Exhibit 99.3.1

                             HEADWATERS INCORPORATED
                              INCENTIVE BONUS PLAN
                            Effective 1 October 2004


1.       PURPOSE

         The purpose of this Incentive Bonus Plan is to promote the success of
         Headwaters Incorporated and Headwaters' subsidiaries, by providing
         financial incentive for employees to strive for more effective
         operation of the business through ongoing development and use of their
         knowledge, skill, ingenuity, resourcefulness and industry. The Plan
         provides that annual Awards may be made to employees who are
         responsible for successful operation and management of the Company.

2.       DEFINITIONS

         The following definitions shall be applicable throughout the Plan:

         (a)      "Award" means the total dollar amount that may be paid to a
                  Participant following a given Performance Year.

         (b)      "Base Compensation" means the annualized W2 wages of a
                  Participant determined on the last day of a Performance Year.

         (c)      "Board" means the Board of Directors of Headwaters
                  Incorporated.

         (d)      "Bonus Percent" means the percentages associated with each
                  Participant based on position, responsibility, and other
                  factors, listed on the appropriate Participation Schedule as
                  defined on Schedule 1.

         (e)      "Change in Control" means:

                  (i)      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 each of (A) the continuing
                           or surviving entity and (B) any direct or indirect
                           parent corporation of such continuing or surviving
                           entity;

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

                  (iii)    Any transaction as a result of which any person is
                           the "beneficial owner" (as defined in Rule 13d-3
                           under the Securities Exchange Act of 1934), directly
                           or indirectly, of securities of the Company

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                           representing at least 50% of the total voting power
                           represented by the Company's then outstanding voting
                           securities. For purposes of this Paragraph (iii), the
                           term "person" shall have the same meaning as when
                           used in sections 13(d) and 14(d) of the Securities
                           Exchange Act of 1934 but shall exclude (A) a trustee
                           or other fiduciary holding securities under an
                           employee benefit plan of the Company or of a parent
                           or subsidiary of the Company and (B) a corporation
                           owned directly or indirectly by the stockholders of
                           the Company in substantially the same proportions as
                           their ownership of the common stock of the Company.

         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.

         (f)      "Committee" means the Headwaters' Compensation Committee, or
                  such other committee comprised of members of the Board
                  designated by the Board to oversee the Plan.

         (g)      "Company" means collectively Headwaters Incorporated and
                  certain subsidiaries named on Schedule 1.

         (h)      "Completion Factor" means the percentage completion of IBO
                  commitments of the Participants.

         (i)      "EVA" means the net operating profit before taxes, as adjusted
                  pursuant to items identified in Schedule 1, ("NOPAT"), less
                  the average cost of capital employed by the Company during the
                  Performance Year.

         (j)      "EVA Multiplier" means that factor identified on the EVA
                  Multiplier Table for the Company, associated with different
                  levels of EVA obtained during the Performance Year that
                  exceeds the Threshold EVA.

         (k)      "Individual Business Objective or IBO" means the goals
                  established by each Participant used to determine his/her
                  Performance Adjustment Factor.

         (l)      "Participant" means a full time employee of the Company,
                  employed by the Company on the last day of a Performance Year
                  and who otherwise meets the eligibility requirements for
                  participation set forth in section 4.

         (m)      "Performance Adjustment Factor or PAF" means the multiplier
                  obtained by combining the completion factors from the IBO
                  commitments of the Participants. The Performance Adjustment
                  Factor can vary from 0% to 100% depending upon the attainment
                  of the Participant's IBOs.

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         (n)      "Performance Year" means a designated fiscal year of the
                  Company during which Company and individual performance will
                  be measured and Participant services will be rendered for
                  which an Award may be granted.

         (o)      "Plan" means this Headwaters Incorporated Incentive Bonus
                  Plan.

         (p)      "Chief Executive Officer" means the Chief Executive Officer of
                  Headwaters Incorporated.

         (q)      "Retrospective Review" means the formal report prepared
                  annually which details the Company's and the Participants'
                  performance during the Performance Year and provides the basis
                  for the Committee's determination of the Performance
                  Adjustment Factor and Participant Awards.

         (r)      "Threshold EVA" means the level of EVA performance below which
                  there will be no Award.

3.       POWERS AND ADMINISTRATION

         The Committee shall have such powers and duties as are conferred upon
it under this Plan, or any amendments thereto, or by the Board. The Committee
shall have the authority to determine the time or times when approved
Participant Awards shall be paid each year; and the Committee shall determine
Plan participation and Award amounts for Participant's pursuant to Section 6(a).

         The Committee shall take whatever action is necessary in fulfilling the
purposes and intent of the Plan. The Committee is authorized and empowered to
interpret the terms and conditions of the Plan, to promulgate any rules,
regulations and schedules of general applicability and to adopt such forms
deemed necessary to carry out the purposes of the Plan. However, no such
interpretation, rule or regulation shall be contrary to the clearly expressed
provisions of the Plan.

         The Committee may prescribe rules and procedures for the allocation of
responsibilities among the agents appointed by the Committee for the performance
of ministerial duties.


4.       ELIGIBILITY FOR PARTICIPATION

         (a)      Those employees of the Company employed by the Company on the
                  last day of the Performance Year who:

                  (i)      have achieved relevant Plan performance criteria;
                  (ii)     are not otherwise eligible to receive regularized,
                           periodic performance-based bonus compensation under
                           some established plan of the Company or its business
                           units or subsidiaries; and

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                  (iii)    are identified on Schedule I or are added to the Plan
                           during the Performance Year.

         (b)      Those employees of the Company who are eligible to participate
                  are entitled to receive a copy of this Plan document.

         (c)      Participation in a given Performance Year does not entitle
                  participation in any subsequent Performance Year.

5.       CALCULATION OF AWARDS

         An Award shall be computed as follows:

         EVA Multiplier X Base Compensation X Bonus Percent X PAF


6.       PARTICIPANT SELECTION AND AWARD DETERMINATION

         (a)      Chief Executive Officer. Each year the Chief Executive Officer
                  shall present to the Committee the list of Participants, their
                  PAF and the computation of the proposed Award, and the Award
                  amounts recommended for each Participant.

         (b)      Committee. The Committee shall consider the Chief Executive
                  Officer's report referred to in Section 6(a) and approve the
                  total Awards to be granted for the Performance Year.

7.       INDIVIDUAL AWARDS

         (a)      A Participant's Award shall be prorated based upon number of
                  months of service in a given Performance Year or if the
                  Participant is in different employment categories during a
                  Performance year.

         (b)      The actual Award granted to any individual Participant
                  hereunder shall be based upon the Company's overall
                  performance and individual performance considerations and
                  shall be determined by the Committee, in its sole discretion.

         (c)      No Award will be granted if the Company's overall performance
                  is below Threshold EVA or if a Participant's individual
                  performance is unsatisfactory, as determined by the Committee
                  in its sole discretion, upon the recommendation of the Chief
                  Executive Officer.

8.       FORM AND TIME OF PAYMENT

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         (a)      An Award shall be paid to the Participant in cash, less
                  applicable federal, state, local and FICA taxes, as soon as
                  practicable after the date on which all awards are approved by
                  Committee.

         (b)      If Banking applies to a Participant as shown on Schedule 1,
                  then 50% of the amount of the Award that is in excess of the
                  Award that would be computed if the EVA multiplier were 1,
                  shall be withheld from payment. Payment of the withheld Award
                  shall be made over the two years immediately subsequent to the
                  Performance Plan Year (50% of the withheld year in the first
                  subsequent year and 50% in the second subsequent year) if the
                  Company reaches the Threshold EVA in the subsequent years. If
                  the Company fails to achieve the Threshold EVA in the
                  subsequent two years, the withheld amounts are forfeited. Any
                  Banked Awards will be paid to a Participant upon the
                  occurrence of (i) the Participant's retirement from the
                  Company after reaching age 60; or (ii) a Change in Control of
                  the Company.

9.       RETIREMENT, TERMINATION, DISABILITY, INCOMPETENCY AND DEATH

         (a)      In the event of the Participant's disability, incompetency or
                  death, or retirement such Participant may receive an Award,
                  prorated to the effective date of such event, at the sole
                  discretion of the Committee. Any such prorated Award shall be
                  determined and paid in accordance with the regular procedures
                  of the Plan.

         (b)      Should an Award be approved under Section 9(a), such Award
                  shall be paid in cash, less applicable federal, state, local
                  and FICA taxes, on the normal Award payout date to the
                  Participant, or, in the event of the Participant's death, to
                  the Participant's estate, or to the person or persons who have
                  acquired, by will or by the laws of descent and distribution
                  or by other legal proceedings, the right to such Award.

10.      NO RESERVE OR TRUST

         Nothing contained in the Plan shall require the Company to segregate
         any monies from its general funds, or to create any trust or make any
         special deposit in respect of any amounts payable under the Plan to or
         for any Participant or group of Participants. All amounts payable under
         the Plan shall be paid out of the general funds of the Company.

11.      NO RIGHT TO ASSIGN

         No right or interest of any Participant in the Plan or in any unpaid
         Award shall be assignable or transferable in whole or in part, either
         voluntarily or by operation of law or otherwise, or be subject to
         payment of debts of any Participant by execution, levy, garnishment,
         attachment, pledge, bankruptcy or in any other manner.

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12.      NO EMPLOYMENT RIGHTS CONFERRED

         Nothing contained in the Plan or any Award shall confer upon any
         employee any right with respect to continuation of employment with the
         Company in any capacity or interfere in any way with the right of the
         Company to terminate an employee's employment at any time or guarantee
         any right of participation in any other employee benefit plan of the
         Company.

13.      SUCCESSORS AND MERGERS, CONSOLIDATIONS OR CHANGE IN CONTROL

         The terms and conditions of this Plan shall inure to the benefit of and
         bind the Company, the Participants, their successors, assignees, and
         personal representatives. If substantially all of the stock or assets
         of the Company are acquired by another corporation or entity or if the
         Company is merged into, or consolidated with another corporation or
         entity, then upon such event the Banked portion of any Awards shall be
         immediately payable to the Participants and all other obligations
         created hereunder shall be obligations of the acquirer or successor
         corporation or entity without the requirement of further action by the
         acquirer or successor corporation or entity.

14.      GOVERNING STATE LAW

         The provisions of this Plan shall be construed and administered in
         accordance with the laws of the State of Utah.

15.      AMENDMENT

         The Committee may from time to time amend, suspend, terminate or
         reinstate any or all of the provisions of the Plan. However, the
         Committee may not cancel awards, including any banked awards, payable
         on account of a completed Performance Year.

16.      EFFECTIVE DATE AND TERM OF THE PLAN

         The Plan shall become effective for the Performance Year commencing
         October 1, 2004 upon adoption by the Committee and shall remain in
         effect until such time as the Committee may terminate it.


         Approved by Committee:  4 November 2004



          /s/ Kirk A. Benson
         ------------------------------
         Kirk A. Benson, Chairman & CEO

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