Exhibit 99.7



________________________________________________________________________________



                             HEADWATERS INCORPORATED

                            2003 STOCK INCENTIVE PLAN

                   (Adopted by the Board on January 16, 2003)

________________________________________________________________________________


<PAGE>

                                TABLE OF CONTENTS

                                                                           Page


Section 1.   ESTABLISHMENT AND PURPOSE.......................................1

Section 2.   DEFINITIONS.....................................................1
             (a)      "Affiliate"............................................1
             (b)      "Award"................................................1
             (c)      "Board of Directors"...................................1
             (d)      "Change in Control"....................................1
             (e)      "Code".................................................2
             (f)      "Committee"............................................2
             (g)      "Company"..............................................2
             (h)      "Consultant"...........................................2
             (i)      "Employee".............................................2
             (j)      "Exchange Act".........................................3
             (k)      "Exercise Price".......................................3
             (l)      "Fair Market Value"....................................3
             (m)      "Independent Director".................................3
             (n)      "ISO"..................................................3
             (o)      "Nonstatutory Option" or "NSO".........................3
             (p)      "Offeree"..............................................3
             (q)      "Option"...............................................3
             (r)      "Optionee".............................................4
             (s)      "Outside Director".....................................4
             (t)      "Parent"...............................................4
             (u)      "Participant"..........................................4
             (v)      "Plan".................................................4
             (w)      "Purchase Price".......................................4
             (x)      "Restricted Share".....................................4
             (y)      "Restricted Share Agreement"...........................4
             (z)      "SAR"..................................................4
             (aa)     "SAR Agreement"........................................4
             (bb)     "Service"..............................................4
             (cc)     "Share"................................................4
             (dd)     "Stock"................................................4
             (ee)     "Stock Option Agreement"...............................4
             (ff)     "Stock Purchase Agreement".............................4
             (gg)     "Subsidiary"...........................................4

Section 3.   ADMINISTRATION..................................................5
             (a)      Committee Composition..................................5
             (b)      Committee Procedures...................................5
             (c)      Committee Responsibilities.............................5

Section 4.   ELIGIBILITY.....................................................6
             (a)      General Rule...........................................6

                                   -i-
<PAGE>

             (b)      Ten-Percent Stockholders...............................6
             (c)      Attribution Rules......................................6
             (d)      Outstanding Stock......................................7

Section 5.   STOCK SUBJECT TO PLAN...........................................7
             (a)      Basic Limitation.......................................7
             (b)      Additional Shares under Plan...........................7
             (c)      Dividend Equivalents...................................7

Section 6.   RESTRICTED SHARES...............................................7
             (a)      Restricted Share Agreement.............................7
             (b)      Limitation on Awards of Restricted Shares..............7
             (c)      Payment for Awards.....................................7
             (d)      Vesting................................................8
             (e)      Voting and Dividend Rights.............................8

Section 7.   OTHER TERMS AND CONDITIONS OF AWARDS OR SALES...................8
             (a)      Duration of Offers and Nontransferability of Rights....8
             (b)      Purchase Price.........................................8
             (c)      Withholding Taxes......................................8
             (d)      Restrictions on Transfer of Shares.....................8

Section 8.   TERMS AND CONDITIONS OF OPTIONS.................................8
             (a)      Stock Option Agreement.................................8
             (b)      No Repricing...........................................8
             (c)      Number of Shares.......................................9
             (d)      Exercise Price.........................................9
             (e)      Withholding Taxes......................................9
             (f)      Exercisability and Term................................9
             (g)      Nontransferability.....................................9
             (h)      Exercise of Options Upon Termination of Service........9
             (i)      Leaves of Absence.....................................10
             (j)      No Rights as a Stockholder............................10
             (k)      Modification, Extension and Renewal of Options........10
             (l)      Restrictions on Transfer of Shares....................10
             (m)      Buyout Provisions.....................................10

Section 9.   PAYMENT FOR SHARES.............................................10
             (a)      General Rule..........................................10
             (b)      Surrender of Stock....................................10
             (c)      Services Rendered.....................................11
             (d)      Cashless Exercise.....................................11
             (e)      Exercise/Pledge.......................................11
             (f)      Promissory Note.......................................11
             (g)      Other Forms of Payment................................11
             (h)      Restrictions on Forms of Payment......................11

                                      -ii-
<PAGE>

Section 10.  STOCK APPRECIATION RIGHTS......................................11
             (a)      SAR Agreement.........................................11
             (b)      Number of Shares......................................11
             (c)      Exercise Price........................................12
             (d)      Exercisability and Term...............................12
             (e)      Exercise of SARs......................................12
             (f)      Special Holding Period................................12
             (g)      Special Exercise Window...............................12
             (h)      Modification or Assumption of SARs....................12

Section 11.  ADJUSTMENT OF SHARES...........................................12
             (a)      Adjustments...........................................12
             (b)      Dissolution or Liquidation............................13
             (c)      Reorganizations.......................................13
             (d)      Reservation of Rights.................................13

Section 12.  DEFERRAL OF AWARDS.............................................14

Section 13.  PAYMENT OF DIRECTOR'S FEES IN SECURITIES.......................14
             (a)      Effective Date........................................14
             (b)      Elections to Receive NSOs or Restricted Shares........14
             (c)      Number and Terms of NSO or, Restricted Shares.........14

Section 14.  LEGAL AND REGULATORY REQUIREMENTS..............................14

Section 15.  WITHHOLDING TAXES..............................................15
             (a)      General...............................................15
             (b)      Share Withholding.....................................15

Section 16.  LIMITATION ON PARACHUTE PAYMENTS...............................15
             (a)      Scope of Limitation...................................15
             (b)      Basic Rule............................................15
             (c)      Reduction of Payments.................................15
             (d)      Overpayments and Underpayments........................16
             (e)      Related Corporations..................................16

Section 17.  NO EMPLOYMENT RIGHTS...........................................16

Section 18.  DURATION AND AMENDMENTS........................................16
             (a)      Term of the Plan......................................16
             (b)      Right to Amend or Terminate the Plan..................16
             (c)      Effect of Amendment or Termination....................17

Section 19.  EXECUTION......................................................17

                                     -iii-
<PAGE>

                             HEADWATERS INCORPORATED

                            2003 STOCK INCENTIVE PLAN



Section 1. ESTABLISHMENT AND PURPOSE.

         The Plan was adopted by the Board of Directors effective January 16,
2003, subject to stockholder approval. The purpose of the Plan is to promote the
long-term success of the Company and the creation of stockholder value by (a)
encouraging Employees, Outside Directors and Consultants to focus on critical
long-range objectives, (b) encouraging the attraction and retention of
Employees, Outside Directors and Consultants with exceptional qualifications,
and (c) linking Employees, Outside Directors and Consultants directly to
stockholder interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for Awards in the form of Restricted Shares,
Options and stock appreciation rights.

         The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).

Section 2. DEFINITIONS.

         (a) "Affiliate" shall mean any entity other than a Subsidiary, if the
Company and/or one of more Subsidiaries own not less than 50% of such entity.

         (b) "Award" shall mean any award of an Option, a SAR or a Restricted
Share under the Plan.

         (c) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.

         (d) "Change in Control" shall mean the occurrence of any of the
following events:

                  (i) A change in the composition of the Board of Directors, as
         a result of which fewer than one-half of the incumbent directors are
         directors who either:

                           (A) Had been directors of the Company 24 months prior
                  to such change; or

                           (B) Were elected, or nominated for election, to the
                  Board of Directors with the affirmative votes of at least a
                  majority of the directors who had been directors of the
                  Company 24 months prior to such change and who were still in
                  office at the time of such election or nomination; or

                           (C) Were elected, or nominated for election, to the
                  Board of Directors with the affirmative votes of at least a
                  majority of the directors who come within either clause (A) or
                  (B) above; or

                  (ii) Any "person" (as defined below) who by the acquisition or
         aggregation of securities, is or becomes the beneficial owner (as

                                      -1-
<PAGE>

         defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
         of securities of the Company representing twenty percent (20%) or more
         of the combined voting power of the Company's then outstanding
         securities ordinarily (and apart from rights accruing under special
         circumstances) having the right to vote at elections of directors (the
         "Base Capital Stock"); except that any change in the relative
         beneficial ownership of the Company's securities by any person
         resulting solely from a reduction in the aggregate number of
         outstanding shares of Base Capital Stock, and any decrease thereafter
         in such person's ownership of securities, shall be disregarded until
         such person increases in any manner, directly or indirectly, such
         person's beneficial ownership of any securities of the Company; or

                  (iii) The consummation of a merger or consolidation of the
         Company with or into another entity or any other corporate
         reorganization, if persons who were not stockholders of the Company
         immediately prior to such merger, consolidation or other reorganization
         own immediately after such merger, consolidation or other
         reorganization 50% or more of the voting power of the outstanding
         securities of the ultimate direct or indirect parent corporation of the
         continuing or surviving entity or, if there shall be no such ultimate
         direct or indirect parent corporation, such continuing or surviving
         entity; or

                  (iv) The sale, transfer or other disposition of all or
         substantially all of the Company's assets.

         For purposes of Section 2(d)(ii), the term "person" shall have the same
meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall
exclude (1) a trustee or other fiduciary holding securities under an employee
benefit plan maintained by the Company or a Parent or Subsidiary and (2) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the Stock. Any other
provision of this Section 2(d) notwithstanding, a transaction shall not
constitute a Change in Control if its sole purpose is to change the state of the
Company's incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company's
securities immediately before such transaction.

         (e) "Code" shall mean the Internal Revenue Code of 1986, as amended.

         (f) "Committee" shall mean, as described in Section 3(a), a committee
designated by the Board of Directors that consists exclusively of two or more
Independent Directors.

         (g) "Company" shall mean Headwaters Incorporated, a Delaware
corporation.

         (h) "Consultant" shall mean a consultant or advisor who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered Service for
all purposes of the Plan.

         (i) "Employee" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.

                                      -2-
<PAGE>

         (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

         (k) "Exercise Price" shall mean, in the case of an Option, the amount
for which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of a SAR, shall mean an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.

         (l) "Fair Market Value" with respect to a Share, shall mean the market
price of one Share of Stock, determined by the Committee as follows:

                  (i) If the Stock was traded over-the-counter on the date in
         question but was not traded on the Nasdaq Stock Market, then the Fair
         Market Value shall be equal to the last transaction price quoted for
         such date by the OTC Bulletin Board or, if not so quoted, shall be
         equal to the mean between the last reported representative bid and
         asked prices quoted for such date by the principal automated
         inter-dealer quotation system on which the Stock is quoted or, if the
         Stock is not quoted on any such system, by the "Pink Sheets" published
         by the National Quotation Bureau, Inc.;

                  (ii) If the Stock was traded on The Nasdaq Stock Market, then
         the Fair Market Value shall be equal to the last reported sale price
         quoted for such date by The Nasdaq Stock Market;

                  (iii) If the Stock was traded on a United States stock
         exchange on the date in question, then the Fair Market Value shall be
         equal to the closing price reported for such date by the applicable
         composite-transactions report; and

                  (iv) If none of the foregoing provisions is applicable, then
         the Fair Market Value shall be determined by the Committee in good
         faith on such basis as it deems appropriate.

In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.

         (m) "Independent Director" shall mean an Outside Director who qualifies
as (i) an "outside director" under Treas. Regs. ss. 1.162-27(e)(3) (or its
successor); and (ii) a "non-employee director" under Rule 16b-3(b)(3) (or its
successor) under the Exchange Act.

         (n) "ISO" shall mean an employee incentive stock option described in
Section 422 of the Code.

         (o) "Nonstatutory Option" or "NSO" shall mean an employee stock option
that is not an ISO.

         (p) "Offeree" shall mean an individual to whom the Committee has
offered the right to acquire Shares under the Plan (other than upon exercise of
an Option).

         (q) "Option" shall mean an ISO or NSO granted under the Plan and
entitling the holder to purchase Shares.

                                      -3-
<PAGE>

         (r) "Optionee" shall mean an individual or estate who holds an Option
or SAR.

         (s) "Outside Director" shall mean a member of the Board of Directors
who is not a common-law employee of the Company, a Parent or a Subsidiary.
Service as an Outside Director shall be considered Service for all purposes of
the Plan.

         (t) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be a Parent commencing as of such
date.

         (u) "Participant" shall mean an individual or estate who holds an
Award.

         (v) "Plan" shall mean this Headwaters Incorporated 2003 Stock Incentive
Plan, as amended from time to time.

         (w) "Purchase Price" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Committee.

         (x) "Restricted Share" shall mean a Share awarded under the Plan.

         (y) "Restricted Share Agreement" shall mean the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Shares.

         (z) "SAR" shall mean a stock appreciation right granted under the Plan.

         (aa) "SAR Agreement" shall mean the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.

         (bb) "Service" shall mean service as an Employee, Consultant or Outside
Director.

         (cc) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 11 (if applicable).

         (dd) "Stock" shall mean the Common Stock of the Company.

         (ee) "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.

         (ff) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan that contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

         (gg) "Subsidiary" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50% of the total combined voting
power of all classes of outstanding stock of such corporation. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.

                                      -4-
<PAGE>

Section 3. ADMINISTRATION.

         (a) Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more Independent
Directors of the Company who shall satisfy:

                  (i) the requirements of Rule 16b-3 (or its successor) under
         the Exchange Act with respect to the grant of Awards to persons who are
         officers or directors of the Company under Section 16 of the Exchange
         Act;

                  (ii) such requirements as the Internal Revenue Service may
         establish for outside directors acting under plans intended to qualify
         for exemption under section 162(m)(4)(C) of the Code; and

                  (iii) such independence requirements imposed on members of the
         Committee under the rules of the national securities exchange on which
         the Stock is listed.

         (b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.

         (c) Committee Responsibilities. Subject to the provisions of the Plan,
the Committee shall have full discretionary authority to take the following
actions:

                  (i) To interpret the Plan and to apply its provisions;

                  (ii) To adopt, amend or rescind rules, procedures and forms
         relating to the Plan;

                  (iii) To authorize any person to execute, on behalf of the
         Company, any instrument required to carry out the purposes of the Plan;

                  (iv) To determine when Shares are to be awarded or offered for
         sale and when Options are to be granted under the Plan;

                  (v) To select the Offerees and Optionees;

                  (vi) To determine the number of Shares to be offered to each
         Offeree or to be made subject to each Option;

                  (vii) To prescribe the terms and conditions of each award or
         sale of Shares which are not inconsistent with the Plan, including
         (without limitation) the Purchase Price, the vesting of the award
         (including accelerating the vesting of awards) and to specify the
         provisions of the Stock Purchase Agreement relating to such award or
         sale;

                  (viii) To prescribe the terms and conditions of each Option
         which are not inconsistent with the Plan, including (without
         limitation) the Exercise Price, the vesting or duration of the Option

                                      -5-
<PAGE>

         (including accelerating the vesting of the Option), and to specify the
         provisions of the Stock Option Agreement relating to such Option;

                  (ix) Subject to the limitations under Section 8(b), to amend
         any outstanding Stock Purchase Agreement or Stock Option Agreement,
         subject to applicable legal restrictions and to the consent of the
         Offeree or Optionee who entered into such agreement;

                  (x) To prescribe the consideration for the grant of each
         Option or other right under the Plan and to determine the sufficiency
         of such consideration;

                  (xi) To determine the disposition of each Option or other
         right under the Plan in the event of an Optionee's or Offeree's divorce
         or dissolution of marriage;

                  (xii) To determine whether Options or other rights under the
         Plan will be granted in replacement of other grants under an incentive
         or other compensation plan of an acquired business;

                  (xiii) To correct any defect, supply any omission, or
         reconcile any inconsistency in the Plan, any Stock Option Agreement or
         any Stock Purchase Agreement; and

                  (xiv) To take any other actions deemed necessary or advisable
         for the administration of the Plan.

Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options or other rights under
the Plan to persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Offerees, all Optionees, and all persons deriving their rights from an
Offeree or Optionee. No member of the Committee shall be liable for any action
that he has taken or has failed to take in good faith with respect to the Plan,
any Option, or any right to acquire Shares under the Plan.

Section 4. ELIGIBILITY.

         (a) General Rule. Only Employees shall be eligible for the grant of
ISOs. Only Employees, Consultants and Outside Directors shall be eligible for
the grant of Restricted Shares, NSOs or SARs.

         (b) Ten-Percent Stockholders. An Employee who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
a Parent or Subsidiary shall not be eligible or the grant of an ISO unless such
grant satisfies the requirements of Section 422(c)(6) of the Code.

         (c) Attribution Rules. For purposes of Section 4(b) in determining
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for such Employee's brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries.

                                      -6-
<PAGE>

         (d) Outstanding Stock. For purposes of Section 4(b), "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.

Section 5. STOCK SUBJECT TO PLAN.

         (a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares or treasury Shares. The maximum aggregate number of Options,
SARs and Restricted Shares awarded under the Plan shall not exceed 1,000,000
Shares, plus any additional Shares described in Section 5(b). The limitations of
this Section 5(a) shall be subject to adjustment pursuant to Section 11.

         (b) Additional Shares under Plan. If Restricted Shares or Shares issued
upon the exercise of Options are forfeited, then such Shares shall again become
available for Awards under the Plan. If Options or SARs are forfeited or
terminate for any other reason before being exercised, then the corresponding
Shares shall again become available for Awards under the Plan. If SARs are
exercised, then only the number of Shares (if any) actually issued in settlement
of such SARs shall reduce the number available in Section 5(a) and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of Shares that may be issued under the
Plan upon the exercise of ISOs shall not be increased when Restricted Shares or
other Shares are forfeited.

         (c) Dividend Equivalents. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Options or SARs available for Awards.

Section 6. RESTRICTED SHARES.

         (a) Restricted Share Agreement. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Share Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Share
Agreements entered into under the Plan need not be identical.

         (b) Limitation on Awards of Restricted Shares. In no event shall the
number of Restricted Shares awarded under the Plan exceed twenty percent (20%)
of the aggregate number of shares available under Section 5(a) (subject to
adjustment in accordance with Section 11).

         (c) Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents, or past services
rendered to the Company (or a Parent or Subsidiary), as the Committee may
determine.

                                      -7-
<PAGE>

         (d) Vesting. Restricted Shares shall vest at a rate that is not faster
than twenty percent (20%) per year (or, in the case of monthly vesting, 1/60th
per month) over five years from the date of grant. A Restricted Share Agreement
may provide for accelerated vesting in the event of a Change in Control or the
Participant's death, disability or retirement, as the Committee may determine.

         (e) Voting and Dividend Rights. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Restricted Share Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.

Section 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES.

         (a) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree 30 days after the grant of such right was
communicated to him by the Committee. Such right shall not be transferable and
shall be exercisable only by the Offeree to whom such right was granted.

         (b) Purchase Price. The Purchase Price shall be determined by the
Committee at its sole discretion. The Purchase Price shall be payable in one of
the forms described in Section 9(a), Section 9(b) and Section 9(c).

         (c) Withholding Taxes. As a condition to the purchase of Shares, the
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such purchase.

         (d) Restrictions on Transfer of Shares. Any Shares awarded or sold
under the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.

Section 8. TERMS AND CONDITIONS OF OPTIONS.

         (a) Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The Stock Option Agreement shall specify
whether the Option is an ISO or an NSO. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. Options may
be granted in consideration of a reduction in the Optionee's other compensation.
A Stock Option Agreement may provide that a new Option will be granted
automatically to the Optionee when he or she exercises a prior Option and pays
the Exercise Price in a form described in Section 9(b).

         (b) No Repricing. Except as otherwise provided in Section 11, in no
event shall the Committee decrease the Exercise Price of an Option after the
date of grant or cancel outstanding Options and grant replacement Options with a
lower exercise price without first obtaining stockholder approval.

                                      -8-
<PAGE>

         (c) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 11. Options granted to an
Optionee in a single fiscal year of the Company shall not cover more than
305,000 Shares (subject to adjustment in accordance with Section 11).

         (d) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an Option shall not be less than 100%
(110% in the case of an ISO granted to a 10% stockholder described in Section
4(b)) of the Fair Market Value of a Share on the date of grant. Subject to the
preceding sentence, the Exercise Price under any Option shall be determined by
the Committee at its sole discretion. The Exercise Price shall be payable in one
of the forms described in Section 9.

         (e) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.

         (f) Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. No
Option shall provide for a right to exercise at rate that is faster than fifty
percent (50%) per year (or, in the case of monthly vesting, 1/24th per month)
over two years from the date of grant. The Stock Option Agreement shall also
specify the term of the Option; provided that the term of an ISO shall in no
event exceed 10 years from the date of grant (five years for Employees described
in Section 4(b)). A Stock Option Agreement may provide for accelerated
exercisability in the event of a Change in Control or the Optionee's death,
disability or retirement. Options may be awarded in combination with SARs, and
such an Award may provide that the Options will not be exercisable unless the
related SARs are forfeited. Subject to the foregoing in this Section 8(f), the
Committee at its sole discretion shall determine when all or any installment of
an Option is to become exercisable and when an Option is to expire.

         (g) Nontransferability. Unless otherwise provided by the Stock Option
Agreement, during an Optionee's lifetime, his or her Option(s) shall be
exercisable only by him or her and shall not be transferable by operation of law
or agreement. In the event of an Optionee's death, his or her Option(s) shall
not be transferable other than by will or by the laws of descent and
distribution.

         (h) Exercise of Options Upon Termination of Service. Each Stock Option
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's Service with the
Company and its Subsidiaries, and the right to exercise the Option of any
executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance.
Such provisions shall be determined in the sole discretion of the Committee,
need not be uniform among all Options issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of Service.

                                      -9-
<PAGE>

         (i) Leaves of Absence. An Employee's Service shall cease when such
Employee ceases to be actively employed by, or a consultant, director or adviser
to, the Company (or any subsidiary) as determined in the sole discretion of the
Board of Directors. For purposes of Options, Service does not terminate when an
Employee goes on a bona fide leave of absence, that was approved by the Company
in writing, if the terms of the leave provide for continued service crediting,
or when continued service crediting is required by applicable law. However, for
purposes of determining whether an Option is entitled to ISO status, an
Employee's Service will be treated as terminating 90 days after such Employee
went on leave, unless such Employee's right to return to active work is
guaranteed by law or by a contract. Service terminates in any event when the
approved leave ends, unless such Employee immediately returns to active work.
The Company determines which leaves count toward Service, and when Service
terminates for all purposes under the Plan.

         (j) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 11.

         (k) Modification, Extension and Renewal of Options. Subject to Section
8(b) and other limitations of the Plan, the Committee may modify, extend or
renew outstanding options or may accept the cancellation of outstanding options
(to the extent not previously exercised), whether or not granted hereunder, in
return for the grant of new Options for the same or a different number of Shares
and at the same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, impair his
or her rights or increase his or her obligations under such Option.

         (l) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.

         (m) Buyout Provisions. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

Section 9. PAYMENT FOR SHARES.

         (a) General Rule. The entire Exercise Price of Shares issued under the
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Section 9(b) through
Section 9(g) below.

         (b) Surrender of Stock. At the discretion of the Company and to the
extent that a Stock Option Agreement so provides, payment may be made all or in
part by surrendering, or attesting to the ownership of, Shares which have
already been owned by the Optionee or his or her representative. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan. The Optionee shall not surrender, or attest to the

                                      -10-
<PAGE>

ownership of, Shares in payment of the Exercise Price if such action would cause
the Company to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.

         (c) Services Rendered. At the discretion of the Committee, Shares may
be awarded under the Plan in consideration of services rendered to the Company
or a Subsidiary prior to the award. If Shares are awarded without the payment of
a Purchase Price in cash, the Committee shall make a determination (at the time
of the award) of the value of the services rendered by the Offeree and the
sufficiency of the consideration to meet the requirements of Section 6(c).

         (d) Cashless Exercise. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.

         (e) Exercise/Pledge. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker or lender
to pledge Shares, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of the aggregate Exercise Price.

         (f) Promissory Note. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivering (on a form prescribed
by the Company) a full-recourse promissory note. However, the par value of the
Common Shares being purchased under the Plan, if newly issued, shall be paid in
cash or cash equivalents. In no event will payment by promissory note be
available to persons who are considered officers or directors of the Company
under Section 16 of the Exchange Act.

         (g) Other Forms of Payment. To the extent that a Stock Option Agreement
so provides, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.

         (h) Restrictions on Forms of Payment. Notwithstanding anything to the
contrary in the Plan or the terms of any Award, a form of payment will not be
available if the Committee determines, in its sole discretion, that such form of
payment could violate any law or regulation.

Section 10. STOCK APPRECIATION RIGHTS.

         (a) SAR Agreement. Each grant of a SAR under the Plan shall be
evidenced by a SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.

         (b) Number of Shares. Each SAR Agreement shall specify the number of
Shares to which the SAR pertains and shall provide for the adjustment of such
number in accordance with Section 11. SARs granted to any Optionee in a single
calendar year shall in no event pertain to more than 305,000 Shares (subject to
adjustment in accordance with Section 11).

                                      -11-
<PAGE>

         (c) Exercise Price. Each SAR Agreement shall specify the Exercise
Price. A SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.

         (d) Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may provide
for accelerated exercisability in the event of a Change in Control or the
Optionee's death, disability or retirement and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee's
service. SARs may be awarded in combination with Options, and such an Award may
provide that the SARs will not be exercisable unless the related Options are
forfeited. A SAR may be included in an Option at the time of grant or
thereafter. A SAR granted under the Plan may provide that it will be exercisable
only in the event of a Change in Control.

         (e) Exercise of SARs. Upon exercise of a SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Shares, (b) cash or (c) a combination of Shares and
cash, as the Committee shall determine. The amount of cash and/or the Fair
Market Value of Shares received upon exercise of SARs shall, in the aggregate,
be equal to the amount by which the Fair Market Value (on the date of surrender)
of the Shares subject to the SARs exceeds the Exercise Price. If, on the date
when a SAR expires, the Exercise Price under such SAR is less than the Fair
Market Value on such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.

         (f) Special Holding Period. To the extent required by Section 16 of the
Exchange Act or any rule thereunder, an SAR shall not be exercised for cash
unless both it and the related Option have been outstanding for more than six
months.

         (g) Special Exercise Window. To the extent required by Section 16 of
the Exchange Act or any rule thereunder, an SAR may only be exercised for cash
during a period which (a) begins on the third business day following a date when
the Company's quarterly summary statement of sales and earnings is released to
the public and (b) ends on the third business day following such date. This
Section 10(g) shall not apply if the exercise occurs automatically on the date
when the related Option expires, and the Committee may determine that it shall
not apply to limited SARs that are exercisable only in the event of a Change in
Control.

         (h) Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of a SAR may, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.

Section 11. ADJUSTMENT OF SHARES.

         (a) Adjustments. In the event of a subdivision of the outstanding
Stock, a declaration of a dividend payable in Shares, a declaration of a
dividend payable in a form other than Shares in an amount that has a material
effect on the price of Shares, a combination or consolidation of the outstanding
Stock (by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:

                                      -12-
<PAGE>

                  (i) The number of Options, SARs and Restricted Shares
         available for future Awards under Section 5;

                  (ii) The limitations set forth in Section 8(c) and Section
         10(b);

                  (iii) The number of Shares covered by each outstanding Option
         and SAR; or

                  (iv) The Exercise Price under each outstanding Option and SAR.

Except as provided in this Section 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

         (b) Dissolution or Liquidation. To the extent not previously exercised
or settled, Options and SARs shall terminate immediately prior to the
dissolution or liquidation of the Company.

         (c) Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for:

                  (i) The continuation of the outstanding Awards by the Company,
         if the Company is a surviving corporation;

                  (ii) The assumption of the outstanding Awards by the surviving
         corporation or its parent or subsidiary;

                  (iii) The substitution by the surviving corporation or its
         parent or subsidiary of its own awards for the outstanding Awards;

                  (iv) Full exercisability or vesting and accelerated expiration
         of the outstanding Awards; or

                  (v) Settlement of the full value of the outstanding Awards in
         cash or cash equivalents followed by cancellation of such Awards.

         (d) Reservation of Rights. Except as provided in this Section 11, an
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.

                                      -13-
<PAGE>

Section 12. DEFERRAL OF AWARDS.

         The Committee (in its sole discretion) may permit or require a
Participant to (a) have cash that otherwise would be paid to such Participant as
a result of the exercise of a SAR credited to a deferred compensation account
established for such Participant by the Committee as an entry on the Company's
books; or (b) have Shares that otherwise would be delivered to such Participant
as a result of the exercise of an Option or SAR converted into amounts credited
to a deferred compensation account established for such Participant by the
Committee as an entry on the Company's books. Such amounts shall be determined
by reference to the Fair Market Value of such Shares as of the date when they
otherwise would have been delivered to such Participant. A deferred compensation
account established under this Section 12 may be credited with interest or other
forms of investment return, as determined by the Committee. A Participant for
whom such an account is established shall have no rights other than those of a
general creditor of the Company. Such an account shall represent an unfunded and
unsecured obligation of the Company and shall be subject to the terms and
conditions of the applicable agreement between such Participant and the Company.
If the deferral or conversion of Awards is permitted or required, the Committee
(in its sole discretion) may establish rules, procedures and forms pertaining to
such Awards, including (without limitation) the settlement of deferred
compensation accounts established under this Section 12.

Section 13. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

         (a) Effective Date. No provision of this Section 13 shall be effective
unless and until the Board has determined to implement such provision.

         (b) Elections to Receive NSOs or Restricted Shares. An Outside Director
may elect to receive his or her annual retainer payments and/or meeting fees
from the Company in the form of cash, NSOs or Restricted Shares, or a
combination thereof, as determined by the Board. Such NSOs and Restricted Shares
shall be issued under the Plan. An election under this Section 13 shall be filed
with the Company on the prescribed form.

         (c) Number and Terms of NSO or, Restricted Shares. The number of NSOs
or Restricted Shares to be granted to Outside Directors in lieu of annual
retainers and meeting fees that would otherwise be paid in cash shall be
calculated in a manner determined by the Board. The terms of such NSOs or
Restricted Shares shall also be determined by the Board.

Section 14. LEGAL AND REGULATORY REQUIREMENTS.

         Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations and the regulations of any stock exchange on which the
Company's securities may then be listed, and the Company has obtained the
approval or favorable ruling from any governmental agency which the Company
determines is necessary or advisable.

                                      -14-
<PAGE>

Section 15. WITHHOLDING TAXES.

         (a) General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.

         (b) Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Shares that otherwise would
be issued to him or her or by surrendering all or a portion of any Shares that
he or she previously acquired; provided, however, the Participant may not
surrender Shares to satisfy withholding or income tax obligations in excess of
the minimum legally required obligations. Such Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.

Section 16. LIMITATION ON PARACHUTE PAYMENTS.

         (a) Scope of Limitation. This Section 16 shall apply to an Award unless
the Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall not be subject to this
Section 16. If this Section 16 applies to an Award, it shall supersede any
contrary provision of the Plan or of any Award granted under the Plan.

         (b) Basic Rule. In the event that the independent auditors most
recently selected by the Board (the "Auditors") determine that any payment or
transfer by the Company under the Plan to or for the benefit of a Participant (a
"Payment") would be nondeductible by the Company for federal income tax purposes
because of the provisions concerning "excess parachute payments" in Section 280G
of the Code, then the aggregate present value of all Payments shall be reduced
(but not below zero) to the Reduced Amount. For purposes of this Section 16, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of Section 280G of the Code.

         (c) Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of Section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Section 16, present
value shall be determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Section 16 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay

                                      -15-
<PAGE>

or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.

         (d) Overpayments and Underpayments. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company that should not have been made (an "Overpayment") or that additional
Payments that will not have been made by the Company could have been made (an
"Underpayment"), consistent in each case with the calculation of the Reduced
Amount hereunder. In the event that the Auditors, based upon the assertion of a
deficiency by the Internal Revenue Service against the Company or the
Participant that the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount subject to taxation under Section 4999 of the Code.
In the event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for the
benefit of the Participant, together with interest at the applicable federal
rate provided in Section 7872(f)(2) of the Code.

         (e) Related Corporations. For purposes of this Section 16, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with Section 280G(d)(5) of the Code.

Section 17. NO EMPLOYMENT RIGHTS.

         No provision of the Plan, nor any right or Option granted under the
Plan, shall be construed to give any person any right to become, to be treated
as, or to remain an Employee. The Company and its Subsidiaries reserve the right
to terminate any person's Service at any time and for any reason, with or
without notice.

Section 18. DURATION AND AMENDMENTS.

         (a) Term of the Plan. This Plan, as set forth herein, shall terminate
automatically on the 10th anniversary of date of Plan and may be terminated on
any earlier date pursuant to Section 18(b).

         (b) Right to Amend or Terminate the Plan. The Board of Directors may,
at any time and for any reason, amend or terminate the Plan. Rights and
obligations under any Award granted before amendment or termination of the Plan
shall not be materially impaired by such amendment or termination, except with
consent of the person to whom the Award was granted. An amendment of the Plan
shall be subject to the approval of the Company's stockholders only to the
extent required by applicable laws, regulations or rules.

                                      -16-
<PAGE>

         (c) Effect of Amendment or Termination. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.

Section 19. EXECUTION.

         To record the adoption of the Plan by the Board of Directors effective
as of January 16, 2003, the Company has caused its authorized officer to execute
the same.

                                                      Headwaters Incorporated



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


                                      -17-