401 of the Code does so qualify, and any trust created thereunder is exempt from tax under the provisions of Section 501 of the Code, except where all such failures would not have a Material Adverse Effect.

(c) Each Title IV Plan is in compliance in all material respects with applicable provisions of ERISA, the Code and other Requirements of Law except for non-compliances that in the aggregate would not have a Material Adverse Effect.

(d) There has been no, nor is there reasonably expected to occur, any ERISA Event which would have a Material Adverse Effect.

(e) Except to the extent set forth on Schedule 4.16, none of Terra Industries, any of its Subsidiaries or any ERISA Affiliate would have any Withdrawal Liability as a result of a complete withdrawal as of the date hereof from any Multiemployer Plan.

(f) The accrued and vested liability under each Foreign Plan and under all Foreign Plans in the aggregate does not exceed the amount of such liability reflected in the Financial Statements by an amount which could reasonably be expected to have a Material Adverse Effect, after taking into account the availability of any assets of such Foreign Plan or otherwise specifically allocable to such liability.

Section 4.17. Environmental Matters.

(a) Except as set forth on Schedule 4.17, the operations of Terra Industries and each of its Subsidiaries have been and are in compliance with all Environmental Laws, including obtaining and complying in all material respects with all Permits required by Environmental Laws (“Environmental Permits”), other than non-compliances that in the aggregate would not have a reasonable likelihood of Terra Industries and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $5,000,000.

(b) Except as set forth on Schedule 4.17, Terra Industries and its Subsidiaries have obtained and currently possess all Environmental Permits necessary for their operations, all such Permits are in good standing and Terra Industries and each of its Subsidiaries is in compliance with the terms and conditions of such Permits except for failures that in the aggregate

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would not have a reasonable likelihood of Terra Industries and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $5,000,000.

(c) Except as set forth on Schedule 4.17, none of Terra Industries or any of its Subsidiaries or any Real Property currently or, to its knowledge, previously owned, operated or leased by or for Terra Industries or any of its Subsidiaries is subject to any pending or, to its knowledge threatened, written claim, order, agreement, notice of violation, notice of potential liability or other allegation or is the subject of any pending or, to its knowledge, threatened proceeding or governmental investigation under or pursuant to Environmental Laws other than those that in the aggregate would not have a reasonable likelihood of Terra Industries and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $5,000,000.

(d) Except as set forth on Schedule 4.17, none of Terra Industries or any of its Subsidiaries is a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the regulations thereunder or any state analog.

(e) Except as set forth on Schedule 4.17, there are no facts, circumstances or conditions arising out of or relating to the operations or ownership of Real Property owned or operated by Terra Industries or any of its Subsidiaries that could reasonably be expected to give rise to Environmental Liabilities and Costs which are not specifically included in the financial information furnished to the Lenders other than those that in the aggregate would not have a reasonable likelihood of resulting in Terra Industries or any of its Subsidiaries incurring Environmental Liabilities and Costs in excess of $5,000,000.

(f) Except as set forth on Schedule 4.17, as of the date hereof, no Environmental Lien has attached to any property of Terra Industries or any of its Subsidiaries and to its knowledge no facts, circumstances or conditions exist that could reasonably be expected to result in any such lien attaching to any such property.

(g) Except as set forth on Schedule 4.17, Terra Industries and each of its Subsidiaries has provided the Administrative Agent with copies of all material environmental, health or safety audits, studies, assessments, inspections, investigations or other environmental health and safety reports relating to the operations of Terra Industries and its Subsidiaries or their Real Property that are in the possession, custody or control of Terra Industries or any of its Subsidiaries.

Section 4.18. Intellectual Property. Terra Industries and its Subsidiaries own or license or otherwise have the right to use all licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, franchises, authorizations and other intellectual property rights (including all Intellectual Property as defined in the Pledge and Security Agreement) that are necessary and material to the operations of their respective businesses, without infringement upon or conflict with the rights of any other Person with respect thereto, including all trade names associated with any material private label brands of Terra Industries or any of its Subsidiaries. To the Borrowers’ and Terra Industries’ knowledge, no slogan or other advertising device, product, process, method, substance, part or component, or other material now employed, or now contemplated to be employed, by Terra Industries or any of its Subsidiaries infringes upon or conflicts in any material respect with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened.

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Section 4.19. Title; Real Property.

(a) Schedule 4.19 sets forth all the Real Property (other than Non-Material Real Property) owned by Terra Industries and its Material Subsidiaries at the date hereof and each of Terra Industries and its Subsidiaries has good and marketable title to, or valid leasehold interests in, all such Real Property and good title to all personal property purported to be owned by it, including those reflected on the most recent Financial Statements delivered by the Borrowers, and none of such properties and assets is subject to any Lien, except Liens permitted under Section 8.2. Terra Industries and its Subsidiaries have received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and have duly effected all recordings, filings and other actions necessary to establish, protect and perfect in all material respects Terra Industries’ and its Material Subsidiaries’ right, title and interest in and to all such property.

(b) Set forth on Schedule 4.19 hereto is a complete and accurate list of all Real Property (other than Non-Material Real Property) owned and leased by Terra Industries and its Material Subsidiaries showing as of the Effective Date the street address, county or other relevant jurisdiction, state, and record owner. Each Loan Party has good, indefeasible and marketable fee simple (or, where relevant, leasehold) title to all Real Property purported to be owned by it, which ownership is free and clear of all Liens other than Liens created or permitted by the Loan Documents.

(c) Except as set forth on Schedule 4.19 (or otherwise notified in writing to the Administrative Agent in respect of Real Property acquired after the Initial Closing Date), neither Terra Industries nor any of its Subsidiaries owns or holds, or is obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell, assign or dispose of any Real Property (other than Non-Material Real Property) owned or leased by Terra Industries or any of its Subsidiaries except as permitted by the Loan Documents.

(d) All material components of all improvements included within the Real Property owned or leased by Terra Industries or any of its Subsidiaries (collectively, “Improvements”), including the roofs and structural elements thereof and the heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water, paving and parking equipment, systems and facilities included therein, are in working order and repair to the extent necessary for the effective and orderly conduct of the business, operations and activities of Terra Industries and its Subsidiaries in all material respects (but in any event to a standard not lower than that generally maintained by Terra Industries and its Subsidiaries during the two year period preceding the date hereof). All water, gas, electrical, steam, compressed air, telecommunication, sanitary and storm sewage lines and systems and other similar systems serving the Real Property owned or leased by Terra Industries or any of its Subsidiaries are installed and operating and are sufficient to enable the Real Property owned or leased by Terra Industries or its Subsidiaries to continue to be used and operated in the manner currently being used and operated, and neither Terra Industries nor any of its Subsidiaries has any knowledge of any factor or condition that could result in the termination or material impairment of the furnishing thereof. No Improvement or portion thereof is dependent for its access, operation or utility on any land, building or other Improvement not included in the Real Property owned or leased by Terra Industries or any of its Subsidiaries or over which it has a right of way or easement.

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(e) No portion of any Real Property owned or leased by Terra Industries or any of its Subsidiaries has suffered any material damage by fire or other casualty loss which has not heretofore been substantially repaired and restored to its original condition except with respect to which repair has been commenced (as set forth on Schedule 4.19 (or otherwise notified in writing to the Administrative Agent after the Effective Date)) and is being diligently progressed. Except as set forth on Schedule 4.19 (or otherwise notified in writing to the Administrative Agent after the Effective Date), no portion of any Real Property owned or leased by Terra Industries or any of its Subsidiaries is located in a special flood hazard area as designated by any federal Governmental Authority.

(f) All Permits required to have been issued or appropriate to enable all Real Property owned or leased by Terra Industries or any of its Subsidiaries to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect, other than those which in the aggregate would not have a Material Adverse Effect.

(g) None of Terra Industries or any of its Subsidiaries has received any notice, or has any knowledge, of any pending, threatened or contemplated condemnation proceeding affecting any Real Property owned or leased by Terra Industries or any of its Subsidiaries or any part thereof, except those which, in the aggregate, would not have a Material Adverse Effect.

Section 4.20. Pari Passu Obligations. This Agreement and the other Loan Documents and the obligations evidenced hereby and thereby are and will at all times be direct and unconditional general obligations of the Borrowers, and rank and will at all times rank in right of payment and otherwise at least pari passu with all unsecured Indebtedness of the Borrowers, whether now existing or hereafter outstanding, subject to statutory priority and the effect of bankruptcy and insolvency law.

Section 4.21. No Immunity. Terra UK is subject to civil and commercial law with respect to its obligations under this Agreement and each of the other Loan Documents. The execution, delivery and performance by Terra UK of this Agreement and each of the other Loan Documents constitute private and commercial acts rather than public or governmental acts. Neither Terra UK nor any of its properties or revenues is entitled to any right of immunity in any jurisdiction from suit, court jurisdiction, judgment, attachment (whether before or after judgment), set-off or execution of a judgment or from any other legal process or remedy relating to the obligations of Terra UK, as the case may be, under this Agreement or any of the other Loan Documents.

Section 4.22. Canadian and English Requirements. This Agreement and each of the other Loan Documents are in proper legal form under the laws of Canada and England for the enforcement thereof against Terra Canada and Terra UK respectively under such laws, and if each of the Loan Documents were stated to be governed by such law, they would constitute legal, valid and binding obligations of Terra Canada and Terra UK, as the case may be, thereunder, enforceable in accordance with their respective terms. All formalities (if any) required under the laws of Canada and England in respect of Terra Canada and Terra UK, for the validity and enforceability of each of the Loan Documents (including, without limitation, any necessary registration, recording or filing with any court or other authority therein), except as

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otherwise expressly provided herein, have been accomplished, and no Taxes are required to be paid and no notarization is required, for the validity and enforceability thereof.

ARTICLE V

FINANCIAL COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, unless the Requisite Lenders otherwise consent in writing, Terra Industries agrees with the Lenders and the Administrative Agent that:

Section 5.1. Minimum Cash Flow. If, at any time during any Fiscal Quarter, the aggregate Available Credit is less than $60,000,000 for more than three consecutive Business Days, Terra Industries will have Cash Flow for the four Fiscal Quarter period set forth below ending as of the last day of the immediately preceding Fiscal Quarter of not less than the amount set forth below opposite such period:

Fiscal Quarters	Minimum Cash Flow
4 Fiscal Quarters ended December 31, 2004 and each 4 Fiscal Quarter period thereafter	$	60,000,000

For avoidance of doubt, an Event of Default for purposes of Section 9.1(e)(i) in respect of the minimum Cash Flow requirement indicated above shall be deemed to have occurred and be continuing as of the next Business Day immediately following the aforementioned three consecutive Business Days in the event that Terra Industries shall not have met the Cash Flow Requirement set forth above.

Section 5.2. Capital Expenditures and Joint Venture Investments. Terra Industries will not permit (a) Capital Expenditures (excluding any Capital Expenditures financed by insurance proceeds to the extent permitted hereunder) to be made or incurred during each period set forth below and (b) the cash Investments in joint ventures made during such period permitted under Section 8.3(l), in aggregate to be in excess of the maximum amount set forth below, for such period:

Fiscal Year	Maximum Amount
Effective Date through June 30, 2005	$	30,000,000
Fiscal Year ended December 31, 2005	$	40,000,000
Fiscal Year ended December 31, 2006	$	40,000,000
Fiscal Year ended December 31, 2007	$	40,000,000
First two Fiscal Quarters for the Fiscal Year 2008	$	30,000,000

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Section 5.3. Minimum Liquidity. The Borrowers shall not permit the aggregate Available Credit of the Borrowers to be less than $30,000,000 for more than three consecutive Business Days.

ARTICLE VI

REPORTING COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, unless the Requisite Lenders (except as provided in Section 11.1) otherwise consent in writing, the Borrower agrees with the Lenders and the Administrative Agent that:

Section 6.1. Financial Statements. Terra Industries shall furnish to the Lenders the following Financial Statements:

(a) Monthly Reports. Within 30 days after the end of each fiscal month (other than March, June and September) in each Fiscal Year, financial information regarding Terra Industries and its Subsidiaries consisting of consolidated and consolidating unaudited balance sheets as of the close of such month and the related statements of income and cash flow for such month and that portion of the current Fiscal Year ending as of the close of such month, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections, in each case certified by a Responsible Officer of Terra Industries as fairly presenting the consolidated and consolidating financial position of Terra Industries and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).

(b) Quarterly Reports. Within 45 days after the end of each Fiscal Quarter (other than a Fiscal Quarter ending December 31) in each Fiscal Year, financial information regarding Terra Industries and its Subsidiaries consisting of consolidated and consolidating unaudited balance sheets as of the close of such quarter and the related statements of income and cash flow for such quarter and that portion of the Fiscal Year ending as of the close of such quarter, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections, in each case certified by a Responsible Officer of Terra Industries as fairly presenting the consolidated and consolidating financial position of Terra Industries and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).

(c) Annual Reports. Within 90 days after the end of each Fiscal Year, financial information regarding Terra Industries and its Subsidiaries consisting of consolidated and consolidating balance sheets of Terra Industries and its Subsidiaries as of the end of such year and related statements of income and cash flows of Terra Industries and its Subsidiaries for such Fiscal Year, all prepared in conformity with GAAP and certified, in the case of such consolidated

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financial statements, without qualification as to the scope of the audit by Deloitte & Touche LLP or other independent public accountants acceptable to the Administrative Agent, together with the report of such accounting firm stating that (i) such financial statements fairly present the consolidated financial position of Terra Industries and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which such independent certified public accountants shall concur and which shall have been disclosed in the notes to the financial statements), and (ii) the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards, and accompanied by a certificate stating that in the course of the regular audit of the business of Terra Industries and its Subsidiaries such accounting firm has obtained no knowledge that a Default or Event of Default in respect of the financial covenants contained in Article V has occurred and is continuing, or, if in the opinion of such accounting firm, a Default or Event of Default has occurred and is continuing in respect of such financial covenants, a statement as to the nature thereof.

(d) Compliance Certificate. Together with each delivery of any financial statement pursuant to clauses (b) and (c) of this Section 6.1, a certificate of a Responsible Officer of a Borrower (each, a “Compliance Certificate”) (i) showing in reasonable detail the calculations used in determining the Leverage Ratio (for purposes of determining the Applicable Margin) and demonstrating compliance with each of the financial covenants contained in Article V which is tested on a quarterly basis and (ii) stating that, to the best of such Responsible Officer’s knowledge, no Default or Event of Default has occurred and is continuing or, if a Default or an Event of Default has occurred and is continuing, stating the nature thereof and the action which the Borrower proposes to take with respect thereto.

(e) Business Plan. Not later than 60 days after the end of each Fiscal Year, and containing substantially the types of financial information contained in the Projections delivered pursuant to clause (i) of the definition of such term in Section 1.1, (i) the annual business plan of Terra Industries for the next succeeding Fiscal Year approved by the Board of Directors of Terra Industries, (ii) forecasts prepared by management of Terra Industries for each fiscal month in the next succeeding Fiscal Year, and (iii) forecasts prepared by management of Terra Industries for each of the succeeding Fiscal Years through Fiscal Year 2008, including, in each instance described in clause (ii) and clause (iii) above, (A) a projected year-end consolidated balance sheet and income statement and statement of cash flows and (B) a statement of all of the material assumptions on which such forecasts are based.

(f) Management Letters, Etc. Within five Business Days after receipt thereof by any Loan Party, copies of each management letter, exception report or similar letter or report received by such Loan Party from its independent certified public accountants;

(g) Loans and Intercompany Loan Balances. Together with each delivery of any financial statement pursuant to clauses (b) or (c) of this Section 6.1, a summary of the outstanding Loans and the outstanding balance of all Intercompany Indebtedness as of the last day of the fiscal quarter covered by such financial statement (or more frequently as may be required by the Administrative Agent), certified by a Responsible Officer.

(h) Additional Information. Promptly, from time to time, such other information regarding the operations, including information regarding specific product categories and lines of business of Terra Industries and its Subsidiaries, business affairs and financial

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condition of Terra Industries or any of its Subsidiaries, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.

Section 6.2. Default Notices. As soon as practicable, and in any event within five Business Days after a Responsible Officer of any Loan Party has actual knowledge of the existence of any Default, Event of Default or other event which has had a Material Adverse Effect or which has any reasonable likelihood of causing or resulting in a Material Adverse Change, the Borrowers shall give the Administrative Agent notice specifying the nature of such Default or Event of Default or other event, including the anticipated effect thereof, which notice, if given by telephone, shall be promptly confirmed in writing on the next Business Day.

Section 6.3. Litigation. Promptly after the commencement thereof, the Borrowers shall give the Administrative Agent written notice of the commencement of all actions, suits and proceedings before any domestic or foreign Governmental Authority or arbitrator, affecting Terra Industries or any of its Subsidiaries and known to a Responsible Officer, which in the reasonable judgment of Terra Industries or such Subsidiary, could reasonably be expected to expose Terra Industries or such Subsidiary to liability in an amount aggregating $500,000 or more or which, if adversely determined, would have a Material Adverse Effect.

Section 6.4. Asset Sales. Prior to any Asset Sale anticipated to generate in excess of $10,000,000 (or its Dollar Equivalent) in Net Cash Proceeds, Terra Industries shall send the Administrative Agent a notice (a) describing such Asset Sale or the nature and material terms and conditions of such transaction and (b) stating the estimated Net Cash Proceeds anticipated to be received by Terra Industries or any of its Subsidiaries.

Section 6.5. SEC Filings; Press Releases. Promptly after the sending or filing thereof, the Borrowers shall send the Administrative Agent copies of (a) all reports which Terra Industries or any of its Material Subsidiaries sends to its security holders generally, (b) all reports and registration statements which Terra Industries or any of its Subsidiaries files with the Securities and Exchange Commission or any national or foreign securities exchange or the National Association of Securities Dealers, Inc., (c) all press releases and (d) all other statements concerning material changes or developments in the business of such Loan Party made available by any Loan Party to the public.

Section 6.6. Labor Relations. Promptly after a Responsible Officer becomes aware of the same, the Borrowers shall give the Administrative Agent written notice of (a) any material labor dispute to which Terra Industries or any of its Material Subsidiaries is or may become a party, including any strikes, lockouts or other disputes relating to any of such Person’s plants and other facilities, and (b) any Worker Adjustment and Retraining Notification Act or related liability incurred with respect to the closing of any plant or other facility of any of such Person.

Section 6.7. Tax Returns. Upon the request of any Lender, through the Administrative Agent, the Borrowers will provide copies of all federal, state, material local and foreign tax returns and reports filed by Terra Industries or any of its Subsidiaries in respect of taxes measured by income (excluding sales, use and like taxes).

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Section 6.8. Insurance. As soon as is practicable and in any event within 90 days after the end of each Fiscal Year, the Borrowers will furnish the Administrative Agent (in sufficient copies for each of the Lenders) with (a) a report in form and substance reasonably satisfactory to the Administrative Agent and the Lenders outlining all material insurance coverage maintained as of the date of such report by Terra Industries and its Material Subsidiaries and the duration of such coverage and (b) an insurance broker’s statement that all premiums then due and payable with respect to such coverage have been paid.

Section 6.9. ERISA Matters. The Borrowers shall furnish the Administrative Agent (with sufficient copies for each of the Lenders):

(a) promptly and in any event within 30 days after a Responsible Officer of Terra Industries, any of its Material Subsidiaries or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred;

(b) promptly and in any event within 10 days after a Responsible Officer of Terra Industries, any of its Material Subsidiaries or any ERISA Affiliate knows or has reason to know that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Title IV Plan or Multiemployer Plan, a written statement of a Responsible Officer of Terra Industries describing such ERISA Event or waiver request and the action, if any, which Terra Industries, its Subsidiaries and ERISA Affiliates propose to take with respect thereto and a copy of any notice filed with the PBGC or the IRS pertaining thereto;

(c) simultaneously with the date that Terra Industries, any of its Material Subsidiaries or any ERISA Affiliate files a notice of intent to terminate any Title IV Plan, if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, a copy of each notice.

Section 6.10. Environmental Matters. The Borrowers shall provide the Administrative Agent promptly and in any event within 10 days of a Responsible Officer of Terra Industries or any Subsidiary learning of any of the following, written notice of any of the following:

(a) that any Loan Party is or may be liable to any Person as a result of a Release or threatened Release which could reasonably be expected to subject such Loan Party to Environmental Liabilities and Costs of $5,000,000 or more;

(b) the receipt by any Loan Party of notification that any real or personal property of such Loan Party is subject to any Environmental Lien;

(c) the receipt by any Loan Party of any notice of violation of or potential liability under, or knowledge by such Loan Party that there exists a condition which could reasonably be expected to result in a violation of or liability under any Environmental Law, except for violations and liabilities the consequence of which in the aggregate would have no reasonable likelihood of subjecting the Loan Parties collectively to Environmental Liabilities and Costs of $5,000,000 or more;

(d) the commencement of any judicial or administrative proceeding or investigation alleging a violation of or liability under any Environmental Law, which in the

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aggregate, if adversely determined, would have a reasonable likelihood of subjecting the Loan Parties collectively to Environmental Liabilities and Costs of $5,000,000 or more;

(e) any proposed acquisition of stock, assets or real estate, or any proposed leasing of property, or any other action by any Loan Party or any of its Subsidiaries the consequences of which in the aggregate have a reasonable likelihood of subjecting the Loan Parties collectively to Environmental Liabilities and Costs of $5,000,000 or more;

(f) any proposed action by any Loan Party or any of its Subsidiaries or any proposed change in Environmental Laws which in the aggregate have a reasonable likelihood of requiring the Loan Parties to obtain additional environmental, health or safety Permits or make additional capital improvements to obtain compliance with Environmental Laws that in each case in the aggregate would cost $5,000,000 or more or subject the Loan Parties to additional Environmental Liabilities and Costs of $5,000,000 or more; and

(g) upon written request by the Administrative Agent or by any Lender through the Administrative Agent, following (i) the acquisition by a Loan Party or its Subsidiary of a fee interest in any Real Property, (ii) the occurrence of a Default or Event of Default pursuant to Section 7.10 or (iii) the occurrence (or the reasonable belief by the Administrative Agent, following consultation with the Borrowers, of the occurrence) of any of the matters to be notified by the Borrowers under this Section 6.10, a report prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent providing, as appropriate in the circumstances, an assessment of the status of any Environmental Liabilities and Costs and other environmental, health or safety compliance, hazard or liability issue arising in relation thereto, which assessment shall be reasonable in scope in light of the circumstances, perceived risks and the facts known at the time. Without limiting the foregoing, if the Administrative Agent determines at any time that a material risk exists that any such report will not be provided within a reasonable time following such request the Administrative Agent may retain an environmental consulting firm to prepare such report at the expense of the Borrowers.

Section 6.11. Borrowing Base Determination.

(a) The Borrowers shall furnish to the Administrative Agent no later than Wednesday of each week or more frequently as may be requested by the Administrative Agent, a Borrowing Base Certificate for each Borrower as of the immediately preceding Friday (or the relevant third preceding Business Day if requested more frequently) executed by a Responsible Officer of each Borrower together with reasonably detailed supporting information and documentation acceptable to the Administrative Agent. The Administrative Agent shall make reasonable efforts to furnish to the Lenders a copy of each Borrowing Base Certificate following receipt thereof from the Borrowers; provided, however, that failure to furnish such a copy will not give rise to a claim or remedy by the Lenders against the Administrative Agent.

(b) Each Borrower shall conduct, or shall cause to be conducted, at its expense, and upon request of the Administrative Agent, and present to the Administrative Agent for approval, such appraisals, investigations and reviews as the Administrative Agent shall reasonably request for the purpose of determining each Borrowing Base, all upon notice and at such times during normal business hours and as often as may be reasonably requested. Each Borrower shall furnish to the Administrative Agent any information which the Administrative Agent may reasonably request regarding the determination and calculation of its Borrowing Base including correct and complete copies of any invoices, underlying agreements, instruments or

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other documents and the identity of all Account Debtors in respect of Accounts referred to therein.

(c) The Borrowers shall notify the Administrative Agent in writing promptly upon any Borrower receiving or otherwise gaining knowledge that the Revolving Credit Outstandings in respect of such Borrower would result in a Borrowing Base Deficiency.

(d) The Administrative Agent may, at the Borrowers’ sole cost and expense, make test verifications of the Accounts and physical verifications of the Inventory in any manner and through any medium that the Administrative Agent considers advisable, and the Borrowers shall furnish all such assistance and information as the Administrative Agent may reasonably require in connection therewith.

Section 6.12. Other Information. The Borrowers will provide the Administrative Agent or any Lender with such other information respecting the business, properties, condition, financial or otherwise, or operations of Terra Industries or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request.

Section 6.13. Material Documents. The Borrowers will provide to the Administrative Agent on or before the date of execution, or amendment, waiver or consent (which amendment, waiver or consent shall comply with Section 8.11) in respect of each Material Document, notification thereof together with a certified copy of such Material Document or amendment, waiver or consent as applicable.

Section 6.14. Foreign Benefit Plans. The Borrower shall provide to the Administrative Agent (with sufficient copies for each Lender) copies of each material report (including applicable schedules) with respect to each Foreign Plan or any trust created thereunder as the Administrative Agent (or any Lender, through the Administrative Agent) may reasonably request.

ARTICLE VII

AFFIRMATIVE COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, unless the Requisite Lenders (except as provided in Section 11.1) otherwise consent in writing, each Borrower agrees with the Lenders and the Administrative Agent that:

Section 7.1. Preservation of Corporate Existence, Etc. Each of Terra Industries and the Borrowers shall, and shall cause each of its Subsidiaries to, preserve and maintain its corporate or partnership existence, rights (charter and statutory) and franchises, except (i) as permitted by Sections 8.4 and 8.6 and (ii) the abandonment of such rights and franchises which are no longer necessary or desirable to the conduct of the business of Terra Industries or its Subsidiaries and which abandonment would not have a Material Adverse Effect.

Section 7.2. Compliance with Laws, Etc. Each of Terra Industries and the Borrowers shall, and shall cause each of its Subsidiaries to, comply with all applicable

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Requirements of Law, Contractual Obligations and Permits (and maintain in full force and effect all contracts constituting such Contractual Obligations and such Permits), except where the failure so to comply would not in the aggregate have a Material Adverse Effect.

Section 7.3. Conduct of Business. Each of Terra Industries and the Borrowers shall, and shall cause each of its Subsidiaries to, (a) conduct its business in the ordinary course and substantially in accordance with past practice and (b) use its reasonable efforts, in the ordinary course and substantially in accordance with past practice, to preserve its business and the goodwill and business of the customers, advertisers, suppliers and others having business relations with the Borrower or any of its Subsidiaries, except in each case where the failure to comply with the covenants in each of clauses (a) and (b) above would not in the aggregate have a Material Adverse Effect.

Section 7.4. Payment of Taxes, Etc. Each of Terra Industries and the Borrowers shall, and shall cause each of its Material Subsidiaries to, pay and discharge before the same shall become delinquent, all material lawful governmental claims, taxes, assessments, charges and levies, except where contested in good faith, by proper proceedings and adequate reserves therefor have been established on the books of such Loan Party or the appropriate Subsidiary in conformity with GAAP.

Section 7.5. Maintenance of Insurance. Each of Terra Industries and the Borrowers shall (i) maintain, and cause to be maintained for each other Loan Party and each of its Material Subsidiaries insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which Terra Industries, such Borrower or such Subsidiary operates, and such other insurance as may be reasonably requested by the Requisite Lenders and the Administrative Agent (as a result of any report delivered pursuant to Section 6.8 or the Lenders or Administrative Agent becoming aware of any fact or circumstances following the Initial Closing Date which would indicate that it would be prudent and consistent with industry practice for such additional insurance to be obtained), and, in any event, all insurance required by any Collateral Documents and (ii) cause all such insurance to name the Administrative Agent on behalf of the Secured Parties as additional insured or loss payee, as appropriate as set forth in Section 3.1(a)(xix), and to provide that no cancellation, material addition in amount or material change in coverage shall be effective until after 30 days’ written notice thereof to the Administrative Agent.

Section 7.6. Access. Each of Terra Industries and the Borrowers shall from time to time, permit, and shall cause each of its Subsidiaries to permit, the Administrative Agent and the Lenders, or any agents or representatives thereof, within one Business Day after written notification of the same (except that during the continuance of an Event of Default, no such notice shall be required) to (a) examine and make copies of and abstracts from the records and books of account of such Loan Party and each of its Subsidiaries, (b) visit the properties of such Loan Party and each of its Subsidiaries, (c) discuss the affairs, finances and accounts of such Loan Party and each of its Subsidiaries with any of their respective officers or directors, and (d) communicate directly with the Borrowers’ independent certified public accountants; provided, however, that the Borrowers may participate in such communication unless a Default or Event of Default has occurred and is continuing). Each of Terra Industries and the Borrowers shall authorize their independent certified public accountants to disclose to the Administrative Agent or any Lender any and all financial statements and other information of any kind, as the

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Administrative Agent or any Lender reasonably requests from the Borrower, any other Loan Party or any of its Subsidiaries and which such accountants may have with respect to the business, financial condition, results of operations or other affairs of such Loan Party or any of its Subsidiaries.

Section 7.7. Keeping of Books. Each of Terra Industries and the Borrowers shall, and shall cause each other Loan Party and each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made in conformity with GAAP of all financial transactions and the assets and business of Terra Industries, the Borrowers and each such Subsidiary.

Section 7.8. Maintenance of Properties, Etc. Each of Terra Industries and the Borrowers shall, and shall cause each of its Subsidiaries to, maintain and preserve, (a) all of its properties which are necessary in the conduct of its business in such working order and condition to the extent necessary for the effective and orderly conduct of the business, operations and activities of Terra Industries and its Subsidiaries in all material respects (but in any event to a standard not lower than that generally maintained by Terra Industries and its Subsidiaries during the two year period preceding the date hereof), (b) all rights, permits, licenses, approvals and privileges (including all Permits) which are used or necessary in the conduct of its business, and (c) all registered patents, trademarks, trade names, copyrights and service marks with respect to its business; except where the failure to so maintain and preserve in the aggregate would have no Material Adverse Effect.

Section 7.9. Application of Proceeds. The Borrowers shall use the entire amount of the proceeds of the Loans as provided in Section 4.13.

Section 7.10. Environmental. Each of Terra Industries and the Borrowers shall, and shall cause each of its Subsidiaries to comply in all material respects with Environmental Laws and, without limiting the foregoing, each of Terra Industries and the Borrowers shall, at their sole cost and expense, upon receipt of a notification or otherwise obtaining knowledge of any Release or other event that has a reasonable likelihood of Terra Industries and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $5,000,000, (i) conduct or pay for consultants to conduct, tests or assessments of environmental conditions at such operations or properties, including the investigation and testing of subsurface conditions and (ii) take such Remedial Action as required by Environmental Laws or as any Governmental Authority lawfully requires or as is appropriate and consistent with good business practice to address the Release or event; provided, however, that Terra Industries and the Borrowers shall not be deemed to be in violation of this Section 7.10 where a failure to comply with any provision hereof would not reasonably be expected to result in Terra Industries and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $5,000,000.

Section 7.11. Additional Collateral and Guaranties; Further Assurances.

(a) To the extent not delivered to the Administrative Agent on or before the Effective Date or to the extent the delivery thereof would be covered by clause (b) below, each of Terra Industries and the Borrowers agree promptly to, or ensure that each of its Material Subsidiaries shall promptly (or, to the extent legally restricted from doing so at the date hereof, promptly following the removal of such restriction), (i) execute and deliver to the Administrative Agent such further, and such amendments to the, Collateral Documents as the Administrative

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Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Stock and Stock Equivalents and other debt Securities of any Material Subsidiary which are owned by Terra Industries or any of its Subsidiaries and requested to be pledged by the Administrative Agent; provided, however, (A) that such Stock, Stock Equivalents or other debt Securities shall not include assets constituting Senior Secured Note Collateral and (B) in no event shall any Loan Party or any of its Subsidiaries be required to pledge in excess of 65% of the outstanding Stock of any first tier Material Subsidiary that is not a Domestic Subsidiary or any of the outstanding stock of any Subsidiary of such first tier Subsidiary (except to the extent that such pledge is to secure the Obligations of Terra UK or the obligations under any Guaranty of such Obligations), provided, however, this clause (B) shall not apply to any Stock issued by MCHI to the extent that, and for so long as, a grant of a security interest in such Stock (“Restricted Stock”) is prohibited by any Requirement of Law of a Governmental Authority, requires a consent not obtained of any Governmental Authority pursuant to such Requirement of Law or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent which has not been obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such Stock or any applicable shareholder or similar agreement, except to the extent that (x) such Requirement of Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law, (y) the required consent has been obtained, is no longer required or the required consent is from a Loan Party or one of its Subsidiaries, or (z) any such term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent was entered into by Terra Industries or its Subsidiaries after the date hereof, and (ii) deliver to the Administrative Agent the certificates (if any) representing such Stock and Stock Equivalents and other debt Securities, together with (A) in the case of such certificated Stock and Stock Equivalents, undated stock powers endorsed in blank, and (B) in the case of such certificated debt Securities, endorsed in blank, in each case executed and delivered by a Responsible Officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such new Material Subsidiary (other than MCHI and its Subsidiaries) (A) to become a party to a Guaranty and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Secured Parties a perfected security interest in the Collateral described in the Collateral Documents with respect to such new Material Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Collateral Documents or by law or as may be reasonably requested by the Administrative Agent and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Agent; provided, further, that such new Material Subsidiary (other than MCHI), if not a Domestic Subsidiary, shall only be required to guarantee and secure the Obligations of Terra UK.

(b) Not later than the date which is 30 days after the Effective Date (or such later date as the Administrative Agent may agree to in its sole discretion), Terra Industries and its Subsidiaries shall ensure that MCHI shall have executed and delivered to the Administrative Agent a guaranty of the Obligations in form and substance satisfactory to the Administrative Agent, together with one or more legal opinions from counsel to the Loan Parties, and in form and substance, satisfactory to the Administrative Agent; provided, however, that such guaranty shall contain payment subordination, standstill and turnover provisions in favor of the

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administrative agent and the lenders under the MCC Credit Agreement which are acceptable to the Administrative Agent.

(c) Terra Industries and its Subsidiaries shall ensure that with respect to the Ammonium Nitrate Hedging Agreement, any gas Hedging Contract and any other Hedging Contract nominated by the Administrative Agent, all payments to Terra Industries or its Subsidiaries thereunder by the applicable counterparty thereto shall be made directly to a Cash Collateral Account or Approved Deposit Account (approved for such purpose by the Administrative Agent) and an irrevocable instruction (in form and substance satisfactory to the Administrative Agent) shall have been given by Terra Industries or its relevant Subsidiary to such counterparty to make payments thereunder to such Cash Collateral Account or Approved Deposit Account.

(d) Promptly upon the reasonable request by the Administrative Agent, each of Terra Industries and the Borrowers shall, and shall ensure that each of its Subsidiaries shall, take such action as the Administrative Agent may request (including the execution, amendment, delivery, filing and registration of any Loan Document or other document, certificate, agreement or instrument) in order to correct any material defect or error which may be discovered which impairs, or may fail to provide, the intended legality, effectiveness, accuracy, perfection or priority of any Loan Document.

Section 7.12. Cash Collateral Accounts and Cash Management System. As soon as reasonably practicable and in any event, in the case of MCC, not later than 30 days following the Effective Date, Terra Industries and each Borrower shall ensure that the following accounts and cash management systems shall be implemented and maintained:

(a) Terra Capital, MCC, Terra UK and Terra Canada shall maintain Cash Collateral Accounts and Approved Deposit Accounts and Terra Capital shall maintain the US Concentration Account as set forth on Schedule 7.12 or as may otherwise be approved by the Administrative Agent.

(b) The Administrative Agent shall (subject as provided below) have a perfected first priority lien on the Cash Collateral Accounts and the US Concentration Account. As long as any of the Obligations or any of the Revolving Credit Commitments remain outstanding, no Loan Party nor any Person or entity claiming by, through or under any Loan Party shall have any control over the use of, or any right to effect a withdrawal from, any Cash Collateral Account or the US Concentration Account; provided, however, that at such times as an Account Triggering Event shall not have occurred and be continuing in respect of any Loan Party, each of Terra UK and Terra Canada may by written notice instruct the Administrative Agent to make payments from its Cash Collateral Account to its Disbursement Account subject to and in accordance with the provisions of clauses (d)(ii) and (iii) below. All amounts in the Cash Collateral Accounts of Terra Capital, MCC and (for Dollar denominated receivables) Terra Canada shall be applied by the Administrative Agent as specified in clause(d)(i) below.

(c) Each Borrower and Terra Canada shall instruct its Account Debtors in respect of the Collateral to mail their remittances to a Lockbox and such Loan Party shall take all steps necessary or desirable, in the Administrative Agent’s sole discretion, to cause such Account Debtors to mail their remittances to such Lockbox. Each Borrower and Terra Canada shall mail to its Lockbox any remittances from such Account Debtors received directly by it as soon as possible (but in any event no later than the Business Day immediately following receipt).

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(d) Notwithstanding Section 11.1(a)(ix), each Borrower shall, and shall cause Terra Canada to, maintain a cash management system acceptable to the Administrative Agent including one or more Lockboxes as follows:

(i) In the case of Terra Capital and MCC, such cash management system shall provide for (A) all funds received by each such Borrower (other than funds constituting Senior Secured Note Collateral) to be deposited in a Lockbox or Approved Deposit Account covered by a Deposit Account Control Agreement, (B) daily deposit of remittances received in the Lockbox to the Approved Deposit Account, (C) daily sweeping of the funds in the Approved Deposit Account to the US Concentration Account and (D) upon receipt of notice from Terra Capital or MCC (as provided in the following sentence), allocation and transfer of such amounts in the US Concentration Account to the appropriate Cash Collateral Account of Terra Capital or MCC (but subject to the last sentence of clause (d)(ii) below), the Disbursement Account of Terra Canada. Terra Capital shall notify the Administrative Agent within two Business Days of the deposit of any proceeds of Collateral in the US Concentration Account which portion of such proceeds is owned by Terra Capital, MCC or, if applicable, Terra Canada. All funds on deposit in the Cash Collateral Accounts in respect of Terra Capital and MCC shall be applied in the manner specified in Section 2.9(e) and in respect of Terra Canada shall be applied as specified in clause (d)(ii)below.

(ii) In the case of Terra Canada, such cash management system shall provide for (A) all funds received by it (other than funds constituting Senior Secured Note Collateral) to be deposited in a Lockbox or Approved Deposit Account covered by a Deposit Account Control Agreement located in New York (in respect of US Dollar denominated account receivables) and in Sarnia, Ontario (in respect of all other account receivables), (B) daily deposit of remittances received in each Lockbox to each corresponding Approved Deposit Account, (C) daily sweeping of the funds in the New York Approved Deposit Account to the US Concentration Account and (D) upon receipt of notice from Terra Capital (as provided in clause (d)(i) above, but subject to the last sentence of this clause (d)(ii)), allocation and transfer of such amounts owned by Terra Canada in the US Concentration Account to a Disbursement Account of Terra Canada or as Terra Canada may otherwise instruct the Administrative Agent. Terra Canada shall notify the Administrative Agent within two Business Days of the deposit of any proceeds of Collateral in either of the Approved Deposit Accounts. As long as no Account Triggering Event in respect of Terra Canada has occurred and is continuing, all funds on deposit in the Lockbox or in the Approved Deposit Account of Terra Canada or in the US Concentration Account (to the extent owned by it) shall, upon written notice from Terra Canada to the Administrative Agent, be transferred to a Disbursement Account of Terra Canada or as Terra Canada may otherwise direct. Upon and during the continuance of an Account Triggering Event in respect of Terra Canada, no amount in the Lockbox or Approved Deposit Account of Terra Canada or in the US Concentration Account (to the extent owned by it) may be withdrawn therefrom without the approval of the Administrative Agent.

(iii) In the case of Terra UK, such cash management system shall provide for (A) all funds received by it (other than funds constituting Senior Secured Note Collateral) to be deposited in a Lockbox or Approved Deposit Account covered by a Deposit Account Control Agreement located in London and (B) daily deposit of

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remittances received in each Lockbox to each corresponding Approved Deposit Account. Terra UK shall notify the Administrative Agent within two Business Days of the deposit of any proceeds of Collateral in a Lockbox or in an Approved Deposit Account. All or any funds on deposit in an Approved Deposit Account of Terra UK will (in accordance with the request of Terra UK if no Account Triggering Event in respect of Terra UK has occurred and is continuing or otherwise at the discretion of the Administrative Agent), be either: (X) applied in the manner specified in Section 2.9(e); (Y) retained in the Approved Deposit Account or (Z) if the Administrative Agent consents (such consent not to be unreasonably withheld) following a written request of Terra UK to the Administrative Agent, be transferred to a Disbursement Account of Terra UK. Upon and during the continuance of an Account Triggering Event in respect of Terra UK, no amount may be withdrawn from Terra UK’s Approved Deposit Account without the approval of the Administrative Agent and all funds on deposit therein shall be applied in the manner specified in Section 2.9(e).

(e) Each Borrower and Terra Canada shall, not later than the Effective Date (or such later date as shall be acceptable to the Administrative Agent in its sole discretion), deliver to the Administrative Agent the Deposit Account Control Agreements, covering such accounts (other than accounts constituting Senior Secured Note Collateral) as the Administrative Agent shall direct, each duly executed by each party thereto.

(f) Any Loan Party may deposit any cash and Cash Equivalents held by it, which are not required to be applied in any other manner under the Loan Documents or the Senior Secured Note Documents, into such collateral account as may be approved by the Administrative Agent for the purpose of including such cash or Cash Equivalents in the calculation of a Borrowing Base. The Administrative Agent shall have a perfected first priority lien over any such account and (notwithstanding Section 11.1(a)(ix)) any cash or Cash Equivalents deposited in such account for such purpose may not subsequently be withdrawn by a Loan Party without the approval of the Administrative Agent.

(g) The Administrative Agent may convert into Dollars any amount not denominated in Dollars which is deposited in any Cash Collateral Account or which is otherwise received by it from or for the account of any Loan Party (which pursuant to the Loan Documents is to be applied to the payment of the Obligations) and each Borrower hereby agrees to indemnify the Administrative Agent and each other Indemnitee (as defined in Section 11.4(a)) from and against any loss, liability, cost or expense incurred by it in connection with such conversion and any Indemnitee entering into any currency exchange contract in the ordinary course of business for such purpose.

(h) None of Terra Industries or its Subsidiaries shall, following and during the continuance of an Account Triggering Event, a Default or Event of Default, maintain cash or Cash Equivalents (other than in respect of those funds referred to in Section 8.3(j)) in aggregate in excess of $3,000,000 outside of those accounts which are Approved Deposit Accounts, the US Concentration Account, Cash Collateral Accounts or accounts in which funds constituting Senior Secured Note Collateral are deposited or maintained including, without limitation, the Collateral Account (as defined in the Senior Secured Note Indenture).

Notwithstanding the foregoing, each Loan Party (other than MCC and its Subsidiaries) hereby acknowledges that all the accounts and the cash management system set forth above have been established by the Loan Parties, as applicable, in favor of the Administrative Agent.

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Section 7.13. Real Estate. Each Borrower shall, and shall cause each other Loan Party and each of its Subsidiaries to, use all commercially reasonable efforts to, (i) comply in all material respects with all of their respective obligations under all of their respective Leases now or hereafter held respectively by them with respect to Real Property (other than Non-Material Real Property), including the Leases set forth in Schedule 4.19; (ii) not modify, amend, cancel, extend or otherwise change in any materially adverse manner any of the terms, covenants or conditions of any such Leases; (iii) not assign or sublet any other Lease if such assignment or sublet would have a Material Adverse Effect; (iv) provide the Administrative Agent with a copy of each notice of default under any Lease received by such Loan Party or any of its Subsidiaries immediately upon receipt thereof and deliver to the Administrative Agent a copy of each notice of default sent by such Loan Party or any of its Subsidiaries under any Lease simultaneously with its delivery of such notice under such Lease; and (v) notify the Administrative Agent at least 14 days prior to the date the Borrower or any Subsidiary takes possession of, or becomes liable under, any new leased premises or Lease, whichever is earlier.

Section 7.14. Hedging Contracts. Terra Industries and its Subsidiaries shall at all times maintain on terms and with counterparties reasonably satisfactory to the Administrative Agent natural gas Hedging Contracts in accordance with the hedging policy regarding natural gas which has been and will continue to be adopted by the Board of Directors of Terra Industries and as in effect from time to time, to provide protection to Terra Industries and its Subsidiaries against fluctuations in natural gas prices.

ARTICLE VIII

NEGATIVE COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, without the written consent of (except as provided in Section 11.1) the Requisite Lenders, Terra Industries and each Borrower agree with the Lenders and the Administrative Agent that:

Section 8.1. Indebtedness. Terra Industries will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness except:

(a) the Obligations (but excluding Obligations in respect of Interest Rate Contracts unless otherwise permitted in clause (g) below);

(b) Indebtedness existing on the date of this Agreement and disclosed on Schedule 8.1;

(c) Capital Lease Obligations and purchase money Indebtedness incurred by Terra Industries or its Subsidiaries to finance the acquisition of Real Property or Equipment in an aggregate outstanding principal amount not to exceed $10,000,000 at any time; provided, however, that the Capital Expenditure related thereto is otherwise permitted by Section 5.2;

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(d) Renewals, extensions, refinancings and refundings of Indebtedness permitted by clause (b) or (c) of this Section 8.1; provided, however, that any such renewal extension, refinancing or refunding is in an aggregate principal amount not greater than the principal amount of, and is on terms no less favorable to Terra Industries or such Subsidiary, including as to weighted average maturity, than the Indebtedness being renewed, extended, refinanced or refunded;

(e) Intercompany Indebtedness which is a permitted Investment under Section 8.3(e).

(f) Indebtedness arising under any performance or surety bond entered into in the ordinary course of business;

(g) Obligations under Hedging Contracts required by Section 7.14 or as permitted by Section 8.17;

(h) unsecured Indebtedness not otherwise permitted under this Section 8.1 in an aggregate outstanding principal amount not to exceed $5,000,000 at any time;

(i) Indebtedness secured by Liens permitted under Section 8.2(h);

(j) Guarantees by Terra UK of Terra UK Customer Debt; provided that:

(i) the aggregate principal amount of such Debt so guaranteed by Terra UK with respect to any customer at any time shall not exceed 50% of the aggregate principal amount of the Terra UK Customer Debt of such customer outstanding at such time; and

(ii) the aggregate principal amount of Terra UK Customer Debt guaranteed by Terra UK at any time during any Fiscal Year shall not exceed (x) £15,000,000 minus (y) the aggregate amount of payments made by Terra UK under all such guarantees during such Fiscal Year;

(k) any other Intercompany Indebtedness;

(l) Indebtedness in respect of the Senior Secured Notes; provided, however, that the aggregate principal amount of such Indebtedness shall not exceed at any time $275,000,000 and Indebtedness in respect of the Senior Second Lien Notes; provided, however, that the aggregate principal amount of such Indebtedness shall not exceed at any time $250,000,000;

(m) Indebtedness incurred by MCC and its Subsidiaries in connection with the MCC Credit Agreement not to exceed $125,000,000 in the aggregate principal amount; and

(n) Indebtedness assumed in connection with a Permitted Acquisition not to exceed at any time the aggregate principal amount of $10,000,000, provided, however, such Indebtedness was not incurred in contemplation of such Permitted Acquisition.

Section 8.2. Liens, Etc. Terra Industries will not, and will not permit any of its Subsidiaries to, create or suffer to exist, any Lien upon or with respect to any of its properties

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or assets, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, except for:

(a) Liens created pursuant to the Loan Documents;

(b) Liens existing on the date of this Agreement and disclosed on Schedule 8.2 or expressly permitted by Section 8.3(e) or constituting cash collateral for a letter of credit issued by Bank of America N.A. (formerly Nationsbank, N.A.), as set forth on Schedule 8.1 (the terms and amount of such cash collateral to be reasonably satisfactory to the Requisite Lenders);

(c) Customary Permitted Liens of the Borrower and its Subsidiaries;

(d) purchase money Liens granted by the Borrower or any Subsidiary of the Borrower (including the interest of a lessor under a Capital Lease and Liens to which any property is subject at the time of the Borrower’s or such Subsidiary’s acquisition thereof) securing Indebtedness permitted under Sections 8.1(c) or (n) and limited in each case to the property purchased with the proceeds of such purchase money Indebtedness or subject to such Capital Lease;

(e) any Lien securing the renewal, extension, refinancing or refunding of any Indebtedness secured by any Lien permitted by clause (d) of this Section 8.2 without any change in the assets subject to such Lien;

(f) Liens in favor of lessors, sublessors or licensors under any lease or license otherwise permitted by this Agreement;

(g) Liens not otherwise permitted by the foregoing clauses of this Section 8.2 securing obligations or other liabilities of any Loan Party; provided, however, that the aggregate outstanding amount of such obligations and liabilities secured by such Liens shall not exceed $1,000,000 at any time;

(h) Liens which are licenses and sub-licenses granted to Persons that are not Affiliates of Terra Industries or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the business and operations of Terra Industries or any of its Subsidiaries;

(i) Liens on property of any of Terra Industries and its Subsidiaries (other than (i) property subject to Liens under the Collateral Documents and (ii) Liens securing Indebtedness of Terra Industries or its Subsidiaries) in favor of Terra Industries or any of its Subsidiaries to secure Intercompany Indebtedness owing to Terra Industries or any of its Subsidiaries;

(j) Liens on the Senior Secured Note Collateral and the Shared Collateral as security for Terra Industries’ and its Subsidiaries’ obligations in respect of the Senior Secured Notes and Liens on the Shared Current Asset Collateral as security for Terra Industries’ and its Subsidiaries’ obligations in respect of the Senior Second Lien Notes and the Senior Secured Notes (which Liens are subordinated to the Liens securing the Obligations pursuant to the Senior Second Lien Note Intercreditor Agreement); and

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(k) Liens on certain assets of MCC and its Subsidiaries securing, subject to the terms of the MCC Intercreditor Agreements, MCC’s obligations and liabilities under the MCC Credit Agreement.

Section 8.3. Investments. Terra Industries will not, and will not permit any of its Subsidiaries to, directly or indirectly make or maintain any Investment except:

(a) Investments existing on the date of this Agreement and disclosed on Schedule 8.3;

(b) Investments in cash and Cash Equivalents, including those held in bank accounts (but subject to Section 7.12(h)), and which (i) in respect of Terra Industries and Terra Capital Holdings shall not together exceed in aggregate $1,000,000 at any time (provided, however, for as long as no Event of Default has occurred and is continuing, such amount shall be increased (but for a period of not more than three consecutive Business Days) to the extent necessary to permit those Restricted Payments to be made that are due and payable and are permitted to be made under Section 8.5(b)) and (ii) which (at any time while Intercompany Indebtedness is outstanding which is owing to Terra Industries or any of its Domestic Subsidiaries by any Subsidiary of Terra Industries that is not a Domestic Subsidiary) shall not be held outside of the United States in an aggregate amount which is in excess of $50,000,000 for more than 5 consecutive Business Days;

(c) Investments in Accounts, contract rights and Chattel Paper, notes receivable and similar items arising or acquired in the ordinary course of business substantially in accordance with the past practice of Terra Industries and its Subsidiaries;

(d) Investments received in settlement of amounts due to Terra Industries or any of its Subsidiaries effected in the ordinary course of business;

(e) Investments in Intercompany Indebtedness (i) owing by or to Terra Capital or any of the Terra Capital Guarantors (which are wholly-owned Subsidiaries of Terra Capital) to or from Terra Capital or any of the Terra Capital Guarantors (which are wholly-owned Subsidiaries of Terra Capital), (ii) owing by Terra Capital to Terra UK, or by Terra UK to Terra Capital which is incurred in the ordinary course of business (provided that, if such Intercompany Indebtedness (other than the Terra UK Debt up to the principal amount thereof outstanding on the Effective Date and any such Intercompany Indebtedness constituting Senior Secured Note Collateral) is owing by Terra UK to Terra Capital, such Indebtedness is evidenced by an intercompany promissory note payable to the order of Terra Capital on terms satisfactory to the Administrative Agent, which note shall constitute Shared Collateral), (iii) owing by Terra Capital to Terra Canada, or by Terra Canada to Terra Capital which is incurred in the ordinary course of business (provided that, if such Intercompany Indebtedness (other than the Terra Canada Debt up to the principal amount thereof outstanding on the Effective Date) is owing by Terra Canada to Terra Capital, such Indebtedness is evidenced by an intercompany promissory note payable to the order of Terra Capital on terms satisfactory to the Administrative Agent, which note shall constitute Shared Collateral), or (iv) owing by or to Terra UK to or from Terra Canada;

(f) loans or advances to employees of any Borrower or any of its Subsidiaries in the ordinary course of business (other than for the purposes of acquiring Stock), which loans and advances shall not exceed the aggregate outstanding principal amount of $500,000 at any time;

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(g) Investments (other than Intercompany Indebtedness and Indebtedness which is referred to in clause (f) above) not otherwise permitted hereby in an aggregate outstanding amount not to exceed $1,000,000 at any time;

(h) Investments by Terra Capital in Common Units purchased, in each case, after the Effective Date; provided, however, Terra Capital may make open market purchases or calls of the Common Units not owned directly or indirectly by it (each a “Common Unit Purchase”) if, after giving effect to each Common Unit Purchase, the following conditions are satisfied:

(i) the aggregate amount of such purchases, (A) made during any Repurchase Period does not exceed the Maximum Repurchase Amount applicable to such period or (B) made during any calendar year does not exceed $100,000,000;

(ii) the aggregate Available Credit of the Borrowers on the date of each Common Unit Purchase, after giving effect to the Common Unit Purchase (or any purchase of (x) the Senior Second Lien Notes or (y) Senior Secured Notes) to be made on such date, shall be at least $125,000,000 with respect to any such purchase;]

(iii) Terra Industries has, as of the last day of the most recent Fiscal Quarter or Fiscal Year for which Financial Statements have been delivered to the Administrative Agent pursuant to Section 6.1(b)or (c), Cash Flow for the four Fiscal Quarters ending on such day of at least $100,000,000;

(iv) no Default or Event of Default shall have occurred and be continuing, both before and after giving effect to the making of any Common Unit Purchase;

(v) both before and after the making of any Common Unit Purchase, the representations and warranties set forth in Article IV and in the other Loan Documents shall be true and correct in all material respects on and as of the date of such Common Unit Purchase with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date;

(vi) Terra Capital shall have delivered to the Administrative Agent a certificate executed by an officer of Terra Capital certifying that the foregoing conditions have been met with respect to such Common Unit Purchase within three Business Days following the making of such purchase.

(i) Investments which are permitted Indebtedness under Sections 8.1(a), (b), (c), (d), (f), (g), (h), (i) or (j);

(j) Investments to match employee-directed funds under the Deferred Supplemental Savings Plan;

(k) Investments by (i) Terra Industries or any of its wholly-owned Domestic Subsidiaries in any of its respective (directly) wholly-owned Domestic Subsidiaries which is a

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Terra Capital Guarantor, (ii) by Terra Industries or any of its wholly-owned Domestic Subsidiaries in TNCLP and its Subsidiaries; provided, however, such investments made after the Effective Date shall not exceed an aggregate principal amount of $50,000,000 at any one time, (iii) by Terra Canada or any of its wholly-owned Subsidiaries (which is incorporated in Canada) in any of its respective (directly) wholly-owned Subsidiaries (which is incorporated in Canada) which is a Guarantor in respect of the Obligations of Terra Canada or (iv) by Terra UK or any of its wholly-owned Subsidiaries (which is incorporated in England and Wales) in any of its respective (directly) wholly-owned Subsidiaries (which is incorporated in England and Wales) which is a Guarantor in respect of the Obligations of Terra UK;

(l) Investments by Terra Industries or its Subsidiaries in any joint venture with any Person which (i) are cash Investments (to the extent permitted under Section 5.2) and (ii) are not cash Investments (to the extent permitted under Section 8.4(f));

(m) Investments by Terra Industries and its Subsidiaries in Terra Industries or any of its Subsidiaries;

(n) Investments in (i) MCC in connection with the MCC Acquisition to the extent that the MCC Acquisition complies with the requirements contained in clauses (c), (d) and (i) of the definition of Permitted Acquisition and (ii) Permitted Acquisitions.

Section 8.4. Sale of Assets. Terra Industries will not, and will not permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise dispose of, any of its assets or any interest therein (including the sale or factoring at maturity or collection of any accounts) to any Person, or permit or suffer any other Person to acquire any interest in any of its assets or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s Stock or Stock Equivalent (any such disposition being an “Asset Sale”), except:

(a) the sale or disposition in the ordinary course of business of Inventory, Cash Equivalents and precious metals recovered from spent catalysts;

(b) the sale or disposition of Equipment which has become obsolete or is replaced in the ordinary course of business; provided, however, that the aggregate Fair Market Value of all such Equipment disposed of in any Fiscal Year shall not exceed $10,000,000;

(c) the lease or sublease of Real Property or personal property which does not constitute a sale and leaseback;

(d) assignments and licenses of intellectual property of the Borrower and its Subsidiaries in the ordinary course of business;

(e) any sale or disposition of Inventory or Equipment (i) among Terra Capital and any wholly-owned Domestic Subsidiary of Terra Capital which is a Terra Capital Guarantor, (ii) among Terra UK and any wholly-owned Subsidiary of Terra UK (which is incorporated in England and Wales) which is a Guarantor in respect of the Obligations of Terra UK, (iii) among Terra Canada and any wholly-owned Subsidiary of Terra Canada (which is incorporated in Canada) which is a Guarantor in respect of the Obligations of Terra Canada, (iv) by Terra Industries or one of its wholly-owned Domestic Subsidiaries to TNCLP or one of its wholly-owned Domestic Subsidiaries so long as (in the case of this clause (iv)) the consideration is paid in cash to such transferor for all such assets in an amount not less than the Fair Market

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Value thereof or (v) by Terra Industries or its Subsidiaries to its Affiliates so long as (in the case of this clause (v)) the consideration is paid in cash to such transferor for all such assets in an amount not less than the Fair Market Value thereof;

(f) any other Asset Sales (including any disposition of assets to a joint venture by Terra Industries or its Subsidiaries) the aggregate Fair Market Value of which shall not at any time exceed $5,000,000; and

(g) additional Asset Sales by Terra Industries and its Subsidiaries (other than in respect of (i) property subject to Liens under the Collateral Documents and (ii) property subject to Liens securing Indebtedness of Terra Industries or such Subsidiary) to Terra Industries or any of its Subsidiaries.

Section 8.5. Restricted Payments. Terra Industries will not and it will not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment except:

(a) Restricted Payments by any Subsidiary of a Borrower to such Borrower or any Subsidiary of such Borrower;

(b) cash dividends on the Stock of Terra Capital to Terra Capital Holdings and on the Stock of Terra Capital Holdings to Terra Industries, paid and declared in any Fiscal Year solely for the purpose of funding the following:

(i) ordinary operating expenses and scheduled debt service of Terra Industries (including in respect of the Indentures) and scheduled cash dividends with respect to any preferred Stock of Terra Industries, in aggregate not in excess of $25,000,000 in any Fiscal Year and payments by Terra Industries of the foregoing;

(ii) payments by Terra Industries in respect of foreign, federal, state or local taxes owing by Terra Industries in respect of Terra Capital and its Subsidiaries, but not greater than the amount that would be payable by Terra Capital, on a consolidated basis, if Terra Capital were the taxpayer; and

(iii) payments (net of cash in-flows) by Terra Industries to finance discontinued operations not exceeding $5,000,000 in any Fiscal year;

provided, however, that the Restricted Payments described in clause (b) above shall not be permitted if either (A) an Event of Default or Default shall have occurred and be continuing at the date of declaration or payment thereof or would result therefrom or (B) such Restricted Payment is prohibited under the terms of any Indebtedness (other than the Obligations) of the Loan Parties or any of their respective Subsidiaries;

(c) Restricted Payments permitted under Section 8.3(h); and

(d) any other Restricted Payment to Terra Industries by any Subsidiary of Terra Industries.

Section 8.6. Restriction on Fundamental Changes. Terra Industries will not, and will not permit any of its Material Subsidiaries to, (a) merge with any Person,

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(b) consolidate with any Person, (c) except as permitted by Section 8.3(n) acquire all or substantially all of the Stock or Stock Equivalents of any Person, (d) except as permitted by Section 8.3(n), acquire all or substantially all of the assets of any Person or all or substantially all of the assets constituting the business of a division, branch or other unit operation of any Person (other than a Permitted Acquisition), (e) except as permitted by Section 8.3(l), enter into any joint venture or partnership with any Person, (f) acquire or (unless, after giving effect thereto, Terra Industries and the Borrowers are in compliance with Sections 7.11 and 8.3(k)) create any Subsidiary (other than pursuant to the MCC Acquisition or a Permitted Acquisition); provided, however, that any Loan Party may merge or be consolidated with any of its wholly-owned Subsidiaries but only if (i) a Loan Party is the surviving entity and no Material Adverse Change, Default or Event of Default would result from such merger or consolidation and (ii) all such parties to such merger or consolidation are incorporated solely in either the United States (or any state or subdivision thereof), Canada or England and Wales (as the case may be).

Section 8.7. Change in Nature of Business. (a) Terra Industries will not, and will not permit any of its Subsidiaries to, make any material change in the nature or conduct of its business as carried on at the date hereof and (b) each of Terra Industries and Terra Capital Holdings will at no time own any property other than Investments in its Subsidiaries which are its Subsidiaries at the date hereof, cash and Cash Equivalents (to the extent permitted under Section 8.3), other property incidental to its business as a holding company or necessary to the performance of its obligations under the Management Agreements.

Section 8.8. Transactions with Affiliates. Terra Industries will not, and will not permit any of its Subsidiaries to, except as otherwise expressly permitted herein, do any of the following: (a) make any Investment in any of its Affiliates which is not its Subsidiary; (b) transfer, sell, lease, assign or otherwise dispose of any asset to any of its Affiliates which is not its Subsidiary; (c) merge into or consolidate with or purchase or acquire assets from any of its Affiliates which is not its Subsidiary; (d) repay any Indebtedness to any of its Affiliates which is not its Subsidiary; or (e) enter into any other transaction directly or indirectly with or for the benefit of any of its Affiliates which is not its Subsidiary (including guarantees and assumptions of obligations of any such Affiliate), except for (i) transactions in the ordinary course of business on a basis no less favorable to it as would be obtained in a comparable arm’s length transaction with a Person not an Affiliate and (ii) salaries and other employee compensation or fees to officers or directors of Terra Industries or any of its Subsidiaries commensurate with current compensation levels.

Section 8.9. Restrictions on Subsidiary Distributions; No New Negative Pledge. Other than pursuant to the Loan Documents and any agreements governing any purchase money Indebtedness or Capital Lease Obligations permitted by clause (b), (c), or (d) of Section 8.1(in which latter case, any prohibition or limitation shall only be effective against the assets financed thereby) or in connection with an Asset Sale which is permitted under Section 8.4 (in respect only of the assets subject thereto) or pursuant to customary anti-assignment provisions contained in leases or licenses permitted under this Agreement or as otherwise contained, at the date hereof, in the Indentures and the Senior Secured Note Documents, the Senior Second Lien Note Documents and the MCC Credit Agreement, Terra Industries will not, and will not permit any of its Subsidiaries to, (a) agree to enter into or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of such Subsidiary to pay dividends or make any other distribution or transfer of funds or assets or make loans or advances to or other Investments in, or pay any Indebtedness owed to, Terra Industries or any other

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Subsidiary of Terra Industries or (b) enter into or suffer to exist or become effective any agreement which prohibits or limits the ability of the Borrowers or any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, to secure the Obligations, including any agreement which requires other Indebtedness or Contractual Obligation to be equally and ratably secured with the Obligations.

Section 8.10. Modification of Constituent Documents. Terra Industries will not, and will not permit any of its Subsidiaries to, change its capital structure (including in the terms of its outstanding Stock) or otherwise amend its Constituent Documents, except for changes and amendments which (i) do not materially and adversely affect the rights and privileges of Terra Industries or any of its Subsidiaries, or the interests of the Administrative Agent, the Lenders and the Issuers under the Loan Documents or in the Collateral or (ii) are compulsory under any applicable Requirement of Law or to comply with the mandatory requirements of any stock exchange on which Terra Industries or any of its Subsidiaries are listed.

Section 8.11. Modification of Material Documents. Terra Industries will not, and will not permit any of its Subsidiaries to, (a) alter, rescind, terminate, amend, supplement, waive or otherwise modify any provision of any Material Document (except for modifications which do not materially and adversely affect the rights and privileges of Terra Industries or any of its Subsidiaries under such Material Document, or the interests of the Secured Parties under the Loan Documents or in the Collateral) or (b) permit any material breach or default to exist under any Material Document or take or fail to take any action thereunder, without the prior consent of the Requisite Lenders, which consent shall not be unreasonably withheld.

Section 8.12. Long-Term Indebtedness. Terra Industries will not, and will not permit any of its Subsidiaries to: (x) purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of (i) the Senior Secured Notes, (ii) the Senior Second Lien Notes, (iii) the Terra UK Debt or the Terra Canada Debt (below an aggregate outstanding principal amount of $35,000,000) or (iv) any other long-term indebtedness of Terra Industries and its Subsidiaries, other than (1) the redemption or repayment (it being understood that such terms include defeasance but do not include open market purchases) of the Senior Second Liens Notes directly with proceeds of the issuance by Terra Industries of its convertible preferred Stock (provided, that such convertible preferred Stock shall not have a scheduled redemption date that is prior to the original maturity date of the Senior Second Lien Notes), (2) Intercompany Indebtedness, with the exception of the aforementioned Terra UK Debt and Terra Canada Debt (provided, however, that no Intercompany Indebtedness of any Loan Party constituting Collateral shall be repaid or prepaid, including the Terra UK Debt and Terra Canada Debt, unless the Intercompany Indebtedness of such Loan Party constituting Shared Collateral has first been paid in full), and (3) except following the occurrence of an Event of Default which is continuing, the prepayment of Indebtedness under the MCC Credit Agreement (including, without limitation, any penalty or premium required to be paid in connection with such prepayment under the MCC Credit Agreement as in effect on the Effective Date), except in each case for regularly scheduled payments of principal and interest in respect thereof required pursuant to the Indentures, MCC Credit Agreement or other instruments evidencing such long-term Indebtedness; or (y) amend, in any manner materially adverse to the

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interests of the Lenders and the Issuers, the documentation creating or evidencing any long-term Indebtedness of Terra Industries and its Subsidiaries, except (with respect to the Indentures) amendments which are permitted by Section 8.11. Notwithstanding the foregoing restrictions, Terra Capital may also make open market purchases of the Senior Second Lien Notes and the Senior Secured Notes (each a “Senior Note Purchase”) if, after giving effect to each Senior Note Purchase, the following conditions are satisfied:

(A) the aggregate amount of such purchases, together with the aggregate amount of Common Unit Purchases, (X) made during any Repurchase Period does not exceed the Maximum Repurchase Amount applicable to such period or (Y) made during any calendar year does not exceed $100,000,000;

(B) the aggregate Available Credit of the Borrowers on the date of each Senior Note Purchase, after giving effect to the Senior Note Purchase (or any purchase of Common Units) to be made on such date, shall be at least $125,000,000 with respect to any such purchase;

(C) Terra Industries has, as of the last day of the most recent Fiscal Quarter or Fiscal Year for which Financial Statements have been delivered to the Administrative Agent pursuant to Section 6.1(b) or (c), Cash Flow for the four Fiscal Quarters ending on such day of at least $125,000,000;

(D) no Default or Event of Default shall have occurred and be continuing, both before and after giving effect to the making of any Senior Note Purchase;

(E) both before and after the making of any Senior Note Purchase, the representations and warranties set forth in Article IV and in the other Loan Documents shall be true and correct in all material respects on and as of the date of such Senior Note Purchase with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date; and

(F) Terra Capital shall have delivered to the Administrative Agent a certificate executed by an officer of Terra Capital certifying that the foregoing conditions have been met with respect to such Senior Note Purchase within three Business Days following the making of such purchase.

Section 8.13. Accounting Changes; Fiscal Year. Terra Industries will not, and will not permit any of its Subsidiaries to, change its (a) accounting treatment and reporting practices or tax reporting treatment, except as required by GAAP or any Requirement of Law and disclosed to the Lenders and the Administrative Agent or (b) Fiscal Year (other than to a Fiscal Year ending December 31).

Section 8.14. Margin Regulations. The Borrowers will not, and will not permit any of their Subsidiaries to, use all or any portion of the proceeds of any credit extended hereunder to purchase or carry Margin Stock.

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Section 8.15. Operating Leases; Sale/Leasebacks.

(a) Terra Industries will not, and will not permit any of its Material Subsidiaries to, become or remain liable as lessee or guarantor or other surety with respect to any operating lease, unless (i) the aggregate amount of all rents paid or accrued under all such operating leases shall not exceed $10,000,000 in any Fiscal Year or (ii) in respect of, or in replacement (upon substantially equivalent terms) of, operating leases existing at the date of this Agreement and disclosed in the consolidated financial statements (including the footnotes thereto) of Terra Industries and its Subsidiaries for the Fiscal Year ended December 31, 1999.

(b) Terra Industries will not, and will not permit any of its Material Subsidiaries to, enter into any sale and leaseback transaction.

Section 8.16. Cancellation of Indebtedness Owed. Terra Industries will not, and will not permit any of its Subsidiaries to, cancel any claim or Indebtedness owed to it except (i) in the ordinary course of business consistent with past practice, (ii) Investments permitted by Section 8.3(d), or (iii) in an aggregate amount not exceeding $1,000,000.

Section 8.17. No Speculative Transactions. Terra Industries will not and will not permit any of its Material Subsidiaries to, engage in any speculative transaction or in any transaction involving Hedging Contracts except as required by Section 7.14 or for the sole purpose of hedging in the normal course of business and consistent with industry practices.

Section 8.18. Compliance with ERISA and Foreign Plans. Terra Industries will not, and will not permit any of its Material Subsidiaries to, or cause or permit any ERISA Affiliate to, cause or permit to occur (a) an event which could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or (b) an ERISA Event that would have a Material Adverse Effect or (c) breach any Requirement of Law or obligations pertaining to any Foreign Plan that would have a Material Adverse Effect.

Section 8.19. Environmental. Terra Industries will not, and will not permit any of its Subsidiaries to, dispose of any Contaminant in violation of any Environmental Law; provided, however, that the Loan Parties shall not be deemed in violation of this Section 8.19 if, as the consequence of all such disposals, such Loan Party could not reasonably be expected to incur Environmental Liabilities and Costs in excess of $5,000,000.

Section 8.20. Payments to Minority Interests. Terra Industries shall not pay or cause to be paid, or permit any of its Subsidiaries (including TNLP and its Subsidiaries) to pay or cause to be paid, to any holder of a minority interest any amount (including any TNCLP Minority Interest Payment) with respect to such minority interest in excess of the amount to which such holder is legally entitled, unless Terra Industries or such Subsidiary simultaneously receives payment in an amount equal to or greater than its ratable share of the amount of the related distribution (determined in accordance with the respective interests then held by Terra Industries and such Subsidiary, on the one hand, and such holder, on the other); provided, however, that a purchase of Common Units permitted by Section 8.3(h) will not constitute a breach of this Section 8.20.

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ARTICLE IX

EVENTS OF DEFAULT

Section 9.1. Events of Default. Each of the following events shall be an Event of Default:

(a) Any Borrower shall fail to pay any principal of any Loan or any Reimbursement Obligation (other than in connection with a Borrowing Base Deficiency) when the same becomes due and payable; or

(b) Any Borrower shall fail to pay any interest on any Loan, any fee under any of the Loan Documents or any other Obligation (other than one referred to in clause (a) above) and such non-payment continues for a period of five Business Days after the due date therefor;

(c) any representation or warranty made or deemed made by any Loan Party in any Loan Document or by any Loan Party (or any of its officers) in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made;

(d) Terra Industries shall fail to pay or perform its obligations under the Loan Purchase Agreement; or

(e) any Loan Party shall fail to perform or observe (i) any term, covenant or agreement contained in Article V, Sections 6.1(a) through (e) and (g), 6.2, 7.1, 7.6, 7.11 or 7.12 or Article VIII (except Section 8.19) or (ii) any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure under this clause (ii) shall remain unremedied for 30 days after the earlier of the date on which (A) a Responsible Officer of a Borrower becomes aware of such failure or (B) written notice thereof shall have been given to a Borrower by the Administrative Agent or any Lender; or

(f) (i) Terra Industries or any of its Subsidiaries shall fail to make any payment on any Indebtedness (other than the Obligations) of Terra Industries or any such Subsidiary (or any Guaranty Obligation in respect of Indebtedness of any other Person) having a principal amount of $10,000,000 or more, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or (iii) any such Indebtedness shall become or be declared to be due and payable, or required to be prepaid or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

(g) Terra Industries or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Terra Industries or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts or any similar relief under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee, administrative

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receiver, liquidator, provisional liquidator, administrator, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against Terra Industries or any of its Material Subsidiaries (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceedings shall occur; or Terra Industries or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or

(h) one or more judgments or orders (or other similar process) involving, in any single case or in the aggregate, an amount in excess of $10,000,000 (in the case of a money judgment), or which would have a Material Adverse Effect (in the case of a non-money judgment) to the extent not covered by insurance shall be rendered against one or more of Terra Industries and its Subsidiaries and shall remain unpaid and either (i) enforcement proceedings shall have been commenced and be continuing by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect (unless during such period such judgment or order shall have been vacated, satisfied, discharged or bonded pending appeal); or

(i) an ERISA Event shall occur or there shall be asserted against the Borrower or any of its Subsidiaries any claim or liability in respect of any Foreign Plan which is reasonably likely to have a Material Adverse Effect or the amount of all liabilities and deficiencies resulting therefrom, whether or not assessed, exceeds $1,000,000 in the aggregate; or

(j) any material provision (as determined by the Administrative Agent) of any Collateral Document or any Guaranty after delivery thereof pursuant to this Agreement or any other Loan Document shall for any reason cease to be valid and binding, or enforceable against, on any Loan Party thereto, or any Loan Party shall so state in writing; or

(k) any Collateral Document shall for any reason cease to create a valid Lien on any of the Collateral purported to be covered thereby or except as permitted by the Loan Documents, such Lien shall cease to be a perfected and first priority Lien or any Loan Party shall so state in writing; or

(l) there shall occur any Change of Control; or

(m) there shall occur a Borrowing Base Deficiency for two or more consecutive Business Days; or

(n) there shall have been asserted (in any action, suit, proceeding or investigation) against Terra Industries or any of its Subsidiaries any violation or liability under any Environmental Law that, in the judgment of the Requisite Lenders, is reasonably likely to be determined adversely to Terra Industries or any of its Subsidiaries, and (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (after taking into account any contribution in respect thereof that is reasonably expected to be paid by other creditworthy Persons); or

(o) one or more of Terra Industries and its Subsidiaries shall have entered into one or more consent or settlement decrees or agreements or similar arrangements with a Governmental Authority or one or more judgments, orders, decrees or similar actions shall have

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been entered against one or more of Terra Industries and its Subsidiaries based on or arising from the violation of or pursuant to any Environmental Law, or the generation, storage, transportation, treatment, disposal or Release of any Contaminant and, in connection with all the foregoing, Terra Industries and its Subsidiaries are likely to incur Environmental Liabilities and Costs in excess of $5,000,000 in the aggregate (unless the foregoing is reasonably being appealed by Terra Industries or its Subsidiaries and has been bonded pending appeal); or

(p) an “Event of Default” shall have occurred and be continuing, as such term is defined in the TNLP Credit Agreement.

Section 9.2. Remedies. During the continuance of any Event of Default, the Administrative Agent (i) may, and shall at the request of the Requisite Lenders, by notice to the Borrowers declare that all or any portion of the Revolving Credit Commitments be terminated, whereupon the obligation of each Lender to make any Loan and each Issuer to issue any Letter of Credit shall immediately terminate, and/or (ii) may and shall at the request of the Requisite Lenders, by notice to the Borrowers, declare the Loans, all interest thereon and all other amounts and Obligations payable under this Agreement to be forthwith due and payable, whereupon the Loans, all such interest and all such amounts and Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that upon the occurrence of the Event of Default specified in Section 9.1(g) above (except to the extent that such Event of Default has occurred in respect of Terra Industries and/or Terra Capital Holdings), (A) the Revolving Credit Commitments of each Lender to make Revolving Loans and of each Lender and Issuer to issue or participate in Letters of Credit shall automatically be terminated and (B) the Loans, all such interest and all such amounts and Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. In addition to the remedies set forth above, the Administrative Agent may instruct the Administrative Agent, on behalf of the Secured Parties, to exercise any remedies provided for by the Collateral Documents in accordance with the terms thereof or any other remedies provided by applicable law.

Section 9.3. Actions in Respect of Letters of Credit. Upon the Revolving Credit Termination Date or as required by Section 2.9, the Borrowers shall pay to the Administrative Agent in immediately available funds at the Administrative Agent’s office referred to in Section 11.8, for deposit in a cash collateral account (the “L/C Cash Collateral Account”) to be maintained with and in the name of the Administrative Agent on behalf of the Lenders at such place as shall be designated by the Administrative Agent, an amount equal to (a) 110% of the sum of all outstanding Letter of Credit Obligations which are denominated in Dollars and (b) 125% of the sum of all outstanding Letter of Credit Obligations (if any) which are denominated in currencies other than Dollars. The Administrative Agent may, from time to time after funds are deposited in the L/C Cash Collateral Account, apply funds then held in the L/C Cash Collateral Account to the payment of any amounts, in accordance with Section 2.13(f), as shall have become or shall become due and payable by the Borrowers to the Issuers or the Lenders in respect of the Letter of Credit Obligations. The Administrative Agent shall promptly give written notice of any such application; provided, however, that the failure to give such written notice shall not invalidate any such application. Neither the Borrowers nor any Person claiming on behalf of or through the Borrowers shall have any right to withdraw any of the funds held in the L/C Cash Collateral Account at any time prior to the termination of all outstanding

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Letters of Credit and the payment in full of all then outstanding and payable monetary Obligations.

Section 9.4. Rescission. If at any time after termination of the Revolving Credit Commitments and/or acceleration of the maturity of the Loans, the Borrowers shall pay all arrears of interest and all payments on account of principal of the Loans and Reimbursement Obligations which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified herein) and all Events of Default and Defaults (other than non-payment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 11.1, then upon the written consent of the Requisite Lenders and written notice to the Borrowers, the termination of the Revolving Credit Commitments and/or the acceleration and their consequences may be rescinded and annulled; but such action shall not affect any subsequent Event of Default or Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders and the Issuers to a decision which may be made at the election of the Requisite Lenders; they are not intended to benefit the Borrowers and do not give the Borrowers the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met.

ARTICLE X

THE ADMINISTRATIVE AGENT; THE OTHER AGENTS

Section 10.1. Authorization and Action.

(a) Each Lender and each Issuer hereby appoints CUSA as the Administrative Agent hereunder and each Lender and each Issuer authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent under such agreements and to exercise such powers as are reasonably incidental thereto. Without limitation of the foregoing, each Lender and each Issuer hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under each of the Loan Documents to which the Administrative Agent is a party and to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents and recognizes that under the Collateral Documents the Administrative Agent is acting as agent for the Secured Parties.

(b) As to any matters not expressly provided for by this Agreement and the other Loan Documents (including enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders, and such instructions shall be binding upon all Lenders and each Issuer; provided, however, that the Administrative Agent shall not be required to take any action which (i) the Administrative Agent in good faith believes exposes it to personal liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders and the Issuers with respect to such action or (ii) is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender and each Issuer prompt notice of each notice given to it by any Loan Party pursuant to the terms of this Agreement or the other Loan Documents.

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(c) In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent is acting solely on behalf of the Lenders and the Issuers and its duties are entirely administrative in nature. The Administrative Agent does not assume and shall not be deemed to have assumed any obligation other than as expressly set forth herein and in the other Loan Documents or any other relationship as the agent, fiduciary or trustee of or for any Lender, Issuer or holder of any other Obligation. The Administrative Agent may perform any of its duties under any of the Loan Documents by or through its agents or employees.

Section 10.2. Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its Affiliates or any of the respective directors, officers, agents or employees of the Administrative Agent or any such Affiliate shall be liable for any action taken or omitted to be taken by it, him, her or them under or in connection with this Agreement or the other Loan Documents, except for its, his, her or their own gross negligence or willful misconduct. Without limiting the foregoing, the Administrative Agent (a) may treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 11.2; (b) may rely on the Register to the extent set forth in Section 11.2(c); (c) may consult with legal counsel (including counsel to the Borrowers or any other Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (d) makes no warranty or representation to any Lender or Issuer and shall not be responsible to any Lender or Issuer for any statements, warranties or representations made by or on behalf of Terra Industries or any of its Subsidiaries in or in connection with this Agreement or any of the other Loan Documents; (e) shall not have any duty to ascertain or to inquire either as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents or the financial condition of any Loan Party, or the existence or possible existence of any Default or Event of Default; (f) shall not be responsible to any Lender or Issuer for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (g) shall incur no liability under or in respect of this Agreement or any of the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy) or any telephone message believed by it to be genuine and signed or sent by the proper party or parties.

Section 10.3. The Administrative Agent Individually. With respect to its Ratable Portion, CUSA shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms “Lenders,” or “Requisite Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity as a Lender or as one of the Requisite Lenders. CUSA and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Loan Party as if it were not acting as the Administrative Agent.

Section 10.4. Lender Credit Decision. Each Lender and each Issuer acknowledges that it shall, independently and without reliance upon the Administrative Agent or its Affiliates or any other Lender conduct its own independent investigation of the financial condition and affairs of the Borrower and each other Loan Party in connection with the making and continuance of the Loans and with the issuance of the Letters of Credit. Each Lender and each Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or its Affiliates or any other Lender and based on such documents and

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information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and other Loan Documents.

Section 10.5. Indemnification. Each Lender agrees to indemnify the Administrative Agent and each of its Affiliates, and each of their respective directors, officers, employees, agents and advisors (to the extent not reimbursed by the Borrowers), from and against such Lender’s aggregate Ratable Portion of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements (including fees and disbursements of legal counsel) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against, the Administrative Agent or any of its Affiliates, directors, officers, employees, agents and advisors in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by the Administrative Agent under this Agreement or the other Loan Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s or such Affiliate’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including fees and disbursements of legal counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement or the other Loan Documents, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrowers or another Loan Party.

Section 10.6. Successor Administrative Agent. (a) Subject to clause (b) below, the Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrowers. Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Requisite Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent selected from among the Lenders. Each such appointment shall be subject to the prior written approval of the Borrowers (which approval may not be unreasonably withheld and shall not be required upon the occurrence and during the continuance of an Event of Default); (b) Notwithstanding clause (a) above, the Administrative Agent may at any time appoint any Affiliate (or Affiliates) of the Administrative Agent each as (i) a successor Administrative Agent in the event that the Administrative Agent wishes to retire as Administrative Agent or (ii) (in connection with the performance and exercise of its rights and obligations under the Loan Documents) as co-Administrative Agent, which appointment and (if relevant) resignation shall be effective upon the Administrative Agent giving written notice thereof to the Lenders and the Borrowers. Any such appointment and/or resignation under this clause (b) shall not require the consent of any Lender or Borrower. (c) Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent or co-Administrative Agent pursuant to clauses (a) or (b) above, each such successor Administrative Agent shall succeed to, and each such co-Administrative Agent shall accede to, and become vested with all the rights, powers, privileges and duties of the retiring or remaining Administrative Agent, and in the case of a retiring Administrative Agent, such Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiring

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Administrative Agent shall continue to have the benefit of this Article X as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.

Section 10.7. Concerning the Collateral and the Collateral Documents.

(a) Each Lender and each Issuer agrees that any action taken by the Administrative Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater or different proportion or combination of the Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents, and the exercise by the Administrative Agent or the Requisite Lenders (or, where so required, such greater or different proportion or combination) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders, Issuers and other Secured Parties. Without limiting the generality of the foregoing, the Administrative Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders and the Issuers with respect to all payments and collections arising in connection herewith and with the Collateral Documents; (ii) execute and deliver the Senior Secured Note Intercreditor Agreement, the Senior Second Lien Note Intercreditor Agreement and each MCC Intercreditor Agreement and each Loan Document and accept delivery of each such agreement delivered by Terra Industries or any of its Subsidiaries; (iii) manage, supervise and otherwise deal with the Collateral; (iv) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Collateral Documents; and (v) except as may be otherwise specifically restricted by the terms hereof or of the Senior Secured Note Intercreditor Agreement, or of any other Loan Document, exercise all remedies given to the Administrative Agent, the Lenders, the Issuers and the other Secured Parties and direct the Administrative Agent in accordance with the terms hereof and of the Senior Secured Note Intercreditor Agreement with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise.

(b) The Administrative Agent hereby appoints, authorizes and directs each Lender and Issuer to act as collateral sub-agent for the Administrative Agent, the Lenders and the Issuers for purposes of the perfection of all security interests and Liens with respect to Terra Industries’ and its Subsidiaries’ respective deposit accounts maintained with, and cash and Cash Equivalents held by, such Lender or such Issuer.

(c) Each of the Lenders and the Issuers hereby directs, in accordance with the terms hereof, the Administrative Agent to release or instruct the Administrative Agent to release (or, in the case of clause (ii) below, release or subordinate) any Lien held by the Administrative Agent for the benefit of the Lenders and the Issuers:

(i) against all of the Collateral, upon termination of the Revolving Credit Commitments and payment and satisfaction in full of all Loans, Reimbursement Obligations and all other Obligations which have matured and which the Administrative Agent has been notified in writing are then due and payable (and, in respect of contingent Letter of Credit Obligations, with respect to which cash collateral has been deposited or a back-up letter of credit has been issued, in either case on terms satisfactory to the Administrative Agent and the applicable Issuers);

(ii) against any assets that are subject to a Lien permitted by Section 8.2(d) or (e);

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(iii) against any part of the Collateral sold or disposed of by a Loan Party if such sale or disposition is permitted by this Agreement (or permitted pursuant to a waiver or consent of a transaction otherwise prohibited by this Agreement) or, if not pursuant to such sale or disposition, if such release is consented to by (A) all of the Lenders, if the Collateral subject to such release is a substantial portion of all the Collateral, or (B) the Requisite Lenders, in all other cases;

(iv) against any cash collateral to the extent permitted under Section 7.12 or Section 2.9; and

(v) as of the Effective Date, against any collateral, but only to the extent such collateral constitutes Senior Secured Note Collateral.

Each of the Lenders and the Issuers hereby directs the Administrative Agent to instruct the Administrative Agent to execute and deliver or file such termination and partial release statements and do such other things as are necessary to release Liens to be released pursuant to this Section 10.7 promptly upon the effectiveness of any such release.

Section 10.8. Collateral Matters Relating to Related Obligations. The benefit of the Loan Documents and of the provisions of this Agreement relating to the Collateral shall extend to and be available in respect of any Obligation which arises under any Hedging Contract or which is otherwise owed to Persons other than the Administrative Agent, the Arranger, the Lenders and the Issuers (collectively, “Related Obligations”) solely on the condition and understanding, as among the Administrative Agent and all Secured Parties, that (i) the Related Obligations shall be entitled to the benefit of the Loan Documents and the Collateral to the extent expressly set forth in this Agreement and the other Loan Documents and to such extent the Administrative Agent shall hold, and have the right and power to act with respect to, the Guaranty and the Collateral on behalf of and as agent for the holders of the Related Obligations but the Administrative Agent is otherwise acting solely as agent for the Lenders and the Issuers and shall have no fiduciary duty, duty of loyalty, duty of care, duty of disclosure or other obligation whatsoever to any holder of Related Obligations; (ii) all matters, acts and omissions relating in any manner to the Guaranty, the Collateral, or the omission, creation, perfection, priority, abandonment or release of any Lien, shall be governed solely by the provisions of this Agreement, the Senior Secured Note Intercreditor Agreement and the other Loan Documents and no separate Lien, right, power or remedy shall arise or exist in favor of any Secured Party under any separate instrument or agreement or in respect of any Related Obligation; and (iii) each Secured Party shall be bound by all actions taken or omitted, in accordance with the provisions of this Agreement, the Senior Secured Note Intercreditor Agreement and the other Loan Documents, by the Administrative Agent and the Requisite Lenders (or, where required by the express terms of this Agreement, a greater or different proportion or combination of the Lenders), each of whom shall be entitled to act at its sole discretion and exclusively in its own interest given its own Revolving Credit Commitments and its own interest in the Loans, Letter of Credit Obligations and other Obligations to it arising under this Agreement or the other Loan Documents, without any duty or liability to any other Secured Party or as to any Related Obligation and without regard to whether any Related Obligation remains outstanding or is deprived of the benefit of the Collateral or becomes unsecured or is otherwise affected or put in jeopardy thereby; and (iv) no holder of Related Obligations and no other Secured Party (except the Administrative Agent, the Arranger, the Lenders and the Issuers, to the extent set forth in this Agreement) shall have any right to be notified of, or to direct, require

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or be heard with respect to, any action taken or omitted in respect of the Collateral or under this Agreement, the Senior Secured Note Intercreditor Agreement or the Loan Documents; and (v) no holder of any Related Obligation shall exercise any right of setoff, banker’s lien or similar right except as expressly provided in Section 11.6.

Section 10.9. Other Agents. Each party acknowledges that the Person (except in its capacity as a Lender or Issuer) designated as the Arranger shall have no liability hereunder.

Section 10.10. Posting of Approved Electronic Communications.

(a) Each of the Lenders, the Issuers, Terra Industries, Terra Capital Holdings and the Borrowers agree, and the Borrowers shall cause each Subsidiary Guarantor to agree, that the Administrative Agent may, but shall not be obligated to, make the Approved Electronic Communications available to the Lenders and Issuers by posting such Approved Electronic Communications on IntraLinks^™ or a substantially similar electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).

(b) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Effective Date, a dual firewall and a User ID/Password Authorization System) and the Approved Electronic Platform is secured through a single-user-per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, the Issuers, Terra Industries, Terra Capital Holdings and the Borrowers acknowledges and agrees, and the Borrowers shall cause each Subsidiary Guarantor to acknowledge and agree, that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution. In consideration for the convenience and other benefits afforded by such distribution and for the other consideration provided hereunder, the receipt and sufficiency of which is hereby acknowledged, each of the Lenders, the Issuers, Terra Industries, Terra Capital Holdings and the Borrowers hereby approves, and the Borrowers shall cause each Subsidiary Guarantor to approve, distribution of the Approved Electronic Communications through the Approved Electronic Platform and understands and assumes, and the Borrower shall cause each Subsidiary Guarantor to understand and assume, the risks of such distribution (except as otherwise set forth in Section 11.5(Limitation of Liability) hereunder).

(c) THE APPROVED ELECTRONIC COMMUNICATIONS AND THE APPROVED ELECTRONIC PLATFORM ARE PROVIDED “AS IS” AND “AS AVAILABLE”. NONE OF THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (THE “AGENT AFFILIATES”) WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE APPROVED ELECTRONIC COMMUNICATIONS AND THE APPROVED ELECTRONIC PLATFORM AND EACH EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC COMMUNICATIONS AND THE APPROVED ELECTRONIC PLATFORM EXCEPT AS OTHERWISE SET FORTH IN SECTION 11.5 HEREUNDER. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM

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FROM VIRUSES OR OTHER CODE DEFECTS) IS MADE BY THE AGENT AFFILIATES IN CONNECTION WITH THE APPROVED ELECTRONIC PLATFORM.

(d) Each of the Lenders, the Issuers, Terra Industries, Terra Capital Holdings and the Borrowers agree, and the Borrowers shall cause each Subsidiary Guarantor to agree, that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Approved Electronic Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally-applicable document retention procedures and policies.

ARTICLE XI

MISCELLANEOUS

Section 11.1. Amendments, Waivers, Etc.

(a) No amendment or waiver of any provision of this Agreement or any other Loan Document nor consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be in writing and signed by the Requisite Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by the relevant Lenders referred to below, in addition to the Requisite Lenders, do any of the following:

(i) waive any of the conditions specified in Section 3.1 (without the consent of all Lenders) or 3.2 (without the consent of all Lenders) except with respect to a condition based upon another provision hereof, the waiver of which requires only the concurrence of the Requisite Lenders;

(ii) increase the Revolving Credit Commitment of any Lender or subject any Lender to any additional obligations (without the consent of each such Lender);

(iii) extend the scheduled final maturity of any Loan owing to any Lender, or waive, reduce or postpone any scheduled date fixed for the payment or reduction of principal of any such Loan (it being understood that Section 2.9 does not provide for scheduled dates fixed for payment) or for the reduction of the Revolving Credit Commitment of such Lender (without the consent of such Lender);

(iv) reduce the principal amount of any Loan or Reimbursement Obligation owing to any Lender (other than by the payment or prepayment thereof) (without the consent of such Lender);

(v) reduce the rate of interest on any Loan or Reimbursement Obligations owing to any Lender or any fee payable hereunder to such Lender (without the consent of such Lender);

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(vi) postpone any scheduled date fixed for payment of such interest or fees to such Lender (without the consent of such Lender);

(vii) change the percentage of aggregate Revolving Credit Commitments or unpaid principal amount of the Loans or the number or percentage of Lenders which shall be required for the Lenders or any of them to take any action hereunder (without the consent of each Lender);

(viii) increase the Advance Rates above the rates set forth in the definition thereof (without the consent of each Lender);

(ix) (without limiting Section 7.12) release a substantial portion of Collateral except as otherwise provided in Section 10.7(c) or release any Borrower or Guarantor from its obligations under this Agreement or its Guaranty, as applicable, except in connection with sale or other disposition permitted by this Agreement (or permitted pursuant to a waiver or consent of a transaction otherwise prohibited by this Agreement) (without the consent of each Lender);

(x) amend Section 10.7(c) or this Section 11.1 or the definition of the terms “Requisite Lenders” or “Ratable Portion” (without the consent of each Lender affected thereby);

and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or the other Loan Documents.

(b) The Administrative Agent may, but shall have no obligation to, with the written concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances.

(c) In connection with any proposed amendment, modification, waiver or termination (a “Proposed Change”) requiring the consent of all Lenders in addition to the Requisite Lenders, the consent of Requisite Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described in this Section 11.1 being referred to as a “Non-Consenting Lender”), then, so long as the Lender that is acting as the Administrative Agent is not a Non-Consenting Lender, at the Borrower’s request, the Administrative Agent or an Eligible Assignee that is acceptable to the Administrative Agent shall have the right with the Administrative Agent’s consent and in the Administrative Agent’s sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lender, and such Non-Consenting Lender agrees that it shall, upon the Administrative Agent’s request, sell and assign to the Lender that is acting as the Administrative Agent or such Eligible Assignee, all of the Revolving Credit Commitments and Revolving Credit Outstandings of such Non-Consenting Lender for an amount equal to the principal balance of all Revolving Loans held by the Non-Consenting Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Acceptance.

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Section 11.2. Assignments and Participations.

(a) Each Lender may sell, transfer, negotiate or assign to one or more Eligible Assignees all or a portion of its rights and obligations hereunder (including all of its rights and obligations with respect to the Revolving Loans, the Swing Loans and the Letters of Credit); provided, however, that (i) if any such assignment shall be of the assigning Lender’s Revolving Credit Outstandings and Revolving Credit Commitment, such assignment shall cover the same percentage of such Lender’s Revolving Credit Outstandings and Revolving Credit Commitment and (ii) the aggregate amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event (if less than the Assignor’s entire interest) be less than (in the case of (in aggregate) the Revolving Credit Outstandings (and/or the Revolving Credit Commitments)) $5,000,000 or an integral multiple of $1,000,000 in excess thereof, except, in either case, (A) with the consent of Terra Capital and the Administrative Agent or (B) if such assignment is being made to a Lender or an Affiliate or Approved Fund of such Lender, and (iii) if such Eligible Assignee is not, prior to the date of such assignment, a Lender or an Affiliate or Approved Fund of a Lender, such assignment shall be subject to the prior consent of the Administrative Agent and Terra Capital (which consent shall not be unreasonably withheld or delayed); provided, however, that, notwithstanding any other provision of this Section 11.2, the consent of the Borrowers shall not be required for any assignment which occurs when any Event of Default shall have occurred and be continuing.

(b) The parties to each assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording, an Assignment and Acceptance, together with any Note (if the assigning Lender’s Loans are evidenced by a Note) subject to such assignment. Upon such execution, delivery, acceptance and recording and the receipt by the Administrative Agent from the assignee of an assignment fee in the amount of $3,500 from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such assignee pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender, and if such Lender were an Issuer, of such Issuer hereunder and thereunder, and (ii) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except those which survive the payment in full of the Obligations) and be released from its obligations to the extent corresponding thereto under the Loan Documents, other than those relating to events or circumstances occurring prior to such assignment (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto).

(c) The Administrative Agent shall maintain at its address referred to in Section 11.8 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recording of the names and addresses of the Lenders and the Revolving Credit Commitments of and principal amount of the Loans and Letter of Credit Obligations owing to each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Loan Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. The Register shall be available for inspection by the

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Borrower, the Administrative Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers. Within five Business Days after its receipt of such notice, the Borrowers, at their own expense, shall, if requested by such assignee, execute and deliver to the Administrative Agent, new Notes to the order of such assignee in an amount equal to the Revolving Credit Commitments assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has surrendered any Note for exchange in connection with the assignment and has retained Revolving Credit Commitments hereunder, new Notes to the order of the assigning Lender in an amount equal to the Revolving Credit Commitments retained by it hereunder. Such new Notes shall be dated the same date as the surrendered Notes and be in substantially the form of Exhibit B.

(e) In addition to the other assignment rights provided in this Section 11.2, each Lender may assign, as collateral or otherwise, any of its rights under this Agreement (including rights to payments of principal or interest on the Loans) to (i) any Federal Reserve Bank pursuant to Regulation A of the Federal Reserve Board without notice to or consent of the Borrowers or the Administrative Agent and (ii) any trustee for the benefit of the holders of such Lender’s Securities; provided, however, that no such assignment shall release the assigning Lender from any of its obligations hereunder.

(f) Each Lender may sell participations to one or more Persons in or to all or a portion of its rights and obligations under the Loan Documents (including all its rights and obligations with respect to the Revolving Loans and Letters of Credit). The terms of such participation shall not, in any event, require the participant’s consent to any amendments, waivers or other modifications of any provision of any Loan Documents, the consent to any departure by any Loan Party therefrom, or to the exercising or refraining from exercising any powers or rights which such Lender may have under or in respect of the Loan Documents (including the right to enforce the obligations of the Loan Parties), except if any such amendment, waiver or other modification or consent would (i) reduce the amount, or postpone any date fixed for, any amount (whether of principal, interest or fees) payable to such participant under the Loan Documents, to which such participant would otherwise be entitled under such participation or (ii) result in the release of all or substantially all of the Collateral other than in accordance with Section 10.7(c). In the event of the sale of any participation by any Lender, (A) such Lender’s obligations under the Loan Documents shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties for the performance of such obligations, (C) such Lender shall remain the holder of such Obligations for all purposes of this Agreement, and (D) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Each participant shall be entitled to the benefits of Sections 2.14(c), 2.14(e), 2.15 and 2.16 as if it were a Lender; provided, however, that anything herein to the contrary notwithstanding, the Borrower shall not, at any time, be obligated to pay to any participant of any interest of any Lender, under Section 2.14(c), 2.14(e), 2.15 or 2.16, any sum in excess of the sum which the Borrowers would have been obligated to pay to such Lender in respect of such interest had such participation not been sold.

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(g) Any Issuer may at any time assign its rights and obligations hereunder to any other Lender by an instrument in form and substance satisfactory to the Borrowers, the Administrative Agent, such Issuer and such Lender. If any Issuer ceases to be a Lender hereunder by virtue of any assignment made pursuant to this Section 11.2, then, as of the effective date of such cessation, such Issuer’s obligations to issue Letters of Credit pursuant to Section 2.4 shall terminate and such Issuer shall be an Issuer hereunder only with respect to outstanding Letters of Credit issued prior to such date.

Section 11.3. Costs and Expenses.

(a) Each Borrower agrees upon demand to pay, or reimburse the Administrative Agent for, all of the Administrative Agent’s reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other reasonable and documented out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable and documented fees, expenses and disbursements of the Administrative Agent’s New York and English counsel, Weil, Gotshal & Manges LLP and additional local legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) reasonably incurred by the Administrative Agent in connection with (i) the Administrative Agent’s audit and investigation of Terra Industries and its Subsidiaries in connection with the preparation, negotiation and execution of the Loan Documents and the Administrative Agent’s periodic audits of Terra Industries and its Subsidiaries, as the case may be; (ii) the preparation, negotiation, execution and interpretation of this Agreement (including, without limitation, the satisfaction or attempted satisfaction of any of the conditions set forth in Article III), the Loan Documents and any proposal letter or commitment letter issued in connection therewith and the making of the Loans hereunder; (iii) the creation, perfection or protection of the Liens under the Loan Documents (including, without limitation, any reasonable and documented fees and expenses for local counsel in various jurisdictions); (iv) the ongoing administration of this Agreement and the Loans, including consultation with attorneys in connection therewith and with respect to the Administrative Agent’s rights and responsibilities hereunder and under the other Loan Documents; (v) the protection, collection or enforcement of any of the Obligations or the enforcement of any of the Loan Documents; (vi) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, any Loan Party, any of Terra Industries’ Subsidiaries, this Agreement or any of the other Loan Documents; (vii) the response to, and preparation for, any subpoena or request for document production with which the Administrative Agent is served or deposition or other proceeding in which the Administrative Agent is called to testify, in each case, relating in any way to the Obligations, any Loan Party, any of Terra Industries’ Subsidiaries, this Agreement or any of the other Loan Documents; and (viii) any amendments, consents, waivers, assignments, restatements, or supplements to any of the Loan Documents and the preparation, negotiation, and execution of the same.

(b) Each Borrower further agrees to pay or reimburse the Administrative Agent and each of the Lenders and Issuers upon demand for all reasonable and documented out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees (including allocated costs of internal counsel and costs of settlement), incurred by the Administrative Agent, such Lenders or Issuers (i) in enforcing any Loan Document or Obligation or any security therefor or exercising or enforcing any other right or remedy available by reason of an Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out” or in any insolvency or bankruptcy proceeding;

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(iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleadings in any legal proceeding relating to the Obligations, any Loan Party, any of Terra Industries’ Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents; and (iv) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in clauses (i) through (iii) above.

Section 11.4. Indemnities.

(a) Each Borrower agrees to indemnify and hold harmless the Administrative Agent, each Lender and each Issuer and each of their respective Affiliates, and each of the directors, officers, employees, agents, representatives, attorneys, consultants and advisors of or to any of the foregoing (including those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (each such Person being an “Indemnitee”) from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses of any kind or nature (including reasonable and documented fees and disbursements of counsel to any such Indemnitee, but excluding taxes (other than those covenanted to be paid by the Borrowers under this Agreement) imposed on or measured by the Indemnitee’s net income and franchise taxes, imposed on it, by the jurisdiction (or any political subdivision thereof) under the laws of which such Indemnitee is organized or in which its principal office or Applicable Lending Office is located) which may be imposed on, incurred by or asserted against any such Indemnitee in connection with or arising out of any investigation, litigation or proceeding, whether or not any such Indemnitee is a party thereto, whether direct, indirect, or consequential and whether based on any federal, state or local law or other statutory regulation, securities or commercial law or regulation, or under common law or in equity, or in contract, tort or otherwise, relating to or arising out of this Agreement, any other Loan Document, any Obligation, any Letter of Credit, or any act, event or transaction related or attendant to any thereof, or the use or intended use of the proceeds of the Loans or Letters of Credit or in connection with any investigation of any potential matter covered hereby (collectively, the “Indemnified Matters”). Without limiting the foregoing, Indemnified Matters include (i) all Environmental Liabilities and Costs arising from or connected with the past, present or future operations of Terra Industries or any of its Subsidiaries involving any property subject to a Collateral Document, or damage to real or personal property or natural resources or harm or injury alleged to have resulted from any Release of Contaminants on, upon or into such property or any contiguous real estate; (ii) any costs or liabilities incurred in connection with any Remedial Action concerning Terra Industries or any of its Subsidiaries; (iii) any costs or liabilities incurred in connection with any Environmental Lien in respect of any assets or properties of Terra Industries and its Subsidiaries; (iv) any costs or liabilities incurred in connection with any other matter (concerning Terra Industries or any of its Subsidiaries) under any Environmental Law, including CERCLA and applicable state property transfer laws, whether, with respect to any of such matters, such Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the successor in interest to Terra Industries or any of its Subsidiaries, or the owner, lessee or operator of any property of Terra Industries or any of its Subsidiaries by virtue of foreclosure, except, with respect to those matters referred to in clauses (i), (ii), (iii) and (iv) above, to the extent incurred following (A) foreclosure by the Administrative Agent, any Lender or any Issuer, or the Administrative Agent, any Lender or any Issuer having become the successor in interest to Terra Industries or any of its Subsidiaries, and (B) attributable solely to acts of the Administrative Agent, such Lender or such Issuer or any agent on behalf of the Administrative Agent, such Lender or such Issuer; provided, however, that

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the Borrowers shall not have any obligation under this Section 11.4 to an Indemnitee with respect to any Indemnified Matter caused by or resulting from the gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.

(b) Each Borrower shall indemnify the Administrative Agent, the Lenders and each Issuer for, and hold the Administrative Agent, the Lenders and each Issuer harmless from and against, any and all claims for brokerage commissions, fees and other compensation made against the Administrative Agent, the Lenders and the Issuers for any broker, finder or consultant with respect to any agreement, arrangement or understanding made by or on behalf of any Loan Party or any of its Subsidiaries in connection with the transactions contemplated by this Agreement.

(c) Each Borrower agrees that any indemnification or other protection provided to any Indemnitee pursuant to this Agreement (including pursuant to this Section 11.4) or any other Loan Document shall (i) survive payment in full of the Obligations and (ii) inure to the benefit of any Person who was at any time an Indemnitee under this Agreement or any other Loan Document.

Section 11.5. Limitation of Liability.

(a) Each Borrower agrees that no Indemnitee shall (except for breach by such Indemnitee of its obligations under this Agreement and the other Loan Documents) have any liability (whether direct or indirect, in contract, tort or otherwise) to any Loan Party or any of their respective Subsidiaries or any of their respective equity holders or creditors for or in connection with the transactions contemplated hereby and in the other Loan Documents and the MCC Acquisition Documents, except to the extent such liability is found in a final judgment by a court of competent jurisdiction to have resulted from such Indemnitee’s gross negligence or willful misconduct. In no event, however, shall any Indemnitee be liable on any theory of liability for any special, indirect, consequential or punitive damages and each of Terra Industries and each Borrower hereby waives, releases and agrees (for itself and on behalf of its Subsidiaries) not to sue upon any such claim for any special indirect, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.

(b) IN NO EVENT SHALL ANY AGENT AFFILIATE HAVE ANY LIABILITY TO ANY LOAN PARTY, LENDER, ISSUER OR ANY OTHER PERSON FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT OR CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY OR ANY AGENT AFFILIATE’S TRANSMISSION OF APPROVED ELECTRONIC COMMUNICATIONS THROUGH THE INTERNET OR ANY USE OF THE APPROVED ELECTRONIC PLATFORM, EXCEPT TO THE EXTENT SUCH LIABILITY OF ANY AGENT AFFILIATE IS FOUND IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH AGENT AFFILIATE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

Section 11.6. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default each Lender and each Affiliate of a Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time

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held and other indebtedness at any time owing by such Lender or its Affiliates to or for the credit or the account of any Borrower against any and all of the Obligations now or hereafter existing whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify the applicable Borrower after any such set-off and application made by such Lender or its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 11.6 are in addition to the other rights and remedies (including other rights of set-off) which such Lender may have.

Section 11.7. Sharing of Payments, Etc.

(a) If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) on account of the Revolving Loans made by it (other than pursuant to Section 2.14, 2.15 or 2.16) in excess of its Ratable Portion under the Revolving Credit Facility, in respect of payments obtained by the Lenders, on account of such Obligations, such Lender (a “Purchasing Lender”) shall forthwith purchase from the other Lenders (each, a “Selling Lender”) such participations in their Loans or other Obligations as shall be necessary to cause such Purchasing Lender to share the excess payment ratably with each of them.

(b) If all or any portion of any payment received by a Purchasing Lender is thereafter recovered from such Purchasing Lender, such purchase from each Selling Lender shall be rescinded and such Selling Lender shall repay to the Purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Selling Lender’s ratable share (according to the proportion of (i) the amount of such Selling Lender’s required repayment to (ii) the total amount so recovered from the Purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.

(c) Each Borrower agrees that any Purchasing Lender so purchasing a participation from a Selling Lender pursuant to this Section 11.7 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

Section 11.8. Notices, Etc.

(a) Addresses for Notices. All notices, demands, requests and other communications provided for in this Agreement shall be given in writing, by any telecommunication device capable of creating a written record or by electronic mail through the internet, and addressed to the party to be notified as follows:

(i) if to any Loan Party:

c/o Terra Industries, Inc.

600 Fourth Street

Sioux City, Iowa 51101

Attention:   Francis G. Meyer, Senior Vice President and

Chief Financial Officer

Telecopy no: (712) 279-8703

email address: fmeyer@terraindustries.com

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with a copy to:

c/o Terra Industries, Inc.

600 Fourth Street

Sioux City, Iowa 51102

Attention: Mark A. Kalafut, General Counsel

Telecopy no: (712) 233-5586

email address: mkalafut@terraindustries.com

(ii) if to any Lender, at its Domestic Lending Office specified opposite its name on Schedule II or on the signature page of any applicable Assignment and Acceptance;

(iii) if to any Issuer, at the address set forth under its name on the signature page hereof; and

(iv) if to the Administrative Agent:

(A) (for collateral and administrative matters)

Citicorp USA, Inc.

388 Greenwich Street

19th Floor

New York, New York 10013

Attention: Miles D. McManus

Telecopy No: (212) 816-2613

email address: miles.mcmanus@citi.com

with a copy to (for collateral monitoring matters):

Citicorp USA, Inc.

388 Greenwich Street

19th Floor

New York, New York 10013

Attention: Hien Nugent

Telecopy No: (212) 816-2613

email address: hien.nugent@citi.com

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And

(B) (for advances)

Citicorp USA, Inc.

2 Penns Way

Suite 200

New Castle, Delaware 19720

Attention: Robert T. Partee III

Telecopy No: (302) 894-6120

email address: annemarie.pavco@citi.com

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue,

New York, New York 10153-0119

Attention: Daniel S. Dokos, Esq.

Telecopy no: (212) 310-8007

email address: daniel.dokos@weil.com

or at such other address as shall be notified in writing (i) in the case of the Loan Parties and the Administrative Agent, to the other parties and (ii) in the case of all other parties, to the Borrower and the Administrative Agent.

(b) Effectiveness of Notices All such notices and communications shall be effective (i) upon personal delivery, if delivered by hand, including any overnight courier service, (ii) when deposited in the mails, if sent by mail, (iii) if delivered by posting to an Approved Electronic Platform, an Internet website or a similar telecommunication device requiring that a user have prior access to such Approved Electronic Platform, website or other device, when such notice, demand, request, consent and other communication shall have been made generally available on such Approved Electronic Platform, Internet website or similar device to the class of Person being notified (regardless of whether any such Person must accomplish, and whether or not any such Person shall have accomplished, any action prior to obtaining access to such items, including registration, disclosure of contact information, compliance with a standard user agreement or undertaking a duty of confidentiality) or (iv) when properly transmitted, if sent by a telecommunications device or by electronic mail; provided, however, that notices and communications to the Administrative Agent pursuant to Article II or X shall not be effective until received by the Administrative Agent.

(c) Use of Electronic Platform. Notwithstanding clauses (a) and (b) (unless the Administrative Agent requests that the provisions of clause (a) and (b) be followed) and any other provision in this Agreement or any other Loan Document providing for the delivery of, any Approved Electronic Communication by any other means, the Loan Parties shall deliver all Approved Electronic Communications to the Administrative Agent by properly transmitting such Approved Electronic Communications electronically (in a format reasonably acceptable to the Administrative Agent) to oploanswebadmin@citigroup.com or such other electronic mail address (or similar means of electronic delivery) as the Administrative Agent may notify the Borrower. Nothing in this clause (c) shall prejudice the right of the Administrative

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Agent or any Lender or Issuer to deliver any Approved Electronic Communication to any Loan Party in any manner authorized in this Agreement.

Section 11.9. No Waiver; Remedies. No failure on the part of any Lender, Issuer or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 11.10. Binding Effect. This Agreement shall become effective on the Effective Date and thereafter this Agreement shall be binding upon and inure to the benefit of the Borrowers, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrowers shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. On the Effective Date, the Existing Credit Agreement shall be amended and restated in its entirety by this Agreement and the Existing Credit Agreement shall thereafter be of no further force and effect except as to evidence the incurrence by the Borrowers’ of the Obligations thereunder, as to evidence the representations and warranties made by the Borrowers prior to the Effective Date and as to evidence any failure to comply with the covenants contained in such Existing Credit Agreement occurring prior to the Effective Date. The terms and conditions of this Agreement and the Administrative Agent’s, the Lenders’ and the Issuers’ rights and remedies under this Agreement and the other Loan Documents, shall apply to all of the Obligations incurred under the Existing Credit Agreement and the Notes issued as of April 7, 2000. It is expressly understood and agreed by the parties hereto that this Agreement is in no way intended to constitute a novation of the obligations and liabilities existing under the Existing Credit Agreement or evidence payment of all or any of such obligations and liabilities. Other than with respect to Liens on the assets of the Loan Parties constituting Senior Secured Note Collateral, each Borrower party to the Existing Credit Agreement reaffirms the Liens granted to the Administrative Agent for the benefit of the Lenders and the Issuers pursuant to each of the Loan Documents executed by such Borrower, which Liens shall continue in full force and effect during the term of this Agreement and any renewals thereof and shall continue to secure the Obligations identified in such Loan Documents. All references to the Existing Credit Agreement (or to any amendment or any amendment and restatement thereof) in the Loan Documents shall be deemed to refer to this Agreement.

Section 11.11. Governing Law. This Agreement and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.

Section 11.12. Submission to Jurisdiction; Service of Process.

(a) Any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, each Borrower hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which any of them may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions.

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(b) Terra UK hereby irrevocably designates, appoints and empowers Terra Industries (the “Process Agent”), in the case of any suit, action or proceeding brought in the United States of America as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents that may be served in any action or proceeding arising out of or in connection with this Agreement or any Loan Document. Such service may be made by mailing (by registered or certified mail, postage prepaid) or delivering a copy of such process to Terra UK in care of the Process Agent at the Process Agent’s above address, and Terra UK hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. As an alternative method of service, Terra UK irrevocably consents to the service of any and all process in any such action or proceeding by the mailing (by registered or certified mail, postage prepaid) of copies of such process to the Process Agent or Terra UK at its address specified in Section 11.8. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Terra Capital hereby irrevocably consents to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding brought in the United States of America arising out of or in connection with this Agreement or any of the other Loan Documents by the mailing (by registered or certified mail, postage prepaid) or delivering of a copy of such process to such Borrower at its address specified in Section 11.8. Each such Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(c) Nothing contained in this Section 11.12 shall affect the right of the Administrative Agent or any Lender to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Borrower or any other Loan Party in any other jurisdiction.

(d) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase Dollars with such other currency at the spot rate of exchange quoted by the Administrative Agent at 11:00 a.m. (New York time) on the Business Day preceding that on which final judgment is given, for the purchase of Dollars, for delivery two Business Days thereafter.

Section 11.13. Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUERS AND THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

Section 11.14. No Immunity. To the extent that Terra UK may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement or any other Loan Document, to claim for itself or its properties or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its respective obligations under this Agreement or any other Loan Document, and to the extent that in any such jurisdiction there may be attributed such an immunity (whether

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or not claimed), Terra UK hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction.

Section 11.15. Judgment Currency. This is an international loan transaction in which the specification of Dollars is of the essence, and Dollars shall in each instance be the currency of account and payment in all instances. A payment obligation in Dollars hereunder shall not be discharged by an amount paid in another currency (the “Other Currency”), whether pursuant to any judgment expressed in or converted into any Other Currency or in another place except to the extent that such tender or recovery results in the effective receipt by the Lenders of the full amount of Dollars payable to the Administrative Agent and the Lenders under this Agreement. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into the Other Currency, the rate of exchange that shall be applied shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase U.S. Dollars in New York, New York with the Other Currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of Terra UK in respect of any such sum due from it to the Administrative Agent and the Lenders hereunder or under any other Loan Document shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or any Lender of any sum adjudged to be due hereunder in the Other Currency the Administrative Agent may in accordance with normal banking procedures purchase Dollars with the amount of the judgment currency so adjudged to be due; and the Borrower hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify the Administrative Agent and the Lenders against, and to pay the Administrative Agent and Lenders on demand, in Dollars, the amount (if any) by which the sum originally due to the Administrative Agent and the Lenders in Dollars hereunder exceeds the amount of the Other Currency so purchased.

Section 11.16. Marshaling; Payments Set Aside. None of the Administrative Agent, any Lender or any Issuer shall be under any obligation to marshal any assets in favor of the Borrowers or any other party or any other Lender which does not have an equivalent interest in the Revolving Credit Facility or against or in payment of any or all of the Obligations. To the extent that the Borrowers make a payment or payments to the Administrative Agent, the Lenders or the Issuers or any of such Persons receives payment from the proceeds of the Collateral or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

Section 11.17. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

Section 11.18. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate

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counterparts and attached to a single counterpart so that all signature pages are attached to the same document.

Section 11.19. Entire Agreement. This Agreement, together with all of the other Loan Documents and all certificates and documents delivered hereunder or thereunder, embodies the entire agreement of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof.

Section 11.20. Confidentiality. Each Lender and the Administrative Agent (a) agrees to keep information obtained by it pursuant hereto and the other Loan Documents confidential in accordance with such Lender’s or the Administrative Agent’s, as the case may be, customary practices and (b) agrees that it will only use such information in connection with the transactions contemplated by this Agreement and not disclose any of such information other than (i) to such Lender’s or the Administrative Agent’s, as the case may be, employees, representatives and agents who are or are expected to be involved in the evaluation of such information in connection with the transactions contemplated by this Agreement and who are advised of the confidential nature of such information, (ii) to the extent such information presently is or hereafter becomes available to such Lender or the Administrative Agent, as the case may be, on a non-confidential basis from a source other than the Borrowers, (iii) to the extent disclosure is required by law, regulation or judicial order or requested or required by bank regulators or auditors, or (iv) to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this Section 11.20.

Section 11.21. Refund of Tax Credits. If:

(a) Terra UK makes a payment under Section 2.16(a) (a “Tax Payment”) in respect of a payment to a Lender or the Administrative Agent under this agreement; and

(b) that Lender or the Administrative Agent determines in its discretion that it has obtained a refund of tax or obtained and used a credit against tax on its overall net income (a “Tax Credit”) which that Lender or as appropriate the Administrative Agent in its discretion is able to identify as attributable to that Tax Payment,

then if it can do so without any adverse consequences for that Lender or if applicable the Administrative Agent, that Lender or if applicable the Administrative Agent shall reimburse Terra UK such amount as that Lender or if applicable the Administrative Agent determines to be such proportion of that Tax Credit as will leave that Lender or if applicable the Administrative Agent (after that reimbursement) in no better or worse position in respect of its overall tax liabilities than it would have been in if no Tax Payment had been required. A Lender or where applicable the Administrative Agent shall have an absolute discretion as to whether to claim any Tax Credit (and, if it does claim, the extent order and manner in which it does so). Neither the Lender nor the Administrative Agent should be obliged to disclose any of its tax affairs or computations to Terra UK or any other Loan Party.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

Borrowers
TERRA CAPITAL, INC.
By:	/s/ Mark A. Kalafut
	Name:	Mark A. Kalafut
	Title:	Vice President
TERRA NITROGEN (U.K.) LIMITED
By:	/s/ Mark A. Kalafut
	Name:	Mark A. Kalafut
	Title:	Vice President
MISSISSIPPI CHEMICAL CORPORATION
By:	/s/ Mark A. Kalafut
	Name:	Mark A. Kalafut
	Title:	Vice President
Guarantor
TERRA INDUSTRIES INC.
By:	/s/ Mark A. Kalafut
	Name:	Mark A. Kalafut
	Title:	Vice President
TERRA CAPITAL HOLDINGS INC.
By:	/s/ Mark A. Kalafut
	Name:	Mark A. Kalafut
	Title:	Vice President

[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]

Administrative Agent
CITICORP USA, INC.
By:	/s/ David Jaffe
	Name:	David Jaffe
	Title:	Director / Vice President
Issuer
CITIBANK, N.A.
By:	/s/ David Jaffe
	Name:	David Jaffe
	Title:	Director / Vice President
Lenders
CITICORP USA, INC.
By:	/s/ David Jaffe
	Name:	David Jaffe
	Title:	Vice President
WELLS FARGO FOOTHILL, INC.
By:	/s/ Dennis King
	Name:	Dennis King
	Title:	Vice President
LASALLE BANK NATIONAL ASSOCIATION
By:	/s/ John Mostofi
	Name:	John Mostofi
	Title:	Senior Vice President
CONGRESS FINANCIAL CORP.
By:	/s/ Robert Strack
	Name:	Robert Strack
	Title:	Senior Vice President

[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]

GENERAL ELECTRIC CAPITAL CORPORATION
By:	/s/ Dennis W. Cloud
	Name:	Dennis W. Cloud
	Title:	Duly Authorized Signatory
NATIONAL CITY BUSINESS CREDIT, INC.
By:	/s/ Christopher R. Snyder
	Name:	Christopher R. Snyder
	Title:	Director

[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]

SCHEDULE I

REVOLVING CREDIT COMMITMENTS

Lender	Revolving Credit Commitment
Citicorp USA, Inc.	$	42,857,144
Wells Fargo Foothill, Inc.	$	25,714,285
LaSalle Bank National Association	$	18,750,000
Congress Financial Corp.	$	21,428,572
General Electric Capital Corporation	$	22,500,000
National City Business Credit, Inc.	$	18,750,000
Total:	$	150,000,000

SCHEDULE II

APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES

1. CITICORP USA, INC.:

Domestic Lending Office:

2 Penn’s Way, Suite 200

New Castle, DE 19720

Attention: Robert Partee III

Telephone: (302) 894-6011

Telecopy: (302) 894-6120

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

2. WELLS FARGO FOOTHILL, INC.:

Domestic Lending Office:

2450 Colorado Avenue, Suite 3000 West

Santa Monica, CA 90404

Attention: Mike Baranowski

Telephone: (310) 453-7308

Telecopy: (310) 453-7446

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

119

3. LASALLE BANK NATIONAL ASSOCIATION

Domestic Lending Office:

Suite 425

135 S. LaSalle Street

Chicago, IL 60603

Attention: Mitchell Tarvid

Telephone: (312) 904-4240

Telecopy: (312) 904-6450

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

4. CONGRESS FINANCIAL CORP.

Domestic Lending Office:

1133 Avenue of the Americas

New York, NY 10036

Attention: Thomas A. Martin

Telephone: (212) 545-4367

Telecopy: (212) 545-4283

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

120

5. GENERAL ELECTRIC CAPITAL CORPORATION.

Domestic Lending Office:

General Electric Capital Corporation

500 W. Monroe St.

Chicago, IL 60661-3679

Attention: Terra Industries Account Manager

Telecopier: 312-419-7500

Eurodollar Lending Office:

(Same as above)

Notices:

500 W. Monroe St.

Chicago, IL 60661-3679

Attention: Corporate Counsel - Commercial Finance

Telecopier: 312-441-7173

6. NATIONAL CITY BUSINESS CREDIT, INC.

Domestic Lending Office:

1965 East Sixth Street

Locator 01-3049

Cleveland, OH 44114

Attention: Thomas Evans

Telephone: 216-222-9267

Telecopier: 216-222-9555

thomas.evans@nationalcity.com

Euro Lending Office:

(Same as above)

Notices:

(Same as above)

121

EX-4.19

EXECUTION COPY

Exhibit 4.19

$50,000,000

CREDIT AGREEMENT

Dated as of December 21, 2004

among

TERRA NITROGEN, LIMITED PARTNERSHIP

as Borrower

TERRA NITROGEN COMPANY, L.P.

as a Guarantor

and

THE LENDERS AND ISSUERS PARTY HERETO

and

CITICORP USA, INC.

as Administrative Agent and

Collateral Agent

CITIGROUP GLOBAL MARKETS INC.

as Lead Arranger and Sole Book Runner

WEIL, GOTSHAL & MANGES LLP

767 FIFTH AVENUE

NEW YORK, NEW YORK 10153-0119

TABLE OF CONTENTS

		Page
Article I	Definitions, Interpretation And Accounting Terms	1
Section 1.1.	Defined Terms	1
Section 1.2.	Computation of Time Periods	27
Section 1.3.	Accounting Terms and Principles	27
Section 1.4.	Certain Terms	27
Article II	The Revolving Credit Facility	28
Section 2.1.	The Revolving Credit Commitments	28
Section 2.2.	Borrowing Procedures	28
Section 2.3.	Swing Loans	29
Section 2.4.	Letters of Credit	31
Section 2.5.	Reduction and Termination of the Revolving Credit Commitments	35
Section 2.6.	Repayment of Loans	35
Section 2.7.	Evidence of Debt, Obligations of the Borrower	35
Section 2.8.	Optional Prepayments	36
Section 2.9.	Mandatory Prepayments	36
Section 2.10.	Interest	37
Section 2.11.	Conversion/Continuation Option	38
Section 2.12.	Fees	39
Section 2.13.	Payments and Computations; Protective Advances	40
Section 2.14.	Special Provisions Governing Eurodollar Rate Loans	42
Section 2.15.	Capital Adequacy	44
Section 2.16.	Taxes	44
Section 2.17.	Substitution of Lenders	46
Article III	Conditions To Effectiveness Of This Agreement	47
Section 3.1.	Conditions Precedent to the Effectiveness of this Agreement	47
Section 3.2.	Conditions Precedent to Each Loan and Letter of Credit	50
Article IV	Representations And Warranties	50
Section 4.1.	Corporate Existence; Compliance with Law	51
Section 4.2.	Corporate Power; Authorization; Enforceable Obligations	51
Section 4.3.	Ownership of Subsidiaries	52
Section 4.4.	Financial Statements	52
Section 4.5.	Material Adverse Change	53

i

TABLE OF CONTENTS

(continued)

		Page
Section 4.6.	Solvency	53
Section 4.7.	Litigation	53
Section 4.8.	Taxes	53
Section 4.9.	Full Disclosure	54
Section 4.10.	Margin Regulations	54
Section 4.11.	No Burdensome Restrictions; No Defaults	54
Section 4.12.	Investment Company Act; Public Utility Holding Company Act	55
Section 4.13.	Use of Proceeds	55
Section 4.14.	Insurance	55
Section 4.15.	Labor Matters	55
Section 4.16.	ERISA	56
Section 4.17.	Environmental Matters	56
Section 4.18.	Intellectual Property	57
Section 4.19.	Title; Real Property	57
Section 4.20.	Pari Passu Obligations	59
Article V	Financial Covenants	59
Section 5.1.	Minimum EBITDA	59
Section 5.2.	Capital Expenditures and Joint Venture Investments	60
Section 5.3.	Minimum Liquidity	60
Article VI	Reporting Covenants	60
Section 6.1.	Financial Statements	60
Section 6.2.	Default Notices	62
Section 6.3.	Litigation	62
Section 6.4.	Asset Sales	62
Section 6.5.	SEC Filings; Press Releases	62
Section 6.6.	Labor Relations	62
Section 6.7.	Tax Returns	62
Section 6.8.	Insurance	63
Section 6.9.	ERISA Matters	63
Section 6.10.	Environmental Matters	63
Section 6.11.	Borrowing Base Determination	64
Section 6.12.	Other Information	65

ii

TABLE OF CONTENTS

(continued)

		Page
Section 6.13.	Material Documents	65
Article VII	Affirmative Covenants	65
Section 7.1.	Preservation of Corporate Existence, Etc.	65
Section 7.2.	Compliance with Laws, Etc.	65
Section 7.3.	Conduct of Business	65
Section 7.4.	Payment of Taxes, Etc.	66
Section 7.5.	Maintenance of Insurance	66
Section 7.6.	Access	66
Section 7.7.	Keeping of Books	66
Section 7.8.	Maintenance of Properties, Etc.	67
Section 7.9.	Application of Proceeds	67
Section 7.10.	Environmental	67
Section 7.11.	Additional Collateral and Guaranties; Further Assurances	67
Section 7.12.	Cash Collateral Accounts and Cash Management System	68
Section 7.13.	Real Estate	70
Section 7.14.	Hedging Contracts	70
Article VIII	Negative Covenants	70
Section 8.1.	Indebtedness	70
Section 8.2.	Liens, Etc.	71
Section 8.3.	Investments	72
Section 8.4.	Sale of Assets	73
Section 8.5.	Restricted Payments	74
Section 8.6.	Restriction on Fundamental Changes	74
Section 8.7.	Change in Nature of Business	75
Section 8.8.	Transactions with Affiliates	75
Section 8.9.	Restrictions on Subsidiary Distributions; No New Negative Pledge	75
Section 8.10.	Modification of Constituent Documents	75
Section 8.11.	Modification of Material Documents	76
Section 8.12.	Accounting Changes; Fiscal Year	76
Section 8.13.	Margin Regulations	76
Section 8.14.	Operating Leases; Sale/Leasebacks	76

iii

TABLE OF CONTENTS

(continued)

		Page
Section 8.15.	Cancellation of Indebtedness Owed	76
Section 8.16.	No Speculative Transactions	76
Section 8.17.	Compliance with ERISA and Foreign Plans	76
Section 8.18.	Environmental	77
Article IX	Events Of Default	77
Section 9.1.	Events of Default	77
Section 9.2.	Remedies	79
Section 9.3.	Actions in Respect of Letters of Credit	79
Section 9.4.	Rescission	80
Article X	The Administrative Agent; The Other Agents	80
Section 10.1.	Authorization and Action	80
Section 10.2.	Administrative Agent’s Reliance, Etc.	81
Section 10.3.	The Administrative Agent Individually	81
Section 10.4.	Lender Credit Decision	82
Section 10.5.	Indemnification	82
Section 10.6.	Successor Administrative Agent	82
Section 10.7.	Concerning the Collateral and the Collateral Documents	83
Section 10.8.	Collateral Matters Relating to Related Obligations.	84
Section 10.9.	Other Agents	85
Section 10.10.	Posting of Approved Electronic Communications	85
Article XI	Miscellaneous	86
Section 11.1.	Amendments, Waivers, Etc.	86
Section 11.2.	Assignments and Participations	88
Section 11.3.	Costs and Expenses	90
Section 11.4.	Indemnities	91
Section 11.5.	Limitation of Liability	92
Section 11.6.	Right of Set-off	93
Section 11.7.	Sharing of Payments, Etc.	93
Section 11.8.	Notices, Etc.	94
Section 11.9.	No Waiver; Remedies	96
Section 11.10.	Binding Effect	96
Section 11.11.	Governing Law	96

iv

TABLE OF CONTENTS

(continued)

		Page
Section 11.12.	Submission to Jurisdiction; Service of Process	96
Section 11.13.	Waiver of Jury Trial	96
Section 11.14.	Marshaling; Payments Set Aside	97
Section 11.15.	Section Titles	97
Section 11.16.	Execution in Counterparts	97
Section 11.17.	Entire Agreement	97
Section 11.18.	Confidentiality	97

SCHEDULES

Schedule I	-	Revolving Credit Commitments
Schedule II	-	Applicable Lending Offices and Addresses for Notices
Schedule III	-	Projections
Schedule 4.2	-	Consents
Schedule 4.3	-	Ownership of Subsidiaries
Schedule 4.4	-	Pro Forma Balance Sheet
Schedule 4.7	-	Litigation
Schedule 4.8	-	Taxes
Schedule 4.15	-	Labor Matters
Schedule 4.16	-	List of Plans
Schedule 4.17	-	Environmental Matters
Schedule 4.19	-	Real Property
Schedule 7.12	-	Accounts
Schedule 8.1	-	Existing Indebtedness
Schedule 8.2	-	Existing Liens
Schedule 8.3	-	Existing Investments

EXHIBITS

Exhibit A	-	Form of Assignment and Acceptance
Exhibit B	-	Form of Note
Exhibit C	-	Form of Notice of Borrowing
Exhibit D	-	Form of Letter of Credit Request
Exhibit E	-	Form of Borrowing Base Certificate
Exhibit F	-	Form of Notice of Conversion or Continuation
Exhibit G-1/-2/-3	-	Form of Opinions of Counsel for the Loan Parties
Exhibit H	-	Form of Guaranty
Exhibit I	-	Form of Pledge and Security Agreement
Exhibit J	-	Form of Loan Purchase Agreement

v

EXECUTION COPY

REVOLVING CREDIT AGREEMENT, dated as of December 21, 2004 (as amended, supplemented or otherwise modified from time to time, this “Agreement”), among TERRA NITROGEN, LIMITED PARTNERSHIP, a Delaware limited partnership (the “Borrower”), TERRA NITROGEN COMPANY, L.P., a Delaware limited partnership (“TNCLP”), the Lenders (as defined below), the Issuers (as defined below) and CITICORP USA, INC. (“CUSA”), as administrative agent and collateral agent for the Lenders and the Issuers (in such capacities, the “Administrative Agent”).

W I T N E S S E T H:

WHEREAS, the Borrower, Terra Industries Inc. and certain of its Subsidiaries, the Administrative Agent, the Lenders and the Issuers are a party to a certain Amended and Restated Credit Agreement dated as of October 10, 2001 (the “Existing Credit Agreement”);

WHEREAS, on the Effective Date (as defined below) of this Agreement (i) all Obligations owing by the Borrower under the Existing Credit Agreement shall have been paid in full and each of the Borrower and TNCLP, shall be released from their respective Obligations (as such term is defined in the Existing Agreement) (and all Liens securing their Obligations shall be terminated) under the Existing Credit Agreement and the other Loan Documents (including under the existing Junior Loan Documents as such term is defined in the Existing Credit Agreement and (ii) the Existing Credit Agreement shall be amended and restated, (as so amended and restated, the “Terra Capital Credit Agreement” );

WHEREAS, TNCLP, Terra Industries and certain of its other Subsidiaries have agreed to guaranty the obligations of the Borrower arising under, and in connection, with this Agreement (it being understood that Terra Industries and certain of its Subsidiaries (other than TNCLP) shall provide guaranties on an unsecured basis); and

WHEREAS, the Borrower has requested, and the Lenders have agreed, to provide the Borrower with a revolving credit facility in the aggregate principal amount of $50,000,000 upon terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS

Section 1.1. Defined Terms. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Account” has the meaning specified in the Pledge and Security Agreement.

“Account Debtor” has the meaning specified in the Pledge and Security Agreement.

“Administrative Agent” has the meaning specified in the preamble to this Agreement.

“Advance Rate” means, at any time, (i) up to 85% in the case of Eligible Receivables, (ii) up to the Seasonal Eligible Inventory Rate in the case of Eligible Non-Spare Parts Inventory, and (iii) up to 5% in the case of Eligible Spare Parts Inventory, in each case as such rates may be increased or decreased from time to time with respect to any class of Eligible Receivables, Eligible Non-Spare Parts Inventory or Eligible Spare Parts Inventory by the Administrative Agent in its sole discretion, with any change in such rates to be effective two (2) Business Days after written notice thereof from the Administrative Agent to the Borrower; provided, however, that the Administrative Agent shall not increase such rates above the rates set forth above as of the Effective Date without the consent of the Lenders.

“Affiliate” means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, each officer, director, general partner or joint-venturer of such Person, and each Person who is the beneficial owner of 10% or more of any class of Voting Stock of such Person. For the purposes of this definition, “control” means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning specified in the preamble to this Agreement.

“Applicable Lending Office” means, with respect to each Lender, its Domestic Lending Office in the case of a Base Rate Loan, and its Eurodollar Lending Office in the case of a Eurodollar Rate Loan.

“Applicable Margin”¹ means (a) so long as the Terra Capital Credit Agreement is in effect and any Obligations (as defined therein) are outstanding, the “Applicable Margin” as defined in the Terra Capital Credit Agreement and (b) in the event that the Terra Capital Credit Agreement has been terminated and all Obligations thereunder (as defined therein) have been paid in full, with respect to Loans maintained as, (x) Base Rate Loans, a rate equal to 1.25% per annum and (y) Eurodollar Rate Loans, a rate equal to 2.50% per annum.

“Approved Deposit Account” means each bank account identified as an “Approved Deposit Account” on Schedule 7.12 and such other receivables collection accounts from time to time maintained by the Borrower, TNCLP and its other Subsidiaries with a bank acceptable to the Administrative Agent and subject to a Deposit Account Control Agreement.

“Approved Electronic Communications” means each notice, demand, communication, information, document and other material that any Loan Party provides to the Administrative Agent pursuant to any Loan Document or the transactions contemplated therein, including (a) any supplement to the Guaranty, any joinder to the Pledge and Security Agreement and any other written Contractual Obligation delivered or required to be delivered in respect of any Loan Document or the transactions contemplated therein and (b) any Financial Statement, financial and other report, notice, request, certificate and other information material; provided, however, that, “Approved Electronic Communication” shall exclude (i) any Notice of Borrowing, Letter of Credit Request, Swing Loan Request, Notice of Conversion or Continuation, and any

¹ Please note that this definition is similar to the definition of Applicable Margin in the Terra Capital Credit Agreement.

2

other notice, demand, communication, information, document and other material relating to a request for a new, or a conversion of an existing, Borrowing, (ii) any notice pursuant to Section 2.8 (Optional Prepayments) and Section 2.9 (Mandatory Prepayments) and any other notice relating to the payment of any principal or other amount due under any Loan Document prior to the scheduled date therefor, (iii) all notices of any Default or Event of Default and (iv) any notice, demand, communication, information, document and other material required to be delivered to satisfy any of the conditions set forth in Article III (Conditions To Loans And Letters Of Credit) or Section 2.4(a) (Letters of Credit) or any other condition to any Borrowing or other extension of credit hereunder or any condition precedent to the effectiveness of this Agreement.

“Approved Electronic Platform” has the meaning specified in Section 10.10(a) (Posting of Approved Electronic Communications).

“Approved Fund” means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Arranger” means Citigroup Global Markets Inc., in its capacity as Lead Arranger and Sole Book Runner for the Revolving Credit Facility.

“Asset Sale” has the meaning specified in Section 8.4.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit A.

“Availability Reserve” means, effective as of two Business Days after the date of written notice of any determination thereof to the Borrower by the Administrative Agent, such amounts (without duplication as to amounts included in the determination of any Eligibility Reserve) as the Administrative Agent may from time to time establish against the Available Credit, in the Administrative Agent’s sole discretion, in order either (a) to preserve the value of the Collateral or the Administrative Agent’s Lien thereon, or (b) to provide for the payment of unanticipated liabilities of the Borrower or its Subsidiaries arising after the Effective Date; provided, however, that the Administrative Agent shall apply criteria in respect of the foregoing in accordance with its customary practice with regard to similar credit facilities.

“Available Credit” means, at any time, an amount equal to (a) the lesser of (i) the then effective Revolving Credit Commitments and (ii) the Borrowing Base at such time minus (b) the sum of (i) the aggregate Revolving Credit Outstandings at such time and (ii) any Availability Reserve in effect at such time.

“Bailee’s Letter” means a letter in form and substance acceptable to the Administrative Agent executed by any Person (other than a Loan Party) who is in possession of Inventory on behalf of the Borrower pursuant to which such Person acknowledges, among other things, the Administrative Agent’s Lien with respect thereto.

“Bankruptcy Code” means title 11, United States Code, as amended from time to time.

3

“Base Rate” means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall be equal at all times to the highest of:

(a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank’s base rate;

(b) the sum (adjusted to the nearest 0.25% or, if there is no nearest 0.25%, to the next higher 0.25%) of (i) 0.5% per annum plus (ii) the rate per annum obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) for Citibank in respect of liabilities consisting of or including (among other liabilities) three-month U.S. dollar nonpersonal time deposits in the United States, plus (iii) the average during such three-week period of the maximum annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar deposits in the United States; and

(c) the sum of (i) 0.5% per annum plus (ii) the Federal Funds Rate.

“Base Rate Loan” means any Loan during any period in which it bears interest based on the Base Rate.

“Borrowing” means a borrowing consisting of Loans made on the same day by the Lenders ratably according to their respective Revolving Credit Commitments.

“Borrowing Base” means, (a) the sum of (i) the product of the Advance Rate then in effect for Eligible Receivables and the face amount of all Eligible Receivables of the Borrower (calculated net of all finance charges, late fees and other fees which are unearned, sales, excise or similar taxes, and credits or allowances granted at such time), (ii) the product of the Advance Rate then in effect for each class of Eligible Non-Spare Parts Inventory and the Eligible Non-Spare Parts Inventory (valued at the lower of cost and market on a first-in, first-out basis) constituting such class at such time of the Borrower, (iii) the product of the Advance Rate then in effect for Eligible Spare Parts Inventory and the Eligible Spare Parts Inventory of the Borrower and (iv) 100% of cash maintained by the Borrower in a cash collateral account opened for such purpose with the Administrative Agent (including the L/C Cash Collateral Account and any other Cash Collateral Account referred to in Section 2.9 or Section 7.12(f)) on terms acceptable to, and subject to a perfected first priority Lien in favor of, the Administrative Agent less (b) any Eligibility Reserves then in effect.

4

“Borrowing Base Certificate” means a certificate of the Borrower substantially in the form of Exhibit E.

“Borrowing Base Deficiency” means, any time during which the Available Credit of the Borrower is less than zero.

“Business Day” means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to notices, determinations, fundings and payments in connection with the Eurodollar Rate or any Eurodollar Rate Loans, a day on which dealings in Dollar deposits are also carried on in the London interbank market.

“Capital Expenditures” means, with respect to any Person for any period, the aggregate of amounts that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of such Person and its Subsidiaries prepared in conformity with GAAP, excluding interest capitalized during construction.

“Capital Lease” means, with respect to any Person, any lease of property by such Person as lessee which would be accounted for as a capital lease on a balance sheet of such Person prepared in conformity with GAAP.

“Capital Lease Obligations” means, with respect to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capital Leases, as determined on a consolidated basis in conformity with GAAP.

“Cash Collateral Account” means each Approved Deposit Account maintained at Citibank or an Affiliate of Citibank, each other bank account identified as a “Cash Collateral Account” on Schedule 7.12 and each other account maintained from time to time by any Loan Party with Citibank and designated a “Cash Collateral Account” by the Administrative Agent.

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; (b) repurchase agreements on obligations of the type specified in clause (a) above with respect to which, at the time of acquisition, the senior long-term debt of the party agreeing to repurchase such obligations is rated AAA (or better) by Standard & Poor’s Corporation (or its successors) or Aaa (or better) by Moody’s Investors Service, Inc. (or its successors); (c) domestic and Eurodollar certificates of deposit and time deposits, bankers’ acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor’s Corporation (or its successors) or P-1 (or better) by Moody’s Investors Service, Inc. (or its successors); (d) commercial paper of United States and foreign banks and bank holding companies and their subsidiaries and United States and foreign finance, commercial industrial or utility companies which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor’s Corporation (or its successors) or P-1 (or better) by Moody’s Investors Service, Inc. (or its successors); (e) marketable direct obligations of any state of the United States of America or any political subdivision of any such state given on the date of such investment the highest credit rating by Moody’s Investors Service, Inc. (or its successors) and Standard & Poor’s Corporation (or its successors); (f) Canadian Dollar denominated banker’s acceptances of Canadian banks, and Canadian dollar-denominated commercial paper, rated at

5

least R-1-mid by Dominion Bond Rating Service and (g) securities of money market funds rated Am (or better) by Standard & Poor’s Corporation (or its successors) or A (or better) by Moody’s Investors Service, Inc. (or its successors); provided, that the maturities of any such Cash Equivalents referred to in clauses (a), (c), (d) and (e) shall not exceed 270 days.

“Change of Control” means any of the following: (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of more than 35% of the issued and outstanding Voting Stock of Terra Industries; (b) Terra Industries shall cease, directly or indirectly, to own and control (i) at least 51% of the outstanding, economic and voting rights associated with all of the limited partnership interests in TNCLP, (ii) the general partnership interest in TNCLP or (iii) the general partnership interest in the Borrower, (c) TNCLP shall cease to own and control, collectively, all of the outstanding economic and voting rights associated with all of the limited partnership interests in the Borrower and (d) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Terra Industries (together with any new directors whose election by the board of directors of Terra Industries or whose nomination for election by the stockholders of Terra Industries was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose elections or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office or (g) a “Change of Control” as defined in any long term Indebtedness of TNCLP and its Subsidiaries.

“Chattel Paper” has the meaning specified in the Pledge and Security Agreement.

“Citibank” means Citibank, N.A., a national bank in association.

“Code” means the Internal Revenue Code of 1986 (or any successor legislation thereto), as amended from time to time.

“Collateral” means all property and interests in property and proceeds thereof now owned or hereafter acquired by any Loan Party in or upon which a Lien is granted under any of the Collateral Documents.

“Collateral Documents” means the Pledge and Security Agreement, and any other document executed and delivered by a Loan Party granting a Lien on any of its property to secure payment of the Obligations of such Loan Party.

“Common Unit Purchase” has the meaning specified in Section 8.3(h).

“Common Units” means the common units issued and outstanding under the Agreement of Limited Partnership dated as of December 4, 1991 of TNCLP.

“Compliance Certificate” has the meaning specified in Section 6.1(d).

“Concentration Account” means the concentration account opened with Citibank in New York, New York set forth on Schedule 7.12.

6

“Confirmation Order” has the meaning specified in Section 3.1(d).

“Consolidated Net Income” means, for any Person for any period, the net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP; provided, however, that (a) the net income of any other Person in which such Person or one of its Subsidiaries has a joint interest with a third party (which interest does not cause the net income of such other Person to be consolidated into the net income of such Person in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to such Person or Subsidiary, (b) the net income of any Subsidiary of such Person that is subject to any restriction or limitation on the payment of dividends or the making of other distributions shall be excluded to the extent of such restriction or limitation, and (c) any one-time increase or decrease to net income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP shall be excluded.

“Constituent Documents” means, with respect to any Person, (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such Person, (ii) the by-laws (or the equivalent governing documents) of such Person and (iii) any document setting forth the manner of election and duties of the directors or managing members of such Person (if any) and the designation, amount and/or relative rights, limitations and preferences of any class or series of such Person’s Stock.

“Contaminant” means any material, substance or waste that is classified, regulated or otherwise characterized under any Environmental Law as hazardous, toxic, a contaminant or a pollutant or by other words of similar meaning or regulatory effect, including any petroleum or petroleum-derived substance or waste, asbestos and polychlorinated biphenyls.

“Contractual Obligation” of any Person means any obligation, agreement, undertaking or similar provision of any Security issued by such Person or of any agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument (excluding any Loan Document but including any Material Document) to which such Person is a party or by which it or any of its property is bound or to which any of its properties is subject.

“CUSA” has the meaning specified in the preamble to this Agreement.

“Customary Permitted Liens” means, with respect to any Person, any of the following Liens:

(a) Liens with respect to the payment of taxes, customs duties, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP;

(b) Liens of landlords arising by statute and liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP;

(c) deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other types of social security

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benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money) and surety, appeal, customs or performance bonds;

(d) encumbrances arising by reason of zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar encumbrances on the use of real property which do not materially detract from the value of such real property or interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;

(e) encumbrances arising under leases or subleases of real property which do not in the aggregate materially detract from the value of such real property or interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;

(f) financing statements of a lessor’s rights in and to personal property leased to such Person in the ordinary course of such Person’s business;

(g) expired financing statements and financing statements filed for precautionary purposes in respect of operating leases; and

(h) Liens in favor of banks which arise under Article 4 of the New York UCC on items in collection and documents relating thereto and proceeds thereof.

“Debt Issuance” means the incurrence of Indebtedness of the type specified in clause (a) and (b) of the definition of “Indebtedness” by TNCLP or any of its Subsidiaries.

“Default” means any event which with the passing of time or the giving of notice or both would become an Event of Default.

“Deposit Account Control Agreement” has the meaning specified in the Pledge and Security Agreement.

“Disbursement Accounts” means the bank accounts identified as such on Schedule 7.12 and each other account maintained from time to time by the Borrower with a bank acceptable to the Administrative Agent for the purposes of paying disbursements.

“Document” has the meaning specified in the Pledge and Security Agreement.

“Documentary Letter of Credit” means any letter of credit issued by an Issuer pursuant to Section 2.4 for the account of the Borrower, which is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Borrower or any of its Subsidiaries in the ordinary course of its business.

“Dollar Equivalent” means (a) with respect to any amount denominated in Dollars, such amount and (b) with respect to any amount denominated in a currency other than Dollars, at the time of determination thereof, the equivalent of such currency in Dollars determined by using the rate of exchange quoted by Citibank or an Affiliate thereof in New York, New York at 11:00 a.m. (New York time) on the date of determination to prime banks in New York for the spot purchase in the New York foreign exchange market of such amount of Dollars with such other currency; provided, however, that with respect to any Letter of Credit Obligations

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which are outstanding in the “Dollar Equivalent” thereof shall be determined as of the beginning of the most recent calendar month.

“Dollars” and the sign “$” each mean the lawful money of the United States of America.

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule II or on the Assignment and Acceptance by which it became a Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Domestic Subsidiary” means with respect to any Person, any Subsidiary of such Person which is organized under the laws of any state of the United States of America or the District of Columbia.

“EBITDA” means, with respect to any Person for any period, an amount equal to (a) Consolidated Net Income of such Person for such period plus (b) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income but without duplication, (i) any provision for income taxes, (ii) interest expense including net costs under Interest Rate Contracts, (iii) loss from extraordinary items, (iv) any aggregate net loss from the sale, exchange or other disposition of capital assets by such Person, (v) any other non-cash loss or other items, (vi) depreciation, depletion and amortization of intangibles or financing or acquisition costs and (vii) income allocation to minority interests minus (c) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income but without duplication, (i) any credit for income tax, (ii) interest income, (iii) gains from extraordinary items for such period, (iv) any aggregate net gain from the sale, exchange or other disposition of capital assets by such Person, (v) any other non-cash gains or other items and (vi) loss allocation to minority interests.

“Effective Date” has the meaning specified in Section 3.1.

“Eligibility Reserves” means, effective as of two Business Days after the date of written notice of any determination thereof to the Borrower by the Administrative Agent, such amounts as the Administrative Agent, in its sole discretion, may from time to time establish against the gross amounts of Eligible Receivables, Eligible Non-Spare Parts Inventory and Eligible Spare Parts Inventory of the Borrower to reflect risks or contingencies arising after the Effective Date which may affect any one or class of such items and which have not already been taken into account in the calculation of the Borrowing Base (including in respect of (a) preferential debts which under applicable law would be prior to the claims of the Secured Parties and (b) Inventory which is subject to title retention claims of the suppliers thereof); provided, however, that the Administrative Agent shall apply criteria in respect of the foregoing in accordance with its customary practice with regard to similar credit facilities.

“Eligible Assignee” means (a) a Lender or any Affiliate or Approved Fund of such Lender; (b) a commercial bank having total assets in excess of $5,000,000,000; (c) a finance company, insurance company, other financial institution or fund reasonably acceptable to the Administrative Agent, which is regularly engaged in making, purchasing or investing in loans including, with respect to any proposed assignment of all or a portion of a Lender’s Revolving Credit Commitment, revolving loans, and having total assets in excess of $250,000,000 or, to the extent assets are less than such amount, a finance company, insurance company, other financial

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institution or fund, reasonably acceptable to the Administrative Agent and the Borrower; or (d) a savings and loan association or savings bank organized under the laws of the United States or any State thereof which has a net worth, determined in accordance with GAAP, in excess of $250,000,000.

“Eligible Finished Products” means Inventory comprised of finished products (which are classified, in accordance with past practice, as Eligible Finished Products in the Borrower’ accounting systems) and is otherwise Eligible Inventory.

“Eligible Inventory” means the Inventory of the Borrower (other than any Inventory which has been consigned by the Borrower), including raw materials and finished goods (a) which is owned solely by the Borrower, (b) with respect to which the Administrative Agent has a valid and perfected first priority Lien, (c) with respect to which no warranty contained in any of the Loan Documents has been breached, (d) which is not, in the Administrative Agent’s sole discretion, obsolete or unmerchantable, (e) with respect to which (in respect of any Inventory labeled with a brand name or trademark and sold by the Borrower pursuant to a trademark owned by the Borrower or a license granted to the Borrower) the Administrative Agent would have rights under such trademark or license pursuant to the Pledge and Security Agreement or other agreement satisfactory to the Administrative Agent to sell such Inventory in connection with a liquidation thereof, and (f) which the Administrative Agent deems to be Eligible Inventory based on such credit and collateral considerations as the Administrative Agent may, in its sole discretion, deem appropriate. No Inventory of the Borrower shall be Eligible Inventory if such Inventory is located, stored, used or held at the premises of a third party or premises that have been mortgaged in favor of a third party unless (i)(A) the Administrative Agent shall have received a Mortgagee Waiver (to the extent the subject Inventory is not located, stored or held at premises covered by the Senior Secured Note Intercreditor Agreement), Landlord Waiver or Bailee’s Letter or (B) in the case of Inventory located on a leased or mortgaged premises, an Eligibility Reserve satisfactory to the Administrative Agent shall have been established with respect thereto and (ii) an appropriate UCC-1 financing statement shall have been executed and properly filed in the United States.

“Eligible Non-Spare Parts Inventory” means Inventory comprised of Eligible Finished Products and Eligible Raw Materials.

“Eligible Raw Materials” means Inventory comprised of raw materials (which are classified in accordance with past practice, as raw materials in the Borrower’s accounting systems) and which is otherwise Eligible Inventory.

“Eligible Receivables” means the gross outstanding balance of those Accounts of the Borrower which arise out of sales of merchandise, goods or services in the ordinary course of business, which are made by the Borrower to a Person that is not an Affiliate of the Borrower, which are not in dispute, and which constitute Collateral in which the Administrative Agent has a fully perfected first priority Lien; provided, however, that an Account shall in no event be an Eligible Receivable if:

(a) such Account is outstanding more than 60 days past the original due date thereof or more than 90 days from the invoice date thereof; or

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(b) any warranty contained in this Agreement or any other Loan Document with respect to such specific Account is not true and correct with respect to such Account; or

(c) the Account Debtor on such Account has disputed liability or made any claim with respect to any other Account due from such Account Debtor to the Borrower but only to the extent of such dispute or claim; or

(d) the Account Debtor on such Account has: (i) filed a petition for bankruptcy or any other relief under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors; (ii) made an assignment for the benefit of creditors; (iii) had filed against it any petition or other application for relief under the Bankruptcy Code or any such other law; (iv) has failed, suspended business operations, become insolvent, called a meeting of its creditors for the purpose of obtaining any financial concession or accommodation; or (v) had or suffered a receiver or a trustee to be appointed for all or a significant portion of its assets or affairs; or

(e) the Account Debtor on such Account or any of its Affiliates is also a supplier to or creditor of the Borrower unless, and to the extent that (in respect of such Account), such supplier or creditor has executed a no-offset letter satisfactory to the Administrative Agent, in its sole discretion; or

(f) the sale represented by such Account is to an Account Debtor located outside the United States or Canada, unless the sale is on letter of credit or acceptance terms acceptable to the Administrative Agent, in its sole judgment; or

(g) the sale to such Account Debtor on such Account is on a bill-on-hold, guaranteed sale, sale-and-return, sale-on-approval or consignment basis; or

(h) such Account is subject to a Lien in favor of any Person other than the Administrative Agent for the benefit of the Secured Parties; or

(i) such Account is (but only to the extent that it is) subject to any deduction, offset, counterclaim, return privilege or other conditions other than volume sales discounts given in the ordinary course of the Borrower’s business; or

(j) the Account Debtor on such Account is a Governmental Authority, unless the Borrower has assigned its rights to payment of such Account to the Administrative Agent pursuant to the Assignment of Claims Act of 1940, as amended, in the case of a federal Governmental Authority, and pursuant to applicable law, if any, in the case of any other Governmental Authority, and such assignment has been accepted and acknowledged by the appropriate government officers; or

(k) the Administrative Agent, in accordance with its customary criteria, determines, in its sole discretion exercised reasonably, that such Account may not be paid or otherwise is ineligible; or

(l) 50% or more of the outstanding Accounts of the Account Debtor have become, or have been determined by the Administrative Agent, in accordance with the provisions hereof, to be, ineligible; or

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(m) the sale represented by such Account is denominated in a currency other than Dollars; or

(n) such Account is not evidenced by an invoice or other writing in form acceptable to the Administrative Agent, in its sole discretion; or

(o) the Borrower, in order to be entitled to collect such Account, is required to perform any additional service for, or perform or incur any additional obligation to, the Person to whom or to which it was made.

“Eligible Spare Parts Inventory” means Inventory comprised of spare parts (which are classified, in accordance with past practice, as spare parts in the Borrower’s accounting system) and which is otherwise Eligible Inventory.

“Environmental Laws” means all applicable Requirements of Law now or hereafter in effect, as amended or supplemented from time to time, relating to pollution or the regulation or protection of occupational health and safety, the environment or natural resources, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C. § 180 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. § 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. § 6901 et seq.); the Toxic Substance Control Act, as amended (42 U.S.C. § 7401 et seq.); the Clean Air Act, as amended (42 U.S.C. § 740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. § 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. § 651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. § 300f et seq.); including the Industrial Site Recovery Act (N.J. Stat. Ann. § 13:1K-6 et seq.) and any similar Requirement of Law of any relevant jurisdiction.

“Environmental Liabilities and Costs” means, with respect to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including any thereof arising under any Environmental Law, Permit, order or agreement with any Governmental Authority or other Person, which relate to any environmental, health or safety condition or a Release or threatened Release, and result from the past, present or future operations of, or ownership of property by, such Person or any of its Subsidiaries.

“Environmental Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.

“Equipment” has the meaning specified in the Pledge and Security Agreement.

“Equity Issuance” means the issue or sale of any Stock, of TNCLP, or any of its Subsidiaries.

“ERISA” means the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time.

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“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control or treated as a single employer with TNCLP or any of its Material Subsidiaries within the meaning of Section 414 (b), (c), (m) or (o) of the Code.

“ERISA Event” means (i) a reportable event described in Section 4043(b) or 4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a Title IV Plan or a Multiemployer Plan as to which the 30 day notice requirement has not been waived under applicable regulations; (ii) the withdrawal of TNCLP, any of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of the TNCLP, any of its Subsidiaries or any ERISA Affiliate from any Multiemployer Plan; (iv) notice of reorganization or insolvency of a Multiemployer Plan; (v) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (vi) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (vii) the failure to make any required contribution to a Title IV Plan or Multiemployer Plan; (viii) the imposition of a lien under Section 412 of the Code or Section 302 of ERISA on TNCLP or any of its Subsidiaries or any ERISA Affiliate; or (ix) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board, as in effect from time to time.

“Eurodollar Base Rate” means the rate determined by the Administrative Agent to be the offered rate for deposits in Dollars for the applicable Interest Period which appears on the Dow Jones Markets Telerate Page 3750 as of 11:00 a.m., London time, on the second full Business Day next preceding the first day of each Interest Period. In the event that such rate does not appear on the Dow Jones Markets Telerate Page 3750 (or otherwise on the Dow Jones Markets screen), the Eurodollar Base Rate for the purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent, or, in the absence of such availability, the Eurodollar Base Rate shall be the rate of interest determined by the Administrative Agent to be the rate per annum at which deposits in Dollars are offered by the principal office of Citibank in London to major banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Loan of Citibank for a period equal to such Interest Period.

“Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule II or on the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Eurodollar Rate” means, with respect to any Interest Period for any Eurodollar Rate Loan, an interest rate per annum equal to the rate per annum obtained by dividing (a) the Eurodollar Base Rate by (b) a percentage equal to 100% minus the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement

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(including any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities which includes deposits by reference to which the Eurodollar Rate is determined) having a term equal to such Interest Period.

“Eurodollar Rate Loan” means any Loan that, for an Interest Period, bears interest based on the Eurodollar Rate.

“Event of Default” has the meaning specified in Section 9.1.

“Existing Credit Agreement” has the meaning specified in the recitals to this Agreement.

“Fair Market Value” means (a) with respect to any asset or group of assets (other than a marketable Security) at any date, the value of the consideration obtainable in a sale of such asset at such date assuming a sale by a willing seller to a willing purchaser dealing at arm’s length and arranged in an orderly manner over a reasonable period of time having regard to the nature and characteristics of such asset, as reasonably determined by the Board of Directors of the applicable Loan Party, or, if such asset shall have been the subject of a relatively contemporaneous appraisal by an independent third party appraiser, the basic assumptions underlying which have not materially changed since its date, the value set forth in such appraisal, and (b) with respect to any marketable Security at any date, the closing sale price of such Security on the Business Day next preceding such date, as appearing in any published list of any national securities exchange or the Nasdaq Stock Market or, if there is no such closing sale price of such Security, the final price for the purchase of such Security at face value quoted on such business day by a financial institution of recognized standing which regularly deals in securities of such type selected by the Administrative Agent.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System, or any successor thereto.

“Fee Letter” shall mean the letter dated as of the November     , 2004, addressed to the Borrower from CUSA and the Arranger and accepted by the Borrower, with respect to certain fees to be paid from time to time to the Lenders, CUSA and the Arranger.

“Financial Statements” means the financial statements of TNCLP and its Subsidiaries delivered in accordance with Sections 4.4 and 6.1.

“Fiscal Quarter” means each of the three month fiscal periods of TNCLP ending on March 31, June 30, September 30 and December 31.

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“Fiscal Year” means the twelve month fiscal period of TNCLP ending on December 31.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination.

“General Intangible” has the meaning specified in the Pledge and Security Agreement.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guaranty” means the Guaranty dated as of the Effective Date, in substantially the form of Exhibit H, among each of the Secured Guarantors, the Unsecured Guarantors and the Administrative Agent in respect of each Secured Guarantor’s and each Unsecured Guarantor’s guaranty of the Obligations.

“Guaranty Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness of another Person, if the purpose or intent of such Person in incurring the Guaranty Obligation is to provide assurance to the obligee of such Indebtedness that such Indebtedness will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Indebtedness will be protected (in whole or in part) against loss in respect thereof including, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of Indebtedness of another Person and (b) any liability of such Person for Indebtedness of another Person through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to provide funds for the payment or discharge of such Indebtedness (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency or any balance sheet item, level of income or financial condition of another Person, (iii) to make take-or-pay or similar payments, if required, regardless of non-performance by any other party or parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, or (v) to supply funds to or in any other manner invest in such other Person (including to pay for property or services irrespective of whether such property is received or such services are rendered), if in the case of any agreement described under subclause (i), (ii), (iii), (iv) or (v) of clause (b) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Guaranty Obligation shall be equal to the amount of the Indebtedness so guaranteed or otherwise supported.

“Hedging Contracts” means all Interest Rate Contracts, foreign exchange contracts, currency swap or option agreements, forward contracts, commodity swap, purchase or option agreements, other commodity price hedging arrangements, and all other similar

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agreements or arrangements designed to alter the risks of any Person arising from fluctuations in currency values or commodity prices.

“Indebtedness” of any Person means without duplication (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments or which bear interest, (c) all reimbursement and all obligations with respect to letters of credit, bankers’ acceptances, surety bonds and performance bonds, whether or not matured, (d) all indebtedness for the deferred purchase price of property or services, other than trade payables and accrued expenses incurred in the ordinary course of business which are not overdue, (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (f) all Capital Lease Obligations and Major Operating Lease Obligations of such Person, (g) all Guaranty Obligations of such Person, (h) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Stock or Stock Equivalents of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (i) all payments that such Person would have to make in the event of an early termination on the date Indebtedness of such Person is being determined in respect of Hedging Contracts of such Person and (j) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including Accounts and General Intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

“Indemnitees” has the meaning specified in Section 11.4.

“Indentures” means (a) the Senior Second Lien Note Indenture and (b) the Senior Secured Note Indenture.

“Instrument” has the meaning specified in the Pledge and Security Agreement.

“Intercompany Indebtedness” means Indebtedness among TNCLP and its Subsidiaries.

“Interest Period” means, in the case of any Eurodollar Rate Loan, (a) initially, the period commencing on the date such Eurodollar Rate Loan is made or on the date of conversion of a Base Rate Loan to such Eurodollar Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its Notice of Borrowing or Notice of Conversion or Continuation given to the Administrative Agent pursuant to Section 2.2 or 2.11, and (b) thereafter, if such Loan is continued, in whole or in part, as a Eurodollar Rate Loan pursuant to Section 2.11, a period commencing on the last day of the immediately preceding Interest Period therefor and ending one, two, three or six months thereafter, as selected by the Borrower in its Notice of Conversion or Continuation given to the Administrative Agent pursuant to Section 2.11; provided, however, that all of the foregoing provisions relating to Interest Periods in respect of Eurodollar Rate Loans are subject to the following:

(i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless the result of such extension would be to extend such Interest Period into

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another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day;

(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month;

(iii) the Borrower may not select any Interest Period that ends after the date of a scheduled principal payment on the Loans as set forth in Article II unless, after giving effect to such selection, the aggregate unpaid principal amount of the Loans for which Interest Periods end after such scheduled principal payment shall be equal to or less than the principal amount to which the Loans are required to be reduced after such scheduled principal payment is made; and

(iv) there shall be outstanding at any one time no more than seven Interest Periods in the aggregate.

“Interest Rate Contracts” means all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and interest rate insurance.

“Inventory” has the meaning specified in the Pledge and Security Agreement.

“Investment” means, with respect to any Person, (a) any purchase or other acquisition by that Person of (i) any Security issued by, (ii) a beneficial interest in any Security issued by, or (iii) any other equity ownership interest in, any other Person, (b) any purchase by that Person of all or a significant part of the assets of a business conducted by another Person, (c) any loan, advance (other than prepaid expenses, accounts receivable and similar items made or incurred in the ordinary course of business as presently conducted), or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business and (d) any deposit with a financial institution.

“Investment Property” has the meaning specified in the Pledge and Security Agreement.

“IRS” means the Internal Revenue Service of the United States or any successor thereto.

“Issuer” means each Lender or Affiliate of a Lender that (a) is listed on the signature pages hereof as an “Issuer” or (b) hereafter becomes an Issuer with the approval of the Administrative Agent and the Borrower by agreeing pursuant to an agreement with and in form and substance satisfactory to the Administrative Agent and the Borrower to be bound by the terms hereof applicable to Issuers.

“Landlord Waiver” means a letter in form and substance reasonably acceptable to the Administrative Agent, executed by a landlord in respect of Inventory of the Borrower located at any leased premises of the Borrower pursuant to which such landlord, among other things, waives or subordinates any Lien such landlord may have in respect of such Inventory.

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“L/C Cash Collateral Account” has the meaning specified in Section 9.3.

“Leases” means, with respect to any Person, all of those leasehold estates in real property of such Person, as lessee, as such may be amended, supplemented or otherwise modified from time to time.

“Lender” means each financial institution or other entity that (a) is listed on the signature pages hereof as a “Lender” or (b) from time to time becomes a party hereto by execution of an Assignment and Acceptance.

“Letter of Credit” means any letter of credit issued pursuant to Section 2.4.

“Letter of Credit Obligations” means, at any time, the aggregate of all liabilities at such time of the Borrower to all Issuers with respect to Letters of Credit, whether or not any such liability is contingent, and includes the sum of (a) the Reimbursement Obligations at such time and (b) the Letter of Credit Undrawn Amounts at such time.

“Letter of Credit Reimbursement Agreement” has the meaning specified in Section 2.4(e).

“Letter of Credit Request” has the meaning specified in Section 2.4(c).

“Letter of Credit Sublimit” has the meaning specified in Section 2.4(a)(iv).

“Letter of Credit Undrawn Amounts” means, at any time, the aggregate Dollar Equivalent of the undrawn face amount of all Letters of Credit outstanding at such time.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or other obligation, including any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction naming the owner of the asset to which such Lien relates as debtor but excluding any right of set-off.

“Loan” means any loan made by any Lender under this Agreement, including each Revolving Loan and Swing Loan.

“Loan Documents” means, collectively, this Agreement, the Guaranty, the Pledge and Security Agreement, any Notes, the Fee Letter, each Letter of Credit Reimbursement Agreement, each Hedging Contract to which a Lender or an Affiliate of a Lender is a party, each agreement pursuant to which a Lender or an Affiliate of a Lender provides cash management services to a Loan Party, the Loan Purchase Agreement, the Collateral Documents, and each Assignment and Acceptance and each certificate, agreement or document executed by a Loan Party and delivered to the Administrative Agent or any Lender in connection with or pursuant to any of the foregoing.

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“Loan Party” means the Borrower, each Secured Guarantor and each other Subsidiary of TNCLP that executes and delivers a Loan Document.

“Loan Purchase Agreement” means the Loan Purchase Agreement dated as of the Effective Date, in substantially the form of Exhibit J, between the Administrative Agent and Terra Industries.

“Lockbox” has the meaning specified in each applicable Deposit Account Control Agreement.

“Major Operating Lease Obligations” means, in respect of any Person, all obligations of such Person under an operating lease to pay required termination payments or like payments in an amount exceeding $7,000,000 and in an amount at least equal to 75% of the original acquisition cost of the property leased thereunder.

“Management Agreements” means each management agreement between Terra Industries and/or any of its Subsidiaries and other Persons providing for the performance by Terra Industries or any such Subsidiary of certain treasury, purchasing, legal and/or other services for TNCLP and its Subsidiaries and such other Persons, or such agreements as are in effect from time to time.

“Material Adverse Change” means a material adverse change in any of (a) the business, condition (financial or otherwise), operations, performance or properties of the Borrower, individually, or TNCLP and its Subsidiaries, taken as a whole, (b) the legality, validity or enforceability of any Loan Document, (c) the perfection or priority of the Liens granted pursuant to the Collateral Documents (except as expressly permitted hereby or thereby), (d) the ability of the Borrower to repay the Obligations or of the Loan Parties to perform their obligations under the Loan Documents, or (e) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents, except, in the case of this clause (e), with respect to the Guaranty of any Unsecured Guarantor to the extent attributable to a bankruptcy or other similar event of the type described in Section 9.1(f) with respect to such Unsecured Guarantor.

“Material Adverse Effect” means an effect that results in or causes, or could reasonably be expected to result in or cause a Material Adverse Change.

“Material Documents” means the Management Agreements.

“Material Subsidiary” means, at any time, the Borrower, each Subsidiary Guarantor and any direct or indirect Subsidiary of TNCLP owning at least $500,000 of assets or generating at least $100,000 gross income for the Fiscal Year most recently ended.

“Maximum Credit” means, at any time, (a) the lesser of (i) the Revolving Credit Commitments in effect at such time and (ii) the sum of the aggregate Borrowing Base at such time, minus (b) the aggregate amount of Availability Reserves in effect at such time.

“Mortgage” means a mortgage, deed of trust, charge, debenture, fixture filing or other real estate security document made or required to be made under any Indenture by any Loan Party, pursuant to which such Loan Party grants to the Senior Secured Note Trustee a first priority Lien (subject only to Liens permitted by the applicable mortgage, deed of trust, charge, debenture, fixture filing or other real estate security document) on Real Property.

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“Mortgagee Waiver” means a letter in form and substance reasonably acceptable to the Administrative Agent, executed by a mortgagee in respect of Inventory of the Borrower located at any mortgaged premises of the Borrower.

“Multiemployer Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which TNCLP, any of its Subsidiaries or any ERISA Affiliate has any obligation or liability, contingent or otherwise.

“Net Cash Proceeds” means (a) proceeds received by TNCLP or its Subsidiaries after the Effective Date in cash or Cash Equivalents from any Asset Sale of property constituting Collateral, other than Asset Sales permitted under clauses (a) through (e) of Section 8.4, net of (x) the reasonable cash costs of sale, assignment or other disposition, (y) taxes paid or payable within 22 months of the date of such Asset Sale as a result thereof (provided, however, that any such taxes which are so payable shall be deposited in a Cash Collateral Account acceptable to the Administrative Agent pending payment) and (z) any amount required to be paid or prepaid on Indebtedness (other than the Obligations) secured by the assets subject to such Asset Sale; provided, however, that the evidence of each of (x), (y) and (z) are provided to the Administrative Agent in form and substance satisfactory to it; (b) proceeds of insurance covering property constituting Collateral (net of (i) reasonable expenses incurred directly in the collection thereof and (ii) (to the extent permitted hereby) contractually required payments of Indebtedness (other than the Obligations) secured by a Lien on the insured property (that is prior to any Lien granted under the Collateral Documents)) on account of the loss of or damage to any such assets or property, and payments of compensation for any such assets or property taken by expropriation, condemnation or eminent domain, to the extent such proceeds or payments exceed $2,000,000 in the aggregate; and (c) proceeds received after the Effective Date by TNCLP or its Subsidiaries in cash or Cash Equivalents from (i) any Equity Issuance, or (ii) any Debt Issuance (except for Indebtedness permitted under clauses (c) through (i) of Section 8.1), in each case net of brokers’ and advisors’ fees and other costs incurred in connection with such transaction; provided, however, that evidence of such costs is provided to the Administrative Agent.

“Non-Funding Lender” has the meaning specified in Section 2.2(d).

“Non-Material Real Property” means any parcel of Real Property which has a Fair Market Value of less than $500,000 or (if leasehold) the lease rental payments in respect thereof are less than $500,000 per annum.

“Non-U.S. Lender” means each Lender or Administrative Agent that is not a United States person as defined in Section 7701(a)(30) of the Code.

“Note” means a promissory note of the Borrower, substantially in the form of Exhibit B, payable to the order of any Lender in a principal amount equal to the amount of such Lender’s Revolving Credit Commitment evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from the Revolving Loans owing to such Lender.

“Notice of Borrowing” has the meaning specified in Section 2.2(a).

“Notice of Conversion or Continuation” has the meaning specified in Section 2.11.

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“Obligations” means the Loans, the Letter of Credit Obligations and all other advances, debts, liabilities, obligations, covenants and duties owing by the Loan Parties to the Administrative Agent, any Lender, any Issuer, any Affiliate of any of them or any Indemnitee, of every type and description, present or future, arising under this Agreement or under any other Loan Document or under or in respect of any credit cards issued for the account of such Person by the Administrative Agent or any of its Affiliates, by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification, foreign exchange transaction, Hedging Contract, cash management service or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising (including arising after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or similar proceeding, regardless of whether the same is allowable as a claim in such proceeding or by applicable law) and however acquired and whether or not evidenced by any note, guaranty or other instrument or for the payment of money. The term “Obligations” includes all letter of credit, cash management and other fees and expenses and all interest, charges, expenses, fees, attorneys’ fees and disbursements and other sums chargeable to the Loan Parties under this Agreement or any other Loan Document and all obligations of the Loan Parties to cash collateralize Letter of Credit Obligations.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

“Permit” means any permit, approval, authorization, license, variance or permission required from a Governmental Authority under an applicable Requirement of Law.

“Person” means an individual, partnership, corporation (including a business trust), joint stock company, estate, trust, limited liability company, unincorporated association, joint venture or other entity, or a Governmental Authority.

“Pledge and Security Agreement” means the Pledge and Security Agreement dated as of the Effective Date, in substantially the form of Exhibit I, among the Borrower and each Secured Guarantor as grantors, and the Administrative Agent.

“Pro Forma Balance Sheet” has the meaning specified in Section 4.4(d).

“Projections” means (i) up until the delivery of any update or restatement thereof pursuant to Section 6.1(e), those financial projections contained in Schedule III, covering the monthly financial projections through December 31, 2004 and Fiscal Years ending in 2005 through 2009 or (ii) thereafter, the most recent update or restatement of such projections delivered pursuant to Section 6.1(e).

“Purchase Event” means the occurrence of any of the following:

(a) TNCLP or any Subsidiary of TNCLP has any outstanding Indebtedness owing to Terra Industries or any of its Subsidiaries, other than Indebtedness permitted to be outstanding under Section 8.1 (except clause (k) thereof); or

(b) Liens on or with respect to any property of TNCLP or any Subsidiary of TNCLP have been created in favor of Terra Industries or any of its Subsidiaries, other than Liens permitted under Section 8.2 (except clause (j) thereof); or

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(c) TNCLP or any Subsidiary of TNCLP has made any Investments in Terra Industries or any of its Subsidiaries, other than Investments permitted under Section 8.3 (except clause (j) thereof); or

(d) TNCLP or any Subsidiary of TNCLP has sold, transferred or otherwise disposed of any of its property to Terra Industries or any of its Subsidiaries, other than sales, transfers or other dispositions permitted under Section 8.4 (except clause (g) thereof); or

(e) TNCLP or any of Subsidiary of TNLP has received, declared, ordered, paid, made or set apart any Restricted Payment other than Restricted Payments permitted under Section 8.5 (except clause (c) thereof).

“Ratable Portion” or “ratably” means, with respect to any Lender, the percentage obtained by dividing (a) the Revolving Credit Commitment of such Lender by (b) the aggregate Revolving Credit Commitments of all Lenders (or, at any time after the Revolving Credit Termination Date, the percentage obtained by dividing the aggregate outstanding principal balance of the Revolving Credit Outstandings owing to such Lender by the aggregate outstanding principal balance of the Revolving Credit Outstandings owing to all Lenders).

“Real Property” means all of those plots, pieces or parcels of land now owned, leased or hereafter acquired or leased by any Loan Party or any of its Subsidiaries (the “Land”), together with the right, title and interest of such Loan Party or Subsidiary, if any, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, the air space and development rights pertaining to the Land and the right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments and appurtenances belonging or in any way appertaining thereto, all fixtures, all easements now or hereafter benefiting the Land and all royalties and rights appertaining to the use and enjoyment of the Land, including all alley, vault, drainage, mineral, water, oil and gas rights, together with all of the buildings and other improvements now or hereafter erected on the Land, and any fixtures appurtenant thereto.

“Redemption Notice Period” has the meaning specified in Section 3.1(c).

“Register” has the meaning specified in Section 11.2(c).

“Reimbursement Obligations” means the Dollar Equivalent of all matured reimbursement or repayment obligations of the Borrower to any Issuer with respect to amounts drawn under Letters of Credit.

“Release” means, with respect to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration, in each case, of any Contaminant into the environment or into or out of any property owned by such Person, including the movement of Contaminants through or in the air, soil, surface water, ground water or property.

“Remedial Action” means all actions required to (a) clean up, remove, treat or in any other way address any Release of any Contaminant in the environment, (b) prevent the Release or threat of Release or minimize the further Release so that a Contaminant does not

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migrate or endanger or threaten to endanger public health or welfare or the environment or (c) perform pre-remedial studies and investigations and post-remedial monitoring and care.

“Requirement of Law” means, with respect to any Person, all federal, provincial, state, local and foreign laws, rules and regulations, orders, judgments, decrees and other determinations of any Governmental Authority or arbitrator, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Requisite Lenders” means those Lenders having more than fifty percent (50%) of the aggregate outstanding amount of the aggregate Revolving Credit Commitments or, after the Revolving Credit Termination Date, the aggregate Revolving Credit Outstandings. Prior to the Revolving Credit Termination Date, a Non-Funding Lender shall not be included in the calculation of “Requisite Lenders”.

“Responsible Officer” means, with respect to any Person, any of the principal executive officers, managing members or general partners of such Person, but in any event, with respect to financial matters, the chief financial officer, treasurer or controller of such Person.

“Restricted Payment” means (a) any dividend or other distribution, direct or indirect, on account of any Stock or Stock Equivalents of TNCLP or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in Stock or Stock Equivalents or a dividend or distribution payable solely to the Borrower and/or one or more Subsidiary Guarantors, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Stock or Stock Equivalents of TNCLP or any of its Subsidiaries now or hereafter outstanding other than one payable solely to TNCLP and/or one or more Secured Guarantors or any cashless exercise of warrants or options in respect of the foregoing, and (c) any payment or prepayment of principal, premium (if any), interest, fees (including fees to obtain any waiver or consent in connection with any Security) or other charges on, or redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Debt, other than any required redemptions, retirement, purchases or other payments, in each case to the extent permitted to be made by the terms of such Indebtedness after giving effect to any applicable subordination provisions.

“Revolving Credit Commitment” means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and acquire interests in other Revolving Credit Outstandings in the aggregate principal amount outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule I under the caption “Revolving Credit Commitment,” as amended to reflect each Assignment and Acceptance executed by such Lender and as such amount may be reduced pursuant to this Agreement.

“Revolving Credit Facility” means the Revolving Credit Commitments and the provisions herein related to the Revolving Loans, Swing Loans and Letters of Credit.

“Revolving Credit Outstandings” means, at any particular time, the sum of (a) the principal amount of the Revolving Loans outstanding at such time plus (b) the Letter of Credit Obligations outstanding at such time plus (c) the principal amount of Swing Loans outstanding at such time.

“Revolving Credit Termination Date” shall mean the earliest of (a) the Scheduled Termination Date, (b) the date of termination of the Revolving Credit Commitments pursuant to

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Section 2.5 and (c) the date on which the Obligations become due and payable pursuant to Section 9.2.

“Revolving Loan” has the meaning specified in Section 2.1.

“Scheduled Termination Date” means June 30, 2008.

“Seasonal Eligible Inventory Rate” means, in any calendar month with respect to each type of Eligible Non-Spare Parts Inventory set forth below, the applicable percentage set forth opposite such month under such type of Eligible Non-Spare Parts Inventory:

Calendar Month	Ammonia/ Ammonia Nitrate	UAN 28	Urea	Natural Gas	Precious Metals	Other
January	71%	56%	58%	56%	60%	64%
February	75%	59%	60%	56%	60%	68%
March	75%	59%	60%	56%	60%	68%
April	75%	59%	60%	56%	60%	68%
May	75%	59%	60%	56%	60%	68%
June	75%	59%	60%	56%	60%	68%
July	75%	59%	60%	56%	60%	68%
August	71%	56%	58%	56%	60%	64%
September	71%	56%	58%	56%	60%	64%
October	71%	56%	58%	56%	60%	64%
November	71%	56%	58%	56%	60%	64%
December	71%	56%	58%	56%	60%	64%

“Secured Guarantors” means TNCLP and its Domestic Subsidiaries.

“Secured Parties” means the Lenders, the Issuers, the Administrative Agent and any other holder of any of the Obligations.

“Security” means any Stock, Stock Equivalent, voting trust certificate, bond, debenture, note or other evidence of Indebtedness, whether secured, unsecured, convertible or subordinated, or any certificate of interest, share or participation in, or any temporary or interim certificate for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing, but shall not include any evidence of the Obligations.

“Senior Second Lien Note Indenture” means the 11 1/2% Senior Note Indenture, dated as of May 21, 2003 between Terra Capital, certain of Terra Capital’s Subsidiaries and the Trustee party thereto.

“Senior Secured Note Indenture” means the 12-7/8% Senior Note Indenture dated October 10, 2001 between Terra Capital, certain of Terra Capital’s Subsidiaries and the Trustee party thereto.

“Solvent” means, with respect to any Person, that the value of the assets of such Person (both at fair value and present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and does not have unreasonably small capital. In computing the

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amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Standby Letter of Credit” means any letter of credit issued pursuant to Section 2.4 which is not a Documentary Letter of Credit.

“Stock” means shares of capital stock (whether denominated as common stock or preferred stock), beneficial, partnership or membership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity, whether voting or non-voting.

“Stock Equivalents” means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently convertible, exchangeable or exercisable.

“Subordinated Debt” means all Indebtedness of TNCLP and its Subsidiaries which is subordinated in right of payment to the prior payment in full of the Obligations.

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company or other business entity (a) of which an aggregate of more than 50% of the outstanding Voting Stock is, at the time, directly or indirectly, owned or controlled by such Person and/or one or more Subsidiaries of such Person, or (b) the ordinary power to appoint the majority of the members of the board of directors, managers, trustees or other controlling Person of which is held by such Person and/or one or more Subsidiaries of such Person.

“Subsidiary Guarantor” means, in respect of the Borrower, a Subsidiary of the Borrower which has guaranteed all of the Borrower’s Obligations.

“Swing Loan” has the meaning specified in Section 2.3.

“Swing Loan Borrowing” means a borrowing consisting of a Swing Loan.

“Swing Loan Lender” means CUSA.

“Swing Loan Request” has the meaning specified in Section 2.3(b).

“Syndication Agent” has the meaning specified at the beginning of this Agreement.

“Tax Affiliate” means, with respect to any Person, (a) any Subsidiary of such Person, and (b) any Affiliate of such Person with which such Person files or is eligible to file consolidated, combined or unitary Tax Returns.

“Tax Return” has the meaning specified in Section 4.8(a).

“Taxes” has the meaning specified in Section 2.16(a).

“Terra Capital” means Terra Capital, Inc., a Delaware corporation and a wholly owned subsidiary of Terra Industries.

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“Terra Capital Credit Agreement” has the meaning specified in the recitals to this Agreement.

“Terra Capital Holdings” means Terra Capital Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Terra Industries.

“Terra Industries” means Terra Industries Inc., a Maryland corporation.

“Title IV Plan” means a pension plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA to which the Borrower, any of its Subsidiaries or any ERISA Affiliate has any obligation or liability (contingent or otherwise).

“TNCLP” means Terra Nitrogen Company, L.P., a Delaware limited partnership and a Subsidiary of Terra Capital.

“TNCLP Minority Interest Payments” means dividends and distributions which are legally required to be paid to holders of Common Units (other than Terra Industries and its Subsidiaries).

“Total Assets” of any Person means, at any date, the total assets of such Person and its Subsidiaries at such date determined on a consolidated basis in conformity with GAAP minus (a) any minority interest in non-wholly-owned Subsidiaries that would be reflected on a consolidated balance sheet of such person and its Subsidiaries at such date prepared in conformity with GAAP and (b) any Securities issued by such Person held as treasury securities.

“UCC” has the meaning specified in the Pledge and Security Agreement.

“Unfunded Pension Liability” means, with respect to TNCLP at any time, the sum of (a) the amount, if any, by which the present value of all accrued benefits under each Title IV Plan (other than any Title IV Plan subject to Section 4063 of ERISA) exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, as determined as of the most recent valuation date for such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, and (b) the aggregate amount of withdrawal liability that could be assessed under Section 4063 with respect to each Title IV Plan subject to such Section, separately calculated for each such Title IV Plan as of its most recent valuation date and (c) for a period of five years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by the Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of such transaction.

“Unsecured Guarantor” means each of Terra Industries and each Domestic Subsidiary of Terra Industries other than TNCLP and its Subsidiaries.

“Voting Stock” means Stock of any Person having ordinary power to vote in the election of members of the board of directors, managers, trustees or other controlling Persons, of such Person (irrespective of whether, at the time, Stock of any other class or classes of such entity shall have or might have voting power by reason of the happening of any contingency).

“Withdrawal Liability” means, with respect to TNCLP at any time, the aggregate liability incurred (whether or not assessed) with respect to all Multiemployer Plans pursuant to

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Section 4201 of ERISA or for increases in contributions required to be made pursuant to Section 4243 of ERISA.

Section 1.2. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding” and the word “through” means “to and including.”

Section 1.3. Accounting Terms and Principles.

(a) Except as set forth below, all accounting terms not specifically defined herein shall be construed in conformity with GAAP and all accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in conformity with GAAP.

(b) If any change in the accounting principles used in the preparation of the most recent Financial Statements referred to in Section 6.1 is hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successors thereto) and such change is adopted by the Borrower with the agreement of its independent public accountants and results in a change in the results of any of the calculations required by Article V or Article VIII which would not have occurred had such accounting change not occurred, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such change with the desired result that the criteria for evaluating compliance with such covenants by the Borrower shall be the same after such change as if such change had not been made; provided, however, that no change in GAAP that would affect a calculation that measures compliance with any covenant contained in Article V or Article VIII shall be given effect until such provisions are amended to reflect such changes in GAAP.

Section 1.4. Certain Terms.

(a) The words “herein,” “hereof” and “hereunder” and similar words refer to this Agreement as a whole, and not to any particular Article, Section, subsection or clause in, this Agreement.

(b) References in this Agreement to an Exhibit, Schedule, Article, Section, subsection or clause refer to the appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in this Agreement.

(c) Each agreement defined in this Article I shall include all appendices, exhibits and schedules thereto. Unless the prior written consent of the Requisite Lenders (or such other combination of Lenders as may be required hereunder) is required hereunder for an amendment, restatement, supplement or other modification to any such agreement and such consent is not obtained, references in this Agreement to such agreement shall be to such agreement as so amended, restated, supplemented or modified.

(d) References in this Agreement to any statute shall be to such statute as amended or modified and in effect at the time any such reference is operative.

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(e) The term “including” when used in any Loan Document means “including without limitation” except when used in the computation of time periods.

(f) The terms “Lender”, “Issuer” and “Administrative Agent” include their respective successors.

(g) Upon the appointment of any successor Administrative Agent pursuant to Section 10.6, references to CUSA in Section 10.3 and to Citibank in the definitions of Base Rate and Eurodollar Rate shall be deemed to refer to the financial institution then acting as the Administrative Agent or one of its Affiliates if it so designates.

ARTICLE II

THE REVOLVING CREDIT FACILITY

Section 2.1. The Revolving Credit Commitments. On the terms and subject to the conditions contained in this Agreement, each Lender severally agrees to make loans (each, a “Revolving Loan”) to the Borrower from time to time on any Business Day during the period from the Effective Date until the Revolving Credit Termination Date in an aggregate amount not to exceed at any time outstanding for all such loans by such Lender such Lender’s Revolving Credit Commitment; provided, however, that at any time no Lender shall be obligated to make a Revolving Loan to the Borrower (i) in excess of such Lender’s Ratable Portion of the Available Credit of the Borrower at such time and (ii) to the extent that the aggregate Revolving Credit Outstandings, after giving effect to such Revolving Loans, would exceed the Maximum Credit in effect at such time. Within the limits of each Lender’s Revolving Credit Commitment, amounts of Revolving Loans repaid may be reborrowed under this Section 2.1.

Section 2.2. Borrowing Procedures.

(a) Each Borrowing shall be made on notice given by the Borrower to the Administrative Agent not later than 11:00 A.M. (New York City time) (i) one Business Day, in the case of a Borrowing of Base Rate Loans and (ii) three Business Days, in the case of a Borrowing of Eurodollar Rate Loans, prior to the date of the proposed Borrowing; provided, however, in respect of Revolving Loans made on the Effective Date (x) the Notice of Borrowing (as defined below) in respect thereof may be given by 11:00 A.M. (New York City time) on the Effective Date and (y) such Revolving Loans shall be made as Base Rate Loans and thereafter may be converted to Eurodollar Rate Loans pursuant to Section 2.11. Such notice shall be in substantially the form of Exhibit C (a “Notice of Borrowing”), specifying (A) the Borrower, (B) the date of such proposed Borrowing, (C) the amount of the Borrower’s Available Credit (in respect of which the Borrowing Base component thereof may be calculated by reference to the Borrowing Base Certificate most recently delivered to the Administrative Agent hereunder), (D) the amount of the Revolving Loans then outstanding to the Borrower, (E) the aggregate amount of the Borrowing, (F) whether any portion of the proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans and (G) the initial Interest Period or Periods for any such Eurodollar Rate Loans, if applicable. The Revolving Loans shall be made as Base Rate Loans unless (subject to Section 2.14) the Notice of Borrowing specifies that all or a portion thereof shall be Eurodollar Rate Loans. Each Borrowing, or portion thereof, which is a Eurodollar Rate Loan shall be in an aggregate amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. In the event that a Borrower requests a Base Rate Loan in an amount of less

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than $5,000,000 the Administrative Agent may (at its option) require such Borrowing, or the relevant portion thereof, to be made as a Swing Loan; provided, however, that to do so would not conflict with the provisions of Section 2.3.

(b) The Administrative Agent shall give to each Lender prompt notice of the Administrative Agent’s receipt of a Notice of Borrowing and, if Eurodollar Rate Loans are properly requested in such Notice of Borrowing, the applicable interest rate determined pursuant to Section 2.14(a). Each Lender shall, before 11:00 A.M. (New York City time) on the date of the proposed Borrowing, make available to the Administrative Agent at its address referred to in Section 11.8, in immediately available funds, such Lender’s Ratable Portion of such proposed Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Sections 3.1 and 3.2, the Administrative Agent will make such funds available to the Borrower in the Borrower’s Disbursement Account.

(c) Unless the Administrative Agent shall have received notice from any Lender prior to the date of any proposed Borrowing that such Lender will not make available to the Administrative Agent such Lender’s Ratable Portion of such Borrowing, the Administrative Agent may assume that such Lender has made such Ratable Portion available to the Administrative Agent on the date of the Borrowing in accordance with this Section 2.2 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such Ratable Portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for the first Business Day and thereafter at the interest rate applicable at the time to the Loans comprising such Borrowing. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender’s Loan as part of such Borrowing for purposes of this Agreement. If the Borrower shall repay to the Administrative Agent such corresponding amount, such payment shall not relieve such Lender of any obligation it may have hereunder to the Borrower.

(d) The failure of any Lender to make a Revolving Loan or any payment required by it on the date specified (a “Non-Funding Lender”), including any payment in respect of its participation in Swing Loans and Letter of Credit Obligations, shall not relieve any other Lender of its obligations to make such Loan or payment on such date but no such other Lender shall be responsible for the failure of any Non-Funding Lender to make a Revolving Loan or payment required under this Agreement.

Section 2.3. Swing Loans.

(a) On the terms and subject to the conditions contained in this Agreement, the Swing Loan Lender may in its sole discretion make loans (each, a “Swing Loan”) otherwise available to the Borrower under the Revolving Credit Facility from time to time on any Business Day during the period from the Effective Date until the Revolving Credit Termination Date in an aggregate amount at any time outstanding at any time not to exceed the lesser of (i) $5,000,000 and (ii) the Swing Loan Lender’s Ratable Portion of the amount by which the Maximum Credit

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exceeds the Revolving Credit Outstandings at such time; provided, however, that no Swing Loan may be made that, after giving effect thereto, would result in a Borrowing Base Deficiency. The Swing Loan Lender shall be entitled to rely on the most recent Borrowing Base Certificate delivered to the Administrative Agent. Each Swing Loan shall be a Base Rate Loan and (subject to Sections 2.6 and 2.9) shall be repaid upon any Borrowing of a Revolving Loan or from time to time at the discretion of the Swing Loan Lender but in any event no later than the Scheduled Termination Date. Within the limits set forth in the first sentence of this Section 2.3(a), amounts of Swing Loans repaid may be reborrowed under this Section 2.3(a).

(b) In order to request a Swing Loan, the Borrower shall telecopy to the Swing Loan Lender a duly completed request setting forth the requested amount and date of the Swing Loan (a “Swing Loan Request”), to be received by the Swing Loan Lender not later than 1:00 p.m. (New York City time) on the day of the proposed Borrowing. Subject to the terms of this Agreement, the Swing Loan Lender shall make its Swing Loan available to the Borrower on the date of the relevant Swing Loan Request. The Swing Loan Lender shall not make any Swing Loan in the period commencing on the first Business Day after it receives written notice from any Lender that one or more of the conditions precedent contained in Section 3.2 shall not on such date be satisfied, and ending when such conditions are satisfied. The Swing Loan Lender shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 3.2 hereof have been satisfied in connection with the making of any Swing Loan.

(c) The Swing Loan Lender may demand at any time that each Lender pay to the Swing Loan Lender (for its account), in the manner provided in subsection (d) below, such Lender’s Ratable Portion of all or a portion of the outstanding Swing Loans, which demand shall be in writing and shall specify the outstanding principal amount of Swing Loans demanded to be paid.

(d) Each demand referred to in clause (c) above to each Lender shall be accompanied by a statement prepared by the Swing Loan Lender specifying the amount of each Lender’s Ratable Portion of the aggregate principal amount of the Swing Loans stated to be outstanding in such notice or demanded to be paid pursuant to such demand, and, notwithstanding whether or not the conditions precedent set forth in Section 3.2 shall have been satisfied (which conditions precedent the Lenders for this purpose hereby irrevocably waive), each Lender shall, before 11:00 a.m. (New York City time) on the Business Day next succeeding the date of such Lender’s receipt of such written statement, make available to the Swing Loan Lender, in immediately available funds, for the account of the Swing Loan Lender, the amount specified in such statement. Upon such payment by a Lender, such Lender shall, except as provided in clause (f) below, be deemed to have made a Revolving Loan to the Borrower. The Swing Loan Lender shall use such funds to repay the Swing Loans owing to it. To the extent that any Lender fails to make such payment available to the Swing Loan Lender, the Borrower shall repay such Swing Loan on demand.

(e) Upon the occurrence of a Default under Section 9.1(g), each Lender shall acquire, without recourse or warranty, an undivided participation in each Swing Loan otherwise required to be repaid by such Lender pursuant to clause (d) above, which participation shall be in a principal amount equal to such Lender’s Ratable Portion of such Swing Loan, by paying to the Swing Loan Lender on the date on which such Lender would otherwise have been required to make a payment in respect of such Swing Loan pursuant to clause (d) above, in immediately available funds, an amount equal to such Lender’s Ratable Portion of such Swing Loan. If such amount is not in fact made available by such Lender to the Swing Loan Lender on such date, the

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Swing Loan Lender shall be entitled to recover such amount on demand from such Lender together with interest accrued from such date at the Federal Funds Rate for the first Business Day after such payment was due and thereafter at the rate of interest then applicable to Base Rate Loans.

(f) From and after the date on which any Lender is deemed to have made a Revolving Loan pursuant to clause (d) above with respect to any Swing Loan or purchases an undivided participation interest in a Swing Loan pursuant to clause (e) above, the Swing Loan Lender shall promptly distribute to such Lender such Lender’s Ratable Portion of all payments of principal of and interest received by the Swing Loan Lender on account of such Swing Loan other than those received from a Lender pursuant to clause (d) or (e) above.

Section 2.4. Letters of Credit.

(a) On the terms and subject to the conditions contained in this Agreement, each Issuer agrees to issue one or more Letters of Credit at the request of the Borrower for the account of the Borrower from time to time during the period commencing on the Effective Date and ending on the earlier of the Revolving Credit Termination Date and 30 days prior to the Scheduled Termination Date; provided, however, that no Issuer shall be under any obligation to issue any Letter of Credit if:

(i) any order, judgment or decree of any Governmental Authority or arbitrator shall purport by its terms to enjoin or restrain such Issuer from issuing such Letter of Credit or any Requirement of Law applicable to such Issuer or any request or directive (whether or not having the force of law but in relation with which such Issuer customarily complies) from any Governmental Authority with jurisdiction over such Issuer shall prohibit, or request that such Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuer with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuer is not otherwise compensated) not in effect on the date of this Agreement or result in any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuer as of the date of this Agreement and which such Issuer in good faith deems material to it;

(ii) such Issuer shall have received written notice from the Administrative Agent, any Lender or the Borrower, on or prior to the requested date of issuance of such Letter of Credit, that one or more of the applicable conditions contained in Sections 3.1 and 3.2 is not then satisfied;

(iii) after giving effect to the issuance of such Letter of Credit, (A) the aggregate Revolving Credit Outstandings would exceed the Maximum Credit in effect at such time or (B) a Borrowing Base Deficiency would result with respect to the Borrower;

(iv) after giving effect to the issuance of such Letter of Credit, the sum of (i) the Letter of Credit Undrawn Amounts at such time and (ii) the Reimbursement Obligations at such time exceeds $5,000,000 (the “Letter of Credit Sublimit”); or

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(v) any fees due in connection with a requested issuance have not been paid.

None of the Lenders (other than the Issuers in their capacity as such) shall have any obligation to issue any Letter of Credit.

(b) In no event shall the expiration date of any Letter of Credit be more than one year after the date of issuance thereof; provided, however, that (i) any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods and (ii) by not later than the Revolving Credit Termination Date the Borrower shall provide cash collateral in respect of any outstanding Letters of Credit issued for its account at such date in accordance with Section 9.3.

(c) In connection with the issuance of each Letter of Credit, the Borrower shall give the relevant Issuer and the Administrative Agent at least two Business Days’ prior written notice (a “Letter of Credit Request”), in substantially the form of Exhibit D (or in such other written or electronic form as is acceptable to the Issuer), of the requested issuance of such Letter of Credit. Such notice shall be irrevocable and shall specify the Borrower, the Issuer of such Letter of Credit, the stated amount of the Letter of Credit requested, the date of issuance of such requested Letter of Credit (which day shall be a Business Day), the date on which such Letter of Credit is to expire (which date shall be a Business Day), and the Person for whose benefit the requested Letter of Credit is to be issued. Such notice, to be effective, must be received by the relevant Issuer and the Administrative Agent not later than 11:00 A.M. (New York City time) on the second Business Day prior to the requested issuance of such Letter of Credit.

(d) Subject to the satisfaction of the conditions set forth in this Section 2.4, the relevant Issuer shall, on the requested date, issue a Letter of Credit on behalf of the Borrower in accordance with such Issuer’s usual and customary business practices. No Issuer shall issue any Letter of Credit in the period commencing on the first Business Day after it receives written notice from any Lender that one or more of the conditions precedent contained in Section 3.2 shall not on such date be satisfied, and ending when such conditions are satisfied. The relevant Issuer shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 3.2 have been satisfied in connection with the issuance of any Letter of Credit.

(e) If requested by the relevant Issuer, prior to the issuance of each Letter of Credit by such Issuer, and as a condition of such issuance and of the participation of each Lender in the Letter of Credit Obligations arising with respect thereto, the Borrower shall have delivered to such Issuer a letter of credit reimbursement agreement, in such form as the Issuer may employ in its ordinary course of business for its own account (a “Letter of Credit Reimbursement Agreement”), signed by the Borrower, and such other documents or items as may be required pursuant to the terms thereof. In the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall govern.

(f) Each Issuer shall:

(i) give the Administrative Agent written notice (or notice by telephone, confirmed promptly thereafter in writing, which may be by telecopier) of the issuance or renewal of a Letter of Credit issued by it, of all drawings under a Letter of

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Credit issued by it and the payment (or the failure to pay when due) by the Borrower of any Reimbursement Obligation when due (which notice the Administrative Agent shall promptly transmit by telecopy or similar transmission to each Lender).

(ii) upon the request of any Lender, furnish to such Lender copies of any Letter of Credit Reimbursement Agreement to which such Issuer is a party and such other documentation as may reasonably be requested by such Lender; and

(iii) no later than the first Business Day following the last day of each calendar month, provide to the Administrative Agent (and the Administrative Agent shall provide a copy to each Lender requesting the same) and the Borrower separate schedules for Documentary and Standby Letters of Credit issued by it, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate Letter of Credit Obligations outstanding at the end of each month and any information requested by the Borrower or the Administrative Agent relating thereto.

(g) Immediately upon the issuance by an Issuer of a Letter of Credit in accordance with the terms and conditions of this Agreement, such Issuer shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender’s Ratable Portion of the Revolving Credit Commitments, in such Letter of Credit and the obligations of the Borrower with respect thereto (including all Letter of Credit Obligations with respect thereto) and any security therefor and guaranty pertaining thereto.

(h) The Borrower agrees to pay to the Issuer of any Letter of Credit the amount of all Reimbursement Obligations owing to such Issuer under any Letter of Credit issued for its account when such amounts are due and payable, irrespective of any claim, set-off, defense or other right which the Borrower may have at any time against such Issuer or any other Person. In the event that any Issuer makes any payment under any Letter of Credit and the Borrower shall not have repaid such amount to such Issuer pursuant to this clause (h) above or such payment is rescinded or set aside for any reason, such Reimbursement Obligation shall be payable on demand with interest thereon computed from the date on which such Reimbursement Obligation arose to the date of repayment in full at the rate of interest applicable to past due Revolving Loans bearing interest at a rate based on the Base Rate during such period, and such Issuer shall promptly notify the Administrative Agent, which shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuer the amount of such Lender’s Ratable Portion of such payment in Dollars and in immediately available funds. If the Administrative Agent so notifies such Lender prior to 11:00 A.M. (New York City time) on any Business Day, such Lender shall make available to the Administrative Agent for the account of such Issuer its Ratable Portion of the amount of such payment on such Business Day in immediately available funds. Upon such payment by a Lender, such Lender shall, except during the continuance of a Default or Event of Default under Section 9.1(g) and notwithstanding whether or not the conditions precedent set forth in Section 3.2 shall have been satisfied (which conditions precedent the Lenders hereby irrevocably waive) be deemed to have made a Revolving Loan to the Borrower in the principal amount of such payment. Whenever any Issuer receives from a Borrower a payment of a Reimbursement Obligation as to which the Administrative Agent has received for the account of such Issuer any payment from a Lender pursuant to this clause (h) above, such Issuer shall pay to the Administrative Agent and the Administrative Agent shall promptly pay to each Lender, in

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immediately available funds, an amount equal to such Lender’s Ratable Portion of the amount of such payment adjusted, if necessary, to reflect the respective amounts the Lenders have paid in respect of such Reimbursement Obligation.

(i) The Borrower’s obligation to pay each Reimbursement Obligation and the obligations of the Lenders to make payments to the Administrative Agent for the account of the Issuers with respect to Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, including the occurrence of any Default or Event of Default, and irrespective of:

(i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein;

(ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document;

(iii) the existence of any claim, set off, defense or other right that the Borrower, any Loan Party, or other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary under any Letter of Credit, Issuer, the Administrative Agent or any Lender or any other Person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction;

(iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(v) payment by the Issuer under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

(vi) any other act or omission to act or delay of any kind of the Issuer, the Lenders, the Administrative Agent or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower’s obligations hereunder.

Any action taken or omitted to be taken by the relevant Issuer under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not put such Issuer under any resulting liability to the Borrower or any Lender. In determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof, the Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit the Issuer may rely exclusively on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other

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statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute willful misconduct or gross negligence of the Issuer.

(j) If and to the extent such Lender shall not have so made its Ratable Portion of the amount of the payment required by clause (i) above available to the Administrative Agent for the account of such Issuer, such Lender agrees to pay to the Administrative Agent for the account of such Issuer forthwith on demand such amount together with interest thereon, for the first Business Day after payment was first due at the Federal Funds Rate, and thereafter until such amount is repaid to the Administrative Agent for the account of such Issuer, at the rate per annum applicable to Base Rate Loans under the Revolving Credit Facility. The failure of any Lender to make available to the Administrative Agent for the account of such Issuer its Ratable Portion of any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuer its Ratable Portion of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent for the account of the Issuer such other Lender’s Ratable Portion of any such payment.

Section 2.5. Reduction and Termination of the Revolving Credit Commitments. The Borrower may upon at least three Business Days’ prior notice to the Administrative Agent, terminate in whole or reduce in part ratably the unused portions of the respective Revolving Credit Commitments of the Lenders; provided, however, that each partial reduction shall be in the aggregate amount of not less than $10,000,000 or an integral multiple of $5,000,000 in excess thereof.

Section 2.6. Repayment of Loans. The Borrower shall repay the entire unpaid principal amount of its Revolving Loans on the Scheduled Termination Date.

Section 2.7. Evidence of Debt, Obligations of the Borrower.

(a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing Indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement.

(b) The Administrative Agent shall maintain accounts in accordance with its usual practice in which it will record (i) the amount of each Loan made and, if a Eurodollar Rate Loan, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable by the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof, if applicable.

(c) The entries made in the accounts maintained pursuant to clauses (a) and (b) of this Section 2.7 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations recorded therein; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall

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not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms.

(d) Notwithstanding any other provision of the Agreement, in the event that any Lender requests that the Borrower execute and deliver a promissory note or notes payable to such Lender in order to evidence the Indebtedness owing to such Lender by the Borrower hereunder, the Borrower will promptly execute and deliver a Note or Notes to such Lender evidencing any Revolving Loans of such Lender, substantially in the form of Exhibit B, and the interests evidenced by such note or notes shall at all times (including after assignment of all or part of such interests) be evidenced by one or more Notes payable to the order of the payee named therein.

Section 2.8. Optional Prepayments. The Borrower may (in addition to the obligations under Section 2.9(e)), upon, (i) in respect of Swing Loans, same day notice, (ii) in respect of Base Rate Loans, at least one Business Day’s prior notice, and (iii) in respect of Eurodollar Rate Loans, at least four Business Days’ prior notice, to the Administrative Agent, stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of the Revolving Loans in whole or in part; provided, however, that if any prepayment of any Eurodollar Rate Loan is made by the Borrower other than on the last day of an Interest Period for such Loan, the Borrower shall also pay any amounts owing pursuant to Section 2.14(e); and, provided, further, that each partial prepayment (other than in respect of Swing Loans or as required under Section 2.9) shall be in an aggregate principal amount not less than $5,000,000 or integral multiples of $1,000,000 in excess thereof. Upon the giving of such notice of prepayment, the principal amount of Loans specified to be prepaid shall become due and payable on the date specified for such prepayment.

Section 2.9. Mandatory Prepayments.

(a) Upon receipt by TNCLP, the Borrower or any of their respective Subsidiaries of Net Cash Proceeds arising (i) from an Asset Sale or a Debt Issuance, the Borrower shall immediately prepay its Loans (or provide cash collateral in respect of Letters of Credit) such that the aggregate amount of all such payments is equal to 100% of such Net Cash Proceeds, (ii) from an Equity Issuance the Borrower shall immediately prepay its Loans (or provide cash collateral in respect of Letters of Credit) such that the aggregate amount of all such payments is equal to 50% of such Net Cash Proceeds, or (iii) from an insured loss or casualty event (being, other than proceeds in respect of business interruption, “Insurance Proceeds”), the Borrower shall immediately prepay its Loans (or provide cash collateral in respect of Letters of Credit) such that the aggregate amount of all such payments is equal to 100% of such Net Cash Proceeds; provided, however, any Insurance Proceeds (which do not exceed $5,000,000 in respect of any single loss or event) may (provided, and for so long as, no Default or Event of Default shall have occurred and be continuing), at the request of the Borrower, be applied in replacing or reinstating the affected assets; provided further that (A) such Net Cash Proceeds are so applied (or contractually committed to be so applied) within 360 days (the “Reinstatement Date”) following the occurrence of the event giving rise to such Net Cash Proceeds, (B) such Net Cash Proceeds are deposited in a Cash Collateral Account maintained with, and subject to a perfected first priority Lien in favor of, the Administrative Agent (which cash collateral may be included in the calculation of relevant Borrowing Base pending its application hereunder) and (notwithstanding Section 11.1(a)(ix)) any Net Cash Proceeds deposited in such account for such purpose may not subsequently be withdrawn without the approval of the Administrative Agent and (C) any such

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Net Cash Proceeds or any portion thereof not applied in replacement or reinstatement of the affected assets (x) by the Reinstatement Date or (y) at any time during the continuance of a Default or Event of Default at any time prior to the Reinstatement Date, shall be applied as mandatory prepayment of the Loans (or as cash collateral in respect of Letters of Credit) at such time. Any such mandatory prepayment shall be applied in accordance with Section 2.9(c) below.

(b) Any prepayments made by the Borrower required to be applied in accordance with this Section 2.9 shall be applied as follows: first, to repay the outstanding principal balance of the Swing Loans until such Swing Loans shall have been repaid in full; second, to repay the outstanding principal balance of the Revolving Loans until such Revolving Loans shall have been paid in full; and then, to provide cash collateral for any Letter of Credit Obligations in the manner set forth in Section 9.3 until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth therein.

(c) If at any time, either (i) the aggregate principal amount of Revolving Credit Outstandings exceeds the Maximum Credit at such time or (ii) a Borrowing Base Deficiency exists in respect of the Borrower, the Borrower shall forthwith (or if such Borrowing Base Deficiency has occurred through Accounts which were previously classified as Eligible Receivables being reclassified as ineligible, in which case upon the expiration of two Business Days during which such Borrowing Base Deficiency remains continuing) prepay its Swing Loans first and then its Revolving Loans then outstanding such that the aggregate amount of all such payments is equal to such excess or otherwise sufficient to eliminate such deficiency. If any such excess or deficiency remains after repayment in full of the aggregate outstanding Swing Loans and Revolving Loans, the Borrower shall provide cash collateral for its Letter of Credit Obligations in the manner set forth in Section 9.3 to the extent required to eliminate such excess or deficiency.

(d) The Borrower agrees that all available funds (others than those funds representing Net Cash Proceeds which are to be otherwise applied pursuant to this Section 2.9) in a Cash Collateral Account of the Borrower shall be applied on a daily basis; first to repay the outstanding principal amount of its Swing Loans until its Swing Loans shall have been repaid in full; second to repay the outstanding principal balance of its Revolving Loans until its Revolving Loans shall have been repaid in full; and third to any other Obligations then due and payable. If there are no Loans outstanding and no other Obligations are then due and payable, then the funds in such Cash Collateral Account shall be retained in such Cash Collateral Account, or (if required by the Administrative Agent) transferred to the L/C Cash Collateral Account, to cash collateralize the Letter of Credit Obligations then outstanding and any contingent obligations which the Borrower may have under any Guaranty); provided, however, that if on any Business Day after giving effect to the foregoing applications any funds are on deposit in its Cash Collateral Account and no Default or Event of Default shall have occurred and be continuing, the Borrower may direct the Administrative Agent to (and the Administrative Agent shall) disburse such funds to the Borrower’s Disbursement Account.

Section 2.10. Interest.

(a) Rate of Interest. All Loans and the outstanding amount of all other Obligations shall bear interest, in the case of Loans, on the unpaid principal amount thereof from the date such Loans are made and, in the case of such other Obligations, from the date such other

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Obligations are due and payable until, in all cases, paid in full, except as otherwise provided in Section 2.10(c), as follows:

(i) if a Base Rate Loan or such other Obligation, at a rate per annum equal to the sum of (A) the Base Rate as in effect from time to time, plus (B) the Applicable Margin; and

(ii) if a Eurodollar Rate Loan, at a rate per annum equal to the sum of (A) the Eurodollar Rate determined for the applicable Interest Period, plus (B) the Applicable Margin in effect from time to time during such Eurodollar Interest Period.

(b) Interest Payments. (i) Interest accrued on each Base Rate Loan (including Swing Loans) shall be payable in arrears (A) on the first day of each calendar month, commencing on the first such day following the making of such Base Rate Loan, and (B) if not previously paid in full, at maturity (whether by acceleration or otherwise) of such Base Rate Loan; (ii) interest accrued on each Eurodollar Rate Loan shall be payable in arrears (A) on the last day of each Interest Period applicable to such Loan and, in respect of any Interest Period of six months’ duration, on the day which is three months following commencement of such Interest Period and also on the last day of such Interest Period, (B) upon the payment or prepayment thereof in full or in part, and (C) if not previously paid in full, at maturity (whether by acceleration or otherwise) of such Eurodollar Rate Loan; and (iii) interest accrued on the amount of all other Obligations shall be payable on demand from and after the time such Obligation, becomes due and payable (whether by acceleration or otherwise).

(c) Default Interest. Notwithstanding the rates of interest specified in Section 2.10(a) or elsewhere herein, effective immediately upon the occurrence of an Event of Default, and for as long thereafter as such Event of Default shall be continuing, the principal balance of all Loans and the amount of all other Obligations shall bear interest at a rate which is two percent per annum in excess of the rate of interest applicable to such Obligations from time to time.

Section 2.11. Conversion/Continuation Option.

(a) The Borrower may elect (i) at any time to convert Base Rate Loans (other than Swing Loans) or any portion thereof to Eurodollar Rate Loans, or (ii) at the end of any applicable Interest Period, to convert Eurodollar Rate Loans or any portion thereof into Base Rate Loans or to continue such Eurodollar Rate Loans or any portion thereof for an additional Interest Period; provided, however, that the aggregate amount of the Eurodollar Loans for each Interest Period complies with the provisions of Section 2.2(a). Each conversion or continuation shall be allocated among the Loans of each Lender in accordance with its Ratable Portion. Each such election shall be in substantially the form of Exhibit F hereto (a “Notice of Conversion or Continuation”) and shall be made by giving the Administrative Agent at least three Business Days’ prior written notice specifying (A) the amount and type of Loan being converted or continued, (B) in the case of a conversion to or a continuation of Eurodollar Rate Loans, the applicable Interest Period, and (C) in the case of a conversion, the date of conversion (which date shall be a Business Day and, if a conversion from Eurodollar Rate Loans, shall also be the last day of the applicable Interest Period).

(b) The Administrative Agent shall promptly notify each Lender of its receipt of a Notice of Conversion or Continuation and of the options selected therein.

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Notwithstanding the foregoing, no conversion in whole or in part of Base Rate Loans to Eurodollar Rate Loans, and no continuation in whole or in part of Eurodollar Rate Loans upon the expiration of any applicable Interest Period, shall be permitted at any time at which (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the continuation of, or conversion into, would violate any of the provisions of Section 2.14. If, within the time period required under the terms of this Section 2.11, the Administrative Agent does not receive a Notice of Conversion or Continuation from the Borrower containing a permitted election to continue any Eurodollar Rate Loans for an additional Interest Period or to convert any such Loans, then, upon the expiration of the applicable Interest Period, such Loans will be automatically converted to Base Rate Loans. Each Notice of Conversion or Continuation shall be irrevocable.

Section 2.12. Fees.

(a) Unused Commitment Fee. The Borrower agrees to pay to each Lender a commitment fee on the actual amount by which the Revolving Credit Commitment of such Lender exceeds the sum of (i) such Lender’s Ratable Portion of the outstanding Revolving Loans and outstanding Letter of Credit Obligations and (ii) the outstanding portion of any Swing Loans made by such Lender (the “Unused Commitment Fee”) on each day from the date hereof until the Revolving Credit Termination Date equal to 0.50% per annum (whether or not the Revolving Loans are available to the Borrower), payable in arrears (x) on the first day of each calendar month, commencing on the first such day following the date of this Agreement and (y) on the Revolving Credit Termination Date.

(b) Letter of Credit Fees. The Borrower agrees to pay the following amounts with respect to Letters of Credit issued by any Issuer:

(i) to the Administrative Agent for the account of each Issuer of a Letter of Credit, with respect to each Letter of Credit issued by such Issuer, an issuance fee equal to 0.50% per annum of the maximum amount available from time to time to be drawn under such Letter of Credit, payable in arrears (A) on the first day of each calendar month, commencing on the first such day following the issuance of such Letter of Credit and (B) on the Revolving Credit Termination Date;

(ii) to the Administrative Agent for the ratable benefit of the Lenders, with respect to each Letter of Credit, a fee accruing at a rate per annum equal to the Applicable Margin for Revolving Loans that are Eurodollar Rate Loans of the maximum amount available from time to time to be drawn under such Letter of Credit, payable in arrears (A) on the first day of each calendar month commencing on the first such day following the issuance of such Letter of Credit and (B) on the Revolving Credit Termination Date; provided, however that during the continuance of an Event of Default, such fee shall be increased by two percent per annum and shall be payable on demand; and

(iii) to the Issuer of any Letter of Credit, with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with such Issuer’s standard schedule for such charges in effect at the time of issuance, amendment, transfer or drawing, as the case may be.

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(c) Additional Fees. The Borrower has agreed to pay to the Lenders, the Administrative Agent and the Arranger additional fees, the amount and dates of payment of which are embodied in the Fee Letter. Any cash management fees payable by or on behalf of any Loan Party shall be payable irrespective of whether accounts are opened in the name of any Loan Party or by the Administrative Agent or any of its Affiliates in its name in respect of any Loan Party.

Section 2.13. Payments and Computations; Protective Advances.

(a) The Borrower shall make each payment hereunder (including fees and expenses) not later than 11:00 A.M. (New York City time) (provided, however, that repayments of Swing Loans shall be made not later than 4:00 P.M. (New York City time)) on the day when due, in Dollars, to the Administrative Agent at its address referred to in Section 11.8 in immediately available funds without set-off or counterclaim. The Administrative Agent will promptly thereafter cause to be distributed immediately available funds relating to the payment of principal or interest or fees to the Lenders, in accordance with the application of payments set forth in clauses (e) and (f) of this Section 2.13, as applicable, for the account of their respective Applicable Lending Offices; provided, however, that amounts payable pursuant to Section 2.14(c), 2.14(e), 2.15 or 2.16 shall be paid only to the affected Lender or Lenders and amounts payable with respect to Swing Loans shall be paid only to the Swing Loan Lender. Payments received by the Administrative Agent after 11:00 A.M. (New York City time) shall be deemed to be received on the next Business Day.

(b) All computations of interest and fees shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest and fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

(c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of any Eurodollar Rate Loan to be made in the next calendar month, such payment shall be made on the immediately preceding Business Day. All repayments of any Revolving Loans shall be applied first to repay such Loans outstanding as Base Rate Loans and then to repay such Loans outstanding as Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier expiring Eurodollar Interest Periods being repaid prior to those which have later expiring Eurodollar Interest Periods.

(d) Unless the Administrative Agent shall have received notice from the Borrower to the Lenders prior to the date on which any payment is due hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon at the Federal Funds Rate, for the first Business Day,

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and, thereafter, at the rate applicable to Base Rate Loans, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent.

(e) Subject to the provisions of clause (f) of this Section 2.13 and (except as otherwise provided in Section 2.9), all payments and any other amounts received by the Administrative Agent from or for the benefit of the Borrower shall be applied first, to pay principal of and interest on any portion of the Loans which the Administrative Agent may have advanced to the Borrower pursuant to the express provisions of this Agreement on behalf of any Lender, for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; second, to pay all other Obligations owing by the Borrower then due and payable; and third, as the Borrower so designate. Payments in respect of Swing Loans received by the Administrative Agent shall be distributed to the Swing Loan Lender; payments in respect of Revolving Loans received by the Administrative Agent shall be distributed to each Lender in accordance with such Lender’s Ratable Portion of the Revolving Credit Commitments; and all payments of fees and all other payments in respect of any other Obligation shall be allocated among such of the Lenders and Issuers as are entitled thereto, and, if to the Lenders, in proportion to their respective Ratable Portions.

(f) After the occurrence and during the continuance of an Event of Default, the Borrower hereby irrevocably waives the right to direct the application of any and all payments in respect of the Obligations owing by the Borrower and any proceeds of Collateral of the Borrower, and agrees that the Administrative Agent may, and shall upon either (A) the written direction of the Requisite Lenders or (B) the acceleration of the Obligations pursuant to Section 9.2, apply all payments in respect of any Obligations and all funds on deposit in any Cash Collateral Account (including all proceeds arising in connection with a Reinstatement Date that are held in the Cash Collateral Account pending application of such proceeds as specified in Section 2.9(a)) and all other proceeds of Collateral in the following order:

(i) first, to pay interest on and then principal of any portion of the Revolving Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower;

(ii) second, to pay interest on and then principal of any Swing Loan;

(iii) third, to pay Obligations in respect of any expense reimbursements or indemnities then due the Administrative Agent;

(iv) fourth, to pay Obligations in respect of any expense reimbursements or indemnities then due to the Lenders and the Issuers;

(v) fifth, to pay Obligations in respect of any fees then due to the Administrative Agent, the Lenders and the Issuers;

(vi) sixth, to pay interest then due and payable in respect of the Revolving Loans and Reimbursement Obligations;

(vii) seventh, to pay or prepay principal payments on the Revolving Loans and Reimbursement Obligations and to provide cash collateral for outstanding

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Letter of Credit Undrawn Amounts in the manner described in Section 9.3, and to pay Obligations owing to the Administrative Agent with respect to cash management services in connection with Approved Deposit Accounts, Cash Collateral Accounts, and any other collection, disbursement or payroll account, ratably to the aggregate principal amount of such Revolving Loans, Reimbursement Obligations and Letter of Credit Undrawn Amounts and amounts due in respect of such cash management services;

(viii) eighth, to the ratable payment of all Obligations owing to any Lender or any Affiliate of a Lender with respect to Hedging Contracts; and

(ix) ninth, to the ratable payment of all other Obligations;

provided, however, that if sufficient funds are not available to fund all payments to be made in respect of any of the Obligations described in any of the foregoing clauses first through eighth, the available funds being applied with respect to any such Obligations (unless otherwise specified in such clause) shall be allocated to the payment of such Obligations ratably, based on the proportion of the Administrative Agent’s and each Lender’s or Issuer’s interest in the aggregate outstanding Obligations described in such clauses. The order of priority set forth in clauses first through eighth of this Section 2.13(f) may at any time and from time to time be changed by the agreement of the Requisite Lenders without necessity of notice to or consent of or approval by the Borrower, any Secured Party that is not a Lender or Issuer, or any other Person. The order of priority set forth in clauses first through fifth of this Section 2.13(f) may be changed only with the prior written consent of the Administrative Agent in addition to the Requisite Lenders.

(g) All payments of Reimbursement Obligations, interest, fees, expenses and other sums due and payable in respect of the Loans of the Borrower and all expenses, disbursements and advances incurred by the Administrative Agent pursuant to the Loan Documents after the occurrence and during the continuance of an Event of Default which the Administrative Agent, in its sole discretion, deems necessary or desirable to preserve or protect the Collateral of the Borrower or any portion thereof or to enhance the likelihood or maximize the amount of repayment of the Obligations owing by the Borrower may, at the option of the Administrative Agent, be paid from the proceeds of Swing Loans or Revolving Loans. The Borrower hereby authorizes the Swing Loan Lender to make Swing Loans pursuant to Section 2.3(a) and the Lenders to make Revolving Loans pursuant to Section 2.2(a), from time to time in the Swing Loan Lender’s or such Lender’s discretion, which are in the amounts of any and all principal payable with respect to the interest, fees, expenses and other sums payable in respect of the Loans of the Borrower, and further authorizes the Administrative Agent to give the Lenders notice of any Borrowing with respect to such Loans and to distribute the proceeds of such Loans to pay such amounts. The Borrower agrees that all such Loans so made shall be deemed to have been requested by it, as applicable, (irrespective of the satisfaction of the conditions in Section 3.2, which conditions the Lenders irrevocably waive) and directs that all proceeds thereof shall be used to pay such amounts.

Section 2.14. Special Provisions Governing Eurodollar Rate Loans.

(a) Determination of Interest Rate. The Eurodollar Rate for each Interest Period for Eurodollar Rate Loans shall be determined by the Administrative Agent pursuant to the procedures set forth in the definition of “Eurodollar Rate.” The Administrative Agent’s determination shall be presumed to be correct, absent manifest error, and shall be binding on the Borrower.

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(b) Interest Rate Unascertainable, Inadequate or Unfair. In the event that: (i) the Administrative Agent reasonably determines that adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which the Eurodollar Rate then being determined is to be fixed; or (ii) the Requisite Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period will not adequately reflect the cost to the Lenders of making or maintaining such Loans for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon each Eurodollar Loan will automatically, on the last day of the current Interest Period for such Loan, convert into a Base Rate Loan and the obligations of the Lenders to make Eurodollar Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended until the Administrative Agent shall notify the Borrower that the Requisite Lenders have determined that the circumstances causing such suspension no longer exist.

(c) Increased Costs. If at any time any Lender shall reasonably determine that the introduction of or any change (where such introduction or change occurs after the date of this Agreement) in or in the interpretation of any law, treaty or governmental rule, regulation or order (other than any change by way of imposition or increase of reserve requirements included in determining the Eurodollar Rate Reserve Percentage and other than any change in the rate of tax on, or determined by reference to, the net income or profits of such Lender (including franchise taxes) or capital of such Lender) or the compliance by such Lender with any guideline, request or directive (where such guideline, request or directive is issued after the date of this Agreement) from any central bank or other Governmental Authority (whether or not having the force of law but in relation to which such Lender customarily complies), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans made to the Borrower, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

(d) Illegality. Notwithstanding any other provision of this Agreement, if any Lender determines that the introduction of or any change in or in the interpretation of any law, treaty or governmental rule, regulation or order after the date of this Agreement shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) the obligation of such Lender to make or to continue Eurodollar Rate Loans and to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended, and each such Lender shall make a Base Rate Loan as part of any requested Borrowing of Eurodollar Rate Loans and (ii) if the affected Eurodollar Rate Loans are then outstanding, each Borrower shall immediately (or, if lawful to do so, on the last day of the current Interest Period relating thereto) convert each such Loan into a Base Rate Loan. If at any time after a Lender gives notice under this Section 2.14(d) such Lender determines that it may lawfully make Eurodollar Rate Loans, such Lender shall promptly give notice of that determination to the Borrower and the Administrative Agent, and the Administrative Agent shall promptly transmit the notice to each other Lender. The Borrower’s right to request, and such Lender’s obligation, if any, to make Eurodollar Rate Loans shall thereupon be restored.

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(e) Breakage Costs. In addition to all amounts required to be paid by the Borrower pursuant to Section 2.10, the Borrower shall compensate each Lender, upon demand, for all losses, expenses and liabilities (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender’s Eurodollar Rate Loans to the Borrower but excluding any loss of the Applicable Margin on the relevant Loans) which that Lender may sustain (i) if for any reason (other than under Section 2.14(b)) a proposed Borrowing, conversion into or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion or Continuation given by the Borrower or in a telephonic request by it for borrowing or conversion or continuation or a successive Interest Period does not commence after notice therefor is given pursuant to Section 2.11, (ii) if for any reason any Eurodollar Rate Loan is prepaid (including mandatorily pursuant to Section 2.9) on a date which is not the last day of the applicable Interest Period, (iii) as a consequence of a required conversion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 2.14(d), or (iv) as a consequence of any failure by a Borrower to repay Eurodollar Rate Loans when required by the terms hereof. The Lender making demand for such compensation shall deliver to the Borrower concurrently with such demand a written statement as to such losses, expenses and liabilities, and this statement shall be conclusive as to the amount of compensation due to that Lender, absent manifest error.

(f) Excluded Period. No Lender or Issuer shall be entitled to make a claim under Clauses 2.14(c), 2.15 or 2.16 unless it has notified the Administrative Agent of its intention to make such claim within 180 days of such Lender or Issuer becoming aware of the circumstances giving rise to such claim.

Section 2.15. Capital Adequacy. If at any time any Lender reasonably determines that (a) the adoption of or any change in or in the interpretation of any law, treaty or governmental rule, regulation or order after the date of this Agreement regarding capital adequacy, (b) compliance with any such law, treaty, rule, regulation, or order, or (c) compliance with any guideline or request or directive issued after the date hereof from any central bank or other Governmental Authority (whether or not having the force of law) shall have the effect of reducing the rate of return on such Lender’s (or any corporation controlling such Lender’s) capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change, compliance or interpretation, then, upon demand from time to time by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes absent manifest error.

Section 2.16. Taxes.

(a) Subject to Section 2.16(f) below, any and all payments by the Borrower under each Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) in the case of each Lender and the Administrative Agent (A) taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the

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Administrative Agent (as the case may be) is organized or in which it maintains any office or operations and (B) any United States withholding taxes payable with respect to payments under the Loan Documents under laws (including any statute, treaty or regulation) in effect on the Effective Date (or, in the case of an Eligible Assignee, the date of the Assignment and Acceptance) applicable to such Lender or the Administrative Agent, as the case may be, but not excluding any United States withholding payable as a result of any change in such laws occurring after the Effective Date (or the date of such Assignment and Acceptance) (but excluding taxes set forth in clause (A) above) and (ii) in the case of each Lender, taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction in which such Lender’s Applicable Lending Office is located (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If any Taxes shall be required by law to be deducted from or in respect of any sum payable by the Borrower under any Loan Document to any Lender or the Administrative Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law, and (iv) the Borrower shall deliver to the Administrative Agent evidence of such payment.

(b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States or any political subdivision thereof or any applicable foreign jurisdiction, and all liabilities with respect thereto, which arise from any payment made by the Borrower or any of its Subsidiaries under any Loan Document or from the execution, delivery or registration of, or otherwise with respect to, any Loan Document (collectively, “Other Taxes”).

(c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including for penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor.

(d) Within 30 days after the date of any payment of Taxes or Other Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 11.8, the original or a certified copy of a receipt evidencing payment thereof.

(e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.16 shall survive the payment in full of the Obligations.

(f) On the date of the Assignment and Acceptance pursuant to which any Non-U.S. Lender becomes a Lender after the Effective Date, if requested by the Borrower or the Administrative Agent, each Non-U.S. Lender that is entitled at such time to an exemption from United States withholding tax shall provide the Administrative Agent and the Borrower with two completed copies of IRS Form W-8 (Ben or ECI as appropriate including any required

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certifications) or other applicable form, certificate or document prescribed by the IRS certifying as to such Non-U.S. Lender’s entitlement to such exemption from United States withholding tax with respect to all payments to be made to such Non-U.S. Lender under the Loan Documents. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments under any Loan Document to or for a Non-U.S. Lender are not subject to United States withholding tax, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate.

(g) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which would be payable or may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. If any Lender is not, with reasonable efforts, able to change the jurisdiction of its Applicable Lending Office in accordance with this Section 2.16(g), then such Lender shall use its reasonable efforts to complete such tax forms and make such filings as would avoid the need for, or reduce the amount of, any such additional amounts which would be payable or may thereafter accrue; provided, however, that completion of such forms and making of such filings would not in the sole discretion of such Lender be disadvantageous to it.

Section 2.17. Substitution of Lenders. In the event that (a) (i) any Lender makes a claim under Section 2.14 (c) or Section 2.15, or (ii) it becomes illegal for any Lender to continue to fund or make any Eurodollar Rate Loan and such Lender notifies the Borrower pursuant to Section 2.14(d), or (iii) the Borrower are required to make any payment pursuant to Section 2.16 that is attributable to any Lender, or (iv) any Lender is a Non-Funding Lender, (b) in the case of clause (a)(i) above, as a consequence of increased costs in respect of which such claim is made, the effective rate of interest payable to such Lender under this Agreement with respect to its Loans materially exceeds the effective average annual rate of interest payable to the Requisite Lenders under this Agreement and (c) Lenders holding at least 75% of the Revolving Credit Commitments are not subject to such increased costs or illegality, payment or proceedings (any such Lender, an “Affected Lender”), the Borrower may substitute another financial institution for such Affected Lender hereunder, upon reasonable prior written notice (which written notice must be given within 90 days following the occurrence of any of the events described in clauses (a)(i), (ii), (iii) or (iv)) by the Borrower to the Administrative Agent and the Affected Lender that the Borrower intend to make such substitution, which substitute financial institution must be an Eligible Assignee and, if not a Lender, reasonably acceptable to the Administrative Agent; provided, however, that if more than one Lender claims increased costs, illegality or right to payment arising from the same act or condition and such claims are received by the Borrower within 30 days of each other then the Borrower may substitute all, but not (except to the extent the Borrower has already substituted one of such Affected Lenders before the Borrower’ receipt of the other Affected Lenders’ claim) less than all, Lenders making such claims. In the event that the proposed substitute financial institution or other entity is reasonably acceptable to the Administrative Agent and the written notice was properly issued under this Section 2.17, the Affected Lender shall sell and the substitute financial institution or other entity shall purchase, pursuant to an Assignment and Acceptance, all rights and claims of such Affected Lender under the Loan Documents and the substitute financial institution or other entity shall assume and the Affected Lender shall be relieved of its Revolving Credit Commitments and all other prior unperformed obligations of the Affected Lender under the Loan Documents (other than in respect

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of any damages (other than exemplary or punitive damages, to the extent permitted by applicable law) in respect of any such unperformed obligations). Upon the effectiveness of such sale, purchase and assumption (which, in any event shall be conditioned upon the payment in full by the Borrower to the Affected Lender in cash of all fees, unreimbursed costs and expenses and indemnities accrued and unpaid through such effective date), the substitute financial institution or other entity shall become a “Lender” hereunder for all purposes of this Agreement having a Revolving Credit Commitment (if applicable) in the amount of such Affected Lender’s Revolving Credit Commitment assumed by it and such Revolving Credit Commitment (if applicable) of the Affected Lender shall be terminated, provided that all indemnities under the Loan Documents shall continue in favor of such Affected Lender.

ARTICLE III

CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT

Section 3.1. Conditions Precedent to the Effectiveness of this Agreement. This Agreement shall become effective on the date (the “Effective Date”) on which all of the following conditions precedent have been first satisfied (unless waived by the Requisite Lenders or the time for satisfaction thereof has been extended by the Administrative Agent):

(a) Certain Documents. The Administrative Agent shall have received on the Effective Date each of the following, each dated the Effective Date unless otherwise indicated or agreed to by the Administrative Agent, in form and substance satisfactory to the Administrative Agent and in sufficient originally executed copies for each Lender:

(i) this Agreement, duly executed and delivered by the Borrower, TNCLP, the Administrative Agent and each Lender;

(ii) a Guaranty, duly executed and delivered by each Secured Guarantor and each Unsecured Guarantor and the Administrative Agent;

(iii) a Pledge and Security Agreement, duly executed and delivered by the Borrower and each Secured Guarantor and the Administrative Agent, together with evidence reasonably satisfactory to the Administrative Agent that, upon the filing and recording of instruments delivered at the Effective Date, the Administrative Agent (for the benefit of the Secured Parties) shall have a valid and perfected first priority security interest in the Collateral including (x) such documents duly executed by each such Loan Party as the Administrative Agent may reasonably request with respect to the perfection of its security interests in the Collateral (including financing statements under the UCC, patent, trademark and copyright security agreements suitable for filing with the Patent and Trademark Office or the Copyright Office, as the case may be, and other applicable documents under the laws of any jurisdiction with respect to the perfection of Liens created by the Pledge and Security Agreement) and (y) copies of UCC search reports with respect to all such Loan Parties as of the date the previous search reports were delivered to the Administrative Agent or its counsel at the Initial Closing Date listing all effective financing statements that name the Borrower and each Secured Guarantor each as a debtor, together with copies of such financing statements, none of which shall cover the Collateral except for those that shall be terminated on the Effective Date or are otherwise permitted hereunder;

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(iv) such documents duly executed by each Loan Party, to the extent such Loan Party’s signature is required under Requirements of Law, as the Administrative Agent may request with respect to the perfection of its security interests, including for the purposes of maintaining and/or continuing the priority thereof, in the Collateral;

(v) a satisfactory appraisal report of the Inventory of the Borrower;

(vi) a favorable opinion of Kirkland & Ellis LLP, counsel to each of the Loan Parties and each Unsecured Guarantor, in substantially the form of Exhibit G-1 addressed to the Administrative Agent and the Lenders and Issuer;

(vii) a certificate of the Secretary or an Assistant Secretary of each Loan Party and each Unsecured Guarantor certifying and attaching (A) the names and true signatures of each officer of such Loan Party or such Unsecured Guarantor authorized to execute and deliver any Loan Document or other document required hereunder to be executed and delivered by or on behalf of such Loan Party or such Unsecured Guarantor, (B) the resolutions of such Loan Party’s Board of Directors (or equivalent governing body) approving and authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party and the transactions contemplated by this Agreement, (C) the due incorporation and good standing or valid existence of such Loan Party or such Unsecured Guarantor as organized under the laws of the jurisdiction of its formation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party or such Unsecured Guarantor, together with a certificate, as of recent date, of the Secretary of State of the jurisdiction of its formation and of each jurisdiction in which such Loan Party or such Unsecured Guarantor conducts business, attesting to the good standing of each such Loan Party or such Unsecured Guarantor in each such jurisdiction and (D) a copy of the Constituent Documents of each Loan Party or such Unsecured Guarantor, certified as of a recent date by the Secretary of State of the state or jurisdiction of formation of such Loan Party or such Unsecured Guarantor or by another Person acceptable to the Administrative Agent, to the extent the Secretary or the Assistant Secretary is unable to certify that the Constituent Documents of such Loan Party or such Unsecured Guarantor have not been amended, revised or modified in any way since the Effective Date;

(viii) a certificate of the Chief Financial Officer of the Borrower, stating that the Borrower individually, and TNCLP on a consolidated basis are each Solvent after giving effect to transactions contemplated in this Agreement, and the payment of all estimated legal, accounting and other fees related hereto and thereto;

(ix) a certificate of a Responsible Officer to the effect that (A) the condition set forth in Section 3.2(b) has been satisfied, (B) no litigation not listed on Schedule 4.7 shall have been commenced against any Loan Party, any Unsecured Guarantor or any of its Subsidiaries which is reasonably likely to be adversely determined and, if adversely determined, would have a Material Adverse Effect and (C) no Material Adverse Change has occurred since December 31, 2003;

(x) the financial statements required to be delivered pursuant to clause (a) of Section 4.4;

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(xi) evidence satisfactory to the Administrative Agent and the Lenders that the insurance policies required by Section 7.5 and any Collateral Documents are in full force and effect, together with endorsements naming the Administrative Agent, on behalf of the Secured Parties as additional insured and/or loss payee under the subject insurance policies to be maintained with respect to the properties of TNCLP, the Borrower and each of TNCLP’s Subsidiaries;

(xii) the Loan Purchase Agreement, duly executed and delivered by Terra Industries and the Administrative Agent; and

(xiii) such other certificates, documents, agreements and information respecting any Loan Party as any Lender through the Administrative Agent may reasonably request.

(b) Amendment and Restatement of the Existing Credit Agreement. The Administrative Agent shall be satisfied that (i) concurrently with the initial Borrowing hereunder, all Obligations and Liens (as each term is defined in the Existing Credit Agreement) of the Borrower and TNCLP pursuant to the Existing Credit Agreement and the Loan Documents (as defined therein) shall have been paid in full and terminated, (ii) the Terra Capital Credit Agreement and all documents relating thereto (the “Terra Capital Credit Documents”) are in form and substance satisfactory to the Administrative Agent and its counsel, (iii) the terms and conditions of the Terra Capital Credit Documents shall not have been amended, waived or modified without the approval of the Administrative Agent (other than non-material amendments, waivers and modifications to such terms that do not, in the aggregate, materially adversely affect the interest of the Administrative Agent and the Lenders) and (iv) the Terra Capital Credit Documents shall be in full force and effect on the Effective Date and no default or material breach shall have occurred thereunder and the “Effective Date” as defined in the Terra Capital Credit Agreement shall occur concurrently with the Effective Date.

(c) Fees and Expenses Paid. There shall have been paid to the Administrative Agent, for the account of the Administrative Agent, and the Lenders, as applicable, all fees due and payable on or before the Effective Date (including all such fees described in the Fee Letter and the Existing Credit Agreement), and all expenses due and payable on or before the Effective Date (including expenses under the Existing Credit Agreement).

(d) Consents, Etc. Each Loan Party shall have received all consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all consents and authorizations of, and effected all notices to and filings with, any Governmental Authority, in each case, as may be necessary to allow each of the Loan Parties lawfully (A) to execute, deliver and perform, in all material respects, their respective obligations hereunder, the Loan Documents to which each of them, respectively, is, or shall be, a party and each other agreement or instrument to be executed and delivered by each of them, respectively, pursuant thereto or in connection therewith, and (B) to create and perfect the Liens on the Collateral to be owned by each of them in the manner and for the purpose contemplated by the Loan Documents.

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Section 3.2. Conditions Precedent to Each Loan and Letter of Credit. The obligation of each Lender on any date (including the Effective Date) to make any Loan and of each Issuer on any date (including the Effective Date) to issue any Letter of Credit is subject to the satisfaction of all of the following conditions precedent:

(a) Request for Borrowing or Issuance of Letter of Credit. With respect to any Loan, the Administrative Agent shall have received a duly executed Notice of Borrowing or, in the case of Swing Loans, a duly executed Swing Loan Request and with respect to any Letter of Credit, the Administrative Agent and the Issuer shall have received a duly executed Letter of Credit Request.

(b) Representations and Warranties; No Defaults. The following statements shall be true on the date of such Loan or issuance, both before and after giving effect thereto and to the application of the proceeds from any such Loan and to such issuance:

(i) The representations and warranties set forth in Article IV and in the other Loan Documents shall be true and correct on and as of the Effective Date and shall be true and correct in all material respects on and as of any such date after the Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date;

(ii) no Default or Event of Default has occurred and is continuing;

(iii) there shall have occurred no Material Adverse Change or any event or circumstances which would have a Material Adverse Effect; and

(iv) the Borrower shall have delivered the Borrowing Base Certificate required by Section 6.11(a).

(c) Borrowing Base. After giving effect to the Revolving Loans or Letters of Credit requested to be made or issued on any such date and the use of proceeds thereof, (i) no Borrowing Base Deficiency shall exist, (ii) the Revolving Credit Outstandings on such date shall not exceed the Maximum Credit in effect on such date and (iii) the aggregate Available Credit of the Borrower shall not be less than $5,000,000.

(d) No Legal Impediments. The making of the Loans or the issuance of such Letter of Credit on such date does not violate any Requirement of Law on the date of or immediately following such Loan or issuance and is not enjoined, temporarily, preliminarily or permanently.

Each submission by a Borrower to the Administrative Agent of a Notice of Borrowing or a Swing Loan Request and the acceptance by the Borrower of the proceeds of each Loan requested therein, and each submission by a Borrower to an Issuer of a Letter of Credit Request and the issuance of each Letter of Credit requested therein, shall be deemed to constitute a representation and warranty by the Borrower as to the matters specified in Section 3.2(b) on the date of the making of such Loan or the issuance of such Letter of Credit.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

To induce the Lenders, the Issuers and the Administrative Agent to enter into this Agreement, TNCLP and the Borrower represent and warrant to the Lenders, the Issuers and the Administrative Agent that, on and as of the Effective Date after giving effect to the making, or

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the continuation, of the Loans and other financial accommodations on the Effective Date and on and as of each date as required by Section 3.2(b)(i):

Section 4.1. Corporate Existence; Compliance with Law. Each Loan Party (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where such qualification is necessary, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect; (c) has all requisite power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (d) is in compliance with its Constituent Documents; (e) is in compliance with all applicable Requirements of Law except where the failure to be in compliance would not in the aggregate have a Material Adverse Effect; and (f) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents, approvals or filings which can be obtained or made by the taking of ministerial action to secure the grant or transfer thereof or the failure to obtain or make would not in the aggregate have a Material Adverse Effect.

Section 4.2. Corporate Power; Authorization; Enforceable Obligations.

(a) The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party and the consummation of the transactions contemplated thereby:

(i) are within such Loan Party’s corporate, limited liability company, partnership or other powers;

(ii) have been duly authorized by all necessary corporate action, including the consent of shareholders where required;

(iii) do not and will not (A) contravene any Loan Party’s or any of its Subsidiaries’ respective Constituent Documents, (B) violate any other applicable Requirement of Law applicable to any Loan Party (including Regulations U and X of the Federal Reserve Board), or any order or decree of any Governmental Authority or arbitrator applicable to any Loan Party, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any Contractual Obligation of any Loan Party or any of its Subsidiaries, or (D) result in the creation or imposition of any Lien upon any of the property of any Loan Party or any of its Subsidiaries, other than those in favor of the Secured Parties pursuant to the Collateral Documents; and

(iv) do not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person, other than those listed on Schedule 4.2 and which, prior to the Effective Date, have been obtained or made, copies of which have been or will be delivered to the Administrative Agent pursuant to Section 3.1, and each of which on the Effective Date will be in full force and effect and, with respect to the Collateral, filings required to perfect the Liens created by the Collateral Documents.

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(b) This Agreement has been, and each of the other Loan Documents will have been upon delivery thereof pursuant to the terms of this Agreement, duly executed and delivered by each Loan Party thereto. This Agreement is, and the other Loan Documents will be, when delivered hereunder, the legal, valid and binding obligation of each Loan Party thereto, enforceable against such Loan Party in accordance with its terms.

Section 4.3. Ownership of Subsidiaries.

Set forth on Part I of Schedule 4.3 hereto is a complete and accurate list showing, as of the Effective Date, all Material Subsidiaries of TNCLP and, as to each such Subsidiary, the jurisdiction of its incorporation, the number of shares of each class of Stock authorized (if applicable), the number outstanding on the Effective Date and the number and percentage of the outstanding shares of each such class owned (directly or indirectly) by TNCLP. No Stock of any Subsidiary of TNCLP is subject to any outstanding option, warrant, right of conversion or purchase or any similar right (except in respect of the Common Units). All of the outstanding Stock of each Subsidiary of TNCLP owned (directly or indirectly) by TNCLP has been validly issued, is fully paid and non-assessable and is owned by TNCLP or a Subsidiary of TNCLP, free and clear of all Liens (other than the Lien in favor of the Secured Parties created pursuant to the Collateral Documents and, with respect to the Common Units, other than the Liens securing the Senior Secured Notes created pursuant to the Senior Secured Note Documents). Except as set forth in Schedule 4.3, neither TNCLP nor any such Subsidiary is a party to, or has knowledge of, any agreement binding on it which restricts the transfer or hypothecation of any Stock of any such Subsidiary, other than the Loan Documents. TNCLP does not own or hold, directly or indirectly, any Stock of any Person other than such Subsidiaries and Investments permitted by Section 8.3.

Section 4.4. Financial Statements.

(a) The consolidated balance sheet of TNCLP and its Subsidiaries as at December 31, 2003, and the related consolidated statements of income, retained earnings and cash flows of TNCLP and its Subsidiaries for the fiscal year then ended, certified by Deloitte & Touche LLP, and the consolidated balance sheets of TNCLP and its Subsidiaries as at September 30, 2004, and the related consolidated statements of income, retained earnings and cash flows of TNCLP and its Subsidiaries for the nine months then ended, copies of which have been furnished to each Lender, fairly present (in all material respects), subject, in the case of said balance sheets as at September 30, 2004, and said statements of income, retained earnings and cash flows for nine months then ended, to the absence of footnote disclosure and normal recurring year-end audit adjustments, the consolidated financial condition of TNCLP and its Subsidiaries as at such dates and the consolidated results of the operations of TNCLP and its Subsidiaries for the period ended on such dates, all in conformity with GAAP.

(b) Neither TNCLP nor any of its Subsidiaries has any material obligation, contingent liability or liability for taxes, long-term leases or unusual forward or long-term commitment which is not either (i) reflected in the Financial Statements referred to in clause (a) above or in the notes thereto or (ii) permitted by this Agreement.

(c) The Projections have been prepared by TNCLP in light of the past operations of its business, and reflect projections for the fiscal periods covered thereby on a month by month basis for the first year and on a year by year basis thereafter. The Projections are based upon estimates and assumptions stated therein, all of which TNCLP believes to be

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reasonable and fair in light of current conditions and current facts known to TNCLP and at the time such Projections were prepared and reflect TNCLP’s good faith and reasonable estimates of the future financial performance of TNCLP and its Subsidiaries and of the other information projected therein for the periods set forth therein (it being understood that no representation is made that such Projections will be realized).

(d) The unaudited pro forma consolidated and consolidating balance sheet of TNCLP and its Subsidiaries (the “Pro Forma Balance Sheet”) contained in Schedule 4.4, has been prepared as of September 30, 2004, reflects as of such date, on a pro forma basis, the consolidated financial condition of TNCLP and its Subsidiaries after giving effect to the transactions contemplated hereby, and the assumptions expressed therein were reasonable based on the information available to TNCLP at the time so prepared and on the Effective Date.

Section 4.5. Material Adverse Change. Since December 31, 2003, there has been no Material Adverse Change and there have been no events or developments that in the aggregate have had a Material Adverse Effect.

Section 4.6. Solvency. Both before and after giving effect to (a) the Loans and Letter of Credit Obligations to be made or extended on the Effective Date or such other date as Loans and Letter of Credit Obligations requested hereunder are made or extended, (b) the disbursement of the proceeds of such Loans pursuant to the instructions of the Borrower, and the consummation of the other financing transactions contemplated hereby and (c) the payment and accrual of all transaction costs in connection with the foregoing, each Loan Party is Solvent.

Section 4.7. Litigation. There are no pending or, to the knowledge of TNCLP or the Borrower, threatened actions, investigations or proceedings affecting TNCLP or any of its Material Subsidiaries before any court, Governmental Authority or arbitrator which would reasonably be expected to be adversely determined and which, if adversely determined, would have a Material Adverse Effect. The performance of any action by any Loan Party required or contemplated by any of the Loan Documents is not restrained or enjoined (either temporarily, preliminarily or permanently). Schedule 4.7 lists all litigation pending against any Loan Party at the date hereof which, if adversely determined, would have a Material Adverse Effect.

Section 4.8. Taxes.

(a) All federal, state, provincial, local and foreign income and franchise and other material tax returns, reports and statements (collectively, the “Tax Returns”) required to be filed by TNCLP and each of its Subsidiaries and its Tax Affiliates have been filed with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed, all such Tax Returns are true and correct in all material respects, and all material taxes, charges and other impositions reflected therein or otherwise due and payable have been paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for non-payment thereof except where contested in good faith and by appropriate proceedings if adequate reserves therefor have been established on the books of TNCLP and each of its Subsidiaries or such Tax Affiliate in conformity with GAAP. Except as set forth on Schedule 4.8 (or as otherwise notified from time to time after the Effective Date in writing to the Administrative Agent) no Tax Return is under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes

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has been given or made by any Governmental Authority. Proper and accurate amounts have been withheld by each Loan Party and each of its Tax Affiliates from their respective employees for all periods in compliance (in all material respects) with the tax, social security and unemployment withholding provisions of applicable Requirements of Law and such withholdings have been timely paid to the respective Governmental Authorities.

(b) Neither TNCLP, any of its Subsidiaries or any of its Tax Affiliates has (i) except as set forth on Schedule 4.8 (or as otherwise notified from time to time after the Effective Date in writing to the Administrative Agent) executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for the filing of any Tax Return or the assessment or collection of any charges; (ii) any obligation under any tax sharing agreement or arrangement other than that to which the Administrative Agent has a copy prior to the Effective Date; or (iii) been a member of an affiliated, combined or unitary group other than the group of which TNCLP is the common parent.

Section 4.9. Full Disclosure.

The written information prepared or furnished by the Loan Parties or on their behalf (by their officers or advisors (including legal, environmental and financial advisors and consultants)) in connection with this Agreement or the consummation of the financing when taken as a whole does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein or herein not misleading.

Section 4.10. Margin Regulations. Neither TNCLP nor its Material Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board), and no proceeds of any Borrowing will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock in contravention of Regulation U or X of the Federal Reserve Board.

Section 4.11. No Burdensome Restrictions; No Defaults.

(a) Neither TNCLP nor any of its Subsidiaries (i) is a party to any Contractual Obligation the compliance with which would have a Material Adverse Effect or the performance of which by any thereof, either unconditionally or upon the happening of an event, will result in the creation of a Lien (other than a Lien permitted under Section 8.2) on the property or assets of any thereof or (ii) is subject to any charter or corporate restriction which would have a Material Adverse Effect.

(b) Neither TNCLP nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation owed by it and, to the knowledge of TNCLP and the Borrower, no other party is in default under or with respect to any Contractual Obligation owed to TNCLP or its Subsidiaries, other than, in either case, those defaults which in the aggregate would not have a Material Adverse Effect.

(c) No Default or Event of Default has occurred and is continuing.

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(d) To the best knowledge of TNCLP and the Borrower, there is no Requirement of Law applicable to any Loan Party the compliance with which by such Loan Party would have a Material Adverse Effect.

Section 4.12. Investment Company Act; Public Utility Holding Company Act. Neither TNCLP nor any of its Subsidiaries is (a) an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended or (b) a “holding company,” or an “affiliate” or a “holding company” or a “subsidiary company” of a “holding company,” as each such term is defined and used in the Public Utility Holding Act of 1935, as amended.

Section 4.13. Use of Proceeds. The proceeds of the Loans and the Letters of Credit are being used by the Borrower solely to repay in full all existing Indebtedness of TNCLP, the Borrower and its Subsidiaries under the Existing Credit Agreement, and for the payment of related transaction costs, fees and expenses; and for their working capital and general corporate purposes.

Section 4.14. Insurance. All policies of insurance of any kind or nature of TNCLP or any of its Subsidiaries, including policies of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers’ compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by businesses of the size and character of such Person. None of TNCLP or any of its Subsidiaries has been refused insurance for any material coverage for which it had applied or had any policy of insurance terminated (other than at its request).

Section 4.15. Labor Matters.

(a) There are no strikes, work stoppages, slowdowns or lockouts pending or threatened against or involving TNCLP or any of its Subsidiaries, other than those which in the aggregate would not have a Material Adverse Effect.

(b) There are no unfair labor practices, grievances or complaints pending, or, to the Borrower’s knowledge, threatened against or involving TNCLP or any of its Subsidiaries, nor are there any arbitrations or grievances threatened involving TNCLP or any of its Subsidiaries, other than those which, in the aggregate, if resolved adversely to TNCLP or such Subsidiary, would not have a Material Adverse Effect.

(c) Except as set forth on Schedule 4.15, as of the Effective Date, there is no collective bargaining agreement covering any of the employees of TNCLP or its Subsidiaries.

(d) Schedule 4.15 sets forth as of the date hereof, all material consulting agreements, executive employment agreements, executive compensation plans, deferred compensation agreements, employee stock purchase and stock option plans and severance plans of TNCLP and any of its Subsidiaries.

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Section 4.16. ERISA.

(a) Schedule 4.16 separately identifies as of the date hereof all Title IV Plans, all Multiemployer Plans and all Foreign Plans.

(b) Each employee benefit plan of TNCLP or any of its Subsidiaries which is intended to qualify under Section 401 of the Code does so qualify, and any trust created thereunder is exempt from tax under the provisions of Section 501 of the Code, except where all such failures would not have a Material Adverse Effect.

(c) Each Title IV Plan is in compliance in all material respects with applicable provisions of ERISA, the Code and other Requirements of Law except for non-compliances that in the aggregate would not have a Material Adverse Effect.

(d) There has been no, nor is there reasonably expected to occur, any ERISA Event which would have a Material Adverse Effect.

(e) Except to the extent set forth on Schedule 4.16, none of TNCLP, any of its Subsidiaries or any ERISA Affiliate would have any Withdrawal Liability as a result of a complete withdrawal as of the date hereof from any Multiemployer Plan.

Section 4.17. Environmental Matters.

(a) Except as set forth on Schedule 4.17, the operations of TNCLP and each of its Subsidiaries have been and are in compliance with all Environmental Laws, including obtaining and complying in all material respects with all Permits required by Environmental Laws (“Environmental Permits”), other than non-compliances that in the aggregate would not have a reasonable likelihood of TNCLP and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $1,000,000.

(b) Except as set forth on Schedule 4.17, TNCLP and its Subsidiaries have obtained and currently possess all Environmental Permits necessary for their operations, all such Permits are in good standing and TNCLP and each of its Subsidiaries is in compliance with the terms and conditions of such Permits except for failures that in the aggregate would not have a reasonable likelihood of TNCLP and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $1,000,000.

(c) Except as set forth on Schedule 4.17, none of TNCLP or any of its Subsidiaries or any Real Property currently or, to its knowledge, previously owned, operated or leased by or for TNCLP or any of its Subsidiaries is subject to any pending or, to its knowledge threatened, written claim, order, agreement, notice of violation, notice of potential liability or other allegation or is the subject of any pending or, to its knowledge, threatened proceeding or governmental investigation under or pursuant to Environmental Laws other than those that in the aggregate would not have a reasonable likelihood of TNCLP and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $1,000,000.

(d) Except as set forth on Schedule 4.17, none of TNCLP or any of its Subsidiaries is a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the regulations thereunder or any state analog.

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(e) Except as set forth on Schedule 4.17, there are no facts, circumstances or conditions arising out of or relating to the operations or ownership of Real Property owned or operated by TNCLP or any of its Subsidiaries that could reasonably be expected to give rise to Environmental Liabilities and Costs which are not specifically included in the financial information furnished to the Lenders other than those that in the aggregate would not have a reasonable likelihood of resulting in TNCLP or any of its Subsidiaries incurring Environmental Liabilities and Costs in excess of $1,000,000.

(f) Except as set forth on Schedule 4.17, as of the date hereof, no Environmental Lien has attached to any property of TNCLP or any of its Subsidiaries and to its knowledge no facts, circumstances or conditions exist that could reasonably be expected to result in any such lien attaching to any such property.

(g) Except as set forth on Schedule 4.17, TNCLP and each of its Subsidiaries has provided the Administrative Agent with copies of all material environmental, health or safety audits, studies, assessments, inspections, investigations or other environmental health and safety reports relating to the operations of TNCLP and its Subsidiaries or their Real Property that are in the possession, custody or control of TNCLP or any of its Subsidiaries.

Section 4.18. Intellectual Property. TNCLP and its Subsidiaries own or license or otherwise have the right to use all licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, franchises, authorizations and other intellectual property rights (including all Intellectual Property as defined in the Pledge and Security Agreement) that are necessary and material to the operations of their respective businesses, without infringement upon or conflict with the rights of any other Person with respect thereto, including all trade names associated with any material private label brands of TNCLP or any of its Subsidiaries. To the Borrower’s and TNCLP’s knowledge, no slogan or other advertising device, product, process, method, substance, part or component, or other material now employed, or now contemplated to be employed, by TNCLP or any of its Subsidiaries infringes upon or conflicts in any material respect with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened.

Section 4.19. Title; Real Property.

(a) Schedule 4.19 sets forth all the Real Property (other than Non-Material Real Property) owned by TNCLP and its Material Subsidiaries at the date hereof and each of TNCLP and its Subsidiaries has good and marketable title to, or valid leasehold interests in, all such Real Property and good title to all personal property purported to be owned by it, including those reflected on the most recent Financial Statements delivered by the Borrower, and none of such properties and assets is subject to any Lien, except Liens permitted under Section 8.2. TNCLP and its Subsidiaries have received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and have duly effected all recordings, filings and other actions necessary to establish, protect and perfect in all material respects TNCLP’s and its Material Subsidiaries’ right, title and interest in and to all such property.

(b) Set forth on Schedule 4.19 hereto is a complete and accurate list of all Real Property (other than Non-Material Real Property) owned and leased by TNCLP and its

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Material Subsidiaries showing as of the Effective Date the street address, county or other relevant jurisdiction, state, and record owner. Each Loan Party has good, indefeasible and marketable fee simple (or, where relevant, leasehold) title to all Real Property purported to be owned by it, which ownership is free and clear of all Liens other than Liens created or permitted by the Loan Documents.

(c) Except as set forth on Schedule 4.19 (or otherwise notified in writing to the Administrative Agent in respect of Real Property acquired after the Effective Date), neither TNCLP nor any of its Subsidiaries owns or holds, or is obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell, assign or dispose of any Real Property (other than Non-Material Real Property) owned or leased by TNCLP or any of its Subsidiaries except as permitted by the Loan Documents.

(d) All material components of all improvements included within the Real Property owned or leased by TNCLP or any of its Subsidiaries (collectively, “Improvements”), including the roofs and structural elements thereof and the heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water, paving and parking equipment, systems and facilities included therein, are in working order and repair to the extent necessary for the effective and orderly conduct of the business, operations and activities of TNCLP and its Subsidiaries in all material respects (but in any event to a standard not lower than that generally maintained by TNCLP and its Subsidiaries during the two year period preceding the date hereof). All water, gas, electrical, steam, compressed air, telecommunication, sanitary and storm sewage lines and systems and other similar systems serving the Real Property owned or leased by TNCLP or any of its Subsidiaries are installed and operating and are sufficient to enable the Real Property owned or leased by TNCLP or its Subsidiaries to continue to be used and operated in the manner currently being used and operated, and neither TNCLP nor any of its Subsidiaries has any knowledge of any factor or condition that could result in the termination or material impairment of the furnishing thereof. No Improvement or portion thereof is dependent for its access, operation or utility on any land, building or other Improvement not included in the Real Property owned or leased by TNCLP or any of its Subsidiaries or over which it has a right of way or easement.

(e) No portion of any Real Property owned or leased by TNCLP or any of its Subsidiaries has suffered any material damage by fire or other casualty loss which has not heretofore been substantially repaired and restored to its original condition except with respect to which repair has been commenced (as set forth on Schedule 4.19 (or otherwise notified in writing to the Administrative Agent after the Effective Date)) and is being diligently progressed. Except as set forth on Schedule 4.19 (or otherwise notified in writing to the Administrative Agent after the Effective Date), no portion of any Real Property owned or leased by TNCLP or any of its Subsidiaries is located in a special flood hazard area as designated by any federal Governmental Authority.

(f) All Permits required to have been issued or appropriate to enable all Real Property owned or leased by TNCLP or any of its Subsidiaries to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect, other than those which in the aggregate would not have a Material Adverse Effect.

(g) None of TNCLP or any of its Subsidiaries has received any notice, or has any knowledge, of any pending, threatened or contemplated condemnation proceeding affecting

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any Real Property owned or leased by TNCLP or any of its Subsidiaries or any part thereof, except those which, in the aggregate, would not have a Material Adverse Effect.

Section 4.20. Pari Passu Obligations. This Agreement and the other Loan Documents and the obligations evidenced hereby and thereby are and will at all times be direct and unconditional general obligations of the Borrower, and rank and will at all times rank in right of payment and otherwise at least pari passu with all unsecured Indebtedness of the Borrower, whether now existing or hereafter outstanding, subject to statutory priority and the effect of bankruptcy and insolvency law.

ARTICLE V

FINANCIAL COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, unless the Requisite Lenders otherwise consent in writing, TNCLP agrees with the Lenders and the Administrative Agent that:

Section 5.1. Minimum EBITDA. If, at any time during any Fiscal Quarter, the aggregate Available Credit is less than $10,000,000 for more than three consecutive Business Days, TNCLP and its Subsidiaries will have EBITDA for the four Fiscal Quarter period set forth below ending as of the last day of the immediately preceding Fiscal Quarter of not less than the amount set forth below opposite such period:

Fiscal Quarters	EBITDA
4 Fiscal Quarters ended December 31, 2004 and each 4 Fiscal Quarter period thereafter	$	25,000,000

For avoidance of doubt, an Event of Default for purposes of Section 9.1(e)(i) in respect of the minimum EBITDA requirement indicated above shall be deemed to have occurred and be continuing as of the next Business Day immediately following the aforementioned three consecutive Business Days in the event that TNCLP and its Subsidiaries shall not have met the minimum EBITDA requirement set forth above.

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Section 5.2. Capital Expenditures and Joint Venture Investments. TNCLP will not permit (a) Capital Expenditures of TNCLP and its Subsidiaries (excluding any Capital Expenditures financed by insurance proceeds to the extent permitted hereunder) to be made or incurred during each period set forth below and (b) the cash Investments in joint ventures made during such period permitted under Section 8.3(l), in aggregate to be in excess of the maximum amount set forth below, for such period:

Fiscal Year	Maximum Amount
Effective Date through December 31, 2005	$	10,000,000
Fiscal Year ended December 31, 2006	$	10,000,000
Fiscal Year ended December 31, 2007	$	10,000,000
First two Fiscal Quarters for the Fiscal Year 2008	$	5,000,000

Section 5.3. Minimum Liquidity. The Borrower shall not permit the aggregate Available Credit of the Borrower to be less than $5,000,000 for more than three consecutive Business Days.

ARTICLE VI

REPORTING COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, unless the Requisite Lenders (except as provided in Section 11.1) otherwise consent in writing, the Borrower agrees with the Lenders and the Administrative Agent that:

Section 6.1. Financial Statements. TNCLP shall furnish to the Lenders the following Financial Statements:

(a) Monthly Reports. Within 30 days after the end of each fiscal month (other than March, June and September) in each Fiscal Year, financial information regarding TNCLP and its Subsidiaries consisting of consolidated and consolidating unaudited balance sheets as of the close of such month and the related statements of income and cash flow for such month and that portion of the current Fiscal Year ending as of the close of such month, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections, in each case certified by a Responsible Officer of TNCLP as fairly presenting the consolidated and consolidating financial position of TNCLP and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).

(b) Quarterly Reports. Within 45 days after the end of each Fiscal Quarter (other than a Fiscal Quarter ending December 31) in each Fiscal Year, financial information regarding TNCLP and its Subsidiaries consisting of consolidated and consolidating unaudited balance sheets as of the close of such quarter and the related statements of income and cash flow for such quarter and that portion of the Fiscal Year ending as of the close of such quarter, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections, in each case certified by a Responsible Officer of TNCLP as fairly presenting the consolidated and consolidating financial position of TNCLP and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).

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(c) Annual Reports. Within 90 days after the end of each Fiscal Year, financial information regarding TNCLP and its Subsidiaries consisting of consolidated and consolidating balance sheets of TNCLP and its Subsidiaries as of the end of such year and related statements of income and cash flows of TNCLP and its Subsidiaries for such Fiscal Year, all prepared in conformity with GAAP and certified, in the case of such consolidated financial statements, without qualification as to the scope of the audit by Deloitte & Touche LLP or other independent public accountants acceptable to the Administrative Agent, together with the report of such accounting firm stating that (i) such financial statements fairly present the consolidated financial position of TNCLP and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which such independent certified public accountants shall concur and which shall have been disclosed in the notes to the financial statements), and (ii) the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards, and accompanied by a certificate stating that in the course of the regular audit of the business of TNCLP and its Subsidiaries such accounting firm has obtained no knowledge that a Default or Event of Default in respect of the financial covenants contained in Article V has occurred and is continuing, or, if in the opinion of such accounting firm, a Default or Event of Default has occurred and is continuing in respect of such financial covenants, a statement as to the nature thereof.

(d) Compliance Certificate. Together with each delivery of any financial statement pursuant to clauses (b) and (c) of this Section 6.1, a certificate of a Responsible Officer of a Borrower (each, a “Compliance Certificate”) (i) demonstrating compliance with each of the financial covenants contained in Article V which is tested on a quarterly basis and (ii) stating that, to the best of such Responsible Officer’s knowledge, no Default or Event of Default has occurred and is continuing or, if a Default or an Event of Default has occurred and is continuing, stating the nature thereof and the action which the Borrower proposes to take with respect thereto.

(e) Business Plan. Not later than 60 days after the end of each Fiscal Year, and containing substantially the types of financial information contained in the Projections delivered pursuant to clause (i) of the definition of such term in Section 1.1, (i) the annual business plan of TNCLP and its Subsidiaries for the next succeeding Fiscal Year approved by the Board of Directors of TNCLP (ii) forecasts prepared by management of TNCLP and its Subsidiaries for each fiscal month in the next succeeding Fiscal Year, and (iii) forecasts prepared by management of TNCLP and its Subsidiaries for each of the succeeding Fiscal Years through Fiscal Year 2008, including, in each instance described in clause (ii) and clause (iii) above, (A) a projected year-end consolidated balance sheet and income statement and statement of cash flows and (B) a statement of all of the material assumptions on which such forecasts are based.

(f) Management Letters, Etc. Within five Business Days after receipt thereof by any Loan Party, copies of each management letter, exception report or similar letter or report received by such Loan Party from its independent certified public accountants;

(g) Loans and Intercompany Loan Balances. Together with each delivery of any financial statement pursuant to clauses (b) or (c) of this Section 6.1, a summary of the outstanding Loans and the outstanding balance of all Intercompany Indebtedness as of the last day of the fiscal quarter covered by such financial statement (or more frequently as may be required by the Administrative Agent), certified by a Responsible Officer.

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(h) Additional Information. Promptly, from time to time, such other information regarding the operations, including information regarding specific product categories and lines of business of TNCLP and its Subsidiaries, business affairs and financial condition of TNCLP or any of its Subsidiaries, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.

Section 6.2. Default Notices. As soon as practicable, and in any event within five Business Days after a Responsible Officer of any Loan Party has actual knowledge of the existence of any Default, Event of Default or other event which has had a Material Adverse Effect or which has any reasonable likelihood of causing or resulting in a Material Adverse Change, the Borrower shall give the Administrative Agent notice specifying the nature of such Default or Event of Default or other event, including the anticipated effect thereof, which notice, if given by telephone, shall be promptly confirmed in writing on the next Business Day.

Section 6.3. Litigation. Promptly after the commencement thereof, the Borrower shall give the Administrative Agent written notice of the commencement of all actions, suits and proceedings before any domestic or foreign Governmental Authority or arbitrator, affecting TNCLP or any of its Subsidiaries and known to a Responsible Officer, which in the reasonable judgment of TNCLP or such Subsidiary, could reasonably be expected to expose TNCLP or such Subsidiary to liability in an amount aggregating $500,000 or more or which, if adversely determined, would have a Material Adverse Effect.

Section 6.4. Asset Sales. Prior to any Asset Sale anticipated to generate in excess of $5,000,000 (or its Dollar Equivalent) in Net Cash Proceeds, TNCLP shall send the Administrative Agent a notice (a) describing such Asset Sale or the nature and material terms and conditions of such transaction and (b) stating the estimated Net Cash Proceeds anticipated to be received by TNCLP or any of its Subsidiaries.

Section 6.5. SEC Filings; Press Releases. Promptly after the sending or filing thereof, the Borrower shall send the Administrative Agent copies of (a) all reports which TNCLP or any of its Material Subsidiaries sends to its security holders generally, (b) all reports and registration statements which TNCLP or any of its Subsidiaries files with the Securities and Exchange Commission or any national or foreign securities exchange or the National Association of Securities Dealers, Inc., (c) all press releases and (d) all other statements concerning material changes or developments in the business of such Loan Party made available by any Loan Party to the public.

Section 6.6. Labor Relations. Promptly after a Responsible Officer becomes aware of the same, the Borrower shall give the Administrative Agent written notice of (a) any material labor dispute to which TNCLP or any of its Material Subsidiaries is or may become a party, including any strikes, lockouts or other disputes relating to any of such Person’s plants and other facilities, and (b) any Worker Adjustment and Retraining Notification Act or related liability incurred with respect to the closing of any plant or other facility of any of such Person.

Section 6.7. Tax Returns. Upon the request of any Lender, through the Administrative Agent, the Borrower will provide copies of all federal, state, material local and foreign tax returns and reports filed by TNCLP or any of its Subsidiaries in respect of taxes measured by income (excluding sales, use and like taxes).

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Section 6.8. Insurance. As soon as is practicable and in any event within 90 days after the end of each Fiscal Year, the Borrower will furnish the Administrative Agent (in sufficient copies for each of the Lenders) with (a) a report in form and substance reasonably satisfactory to the Administrative Agent and the Lenders outlining all material insurance coverage maintained as of the date of such report by TNCLP and its Material Subsidiaries and the duration of such coverage and (b) an insurance broker’s statement that all premiums then due and payable with respect to such coverage have been paid.

Section 6.9. ERISA Matters. The Borrower shall furnish the Administrative Agent (with sufficient copies for each of the Lenders):

(a) promptly and in any event within 30 days after a Responsible Officer of TNCLP, any of its Material Subsidiaries or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred;

(b) promptly and in any event within 10 days after a Responsible Officer of TNCLP, any of its Material Subsidiaries or any ERISA Affiliate knows or has reason to know that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Title IV Plan or Multiemployer Plan, a written statement of a Responsible Officer of TNCLP describing such ERISA Event or waiver request and the action, if any, which TNCLP, its Subsidiaries and ERISA Affiliates propose to take with respect thereto and a copy of any notice filed with the PBGC or the IRS pertaining thereto;

(c) simultaneously with the date that TNCLP, any of its Material Subsidiaries or any ERISA Affiliate files a notice of intent to terminate any Title IV Plan, if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, a copy of each notice.

Section 6.10. Environmental Matters. The Borrower shall provide the Administrative Agent promptly and in any event within 10 days of a Responsible Officer of TNCLP or any Subsidiary learning of any of the following, written notice of any of the following:

(a) that any Loan Party is or may be liable to any Person as a result of a Release or threatened Release which could reasonably be expected to subject such Loan Party to Environmental Liabilities and Costs of $1,000,000 or more;

(b) the receipt by any Loan Party of notification that any real or personal property of such Loan Party is subject to any Environmental Lien;

(c) the receipt by any Loan Party of any notice of violation of or potential liability under, or knowledge by such Loan Party that there exists a condition which could reasonably be expected to result in a violation of or liability under any Environmental Law, except for violations and liabilities the consequence of which in the aggregate would have no reasonable likelihood of subjecting the Loan Parties collectively to Environmental Liabilities and Costs of $1,000,000 or more;

(d) the commencement of any judicial or administrative proceeding or investigation alleging a violation of or liability under any Environmental Law, which in the aggregate, if adversely determined, would have a reasonable likelihood of subjecting the Loan Parties collectively to Environmental Liabilities and Costs of $1,000,000 or more;

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(e) any proposed acquisition of stock, assets or real estate, or any proposed leasing of property, or any other action by any Loan Party or any of its Subsidiaries the consequences of which in the aggregate have a reasonable likelihood of subjecting the Loan Parties collectively to Environmental Liabilities and Costs of $1,000,000 or more;

(f) any proposed action by any Loan Party or any of its Subsidiaries or any proposed change in Environmental Laws which in the aggregate have a reasonable likelihood of requiring the Loan Parties to obtain additional environmental, health or safety Permits or make additional capital improvements to obtain compliance with Environmental Laws that in each case in the aggregate would cost $1,000,000 or more or subject the Loan Parties to additional Environmental Liabilities and Costs of $1,000,000 or more; and

(g) upon written request by the Administrative Agent or by any Lender through the Administrative Agent, following (i) the acquisition by a Loan Party or its Subsidiary of a fee interest in any Real Property, (ii) the occurrence of a Default or Event of Default pursuant to Section 7.10 or (iii) the occurrence (or the reasonable belief by the Administrative Agent, following consultation with the Borrower, of the occurrence) of any of the matters to be notified by the Borrower under this Section 6.10, a report prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent providing, as appropriate in the circumstances, an assessment of the status of any Environmental Liabilities and Costs and other environmental, health or safety compliance, hazard or liability issue arising in relation thereto, which assessment shall be reasonable in scope in light of the circumstances, perceived risks and the facts known at the time. Without limiting the foregoing, if the Administrative Agent determines at any time that a material risk exists that any such report will not be provided within a reasonable time following such request the Administrative Agent may retain an environmental consulting firm to prepare such report at the expense of the Borrower.

Section 6.11. Borrowing Base Determination.

(a) The Borrower shall furnish to the Administrative Agent no later than Wednesday of each week or more frequently as may be requested by the Administrative Agent, a Borrowing Base Certificate for the Borrower as of the immediately preceding Friday (or the relevant third preceding Business Day if requested more frequently) executed by a Responsible Officer of the Borrower together with reasonably detailed supporting information and documentation acceptable to the Administrative Agent. The Administrative Agent shall make reasonable efforts to furnish to the Lenders a copy of each Borrowing Base Certificate following receipt thereof from the Borrower; provided, however, that failure to furnish such a copy will not give rise to a claim or remedy by the Lenders against the Administrative Agent.

(b) The Borrower shall conduct, or shall cause to be conducted, at its expense, and upon request of the Administrative Agent, and present to the Administrative Agent for approval, such appraisals, investigations and reviews as the Administrative Agent shall reasonably request for the purpose of determining each Borrowing Base, all upon notice and at such times during normal business hours and as often as may be reasonably requested. The Borrower shall furnish to the Administrative Agent any information which the Administrative Agent may reasonably request regarding the determination and calculation of its Borrowing Base including correct and complete copies of any invoices, underlying agreements, instruments or other documents and the identity of all Account Debtors in respect of Accounts referred to therein.

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(c) The Borrower shall notify the Administrative Agent in writing promptly upon the Borrower receiving or otherwise gaining knowledge that the Revolving Credit Outstandings in respect of the Borrower would result in a Borrowing Base Deficiency.

(d) The Administrative Agent may, at the Borrower’s sole cost and expense, make test verifications of the Accounts and physical verifications of the Inventory in any manner and through any medium that the Administrative Agent considers advisable, and the Borrower shall furnish all such assistance and information as the Administrative Agent may reasonably require in connection therewith.

Section 6.12. Other Information. The Borrower will provide the Administrative Agent or any Lender with such other information respecting the business, properties, condition, financial or otherwise, or operations of TNCLP or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request.

Section 6.13. Material Documents. The Borrower will provide to the Administrative Agent on or before the date of execution, or amendment, waiver or consent (which amendment, waiver or consent shall comply with Section 8.11) in respect of each Material Document, notification thereof together with a certified copy of such Material Document or amendment, waiver or consent as applicable.

ARTICLE VII

AFFIRMATIVE COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, unless the Requisite Lenders (except as provided in Section 11.1) otherwise consent in writing, the Borrower agrees with the Lenders and the Administrative Agent that:

Section 7.1. Preservation of Corporate Existence, Etc. Each of TNCLP and the Borrower shall, and shall cause each of its Subsidiaries to, preserve and maintain its corporate or partnership existence, rights (charter and statutory) and franchises, except (i) as permitted by Sections 8.3 and 8.4 and (ii) the abandonment of such rights and franchises which are no longer necessary or desirable to the conduct of the business of TNCLP or its Subsidiaries and which abandonment would not have a Material Adverse Effect.

Section 7.2. Compliance with Laws, Etc. Each of TNCLP and the Borrower shall, and shall cause each of its Subsidiaries to, comply with all applicable Requirements of Law, Contractual Obligations and Permits (and maintain in full force and effect all contracts constituting such Contractual Obligations and such Permits), except where the failure so to comply would not in the aggregate have a Material Adverse Effect.

Section 7.3. Conduct of Business. Each of TNCLP and the Borrower shall, and shall cause each of its Subsidiaries to, (a) conduct its business in the ordinary course and substantially in accordance with past practice and (b) use its reasonable efforts, in the ordinary course and substantially in accordance with past practice, to preserve its business and the goodwill and business of the customers, advertisers, suppliers and others having business relations with the Borrower or any of its Subsidiaries, except in each case where the failure to

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comply with the covenants in each of clauses (a) and (b) above would not in the aggregate have a Material Adverse Effect.

Section 7.4. Payment of Taxes, Etc. Each of TNCLP and the Borrower shall, and shall cause each of its Material Subsidiaries to, pay and discharge before the same shall become delinquent, all material lawful governmental claims, taxes, assessments, charges and levies, except where contested in good faith, by proper proceedings and adequate reserves therefor have been established on the books of such Loan Party or the appropriate Subsidiary in conformity with GAAP.

Section 7.5. Maintenance of Insurance. Each of TNCLP and the Borrower shall (i) maintain, and cause to be maintained for each other Loan Party and each of its Material Subsidiaries insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which TNCLP, the Borrower or such Subsidiary operates, and such other insurance as may be reasonably requested by the Requisite Lenders and the Administrative Agent (as a result of any report delivered pursuant to Section 6.8 or the Lenders or Administrative Agent becoming aware of any fact or circumstances following the Effective Date which would indicate that it would be prudent and consistent with industry practice for such additional insurance to be obtained), and, in any event, all insurance required by any Collateral Documents and (ii) cause all such insurance to name the Administrative Agent on behalf of the Secured Parties as additional insured or loss payee, as appropriate as set forth in Section 3.1(a)(xix), and to provide that no cancellation, material addition in amount or material change in coverage shall be effective until after 30 days’ written notice thereof to the Administrative Agent.

Section 7.6. Access. Each of TNCLP and the Borrower shall from time to time, permit, and shall cause each of its Subsidiaries to permit, the Administrative Agent and the Lenders, or any agents or representatives thereof, within one Business Day after written notification of the same (except that during the continuance of an Event of Default, no such notice shall be required) to (a) examine and make copies of and abstracts from the records and books of account of such Loan Party and each of its Subsidiaries, (b) visit the properties of such Loan Party and each of its Subsidiaries, (c) discuss the affairs, finances and accounts of such Loan Party and each of its Subsidiaries with any of their respective officers or directors, and (d) communicate directly with the Borrower’s independent certified public accountants; provided, however, that the Borrower may participate in such communication unless a Default or Event of Default has occurred and is continuing). Each of TNCLP and the Borrower shall authorize their independent certified public accountants to disclose to the Administrative Agent or any Lender any and all financial statements and other information of any kind, as the Administrative Agent or any Lender reasonably requests from the Borrower, any other Loan Party or any of its Subsidiaries and which such accountants may have with respect to the business, financial condition, results of operations or other affairs of such Loan Party or any of its Subsidiaries.

Section 7.7. Keeping of Books. Each of TNCLP and the Borrower shall, and shall cause each other Loan Party and each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made in conformity with GAAP of all financial transactions and the assets and business of TNCLP, the Borrower and each such Subsidiary.

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Section 7.8. Maintenance of Properties, Etc. Each of TNCLP and the Borrower shall, and shall cause each of its Subsidiaries to, maintain and preserve, (a) all of its properties which are necessary in the conduct of its business in such working order and condition to the extent necessary for the effective and orderly conduct of the business, operations and activities of TNCLP and its Subsidiaries in all material respects (but in any event to a standard not lower than that generally maintained by TNCLP and its Subsidiaries during the two year period preceding the date hereof), (b) all rights, permits, licenses, approvals and privileges (including all Permits) which are used or necessary in the conduct of its business, and (c) all registered patents, trademarks, trade names, copyrights and service marks with respect to its business; except where the failure to so maintain and preserve in the aggregate would have no Material Adverse Effect.

Section 7.9. Application of Proceeds. The Borrower shall use the entire amount of the proceeds of the Loans as provided in Section 4.13.

Section 7.10. Environmental. Each of TNCLP and the Borrower shall, and shall cause each of its Subsidiaries to comply in all material respects with Environmental Laws and, without limiting the foregoing, each of TNCLP and the Borrower shall, at their sole cost and expense, upon receipt of a notification or otherwise obtaining knowledge of any Release or other event that has a reasonable likelihood of TNCLP and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $1,000,000, (i) conduct or pay for consultants to conduct, tests or assessments of environmental conditions at such operations or properties, including the investigation and testing of subsurface conditions and (ii) take such Remedial Action as required by Environmental Laws or as any Governmental Authority lawfully requires or as is appropriate and consistent with good business practice to address the Release or event; provided, however, that TNCLP and the Borrower shall not be deemed to be in violation of this Section 7.10 where a failure to comply with any provision hereof would not reasonably be expected to result in TNCLP and its Subsidiaries incurring Environmental Liabilities and Costs in excess of $1,000,000.

Section 7.11. Additional Collateral and Guaranties; Further Assurances.

(a) To the extent not delivered to the Administrative Agent on or before the Effective Date or to the extent the delivery thereof would be covered by clause (b) below, each of TNCLP and the Borrower agrees promptly to, or ensure that each of its Material Subsidiaries shall promptly (or, to the extent legally restricted from doing so at the date hereof, promptly following the removal of such restriction), (i) execute and deliver to the Administrative Agent such further, and such amendments to the, Collateral Documents as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Stock and Stock Equivalents and other debt Securities of any Material Subsidiary which are owned by TNCLP or any of its Subsidiaries and requested to be pledged by the Administrative Agent; provided, however, (A) that such Stock, Stock Equivalents or other debt Securities shall not include assets constituting Senior Secured Note Collateral and (B) in no event shall any Loan Party or any of its Subsidiaries be required to pledge in excess of 65% of the outstanding Stock of any first tier Material Subsidiary that is not a Domestic Subsidiary or any of the outstanding stock of any Subsidiary of such first tier Subsidiary, or (ii) deliver to the Administrative Agent the certificates (if any) representing such Stock and Stock Equivalents and other debt Securities, together with (A) in the case of such certificated Stock and Stock Equivalents, undated stock powers endorsed in blank,

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and (B) in the case of such certificated debt Securities, endorsed in blank, in each case executed and delivered by a Responsible Officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such new Material Subsidiary (A) to become a party to a Guaranty and the applicable Collateral Documents and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Secured Parties a perfected security interest in the Collateral described in the Collateral Documents with respect to such new Material Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Collateral Documents or by law or as may be reasonably requested by the Administrative Agent and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Agent; provided, however, that such new Material Subsidiary, if not a Domestic Subsidiary, shall not be required to guarantee and secure the Obligations.

(b) TNCLP and its Subsidiaries shall ensure that with respect to any gas Hedging Contract and any other Hedging Contract nominated by the Administrative Agent, all payments to TNCLP or its Subsidiaries thereunder by the applicable counterparty thereto shall be made directly to a Cash Collateral Account or Approved Deposit Account (approved for such purpose by the Administrative Agent) and an irrevocable instruction (in form and substance satisfactory to the Administrative Agent) shall have been given by TNCLP or its relevant Subsidiary to such counterparty to make payments thereunder to such Cash Collateral Account or Approved Deposit Account.

(c) Promptly upon the reasonable request by the Administrative Agent, each of TNCLP and the Borrower shall, and shall ensure that each of its Subsidiaries shall, take such action as the Administrative Agent may request (including the execution, amendment, delivery, filing and registration of any Loan Document or other document, certificate, agreement or instrument) in order to correct any material defect or error which may be discovered which impairs, or may fail to provide, the intended legality, effectiveness, accuracy, perfection or priority of any Loan Document.

(d) TNCLP and the Borrower shall use their best efforts to ensure that, not later than the date which is 30 days after the Effective Date (or such later date as the Administrative Agent may agree to in its sole discretion), Terra Capital and the Trustee under the Senior Secured Note Indenture and (if applicable) the Trustee under the Second Lien Note Indenture shall have entered into an intercreditor agreement with, and in form and substance acceptable to, the Administrative Agent with respect to a certain secured fixed asset note which has been issued by the Borrower in favor of Terra Capital and certain collateral documents with respect thereto.

Section 7.12. Cash Collateral Accounts and Cash Management System. TNCLP and the Borrower shall ensure that the following accounts and cash management systems shall be implemented and maintained:

(a) TNCLP and its Subsidiaries shall maintain Cash Collateral Accounts, Approved Deposit Accounts and the Concentration Account as set forth on Schedule 7.12 or as may otherwise be approved by the Administrative Agent.

(b) The Administrative Agent shall (subject as provided below) have a perfected first priority lien on the Cash Collateral Accounts, and the Concentration Account. As

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long as any of the Obligations or any of the Revolving Credit Commitments remain outstanding, no Loan Party nor any Person or entity claiming by, through or under any Loan Party shall have any control over the use of, or any right to effect a withdrawal from, any Cash Collateral Account or the Concentration Account. All amounts in the Cash Collateral Accounts of TNCLP and its Subsidiaries shall be applied by the Administrative Agent as specified in clause(d) below.

(c) The Borrower shall instruct its Account Debtors in respect of the Collateral to mail their remittances to a Lockbox and such Loan Party shall take all steps necessary or desirable, in the Administrative Agent’s sole discretion, to cause such Account Debtors to mail their remittances to such Lockbox. The Borrower shall mail to its Lockbox any remittances from such Account Debtors received directly by it as soon as possible (but in any event no later than the Business Day immediately following receipt).

(d) Notwithstanding Section 11.1(a)(ix), the Borrower shall maintain a cash management system acceptable to the Administrative Agent including one or more Lockboxes. Such cash management system shall provide for (A) all funds received by the Borrower (other than funds constituting Senior Secured Note Collateral) to be deposited in a Lockbox or Approved Deposit Account covered by a Deposit Account Control Agreement, (B) daily deposit of remittances received in the Lockbox to the Approved Deposit Account, (C) daily sweeping of the funds in the Approved Deposit Account to the Concentration Account and (D) upon receipt of notice from the Borrower (as provided in the following sentence), allocation and transfer of such amounts in the Concentration Account to the appropriate Cash Collateral Account of the Borrower. The Borrower shall notify the Administrative Agent within two Business Days of the deposit of any proceeds of Collateral in the Concentration Account which portion of such proceeds is owned by the Borrower. All funds on deposit in the Cash Collateral Accounts in respect of the Borrower shall be applied in the manner specified in Section 2.9(e).

(e) The Borrower shall, not later than the Effective Date (or such later date as shall be acceptable to the Administrative Agent in its sole discretion), deliver to the Administrative Agent the Deposit Account Control Agreements, covering such accounts (other than accounts constituting Senior Secured Note Collateral) as the Administrative Agent shall direct, each duly executed by each party thereto.

(f) Any Loan Party may deposit any cash and Cash Equivalents held by it, which are not required to be applied in any other manner under the Loan Documents or the Senior Secured Note Documents, into such collateral account as may be approved by the Administrative Agent for the purpose of including such cash or Cash Equivalents in the calculation of a Borrowing Base. The Administrative Agent shall have a perfected first priority lien over any such account and (notwithstanding Section 11.1(a)(ix)) any cash or Cash Equivalents deposited in such account for such purpose may not subsequently be withdrawn by a Loan Party without the approval of the Administrative Agent.

(g) The Administrative Agent may convert into Dollars any amount not denominated in Dollars which is deposited in any Cash Collateral Account or which is otherwise received by it from or for the account of any Loan Party (which pursuant to the Loan Documents is to be applied to the payment of the Obligations) and the Borrower hereby agrees to indemnify the Administrative Agent and each other Indemnitee (as defined in Section 11.4(a)) from and against any loss, liability, cost or expense incurred by it in connection with such conversion and any Indemnitee entering into any currency exchange contract in the ordinary course of business for such purpose.

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(h) None of TNCLP or its Subsidiaries shall, following and during the continuance of a Default or Event of Default, maintain cash or Cash Equivalents (other than in respect of those funds referred to in Section 8.3(b)) in aggregate in excess of $1,000,000 outside of those accounts which are Approved Deposit Accounts, the Concentration Account, Cash Collateral Accounts or accounts in which funds constituting Senior Secured Note Collateral are deposited or maintained including, without limitation, the Collateral Account (as defined in the Senior Secured Note Indenture).

Section 7.13. Real Estate. The Borrower shall, and shall cause each other Loan Party and each of its Subsidiaries to, use all commercially reasonable efforts to, (i) comply in all material respects with all of their respective obligations under all of their respective Leases now or hereafter held respectively by them with respect to Real Property (other than Non-Material Real Property), including the Leases set forth in Schedule 4.19; (ii) not modify, amend, cancel, extend or otherwise change in any materially adverse manner any of the terms, covenants or conditions of any such Leases; (iii) not assign or sublet any other Lease if such assignment or sublet would have a Material Adverse Effect; (iv) provide the Administrative Agent with a copy of each notice of default under any Lease received by such Loan Party or any of its Subsidiaries immediately upon receipt thereof and deliver to the Administrative Agent a copy of each notice of default sent by such Loan Party or any of its Subsidiaries under any Lease simultaneously with its delivery of such notice under such Lease; and (v) notify the Administrative Agent at least 14 days prior to the date the Borrower or any Subsidiary takes possession of, or becomes liable under, any new leased premises or Lease, whichever is earlier.

Section 7.14. Hedging Contracts. TNCLP and its Subsidiaries shall at all times maintain on terms and with counterparties reasonably satisfactory to the Administrative Agent natural gas Hedging Contracts in accordance with the hedging policy regarding natural gas which has been and will continue to be adopted by the Board of Directors of TNCLP and as in effect from time to time, to provide protection to TNCLP and its Subsidiaries against fluctuations in natural gas prices.

ARTICLE VIII

NEGATIVE COVENANTS

As long as any of the Obligations (in respect of Revolving Credit Outstandings, interest or fees thereon and expenses related thereto) or the Revolving Credit Commitments remain outstanding, without the written consent of (except as provided in Section 11.1) the Requisite Lenders, TNCLP and the Borrower agree with the Lenders and the Administrative Agent that:

Section 8.1. Indebtedness. TNCLP will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness except:

(a) the Obligations (but excluding Obligations in respect of Interest Rate Contracts unless otherwise permitted in clause (g) below);

(b) Indebtedness existing on the date of this Agreement and disclosed on Schedule 8.1;

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(c) Capital Lease Obligations and purchase money Indebtedness incurred by TNCLP or its Subsidiaries to finance the acquisition of Real Property or Equipment in an aggregate outstanding principal amount not to exceed $10,000,000 at any time; provided, however, that the Capital Expenditure related thereto is otherwise permitted by Section 5.2;

(d) Renewals, extensions, refinancings and refundings of Indebtedness permitted by clause (b) or (c) of this Section 8.1; provided, however, that any such renewal extension, refinancing or refunding is in an aggregate principal amount not greater than the principal amount of, and is on terms no less favorable to TNCLP or such Subsidiary, including as to weighted average maturity, than the Indebtedness being renewed, extended, refinanced or refunded;

(e) Intercompany Indebtedness which is a permitted Investment under Section 8.3(e) and any unsecured Indebtedness owed to Terra Industries and its Subsidiaries which is an Unsecured Guarantor, provided, that, no further Indebtedness shall be permitted to be incurred following the date hereof which is owed to Terra Capital;

(f) Indebtedness arising under any performance or surety bond entered into in the ordinary course of business;

(g) Obligations under Hedging Contracts required by Section 7.14 or as permitted by Section 8.17;

(h) unsecured Indebtedness not otherwise permitted under this Section 8.1 in an aggregate outstanding principal amount not to exceed $5,000,000 at any time;

(i) Indebtedness secured by Liens permitted under Section 8.2(h);

(j) Guaranty Obligations (i) in respect of the Senior Secured Notes issued pursuant to the Senior Secured Note Indenture; provided, however, that the aggregate principal amount of such Indebtedness shall not exceed at any time $275,000,000 and (ii) in respect of the Senior Second Lien Notes issued pursuant to the Senior Second Lien Indenture; provided, however, that the aggregate principal amount of such Guaranty Obligations shall not exceed at any time $250,000,000, provided, further, that such Guaranty Obligations incurred by the Borrower and TNCLP and their respective Subsidiaries pursuant to this clause (j) shall only be permitted at such time as the Borrower and TNCLP and their respective Subsidiaries shall be wholly-owned indirect subsidiaries of Terra Industries; and

(k) any Indebtedness owed by TNCLP or any of its Subsidiaries to Terra Industries or any of its Subsidiaries (other than those subject to clause (e) above).

Section 8.2. Liens, Etc. TNCLP will not, and will not permit any of its Subsidiaries to, create or suffer to exist, any Lien upon or with respect to any of its properties or assets, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, except for:

(a) Liens created pursuant to the Loan Documents;

(b) Liens existing on the date of this Agreement and disclosed on Schedule 8.2;

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(c) Customary Permitted Liens of TNCLP and its Subsidiaries;

(d) purchase money Liens granted by TNCLP or any of its Subsidiaries (including the interest of a lessor under a Capital Lease and Liens to which any property is subject at the time of TNCLP’s or such Subsidiary’s acquisition thereof) securing Indebtedness permitted under Section 8.1(c) and limited in each case to the property purchased with the proceeds of such purchase money Indebtedness or subject to such Capital Lease;

(e) any Lien securing the renewal, extension, refinancing or refunding of any Indebtedness secured by any Lien permitted by clause (d) of this Section 8.2 without any change in the assets subject to such Lien;

(f) Liens in favor of lessors, sublessors or licensors under any lease or license otherwise permitted by this Agreement;

(g) Liens not otherwise permitted by the foregoing clauses of this Section 8.2 securing obligations or other liabilities of any Loan Party; provided, however, that the aggregate outstanding amount of such obligations and liabilities secured by such Liens shall not exceed $1,000,000 at any time;

(h) Liens which are licenses and sub-licenses granted to Persons that are not Affiliates of TNCLP or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the business and operations of TNCLP or any of its Subsidiaries;

(i) Liens pursuant to the Senior Secured Note Indenture and the Senior Second Lien Note Indenture which, with respect to the Collateral, shall be junior to the Administrative Agent’s Lien on the Collateral pursuant to the Collateral Documents and, in each case, shall be subject to one or more intercreditor agreements in form and substance reasonably acceptable to the Administrative Agent, in each case to the extent securing Guaranty Obligations permitted to be incurred by Section 8.1(j) and solely to the extent respectively required by the Senior Secured Note Indenture and the Senior Second Lien Note Indenture as in effect on the Effective Date; provided, however, that such Liens incurred pursuant to this clause (i) shall only be permitted at such time as the Borrower and TNCLP and their respective Subsidiaries shall be wholly-owned indirect subsidiaries of Terra Industries; and

(j) Liens on property of any of TNCLP and its Subsidiaries (other than property subject to Liens under the Collateral Documents) in favor of Terra Industries or any of its Subsidiaries to secure Indebtedness owing to Terra Industries or any of its Subsidiaries.

Section 8.3. Investments. TNCLP will not, and will not permit any of its Subsidiaries to, directly or indirectly make or maintain any Investment except:

(a) Investments existing on the date of this Agreement and disclosed on Schedule 8.3;

(b) Investments in cash and Cash Equivalents, including those held in bank accounts (provided such Investments are subject to Section 7.12(h)),

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(c) Investments in Accounts, contract rights and Chattel Paper, notes receivable and similar items arising or acquired in the ordinary course of business substantially in accordance with the past practice of TNCLP and its Subsidiaries;

(d) Investments received in settlement of amounts due to TNCLP or any of its Subsidiaries effected in the ordinary course of business;

(e) Investments in Intercompany Indebtedness owed by any Subsidiary of TNCLP which is a Loan Party (x) to TNCLP or (y) to another Subsidiary of TNCLP (provided that, (A) such Indebtedness is evidenced by an intercompany promissory note payable to the order of TNCLP or such Subsidiary on terms satisfactory to the Administrative Agent, which note shall constitute Shared Collateral and (B) no such Intercompany Indebtedness shall be permitted for the purpose of the Borrower or TNCLP making Restricted Payments);

(f) loans or advances to employees of the Borrower or any of its Subsidiaries in the ordinary course of business (other than for the purposes of acquiring Stock), which loans and advances shall not exceed the aggregate outstanding principal amount of $500,000 at any time;

(g) Investments which are permitted Indebtedness under Sections 8.1(a), (b), (c), (d), (f), (g), (h), (i) or (j);

(h) Investments to match employee-directed funds under the Deferred Supplemental Savings Plan;

(i) Investments by TNCLP or by any Subsidiary of TNCLP in any Subsidiary of TNCLP which is a Loan Party; and

(j) Investments by Terra Industries and its Subsidiaries in Terra Industries or any of its Subsidiaries.

Section 8.4. Sale of Assets. TNCLP will not, and will not permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise dispose of, any of its assets or any interest therein (including the sale or factoring at maturity or collection of any accounts) to any Person, or permit or suffer any other Person to acquire any interest in any of its assets or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s Stock or Stock Equivalent (any such disposition being an “Asset Sale”), except:

(a) the sale or disposition in the ordinary course of business of Inventory, Cash Equivalents and precious metals recovered from spent catalysts;

(b) the sale or disposition of Equipment which has become obsolete or is replaced in the ordinary course of business; provided, however, that the aggregate Fair Market Value of all such Equipment disposed of in any Fiscal Year shall not exceed $2,000,000;

(c) the lease or sublease of Real Property or personal property which does not constitute a sale and leaseback;

(d) assignments and licenses of intellectual property of the Borrower and its Subsidiaries in the ordinary course of business;

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(e) any sale or disposition of Inventory or Equipment among Domestic Subsidiaries of TNCLP which are Loan Parties;

(f) any other Asset Sales (including any disposition of assets to a joint venture by TNCLP or its Subsidiaries) the aggregate Fair Market Value of which shall not at any time exceed $5,000,000; and

(g) additional Asset Sales by Terra Industries and its Subsidiaries to Terra Industries or any of its Subsidiaries.

Section 8.5. Restricted Payments. TNCLP will not and it will not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment except:

(a) Restricted Payments by any Subsidiary of a Borrower to the Borrower or any Subsidiary of the Borrower;

(b) cash dividends paid and declared in any Fiscal Year solely for the purpose of funding the following:

(i) ordinary operating expenses of Terra Industries in aggregate not in excess of $1,000,000 in any Fiscal Year which are reasonably allocable to TNCLP and its Subsidiaries;

(ii) payments by Terra Industries in respect of foreign, federal, state or local taxes owing by Terra Industries in respect of Terra Industries and its Subsidiaries, but not greater than the amount that would be payable by TNCLP, on a consolidated basis, if TNCLP were the taxpayer; and

(iii) other payments of cash dividends by TNCLP or any of its Subsidiaries, so long as TNCLP and TNLP shall have available cash of not less than $5,000,000 immediately after giving effect to such payment;

provided, however, that the Restricted Payments described in clause (b) above shall not be permitted if either (A) an Event of Default or Default shall have occurred and be continuing at the date of declaration or payment thereof or would result therefrom or (B) such Restricted Payment is prohibited under the terms of any Indebtedness (other than the Obligations) of the Loan Parties or any of their respective Subsidiaries or (C) there shall be Revolving Credit Outstandings (except Letters of Credit which have been cash collateralized in a manner satisfactory to the Administrative Agent) immediately before and after giving effect to such Restricted Payment; and

(c) any other Restricted Payment to Terra Industries by any Subsidiary of Terra Industries.

Section 8.6. Restriction on Fundamental Changes. TNCLP will not, and will not permit any of its Material Subsidiaries to, (a) merge with any Person, (b) consolidate with any Person, (c) acquire all or substantially all of the Stock or Stock Equivalents of any Person, (d) acquire all or substantially all of the assets of any Person or all or substantially all of the assets constituting the business of a division, branch or other unit operation of any Person, (e) except as permitted by Section 8.3(l), enter into any joint venture or partnership with any Person, (f) acquire

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or (unless, after giving effect thereto, TNCLP and the Borrower are in compliance with Sections 7.11 and 8.3(k)) create any Subsidiary; provided, however, that any Loan Party may merge or be consolidated with any of its wholly-owned Subsidiaries but only if (i) a Loan Party is the surviving entity and no Material Adverse Change, Default or Event of Default would result from such merger or consolidation and (ii) all such parties to such merger or consolidation are incorporated solely in the United States.

Section 8.7. Change in Nature of Business. (a) TNCLP will not, and will not permit any of its Subsidiaries to, make any material change in the nature or conduct of its business as carried on at the date hereof and (b) TNCLP will at no time own any property other than ownership interests in the Borrower, cash and other property incidental to its business as a holding company.

Section 8.8. Transactions with Affiliates. TNCLP will not, and will not permit any of its Subsidiaries to, except as otherwise expressly permitted herein, do any of the following: (a) make any Investment in any of its Affiliates which is not its Subsidiary; (b) transfer, sell, lease, assign or otherwise dispose of any asset to any of its Affiliates which is not its Subsidiary; (c) merge into or consolidate with or purchase or acquire assets from any of its Affiliates which is not its Subsidiary; (d) repay any Indebtedness to any of its Affiliates which is not its Subsidiary; or (e) enter into any other transaction directly or indirectly with or for the benefit of any of its Affiliates which is not its Subsidiary (including guarantees and assumptions of obligations of any such Affiliate), except for (i) transactions in the ordinary course of business on a basis no less favorable to it as would be obtained in a comparable arm’s length transaction with a Person not an Affiliate (ii) salaries and other employee compensation or fees to officers or directors of TNCLP or any of its Subsidiaries commensurate with current compensation levels and (iii) transactions pursuant to the Management Agreements.

Section 8.9. Restrictions on Subsidiary Distributions; No New Negative Pledge. Other than pursuant to the Loan Documents and any agreements governing any purchase money Indebtedness or Capital Lease Obligations permitted by clause (b), (c), or (d) of Section 8.1(in which latter case, any prohibition or limitation shall only be effective against the assets financed thereby) or in connection with an Asset Sale which is permitted under Section 8.4 (in respect only of the assets subject thereto) or pursuant to customary anti-assignment provisions contained in leases or licenses permitted under this Agreement or as otherwise contained, at the date hereof, in the Indentures, TNCLP will not, and will not permit any of its Subsidiaries to, (a) agree to enter into or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of such Subsidiary to pay dividends or make any other distribution or transfer of funds or assets or make loans or advances to or other Investments in, or pay any Indebtedness owed to, TNCLP or any other Subsidiary of TNCLP or (b) enter into or suffer to exist or become effective any agreement which prohibits or limits the ability of the Borrower or any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, to secure the Obligations, including any agreement which requires other Indebtedness or Contractual Obligation to be equally and ratably secured with the Obligations.

Section 8.10. Modification of Constituent Documents. TNCLP will not, and will not permit any of its Subsidiaries to, change its capital structure (including in the terms of its outstanding Stock) or otherwise amend its Constituent Documents, except for changes and amendments which (i) do not materially and adversely affect the rights and privileges of TNCLP

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or any of its Subsidiaries, or the interests of the Administrative Agent, the Lenders and the Issuers under the Loan Documents or in the Collateral or (ii) are compulsory under any applicable Requirement of Law or to comply with the mandatory requirements of any stock exchange on which TNCLP or any of its Subsidiaries are listed.

Section 8.11. Modification of Material Documents. TNCLP will not, and will not permit any of its Subsidiaries to, (a) alter, rescind, terminate, amend, supplement, waive or otherwise modify any provision of any Material Document (except for modifications which do not materially and adversely affect the rights and privileges of TNCLP or any of its Subsidiaries under such Material Document, or the interests of the Secured Parties under the Loan Documents or in the Collateral) or (b) permit any material breach or default to exist under any Material Document or take or fail to take any action thereunder, without the prior consent of the Requisite Lenders, which consent shall not be unreasonably withheld.

Section 8.12. Accounting Changes; Fiscal Year. TNCLP will not, and will not permit any of its Subsidiaries to, change its (a) accounting treatment and reporting practices or tax reporting treatment, except as required by GAAP or any Requirement of Law and disclosed to the Lenders and the Administrative Agent or (b) Fiscal Year (other than to a Fiscal Year ending December 31).

Section 8.13. Margin Regulations. The Borrower will not, and will not permit any of their Subsidiaries to, use all or any portion of the proceeds of any credit extended hereunder to purchase or carry Margin Stock.

Section 8.14. Operating Leases; Sale/Leasebacks.

(a) TNCLP will not, and will not permit any of its Material Subsidiaries to, become or remain liable as lessee or guarantor or other surety with respect to any operating lease, unless (i) the aggregate amount of all rents paid or accrued under all such operating leases shall not exceed $5,000,000 in any Fiscal Year or (ii) in respect of, or in replacement (upon substantially equivalent terms) of, operating leases existing at the date of this Agreement and disclosed in the consolidated financial statements (including the footnotes thereto) of TNCLP and its Subsidiaries for the Fiscal Year ended December 31, 2003.

(b) TNCLP will not, and will not permit any of its Material Subsidiaries to, enter into any sale and leaseback transaction.

Section 8.15. Cancellation of Indebtedness Owed. TNCLP will not, and will not permit any of its Subsidiaries to, cancel any claim or Indebtedness owed to it except (i) in the ordinary course of business consistent with past practice, (ii) Investments permitted by Section 8.3(d), or (iii) in an aggregate amount not exceeding $1,000,000.

Section 8.16. No Speculative Transactions. TNCLP will not and will not permit any of its Material Subsidiaries to, engage in any speculative transaction or in any transaction involving Hedging Contracts except as required by Section 7.14 or for the sole purpose of hedging in the normal course of business and consistent with industry practices.

Section 8.17. Compliance with ERISA and Foreign Plans. TNCLP will not, and will not permit any of its Material Subsidiaries to, or cause or permit any ERISA

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Affiliate to, cause or permit to occur (a) an event which could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or (b) an ERISA Event that would have a Material Adverse Effect or (c) breach any Requirement of Law or obligations pertaining to any Foreign Plan that would have a Material Adverse Effect.

Section 8.18. Environmental. TNCLP will not, and will not permit any of its Subsidiaries to, dispose of any Contaminant in violation of any Environmental Law; provided, however, that the Loan Parties shall not be deemed in violation of this Section 8.18 if, as the consequence of all such disposals, such Loan Party could not reasonably be expected to incur Environmental Liabilities and Costs in excess of $1,000,000.

ARTICLE IX

EVENTS OF DEFAULT

Section 9.1. Events of Default. Each of the following events shall be an Event of Default:

(a) The Borrower shall fail to pay any principal of any Loan or any Reimbursement Obligation (other than in connection with a Borrowing Base Deficiency) when the same becomes due and payable; or

(b) The Borrower shall fail to pay any interest on any Loan, any fee under any of the Loan Documents or any other Obligation (other than one referred to in clause (a) above) and such non-payment continues for a period of five Business Days after the due date therefor; or

(c) any representation or warranty made or deemed made by any Loan Party in any Loan Document or by any Loan Party (or any of its officers) in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or

(d) any Loan Party shall fail to perform or observe (i) any term, covenant or agreement contained in Article V, Sections 6.1(a) through (e) and (g), 6.2, 7.1, 7.6, 7.11 or 7.12 or Article VIII (except Section 8.19) or (ii) any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure under this clause (ii) shall remain unremedied for 30 days after the earlier of the date on which (A) a Responsible Officer of the Borrower becomes aware of such failure or (B) written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or

(e) (i) TNCLP or any of its Subsidiaries shall fail to make any payment on any Indebtedness (other than the Obligations) of TNCLP or any such Subsidiary (or any Guaranty Obligation in respect of Indebtedness of any other Person) having a principal amount of $1,000,000 or more, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or (iii) any such Indebtedness shall become or be declared to be due and

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payable, or required to be prepaid or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

(f) TNCLP or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against TNCLP or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts or any similar relief under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee, administrative receiver, liquidator, provisional liquidator, administrator, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against TNCLP or any of its Material Subsidiaries (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceedings shall occur; or TNCLP or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or

(g) one or more judgments or orders (or other similar process) involving, in any single case or in the aggregate, an amount in excess of $3,000,000 (in the case of a money judgment), or which would have a Material Adverse Effect (in the case of a non-money judgment) to the extent not covered by insurance shall be rendered against one or more of TNCLP and its Subsidiaries and shall remain unpaid and either (i) enforcement proceedings shall have been commenced and be continuing by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect (unless during such period such judgment or order shall have been vacated, satisfied, discharged or bonded pending appeal); or

(h) an ERISA Event shall occur or there shall be asserted which is reasonably likely to have a Material Adverse Effect or the amount of all liabilities and deficiencies resulting therefrom, whether or not assessed, exceeds $1,000,000 in the aggregate; or

(i) any material provision (as determined by the Administrative Agent) of any Collateral Document or any Guaranty after delivery thereof pursuant to this Agreement or any other Loan Document shall for any reason cease to be valid and binding, or enforceable against, on any Loan Party or Unsecured Guarantor thereto, or any Loan Party or Unsecured Guarantor shall so state in writing, except, in each case with respect to the Guaranty of any Unsecured Guarantor to the extent attributable to a bankruptcy or other similar event of the type described in Section 9.1(f) with respect to such Unsecured Guarantor; or

(j) any Collateral Document shall for any reason cease to create a valid Lien on any of the Collateral purported to be covered thereby or except as permitted by the Loan Documents, such Lien shall cease to be a perfected and first priority Lien or any Loan Party shall so state in writing; or

(k) there shall occur any Change of Control for a period of ten or more consecutive days; or

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(l) there shall occur a Borrowing Base Deficiency for two or more consecutive Business Days; or

(m) there shall have been asserted (in any action, suit, proceeding or investigation) against TNCLP or any of its Subsidiaries any violation or liability under any Environmental Law that, in the judgment of the Requisite Lenders, is reasonably likely to be determined adversely to TNCLP or any of its Subsidiaries, and (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (after taking into account any contribution in respect thereof that is reasonably expected to be paid by other creditworthy Persons); or

(n) one or more of TNCLP and its Subsidiaries shall have entered into one or more consent or settlement decrees or agreements or similar arrangements with a Governmental Authority or one or more judgments, orders, decrees or similar actions shall have been entered against one or more of TNCLP and its Subsidiaries based on or arising from the violation of or pursuant to any Environmental Law, or the generation, storage, transportation, treatment, disposal or Release of any Contaminant and, in connection with all the foregoing, TNCLP and its Subsidiaries are likely to incur Environmental Liabilities and Costs in excess of $1,000,000 in the aggregate (unless the foregoing is reasonably being appealed by TNCLP or its Subsidiaries and has been bonded pending appeal); or

(o) Terra Industries shall fail to pay or perform its obligations under the Loan Purchase Agreement.

Section 9.2. Remedies. During the continuance of any Event of Default, the Administrative Agent (i) may, and shall at the request of the Requisite Lenders, by notice to the Borrower declare that all or any portion of the Revolving Credit Commitments be terminated, whereupon the obligation of each Lender to make any Loan and each Issuer to issue any Letter of Credit shall immediately terminate, and/or (ii) may and shall at the request of the Requisite Lenders, by notice to the Borrower, declare the Loans, all interest thereon and all other amounts and Obligations payable under this Agreement to be forthwith due and payable, whereupon the Loans, all such interest and all such amounts and Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that upon the occurrence of the Event of Default specified in Section 9.1(f) above, (A) the Revolving Credit Commitments of each Lender to make Revolving Loans and of each Lender and Issuer to issue or participate in Letters of Credit shall automatically be terminated and (B) the Loans, all such interest and all such amounts and Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. In addition to the remedies set forth above, the Administrative Agent may instruct the Administrative Agent, on behalf of the Secured Parties, to exercise any remedies provided for by the Collateral Documents in accordance with the terms thereof or any other remedies provided by applicable law.

Section 9.3. Actions in Respect of Letters of Credit. Upon the Revolving Credit Termination Date or as required by Section 2.9, the Borrower shall pay to the Administrative Agent in immediately available funds at the Administrative Agent’s office referred to in Section 11.8, for deposit in a cash collateral account (the “L/C Cash Collateral Account”) to be maintained with and in the name of the Administrative Agent on behalf of the

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Lenders at such place as shall be designated by the Administrative Agent, an amount equal to 110% of the sum of all outstanding Letter of Credit Obligations which are denominated in Dollars. The Administrative Agent may, from time to time after funds are deposited in the L/C Cash Collateral Account, apply funds then held in the L/C Cash Collateral Account to the payment of any amounts, in accordance with Section 2.13(f), as shall have become or shall become due and payable by the Borrower to the Issuers or the Lenders in respect of the Letter of Credit Obligations. The Administrative Agent shall promptly give written notice of any such application; provided, however, that the failure to give such written notice shall not invalidate any such application. Neither the Borrower nor any Person claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the L/C Cash Collateral Account at any time prior to the termination of all outstanding Letters of Credit and the payment in full of all then outstanding and payable monetary Obligations.

Section 9.4. Rescission. If at any time after termination of the Revolving Credit Commitments and/or acceleration of the maturity of the Loans, the Borrower shall pay all arrears of interest and all payments on account of principal of the Loans and Reimbursement Obligations which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified herein) and all Events of Default and Defaults (other than non-payment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 11.1, then upon the written consent of the Requisite Lenders and written notice to the Borrower, the termination of the Revolving Credit Commitments and/or the acceleration and their consequences may be rescinded and annulled; but such action shall not affect any subsequent Event of Default or Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders and the Issuers to a decision which may be made at the election of the Requisite Lenders; they are not intended to benefit the Borrower and do not give the Borrower the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met.

ARTICLE X

THE ADMINISTRATIVE AGENT; THE OTHER AGENTS

Section 10.1. Authorization and Action.

(a) Each Lender and each Issuer hereby appoints CUSA as the Administrative Agent hereunder and each Lender and each Issuer authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent under such agreements and to exercise such powers as are reasonably incidental thereto. Without limitation of the foregoing, each Lender and each Issuer hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under each of the Loan Documents to which the Administrative Agent is a party and to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents and recognizes that under the Collateral Documents the Administrative Agent is acting as agent for the Secured Parties.

(b) As to any matters not expressly provided for by this Agreement and the other Loan Documents (including enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain

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from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders, and such instructions shall be binding upon all Lenders and each Issuer; provided, however, that the Administrative Agent shall not be required to take any action which (i) the Administrative Agent in good faith believes exposes it to personal liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders and the Issuers with respect to such action or (ii) is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender and each Issuer prompt notice of each notice given to it by any Loan Party pursuant to the terms of this Agreement or the other Loan Documents.

(c) In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent is acting solely on behalf of the Lenders and the Issuers and its duties are entirely administrative in nature. The Administrative Agent does not assume and shall not be deemed to have assumed any obligation other than as expressly set forth herein and in the other Loan Documents or any other relationship as the agent, fiduciary or trustee of or for any Lender, Issuer or holder of any other Obligation. The Administrative Agent may perform any of its duties under any of the Loan Documents by or through its agents or employees.

Section 10.2. Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its Affiliates or any of the respective directors, officers, agents or employees of the Administrative Agent or any such Affiliate shall be liable for any action taken or omitted to be taken by it, him, her or them under or in connection with this Agreement or the other Loan Documents, except for its, his, her or their own gross negligence or willful misconduct. Without limiting the foregoing, the Administrative Agent (a) may treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 11.2; (b) may rely on the Register to the extent set forth in Section 11.2(c); (c) may consult with legal counsel (including counsel to the Borrower or any other Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (d) makes no warranty or representation to any Lender or Issuer and shall not be responsible to any Lender or Issuer for any statements, warranties or representations made by or on behalf of TNCLP or any of its Subsidiaries in or in connection with this Agreement or any of the other Loan Documents; (e) shall not have any duty to ascertain or to inquire either as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents or the financial condition of any Loan Party, or the existence or possible existence of any Default or Event of Default; (f) shall not be responsible to any Lender or Issuer for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (g) shall incur no liability under or in respect of this Agreement or any of the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy) or any telephone message believed by it to be genuine and signed or sent by the proper party or parties.

Section 10.3. The Administrative Agent Individually. With respect to its Ratable Portion, CUSA shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms “Lenders,” or “Requisite Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity as a Lender or as one of the Requisite Lenders. CUSA and its Affiliates may accept deposits from,

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lend money to, and generally engage in any kind of banking, trust or other business with any Loan Party as if it were not acting as the Administrative Agent.

Section 10.4. Lender Credit Decision. Each Lender and each Issuer acknowledges that it shall, independently and without reliance upon the Administrative Agent or its Affiliates or any other Lender conduct its own independent investigation of the financial condition and affairs of the Borrower and each other Loan Party in connection with the making and continuance of the Loans and with the issuance of the Letters of Credit. Each Lender and each Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or its Affiliates or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and other Loan Documents.

Section 10.5. Indemnification. Each Lender agrees to indemnify the Administrative Agent and each of its Affiliates, and each of their respective directors, officers, employees, agents and advisors (to the extent not reimbursed by the Borrower), from and against such Lender’s aggregate Ratable Portion of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements (including fees and disbursements of legal counsel) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against, the Administrative Agent or any of its Affiliates, directors, officers, employees, agents and advisors in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by the Administrative Agent under this Agreement or the other Loan Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s or such Affiliate’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including fees and disbursements of legal counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement or the other Loan Documents, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower or another Loan Party.

Section 10.6. Successor Administrative Agent. (a) Subject to clause (b) below, the Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Requisite Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent selected from among the Lenders. Each such appointment shall be subject to the prior written approval of the Borrower (which approval may not be unreasonably withheld and shall not be required upon the occurrence and during the continuance of an Event of Default); (b) notwithstanding clause (a) above, the Administrative Agent may at any time appoint any Affiliate (or Affiliates) of the Administrative Agent each as (i) a successor Administrative Agent in the event that the Administrative Agent wishes to retire as Administrative Agent or (ii) (in connection with the performance and exercise of its rights and obligations under the Loan Documents) as co-Administrative Agent, which appointment and (if relevant) resignation shall be

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effective upon the Administrative Agent giving written notice thereof to the Lenders and the Borrower. Any such appointment and/or resignation under this clause (b) shall not require the consent of any Lender or Borrower. (c) Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent or co-Administrative Agent pursuant to clauses (a) or (b) above, each such successor Administrative Agent shall succeed to, and each such co-Administrative Agent shall accede to, and become vested with all the rights, powers, privileges and duties of the retiring or remaining Administrative Agent, and in the case of a retiring Administrative Agent, such Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiring Administrative Agent shall continue to have the benefit of this Article X as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.

Section 10.7. Concerning the Collateral and the Collateral Documents.

(a) Each Lender and each Issuer agrees that any action taken by the Administrative Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater or different proportion or combination of the Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents, and the exercise by the Administrative Agent or the Requisite Lenders (or, where so required, such greater or different proportion or combination) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders, Issuers and other Secured Parties. Without limiting the generality of the foregoing, the Administrative Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders and the Issuers with respect to all payments and collections arising in connection herewith and with the Collateral Documents; (ii) execute and deliver each intercreditor agreement referred to in Sections 7.11(d) and 8.2(i) and each Loan Document and accept delivery of each such agreement delivered by TNCLP or any of its Subsidiaries; (iii) manage, supervise and otherwise deal with the Collateral; (iv) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Collateral Documents; and (v) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all remedies given to the Administrative Agent, the Lenders, the Issuers and the other Secured Parties and direct the Administrative Agent in accordance with the terms hereof and of the Senior Secured Note Intercreditor Agreement with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise.

(b) The Administrative Agent hereby appoints, authorizes and directs each Lender and Issuer to act as collateral sub-agent for the Administrative Agent, the Lenders and the Issuers for purposes of the perfection of all security interests and Liens with respect to TNCLP and its Subsidiaries’ respective deposit accounts maintained with, and cash and Cash Equivalents held by, such Lender or such Issuer.

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(c) Each of the Lenders and the Issuers hereby directs, in accordance with the terms hereof, the Administrative Agent to release or instruct the Administrative Agent to release (or, in the case of clause (ii) below, release or subordinate) any Lien held by the Administrative Agent for the benefit of the Lenders and the Issuers:

(i) against all of the Collateral, upon termination of the Revolving Credit Commitments and payment and satisfaction in full of all Loans, Reimbursement Obligations and all other Obligations which have matured and which the Administrative Agent has been notified in writing are then due and payable (and, in respect of contingent Letter of Credit Obligations, with respect to which cash collateral has been deposited or a back-up letter of credit has been issued, in either case on terms satisfactory to the Administrative Agent and the applicable Issuers);

(ii) against any assets that are subject to a Lien permitted by Section 8.2(d) or (e);

(iii) against any part of the Collateral sold or disposed of by a Loan Party if such sale or disposition is permitted by this Agreement (or permitted pursuant to a waiver or consent of a transaction otherwise prohibited by this Agreement) or, if not pursuant to such sale or disposition, if such release is consented to by (A) all of the Lenders, if the Collateral subject to such release is a substantial portion of all the Collateral, or (B) the Requisite Lenders, in all other cases;

(iv) against any cash collateral to the extent permitted under Section 7.12 or Section 2.9; and

(v) as of the Effective Date, against any collateral, but only to the extent such collateral constitutes Senior Secured Note Collateral.

Each of the Lenders and the Issuers hereby directs the Administrative Agent to instruct the Administrative Agent to execute and deliver or file such termination and partial release statements and do such other things as are necessary to release Liens to be released pursuant to this Section 10.7 promptly upon the effectiveness of any such release.

Section 10.8. Collateral Matters Relating to Related Obligations. The benefit of the Loan Documents and of the provisions of this Agreement relating to the Collateral shall extend to and be available in respect of any Obligation which arises under any Hedging Contract or which is otherwise owed to Persons other than the Administrative Agent, the Arranger, the Lenders and the Issuers (collectively, “Related Obligations”) solely on the condition and understanding, as among the Administrative Agent and all Secured Parties, that (i) the Related Obligations shall be entitled to the benefit of the Loan Documents and the Collateral to the extent expressly set forth in this Agreement and the other Loan Documents and to such extent the Administrative Agent shall hold, and have the right and power to act with respect to, the Guaranty and the Collateral on behalf of and as agent for the holders of the Related Obligations but the Administrative Agent is otherwise acting solely as agent for the Lenders and the Issuers and shall have no fiduciary duty, duty of loyalty, duty of care, duty of disclosure or other obligation whatsoever to any holder of Related Obligations; (ii) all matters, acts and omissions relating in any manner to the Guaranty, the Collateral, or the omission, creation, perfection, priority, abandonment or release of any Lien, shall be governed solely by the provisions of this Agreement, the Senior Secured Note Intercreditor Agreement and the other Loan Documents and no separate Lien, right, power or remedy shall arise or exist in favor of any Secured Party under any separate instrument or agreement or in respect of any Related Obligation; and (iii) each Secured Party shall be bound by all actions taken or omitted, in accordance with the provisions of this Agreement, the Senior Secured Note Intercreditor Agreement and the other Loan Documents, by the Administrative Agent and the Requisite

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Lenders (or, where required by the express terms of this Agreement, a greater or different proportion or combination of the Lenders), each of whom shall be entitled to act at its sole discretion and exclusively in its own interest given its own Revolving Credit Commitments and its own interest in the Loans, Letter of Credit Obligations and other Obligations to it arising under this Agreement or the other Loan Documents, without any duty or liability to any other Secured Party or as to any Related Obligation and without regard to whether any Related Obligation remains outstanding or is deprived of the benefit of the Collateral or becomes unsecured or is otherwise affected or put in jeopardy thereby; and (iv) no holder of Related Obligations and no other Secured Party (except the Administrative Agent, the Arranger, the Lenders and the Issuers, to the extent set forth in this Agreement) shall have any right to be notified of, or to direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under this Agreement, the Senior Secured Note Intercreditor Agreement or the Loan Documents; and (v) no holder of any Related Obligation shall exercise any right of setoff, banker’s lien or similar right except as expressly provided in Section 11.6.

Section 10.9. Other Agents. Each party acknowledges that the Person (except in its capacity as a Lender or Issuer) designated as the Arranger shall have no liability hereunder.

Section 10.10. Posting of Approved Electronic Communications.

(a) Each of the Lenders, the Issuers, TNCLP and the Borrower agree, and the Borrower shall cause each Subsidiary Guarantor to agree, that the Administrative Agent may, but shall not be obligated to, make the Approved Electronic Communications available to the Lenders and Issuers by posting such Approved Electronic Communications on IntraLinks^™ or a substantially similar electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).

(b) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Effective Date, a dual firewall and a User ID/Password Authorization System) and the Approved Electronic Platform is secured through a single-user-per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, the Issuers, TNCLP and the Borrower acknowledges and agrees, and the Borrower shall cause each Subsidiary Guarantor to acknowledge and agree, that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution. In consideration for the convenience and other benefits afforded by such distribution and for the other consideration provided hereunder, the receipt and sufficiency of which is hereby acknowledged, each of the Lenders, the Issuers, TNCLP and the Borrower hereby approves, and the Borrower shall cause each Subsidiary Guarantor to approve, distribution of the Approved Electronic Communications through the Approved Electronic Platform and understands and assumes, and the Borrower shall cause each Subsidiary Guarantor to understand and assume, the risks of such distribution (except as otherwise set forth in Section 11.5(Limitation of Liability) hereunder).

(C) THE APPROVED ELECTRONIC COMMUNICATIONS AND THE APPROVED ELECTRONIC PLATFORM ARE PROVIDED “AS IS” AND “AS AVAILABLE”. NONE OF THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS,

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DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (THE “AGENT AFFILIATES”) WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE APPROVED ELECTRONIC COMMUNICATIONS AND THE APPROVED ELECTRONIC PLATFORM AND EACH EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC COMMUNICATIONS AND THE APPROVED ELECTRONIC PLATFORM (EXCEPT AS OTHERWISE SET FORTH IN SECTION 11.5). NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS) IS MADE BY THE AGENT AFFILIATES IN CONNECTION WITH THE APPROVED ELECTRONIC PLATFORM.

(d) Each of the Lenders, the Issuers, TNCLP and the Borrower agrees, and the Borrower shall cause each Subsidiary Guarantor to agree, that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Approved Electronic Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally-applicable document retention procedures and policies.

ARTICLE XI

MISCELLANEOUS

Section 11.1. Amendments, Waivers, Etc.

(a) No amendment or waiver of any provision of this Agreement or any other Loan Document nor consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be in writing and signed by the Requisite Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by the relevant Lenders referred to below, in addition to the Requisite Lenders, do any of the following:

(i) waive any of the conditions specified in Section 3.1 (without the consent of all Lenders) or 3.2 (without the consent of all Lenders) except with respect to a condition based upon another provision hereof, the waiver of which requires only the concurrence of the Requisite Lenders;

(ii) increase the Revolving Credit Commitment of any Lender or subject any Lender to any additional obligations (without the consent of each such Lender);

(iii) extend the scheduled final maturity of any Loan owing to any Lender, or waive, reduce or postpone any scheduled date fixed for the payment or reduction of principal of any such Loan (it being understood that Section 2.9 does not provide for scheduled dates fixed for payment) or for the reduction of the Revolving Credit Commitment of such Lender (without the consent of such Lender);

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(iv) reduce the principal amount of any Loan or Reimbursement Obligation owing to any Lender (other than by the payment or prepayment thereof) (without the consent of such Lender);

(v) reduce the rate of interest on any Loan or Reimbursement Obligations owing to any Lender or any fee payable hereunder to such Lender (without the consent of such Lender);

(vi) postpone any scheduled date fixed for payment of such interest or fees to such Lender (without the consent of such Lender);

(vii) change the percentage of aggregate Revolving Credit Commitments or unpaid principal amount of the Loans or the number or percentage of Lenders which shall be required for the Lenders or any of them to take any action hereunder (without the consent of each Lender);

(viii) increase the Advance Rates above the rates set forth in the definition thereof (without the consent of each Lender);

(ix) (without limiting Section 7.12) release a substantial portion of Collateral except as otherwise provided in Section 10.7(c) or release the Borrower or any Secured Guarantor from its obligations under this Agreement or its Guaranty, as applicable, except in connection with sale or other disposition permitted by this Agreement (or permitted pursuant to a waiver or consent of a transaction otherwise prohibited by this Agreement) (without the consent of each Lender);

(x) amend Section 10.7(c) or this Section 11.1 or the definition of the terms “Requisite Lenders” or “Ratable Portion” (without the consent of each Lender affected thereby);

and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or the other Loan Documents.

(b) The Administrative Agent may, but shall have no obligation to, with the written concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

(c) In connection with any proposed amendment, modification, waiver or termination (a “Proposed Change”) requiring the consent of all Lenders in addition to the Requisite Lenders, the consent of Requisite Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described in this Section 11.1 being referred to as a “Non-Consenting Lender”), then, so long as the Lender that is acting as the Administrative Agent is not a Non-Consenting Lender, at the Borrower’s request, the Administrative Agent or an Eligible Assignee that is acceptable to the Administrative Agent shall have the right with the Administrative Agent’s consent and in the

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Administrative Agent’s sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lender, and such Non-Consenting Lender agrees that it shall, upon the Administrative Agent’s request, sell and assign to the Lender that is acting as the Administrative Agent or such Eligible Assignee, all of the Revolving Credit Commitments and Revolving Credit Outstandings of such Non-Consenting Lender for an amount equal to the principal balance of all Revolving Loans held by the Non-Consenting Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Acceptance.

Section 11.2. Assignments and Participations.

(a) Each Lender may sell, transfer, negotiate or assign to one or more Eligible Assignees all or a portion of its rights and obligations hereunder (including all of its rights and obligations with respect to the Revolving Loans, the Swing Loans and the Letters of Credit); provided, however, that (i) if any such assignment shall be of the assigning Lender’s Revolving Credit Outstandings and Revolving Credit Commitment, such assignment shall cover the same percentage of such Lender’s Revolving Credit Outstandings and Revolving Credit Commitment and (ii) the aggregate amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event (if less than the Assignor’s entire interest) be less than (in the case of (in aggregate) the Revolving Credit Outstandings (and/or the Revolving Credit Commitments)) $5,000,000 or an integral multiple of $1,000,000 in excess thereof, except, in either case, (A) with the consent of the Borrower and the Administrative Agent or (B) if such assignment is being made to a Lender or an Affiliate or Approved Fund of such Lender, and (iii) if such Eligible Assignee is not, prior to the date of such assignment, a Lender or an Affiliate or Approved Fund of a Lender, such assignment shall be subject to the prior consent of the Administrative Agent and the Borrower (which consent shall not be unreasonably withheld or delayed); provided, however, that, notwithstanding any other provision of this Section 11.2, the consent of the Borrower shall not be required for any assignment which occurs when any Event of Default shall have occurred and be continuing.

(b) The parties to each assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording, an Assignment and Acceptance, together with any Note (if the assigning Lender’s Loans are evidenced by a Note) subject to such assignment. Upon such execution, delivery, acceptance and recording and the receipt by the Administrative Agent from the assignee of an assignment fee in the amount of $3,500 from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such assignee pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender, and if such Lender were an Issuer, of such Issuer hereunder and thereunder, and (ii) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except those which survive the payment in full of the Obligations) and be released from its obligations to the extent corresponding thereto under the Loan Documents, other than those relating to events or circumstances occurring prior to such assignment (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto).

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(c) The Administrative Agent shall maintain at its address referred to in Section 11.8 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recording of the names and addresses of the Lenders and the Revolving Credit Commitments of and principal amount of the Loans and Letter of Credit Obligations owing to each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Loan Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. The Register shall be available for inspection by the Borrower, the Administrative Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at their own expense, shall, if requested by such assignee, execute and deliver to the Administrative Agent, new Notes to the order of such assignee in an amount equal to the Revolving Credit Commitments assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has surrendered any Note for exchange in connection with the assignment and has retained Revolving Credit Commitments hereunder, new Notes to the order of the assigning Lender in an amount equal to the Revolving Credit Commitments retained by it hereunder. Such new Notes shall be dated the same date as the surrendered Notes and be in substantially the form of Exhibit B.

(e) In addition to the other assignment rights provided in this Section 11.2, each Lender may assign, as collateral or otherwise, any of its rights under this Agreement (including rights to payments of principal or interest on the Loans) to (i) any Federal Reserve Bank pursuant to Regulation A of the Federal Reserve Board without notice to or consent of the Borrower or the Administrative Agent and (ii) any trustee for the benefit of the holders of such Lender’s Securities; provided, however, that no such assignment shall release the assigning Lender from any of its obligations hereunder.

(f) Each Lender may sell participations to one or more Persons in or to all or a portion of its rights and obligations under the Loan Documents (including all its rights and obligations with respect to the Revolving Loans and Letters of Credit). The terms of such participation shall not, in any event, require the participant’s consent to any amendments, waivers or other modifications of any provision of any Loan Documents, the consent to any departure by any Loan Party therefrom, or to the exercising or refraining from exercising any powers or rights which such Lender may have under or in respect of the Loan Documents (including the right to enforce the obligations of the Loan Parties), except if any such amendment, waiver or other modification or consent would (i) reduce the amount, or postpone any date fixed for, any amount (whether of principal, interest or fees) payable to such participant under the Loan Documents, to which such participant would otherwise be entitled under such participation or (ii) result in the release of all or substantially all of the Collateral other than in accordance with Section 10.7(c). In the event of the sale of any participation by any Lender, (A) such Lender’s obligations under the Loan Documents shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties for the performance of such obligations, (C) such Lender shall remain the holder of such Obligations for all purposes of this Agreement, and (D) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in

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connection with such Lender’s rights and obligations under this Agreement. Each participant shall be entitled to the benefits of Sections 2.14(c), 2.14(e), 2.15 and 2.16 as if it were a Lender; provided, however, that anything herein to the contrary notwithstanding, the Borrower shall not, at any time, be obligated to pay to any participant of any interest of any Lender, under Section 2.14(c), 2.14(e), 2.15 or 2.16, any sum in excess of the sum which the Borrower would have been obligated to pay to such Lender in respect of such interest had such participation not been sold.

(g) Any Issuer may at any time assign its rights and obligations hereunder to any other Lender by an instrument in form and substance satisfactory to the Borrower, the Administrative Agent, such Issuer and such Lender. If any Issuer ceases to be a Lender hereunder by virtue of any assignment made pursuant to this Section 11.2, then, as of the effective date of such cessation, such Issuer’s obligations to issue Letters of Credit pursuant to Section 2.4 shall terminate and such Issuer shall be an Issuer hereunder only with respect to outstanding Letters of Credit issued prior to such date.

Section 11.3. Costs and Expenses.

(a) The Borrower agrees upon demand to pay, or reimburse the Administrative Agent for, all of the Administrative Agent’s reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other reasonable and documented out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable and documented fees, expenses and disbursements of the Administrative Agent’s New York counsel, Weil, Gotshal & Manges LLP and additional local legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) reasonably incurred by the Administrative Agent in connection with (i) the Administrative Agent’s audit and investigation of TNCLP and its Subsidiaries in connection with the preparation, negotiation and execution of the Loan Documents and the Administrative Agent’s periodic audits of TNCLP and its Subsidiaries, as the case may be; (ii) the preparation, negotiation, execution and interpretation of this Agreement (including, without limitation, the satisfaction or attempted satisfaction of any of the conditions set forth in Article III), the Loan Documents and any proposal letter or commitment letter issued in connection therewith and the making of the Loans hereunder; (iii) the creation, perfection or protection of the Liens under the Loan Documents (including, without limitation, any reasonable and documented fees and expenses for local counsel in various jurisdictions); (iv) the ongoing administration of this Agreement and the Loans, including consultation with attorneys in connection therewith and with respect to the Administrative Agent’s rights and responsibilities hereunder and under the other Loan Documents; (v) the protection, collection or enforcement of any of the Obligations or the enforcement of any of the Loan Documents; (vi) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, any Loan Party, any of TNCLP Subsidiaries, this Agreement or any of the other Loan Documents; (vii) the response to, and preparation for, any subpoena or request for document production with which the Administrative Agent is served or deposition or other proceeding in which the Administrative Agent is called to testify, in each case, relating in any way to the Obligations, any Loan Party, any of TNCLP’s Subsidiaries, this Agreement or any of the other Loan Documents; and (viii) any amendments, consents, waivers, assignments, restatements, or supplements to any of the Loan Documents and the preparation, negotiation, and execution of the same.

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(b) The Borrower further agrees to pay or reimburse the Administrative Agent and each of the Lenders and Issuers upon demand for all reasonable and documented out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees (including allocated costs of internal counsel and costs of settlement), incurred by the Administrative Agent, such Lenders or Issuers (i) in enforcing any Loan Document or Obligation or any security therefor or exercising or enforcing any other right or remedy available by reason of an Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out” or in any insolvency or bankruptcy proceeding; (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleadings in any legal proceeding relating to the Obligations, any Loan Party, any of TNCLP Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents; and (iv) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in clauses (i) through (iii) above.

Section 11.4. Indemnities.

(a) The Borrower agrees to indemnify and hold harmless the Administrative Agent, each Lender and each Issuer and each of their respective Affiliates, and each of the directors, officers, employees, agents, representatives, attorneys, consultants and advisors of or to any of the foregoing (including those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (each such Person being an “Indemnitee”) from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses of any kind or nature (including reasonable and documented fees and disbursements of counsel to any such Indemnitee, but excluding taxes (other than those covenanted to be paid by the Borrower under this Agreement) imposed on or measured by the Indemnitee’s net income and franchise taxes, imposed on it, by the jurisdiction (or any political subdivision thereof) under the laws of which such Indemnitee is organized or in which its principal office or Applicable Lending Office is located) which may be imposed on, incurred by or asserted against any such Indemnitee in connection with or arising out of any investigation, litigation or proceeding, whether or not any such Indemnitee is a party thereto, whether direct, indirect, or consequential and whether based on any federal, state or local law or other statutory regulation, securities or commercial law or regulation, or under common law or in equity, or in contract, tort or otherwise, relating to or arising out of this Agreement, any other Loan Document, any Obligation, any Letter of Credit, or any act, event or transaction related or attendant to any thereof, or the use or intended use of the proceeds of the Loans or Letters of Credit or in connection with any investigation of any potential matter covered hereby (collectively, the “Indemnified Matters”). Without limiting the foregoing, Indemnified Matters include (i) all Environmental Liabilities and Costs arising from or connected with the past, present or future operations of TNCLP or any of its Subsidiaries involving any property subject to a Collateral Document, or damage to real or personal property or natural resources or harm or injury alleged to have resulted from any Release of Contaminants on, upon or into such property or any contiguous real estate; (ii) any costs or liabilities incurred in connection with any Remedial Action concerning TNCLP or any of its Subsidiaries; (iii) any costs or liabilities incurred in connection with any Environmental Lien in respect of any assets or properties of TNCLP and its Subsidiaries; (iv) any costs or liabilities incurred in connection with any other matter (concerning TNCLP or any of its Subsidiaries) under any Environmental Law, including CERCLA and applicable state property transfer laws, whether, with respect to any of such matters, such Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in

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possession, the successor in interest to TNCLP or any of its Subsidiaries, or the owner, lessee or operator of any property of TNCLP or any of its Subsidiaries by virtue of foreclosure, except, with respect to those matters referred to in clauses (i), (ii), (iii) and (iv) above, to the extent incurred following (A) foreclosure by the Administrative Agent, any Lender or any Issuer, or the Administrative Agent, any Lender or any Issuer having become the successor in interest to TNCLP or any of its Subsidiaries, and (B) attributable solely to acts of the Administrative Agent, such Lender or such Issuer or any agent on behalf of the Administrative Agent, such Lender or such Issuer; provided, however, that the Borrower shall not have any obligation under this Section 11.4 to an Indemnitee with respect to any Indemnified Matter caused by or resulting from the gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.

(b) The Borrower shall indemnify the Administrative Agent, the Lenders and each Issuer for, and hold the Administrative Agent, the Lenders and each Issuer harmless from and against, any and all claims for brokerage commissions, fees and other compensation made against the Administrative Agent, the Lenders and the Issuers for any broker, finder or consultant with respect to any agreement, arrangement or understanding made by or on behalf of any Loan Party or any of its Subsidiaries in connection with the transactions contemplated by this Agreement.

(c) The Borrower agrees that any indemnification or other protection provided to any Indemnitee pursuant to this Agreement (including pursuant to this Section 11.4) or any other Loan Document shall (i) survive payment in full of the Obligations and (ii) inure to the benefit of any Person who was at any time an Indemnitee under this Agreement or any other Loan Document.

Section 11.5. Limitation of Liability.

(a) The Borrower agrees that no Indemnitee shall (except for breach by such Indemnitee of its obligations under this Agreement and the other Loan Documents) have any liability (whether direct or indirect, in contract, tort or otherwise) to any Loan Party or any of their respective Subsidiaries or any of their respective equity holders or creditors for or in connection with the transactions contemplated hereby and in the other Loan Documents except to the extent such liability is found in a final judgment by a court of competent jurisdiction to have resulted from such Indemnitee’s gross negligence or willful misconduct. In no event, however, shall any Indemnitee be liable on any theory of liability for any special, indirect, consequential or punitive damages and each of TNCLP and the Borrower hereby waives, releases and agrees (for itself and on behalf of its Subsidiaries) not to sue upon any such claim for any special indirect, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.

(b) IN NO EVENT SHALL ANY AGENT AFFILIATE HAVE ANY LIABILITY TO ANY LOAN PARTY, LENDER, ISSUER OR ANY OTHER PERSON FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT OR CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY OR ANY AGENT AFFILIATE’S TRANSMISSION OF APPROVED ELECTRONIC COMMUNICATIONS THROUGH THE INTERNET OR ANY USE OF THE APPROVED ELECTRONIC PLATFORM, EXCEPT TO THE EXTENT SUCH LIABILITY OF ANY AGENT AFFILIATE IS FOUND IN A

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FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH AGENT AFFILIATE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

Section 11.6. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default each Lender and each Affiliate of a Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or its Affiliates to or for the credit or the account of the Borrower against any and all of the Obligations now or hereafter existing whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender or its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 11.6 are in addition to the other rights and remedies (including other rights of set-off) which such Lender may have.

Section 11.7. Sharing of Payments, Etc.

(a) If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) on account of the Revolving Loans made by it (other than pursuant to Section 2.14, 2.15 or 2.16) in excess of its Ratable Portion under the Revolving Credit Facility, in respect of payments obtained by the Lenders, on account of such Obligations, such Lender (a “Purchasing Lender”) shall forthwith purchase from the other Lenders (each, a “Selling Lender”) such participations in their Loans or other Obligations as shall be necessary to cause such Purchasing Lender to share the excess payment ratably with each of them.

(b) If all or any portion of any payment received by a Purchasing Lender is thereafter recovered from such Purchasing Lender, such purchase from each Selling Lender shall be rescinded and such Selling Lender shall repay to the Purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Selling Lender’s ratable share (according to the proportion of (i) the amount of such Selling Lender’s required repayment to (ii) the total amount so recovered from the Purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.

(c) The Borrower agrees that any Purchasing Lender so purchasing a participation from a Selling Lender pursuant to this Section 11.7 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

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Section 11.8. Notices, Etc.

(a) Addresses for Notices. All notices, demands, requests and other communications provided for in this Agreement shall be given in writing, by any telecommunication device capable of creating a written record or by electronic mail through the internet, and addressed to the party to be notified as follows:

(i) if to any Loan Party:

c/o Terra Industries, Inc.

600 Fourth Street

Sioux City, Iowa 51101

Attention:   Francis G. Meyer, Senior Vice President and

Chief Financial Officer

Telecopy no: (712) 279-8703

email address: fmeyer@terraindustries.com

with a copy to:

c/o Terra Industries, Inc.

600 Fourth Street

Sioux City, Iowa 51102

Attention: Mark A. Kalafut, General Counsel

Telecopy no: (712) 233-5586

email address: mkalafut@terraindustries.com

(ii) if to any Lender, at its Domestic Lending Office specified opposite its name on Schedule II or on the signature page of any applicable Assignment and Acceptance;

(iii) if to any Issuer, at the address set forth under its name on the signature page hereof; and

(iv) if to the Administrative Agent:

(A) (for collateral and administrative matters)

Citicorp USA, Inc.

388 Greenwich Street

19th Floor

New York, New York 10013

Attention: Miles D. McManus

Telecopy No: (212) 816-2613

email address: miles.mcmanus@citi.com

with a copy to (for collateral monitoring matters):

Citicorp USA, Inc.

388 Greenwich Street

19th Floor

New York, New York 10013

Attention: Hien Nugent

Telecopy No: (212) 816-2613

email address: hien.nugent@citi.com

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And

(B) (for advances)

Citicorp USA, Inc.

2 Penns Way

Suite 200

New Castle, Delaware 19720

Attention: Robert T. Partee III

Telecopy No: (302) 894-6120

email address: annemarie.pavco@citi.com

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue,

New York, New York 10153-0119

Attention: Daniel S. Dokos, Esq.

Telecopy no: (212) 310-8007

email address: daniel.dokos@weil.com

or at such other address as shall be notified in writing (i) in the case of the Loan Parties and the Administrative Agent, to the other parties and (ii) in the case of all other parties, to the Borrower and the Administrative Agent.

(b) Effectiveness of Notices All such notices and communications shall be effective (i) upon personal delivery, if delivered by hand, including any overnight courier service, (ii) when deposited in the mails, if sent by mail, (iii) if delivered by posting to an Approved Electronic Platform, an Internet website or a similar telecommunication device requiring that a user have prior access to such Approved Electronic Platform, website or other device, when such notice, demand, request, consent and other communication shall have been made generally available on such Approved Electronic Platform, Internet website or similar device to the class of Person being notified (regardless of whether any such Person must accomplish, and whether or not any such Person shall have accomplished, any action prior to obtaining access to such items, including registration, disclosure of contact information, compliance with a standard user agreement or undertaking a duty of confidentiality) or (iv) when properly transmitted, if sent by a telecommunications device or by electronic mail; provided, however, that notices and communications to the Administrative Agent pursuant to Article II or X shall not be effective until received by the Administrative Agent.

(c) Use of Electronic Platform. Notwithstanding clauses (a) and (b) (unless the Administrative Agent requests that the provisions of clause (a) and (b) be followed) and any other provision in this Agreement or any other Loan Document providing for the delivery of, any Approved Electronic Communication by any other means, the Loan Parties shall deliver all Approved Electronic Communications to the Administrative Agent by properly transmitting such Approved Electronic Communications electronically (in a format reasonably acceptable to the Administrative Agent) to oploanswebadmin@citigroup.com or such other electronic mail address (or similar means of electronic delivery) as the Administrative Agent may notify the Borrower. Nothing in this clause (c) shall prejudice the right of the Administrative

95

Agent or any Lender or Issuer to deliver any Approved Electronic Communication to any Loan Party in any manner authorized in this Agreement.

Section 11.9. No Waiver; Remedies. No failure on the part of any Lender, Issuer or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 11.10. Binding Effect. This Agreement shall become effective on the Effective Date and thereafter this Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.

Section 11.11. Governing Law. This Agreement and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.

Section 11.12. Submission to Jurisdiction; Service of Process.

(a) Any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, the Borrower hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which any of them may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions.

(b) The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. TNCLP and its Subsidiaries hereby irrevocably consent to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding brought in the United States of America arising out of or in connection with this Agreement or any of the other Loan Documents by the mailing (by registered or certified mail, postage prepaid) or delivering of a copy of such process to the Borrower at its address specified in Section 11.8. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(c) Nothing contained in this Section 11.12 shall affect the right of the Administrative Agent or any Lender to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Borrower or any other Loan Party in any other jurisdiction.

Section 11.13. Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUERS AND THE BORROWER IRREVOCABLY WAIVES TRIAL BY

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JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

Section 11.14. Marshaling; Payments Set Aside. None of the Administrative Agent, any Lender or any Issuer shall be under any obligation to marshal any assets in favor of the Borrower or any other party or any other Lender which does not have an equivalent interest in the Revolving Credit Facility or against or in payment of any or all of the Obligations. To the extent that the Borrower make a payment or payments to the Administrative Agent, the Lenders or the Issuers or any of such Persons receives payment from the proceeds of the Collateral or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

Section 11.15. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

Section 11.16. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document.

Section 11.17. Entire Agreement. This Agreement, together with all of the other Loan Documents and all certificates and documents delivered hereunder or thereunder, embodies the entire agreement of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof.

Section 11.18. Confidentiality. Each Lender and the Administrative Agent (a) agrees to keep information obtained by it pursuant hereto and the other Loan Documents confidential in accordance with such Lender’s or the Administrative Agent’s, as the case may be, customary practices and (b) agrees that it will only use such information in connection with the transactions contemplated by this Agreement and not disclose any of such information other than (i) to such Lender’s or the Administrative Agent’s, as the case may be, employees, representatives and agents who are or are expected to be involved in the evaluation of such information in connection with the transactions contemplated by this Agreement and who are advised of the confidential nature of such information, (ii) to the extent such information presently is or hereafter becomes available to such Lender or the Administrative Agent, as the case may be, on a non-confidential basis from a source other than the Borrower, (iii) to the extent disclosure is required by law, regulation or judicial order or requested or required by bank regulators or auditors, or (iv) to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this Section 11.20.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

BORROWER
TERRA NITROGEN, LIMITED PARTNERSHIP
By:	/s/ Francis G. Meyer
	Name:	Francis G. Meyer
	Title:	Vice President
Guarantors
TERRA NITROGEN COMPANY, L.P.
By:	/s/ Francis G. Meyer
	Name:	Francis G. Meyer
	Title:	Vice President
Administrative Agent
CITICORP USA, INC.
By:	/s/ David Jaffe
	Name:	David Jaffe
	Title:	Director / Vice President
Issuer
CITIBANK, N.A.
By:	/s/ David Jaffe
	Name:	David Jaffe
	Title:	Director / Vice President

[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]

Lenders
CITICORP USA, INC.
By:	/s/ David Jaffe
	Name:	David Jaffe
	Title:	Vice President
WELLS FARGO FOOTHILL, INC.
By:	/s/ Dennis King
	Name:	Dennis King
	Title:	Vice President
LASALLE BANK NATIONAL ASSOCIATION
By:	/s/ John Mostofi
	Name:	John Mostofi
	Title:	Senior Vice President
CONGRESS FINANCIAL CORP.
By:	/s/ Robert Strack
	Name:	Robert Strack
	Title:	Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:	/s/ Dennis W. Cloud
	Name:	Dennis W. Cloud
	Title:	Duly Authorized Signatory
NATIONAL CITY BUSINESS CREDIT, INC.
By:	/s/ Christopher R. Snyder
	Name:	Christopher R. Snyder
	Title:	Director

[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]

SCHEDULE I

REVOLVING CREDIT COMMITMENTS

Lender	Revolving Credit Commitment
Citicorp USA, Inc.	$	14,285,715
Wells Fargo Foothill, Inc.	$	8,571,428
LaSalle Bank National Association	$	6,250,000
General Electric Capital Corporation	$	7,500,000
Congress Financial Corp.	$	7,142,857
National City Business Credit, Inc.	$	6,250,000
Total:	$	50,000,000

SCHEDULE II

APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES

1. CITICORP USA, INC.:

Domestic Lending Office:

2 Penn’s Way, Suite 200

New Castle, DE 19720

Attention: Robert Partee III

Telephone: (302) 894-6011

Telecopy: (302) 894-6120

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

2. WELLS FARGO FOOTHILL, INC.:

Domestic Lending Office:

2450 Colorado Avenue, Suite 3000 West

Santa Monica, CA 90404

Attention: Mike Baranowski

Telephone: (310) 453-7308

Telecopy: (310) 453-7446

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

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3. LASALLE BANK NATIONAL ASSOCIATION

Domestic Lending Office:

Suite 425

135 S. LaSalle Street

Chicago, IL 60603

Attention: Mitchell Tarvid

Telephone: (312) 904-4240

Telecopy: (312) 904-6450

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

4. CONGRESS FINANCIAL CORP.

Domestic Lending Office:

1133 Avenue of the Americas

New York, NY 10036

Attention: Thomas A. Martin

Telephone: (212) 545-4367

Telecopy: (212) 545-4283

Eurodollar Lending Office:

(Same as above)

Notices:

(Same as above)

120

5. GENERAL ELECTRIC CAPITAL CORPORATION

Domestic Lending Office:

500 W. Monroe St.

Chicago, IL 60661-3679

Attention: Terra Industries Account Manager

Telecopier: 312-419-7500

Eurodollar Lending Office:

(Same as above)

Notices:

General Electric Capital Corporation

500 W. Monroe St.

Chicago, IL 60661-3679

Attention: Corporate Counsel - Commercial Finance

Telecopier: 312-441-7173

6. NATIONAL CITY BUSINESS CREDIT, INC.

Domestic Lending Office:

1965 East Sixth Street

Locator 01-3049

Cleveland, OH 44114

Attention: Thomas Evans

Telephone: 216-222-9267

Telecopier: 216-222-9555

thomas.evans@nationalcity.com

Euro Lending Office:

(Same as above)

Notices:

(Same as above)

121

EX-10.1.24

Exhibit 10.1.24

TERRA INDUSTRIES INC.

2005 OFFICERS AND KEY EMPLOYEES INCENTIVE PLAN

· Participation – Terra’s President and Chief Executive Officer (CEO) and the Terra officers and key employees the CEO selects to participate.

· Authority – The CEO selects the bonus target for each participant and evaluates each participant’s goal achievement. The Compensation Committee of the Board of Directors approves the totals of the Plan’s targeted bonuses (the “Pool”) and amounts awarded.

· Goals – Each participant selects goals for the year. The CEO approves all goals and any changes in goals during the year. Each participant evaluates his/her goal achievement in January 2006. The CEO accepts each participant’s goal achievement or modifies it to recognize the value of the goal achievement to Terra, changed conditions, etc.

· Bonuses awarded – While bonuses paid to each participant are subject to the CEO’s judgment and Compensation Committee’s approval, the total of bonuses paid will depend on Terra’s 2005 income from continuing operations (“Income”) as follows:

· If Terra’s 2005 Income is less than $30 million – Discretionary bonuses of as much as 50% of each participant’s targeted bonus (year-end base salary times the percentage bonus target selected by the CEO) may be paid based on Terra’s overall performance and each participant’s goal achievement.

· If Terra’s 2005 Income is $30 million – Bonuses totaling 50% of the Pool will be paid based on the individual and aggregate goal achievement of the Plan’s participants.

· If Terra’s 2005 Income is more than $30 million but not greater than $105 million – The portion of the Pool paid will be increased by 1% for each $0.5 million Terra’s 2005 Income is above $30 million to a maximum payment of 200% of the Pool.

· If Terra’s 2005 Income exceeds $105 million – Bonuses in excess of 200% of the Pool may be awarded solely at the Compensation Committee’s discretion.

· Payment of bonuses – Bonuses will be paid after the Compensation Committee has approved the discretionary bonuses, if any, or, in the event Terra’s 2005 Income is $30 million or more, the bonus Pool calculation and distribution. To receive a bonus, a participant must be a Terra employee on the day the bonuses are paid.

EX-10.1.25

Exhibit 10.1.25

TERRA INDUSTRIES INC.

DESCRIPTION OF COMPENSATORY ARRANGEMENTS FOR 2005

APPLICABLE TO NAMED EXECUTIVE OFFICERS

Set forth below are compensatory arrangements as of March 1, 2005, applicable to Terra’s current executive officers who will be named in the summary compensation table of Terra’s proxy statement for the 2005 annual meeting of shareholders (“Named Executive Officers”). These arrangements are in addition to the various other compensatory plans and arrangements in which Terra’s Named Executive Officers participate and which are filed as exhibits to this report on Form 10-K for the year ended December 31, 2004.

Annual Base Pay

Michael L. Bennett	$	450,000
President and Chief Executive Officer
Francis G. Meyer	$	325,000
Senior Vice President and Chief Financial Officer
W. Mark Rosenbury	$	250,000
Senior Vice President and Chief Administrative Officer
Mark A. Kalafut	$	210,000
Vice President, General Counsel and Corporate Secretary
Richard S. Sanders Jr.	$	185,000
Vice President, Manufacturing

Executive Retention Agreements

Each of the Named Executive Officers has entered into an executive retention agreement, the details of which are set out in Terra’s proxy statement under the caption “Employee Contracts, Termination of Employment and Change of Control Arrangements.”

Bonuses

Each of the Named Executive Officers received a bonus for 2004, payable in 2005, the details of which are set out in Terra’s proxy statement in the Summary Compensation Table.

EX-10.11

Exhibit 10.11

Execution Copy

WARRANT AGREEMENT

Dated as of December 21, 2004

among

TERRA INDUSTRIES INC.

PERRY PRINCIPALS INVESTMENTS LLC

CITIGROUP FINANCIAL PRODUCTS INC.

and

VÄRDE INVESTMENT PARTNERS, L.P.

WARRANT AGREEMENT, dated as of December 21, 2004 among TERRA INDUSTRIES, INC. (the “Company”), PERRY PRINCIPALS INVESTMENTS LLC (“Perry”), CITIGROUP FINANCIAL PRODUCTS INC. (“CFPI”), and VÄRDE INVESTMENT PARTNERS, L.P. (“Värde”, and together with Perry and CFPI, the “Initial Holders”).

The Company desires to issue the warrants described herein. The Warrants (as defined herein) will entitle the holders thereof to purchase, in the aggregate, 4,000,000 shares (the “Warrant Shares”) of Common Stock, without par value, of the Company (the “Common Stock”) in connection with the Amended and Restated Term Loan, Guarantee and Security Agreement among Mississippi Chemical Corporation and the other parties thereto, originally dated as of July 1, 2004 and amended and restated as of the date hereof.

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. Grant. The Company hereby grants to each Initial Holder warrants (“Warrants”) which shall entitle the registered holder thereof to purchase from the Company, at any time or from time to time hereafter but not later than December 21, 2009 (the “Expiration Date”), the number of Warrant Shares set forth opposite the name of such Initial Holder in Schedule I hereto, subject to adjustment as provided in Section 7, at the exercise price of $5.48 per share, subject to adjustment as provided in Section 7 (the “Exercise Price”), and subject to the Cash Out Option (as defined in Section 4(c)), all subject to the terms and upon the conditions set forth herein.

2. Warrant Certificates. The Warrants shall be evidenced by certificates issued pursuant to this Agreement (the “Warrant Certificates”) in the form set forth in Exhibit A hereto, with such appropriate insertions, omissions, substitutions, and other variations as are required or permitted by this Agreement.

3. Expiration. A Warrant shall terminate and become void as of the earlier of (i) the close of business on the Expiration Date or (ii) the date such Warrant is exercised. The Company shall give notice not less than 30, and not more than 60, days prior to the Expiration Date to the holders of all then outstanding Warrants to the effect that the Warrants will terminate and become void as of the close of business on the Expiration Date.

4. Exercise of Warrant.

(a) General. Subject to the provisions of this Agreement, upon surrender to the Company at its principal office of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment in accordance with Section 4(b) of the Exercise Price then in effect, the Company shall issue and deliver promptly to the registered holder of such Warrant Certificate, a certificate or certificates for the Warrant Shares or other securities, property or cash to which the registered holder is entitled, registered in the name of such registered holder or, upon the written order of such registered holder, in such name or names as such registered holder may designate. In the case of an exercise of Warrants, any certificate or certificates representing Warrant Shares shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of the Warrant Shares as of the date of the surrender of such Warrant Certificate (together with such duly executed Form of Election to Purchase) and payment of the Exercise Price. No Warrant shall be exercisable after the Expiration Date.

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(b) Payment. Payment of the Exercise Price shall be made, at the option of the registered holder of the Warrants, (i) in cash, (ii) by wire transfer payable to the order of the Company, or (iii) on a net basis, such that without the exchange of any funds, such holder receives either (A) that number of Warrant Shares that would otherwise be issuable upon a cash exercise of such Warrants less that number of Warrant Shares having a Current Market Price equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares with respect to which such Warrant is being exercised or (B) if the Warrant is exercised under the Cash Out Option, the amount of cash equal to the difference between the Exercise Price per share and the Current Market Price per share on the date of exercise. For the purpose of any computation under this paragraph 4(b) or paragraph 4(c), the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the Closing Prices of the Common Stock for the ten (10) consecutive trading days ending on the day before the day the Warrant Certificate (together with a duly executed Form of Election to Purchase) is delivered to the Company. The term “Closing Price” shall mean, for each trading day, the last reported sale price on the principal national securities exchange in the United States on which the Common Stock is then listed or admitted for trading or, if the Common Stock is not listed on a national securities exchange in the United States, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. If for any reason the Current Market Price per share cannot be determined pursuant to the foregoing provisions of this paragraph, the Current Market Price per share shall be the fair market value thereof as determined in good faith by the Board of Directors of the Company (the “Board”).

(c) Cash Out Option. In the case of an exercise of Warrants at any time prior to the receipt of the approval of the Company’s stockholders for the issuance of the Warrant Shares, the Warrants may be settled, at the Company’s option, by payment of an amount of cash (or wire transfer of immediately available funds) equal to the Current Market Price per share on the date of exercise.

(d) Exercise in Whole or in Part. The purchase rights evidenced by a Warrant Certificate shall be exercisable, at the election of the registered holder thereof, in whole or in part, but only for lots of 100 Warrant Shares or integral multiples thereof if less than all the Warrants then held by such registered holder are being exercised. If less than all of the Warrant Shares purchasable under any Warrant Certificate are purchased, the Company shall cancel such Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the remaining number of Warrant Shares purchasable thereunder.

(e) Fractional Shares. No fractional shares of Common Stock shall be issued upon exercise of any Warrants. Instead the Company shall round the results of an exercise up to the nearest full share of Common Stock.

(f) Reservation of Shares. The Company will at all times reserve and keep available out of its authorized Common Stock solely for the purpose of issuance upon exercise of the Warrants as herein provided, such number of shares of Common Stock as shall from time to

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time be issuable upon the exercise of all outstanding Warrants. All shares of Common Stock that may be issued upon exercise of the Warrants will, upon issuance, be validly issued, fully paid and nonassessable and not subject to preemptive rights of any stockholder.

(g) Stockholder Approval. The Company shall endeavor in good faith to cause the Company’s shareholders to approve the issuance of the Warrant Shares at its 2005 annual meeting.

5. Transfer.

(a) Warrant Register. The Company shall maintain at its principal office or at the office of its transfer agent a Warrant Register for registration of Warrant Certificates and transfers thereof. The Company shall initially register the outstanding Warrants in the name of each of the Initial Holders. The Company may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owner(s) thereof and of the Warrants represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificates made by any person) for the purpose of any exercise thereof or any distribution to the holder(s) thereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. For the purpose of this Agreement, all references to a holder herein shall refer to a registered holder of Warrants.

(b) Warrants and Warrant Shares Not Registered. Each registered holder of the Warrants, by acceptance thereof, represents and acknowledges that the Warrants and the Warrant Shares which may be purchased upon exercise of a Warrant are not registered under the Securities Act of 1933, as amended (the “Securities Act”). Neither the Warrants nor the related Warrant Shares may be transferred except (i) pursuant to an effective registration statement under the Securities Act, (ii) pursuant to Rule 144 under the Securities Act or (iii) pursuant to any other available exemption from registration; provided that, in the event of a transfer pursuant to Rule 144 under the Securities Act or any other available exemption from registration, such transferee shall be required to deliver such legal opinions, certifications and other information as the Company shall reasonably request to confirm that such transfer is being made pursuant to an exemption from the registration requirements of the Securities Act.

(c) Notice and Registration of Transfer. Each registered holder of the Warrants, by acceptance thereof, agrees that prior to any disposition by such holder of the Warrants or, prior to the effectiveness of a registration statement relating to the Warrant Shares, prior to any disposition by such holder of any Warrant Shares, such holder will give written notice to the Company expressing such holder’s intention to effect such disposition and describing briefly such holder’s intention as to the manner in which the Warrants or the Warrant Shares theretofore issued or thereafter issuable upon exercise hereof, are to be disposed of, whereupon, but only if such transfer is permitted pursuant to paragraph 5(b) above, such transferring holder shall be entitled to dispose of the Warrants and/or the Warrant Shares theretofore issued upon the exercise thereof, all in accordance with the terms of the notice delivered by such holder to the Company. In the event of such transfer, the Company shall register the transfer of any outstanding Warrants in the Warrant Register upon surrender of the Warrant Certificate(s) evidencing such Warrants to the Company at its principal office, accompanied by a written instrument of transfer in form reasonably satisfactory to it, duly executed by the registered holder

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thereof. Upon any such registration or transfer, new Warrant Certificate(s) evidencing such transferred Warrants shall be issued to the transferee(s) and the surrendered Warrant Certificate(s) shall be canceled.

6. Special Agreements of the Company. The Company covenants and agrees as follows:

(a) Public Offering by Subsidiary. The Company shall not permit any of its subsidiaries to effect a public offering of common stock without the prior consent of a majority of the holders of the Warrants; provided that such consent shall not be required if the holders of the Warrants shall have been offered the opportunity to exchange the Warrants for warrants of any such subsidiary issuing such publicly offered stock representing an equivalent economic interest. The number of warrants of such subsidiary representing an equivalent economic interest shall be determined by multiplying the total number of Warrant Shares which such holder is entitled to purchase by a fraction the numerator of which shall be the current market price per share (determined as provided in paragraph 7(h) below) of the Common Stock in effect immediately prior to the initial public offering by such subsidiary and the denominator of which shall be the initial public offering price of the common stock of such subsidiary. The warrants in such subsidiary shall be subject to the same terms and conditions as the Warrants, including Exercise Price and Expiration Date.

(b) Registration Rights Agreement. Concurrently with the execution and delivery of this Agreement, the Company shall execute and deliver a registration rights agreement relating to the Warrants and the Warrant Shares in form and substance reasonably agreed between the Company and each of the Initial Holders.

7. Anti-dilution; Adjustment of Exercise Price and Number of Warrant Shares Issuable. The number and kind of shares purchasable upon the exercise of Warrants and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company in Common Stock, the Exercise Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination of the holders entitled to such dividends and distributions. For the purposes of this paragraph 7(a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

(b) In case the Company shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for, purchase or acquire shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph

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7(h) below) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants, the Exercise Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Exercise Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate offering price for the total number of shares of Common Stock so offered for subscription, purchase or acquisition would purchase at such current market price per share and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription, purchase or acquisition, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination of the holders entitled to such rights, options or warrants. No further adjustment shall be made upon exercise of any right, option or warrant if any adjustment shall have been made upon the issuance of such security. For the purposes of this paragraph 7(b), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company will not issue any rights, options or warrants specifically in respect of shares of Common Stock held in the treasury of the Company, however, the Company may satisfy any rights, options or warrants to purchase shares of Common Stock, including the Warrants, by delivery of treasury shares.

(c) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be increased to equal the product of the Exercise Price in effect on such date and a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such subdivision or combination, as the case may be, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such subdivision or combination, as the case may be. Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock (A) evidences of its indebtedness or (B) shares of any class of capital stock, cash (excluding any ordinary cash dividends) or other property or assets (including securities, but excluding (x) any rights, options or warrants referred to in paragraph 7(b) above and (y) any dividend or distribution referred to in paragraph 7(a) or 7(c) above), then in each case, the Exercise Price in effect at the opening of business on the day following the date fixed for the determination of holders of Common Stock entitled to receive such distribution shall be reduced by the then fair market value as determined by the Board (whose determination shall be conclusive) of the portion of the capital stock, cash or other assets or evidences of indebtedness so distributed (and for which an adjustment to the Exercise Price has not previously been made pursuant to the terms of this paragraph 7) applicable to one share of Common Stock.

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(e) The reclassification or change of Common Stock into securities, including securities other than Common Stock, (other than any reclassification upon a consolidation or merger to which paragraph 7(o) below shall apply) shall be deemed to involve (A) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be “the date fixed for the determination of holders of Common Stock entitled to receive such distribution” within the meaning of paragraph 7(d) above), and (B) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be “the day upon which such subdivision or combination becomes effective” within the meaning of paragraph 7(c) above).

(f) In case the Company shall issue shares of its Common Stock (excluding shares issued (i) in any of the transactions described in paragraphs 7(a) – (d) above, (ii) pursuant to the grant of awards or the exercise of options or other awards issued under the Company’s employee incentive plans, (iii) upon redemption of the preferred stock to be issued pursuant to the Stock Purchase Agreement, (iv) upon exercise of options and warrants of the Company outstanding as of the date hereof or (v) upon conversion of convertible preferred stock of the Company outstanding as of the date hereof) for a consideration per share less than the current market price per share (determined as provided in paragraph 7(h) below) of the Common Stock in effect immediately prior to the earlier of (x) the issuance of such securities or (y) the date the Company has a contractual obligation to issue such securities (whether or not such contractual obligation is contingent upon the passage of time or the occurrence of certain events or both), then the Exercise Price in effect at the opening of business on the day following the date of issuance of such shares of Common Stock shall be reduced by multiplying such Exercise Price by a fraction (A) the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding (on a fully diluted basis) immediately prior to such issuance, and (2) the number of shares of Common Stock which the aggregate consideration received by the Company (determined as provided in paragraph 7(i) below) for the total number of shares of Common Stock issued would purchase at the current market price per share (determined as provided in paragraph 7(h) below), and (B) the denominator of which is the total number of shares of Common Stock outstanding (on a fully diluted basis) immediately after such issuance.

(g) In case the Company shall issue any securities (including rights, warrants and options) convertible into, exercisable for or exchangeable for its Common Stock (excluding securities issued (i) in any of the transactions described in paragraphs 7(b) and 7(d) above, (ii) pursuant to the grant of awards or the exercise of options or other awards issued under the Company’s employee incentive plans, (iii) upon redemption of the preferred stock to be issued pursuant to the Stock Purchase Agreement, (iv) upon exercise of options and warrants of the Company outstanding as of the date hereof or (v) upon conversion of convertible preferred stock of the Company outstanding as of the date hereof) for a consideration per share of Common Stock initially deliverable upon conversion, exercise or exchange of such securities (determined as provided in paragraph 7(i) below) less than the current market price per share (determined as provided in paragraph 7(h) below) of Common Stock in effect immediately prior to the earlier of (x) the issuance of such securities or (y) the date the Company has a contractual obligation to issue such securities (whether or not such contractual obligation is contingent upon the passage of time or the occurrence of certain events or both), then the Exercise Price in effect at the

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opening of business on the day following the date of issuance of such securities shall be reduced by multiplying such Exercise Price by a fraction, (A) the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding (on a fully diluted basis) immediately prior to the issuance of such securities, and (2) the number of shares of Common Stock which the aggregate consideration received by the Company (determined as provided in paragraph 7(i) below) for such securities would purchase at such current market price per share of Common Stock, and (B) the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock of the Company deliverable upon conversion, exercise or exchange of such securities at the initial conversion, exercise or exchange price or rate. No further adjustment shall be made upon the conversion, exercise or exchange of such security if any adjustment shall have been made upon the issuance of such security.

(h) For the purpose of any computation under this Section 7, the current market price per share of Common Stock on any day shall be:

(A) if the Common Stock is listed or admitted to trading on a principal national securities exchange in the United States, the Nasdaq National Market or in the over-the-counter market, the current market price per share shall be deemed to be the average of the Closing Prices of the Common Stock for the 10 consecutive trading days immediately preceding the trading day before the day in question; provided that, in the case of paragraph 7(d), if the period between the date of the public announcement of the dividend or distribution and the date for the determination of holders of Common Stock entitled to receive such dividend or distribution shall be less than 10 trading days, the period shall be such lesser number of trading days but, in any event, not less than five trading days; or

(B) if the Common Stock is not quoted or listed by any such organization, exchange or market, the current market price per share shall be the fair market value thereof as determined in good faith by the Board.

(i) For purposes of any computation respecting consideration received pursuant to paragraphs 7(f) and (g) above, the following shall apply:

(A) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the gross proceeds to the Company from such issuance, which shall not include any deductions for any commissions, discounts or other expenses incurred by the Company in connection therewith;

(B) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash or, subject to clause (C), securities, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board (irrespective of the accounting treatment thereof), whose determination shall be conclusive absent manifest error;

(C) in the case of the issuance of shares of Common Stock for a consideration in whole or in part consisting of securities, the value of any securities shall

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be deemed to be: (x) if traded on a securities exchange or through the Nasdaq National Market, the average of the closing prices of the securities on such securities exchange or quotation system over the 10 trading day period ending on the trading day immediately preceding the day in question, (y) if actively traded over-the-counter, the average of the closing bid or sale prices (whichever is applicable) over the 10 day period ending on the trading day immediately preceding the day in question and (z) if there is no active public market, the fair market value thereof, determined as provided in clause (B) above; and

(D) in the case of the issuance of securities convertible into, exercisable for or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional consideration, if any, to be received by the Company upon the conversion, exercise or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) through (C) of this paragraph 7(i)).

(j) No adjustment in the Exercise Price need be made until all cumulative adjustments amount to 1% or more of the Exercise Price as last adjusted. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 7 shall be made to the nearest 1/1,000th of a cent or to the nearest 1/1,000th of a share, as the case may be.

(k) For purposes of this paragraph 7, “Common Stock” includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of paragraph 7(n) below, shares issuable on exercise of the Warrants shall include only shares of the class designated as Common Stock of the Company on the date hereof or shares of any class or classes resulting from any reclassification thereof and which have no preferences in respect of dividends or amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that, if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

(l) No adjustment in the Exercise Price need be made under paragraphs 7(a), 7(b) and 7(d) above if the Company issues or distributes to each registered holder of Warrants the shares of Common Stock, evidences of indebtedness, assets or other property, rights, options or warrants referred to in those paragraphs which each registered holder would have been entitled to receive had the Warrants been exercised prior to the happening of such event or the record date with respect thereto.

(m) Whenever the Exercise Price is adjusted pursuant to paragraphs 7(a), 7(b), 7(c), 7(f) or 7(g) above, (A) the number of Warrant Shares purchasable upon exercise of any Warrant shall be adjusted by multiplying such number of Warrant Shares by a fraction the numerator of which is the Exercise Price immediately prior to such adjustment and the

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denominator of which is the Exercise Price immediately after such adjustment and (B) the Company shall promptly mail to registered holders of Warrants, first class, postage prepaid, a notice of the adjustment together with a certificate from the Company’s chief financial officer briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct.

(n) If:

(A) the Company takes any action which would require an adjustment in the Exercise Price pursuant to this paragraph 7;

(B) the Company consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Company must approve the transaction; or

(C) there is a dissolution or liquidation of the Company;

the Company shall mail to registered holders of the Warrants, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Company shall mail the notice at least 5 days before such proposed record or effective date. However, failure to mail the notice or any defect in it shall not affect the validity of any transaction referred to in clause (A), (B) or (C) of this paragraph 7(n).

(o) In the case of any consolidation of the Company or the merger of the Company with or into any other entity or the sale or transfer of all or substantially all the assets of the Company pursuant to which the Company’s Common Stock is converted into other securities, cash or assets or other property, upon consummation of such transaction, each Warrant shall automatically thereafter become exercisable for the kind and amount of securities, cash or other assets or other property receivable upon the consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which such Warrant might have been converted immediately prior to such consolidation, merger, transfer or sale (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount of consideration receivable per share by a plurality of non-electing shares), or, at the option of the Company, for an equivalent amount of cash (or wire transfer of immediately available funds). Appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Warrants, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustment of the Exercise Price and the number of shares of Common Stock issuable upon the exercise of the Warrants) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or assets or property thereafter deliverable upon the exercise of Warrants. If this paragraph 7(o) applies to any transaction, paragraphs 7(a), 7(c) and 7(e) do not apply to such transaction.

(p) In any case in which this paragraph 7 shall require that an adjustment as a result of any event become effective from and after a record date, the Company may elect to defer until after the occurrence of such event the issuance to the holder of any Warrants exercised after such record date and before the occurrence of such event of the additional shares

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of Common Stock issuable upon such conversion over and above the shares issuable on the basis of the Exercise Price and number of Warrant Shares in effect immediately prior to adjustment; provided, however, that if such event shall not have occurred and authorization of such event shall be rescinded by the Company, the Exercise Price and number of Warrant Shares shall be recomputed immediately upon such recission to the price that would have been in effect had such event not been authorized, provided that such recission is permitted by and effective under applicable laws.

(q) If any event occurs as to which the foregoing provisions of this paragraph 7 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board, to protect such purchase rights as aforesaid.

8. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered holder thereof at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the registered holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Warrant Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof.

9. Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of the Warrants and of the Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of such Warrant Certificate, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid.

10. Statement on Warrants. Irrespective of any adjustment in the number or kind of shares issuable upon the exercise of the Warrants or the Exercise Price, Warrant Certificates theretofore or thereafter issued may continue to express the same number and kind of shares and the same Exercise Price as are stated in the Warrant Certificates initially issuable pursuant to this Agreement.

11. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered by hand or sent by facsimile transmission (with receipt confirmed), or, if timely delivered to an air courier

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guaranteeing overnight delivery service, on the next business day, or five business days after being deposited in the mail, first class, certified or registered, postage prepaid, return receipt requested, in each case addressed as follows (or to such other place or places as either of the parties shall designate by written notice to the other):

(A) if to a registered holder, to the address set forth on the Warrant Register maintained by the Company; and

(B) if to the Company, to:

Terra Industries Inc.

600 Fourth Street

Sioux City, Iowa 51101

Attn: General Counsel

12. Amendment. The Company with the consent of the registered holders of the unexercised Warrants evidencing at least a majority of the Warrant Shares underlying the unexercised Warrants may amend or supplement this Agreement or waive compliance by the Company in a particular instance with any provision of this Agreement; provided that without the consent of each registered holder affected, no such amendment shall (with respect to Warrants held by a non-consenting registered holder) increase the stated Exercise Price or decrease the number of stated Warrant Shares issuable upon exercise of any Warrant.

13. Successors. Except as otherwise provided herein, all the covenants and provisions of this Agreement by or for the benefit of the Company and the registered holders of the Warrants shall inure to the benefit of their respective successors and assigns hereunder.

14. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. EACH PARTY HEREBY IRREVOCABLY AGREES TO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY OR ON BEHALF OF ANY PARTY RELATED TO OR ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE OF SERVICES HEREUNDER.

15. Submission to Jurisdiction. The Company and each Initial Holder hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any state or federal court sitting in the City of New York over any suit, action or proceeding arising out of or relating to this Agreement. Service of any process, summons, notice or document by registered mail addressed to any party to this Agreement shall be effective service of process against such party for any suit, action or proceeding brought in any such court. The Company and each Initial Holder hereby irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. A final judgment in any such suit, action or proceeding brought in any such court may be enforced in any other courts by suit upon action.

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16. Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any person other than the Company and the registered holders of the unexercised Warrant Certificates any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the Company and such registered holders. Prior to the exercise of the Warrants, no holder of a Warrant Certificate, as such, shall be entitled to any rights of a stockholder of the Company, including, without limitation, the right to receive dividends or subscription rights, the right to vote, to consent, to exercise any preemptive right, to receive any notice of meetings of stockholders for the election of directors of the Company or any other matter or to receive any notice of any proceedings of the Company, except as may be specifically provided for herein. The holders of the Warrants are not entitled to share in the assets of the Company in the event of the liquidation, dissolution or winding up of the Company’s affairs.

17. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute one and the same instrument.

18. Headings. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

19. Remedies. The Company and the holder hereof each stipulates that the remedies at law of each party hereto in the event of any default or threatened default by the other party in the performance or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

20. Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction.

21. Entire Agreement. This Agreement and the registration rights agreement referred to herein represent the entire agreement of the Company and the Initial Holders with respect to the subject matter hereof and supercede all oral statements and prior writings with respect thereto, including the Warrant Letter among the Company and the Initial Holders, dated as of August 6, 2004. There are no promises, undertakings, representations or warranties by the Company or the Initial Holders relative to subject matter hereof not expressly set forth or referred to herein or therein.

[Signature Page Follows]

12

IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be duly executed as of the day and year first above written.

TERRA INDUSTRIES INC.
By:	/s/ Mark A. Kalafut
Name:	Mark A. Kalafut
Title:	Vice President, General Counsel
	and Corporate Secretary
PERRY PRINCIPALS INVESTMENTS LLC
By:	/s/ Nathaniel J. Klipper
Name:	Nathaniel J. Klipper
Title:	Managing Director
CITIGROUP FINANCIAL PRODUCTS INC.
By:	/s/ Jeffrey S. Jacob
Name:	Jeffrey S. Jacob
Title:	Managing Director
VÄRDE INVESTMENT PARTNERS, L.P.
By:	Värde Investment Partners G.P., LLC, its         General Partner
By:	Värde Partners L.P., its Managing Member
By:	Värde Partners, Inc., its General Partner
By:	Marcia L. Page
Name:	Marcia L. Page
Title:	Managing Partner

13

SCHEDULE I

Initial Holder	Number of Warrant Shares
PERRY PRINCIPALS INVESTMENTS LLC	1,860,000
CITIGROUP FINANCIAL PRODUCTS INC.	1,240,000
VÄRDE INVESTMENT PARTNERS, L.P.	900,000
Total	4,000,000

14

EXHIBIT A

[FORM OF WARRANT CERTIFICATE]

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT. A COPY OF THE FORM OF SAID WARRANT AGREEMENT IS ON FILE WITH THE SECRETARY OF TERRA INDUSTRIES INC.

THE TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

No. W-

WARRANT CERTIFICATE

This Warrant Certificate certifies that, for value received,                      having an address at                                                   (“Holder”), is the registered holder of warrants (the “Warrants”) to purchase, at any time and from time to time after the date hereof but not later than December 21, 2009 (the “Expiration Date”), up to                      fully-paid and non-assessable shares (subject to adjustment in certain events) of Common Stock, without par value (“Common Stock”), of TERRA INDUSTRIES INC., a Maryland corporation (the “Company”), at the exercise price per share of $5.48, subject to adjustment in certain events (the “Exercise Price”), upon surrender of this Warrant Certificate, together with the attached Form of Election to Purchase duly executed, and payment of the Exercise Price at the principal office of the Company, but subject to the terms and conditions set forth herein and in the Warrant Agreement dated as of December 21, 2004 among the Company and the Initial Holders (the “Warrant Agreement”). This Warrant Certificate shall terminate and become void as of the close of business on the Expiration Date or upon the exercise hereof as to all the shares of Common Stock subject hereto.

Payment of the Exercise Price shall be made, at the option of the Holder (i) in cash, (ii) by wire transfer payable to the order of the Company, or (iii) on a net basis, such that without the exchange of any funds, the Holder receives (A) that number of Warrant Shares that would otherwise be issuable upon a cash exercise of this Warrant less that number of Warrant Shares having a Current Market Price (as defined in paragraph 4(b) of the Warrant Agreement) equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares with respect to which this Warrant is being exercised or (B) if the Warrant is exercised under the Cash Out Option (as defined in paragraph 4(c) of the Warrant

i

Agreement), the amount of cash equal to the difference between the Exercise Price per share and the Current Market Price (as defined in paragraph 4(b) of the Warrant Agreement) per share on the date of exercise.

This Warrant may be exercised at such times and in such amounts as are provided for in the Warrant Agreement.

The Warrants evidenced by this Warrant Certificate are issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words “holders” or “holder” meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder(s) hereof upon written request directed to the Company.

The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company’s securities issuable upon exercise of the Warrants may, subject to certain conditions, be adjusted.

Upon due presentment for registration of transfer of this Warrant Certificate at the principal office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection therewith which is not payable by the Company pursuant to paragraph 9 of the Warrant Agreement.

Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such numbered of unexercised Warrants.

The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof and of any distribution to the holder(s) hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

All terms used in this Warrant Certificate which are not defined herein and are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement.

ii

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal.

Dated:                     , 2004

TERRA INDUSTRIES INC.

By:

Name:

Title:

iii

[FORM OF ASSIGNMENT]

(To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.)

FOR VALUE RECEIVED,                      hereby sells, assigns and transfers unto                     , whose address is                                                  , this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                     , Attorney to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution.

Dated:	Signature:
		(Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.)
		(Insert Social Security or Other Identifying Number of Holder)

[FORM OF ELECTION TO PURCHASE]

The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase                      shares of Common Stock and herewith: (choose one by marking “X” in the space provided)

         tenders payment for such shares, to the order of TERRA INDUSTRIES INC., in the amount of $             in accordance with the terms of the Warrant Agreement.

         requests that such exercise be on a net basis in accordance with the terms of the Warrant Agreement.

The undersigned requests that a certificate for such shares of Common Stock be registered in the name of                                         , whose address is                                                   and that such certificate be delivered to                                                   whose address is                                                  .

In addition, the undersigned requests that a new Warrant Certificate evidencing any unexercised Warrants evidenced by the within Warrant Certificate issued to                                         , whose address is                                                   and that such certificate be delivered to                                                   whose address is                                                  .

Dated:	Signature:
	(Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.)
	(Insert Social Security or Other
	Identifying Number of Holder)

EX-12.1

Exhibit 12.1

RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS

(000’s)

	Year ended December 31,
	2000			2001			2002			2003			2004
EARNINGS
Net income (loss) from continuing operations	$	(10,182	)	$	(79,843	)	$	(36,174	)	$	(12,481	)	$	67,596
Income tax expense (benefit)		(6,000	)		(33,000	)		(24,000	)		(57,000	)		(5,000	)
Earnings (loss) before income taxes		(16,182	)		(112,843	)		(60,174	)		(69,481	)		62,596
Minority interest expense (income) in consolidated subsidiaries		5,379			(2,247	)		1,510			(8,617	)		11,207
Income (loss) of equity investments		(843	)		(953	)		(983	)		(803	)		(893	)
Fixed charges		59,747			63,949			63,584			65,453			71,708
Distributed income of equity investees		800			600			700			1,050			500
Less: Preferred dividends		—			—			—			—			(1,583	)
Less: preference security dividends of Terra Nitrogen Company, L.P.		(1,119	)		(2,028	)		(1,846	)		(1,153	)		(8,072	)
TOTAL EARNINGS (LOSS)	$	47,782		$	(53,522	)	$	2,791		$	(13,551	)	$	135,463
FIXED CHARGES
Interest expense	$	51,511		$	53,594		$	53,800		$	55,072		$	53,134
Amortization of debt expenses		1,177			3,278			2,790			3,816			4,086
One-third of rentals on operating leases		5,940			5,049			5,148			5,412			4,833
Preferred dividends (pretax basis)		—			—			—			—			1,583
Preference security dividends of Terra Nitrogen Company, L.P.		1,119			2,028			1,846			1,153			8,072
TOTAL FIXED CHARGES	$	59,747		$	63,949		$	63,584		$	65,453		$	71,708
EARNINGS EXCESS (DEFICIENCY) TO COVER FIXED CHARGES	$	(11,965	)	$	(117,471	)	$	(60,793	)	$	(79,004	)	$	63,755
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS		—			—			—			—			1.89

EX-21.1

Exhibit 21.1

TERRA INDUSTRIES INC.

MAJORITY AND PARTIALLY OWNED SUBSIDIARIES

March 1, 2005

Name of Company	Percentage Held by TRA	Percentage Held by Sub	Jurisdiction
I. Inspiration Coal Inc.	100		Delaware
II. Inspiration Consolidated Copper Company	100		Maine
which owns
A. Inspiration Development Company		100	Delaware
III. Inspiration Gold Incorporated	100		Delaware
IV. Terra Capital Holdings, Inc.	100		Delaware
which owns
A. Terra Capital, Inc.		100	Delaware
which owns
1. Terra Methanol Corporation		100	Delaware
2. Terra International, Inc.		100	Delaware
which owns
a. Terra International (Oklahoma) Inc.		100	Delaware
b. Terra Real Estate Corporation		100	Iowa
c. Terra Real Estate Development Corporation		100	Iowa
d. Terra Express, Inc.		100	Delaware
e. Terra International (Canada) Inc.		100	Ontario, Canada
which owns
1. Terra Nitrogen (U.K.) Limited		100	England
f. Port Neal Corporation		100	Delaware
3. BMC Holdings, Inc.		100	Delaware
which owns
a. Beaumont Holdings Corporation		100	Delaware
which owns
1. Terra (U.K.) Holdings Inc.1		73	Delaware
which owns
a. Beaumont Ammonia Inc.		100	Delaware

1 Terra Methanol Corporation owns 27% of Terra (U.K.) Holdings, Inc.

TERRA INDUSTRIES INC.

MAJORITY AND PARTIALLY OWNED SUBSIDIARIES

March 1, 2005

Name of Company	Percentage Held by TRA	Percentage Held by Sub	Jurisdiction
4. Terra Nitrogen Corporation		100	Delaware
which owns
a. Terra Nitrogen Company, L.P.2		75	Delaware
which owns
1. Terra Nitrogen, Limited Partnership3		100	Delaware
a. Oklahoma Co2 Partnership		50	Oklahoma
5. Terra Mississippi Holdings Corp.		100	Mississippi
which owns
a. Terra Mississippi Nitrogen, Inc.		100	Delaware
b. Terra Houston Ammonia, Inc.		100	Delaware
which owns
1. Houston Ammonia Terminal4		50	Delaware
c. Koch Terra LLC5		50	Delaware
d. Terra V.I. Holdings Inc.		100	British Virgin Islands
which owns
1. Terra (Barbados) SRL		100	Barbados
which owns
a. Terra Trinidad Limited		100	Trinidad
which owns
1. Point Lisas Nitrogen, Ltd.6		50	Trinidad and Tobago

2 Terra Nitrogen Corporation’s interest includes 1.0101% as General Partner and some of TNCLP is owned directly by Terra Capital, Inc.

3 Terra Nitrogen Corporation is 1% General Partner

4 Terra Mississippi Nitrogen, Inc. owns 49.5% and PCS owns .05% of Houston Ammonia Terminal

5 Koch Nitrogen Company owns the other 50% of Koch Terra LLC

6 KNC Trinidad Limited owns the other 50% of Point Lisas Nitrogen, Ltd.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements Nos. 333-88442, 333-32869, 33-46735, 33-46734, and 33-30058 of Terra Industries Inc. and subsidiaries on Forms S-8 and Registration Statements Nos. 333-68766, 2-90808, 2-84876, 2-84669 and 333-119756 of Terra Industries Inc. and subsidiaries on Forms S-3 of our reports dated March 11, 2005, relating to the financial statements and financial statement schedule of Terra Industries Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph related to Terra’s 2002 change in methods of accounting for goodwill and other intangible assets) and management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Terra Industries Inc. and subsidiaries.

DELOITTE & TOUCHE LLP

Omaha, Nebraska

March 11, 2005

EX-31.1

Exhibit 31.1

Certification

I, Michael L. Bennett, certify that:

1. I have reviewed this annual report on Form 10-K of Terra Industries Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2005

/s/ MICHAEL L. BENNETT

Michael L. Bennett

President and Chief Executive Officer

and Director (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Francis G. Meyer, certify that:

1. I have reviewed this annual report on Form 10-K of Terra Industries Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2005

/s/ FRANCIS G. MYER

Francis G. Meyer

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Terra Industries Inc. (the “Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on their best knowledge:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

/s/ MICHAEL L. BENNETT	/s/ FRANCIS G. MEYER
Michael L. Bennett	Francis G. Meyer
President and Chief Executive Officer	Sr. Vice President and Chief Financial Officer
and Director (Principal Executive Officer)	(Principal Financial Officer)
Dated: March 11, 2005	Dated: March 11, 2005

The certification set forth above is being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-K or as a separate disclosure document of the company or the certifying officers.