I'd realize $80 for 2 hours of work, and the overhead back and forth isn't worth it. Plus, read #3. He wants edits and retouches in there for that price? So ... just suppose you could do all the editing and re-touching in 2 hours. 1 hour of prep and travel time. 5 hours for $80? Plus, the time discussing and figuring out the agreements and such? Now you're probably down to $10 an hour.
You don't want to go too in depth analyzing the costs of everything though, because if you do you may find that you are actually paying him for the privilege of taking his picture.
For him to hit you up with that contract for an $80 shoot
is insulting. Not trying to be a dick or anything, but I can make that much taking a dump on overtime at work. (Everybody knows that when you're making twice as much you work half as hard, lol.)
You're trying to 'do him a favor' by charging a ridiculously low fee since you're new, and he returns that favor by stripping you of any chance of using the photos to further your business opportunities.
If it were me I would walk away. You could try to get more money out of him, but personally - what little you might get out of him would not be worth the work you would be doing and the rights your are giving up.
I think if you come back demanding more money, he will see that as a sign that he has you right where he wants you.
I may be blowing this out of proportion... Still, walk away. Hell, you can't even use the shots in your portfolio, which is the only possible gain you could have from a shoot this cheap.