Exhibit 10.72


                      AGREEMENT AND PLAN OF REORGANIZATION


         THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into effective as of May 2, 2001, by and among HEADWATERS  INCORPORATED,
a Delaware corporation ("Headwaters"),  HEADWATERS SUB CORPORATION, a New Jersey
corporation  and  a  wholly  owned  subsidiary  of  Headwaters  ("Merger  Sub"),
HYDROCARBON TECHNOLOGIES,  INC., a New Jersey corporation ("HTI"), and Alfred G.
Comolli,  Lap-Keung (Theo) Lee, Ph.D.,  David L. Tanner, and Michael Kelley (the
"HTI Founders").

                                    RECITALS

         A. Upon the terms and subject to the  conditions of this  Agreement and
in  accordance  with the  applicable  provisions of the laws of the State of New
Jersey  ("New  Jersey  Law"),  Headwaters  and HTI will  enter  into a  business
combination  transaction  pursuant to which Merger Sub will acquire in excess of
ninety  percent (90%) of the  outstanding  capital stock of HTI and  immediately
thereafter Merger Sub will merge with and into HTI (the "Merger").

         B. As a condition and  inducement to  Headwaters'  willingness to enter
into this Agreement,  certain shareholders of HTI have agreed, and certain other
shareholders of HTI are expected to agree, to transfer in aggregate in excess of
ninety percent (90%) of the outstanding shares of HTI Common Stock to Merger Sub
in exchange for shares of  Headwaters  Common  Stock and cash,  on the terms and
subject  to the  conditions  set  forth in the  Share  Exchange  Agreement  (the
"Exchange  Agreement"),  in substantially  the form attached hereto as Exhibit A
(the  "Exchange").  (The  Merger,  the  Exchange,  and  the  other  transactions
contemplated herein and in the Exchange Agreement,  taken together, are referred
to herein as the  "Transaction.")  Merger  Sub,  as owner of such  shares of HTI
Common Stock following the Exchange, shall vote for or consent to the Merger.

         C. The  Boards of  Directors  of  Headwaters  and  Merger  Sub (i) have
determined  that  the  Exchange  and the  Merger  are in the best  interests  of
Headwaters,  its  stockholders,  and  Merger  Sub and (ii)  have  approved  this
Agreement, the Exchange Agreement, and the Transaction;

         D. The Board of Directors of HTI (i) has  determined  that the Exchange
and the Merger are in the best interests of HTI and its  stockholders,  (ii) has
approved this Agreement, the Exchange Agreement, and the Transaction,  and (iii)
has  determined  to  recommend  that  certain  stockholders  of  HTI  (the  "HTI
Stockholders") enter into the Exchange Agreement.

         E.  Headwaters,  Merger Sub,  HTI, and the HTI Founders  desire to make
certain  representations  and warranties and other agreements in connection with
the Merger and the Transaction.

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

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                                   ARTICLE I
                                   THE MERGER

         1.1 The Merger.  At the Effective  Time (as defined in Section l.2) and
subject  to and  upon  the  terms  and  conditions  of  this  Agreement  and the
applicable  provisions  of New Jersey  Law,  Merger Sub shall be merged with and
into HTI, the separate  corporate  existence of Merger Sub shall cease,  and HTI
shall continue as the surviving  corporation.  (HTI as the surviving corporation
after  the  Merger  is  hereinafter  sometimes  referred  to as  the  "Surviving
Corporation.")

         1.2  Effective  Time;  Closing.  Subject  to  the  provisions  of  this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a  Certificate  of Merger,  substantially  in the form of Exhibit B hereto  (the
"Certificate  of  Merger"),  with the  Secretary  of  State of the  State of New
Jersey,  in accordance with the relevant  provisions of New Jersey Law (the time
of such  filing (or such  later time as may be agreed in writing by the  parties
and specified in the Certificate of Merger) being the "Effective  Time") as soon
as  practicable  on or after the Closing  Date (as herein  defined).  Unless the
context  otherwise  requires,   the  term  "Agreement"  as  used  herein  refers
collectively to this Agreement and the Certificate of Merger. The closing of the
Merger (the "Closing"), along with the closing of the Exchange, shall take place
at the offices of HTI or  Headwaters,  at a time and date to be specified by the
parties,  which  shall be no later  than  the  second  business  day  after  the
satisfaction  or waiver of the  conditions set forth in Articles V and VI, or at
such other time,  date, and location as the parties hereto agree in writing (the
"Closing Date").

         1.3 Effect of the  Merger.  At the  Effective  Time,  the effect of the
Merger shall be as provided in this Agreement and the  applicable  provisions of
New Jersey Law.  Without  limiting the generality of the foregoing,  and subject
thereto, at the Effective Time all the property, rights, privileges, powers, and
franchises  of HTI and Merger Sub shall vest in the Surviving  Corporation,  and
all debts, liabilities, and duties of HTI and Merger Sub shall become the debts,
liabilities, and duties of the Surviving Corporation.

         1.4 Certificate of Incorporation; Bylaws.

(a) At the Effective  Time, the Certificate of  Incorporation  of Merger Sub, in
the form  attached  hereto as Exhibit C, as in effect  immediately  prior to the
Effective  Time,  shall be the  Certificate  of  Incorporation  of the Surviving
Corporation until thereafter  amended as provided by law and such Certificate of
Incorporation;  provided, however, that at the Effective Time the Certificate of
Incorporation of the Surviving  Corporation shall be amended so that the name of
the Surviving Corporation shall be Hydrocarbon Technologies, Inc.

(b) The Bylaws of HTI, as in effect  immediately  prior to the  Effective  Time,
shall be, at the Effective Time, the Bylaws of the Surviving  Corporation  until
thereafter amended.

         1.5  Directors.  The persons listed on Schedule 1.5 hereto shall be the
directors of the Surviving Corporation, from and after the Effective Time, until
their respective successors are duly elected or appointed and qualified.

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         1.6 Effect on Capital Stock.

                  (a) Definitions. For purposes of this Agreement:

                           (i)  Exchanged  Shares  shall  mean all shares of HTI
Common Stock to be exchanged pursuant to the Exchange Agreement.

                           (ii) Merger Shares shall mean all Outstanding  Shares
other than the Exchanged Shares.

                           (iii) Fully  Diluted  Number shall mean the aggregate
of (i) the number of Exchanged  Shares,  plus (ii) the number of Merger  Shares,
plus (iii) the number of shares of HTI Common  Stock  underlying  all vested and
unvested HTI Stock Options (as defined  below)  outstanding  as of the Effective
Time.

                           (iv)  Headwaters  Common  Stock shall mean the common
stock, $0.01 par value per share, of Headwaters.

                           (v) HTI Common  Stock  shall  mean the common  stock,
$.01 par value per share, of HTI.

                           (vi) Option Exchange Ratio shall mean (A) $14,468,750
divided by the Fully Diluted Number, and divided by the Signing Price.

                           (vii) Signing Price shall mean $8.702.

                           (viii)  Outstanding  Shares  shall mean all shares of
HTI Common Stock outstanding immediately prior to the Closing under the Exchange
Agreement.

                           (ix)   Transaction   Consideration   shall  mean  the
aggregate  of the Merger  Consideration  (as defined  herein)  and the  Exchange
Consideration (as defined in the Exchange Agreement).

                  (b) Merger Consideration.  The aggregate consideration for the
Merger Shares (the "Merger  Consideration")  shall consist of cash in the amount
of (A) $14,468,750,  divided by (B) the Fully Diluted Number,  multiplied by (C)
the number of Merger Shares.

                  (c)  Conversion  of Merger  Shares.  Immediately  prior to the
Closing, the Exchange Agreement shall be consummated.  At the Effective Time, by
virtue of the Merger,  and without any action on the part of Merger Sub, HTI, or
the holders of any shares of the Common  Stock of HTI,  each share of HTI Common
Stock issued and outstanding immediately prior to the Effective Time that is not
owned by  Headwaters  or Merger  Sub,  and all  rights to accrued  dividends  in
respect  thereof  (other  than any  shares of HTI  Common  Stock to be  canceled
pursuant to Section 1.6(d) and any  Dissenting  Shares (as defined in and to the
extent  provided  in  Section  1.7)),  will be  canceled  and  extinguished  and
automatically  converted  into  the  right  to  receive  in cash  the  aggregate
consideration  (rounded to the nearest  cent) per Merger  Share in the amount of
(A) the Merger Consideration plus

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the aggregate  exercise price of any vested HTI Stock Options  exercised between
the date  hereof  and the  Effective  Time,  divided by (B) the number of Merger
Shares.

                  (d) Cancellation of Headwaters-Owned  Stock. Any shares of HTI
Common  Stock held in the  treasury of HTI or owned by Merger Sub or  Headwaters
immediately prior to the Effective Time,  including the Exchanged Shares,  shall
be canceled  and  extinguished  without any  conversion  thereof  except for the
consideration described in the Exchange Agreement.

                  (e) Stock  Options.  At the  Effective  Time,  all  options to
purchase HTI Common Stock ("HTI Stock  Options")  then  outstanding  under HTI's
Stock Option Plan (the "HTI Stock Option Plan") shall be exchanged by Headwaters
for options to acquire  Headwaters  Common Stock under  Headwaters'  option plan
registered on Form S-8 ("Substitute Options") and shall have, and be subject to,
the same vesting and expiration  terms as set forth in the HTI Stock Option Plan
and/or any  agreements  pursuant to which such HTI Stock Options were granted as
in  effect  immediately  prior  to the  Effective  Time,  except  that  (A) each
Substitute  Option  shall be  exercisable  for that  number  of whole  shares of
Headwaters  Common Stock equal to the number of shares underlying such HTI Stock
Option  immediately  prior  to the  Effective  Time,  multiplied  by the  Option
Exchange  Ratio and rounded to the nearest  whole number of shares of Headwaters
Common  Stock  and (B) the  price  at  which  each  such  Substitute  Option  is
exercisable  shall be divided by the Option  Exchange  Ratio and  rounded to the
nearest cent.  Headwaters shall have reserved at the Effective Time a sufficient
number of shares of  Headwaters  Common Stock for issuance  upon exercise of the
assumed HTI Stock Options.

                  (f) Capital  Stock of Merger Sub.  Each share of Common Stock,
$.01 par  value,  of Merger  Sub (the  "Merger  Sub  Common  Stock")  issued and
outstanding  immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued,  fully paid, and nonassessable share of Common
Stock, $.01 par value, of the Surviving Corporation.  Each certificate of shares
of Merger Sub Common Stock shall continue to evidence ownership of such share of
Common Stock of the Surviving Corporation.

         1.7 Dissenting Shares.

                  (a)  Notwithstanding  any  provision of this  Agreement to the
contrary,  the  shares of any holder of HTI Common  Stock who has  demanded  and
perfected appraisal rights for such shares in accordance with New Jersey Law, to
the extent  applicable,  and who, as of the Effective  Time, has not effectively
withdrawn  or lost such  appraisal  rights  ("Dissenting  Shares")  shall not be
converted  into,  or  represent  a right to  receive,  the Merger  Consideration
pursuant to Section 1.6, but the holder  thereof  shall only be entitled to such
rights as are granted by New Jersey Law.

                  (b) Notwithstanding the foregoing,  if any holder of shares of
HTI Common Stock who demands appraisal of such shares under New Jersey Law shall
effectively  withdraw or lose (for failure to perfect or otherwise) the right to
appraisal, then, as of the later of the Effective Time or the occurrence of such
event, such holder's shares shall  automatically be converted into and represent
only the right to  receive  the Merger  Consideration  pursuant  to Section  1.6
hereof, without interest thereon, upon surrender of the certificate representing
such  shares of HTI Common  Stock in the

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manner  provided in Section 1.8 hereof  (or, in the case of a lost,  stolen,  or
destroyed certificate,  upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.10 hereof).

                  (c) HTI shall give Headwaters (i) prompt notice of any written
demands for  appraisal of any shares of HTI Common  Stock,  withdrawals  of such
demands,  and any  other  instruments  served  pursuant  to New  Jersey  Law and
received  by HTI which  relate to any such  demand  for  appraisal  and (ii) the
opportunity to participate in all negotiations and proceedings  which take place
prior to the  Effective  Time with  respect to demands for  appraisal  under New
Jersey Law. HTI shall not,  except with the prior written  consent of Headwaters
or as may be required  by  applicable  law,  voluntarily  make any payment  with
respect to any demands for  appraisal  of HTI Common Stock or offer to settle or
settle any such demands. Any payments made in respect of Dissenting Shares shall
be made by HTI.

         1.8 Surrender of Certificates.

                  (a) Exchange  Procedures.  Promptly after the Effective  Time,
Headwaters  shall mail to each holder of record (as of the Effective  Time) of a
certificate or certificates (the "Certificates")  which immediately prior to the
Effective Time represented  outstanding  shares of HTI Common Stock whose shares
were  converted into the right to receive the Merger  Consideration  pursuant to
Section 1.6, (i) a letter of  transmittal  (which  shall  specify that  delivery
shall be effected,  and risk of loss and title to the  Certificates  shall pass,
only upon delivery of the Certificates to Headwaters, and which shall be in such
form and have such  other  provisions  as  Headwaters  may  reasonably  specify)
("Letter  of  Transmittal")  and  (ii)  instructions  for use in  effecting  the
surrender of the Certificates in exchange for the Merger Consideration  pursuant
to Section 1.6. Upon surrender of Certificates  for  cancellation to Headwaters,
together with the Letter of Transmittal,  duly completed and validly executed in
accordance with the instructions thereto, the holders of such Certificates shall
be entitled to receive in exchange therefor the Merger Consideration pursuant to
Section 1.6, and the  Certificates  so surrendered  shall forthwith be canceled.
Until so surrendered, each outstanding Certificate will be deemed from and after
the Effective Time, for all corporate purposes, to evidence the right to receive
the Merger Consideration set forth in Section 1.6.

                  (b) No Liability.  Notwithstanding anything to the contrary in
this Section 1.8, neither Headwaters,  the Surviving Corporation,  nor any party
hereto  shall be liable to a holder of shares of HTI Common Stock for any amount
properly  paid  to a  public  official  pursuant  to  any  applicable  abandoned
property, escheat, or similar law.

         1.9 No  Further  Ownership  Rights  in HTI  Common  Stock.  All  Merger
Consideration  paid  upon  the  surrender  of  shares  of HTI  Common  Stock  in
accordance  with the  terms  hereof  shall be  deemed  to have been paid in full
satisfaction of all rights pertaining to such Merger Shares,  and there shall be
no further registration of transfers on the records of the Surviving Corporation
of shares of HTI Common Stock which were  outstanding  immediately  prior to the
Effective Time. If, after the Effective Time,  Certificates are presented to the
Surviving  Corporation  for any reason,  they shall be canceled and exchanged as
provided in this Article I.

         1.10  Lost,  Stolen,  or  Destroyed  Certificates.  In  the  event  any
Certificates  shall have been lost,  stolen, or destroyed,  Headwaters shall pay
the Merger  Consideration  in  exchange  for such  lost,

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stolen,  or destroyed  Certificates upon the making of an affidavit of that fact
by the holder thereof; provided, however, that Headwaters may, in its discretion
and as a condition precedent to the issuance thereof,  require the owner of such
lost, stolen, or destroyed  Certificates to deliver a bond in such sum as it may
reasonably  direct  as  indemnity  against  any claim  that may be made  against
Headwaters,  HTI, or the Surviving  Corporation with respect to the Certificates
alleged to have been lost, stolen, or destroyed.

         1.11 Taking of Necessary Action;  Further Action. If, at any time after
the Effective  Time,  any further  action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving  Corporation  with full
right,  title,  and  possession  to all assets,  property,  rights,  privileges,
powers,  and franchises of HTI and Merger Sub, the officers and directors of HTI
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take,  and will take, all such lawful and necessary  action,  so
long as such action is consistent with this Agreement. This provision shall be a
continuing  obligation of the HTI Founders and the officers and directors of HTI
and shall survive the Effective Time.

         1.12 Tax Treatment.  The parties intend that the Transaction  will be a
reorganization  within the meaning of Section 368 of the Internal  Revenue Code,
as amended (the "Code") and hereby adopt this Agreement, in conjunction with the
Exchange Agreement, as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and  1.368-3(a) of the  regulations  promulgated  under the Code (the
"Treasury Regulations").

                                   ARTICLE II
                      REPRESENTATIONS AND WARRANTIES OF HTI

         HTI hereby makes the  representations  and warranties to Headwaters and
Merger Sub contained in this Article II,  except as set forth in the  disclosure
letter  previously  delivered by HTI to  Headwaters  dated on or before the date
hereof and certified by a duly  authorized  officer of HTI (the "HTI  Disclosure
Letter"). As used herein, where a statement is made "to the knowledge" of HTI or
a statement is made that HTI "knows" a  particular  fact or  circumstance,  such
knowledge shall include the actual knowledge after reasonable inquiry of the HTI
Founders and directors of HTI.

         2.1 Organization of HTI. HTI is a corporation  duly organized,  validly
existing,  and in  good  standing  under  the  laws of the  jurisdiction  of its
incorporation,  has the corporate power to own, lease,  and operate its property
and to carry on its business as now being conducted, and is duly qualified to do
business and in good standing as a foreign  corporation in each  jurisdiction in
which the  character of the  properties  owned or held under lease or license or
the nature of the business conducted by it requires such  qualification,  except
where the failure to be so qualified would not have a material adverse effect on
the business,  assets (including  intangible assets),  financial  condition,  or
results of operations (a "Material  Adverse Effect") of HTI. The subsidiaries of
HTI are as listed on Section 2.1 of the HTI Disclosure  Letter;  HTI owns all of
the capital stock or equity of such entities. HTI has delivered true and correct
copies of the  Certificate  of  Incorporation  and Bylaws of HTI,  as amended to
date, to counsel for Headwaters.

         2.2 HTI Capital Structure. The authorized capital stock of HTI consists
of 10,000,000  shares of HTI Common Stock,  of which there are 1,599,611  shares
issued and

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outstanding  as of the  date  hereof,  and no  shares  of  Preferred  Stock  are
authorized,  issued, or outstanding.  All outstanding shares of HTI Common Stock
are duly authorized,  validly issued, fully paid, and non-assessable and are not
subject  to  preemptive   rights   created  by  statute,   the   Certificate  of
Incorporation  or Bylaws of HTI, or any  agreement or document to which HTI is a
party or by which it is bound.  As of the date that is one day prior to the date
hereof,  HTI had reserved an aggregate of 489,500 shares of Common Stock, net of
exercises,  for issuance to employees,  consultants,  and non-employee directors
pursuant to the HTI Stock Option Plan,  under which options are  outstanding for
an  aggregate  of 152,000  shares.  Through the date  hereof,  HTI has issued no
employee  offer  letters  agreeing to issue HTI Stock  Options for shares of HTI
Common  Stock.  All shares of HTI Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions  specified in the instruments pursuant
to which they are issuable,  would be duly  authorized,  validly  issued,  fully
paid, and  nonassessable.  Section 2.2 of the HTI Disclosure Letter sets forth a
list of all  owners of HTI  Common  Stock and the  number  of shares  held,  all
repurchases  of HTI Common Stock  (including  the date of  repurchase)  and each
outstanding HTI Stock Option,  the name of the holder of such option, the number
of shares subject to such option,  the exercise price of such option, the number
of shares as to which such  option will have vested at such date and whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement or for any other reason, and indicates the extent
of  acceleration,  if any, and such list is true,  correct,  and complete in all
material respects.

         2.3  Obligations  With Respect to Common Stock.  Except as set forth in
Sections  2.2 or 2.3  of  the  HTI  Disclosure  Letter,  there  are no  options,
warrants,  equity  securities,   partnership  interests,  or  similar  ownership
interests,  calls, rights (including  preemptive rights) of any class of HTI, or
any securities  exchangeable or convertible  into or exercisable for such equity
securities,  partnership  interests,  or  similar  ownership  interests  issued,
reserved for issuance, or outstanding. Except as set forth in Section 2.3 of the
HTI Disclosure  Letter,  there are no commitments or agreements of any character
to which  HTI is a party  or by which  HTI is  bound  obligating  HTI to  issue,
deliver,  or sell, or cause to be issued,  delivered,  or sold,  or  repurchase,
redeem,  or  otherwise  acquire,  or  cause  the  repurchase,   redemption,   or
acquisition, of any options, warrants, equity securities, partnership interests,
or similar ownership interests,  calls, rights (including  preemptive rights) of
HTI or obligating HTI to grant, extend, accelerate the vesting of, or enter into
any such option,  warrant,  equity security,  partnership interests,  or similar
ownership interests, call, right, commitment, or agreement.  Except as set forth
in Section 2.3 of the HTI Disclosure Letter,  there are no registration  rights,
and to the  knowledge of HTI,  except as set forth  herein,  there are no voting
trusts,  proxies,  or other  agreements or  understandings,  with respect to any
equity security,  partnership  interests,  or similar ownership interests of any
class of HTI.

         2.4 Authority.

                  (a) HTI has all  requisite  corporate  power and  authority to
enter into this Agreement and to consummate the transactions contemplated hereby
and thereby.  The execution and delivery of this Agreement and the  consummation
of the transactions  contemplated hereby and thereby,  have been duly authorized
by all  necessary  corporate  action  on the  part of HTI,  subject  only to the
approval of this  Agreement  by HTI's  stockholders  (unless  Merger Sub,  after
consummation  of the Exchange,  satisfies the ownership  requirements of Section
14A:10-5.1 of the New Jersey Business  Corporations Act (the "Act") for a merger
of a subsidiary corporation without shareholder

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approval,  in which case the only approval  shall be that of Merger Sub) and the
filing and  recordation of the Certificate of Merger pursuant to New Jersey Law.
If the Merger does not qualify for  treatment  under  Section  14A:10-5.1 of the
Act, a vote of the holders of at least a majority of the  outstanding  shares of
the HTI Common  Stock is required  for HTI's  stockholders  to approve and adopt
this Agreement and to approve the Merger.  This Agreement has been duly executed
and delivered by HTI and the HTI Founders and,  assuming the due  authorization,
execution,  and delivery by Headwaters and Merger Sub, constitutes the valid and
binding obligations of HTI and the HTI Founders,  enforceable in accordance with
its terms,  except as  enforceability  may be limited  by  bankruptcy  and other
similar laws and general  principles  of equity.  The  execution and delivery of
this  Agreement  and the Exchange  Agreement by HTI and the HTI Founders do not,
and the performance of this Agreement and the Exchange  Agreement by HTI and the
HTI  Founders  will  not,  (i)  conflict  with or  violate  the  Certificate  of
Incorporation or Bylaws of HTI, (ii) subject to compliance with the requirements
set forth in Section  2.4(b)  below,  conflict  with or violate  any law,  rule,
regulation, order, judgment, or decree applicable to the HTI Founders or HTI, or
by which the HTI  Founders or HTI,  or any of their  respective  properties,  is
bound or affected,  or (iii) result in any breach of or constitute a default (or
an event  that with  notice  or lapse of time or both  would  become a  default)
under,  or impair HTI's rights or alter the rights or  obligations  of any third
party  under,  or  give  to  others  any  rights  of   termination,   amendment,
acceleration,  or  cancellation  of,  or  result  in the  creation  of a lien or
encumbrance  on any of the  properties  or assets of HTI  pursuant to, any note,
bond,  mortgage,   indenture,   contract,  agreement,  lease,  license,  permit,
franchise, or other instrument or obligation to which HTI is a party or by which
HTI or its  properties  are bound or affected,  except,  with respect to clauses
(ii)  and  (iii),  for  any  such  conflicts,  violations,  defaults,  or  other
occurrences that would not have a Material Adverse Effect on HTI. Section 2.4 of
the HTI Disclosure Letter lists all consents,  waivers,  and approvals under any
of HTI's agreements,  contracts,  licenses, or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.

                  (b) No  consent,  approval,  order,  or  authorization  of, or
registration,  declaration,  or filing with any court, administrative agency, or
commission or other  governmental  authority or  instrumentality  ("Governmental
Entity") is required by or with respect to HTI or the HTI Founders in connection
with the execution and delivery of this Agreement or the Exchange Agreement,  or
the consummation of the transactions contemplated hereby and thereby, except for
(i) the filing of the  Agreement  of Merger with the  Secretary  of State of the
State of New  Jersey,  and (ii) such other  consents,  authorizations,  filings,
approvals,  and  registrations  which, if not obtained or made, would not have a
Material  Adverse Effect on HTI or have a material adverse effect on the ability
of the parties to consummate the Merger.

         2.5 HTI Financial Statements.

                  (a) HTI  has  delivered  to  Headwaters  certain  consolidated
financial  statements of HTI and its  subsidiaries  as follows:  (i) the audited
balance  sheets as of June 30, 2000,  December 31, 1999,  and December 31, 1998,
and the related audited statements of operations,  stockholders' equity and cash
flows for the years ended as of December  31, 1999 and 1998,  and the six months
ended as of June 30, 2000, and the notes thereto;  (ii) the unaudited  quarterly
financial  data for the quarterly  periods  ended as of September 30, 2000,  and
December 31, 2000,  and (iii) the  unaudited  balance  sheets as of December 31,
2000,  and February 28, 2001,  and the  statement of  operations,

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stockholders'  equity and cash flows for the one-year  period ended December 31,
2000  (collectively,  the "HTI Financials").  Each of the HTI Financials (i) was
prepared in accordance with generally accepted accounting  principles  ("GAAP"),
applied on a consistent  basis throughout the periods involved (except as may be
indicated in the notes thereto) and (ii) fairly presented the financial position
of HTI as at the respective  dates thereof and the results of its operations and
cash flows for the  periods  indicated,  except for the absence of notes for the
unaudited interim financial  statements and that the unaudited interim financial
statements  were or are  subject to normal and  recurring  year-end  adjustments
which were not, or are not expected to be, material in amount. The balance sheet
of HTI as of December  31, 2000 is  hereinafter  referred to as the "HTI Balance
Sheet."  Except  as  disclosed  in the HTI  Financials,  HTI  does  not have any
liabilities,  debts,  or  obligations  of any  kind  or  description  (absolute,
accrued,  contingent,  or otherwise)  of a nature  required to be disclosed on a
balance sheet or in the related notes to the  financial  statements  prepared in
accordance with GAAP which are,  individually  or in the aggregate,  material to
the business,  results of operations,  or financial condition of HTI, except (i)
as and to the extent  reflected or reserved against in the HTI Balance Sheet, or
(ii) incurred since the date of the HTI Balance Sheet in the ordinary  course of
business consistent with past practices.

         2.6  Absence  of Certain  Changes or Events.  Since the date of the HTI
Balance  Sheet,  there  has  not  been:  (i) any  event  that  has had or  would
reasonably  be  expected to have a Material  Adverse  Effect on HTI, or (ii) any
material  change by HTI in its  accounting  methods,  principles,  or practices,
except as required by concurrent  changes in GAAP,  nor has HTI entered into any
contracts,  leases,  orders,  or other  commitments  other than in the  ordinary
course of business.

         2.7 Taxes.

                  (a) Definition of Taxes.  For the purposes of this  Agreement,
"Tax" or "Taxes" refers to any and all federal,  state, local and foreign taxes,
assessments and other governmental charges, duties,  impositions and liabilities
relating to taxes,  including  taxes  based upon or measured by gross  receipts,
income,  profits,  sales,  use and  occupation,  and value  added,  ad  valorem,
transfer,  franchise,  withholding,  payroll, recapture,  employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and  including  any liability
for taxes of a predecessor entity.

                  (b) All federal, state, local and foreign returns,  estimates,
information  statements and reports ("Returns") relating to Taxes required to be
filed  with any tax  authority  by or on behalf of the HTI with  respect  to any
taxable  period  ending on or before  the  Closing  Date if due on or before the
Closing Date (i) have been or will be filed on or before the applicable due date
(including any extensions of such due date if properly obtained),  and (ii) have
been,  or will be when filed,  prepared in all material  respects in  compliance
with all applicable legal requirements.  All amounts shown on the Tax Returns to
be due on or before the Closing  Date have been or will be paid on or before the
Closing Date.

                  (c) HTI's  financial  statements  fully  accrue all actual and
contingent  liabilities  for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. HTI will

                                       9
<PAGE>

establish,  in the  ordinary  course of business  and  consistent  with its past
practices,  reserves  adequate  for the payment of all Taxes for the period from
the date of this Agreement through the Closing Date.

                  (d) Since inception, no Tax Return of HTI has been examined or
audited by any applicable tax authority.  No extension or waiver (other than the
normal  extension  occurring by reason of an extension of time to file a Return)
of the limitation period applicable to any such Returns has been granted (by HTI
or any other person on behalf of HTI),  and no such extension or waiver has been
requested from HTI.

                  (e) No claim or legal proceeding is pending or, to the best of
the  knowledge  of HTI,  has been  threatened  against or with respect to HTI in
respect of any material Tax. There are no unsatisfied  liabilities  for material
Taxes  (including  liabilities  for  interest,  additions  to tax and  penalties
thereon  and  related  expenses)  with  respect to any notice of  deficiency  or
similar  document  received by HTI with  respect to any material Tax (other than
liabilities  for Taxes  asserted  under any such notice of deficiency or similar
document  which are being  contested  in good  faith by HTI and with  respect to
which adequate reserves for payment have been  established).  There are no liens
for material  Taxes upon any of the assets of HTI except liens for current Taxes
not yet due  and  payable.  HTI has not  entered  into or  become  bound  by any
agreement or consent  pursuant to Section  341(f) of the Code.  HTI has not been
and, to the knowledge of HTI, will not be, required to include any adjustment in
taxable income for any tax period (or portion  thereof)  pursuant to Section 481
or 263A of the Code or any comparable  provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the  Closing.  HTI has neither made an  election,  nor is required,  to
treat any of its assets as owned by another person  pursuant to the provision of
Section 168(f) of the Code or as tax-exempt bond financed property or tax-exempt
use property within the meaning of Section 168 of the Code. HTI has not acquired
and does not own any assets  that  directly  or  indirectly  secure any debt the
interest on which is tax exempt under Section 103(a) of the Code.

                  (f)  There  is  no  agreement,  plan,  arrangement,  or  other
Contract  covering any employee or independent  contractor or former employee or
independent  contractor  of HTI  that,  considered  individually  or  considered
collectively with any other such agreement, will or could reasonably be expected
to give rise  directly or indirectly to the payment of any amount that would not
be deductible  pursuant to Section 280G or Section 162 of the Code.  HTI is not,
nor has it ever been, a party to or bound by any tax  indemnity  agreement,  tax
sharing agreement, tax allocation agreement, or similar agreement. HTI has never
been a member of a consolidated, combined, or unitary group. HTI has no interest
in nor is it subject to any joint venture,  partnership, or other arrangement or
contract which is treated as a partnership for federal income tax purposes.  HTI
has no liability for Taxes of any Person other than HTI under  Section  1.1502-6
of the  Treasury  Regulations  (or any similar  provision  of state,  local,  or
foreign law), as a transferee or successor, by contract or otherwise. HTI is not
and has not been a United States real property  holding  corporation  within the
meaning of Section  897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Code.

                  (g) There is currently no limitation on the utilization of the
net operating losses,  built-in losses,  capital losses,  Tax credits,  or other
similar  items of HTI under  Sections  382, 383, and 384 of the Code and Section
1502 of the Code and under the Treasury Regulations promulgated

                                       10
<PAGE>

thereunder.  HTI has not taken any action not in  accordance  with past practice
that would  have the effect of  deferring  a measure of Tax  (including  but not
limited to income,  sales, gross receipts, or payroll) from a period (or portion
thereof)  ending on or prior to the  Closing  to a period (or  portion  thereof)
beginning after the Closing.  No material item of income or gain of HTI reported
or to be reported for financial  reporting purposes in any pre-Closing period is
required to be  included in taxable  income in a  post-Closing  period.  HTI has
never been a party to any  transaction  intended to qualify under Section 355 of
the Code. The total adjusted tax basis of HTI's assets equals or exceeds the sum
of HTI's liabilities.

         2.8 Intellectual Property.

                  (a) Section  2.8(a) of the HTI  Disclosure  Letter  contains a
true and complete list of all patents,  trademarks,  trade names, service marks,
and  copyrights,   and   registrations   thereof  and  applications   (including
provisional  applications)  therefor (including all trademarks and service marks
that HTI has used with the intent of creating or benefiting  from any common law
rights  relating to such  marks),  used in the  business  of HTI,  and lists any
proceedings  or  actions  pending  as of the date  hereof  before  any  court or
tribunal  (including the United States Patent and Trademark Office or equivalent
authority anywhere in the world) related to such intellectual property.

                  (b)  Except  as  set  forth  in  Section  2.8(b)  of  the  HTI
Disclosure  Letter,  HTI owns,  or has the right to use,  sell,  or license  all
intellectual property (including the patents,  trademarks,  trade names, service
marks, copyrights, and registrations thereof and applications therefor described
in Section  2.8(a) of the HTI Disclosure  Letter)  necessary or required for the
conduct of its business as currently  conducted (such intellectual  property and
the rights thereto are collectively  referred to herein as the "HTI IP Rights"),
and HTI has delivered or will deliver to Headwaters  prior to the Effective Time
certificates  of  originality  with  respect  to the HTI IP  Rights  in form and
substance  reasonably  satisfactory to Headwaters.  HTI (i) owns exclusively all
trademarks,  service  marks,  and trade names used by it in connection  with the
operation or conduct of the business of HTI,  including the sale of any products
or technology or the provision of any services by HTI; provided,  however,  that
HTI may use  trademarks,  service marks,  and trade names of third parties which
are licensed to HTI or are in the public domain, and (ii) owns exclusively,  and
has good title to, each  copyrighted  work that is an HTI product and each other
work of authorship that HTI otherwise purports to own.

                  (c) To the extent that any HTI intellectual  property has been
developed or created by any person  other than HTI, HTI has a written  agreement
with such person with respect thereto and has either (i) obtained  ownership of,
and is the exclusive  owner of, all such  intellectual  property by operation of
law or by valid  assignment  of any such  rights or (ii) has  obtained a license
under or to such intellectual property.

                  (d) Except pursuant to agreements  described in Section 2.8(d)
of the HTI Disclosure  Letter,  HTI has not transferred  ownership of or granted
any license of or other right to use or  authorized  the retention of any rights
to use any intellectual property that is or was HTI IP, to any other Person.

                  (e) The HTI IP constitutes all the intellectual  property used
in  and/or  necessary  to the  conduct  of HTI's  business  as it  currently  is
conducted,   including  the  design,   development,

                                       11
<PAGE>

distribution,  marketing,  manufacture,  use, import,  license,  and sale of the
products,  technology,  and services of HTI (including products,  technology, or
services currently under development).

                  (f)  Section  2.8(f) of the HTI  Disclosure  Letter  lists all
contracts and licenses  (including all inbound licenses) to which HTI is a party
with  respect  to any  intellectual  property.  No  person  other  than  HTI has
ownership rights to improvements  made by HTI in intellectual  property that has
been licensed to HTI.

                  (g)  Section  2.8(g) of the HTI  Disclosure  Letter  lists all
contracts,  licenses, and agreements between HTI and any other person wherein or
whereby  HTI has agreed  to, or  assumed,  any  obligation  or duty to  warrant,
indemnify,  reimburse, hold harmless, guaranty, or otherwise assume or incur any
obligation  or  liability or provide a right of  rescission  with respect to the
infringement or misappropriation by HTI or such other person of the intellectual
property of any person other than HTI.

                  (h)  The  operation  of  the  business  of  HTI  as  currently
conducted,  including HTI's design, development,  use, import, manufacture,  and
sale of the products,  technology, or services (including products,  technology,
or services  currently under development) of HTI (the "HTI Technology") does not
(i) with respect to the HTI Technology  underlying  HTI's contracts and proposed
contracts with Shenhua Group  Corporation  described in Sections 2.8 and 2.16 of
the HTI Disclosure  Letter and with PetroChina  described in Section 2.16 of the
HTI  Disclosure  Letter  (the   "Shenhua/PetroChina   Agreements")  infringe  or
misappropriate the intellectual  property of any person, and with respect to all
other HTI Technology,  with the knowledge of HTI, infringe or misappropriate the
intellectual  property of any person,  (ii) violate any term or provision of any
license  or  contract  concerning  such  intellectual  property  (including  any
provision  required by or imposed  pursuant to 35 U.S.C.  ss.ss.  200-212 in any
license  or  contract  to  which  HTI is a  party  requiring  that  products  be
manufactured    substantially    in   the   United   States    ("Made-in-America
Requirements")),  (iii)  with  respect  to the  HTI  Technology  underlying  the
Shenhua/PetroChina  Agreements,  violate  the  rights of any  person  (including
rights to privacy or  publicity)  and with respect to all other HTI  Technology,
with the knowledge of HTI, violate the rights of any person (including rights to
privacy or publicity),  or (iv) constitute unfair competition or an unfair trade
practice under any law, and HTI has not received notice from any person claiming
that such  operation  or any act,  product,  technology,  or service  (including
products,  technology, or services currently under development) of HTI infringes
or misappropriates the intellectual property of any person or constitutes unfair
competition or trade  practices under any law,  including  notice of third party
patent or other  intellectual  property rights from a potential licensor of such
rights.

                  (i)  Each  item of HTI IP is  valid  and  subsisting,  and all
necessary  registration,  maintenance,  renewal fees, annuity fees, and taxes in
connection  with  such HTI IP have  been paid and all  necessary  documents  and
certificates  in  connection  with such HTI IP have been filed with the relevant
patent,  copyright,  trademark,  or other  authorities  in the United  States or
foreign jurisdictions,  as the case may be, for the purposes of maintaining such
HTI IP. Section  2.8(i)(1) of the HTI  Disclosure  Letter lists all actions that
must be taken by HTI within ninety (90) days from the date hereof, including the
payment of any registration,  maintenance, renewal fees, annuity fees, and taxes
or the filing of any documents,  applications,  or certificates for the purposes
of maintaining,  perfecting, or preserving or renewing any HTI IP. Except as set
forth in Section 2.8(i)(2) of the HTI

                                       12
<PAGE>

Disclosure  Letter,  HTI has registered  the copyright  with the U.S.  Copyright
Office  for the  latest  version  of each  product  or  technology  of HTI  that
constitutes  or  includes a  copyrightable  work.  In each case in which HTI has
acquired ownership of any intellectual  property rights from any person, HTI has
obtained a valid and enforceable  assignment  sufficient to irrevocably transfer
all rights in such intellectual  property  (including the right to seek past and
future  damages with respect to such  intellectual  property) to HTI and, to the
maximum extent provided for by and required to protect HTI's ownership rights in
and to such  intellectual  property in accordance with applicable  laws, HTI has
recorded  each  such  assignment  of HTI IP with the  relevant  governmental  or
regulatory authority, including the PTO and the U.S. Copyright Office.

                  (j) There are no  contracts  or  licenses  between HTI and any
other person with respect to HTI intellectual  property under which there is any
dispute (or, to HTI's  knowledge,  facts that may reasonably  lead to a dispute)
known to HTI  regarding the scope of such  contract or license,  or  performance
under such  contract or license,  including  with  respect to any payments to be
made or received by HTI thereunder.

                  (k) To the  knowledge  of HTI,  no  person  is  infringing  or
misappropriating any HTI IP.

                  (l) HTI has taken all commercially reasonable steps to protect
its rights in  confidential  information and trade secrets of HTI or provided by
any other person to HTI subject to a duty of  confidentiality.  Without limiting
the generality of the foregoing,  HTI has, and enforces, a policy requiring each
employee,  and  each  consultant  and  independent  contractor  with  access  to
confidential information,  to execute proprietary information,  confidentiality,
and invention and copyright assignment agreements  substantially in the form set
forth in Section  2.8(l) of the HTI  Disclosure  Letter,  and each  current  and
former employee, consultant, and independent contractor of HTI has executed such
an  agreement  and  copies of all such  agreements  have been  provided  or made
available to Headwaters for review.

                  (m) No HTI IP or  product,  technology,  or  service of HTI is
subject  to any  order,  action,  or  proceeding,  or "march  in"  rights,  that
restricts,  or that is reasonably  expected to restrict in any manner,  the use,
transfer,  or  licensing  of any HTI IP by HTI or that may affect the  validity,
use, or enforceability of such HTI IP.

                  (n) No (i) product,  technology,  service,  or  publication of
HTI,  (ii)  material  published  or  distributed  by HTI,  or (iii)  conduct  or
statement  of HTI  constitutes  obscene  material,  a defamatory  statement,  or
material, false advertising, or otherwise violates any law.

                  (o) Neither this Agreement nor any  transactions  contemplated
by this Agreement will result in Headwaters granting any rights or licenses with
respect to the intellectual property of Headwaters or HTI to any person pursuant
to any  contract  to  which  HTI is a party or by which  any of its  assets  and
properties are bound.

                  (p) Section 2.8(p) of the HTI  Disclosure  Letter sets forth a
list of (x) all software  which HTI has  licensed  from any third party which is
used by HTI in its products or otherwise  in its business  (other than  standard
off-the-shelf  software)  and  (y) a list  of  all  "freeware"  and  "shareware"

                                       13
<PAGE>

incorporated  into any product  now or  heretofore  shipped by HTI.  HTI has all
rights necessary to the use of such software, "freeware", and "shareware."

                  (q) HTI's  products  comply in all material  respects with all
applicable  standards  and  with  the  feature  specifications  and  performance
standards  set forth in HTI's  product  data  sheets.  There are no  outstanding
claims (or facts that may  reasonably  lead to a claim) for breach of warranties
by HTI in connection  with the foregoing.  All product  performance  comparisons
heretofore  furnished  by HTI to  customers  or  Headwaters  are accurate in all
material  respects as of the dates so  furnished  (except  that,  in the case of
product  performance  comparisons  made as of a  specified  earlier  date,  such
comparisons  shall be accurate as of such  specified  earlier date,  and, in the
case of product  performance  comparisons  superseded  by a  subsequent  product
performance   comparison   furnished  to  the  customer  before  the  customer's
acquisition of a license on the product  covered by the  superseded  comparison,
the superseding  comparison  shall be accurate in all material  respects and the
superseded comparison shall be disregarded).

                  (r) HTI has taken all  reasonably  necessary  and  appropriate
steps to protect and preserve ownership of HTI IP. HTI has secured valid written
assignments  from all  consultants and employees who contributed to the creation
or development  of the HTI IP. In the event that the consultant is  concurrently
employed by HTI and a third party, HTI has taken additional steps to ensure that
any HTI IP developed by such a consultant  does not belong to the third party or
conflict  with the  third  party's  employment  agreement;  such  steps  include
ensuring that all research and  development  work performed by such a consultant
are performed only on HTI's facilities and only using HTI's resources, except as
set forth in Section 2.8(r) of the HTI Disclosure Letter.

                  (s) HTI is in timely  compliance in all material respects with
the  performance  milestones set forth in its agreement  with Lyondell  Chemical
Company described in Section 2.8(a) of the HTI Disclosure Letter.

                  (t) HTI is in  compliance  in all material  respects  with the
terms of the Institut Francais du Petrole ("IFP") agreement described in Section
2.8(a)  of the HTI  Disclosure  Letter  and has not to date  used  any of  IFP's
technology.

         2.9 Compliance; Permits.

                  (a) HTI is not in conflict  with,  or in default or  violation
of, (i) any law, rule,  regulation,  order, judgment or decree applicable to HTI
or by which HTI or any of its  properties is bound or affected  (except for such
conflicts,  defaults  and  violations  which  are  not,  individually  or in the
aggregate,  material to the operation of the business of HTI), or (ii) any note,
bond,  mortgage,   indenture,   contract,  agreement,  lease,  license,  permit,
franchise or other  instrument or obligation to which HTI is a party or by which
HTI or any of its  properties is bound or affected.  To the knowledge of HTI, no
investigation  or review by any  governmental or regulatory body or authority is
pending or threatened  against HTI, nor has any  governmental or regulatory body
or authority indicated an intention to conduct the same.

                                       14
<PAGE>

                  (b) HTI holds all permits,  licenses,  variances,  exemptions,
orders and approvals  from  governmental  authorities  which are material to the
operation of the business of HTI  (collectively,  the "HTI Permits").  HTI is in
compliance with the terms of HTI Permits.

         2.10  Litigation.   There  is  no  action,  suit,  proceeding,   claim,
arbitration or investigation pending, or as to which HTI has received any notice
of  assertion,  nor, to HTI's  knowledge,  is there a threatened  action,  suit,
proceeding,  claim, arbitration or investigation against HTI, including any such
action, suit, proceeding, claim, arbitration or investigation that in any manner
challenges or seeks to prevent,  enjoin,  alter or delay any of the transactions
contemplated by this Agreement.

         2.11  Brokers' and Finders'  Fees.  HTI has not  incurred,  nor will it
incur,  directly or indirectly,  any liability for brokerage or finders' fees or
agents'  commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.

         2.12 Employee Matters and Benefit Plans.

                  (a)  Definitions.  With the  exception  of the  definition  of
"Affiliate" set forth in Section  2.12(a)(i) below (which definition shall apply
only to this Section 2.12), for purposes of this Agreement,  the following terms
shall have the meanings set forth below:

                           (i) "Affiliate" shall mean any other person or entity
under common control with HTI within the meaning of Section 414(b),  (c), (m) or
(o) of the Code and the regulations issued thereunder;

                           (ii)  "HTI  Employee   Plan"  shall  mean  any  plan,
program,  policy, practice,  contract,  agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
compensation,  stock or  stock-related  compensation,  fringe  benefits or other
employee  benefits or remuneration of any kind,  whether written or unwritten or
otherwise,  funded or unfunded,  including  without  limitation,  each "employee
benefit  plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained,  contributed  to, or  required to be  contributed  to, by HTI or any
Affiliate for the benefit of any HTI  Employee,  or with respect to which HTI or
any Affiliate has or may have any liability or obligation;

                           (iii)  "COBRA"  shall mean the  Consolidated  Omnibus
Budget Reconciliation Act of 1985, as amended;

                           (iv) "DOL" shall mean the Department of Labor;

                           (v) "HTI  Employee"  shall mean any current or former
employee, consultant or director of HTI or any Affiliate;

                           (vi)  "HTI  Employee   Agreement"   shall  mean  each
management,   employment,  severance,  consulting,   relocation,   repatriation,
expatriation,  visas,  work permit or other agreement or contract or arrangement
between HTI or any Affiliate and any HTI Employee;

                           (vii)  "ERISA"  shall  mean the  Employee  Retirement
Income Security Act of 1974, as amended;

                                       15
<PAGE>

                           (viii) "FMLA" shall mean the Family Medical Leave Act
of 1993, as amended;

                           (ix) "HTI  International  Employee  Plan"  shall mean
each HTI  Employee  Plan  that  has been  adopted  or  maintained  by HTI or any
Affiliate,  whether informally or formally,  or with respect to which HTI or any
Affiliate will or may have any  liability,  for the benefit of HTI Employees who
perform services outside the United States;

                           (x) "IRS" shall mean the  Internal  Revenue  Service;

                           (xi) "HTI  Multiemployer  Plan"  shall  mean any "HTI
Pension Plan" (as defined below) which is a "multiemployer  plan," as defined in
Section 3(37) of ERISA;

                           (xii) "PBGC" shall mean the Pension Benefit  Guaranty
Corporation; and

                           (xiii)  "HTI  Pension   Plan"  shall  mean  each  HTI
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.

                  (b) Schedule.  Section  2.12(b) of the HTI  Disclosure  Letter
contains an accurate  and complete  list of each HTI Employee  Plan and each HTI
Employee  Agreement  under each HTI Employee Plan. HTI does not have any plan or
commitment to establish any new HTI Employee Plan or HTI Employee Agreement,  to
modify any HTI  Employee  Plan or HTI Employee  Agreement  (except to the extent
required  by law or to  conform  any  such  HTI  Employee  Plan or HTI  Employee
Agreement to the  requirements of any applicable law, in each case as previously
disclosed to Headwaters in writing,  or as required by this  Agreement or in the
ordinary  course of  business),  or to enter into any HTI  Employee  Plan or HTI
Employee Agreement.

                  (c)  Documents.  HTI has made  available  to  Headwaters:  (i)
correct and complete  copies of all documents  embodying  each HTI Employee Plan
and each HTI Employee Agreement  including  (without  limitation) all amendments
thereto and all related trust  documents;  (ii) the most recent annual actuarial
valuations,  if any,  prepared for each HTI Employee  Plan;  (iii) the three (3)
most recent  annual  reports  (Form Series 5500 and all  schedules and financial
statements  attached  thereto),  if any,  required  under  ERISA  or the Code in
connection with each HTI Employee Plan; (iv) if the HTI Employee Plan is funded,
the most recently  required and completed annual and periodic  accounting of HTI
Employee Plan assets; (v) the most recent summary plan description together with
the summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each HTI Employee  Plan;  (vi) all IRS  determination,  opinion,
notification and advisory letters, and all applications and correspondence to or
from the IRS or the DOL with respect to any such  application  or letter;  (vii)
all material  written  agreements  and  contracts  relating to each HTI Employee
Plan, including,  but not limited to, administrative  service agreements,  group
annuity   contracts   and  group   insurance   contracts;   (viii)  all  written
communications material to any HTI Employee or HTI Employees relating to any HTI
Employee Plan and any proposed HTI Employee Plans, in each case, relating to any
amendments,  terminations,  establishments,  increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any  material  liability  to HTI;  (ix)  all  correspondence  to or from  any
governmental  agency  relating to any HTI Employee Plan; (x) all COBRA forms and
related notices;  (xi) all policies  pertaining to

                                       16
<PAGE>

fiduciary  liability  insurance  covering the  fiduciaries for each HTI Employee
Plan; and (xii) all discrimination tests for each HTI Employee Plan for the most
recent plan year.

                  (d) Employee Plan  Compliance.  Except as set forth in Section
2.12(d) of the HTI  Disclosure  Letter,  (i) HTI has  performed  in all material
respects all obligations required to be performed by it under, is not in default
or  violation  of, and has no knowledge of any default or violation by any other
party to each HTI Employee Plan, and each HTI Employee Plan has been established
and  maintained  in all material  respects in  accordance  with its terms and in
compliance in all material respects with all applicable laws, statutes,  orders,
rules and regulations, including but not limited to ERISA or the Code; (ii) each
HTI Employee Plan intended to qualify under Section  401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code has either received a
favorable determination,  opinion,  notification or advisory letter from the IRS
with  respect  to each  such  Plan as to its  qualified  status  under the Code,
including all  amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent  legislation,  or has  remaining  a period of time  under  applicable
Treasury  Regulations or IRS  pronouncements in which to apply for such a letter
and make any amendments necessary to obtain a favorable  determination as to the
qualified status of each such HTI Employee Plan;  (iii) to HTI's  knowledge,  no
"prohibited  transaction,"  within the  meaning  of Section  4975 of the Code or
Sections 406 and 407 of ERISA,  and not  otherwise  exempt under  Section 408 of
ERISA,  has occurred  with respect to any HTI Employee  Plan;  (iv) there are no
actions,  suits or claims  pending,  or, to the knowledge of HTI,  threatened or
reasonably  anticipated (other than routine claims for benefits) against any HTI
Employee  Plan or against  the  assets of any HTI  Employee  Plan;  (v) each HTI
Employee  Plan can be amended,  terminated or otherwise  discontinued  after the
Effective  Time  in  accordance  with  its  terms,   without  liability  to  the
Headwaters,  Merger Sub, the Surviving Corporation, HTI or any of its Affiliates
(other than  ordinary  administration  expenses or full  vesting of any employer
contributions  to any HTI Employee Plan intended to qualify under Section 401(a)
of the Code); (vi) there are no audits,  inquiries or proceedings pending or, to
the  knowledge  of HTI or any  Affiliates,  threatened  by the  IRS or DOL  with
respect to any HTI Employee  Plan;  and (vii)  neither HTI nor any  Affiliate is
subject  to any  penalty  or tax with  respect  to any HTI  Employee  Plan under
Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.

                  (e) HTI Pension  Plan.  Neither HTI nor any Affiliate has ever
maintained,  established,  sponsored, participated in, or contributed to any HTI
Pension Plan that is subject to Title IV of ERISA or Section 412 of the Code.

                  (f)  HTI  Multiemployer  Plans.  At no  time  has  HTI  or any
Affiliate contributed to or been required to contribute to any HTI Multiemployer
Plan.

                  (g)  No  Post-Employment  Obligations.  No HTI  Employee  Plan
provides,  or reflects or  represents  any  liability  to provide,  retiree life
insurance,  retiree  health or other retiree  employee  welfare  benefits to any
person for any reason,  except as may be  required by COBRA or other  applicable
statute, and HTI has never represented,  promised or contracted (whether in oral
or written form) to any HTI Employee (either individually or to HTI Employees as
a group) or any other person that such HTI  Employee(s) or other person would be
provided with retiree life insurance,  retiree health or other retiree  employee
welfare benefit, except to the extent required by statute.

                                       17
<PAGE>

                  (h) COBRA.  Neither HTI nor any  Affiliate  has,  prior to the
Effective  Time and in any  material  respect,  violated  any of the health care
continuation  requirements  of COBRA,  the  requirements  of FMLA or any similar
provisions of state law applicable to its HTI Employees.

                  (i) Effect of Transaction.

                           (i) Except as set forth in the Disclosure Letter, the
execution  of  this  Agreement  and  the   consummation   of  the   transactions
contemplated  hereby  will  not  (either  alone or upon  the  occurrence  of any
additional  or  subsequent  events)  constitute  an event under any HTI Employee
Plan,  HTI  Employee  Agreement,  trust or loan that  will or may  result in any
payment  (whether of severance pay or otherwise),  acceleration,  forgiveness of
indebtedness,  vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any HTI Employee.

                           (ii) Except as set forth in the Disclosure Letter, no
payment  or  benefit  which  will or may be made by HTI or its  Affiliates  with
respect to any HTI Employee as a result of the transactions contemplated by this
Agreement will be characterized as a "parachute  payment," within the meaning of
Section 280G(b)(2) of the Code (but without regard to clause (ii) thereof).

                  (j)  HTI  International  Employee  Plan.  Neither  HTI nor any
Affiliate  has ever  maintained,  established,  sponsored,  participated  in, or
contributed to, any HTI International Employee Plan.

         2.13 Absence of Liens and  Encumbrances;  Condition of  Equipment.  Set
forth in Section  2.13 of the HTI  Disclosure  Letter are a complete and correct
list and summary description of all fixed assets, machinery, equipment, vehicles
and other  tangible  assets owned or used by HTI at the date of this  Agreement.
HTI has the  exclusive  right to use all such  assets,  subject,  in the case of
leased property, to continuing  obligations under leases therefor.  HTI has good
and valid  title to,  or, in the case of leased  properties  and  assets,  valid
leasehold  interests  in, all of its material  tangible  properties  and assets,
real,  personal and mixed, used in its business,  free and clear of any liens or
encumbrances  except as reflected in the HTI Financials and except for liens for
taxes not yet due and payable.

         2.14 Environmental Matters.

                  (a) Hazardous Material. Except as set forth in Section 2.14 of
the HTI Disclosure  Letter,  no  underground  storage tanks and no amount of any
substance that has been designated by any  Governmental  Entity or by applicable
federal,  state, or local statute,  ordinance,  or regulation to be radioactive,
toxic, hazardous, or otherwise a danger to health or the environment, including,
without  limitation,  PCBs,  asbestos,  petroleum,  urea-formaldehyde,  and  all
substances  listed  as  hazardous   substances  pursuant  to  the  Comprehensive
Environmental Response,  Compensation, and Liability Act of 1980, as amended, or
listed as hazardous  wastes pursuant to the Resource  Conservation  and Recovery
Act of 1976, as amended,  and the regulations  promulgated pursuant to said laws
(a "Hazardous  Material"),  but excluding  office and janitorial  supplies,  are
present, as a result of HTI's actions, or, to HTI's knowledge,  as a result of a
third party's actions or otherwise, in, on, or under any property, including the
land and the improvements, ground water, and surface water thereof, that HTI has
at any time owned, operated, occupied, or leased.

                                       18
<PAGE>

                  (b) Hazardous  Materials  Activities.  Neither HTI nor any HTI
officer or employee on its behalf has transported,  sold,  distributed,  stored,
treated,  processed,  used, manufactured,  generated,  disposed of, released, or
exposed its employees,  others, or the environment to Hazardous Materials or any
product  containing  a Hazardous  Material  (collectively  "Hazardous  Materials
Activities") except in compliance with all applicable treaties,  federal, state,
and local  statutes,  ordinances,  regulations,  or judicial and  administrative
orders (collectively, "Environmental Laws") in effect prior to or as of the date
hereof.

                  (c) Permits. HTI currently holds all environmental  approvals,
permits,  licenses,  clearances and consents (the "HTI  Environmental  Permits")
required for the conduct of HTI's Hazardous  Materials  Activities,  the use and
occupancy of its property,  and other  businesses of HTI as such  activities and
businesses are currently being conducted and is in compliance with all terms and
conditions of all HTI Environmental Permits.

                  (d) Environmental Liabilities.  Except as set forth in Section
2.14 of the HTI  Disclosure  Letter,  HTI is not subject to and has not received
notice of any past, pending,  or, to HTI's knowledge,  threatened claim, demand,
action, judicial or administrative proceeding,  notice of noncompliance,  notice
of violation, consent order, or consent agreement (collectively,  "Environmental
Claims") under any Environmental Law from any enforcement entity or third party,
concerning  any HTI  Environmental  Permit,  Hazardous  Material,  or  Hazardous
Materials  Activity  of  HTI,  any  property  that  HTI has at any  time  owned,
operated,  occupied,  or leased,  or any facility or location to which Hazardous
Materials generated by HTI have been transported for disposal.  HTI is not aware
of any fact or circumstance that could involve HTI in any Environmental Claim or
impose upon HTI any liability that would have a Material Adverse Effect on HTI.

         2.15 Labor  Matters.  To HTI's  knowledge,  there are no  activities or
proceedings of any labor union to organize any employees of HTI and there are no
strikes, or material slowdowns,  work stoppages or lockouts,  or threats thereof
by or with respect to any  employees  of HTI. HTI is and has been in  compliance
with all applicable laws regarding employment practices, terms and conditions of
employment, and wages and hours (including,  without limitation,  ERISA, WARN or
any similar  state or local law),  except for any  noncompliance  that would not
have a Material  Adverse Effect on HTI. HTI has not received any notice from any
of its employees  that any employee is terminating  his or her  employment  with
HTI, nor, to the best of HTI's knowledge,  does any employee intend to terminate
his or her  employment  with HTI as a result  of the  transactions  contemplated
hereby.

         2.16 Agreements,  Contracts, and Commitments. Set forth in Section 2.16
of the HTI  Disclosure  Letter  are a  complete  and  correct  list and  summary
description of all material contracts,  agreements, orders, leases, licenses and
other  commitments (each a "HTI Contract") of HTI at the date of this Agreement.
Except as set forth in the HTI Disclosure  Letter,  HTI is not a party to nor is
bound by:

                  (a) any collective bargaining agreements;

                  (b) any bonus,  deferred  compensation,  severance,  incentive
compensation,  pension,  profit-sharing,  or  retirement  plans,  or  any  other
employee benefit plans or arrangements;

                                       19
<PAGE>

                  (c) any  employment  or  consulting  agreement,  contract,  or
commitment  with any  officer- or  director-level  employee,  or member of HTI's
Board of Directors;

                  (d) any agreement or plan, including,  without limitation, any
stock option plan, stock appreciation right plan, or stock purchase plan, any of
the  benefits  of which will be  increased,  or the vesting of benefits of which
will be accelerated,  by the occurrence of any of the transactions  contemplated
by  this  Agreement  or the  value  of any of the  benefits  of  which  will  be
calculated  on  the  basis  of  any of the  transactions  contemplated  by  this
Agreement;

                  (e) any agreement of  indemnification  or guaranty not entered
into in the ordinary  course of business other than  indemnification  agreements
between HTI and any of its officers or directors;

                  (f) any  agreement,  contract,  or commitment  containing  any
covenant  limiting  the  freedom  of HTI to  engage in any line of  business  or
compete with any person;

                  (g) any agreement, contract, or commitment relating to capital
expenditures  and  involving  future  obligations  in excess of $10,000  and not
cancelable without penalty;

                  (h) any agreement,  contract, or commitment currently in force
relating to the  disposition or acquisition of assets not in the ordinary course
of business or any ownership  interest in any  corporation,  partnership,  joint
venture, or other business enterprise;

                  (i) any mortgages,  indentures,  loans, or credit  agreements,
security  agreements,  or  other  agreements  or  instruments  relating  to  the
borrowing of money or extension of credit;

                  (j) any joint  marketing or development  agreement  (excluding
agreements  with  resellers,  value added  resellers,  or  independent  software
vendors  entered into in the ordinary course of business that do not permit such
resellers or vendors to modify HTI's software products);

                  (k) any distribution  agreement  (identifying any that contain
exclusivity provisions); or

                  (l)  any  other  agreement,   contract,  or  commitment  which
involves  payment by HTI under any such  agreement,  contract or  commitment  of
$100,000 or more  individually  and is not  cancelable  without  penalty  within
thirty (30) days.

         Neither HTI, nor to HTI's  knowledge any other party to a HTI Contract,
has  breached,  violated,  or defaulted  under,  or received  notice that it has
breached,  violated, or defaulted under, any of the material terms or conditions
of any of such HTI Contracts in such a manner as would permit any other party to
cancel or terminate  any such HTI  Contract,  or would permit any other party to
seek damages.

         2.17 Employees;  Change of Control Payments.  Set forth in Section 2.17
of the HTI Disclosure Letter is a complete list of the current employees of HTI,
including a complete and correct  compensation  schedule for all employees and a
complete  and correct  list and  summary  description  of  benefits  for the key
employees  of HTI.  Except as set forth in  Section  2.17 of the HTI

                                       20
<PAGE>

Disclosure Letter, there are no employment contracts with any personnel. Section
2.17 of the HTI Disclosure Letter sets forth each plan or agreement  pursuant to
which any amounts may become  payable  (whether  currently  or in the future) to
current or former officers,  directors and employees of HTI as a result of or in
connection with the Merger.

         2.18  Restrictions  on  Business  Activities.  There  is  no  agreement
(noncompete or otherwise),  judgment,  injunction, order, or decree to which HTI
is a party or  otherwise  binding  upon HTI  which  has or  reasonably  would be
expected to have the effect of prohibiting or impairing any business practice of
HTI, any acquisition of property (tangible or intangible) by HTI, or the conduct
of business by HTI. Without limiting the foregoing, HTI has not entered into any
agreement  under which HTI is restricted from selling,  licensing,  or otherwise
distributing  any of its products to any class of customers,  in any  geographic
area, during any period of time, or in any segment of the market.

         2.19 Title to Properties; Absence of Liens and Encumbrances.

                  (a) Schedule  2.19(a) of the HTI Disclosure  Letter sets forth
the location, years of ownership, and former owners (to the extent known) of all
real property owned by HTI, either currently or in the past.

                  (b) Section 2.19(b) of the HTI Disclosure  Letter sets forth a
list of all real property  currently leased by HTI, the name of the lessor,  and
the date of the lease and each amendment thereto. All such current leases are in
full  force and  effect,  are valid  and  effective  in  accordance  with  their
respective  terms,  and there is not,  under any of such  leases,  any  material
existing  default or event of default  (or event  which with  notice or lapse of
time, or both, would constitute a material default).

                  (c) HTI has good and valid title to, or, in the case of leased
properties  and  assets,  valid  leasehold  interests  in,  all of its  tangible
properties and assets,  real,  personal,  and mixed, used or held for use in its
business,  free and  clear of any  liens,  pledges,  charges,  claims,  security
interests,  or other  encumbrances  of any sort  except  as  reflected  in HTI's
Financials  or in Section  2.19(b) of the HTI  Disclosure  Letter and except for
liens for  Taxes not yet due and  payable  and such  imperfections  of title and
encumbrances,  if any, which are not material in character,  amount,  or extent,
and which do not materially detract from the value, or materially interfere with
the present use, of the property subject thereto or affected thereby.

         2.20 Board Approval.  The Board of Directors of HTI has, as of the date
of this  Agreement,  determined (i) that the  Transaction is fair to, and in the
best interests of, HTI and all of its  stockholders,  and (ii) to recommend that
the stockholders of HTI approve and adopt this Agreement and approve the Merger.

         2.21  Insurance.  Section 2.21 of the HTI Disclosure  Letter sets forth
all  insurance  policies  held by HTI for the two years  prior to the  Effective
Time. During the past five years HTI has not experienced any uninsured losses in
respect of public liability,  product liability, and worker compensation claims.
All insurance  policies are duly in force as of the date of this  Agreement.  No

                                       21
<PAGE>

notice has been  received by HTI  regarding the  cancellation,  non-renewal,  or
increased premiums due with respect to any insurance policy.

         2.22  Warranties.  HTI has  heretofore  furnished or made  available to
Headwaters  or its  counsel  for its  review  copies of all  written  warranties
covering the products of HTI currently in effect.  HTI has not  experienced  any
warranty claims which have affected the  consolidated  net income of HTI by more
than $10,000 in any one fiscal year.

         2.23 Minute  Books.  The minute books of HTI made  available to counsel
for  Headwaters  are the only  minute  books  of HTI and  contain  a  reasonably
accurate summary,  in all material  respects,  of all meetings of directors (and
committees  thereof) and  stockholders  or actions by written  consent since the
time of incorporation of HTI.

         2.24 Business Plan. The projections set forth in the Business Plan were
prepared  in good  faith  based on  conclusions  and  assumptions  that,  to the
knowledge of HIT, are reasonable as of the date hereof.

         2.25 No Material  Misrepresentations.  Neither this  Agreement  nor any
certificate,  exhibit,  schedule, or other information furnished by or on behalf
of HTI pursuant to this Agreement contains any untrue statement of material fact
or, when this Agreement and such certificates,  schedules, and other information
are taken in their entirety, contains any untrue statement of a material fact or
omits to state a  material  fact  necessary  to make  the  statements  contained
therein not misleading as of the date hereof.

                                  ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF HEADWATERS
                                 AND MERGER SUB

         Headwaters  and Merger Sub represent and warrant to HTI,  except as set
forth in the  disclosure  letter  supplied by Headwaters to HTI on or before the
date  hereof and  certified  by a duly  authorized  officer of  Headwaters  (the
"Headwaters Disclosure Letter"), as follows:

         3.1 Organization of Headwaters.  Each of Headwaters and Merger Sub is a
corporation  duly organized,  validly  existing,  and in good standing under the
laws of the jurisdiction of its  incorporation,  has the corporate power to own,
lease,  and  operate  its  property  and to carry on its  business  as now being
conducted,  and is duly  qualified to do business  and is in good  standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would  have a  Material  Adverse  Effect  on  the  business,  assets  (including
intangible assets),  financial condition, or results of operations of Headwaters
and its subsidiaries taken as a whole.

         3.2 Authority.

                  (a)  Each of  Headwaters  and  Merger  Sub  has all  requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions  contemplated  hereby. The execution and delivery of this Agreement
and the  consummation  of the  transactions  contemplated  hereby have been duly
authorized by all necessary  corporate  action on the part of Headwaters and, in
the  case of  this  Agreement,  Merger  Sub,  subject  only  to the  filing  and
recordation  of the  Certificate

                                       22
<PAGE>

of Merger  pursuant to New Jersey Law. This Agreement has been duly executed and
delivered  by  each  of  Headwaters  and  Merger  Sub,  and,  assuming  the  due
authorization,  execution,  and delivery by HTI,  constitutes  valid and binding
obligations  of Headwaters and Merger Sub,  enforceable  in accordance  with its
terms,  except as enforceability  may be limited by bankruptcy and other similar
laws and  general  principles  of equity.  The  execution  and  delivery of this
Agreement by each of Headwaters  and Merger Sub do not, and the  performance  of
this  Agreement by each of Headwaters and Merger Sub will not, (i) conflict with
or violate the  Certificate  of  Incorporation  or Bylaws of  Headwaters  or the
Certificate  of  Incorporation  or  Bylaws  of  Merger  Sub  or  the  equivalent
organizational documents of any of Headwaters' other subsidiaries, (ii) conflict
with or violate any law, rule, regulation, order, judgment, or decree applicable
to Headwaters or any of its subsidiaries  (including Merger Sub) or by which its
or any of their  respective  properties  is bound or affected  pursuant  to, any
note, bond, mortgage,  indenture,  contract,  agreement, lease, license, permit,
franchise,  or other  instrument or obligation to which Headwaters or any of its
subsidiaries  (including Merger Sub) is a party or by which Headwaters or any of
its  subsidiaries  or its or any of their  respective  properties  are  bound or
affected,  except,  with respect to clause (ii), for the consent of Zion's First
National Bank and any such conflicts, violations, defaults, or other occurrences
that would not have a Material Adverse Effect on Headwaters and its subsidiaries
taken as a whole. The Headwaters Disclosure Letter lists all consents,  waivers,
and approvals under any of Headwaters' or any of its  subsidiaries'  agreements,
contracts,  licenses,  or leases  required to be obtained in connection with the
consummation  of the  transactions  contemplated  hereby which, if not obtained,
would have a Material Adverse Effect on Headwaters and its subsidiaries taken as
a whole or have a  material  adverse  effect on the  ability  of the  parties to
consummate the Merger.

                  (b) No  consent,  approval,  order  or  authorization  of,  or
registration, declaration, or filing with any Governmental Entity is required by
or with respect to Headwaters or Merger Sub in connection with the execution and
delivery of this Agreement and the Exchange Agreement or the consummation of the
Transaction, except for

                           (i) the filing of the  Certificate of Merger with the
Secretary of State of the State of New Jersey;

                           (ii) the  filing  with the  Securities  and  Exchange
Commission (the "SEC") of the Form D (as  hereinafter  defined) and any required
state  filings  related to the Exchange and such  reports  under the  Securities
Exchange  Act of 1934,  as amended  (the  "Exchange  Act") as may be required in
connection with this Agreement and the transactions contemplated hereby; and

                           (iii) such other consents,  authorizations,  filings,
approvals,  and  registrations  which, if not obtained or made, would not have a
Material Adverse Effect on Headwaters and its  subsidiaries  taken as a whole or
have a material  adverse  effect on the ability of the parties to consummate the
Merger.

         3.3 No Material  Misrepresentations.  Neither  this  Agreement  nor the
Headwaters  Disclosure Letter contains any untrue statement of material fact or,
when this  Agreement  and the  Headwaters  Disclosure  Letter are taken in their
entirety,  contains any untrue  statement of a material fact or omits to state a
material fact necessary to make the statements  contained therein not misleading
as of the date hereof.

                                       23
<PAGE>

         3.4  Available  Funds.  Headwaters  and  Merger Sub  collectively  have
sufficient capital available to consummate the transactions contemplated by this
Agreement  and is not relying on obtaining  additional  financing in  connection
with such transactions.

         3.5 Merger Sub.  Merger Sub is a wholly-owned  subsidiary of Headwaters
that was formed to effect the transactions contemplated by this Agreement. As of
the date of this Agreement, Merger Sub has no business,  operations,  assets, or
liabilities  other than those  arising from its  formation  and pursuant to this
Agreement.

         3.6  SEC  Documents.   Headwaters  has  filed  all  required   reports,
schedules,  forms, statements, and other documents with the SEC since October 1,
1999  (collectively,  and in each case  including  all  exhibits  and  schedules
thereto and documents  incorporated  by reference  therein,  the "Headwaters SEC
Documents"). As of their respective dates, the Headwaters SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities  Act") or the Exchange Act, as the case may be, and the
rules and  regulations  of the SEC  promulgated  thereunder  applicable  to such
Headwaters SEC Documents.  As of their respective  dates, none of the Headwaters
SEC Documents (including any and all financial statements therein) contained any
untrue  statement  of a  material  fact or  failed to state  any  material  fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  The consolidated financial statements of Headwaters included in the
Headwaters  SEC  Documents  comply  as to form  in all  material  respects  with
applicable  accounting  requirements  and the published rules and regulations of
the SEC with  respect  thereto,  have  been  prepared  in  accordance  with GAAP
(except,  in  the  case  of  unaudited  consolidated  quarterly  statements,  as
permitted  by Form 10-Q of the SEC)  applied on a  consistent  basis  during the
period involved  (except as may be indicated in the notes thereto),  and present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Headwaters  and  its  subsidiaries  at the  respective  dates  thereof  and  the
consolidated  results of  operations  and cash flows for the  periods  specified
(subject,  in the case of unaudited  quarterly  statements,  to normal  year-end
audit  adjustments).  Except as reflected or reserved  against in the Headwaters
Financial Statements or otherwise disclosed in the Headwaters Disclosure Letter,
Headwaters  and  its  subsidiaries   have  no  material   liabilities  or  other
obligations (including contingent liabilities and obligations) except, (i) since
the date of the most recent  audited  balance sheet  included in the  Headwaters
Financial  Statements,  liabilities  and  obligations  incurred in the  ordinary
course  of  business  or (ii) that  would not be  required  to be  reflected  or
reserved  against  in the  consolidated  balance  sheet  of  Headwaters  and its
subsidiaries prepared in accordance with GAAP.

         3.7 Absence of Certain  Changes or Events.  Except as  disclosed in the
Headwaters SEC Documents, or in the Headwaters Disclosure Letter, since the date
of the  most  recent  audited  balance  sheet  included  in the  Headwaters  SEC
Documents,  there is not and has not been (a) any  material  adverse  change  to
Headwaters, or (b) any condition,  event, or occurrence that could reasonably be
expected  to  prevent or  materially  delay  Headwaters  from  consummating  the
transactions contemplated by this Agreement; provided that, for purposes of this
Section  3.7,  a change in the price of  Headwaters  Common  Stock  shall not be
deemed to constitute a "material adverse change."

                                       24
<PAGE>

                                   ARTICLE IV
                              ADDITIONAL AGREEMENTS

         4.1  Conduct  of  Business.  During  the  period  from the date of this
Agreement and continuing  until the earlier of the termination of this Agreement
pursuant to its terms or the Effective  Time, HTI agrees,  except as provided in
Section 4.1 of the HTI Disclosure Letter, or to the extent that Headwaters shall
otherwise  consent  in  writing,  to carry  on its  business  diligently  and in
accordance  with good  commercial  past practice and to carry on its business in
the usual,  regular,  and ordinary course,  in substantially  the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
to pay its debts and taxes when due  subject to good  faith  disputes  over such
debts or taxes, to pay or perform other material  obligations  when due, and use
its commercially  reasonable efforts consistent with past practices and policies
to  preserve  intact its  present  business  organization,  keep  available  the
services of its present officers and employees,  and preserve its  relationships
with customers, suppliers,  distributors,  licensors, licensees, and others with
which it has business dealings. In addition, HTI will promptly notify Headwaters
of any material event  involving its business or  operations.  No information or
knowledge  obtained in any investigation  will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger and the Exchange.

         In addition,  except as permitted by the terms of this  Agreement,  and
except as  provided  in Section 4.1 of the HTI  Disclosure  Letter,  without the
prior written consent of Headwaters, HTI shall not do any of the following:

                  (a) Waive any stock repurchase rights;  accelerate,  amend, or
change the period of  exercisability of options or restricted stock; or re-price
options  granted under any employee,  consultant,  or director  stock plans,  or
authorize  cash  payments in exchange for any options  granted under any of such
plans;

                  (b) Enter into any material  partnership  arrangements,  joint
development agreements,  strategic alliances, agreements to create standards, or
agreements with "Standards" bodies;

                  (c) Grant any severance or  termination  pay to any officer or
employee except payments in amounts  consistent with policies and past practices
or pursuant to written agreements outstanding, or policies existing, on the date
hereof and as previously  disclosed in writing to  Headwaters;  or adopt any new
severance plan;

                  (d)  Transfer or license to any person or entity or  otherwise
extend,  amend,  or  modify in any  material  respect  any  rights to the HTI IP
Rights,  other than in the ordinary course of business,  or enter into grants to
future patent rights, other than in the ordinary course of business;

                  (e)  Declare  or  pay  any  dividends  on or  make  any  other
distributions  (whether in cash,  stock,  or property) in respect of any capital
stock, or split,  combine, or reclassify any capital stock or issue or authorize
the  issuance  of any  other  securities  in  respect  of,  in  lieu  of,  or in
substitution for any capital stock;

                                       25
<PAGE>

                  (f) Repurchase or otherwise  acquire,  directly or indirectly,
any shares of capital stock except  pursuant to rights of repurchase of any such
shares  under any  employee,  consultant,  or director  stock plan or  agreement
existing on the date hereof;

                  (g) Issue, deliver, sell, authorize,  or propose the issuance,
delivery,  or sale of any shares of capital stock or any securities  convertible
into shares of capital stock, or subscriptions,  rights, warrants, or options to
acquire any shares of capital stock or any securities convertible into shares of
capital  stock,  or enter into other  agreements or commitments of any character
obligating  it to issue any such shares or  convertible  securities,  other than
shares of HTI Common  Stock  issued  pursuant to the  exercise of stock  options
outstanding as of the date of this Agreement.

                  (h) Cause,  permit,  or propose any  amendments to any charter
document or bylaw (or similar governing instruments of any subsidiaries);

                  (i)  Acquire or agree to  acquire by merging or  consolidating
with,  or by  purchasing  any equity  interest  in or a material  portion of the
assets of, or by any other manner, any business or any corporation,  partnership
interest,  association,  or other business  organization or division thereof, or
otherwise   acquire  or  agree  to  acquire  any  assets  which  are   material,
individually  or in the  aggregate,  to the  business  of HTI, or enter into any
joint ventures, strategic partnerships or alliances;

                  (j) Buy, sell, lease, license,  encumber, or otherwise dispose
of or acquire any  properties or assets which are material,  individually  or in
the aggregate, to the business of HTI or which exceed $100,000 in the aggregate;

                  (k) Incur any  indebtedness  for  borrowed  money  (other than
ordinary course trade  payables) or guarantee any such  indebtedness or issue or
sell any debt  securities  or warrants or rights to acquire debt  securities  of
HTI, or guarantee any debt securities of others;

                  (l) Adopt or amend any  employee  benefit  or  employee  stock
purchase or employee option plan, or enter into any employment contract, pay any
bonus or special  remuneration  to any  director or  employee,  or increase  the
salaries or wage rates of its officers or  employees,  or change in any material
respect any management policies or procedures;

                  (m) Pay,  discharge,  or  satisfy  any  claim,  liability,  or
obligation  (absolute,   accrued,   asserted  or  unasserted,   contingent,   or
otherwise),  other than the payment,  discharge, or satisfaction in the ordinary
course of business;

                  (n) Make any grant of exclusive rights to any third party; or

                  (o) Agree in writing or  otherwise  to take any of the actions
described in Section 4.1(a) through (n) above.

         4.2  Information   Statement.   Headwaters   will  prepare,   with  the
cooperation of HTI, the Information Statement to be sent to the HTI Stockholders
to  solicit  agreement  to the  terms  of the  Exchange  Agreement  and  related
documents.  Insofar as the Information Statement contains information pertaining
to  Headwaters,  at the time of its mailing to the HTI  Stockholders  and at the

                                       26
<PAGE>

time of the execution  and closing of the Exchange  Agreement,  the  Information
Statement will contain no untrue statement of a material fact or omit to state a
material fact required to be stated  therein or necessary to make the statements
therein,  in  light  of  the  circumstances  under  which  they  are  made,  not
misleading, and Headwaters will advise HTI in writing if, prior to the execution
and closing of the Exchange  Agreement,  it shall obtain  knowledge of any facts
that would make it necessary to supplement or amend the Information Statement to
comply with applicable  laws.  Information  provided by HTI for inclusion in the
Information Statement, at the time of its mailing to the HTI Stockholders and at
the time of the execution and closing of the Exchange Agreement, will contain no
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements  therein,  in light of the
circumstances  under which they are made, not  misleading,  and Headwaters  will
advise HTI in writing if,  prior to the  execution  and closing of the  Exchange
Agreement,  it shall obtain  knowledge of any facts that would make it necessary
to supplement or amend the Information Statement to comply with applicable laws.
The Board of Directors of HTI, subject to the directors'  fiduciary duties, will
recommend that the Stockholders approve and adopt the Exchange Agreement and the
Transaction.

         4.3   Access   to   Information;   Confidentiality.   Subject   to  the
Confidentiality  Agreement between the parties, each party will afford the other
party and its accountants, counsel, and other representatives full access to the
properties,   books,  records,  and  personnel  of  the  other  party  and  full
cooperation,  during  the  period  prior to the  Effective  Time,  to obtain all
information concerning the business, including the status of product development
efforts, properties,  results of operations, and personnel of such party, and to
determine the accuracy of each party's  representations  and warranties,  as the
other party may reasonably  request. No information or knowledge obtained in any
investigation  pursuant  to this  Section 4.3 will affect or be deemed to modify
any  representation  or  warranty  contained  herein  or the  conditions  to the
obligations  of the parties to consummate  the Merger.  The parties  acknowledge
that HTI and Headwaters have previously executed the Confidentiality  Agreement,
which  Confidentiality  Agreement  will  continue  in full  force and  effect in
accordance with its terms.  HTI shall cooperate with Headwaters and its auditors
in  determining  whether any  restatement  of HTI's  financials  is necessary or
appropriate prior to the Closing.

         4.4 No  Solicitation.  From and after the date of this Agreement  until
the earlier of the Effective Time or  termination of this Agreement  pursuant to
its terms, HTI shall not, and will instruct its respective directors,  officers,
employees,   representatives,   agents,  and  affiliates  not  to,  directly  or
indirectly,  (i) solicit or knowingly  encourage  submission of any proposals or
offers  by  any  person,  entity,  or  group  (other  than  Headwaters  and  its
affiliates, agents, and representatives), or (ii) participate in any discussions
or negotiations with, or disclose any non-public  information concerning HTI to,
or afford any access to the properties, books or records of HTI to, or otherwise
assist or  facilitate,  or enter into any agreement or  understanding  with, any
person,  entity or group (other than Headwaters and its  affiliates,  agents and
representatives),  in connection with any  Acquisition  Proposal with respect to
HTI. For the purposes of this Agreement,  an "Acquisition Proposal" with respect
to HTI means any  proposal or offer  relating to (i) any merger,  consolidation,
sale of  substantial  assets or similar  transactions  involving HTI (other than
sales of assets or  inventory  in the  ordinary  course of business or permitted
under the terms of this Agreement),  (ii) sale of 10% or more of the outstanding
shares of capital stock of HTI (including  without limitation by way of a tender
offer or an exchange  offer),  (iii) the acquisition by any person of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of any
"group" (as defined  under

                                       27
<PAGE>

Section  13(d) of the  Exchange  Act and the rules and  regulations  thereunder)
which beneficially  owns, or has the right to acquire  beneficial  ownership of,
10% or more of the then outstanding  shares of capital stock of HTI; or (iv) any
public announcement of a proposal,  plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.  HTI will immediately  cease
any and all existing  activities,  discussions or negotiations  with any parties
conducted  heretofore with respect to any of the foregoing.  HTI will (i) notify
Headwaters as promptly as  practicable if any inquiry or proposal is made or any
information or access is requested in writing in connection  with an Acquisition
Proposal or potential  Acquisition  Proposal and (ii) as promptly as practicable
provide  Headwaters  with a copy of any such  inquiry,  proposal or  Acquisition
Proposal (or a detailed summary thereof if such inquiry, proposal or Acquisition
Proposal is not in writing).  In addition,  subject to the other  provisions  of
this Section 4.4, from and after the date of this Agreement until the earlier of
the Effective Time and termination of this Agreement  pursuant to its terms, HTI
will not,  and will  instruct its  respective  directors,  officers,  employees,
representatives,  investment bankers,  agents and affiliates not to, directly or
indirectly,   make  or  authorize  any  public   statement,   recommendation  or
solicitation in support of any Acquisition  Proposal made by any person,  entity
or group (other than Headwaters).

         4.5 Legal  Requirements.  Each of Headwaters,  Merger Sub, and HTI will
take all reasonable  actions  necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the  transactions  contemplated by this Agreement and the Exchange  Agreement
(including  furnishing all information  required in connection with approvals of
or filings with any Governmental Entity, and prompt resolution of any litigation
prompted hereby) and will promptly cooperate with and furnish information to any
party hereto necessary in connection with any such requirements imposed upon any
of them or their respective  subsidiaries in connection with the consummation of
the transactions contemplated by this Agreement and the Exchange Agreement.

         4.6 Third Party  Consents.  As soon as  practicable  following the date
hereof, HTI and Headwaters will each use reasonable commercial efforts to obtain
all consents,  waivers,  and approvals under any of its  agreements,  contracts,
licenses,  or leases required to be obtained in connection with the consummation
of the transactions contemplated hereby.

         4.7  Notification  of  Certain  Matters.   Subject  to  the  terms  and
provisions of the Confidentiality  Agreement, each party will give prompt notice
to the other parties of the occurrence, or failure to occur, of any event, which
occurrence  or  failure  to occur  would be  reasonably  likely to cause (a) any
representation  or  warranty  contained  in  this  Agreement  to  be  untrue  or
inaccurate in any material  respect at any time from the date of this  Agreement
to the Effective  Time, or (b) any material  failure of such party,  as the case
may be, or of any officer, director,  employee, or agent thereof, to comply with
or  satisfy  any  covenant,  condition,  or  agreement  to be  complied  with or
satisfied by it under this Agreement. Notwithstanding the above, the delivery of
any notice  pursuant  to this  section  will not limit or  otherwise  affect the
remedies available hereunder to the party receiving such notice.

         4.8 Commercially Reasonable Efforts and Further Assurances. Merger Sub,
as the owner of the HTI Common Stock  immediately  following the Exchange,  will
cause the Merger to be  effected  in  accordance  with the terms and  conditions
hereto.  Subject to the respective  rights and

                                       28
<PAGE>

obligations of Headwaters and HTI under this  Agreement,  each of the parties to
this Agreement and the Exchange  Agreement will use its commercially  reasonable
efforts to  effectuate  the  Exchange,  the Merger,  and the other  transactions
contemplated  hereby and to fulfill and cause to be fulfilled the  conditions to
closing under this Agreement and the Exchange  Agreement.  Each party hereto, at
the  reasonable  request of another party hereto,  will execute and deliver such
other  instruments  and do and  perform  such  other  acts and  things as may be
necessary  or  desirable  for  effecting  completely  the  consummation  of  the
transactions contemplated hereby.

         4.9 HTI Employee Matters.

                  (a)  Headwaters  agrees to continue  the  employment  with the
Surviving  Corporation  of all  HTI  employees  at  the  same  salary  as was in
existence immediately prior to the Effective Time; provided,  however, that this
provision shall not be interpreted to limit Headwaters'  ability to terminate or
change the nature of its or the Surviving Corporation's  employment relationship
with any such HTI employee after the Effective Time. Headwaters agrees to permit
such  employees of the Surviving  Corporation  to  participate in the Headwaters
employee  benefit plans and to give them years of service credit for purposes of
such plans  based on each  employee's  service  with HTI prior to the  Effective
Time.  The parties agree that this Section  4.9(a) is not intended to create any
third party beneficiary right in any employee.

                  (b)  Headwaters  agrees to guarantee as of the Effective  Time
the obligations of HTI pursuant to the employment  agreements listed in Schedule
4.10.

                  (c) HTI shall  terminate its bonus policy  (provided that such
termination  and  transition  to  Headwaters'  bonus  plan  satisfy   applicable
Department of Energy  requirements),  Employee Stock Purchase Plan and any stock
option plans effective at or prior to the Closing.

         4.10 Board  Representation.  Headwaters will cause two designees of the
Representative to be appointed to the Board of Directors of Headwaters as of the
Effective  Date,  one for a term that shall end on March 31, 2004, and the other
for a term that shall end on March 31, 2003.  If, at any time prior to March 31,
2004,  the  Board  of  Directors  of  Headwaters  has an  executive  or  similar
committee,  the Board of Directors  shall appoint one of the Board  designees of
the  Representative  to such  committee for a term expiring not earlier than the
term specified above.

         4.11  Directors and Officers of the Surviving  Corporation.  Headwaters
shall cause the initial  board of  directors  of the  Surviving  Corporation  to
consist  of six  designees  of the  Representative  and two  representatives  of
Headwaters;  provided,  however,  that Headwaters will retain the power to elect
and remove  directors from the board of directors of the Surviving  Corporation.
Headwaters  will also continue the  employment of all officers of HTI, as of the
Closing Date, in their present  capacities in the Business  Unit, and will cause
the board of directors of the Surviving Corporation to remove such officers only
with the approval of a majority vote of the  Headwaters  Board that includes the
approval of both of the Representative's designees thereto.

         4.12 Cooperation  Concerning License Agreements.  HTI will consult with
Headwaters  in the  negotiation  and  execution  of the Shenhua  and  PetroChina
license  agreements,  and will agree to any commercially  reasonable requests of
Headwaters (that would not  significantly  impact the ability

                                       29
<PAGE>

of HTI  to  meet  the  Milestones)  concerning  the  terms,  and  timing  of the
execution,  of these  agreements.  HTI will provide to  Headwaters  promptly all
information relating to the progress of negotiations.

         4.13  Treatment of Merger as a Qualifying  Reorganization.  Each of HTI
and Headwaters shall (a) treat the Merger as a reorganization  under Section 368
of the Code,  (b) report the Merger and all  related  transactions  consistently
therewith  in any and all Tax Returns  filed by it, (c) take all such actions as
may be  reasonably  required  to cause the Merger to be treated as a  qualifying
reorganization,  and (d) take no action which could  disqualify  the Merger from
reorganization status under Section 368 of the Code. Neither HTI nor Headwaters,
as of the date of this  Agreement  and on the Closing  Date,  know of any reason
that the Transaction may not qualify as a  reorganization  within the meaning of
Section 368 of the Code.

         4.14  Non-Compete  Agreements.  Each of  Alfred G.  Comolli,  Lap-Keung
(Theo) Lee,  Ph.D.,  and David L. Tanner hereby agrees that, as of the Effective
Time, (i) the  non-competition  provision in his  employment  agreement with HTI
described in Section 2.17 of the HTI Disclosure  Letter shall continue in effect
until the  later of two  years  after  the  Closing  Date or one year  after the
termination  of  his  employment  with  Headwaters  or any  subsidiary  thereof,
including the Surviving  Corporation,  and (ii) the scope of the non-competition
provision set forth in the respective employment agreements shall be extended to
include,  in  addition  to the  business  of HTI,  the  business  activities  of
Headwaters  or of any  Headwaters  subsidiary  in which the employee  materially
participated  as an officer,  director or employee of  Headwaters,  the Business
Unit or any other Headwaters subsidiary.

         4.15 Tax Matters

                  (a) Tax  Returns.  Headwaters  shall  cause HTI to prepare and
file all Tax  Returns  required  to be filed by or with  respect  to HTI for all
periods  ending on or prior to the Closing  Date which are filed on or after the
Closing  Date and for all periods  which begin prior to the Closing Date and end
after the Closing Date.  Headwaters  shall timely pay or cause to be timely paid
the Taxes  attributable to such Tax periods,  subject only to Headwaters' rights
under Section 8.1 of this Agreement to the extent that the payment of such Taxes
represents an item described therein. The stockholders of HTI shall not bear any
responsibility  for the  Taxes of HTI  attributable  to such  periods  except as
provided in Section 8.1 hereof.

                  (b) Cooperation  and Access to Information.  Provided that the
rights under this paragraph (b) lapse on the expiration of the Indemnity period,
the parties to this Agreement  shall  cooperate as and to the extent  reasonably
requested by any other party hereto,  in  connection  with (i) the filing of Tax
Returns  pursuant  to  this  Agreement  and  any  audit,  litigation,  or  other
proceeding  with respect to Taxes,  and (ii)  complying with Section 6043 of the
Code and all Treasury Regulations promulgated thereunder. Such cooperation shall
include the  retention  and (upon  another  party's  request)  the  provision of
records and  information  which are reasonably  relevant to any such Tax Return,
audit,  litigation,  or other  proceeding  and making  employees  available on a
mutually  convenient basis to provide additional  information and explanation of
any material provided hereunder.

                                       30
<PAGE>

                  (c)  Retention of Books and Records.  Provided that the rights
under this  paragraph (c) lapse on the expiration of the Indemnity  period,  the
parties to this Agreement agree (i) to retain all books and records with respect
to Tax matters  pertinent to HTI relating to any taxable period beginning before
the  Closing  Date until the  expiration  of the statute of  limitations  of the
respective taxable periods, and (ii) to give the other parties to this Agreement
reasonable written notice prior to transferring,  destroying,  or discarding any
such books and records and, if a party so requests,  Headwaters, HTI, or the HTI
Stockholders, as the case may be, shall allow the other party to take possession
of such books and records.

                  (d)   Treatment  of  Indemnity   Payment  as  Purchase   Price
Adjustment. In the case of any claim for indemnity under this Agreement based on
Taxes  determined  to be payable by HTI or a successor  thereto,  the  indemnity
obligation  shall be considered  to be a purchase  price  adjustment  under this
Agreement and the Exchange Agreement.

         4.16 Bridge Loan. If the Closing does not occur within thirty (30) days
of the date hereof, Headwaters shall make available to HTI a bridge loan, in the
amount of up to two hundred thousand dollars ($200,000), with a maturity date of
one year  following the date hereof,  bearing the same interest rate as would be
applicable  at such  time  pursuant  to HTI's  loan  agreements  with  Yardville
National Bank described in Section 6.8 hereto,  and  containing  other terms and
conditions reasonably agreeable to Headwaters. Such bridge loan would be secured
by a perfected security interest immediately  subordinate to any Permitted Lien.
For purposes of this Section  4.16,  a Permitted  Lien is any security  interest
encumbering HTI assets in existence as of the date hereof.  HTI's entry into any
bridge loan agreement is subject to obtaining the consent of Yardville  National
Bank; HTI will make commercially reasonable efforts to obtain such consent.

         4.17 Environmental Issues.

                  (a) HTI  shall  use its  reasonable  best  efforts  to  obtain
written confirmation from the New Jersey Department of Environmental  Protection
(the "NJDEP") reasonably  satisfactory to Headwaters that no further action need
be taken regarding environmental remediation of the real property owned by HTI.

                  (b) The parties hereto acknowledge that the Transaction may be
subject to the  requirements  of the New Jersey  Industrial  Site  Recovery Act,
N.J.S.A.  13:1K-6,  et seq., and the regulations  promulgated  pursuant  thereto
("ISRA"). To permit completion of the Transaction,  HTI shall use its reasonable
best  efforts to comply with ISRA by seeking to obtain from the NJDEP (a) one of
the following,  at HTI's option and  discretion,  regarding  HTI's  wholly-owned
subsidiary,  Chemsampco:  (i) a Letter of Non-applicability;  (ii) approval of a
Negative Declaration;  (iii) approval of a Remediation-in-Process  or other form
of waiver; or (iv) execution of a Remediation Agreement,  as such terms are used
in ISRA; and (b) a Letter of Non-applicability  regarding HTI (each of the items
set  forth  in (a) (i)  through  (iv)  and (b)  being  referred  to as an  "ISRA
Approval").  If remediation  pursuant to one or more  Remediation  Agreements is
required  by the NJDEP,  then HTI shall be  responsible  for  implementing  such
Remediation  Agreements  and  satisfying  all  other  requirements  under  ISRA,
including  but not  limited  to  providing  a  remediation  funding  source  and
obtaining a no further action letter from the NJDEP  evidencing  full compliance
with ISRA.  If HTI enters into a Remediation  Agreement  with the NJDEP to allow
closing of the

                                       31
<PAGE>

Transaction  to  occur,  subject  to the  provisions  of  Section  6.10  of this
Agreement,  all of the costs of such  remediation,  if any,  shall  constitute a
claim for  indemnification  under this Agreement or under the Exchange Agreement
(regardless of any representations or warranties or exceptions thereto set forth
in this  Agreement)  and such  claim  may be paid  from the  Escrow  Account  or
Contingent  Payment in accordance with the terms of the Exchange  Agreement.  If
any  indemnification  is paid to  Headwaters  from the  Escrow  Account  or from
Contingent Payments related to ISRA compliance,  including costs of remediation,
then to the extent of such  indemnification the Representative shall be assigned
any rights,  claims,  entitlements or choses in action which Headwaters,  ITI or
the Surviving Corporation may have against any third parties,  including the New
Jersey  Spill  Compensation  Fund,  who or which may be liable  for such  costs,
whether in whole or in part.

                                   ARTICLE V
             CONDITIONS TO OBLIGATIONS OF HEADWATERS AND MERGER SUB

         The  obligations  of Headwaters and Merger Sub hereunder are subject to
the satisfaction, or waiver thereof by Headwaters, of the following conditions:

         5.1 Stockholder Approval. This Agreement and the Merger shall have been
approved  and adopted by the HTI  Stockholders  by the  requisite  vote (if any)
under applicable law and HTI's Certificate of Incorporation.

         5.2 No Actions or Proceedings.  No judgment,  writ, order,  injunction,
award,  or decree of or by any  Governmental  Entity shall have been issued that
would,  and no action or proceeding  shall have been instituted by or before any
Governmental  Entity  seeking  to,  enjoin or prevent  the  consummation  of the
transactions   contemplated  hereby.   Notwithstanding  the  generality  of  the
foregoing, no person shall have (i) commenced, or shall have notified either HTI
or  Headwaters  that it intends to  commence,  an action or  proceeding  or (ii)
provided HTI or Headwaters with notice,  in either case which allege(s) that any
of the intellectual  property presently embodied, or proposed to be embodied, in
HTI's  products or design  environments  infringes  or  otherwise  violates  the
intellectual  property rights of such person,  is available for licensing from a
potential  licensor providing the notice, or otherwise alleges that HTI does not
otherwise own or have the right to exploit such intellectual property.

         5.3 Representations and Warranties.  The representations and warranties
of HTI shall be true and correct in all material respects at the Effective Time,
with the same effect as though such representations and warranties had been made
on and as of such date,  except for changes which,  in the aggregate,  would not
have a material adverse effect on the financial condition, properties, business,
prospects,  or results of operations of HTI, and each and all of the  agreements
of HTI to be performed or complied with in all material respects pursuant to the
terms of this Agreement shall have been duly performed and complied with.

         5.4 No Material Adverse Effect.  No event shall have occurred since the
date of this  Agreement  that has had or would  reasonably be expected to have a
Material Adverse Effect on HTI.

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<PAGE>

         5.5 Exchange Agreement.  The transactions  contemplated by the Exchange
Agreement  shall have closed prior to the Closing,  and HTI  Stockholders  shall
have  agreed,  pursuant to the Exchange  Agreement,  to exchange at least ninety
percent (90%) of the Outstanding Shares.

         5.6 Opinion of Counsel.  There shall be delivered to  Headwaters on the
Closing  Date of the Merger an opinion or opinions of counsel to HTI,  dated the
Closing Date of the Merger and  satisfactory in form and substance to Headwaters
and its counsel, in substantially the form of Exhibit D hereto.

         5.7 Non-Compete and Affiliate Agreements.  HTI, Headwaters, and each of
James G. Conklin,  Bruce Pelrine, and Peizheng Zhou, Ph.D. (the "Key Employees")
shall have entered into agreements not-to-compete (the "Non-Compete Agreements")
substantially  in the form of  Exhibit E hereto.  The  directors  and  executive
officers of HTI,  and  shareholder  reasonably  deemed to be an affiliate of HTI
shall have  entered  into  Affiliate  Agreements,  substantially  in the form of
Exhibit F hereto with Headwaters.

         5.8 Employment.  The Key Employees of HTI shall continue to be employed
by HTI at the Closing  (and shall not have given any notice or other  indication
that they will not  continue  to be  willing  to be  employed  by the  Surviving
Corporation  following  the  Closing).  At  least  ninety  percent  (90%) of the
employees of HTI employed as of this date,  including the Key  Employees,  shall
continue  to be  employed  by HTI at the  Closing  (and shall not have given any
notice or other  indication  that they will not  continue  to be  willing  to be
employed by the  Surviving  Corporation  following  the  Closing).  Arrangements
satisfactory to Headwaters  shall have been made to effect the assignment to the
Surviving  Corporation of all  intellectual  property created by HTI's founders,
employees, and consultants (other than intellectual property created for a prior
employer),  and to obtain their full  cooperation  to complete and prosecute all
appropriate U.S. and foreign patent filings related thereto.

         5.9  Compliance  Certificate.  HTI shall have delivered to Headwaters a
certificate,  executed by the  President of HTI,  dated as of the Closing  Date,
certifying to the fulfillment of the conditions specified in Section 5.3.

         5.10   Certificates   and  Documents.   HTI  shall  have  delivered  to
Headwaters:

                  (a) Certificates,  as of the most recent practicable dates, as
to the  corporate  and tax good  standing  of HTI  issued by the  Department  of
Treasury  of the State of New  Jersey and the  Secretary  of State of each other
state in which HTI is currently qualified to transact business; and

                  (b)  Resolutions  of the  Board  of  Directors  of HTI and (if
required by applicable law) the HTI Stockholders,  authorizing and approving all
matters in  connection  with this  Agreement,  the Exchange  Agreement,  and the
Transaction  and certified by the Secretary or Assistant  Secretary of HTI as of
the Closing Date.

         5.11  Dissenters'  Shares.  Holders of no more than one percent (1%) of
the Outstanding  Shares shall have exercised,  nor shall they have any continued
right to exercise,  appraisal,  dissenters',  or similar rights under applicable
law with respect to their shares by virtue of the Merger.

                                       33
<PAGE>

         5.12 Consents and  Approvals.  HTI shall have obtained the consents and
approvals referred to in Section 2.4 of the HTI Disclosure Letter.

         5.13 Environmental Status.

                  (a) HTI shall  have  received  written  confirmation  from the
NJDEP reasonably satisfactory to Headwaters that no further action need be taken
regarding environmental  remediation of the real property owned by HTI; provided
that this  condition  precedent  shall be waived as of June 30, 2001, as long as
HTI has received and provided to Headwaters a No Further  Action letter from the
NJDEP  relating to the "Marco"  portion of the  property and the NJDEP has given
Headwaters  and its counsel no reason to believe that a No Further Action letter
relating to the rest of the property will not be forthcoming.

                  (b) HTI shall have  satisfied the filing,  notice and approval
requirements of ISRA as described in Section 4.17 of this  Agreement;  provided,
however,  if the NJDEP requires one or more Remediation  Agreements  pursuant to
ISRA, the costs and the time required to carry out such  Remediation  Agreements
shall be immaterial, in Headwaters' reasonable discretion.

         5.14  HTI  Further  Financial  Statements.   HTI  shall  have  provided
Headwaters  at least one week  prior to  Closing  with (i)  unaudited  quarterly
financial  statements  for the  quarterly  periods  ended as of March 31,  2001,
December 31, 2000, and March 31, 2000; and (ii) the audited  balance sheet as of
December 31, 2000, and the related statement of operations, shareholders' equity
and cash flows for the one-year period then ended.

                                   ARTICLE VI
                        CONDITIONS TO OBLIGATIONS OF HTI

         The  obligations of HTI hereunder are subject to the  satisfaction,  or
waiver thereof by HTI, of the following conditions:

         6.1 Stockholder Approval. This Agreement and the Merger shall have been
approved  and  adopted  by the HTI  Stockholders  by the  requisite  vote  under
applicable law and HTI's Certificate of Incorporation.

         6.2 No Actions or Proceedings.  No judgment,  writ, order,  injunction,
award,  or decree of or by any  Governmental  Entity shall have been issued that
would,  and no action or proceeding  shall have been instituted by or before any
Governmental  Entity  seeking  to,  enjoin or prevent  the  consummation  of the
transactions contemplated hereby.

         6.3 Representations and Warranties.  The representations and warranties
of  Headwaters  shall be true and correct in all material  respects on and as of
the  Effective  Time,  with the same effect as though such  representations  and
warranties had been made on and as of such date,  except for changes  which,  in
the  aggregate,  would  not have a  material  adverse  effect  on the  financial
condition,   properties,  business,  prospects,  or  results  of  operations  of
Headwaters,  and each and all of the agreements of Headwaters to be performed or
complied with in all material  respects  pursuant to the terms of this Agreement
shall have been duly performed and complied with.

                                       34
<PAGE>

         6.4  Certificates.  Headwaters  shall  have  delivered  to  HTI  (a)  a
certificate,  executed by a duly authorized  officer of Headwaters,  dated as of
the Closing Date,  certifying to the fulfillment of the conditions  specified in
Section  6.3,  and (b)  resolutions  of the Board of  Directors  of  Headwaters,
authorizing  and approving all matters in connection  with this  Agreement,  the
Exchange Agreement, and the Transaction, certified by the Secretary or Assistant
Secretary of Headwaters as of the Closing Date.

         6.5 Board  Representation.  The designees of the  Representative  shall
have been appointed to the Headwaters Board of Directors, with such appointments
effective as of the Effective Date.

         6.6 No Material Adverse Effect.  No event shall have occurred since the
date of this  Agreement  that has had or would  reasonably be expected to have a
Material Adverse Effect on Headwaters.

         6.7 Consents and Approvals. Headwaters shall have obtained the consents
and approvals referred to in Section 3.2 of the Headwaters Disclosure Letter.

         6.8 Loan Agreement.  Headwaters shall have repaid the balance due under
the loan agreements  between HTI and Yardville National Bank dated as of October
5, 1999 and April 18, 2001 in the principal  amounts of $1,000,000 and $500,000,
respectively,  or caused the release of the  individual  guarantees of Alfred G.
Comolli, Lap-Keung (Theo) Lee, and David L. Tanner thereunder.

         6.9 Opinion of Counsel.. There shall be delivered to HTI on the Closing
Date of the Merger an opinion or  opinions of counsel to  Headwaters,  dated the
Closing Date of the Merger and satisfactory in form and substance to HTI and its
counsel, in substantially the form of Exhibit G hereto.

         6.10  ISRA  Status.  If the  NJDEP  requires  one or  more  Remediation
Agreements  pursuant to ISRA, the costs  required to carry out such  Remediation
Agreements to be treated as an indemnification event pursuant to Section 4.17(b)
of this  Agreement  shall be  immaterial,  in HTI's  reasonable  discretion,  or
Headwaters shall have agreed to waive any claim of indemnification following the
Effective Time with respect to such Remediation Agreements.

                                  ARTICLE VII
                   SURVIVAL OF REPRESENTATIONS AND WARRANTIES

         Notwithstanding any investigation made by or on behalf of Headwaters or
HTI, the representations and warranties of HTI and Headwaters  contained in this
Agreement shall be continuing  representations  and warranties and shall survive
the Effective Time of the Merger until the second anniversary thereof; provided,
however,  that the  representations and warranties with respect to taxes and tax
liabilities  of  HTI  contained  in  Section  2.7  hereof  shall  be  continuing
representations  and  warranties  and shall survive until the  expiration of the
third  year  following  the date on which HTI shall  have  completed  filing all
required tax returns for any partial tax period ending at the Effective  Time of
the Merger, or, if all required returns are filed before the last day prescribed
by law or by regulations to file such returns,  then until the expiration of the
third year  following  such last day, or for such longer  period  following  the
filing of any such return during

                                       35
<PAGE>

which the period of the statute of  limitations  applicable to such return shall
have been extended by action of HTI or any governmental authority;  and provided
further that the representations and warranties  concerning  compliance with law
and  environmental  matters  in  Sections  2.9  and  2.14  shall  be  continuing
representations  and  warranties  and shall  survive the  Effective  Time of the
Merger until the fourth anniversary thereof.

                                  ARTICLE VIII
                             INDEMNITY OF HEADWATERS

         8.1  Indemnification of Headwaters.  Headwaters shall be indemnified by
the holders of the Exchanged Shares in accordance with the terms of the Exchange
Agreement.

         8.2 No Limitation of Remedies.  Notwithstanding  anything  contained in
this Agreement or the Exchange Agreement to the contrary, nothing shall preclude
or limit Headwaters' or the Surviving Corporation's rights to exercise any other
remedy  Headwaters  or the  Surviving  Corporation  may  have  in law or  equity
regarding intentional  misrepresentation or any remedies available to Headwaters
or the Surviving Corporation under any other agreement;  provided, however, that
other  than for  intentional  misrepresentation,  or as  provided  in any  other
agreement,  Headwaters'  or the Surviving  Corporation's  sole remedy  hereunder
shall be limited to the indemnification set forth in Sections 9.1 and 9.2 of the
Exchange Agreement.

                                   ARTICLE IX
                           COSTS INCIDENT TO AGREEMENT

         Except as  otherwise  expressly  provided  herein,  each of the parties
hereto  will pay all the  costs  incurred  by it  incident  to the  preparation,
execution,  or delivery of this Agreement or the  performance of its obligations
hereunder,  including,  without  limitation,  the fees and  disbursements of its
attorneys,  accountants,  investment bankers, consultants,  brokers, and persons
providing other services.

                                    ARTICLE X
                                   TERMINATION

         10.1  Termination.  Except as  provided  in Section  10.2  below,  this
Agreement and the Exchange  Agreement  may be terminated  and the Merger and the
Exchange abandoned at any time prior to the Effective Time:

                  (a) by mutual written consent of HTI and Headwaters;

                  (b) by Headwaters  if there shall be any action taken,  or any
statute, rule, regulation,  or order enacted,  promulgated,  or issued or deemed
applicable to the  Transaction,  by any  Governmental  Entity,  which would: (i)
prohibit  Headwaters'  or HTI's  ownership  or  operation  of any portion of the
business of HTI or (ii) compel Headwaters or HTI to dispose of or hold separate,
as a result of the Transaction,  any portion of the business or assets of HTI or
Headwaters; in either case, the unavailability of which assets or business would
have a Material  Adverse Effect on

                                       36
<PAGE>

Headwaters or would  reasonably be expected to have a material adverse effect on
Headwaters' ability to realize the benefits expected from the Transaction.

                  (c) by  Headwaters,  if it is not in  material  breach  of its
obligations under this Agreement or the Exchange  Agreement and there has been a
breach of any representation, warranty, covenant, or agreement contained in this
Agreement on the part of HTI, and as a result of such breach the  conditions set
forth in Section 5.3 would not then be  satisfied;  provided,  however,  that if
such breach is curable by HTI within  thirty (30) days  through the  exercise of
its reasonable best efforts, then, for so long as HTI continues to exercise such
reasonable  best efforts,  Headwaters  may not terminate  this  Agreement or the
Exchange  Agreement  under this Section  10.1(c) unless such breach is not cured
within thirty (30) days (but no cure period shall be required for a breach which
by its nature cannot be cured);

                  (d) by HTI, if it is not in material breach of its obligations
under this Agreement or the Exchange  Agreement,  and there has been a breach of
any representation, warranty, covenant, or agreement contained in this Agreement
or the  Exchange  Agreement  on the part of  Headwaters  or Merger Sub, and as a
result of such breach the  conditions set forth in Section 6.3 would not then be
satisfied;  provided,  however,  that if such breach is curable by Headwaters or
Merger Sub within thirty (30) days through the exercise of its  reasonable  best
efforts,  then,  for so long as  Headwaters  or Merger Sub continues to exercise
such  reasonable  best  efforts,  HTI may not terminate  this  Agreement and the
Exchange  Agreement  under this Section  10.1(d) unless such breach is not cured
within thirty (30) days (but no cure period shall be required for a breach which
by its nature cannot be cured); or

                  (e) by either HTI or  Headwaters  if the Merger shall not have
been  consummated  by July  31,  2001;  provided,  however,  that  the  right to
terminate this Agreement and the Exchange  Agreement  under this Section 10.1(e)
shall not be  available  to any party whose  action or failure to act has been a
principal  cause of or resulted in the failure of the Exchange and the Merger to
occur on or before  such date and such  action or failure to act  constitutes  a
willful and material breach of this Agreement and the Exchange Agreement;

         Where  action is taken to  terminate  this  Agreement  and the Exchange
Agreement  pursuant to this Section 10.1, it shall be sufficient for such action
to be authorized by the board of directors of the party taking such action.

         10.2  Effect  of  Termination.  In the  event  of  termination  of this
Agreement and the Exchange Agreement as provided in Section 10.1, this Agreement
and the Exchange  Agreement  shall  forthwith  become void and there shall be no
liability or obligation on the part of Headwaters,  Merger Sub, or HTI, or their
respective officers, directors, or stockholders, provided that the provisions of
this Article X shall remain in full force and effect and survive any termination
of this Agreement and the Exchange Agreement.

         10.3  Amendment.  Except as is otherwise  required by  applicable  law,
prior to the Closing,  this Agreement and the Exchange  Agreement may be amended
by the  parties  hereto at any time by  execution  of an  instrument  in writing
signed by Headwaters, HTI, and the HTI Founders. Except as is otherwise required
by applicable law, after the Closing,  this Agreement and the Exchange

                                       37
<PAGE>

Agreement  may be amended by the parties  hereto at any time by  execution of an
instrument in writing signed by Headwaters, HTI, and the HTI Founders.

         10.4  Extension;  Waiver.  At any  time  prior to the  Effective  Time,
Headwaters and Merger Sub, on the one hand,  and HTI, on the other,  may, to the
extent legally  allowed,  (i) extend the time for the  performance of any of the
obligations  of the other  party  hereto,  (ii)  waive any  inaccuracies  in the
representations  and warranties  made to such party  contained  herein or in any
document  delivered  pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions  for the benefit of such party  contained  herein.  Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an  instrument  in  writing  signed on behalf of such
party.

                                   ARTICLE XI
                                  MISCELLANEOUS

         11.1 Successors and Assigns.  This Agreement and the Exchange Agreement
shall  be  binding  upon  the  parties  hereto,  their  legal   representatives,
successors in interest,  assignees,  transferees,  creditors (including judgment
creditors),  trustees  (including  trustees in bankruptcy),  receivers,  and all
holders or  possessors  of, or purported  holders or  possessors  of, any of the
stock of HTI, including without limitation,  assignees,  transferees,  pledgees,
holders of security  interests in and liens upon any of such stock and trustees,
and all  persons  with  notice  or  knowledge,  or  chargeable  with  notice  or
knowledge,  of the provisions hereof.  This Agreement and the Exchange Agreement
cannot be amended or  modified  except by a written  agreement  executed  by the
parties hereto; provided, however, that no such amendment or modification may be
made  after the HTI  Stockholders  approve  and  adopt  this  Agreement  and the
Exchange  Agreement if such  amendment or  modification,  in the judgment of the
Board of Directors of HTI, would materially and adversely affect the interest of
the HTI  Stockholders.  Except  for the  purposes  or in the events set forth in
Section 1.6(c), this Agreement and the rights,  duties and obligations hereunder
may not be assigned by any party without the prior written  consent of the other
parties;  provided,  however, that this Agreement and the Exchange Agreement may
be assigned by Headwaters to any directly or indirectly  wholly-owned subsidiary
of  Headwaters,  provided  that  Headwaters  shall  continue to be bound by this
Agreement and the Exchange Agreement after such assignment.

         11.2 Notices. Any notices or other communications required or permitted
hereunder  will be in  writing  and will be deemed  sufficiently  given  only if
delivered in person or sent by telegram,  telecopy or telex or by first-class or
air mail or by recognized air courier service, postage or other charges prepaid,
addressed as follows:

                  If to HTI:
                           Hydrocarbon Technologies, Inc.
                           1501 New York Avenue
                           Lawrenceville, NJ  08648
                           Attention:  Alfred G. Comolli, President

                                       38
<PAGE>

                  Copy to:
                           Richard J. Pinto
                           Smith, Stratton, Wise, Heher & Brennan
                           600 College Road East
                           Princeton, NJ 08540
                           Facsimile Number:  (609) 987-6651

                  If to Headwaters:
                           Headwaters Incorporated
                           11778 S. Election Drive
                           Suite 210
                           Draper, UT 84020
                           Attention:  Kirk A. Benson, Chief Executive Officer
                           Facsimile Number:  (801) 984-9410

                  Copy to:
                           Linda C. Williams, Esq.
                           Pillsbury Winthrop LLP
                           50 Fremont Street
                           San Francisco, CA  94105
                           Facsimile Number:  (415) 983-1200

or to such other address as the  addressee  may have  specified in a notice duly
given to the sender as provided  herein.  Such notice or  communication  will be
deemed to have been given as of the date so delivered, telegraphed,  telecopied,
telexed, mailed, or sent by courier.

         11.3 Entire Agreement. This Agreement,  including the Exhibits attached
hereto,  and the Disclosure  Letter  constitute the entire  understanding of the
parties  relating  to the  subject  matter  hereof and  supersede  all prior and
contemporaneous agreements and understandings, whether oral or written, relating
to the subject matter hereof.

         11.4 Remedies.  In the event of a breach,  or a threatened or attempted
breach,  of any provision of this Agreement by any party, any other party shall,
in addition to all other  remedies,  be entitled to (i) a temporary or permanent
injunction  against  such  breach  without the  necessity  of showing any actual
damages and (ii) a decree for the specific performance of the Agreement.

         11.5 Waiver.  The waiver by any party of the breach of any of the terms
and  conditions of, or any right under,  this  Agreement  shall not be deemed to
constitute  the  waiver  of any other  breach  of the same or any other  term or
condition or of any similar right.  No such waiver shall be binding or effective
unless expressed in writing and signed by the party giving such waiver.

                                       39
<PAGE>

         11.6  Adjustments to Shares.  The number of shares for purposes of this
Agreement  shall be  adjusted  to reflect  fully the effect of any stock  split,
reverse stock split,  stock dividend  (including any dividend or distribution of
securities  convertible  into  Headwaters  Common  Stock or HTI  Common  Stock),
reorganization,   recapitalization,   or  other  like  change  with  respect  to
Headwaters  Common  Stock or HTI  Common  Stock  occurring  on or after the date
hereof.

         11.7 Governing  Law. This Agreement  shall be governed by and construed
in accordance with the laws of the State of New Jersey.

                                       40
<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the day and year first above written.


                                            HEADWATERS INCORPORATED


                                            By:  /s/ Kirk A. Benson
                                                ------------------------------
                                                  Kirk A. Benson,
                                                  Chief Executive Officer


                                            HEADWATERS SUB CORPORATION


                                            By:  /s/ Kirk A. Benson
                                                ------------------------------
                                                  Kirk A. Benson,
                                                  Chief Executive Officer


                                            HYDROCARBON TECHNOLOGIES, INC.


                                            By:  /s/ Alfred G. Comolli
                                                ------------------------------
                                                  Alfred G. Comolli, President


                                            "HTI FOUNDERS"


                                            /s/ Alfred G. Comolli
                                            ------------------------------
                                            Alfred G. Comolli


                                            /s/ L.K. (Theo) Lee, Ph.D.
                                            ------------------------------
                                            L.K. (Theo) Lee, Ph.D.


                                            /s/ David Tanner
                                            ------------------------------
                                            David Tanner


                                            /s/ Michael Kelley
                                            ------------------------------
                                            Michael Kelley

                                       41
<PAGE>

                      AGREEMENT AND PLAN OF REORGANIZATION
                             Dated as of May 2, 2001

                                  By and Among

                             HEADWATERS INCORPORATED
                           HEADWATERS SUB CORPORATION
                         HYDROCARBON TECHNOLOGIES, INC.

                                       and

                          the HTI Founders Named Herein

                                       42
<PAGE>

                                LIST OF EXHIBITS


Exhibit A         Exchange Agreement
Exhibit B         Certificate of Merger
Exhibit C         Certificate of Incorporation
Exhibit D         Opinion of HTI Counsel
Exhibit E         Non-Compete Agreement
Exhibit F         Affiliate Agreement
Exhibit G         Opinion of Headwaters Counsel


                                       43
<PAGE>


                                    EXHIBIT A

                               EXCHANGE AGREEMENT

<PAGE>


                                    EXHIBIT B

                              CERTIFICATE OF MERGER

<PAGE>


                                    EXHIBIT C

                          CERTIFICATE OF INCORPORATION

<PAGE>


                                    EXHIBIT D

                             OPINION OF HTI COUNSEL

<PAGE>


                                    EXHIBIT E

                              NON-COMPETE AGREEMENT

<PAGE>


                                    EXHIBIT F

                               AFFILIATE AGREEMENT

<PAGE>


                                    EXHIBIT G

                          OPINION OF HEADWATERS COUNSEL