Headwaters Incorporated Signs Two License Agreements to Construct Direct and Indirect Coal-to-Liquids Demonstration Plants.

SOUTH JORDAN, Utah -- Headwaters Incorporated (NYSE: HW) announced today that its subsidiary, Headwaters Technology Innovation Group (HTIG), has completed two license agreements for construction of direct and indirect coal-to-liquids demonstration plants. The proposed project is to build two 30,000 ton per year (approx. 700 bpd) demonstration (demo) coal-to-liquids (CTL) plants in Inner Mongolia, China. The indirect CTL plant will be built first and will include a coal gasifier and a Fischer-Tropsch plant. UK RACE Investment Limited (RACE) will invest the $40 million needed to design and build the ICL plant. The DCL plant will be added later to demonstrate the hybrid DCL/ICL concept.

The primary goal of the demo plant is to verify the catalyst performance and reactor design of the CTL technologies. The experience gained through the demo plant can then be used for large coal-to-liquids facilities planned by RACE in Inner Mongolia as well as by Headwaters, such as the projects previously announced in North Dakota and Arizona.

In addition to the license fees, HTIG will be paid for the process design of the Fischer-Tropsch synthesis portion of the demo plant. HTIG will also complete the mechanical design of the proprietary reactor and separator and will provide inspection services for the fabrication of this equipment outside of China. And HTIG will provide consulting services through a service contract.

Currently, the United States imports more than 50% of its crude oil and imported oil is projected to grow to 70% of our total oil requirements. At the same time, the oil needs of other countries such as China and India continue to grow.

The United States has significant recoverable coal reserves which can be converted to clean, environmentally friendly transportation fuels (ultra-clean diesel and gasoline) to replace some of the dependence on foreign oil. One ton of coal can be converted to one to four barrels of transportation fuels, depending upon the coal and the technology employed. Converting America's 273 billion tons of coal into transportation fuel would result in equivalent oil reserves in the United States of more than 500 billion barrels.

Technologies available to convert coal into transportation fuels include indirect liquefaction (Fischer-Tropsch), direct liquefaction, and co-processing heavy oil with coal. Headwaters is uniquely positioned to pursue any of the three technologies depending upon the specific situation.

"We are excited about the opportunity to pursue the continuing commercialization of our coal-to-liquids technologies," said Kirk A. Benson. "In addition, there are many opportunities for Headwaters to pursue development of coal-to-liquid projects in the United States. We intend to pursue development of these projects and use the best available technologies to maximize the commercial success of the project."

About Headwaters Incorporated

Headwaters Incorporated is a world leader in creating value through innovative advancements in the utilization of natural resources. Headwaters is a diversified growth company providing products, technologies and services to the energy, construction and home improvement industries. Through its alternative energy, coal combustion products, and building materials businesses, the company earns a growing revenue stream that provides the capital needed to expand and acquire synergistic new business opportunities.

Forward-Looking Statements

Certain statements contained in this report are forward-looking statements within the meaning of federal securities laws and Headwaters intends that such forward-looking statements be subject to the safe harbor created thereby.

Forward-looking statements include Headwaters' expectations as to the managing and marketing of coal combustion products, the production and marketing of building materials and products, the licensing of technology and chemical sales to alternative fuel facilities, the receipt of product sales, license fees and royalty revenues, the development, commercialization, and financing of new technologies and other strategic business opportunities and acquisitions, and other information about Headwaters. Such statements that are not purely historical by nature, including those statements regarding Headwaters' future business plans, the operation of facilities, the availability of tax credits, the availability of feedstocks, and the marketability of the coal combustion products, building products, and synthetic fuel, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Actual results may vary materially from such expectations. Words such as "expects," "anticipates," "targets," "goals," "projects," "believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward looking.

In addition to matters affecting the coal combustion product, alternative fuel, and building products industries or the economy generally, factors which could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the captions titled "Forward-looking Statements" and "Risk Factors" in Item 7 in Headwaters' Annual Report on Form 10-K for the fiscal year ended Sept. 30, 2004, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses.

Although Headwaters believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that our results of operations will not be adversely affected by such factors. Unless legally required, we undertake no obligation to revise or update any forward-looking statements for any reason. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

Our Internet address is www.headwaters.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports can be accessed through the investor relations section of our Web site.