Exhibit
      10.40


    BUILDING
      MATERIALS HOLDING CORPORATION

    2006
      ANNUAL
      INCENTIVE PROGRAM

     

    BMHC
      Officers

     

    This
      2006 ANNUAL
      INCENTIVE PROGRAM (the "Incentive
      Program")
      was adopted by
      the Compensation Committee (the "Committee") of Building Materials Holding
      Corporation ("BMHC" or the "Company") on February 16, 2006.

     

    WHEREAS,
      the
      Company obtained shareholder approval of the Building Materials Holding
      Corporation 2004 Incentive and Performance Plan (the "Plan"),
      which
      authorizes the Committee under Section 4.6 to grant annual incentive awards
      ("Annual Incentive Awards") based on the performance of BMHC;

     

    WHEREAS,
      the
      Compensation Committee met on February 16, 2006 and adopted the Incentive
      Program for certain employees of BMHC ("Participants") to increase the value
      of
      the Company by aligning the interests of the Participants with those of the
      stockholders of the Company through the granting of Annual Incentive Awards;
      and

     

    WHEREAS,
      Section 7
      of the Plan authorizes the Compensation Committee to administer the Incentive
      Program.

     

    NOW,
      THEREFORE, the
      Company, through the action of the Compensation Committee on February 16th,
      2006, hereby adopts the following Incentive Program.

     

    1.    Calculation
      of Annual Incentive Award

     

    a.    The
      Annual
      Incentive Award is based on the Company's achievement of (i) EBITDA and (ii)
      RONI targets during the Company’s 2006 fiscal year ("Fiscal
      Year
      2006").
      Each EBITDA
      amount and each RONI percentage corresponds to a percentage multiplier
      ("Multiplier").
      To calculate
      Participant's Annual Incentive Award, the Multiplier for each actual EBITDA
      and
      RONI result for Fiscal Year 2006 is multiplied by its weighting percentage
      (for
      Fiscal Year 2006, the weighting percentage for EBITDA is 70% and for RONI is
      30%), the results are added together, and the resulting sum of the weighted
      Multipliers is expressed as a percentage, which itself is multiplied by the
      Participant's Base Salary. The Annual Incentive Award Summary provided to the
      Participant with this Incentive Program sets forth the Multipliers applicable
      to
      each level of EBITDA and RONI for the Participant. Notwithstanding the
      foregoing, no Annual Incentive Award will be earned if EBITDA is less than
      $200
      million and RONI is less than 19%. The Annual Incentive Award is not capped
      and
      the graph showing each Participant’s opportunity is intended to be continuous
      should the performance of the Company exceed the levels shown on the graph.
      Calculation of the Annual Incentive Award (and of EBITDA and RONI on which
      it is
      based) is performed by BMHC's Controller and Human Resources offices, whose
      determination shall be final and binding on Participant.

     

    b.    The
      financial
      performance of any business acquired by the Company shall be included in the
      calculation of EBITDA on an as-incurred basis. Gains or losses on the sale
      of
      real estate by the Company shall be excluded from the calculation of EBITDA
      and
      RONI. Other extraordinary or non-recurring gains or losses, including, without
      limitation, impairments due to an accounting rule change or other factor outside
      of management's control and not related to the ongoing operations of the
      Company, shall not be included in the calculation of EBITDA and RONI unless
      specifically provided by the Committee.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2.    Payment
      of
      Annual Incentive Award

     

    Notwithstanding
      any
      other provision of this Incentive Program or the Plan, the Annual Incentive
      Award, or any portion thereof, is not and shall not be deemed to be earned
      by or
      payable to Participant until the end of Fiscal Year 2006 (December 31, 2006).
      Such final determination and payment of the Annual Incentive Award (if any)
      shall be made within sixty (60) days following the end of Fiscal Year 2006.
      Payment shall be in the form of a cash lump sum unless deferred in accordance
      with BMHC's deferred compensation plan for eligible employees, under the terms
      and conditions established by the Committee. Notwithstanding the foregoing,
      if
      Participant is the Company's Chief Executive Officer or is, or likely will
      be,
      in the sole discretion of the Committee, a "covered employee" within the meaning
      of Treasury Regulation Section 1.162-27(c)(2) with respect to Fiscal Year 2006,
      the Annual Incentive Award shall not be paid unless and until the Committee
      has
      certified in writing both that the actual EBITDA and RONI levels and the EBITDA
      and RONI targets, and any other material term or condition of the Plan or this
      Incentive Program, were satisfied. 

     

    3.    Terms

     

    a.    Participant
      must be an active employee of the Company as of the end of Fiscal Year 2006
      (December 31, 2006) in order to receive an Annual Incentive
      Award. Notwithstanding
      the
      foregoing, if, during Fiscal Year 2006, Participant (i) dies or becomes
      disabled, (ii) retires at age 55 or older with at least ten years of service,
      or
      (iii) is on an approved leave of absence, Participant (or his or her designated
      beneficiary) shall be eligible to receive an Annual Incentive Award that is
      prorated based on Participant’s number of days in active service with the
      Company during Fiscal Year 2006. Such prorated Annual Incentive Award, if any,
      shall be paid as provided in Section 2.
      For the avoidance
      of doubt, Participant shall not be entitled to an Annual Incentive Award if,
      before the end of Fiscal Year 2006, Participant is involuntarily terminated
      by
      the Company for Cause or voluntarily terminates employment with the
      Company.

     

    b.    If
      Participant
      violates any provision of a non-competition agreement or a confidentiality
      agreement with the Company, Participant will not be eligible to receive an
      Annual Incentive Award or any pro rata portion thereof. 

     

    c.    Notwithstanding
      any
      other provision of the Plan to the contrary, to the extent an Annual Incentive
      Award is payable to Participant after Participant’s termination of employment
      (other than due to Participant’s death), such payment shall be subject to
      Participant’s execution of an effective release of claims acceptable to the
      Company.

     

    d.    Payments
      made
      pursuant to this Incentive Program are subject to all required federal, state
      and local withholding taxes. 

     

    
      
        
        

      

      
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    e.    It
      is the intent of
      the parties that the provisions of this Incentive Program conform to the
      requirements of Section 409A of the Internal Revenue Code of 1986 (the
      "Code")
      and any final
      Treasury Regulations or other authoritative guidance issued thereunder, if
      such
      Code section is applicable, and the Incentive Program shall be so construed
      and
      interpreted. In the event that the Company determines in good faith that any
      provision of this Incentive Program does not comply with Section 409A of the
      Code, the Company may amend this Incentive Program to the minimum extent
      necessary to cause the Incentive Program to comply. In the event that the
      Company determines in good faith that payment of an Annual Incentive Award
      pursuant to Section 2 hereof would violate Section 409A of the Code, then such
      award instead shall be paid on the date Participant incurs a separation from
      service from the Company as defined in Section 409A(a)(2)(A)(i) of the Code
      (or
      six months after such date if Section 409A(a)(2)(B)(i) of the Code
      applies).

     

    4.    Administration

     

    The
      Incentive
      Program shall be administered by the Committee. Any determination made by the
      Committee in interpreting or administering the Incentive Program shall be final
      and binding upon Participant.

     

    5.    No
      Alienation, Assignment or Encumbrance of Payments

     

    A
      Participant’s interest hereunder may not be alienated, assigned or encumbered,
      except by will, beneficiary designation, or the laws of descent and
      distribution, or as otherwise approved by the Company in writing.

     

    6.    No
      Employment Contract; No Effect on other Plans

     

    This
      Incentive
      Program shall not be deemed to be a contract of employment between the Company
      and Participant. Nothing contained herein shall give Participant the right
      to be
      retained in the employ of the Company or shall interfere with the right of
      the
      Company to discharge Participant at any time, with or without reason, for any
      reason or for no reason. This Incentive Program does not affect Participant’s
      right to participate in any other plan or program sponsored by the Company,
      including, without limitation, any discretionary bonus that Participant may
      be
      eligible to receive from time to time.

     

    7.    Beneficiary

     

    In
      the event an Annual Incentive Award is payable hereunder after a Participant’s
      death, such award shall be paid to Participant’s designated beneficiary, or, if
      none, to Participant's estate.

     

    8.    Definitions

     

    a.    "Base
      Salary"
      means a
      Participant’s base salary as in effect on the last day of the first quarter of
      Fiscal Year 2006. For avoidance of doubt, Base Salary does not include any
      actual or target incentive, bonus or commission payments, premium payments,
      overtime payments, allowances, or other compensation or remuneration of any
      kind.

     

    
      
        
        

      

      
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    b.    "Cause"
      means
      (i) conviction of or a plea of nolo
      contendre
      to a felony
      involving moral turpitude; (ii) misappropriating any significant amount of
      funds or property of the Company; (iii) attempting to obtain any
      significant personal profit from any transaction in which Participant has an
      interest which is adverse to the interest of the Company, unless the Company
      has
      first obtained consent from an officer of the Company; or (iv) a pattern of
      gross dereliction of duty that has not been cured within 15 days after
      Participant's receipt of written notice from the Company; provided, however,
      that if "Cause" otherwise is defined in an employment agreement between
      Participant and the Company, it shall have the meaning given in the employment
      agreement.

     

    c.    "EBITDA"
      means earnings
      before interest, taxes, depreciation and amortization as determined by the
      Company's Controller based on the Company's audited financial
      statements.

     

    d.    "RONI"
      means return on
      net investment as determined by the Company's Controller based on the Company's
      audited financial statements.

     

    9.    Governing
      Law

     

    The
      Plan shall be
      governed by, and construed in accordance with, the laws of the State of
      California without regard to its conflicts of law principles. All actions and
      proceedings arising out of or relating to the Plan shall be heard and determined
      exclusively in a California state or federal court sitting in the Northern
      District of California or in the City and County of San Francisco, California,
      as applicable, and the parties hereto hereby irrevocably submit to the exclusive
      jurisdiction of such courts in any such action or proceeding and irrevocably
      agree to the laying of venue in such courts and waive the defense of an
      inconvenient forum to the maintenance of any such action or
      proceeding.

     

    10.    Captions

     

    The
      captions of
      this Incentive Program are for convenience and reference only and in no way
      define, describe, extend or limit the scope or intent of this Incentive Program
      or the intent of any provision hereof.

     

    11.    Severability

     

    Any
      provision of
      this Incentive Program which is deemed invalid, illegal or unenforceable in
      any
      jurisdiction shall, as to that jurisdiction and subject to this paragraph,
      be
      ineffective to the extent of such invalidity, illegality or unenforceability,
      without affecting in any way the remaining provisions hereof in such
      jurisdiction or rendering that or any other provision of this Incentive Program
      invalid, illegal, or unenforceable in any other jurisdiction.

     

    
      
        
        

      

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