February 22, 2005

Re:      Proxy Proposal 5

Dear shareholder:

I am the lead independent director at Headwaters Incorporated and Chairman of
our Compensation Committee. I am writing to ask for your vote in favor of
proposal number 5 to approve the Headwaters Long Term Incentive Compensation
Plan as described in the Proxy Statement for the Annual Meeting of Stockholders
to be held on Tuesday, March 1, 2005.

As you are aware, Headwaters financial performance over the last several years
has been exceptional. In the last twelve months, the value of Headwaters common
stock increased by 36%. Over the last five years, Headwaters stock price has
increased from a price of less than $1 per share in late 1999 to more than $30
per share in 2005. Headwaters has created over $1,000,000,000 of increased
market cap for shareholders. Our earnings per share has increased from $0.94 in
2001 to $1.95 in 2004.

One of the key factors in the positive returns for shareholders has been our
ability to tie compensation to performance. Our short term economic value added
bonus plan is keyed to specific individual goals that ultimately result in
increased shareholder value. Over the last several months we have been
developing a plan to tie long term incentive compensation to performance
criteria. We believe that proposal number five in our current proxy requesting
shareholder approval of a Long Term Incentive Compensation Plan will add to
shareholder value and help us to continue Headwaters positive performance.

In a report dated February 16, 2005 Institutional Shareholder Services (ISS)
evaluated proposal number five in our current proxy. ISS reported that our
proposed long term incentive compensation plan has a cost well below the
recommended cap. Our plan is significantly less expensive than plans to which we
are compared.

However, ISS recommended against approval of the plan because of a new three
year burn rate analysis. This analysis deals with the number of options and
restricted stock granted annually compared to an ISS selected peer group within
the same industry classification. In the previous two years, Headwaters was in
the Commercial Services and Supplies group. This year, ISS used a different
industry classification, selecting peers in a "Materials" industry
classification. Presumably the classification changed because of Headwaters'
acquisitions of Eldorado Stone in June 2004 and Tapco in September 2004, just
before our year end. Under last year's industry classification, Headwaters would
have passed the test. We failed the ISS analysis of proposal 5 solely because of
the new industry classification.



Late last year, FASB implemented FAS 123R, dealing with accounting for
performance based equity compensation. After approval of FAS 123R, Headwaters
Compensation Committee immediately began to explore alternatives to more closely
tie long term incentive compensation to performance, believing that this is in
the best interests of shareholders. Proposal 5 is a key part of our strategy to
accomplish linking compensation to performance.

Voting for proposal 5 will help tie long term incentive compensation to
performance, positively impacting shareholder value. Voting against proposal
number 5 limits our ability to compensate based upon value creation that in the
long run will be detrimental to shareholders. I request that you vote in favor
of proposal number 5.

In order that your vote may be counted in time for our March 1, 2005 Annual
Meeting of Stockholders, I ask that your vote be submitted or changed as soon as
possible, but no later than February 28, 2005.

Thank you for your attention to this matter of importance to Headwaters.

Sincerely,

/s/ James A. Herickhoff

James A. Herickhoff
Compensation Committee Chairman
Headwaters Incorporated