Filed Pursuant to 424(b)(3)
                                                     Registration No. 333-100322

Prospectus

                                2,100,000 SHARES

                             HEADWATERS INCORPORATED

                                  COMMON STOCK

         This is an offering of shares of common stock of Headwaters
Incorporated. Only the selling stockholders, all of whom are former stockholders
of Industrial Services Group, Inc., a wholly-owned subsidiary of Headwaters, are
offering shares to be sold in the offering. Headwaters is not selling any shares
in the offering.

         Headwaters' common stock is quoted on The Nasdaq National Market under
the symbol HDWR. On October 3, 2002, the last reported sale price for the common
stock on The Nasdaq National Market was $14.42 per share.

         Headwaters' executive offices and telephone number are:

                          11778 South Election Road, Suite 210
                          Draper, Utah 84020
                          (801) 984-9400

This investment involves high risks. See "Risk Factors" on page 3.

                              --------------------

The common stock offered in this prospectus has not been approved by the
Commission or any state securities commission, nor have these organizations
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.

                              --------------------

You should rely only on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have not authorized anyone else
to provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of those documents.

                              --------------------

                 The date of this prospectus is October 15, 2002



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                                TABLE OF CONTENTS
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                                                                         Page

HEADWATERS INCORPORATED....................................................3

RISK FACTORS...............................................................3

WHERE YOU CAN FIND MORE INFORMATION.......................................11

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS.............................12

USE OF PROCEEDS...........................................................12

SELLING STOCKHOLDERS......................................................13

PLAN OF DISTRIBUTION......................................................13

LEGAL MATTERS.............................................................14

EXPERTS...................................................................14

                                       2


                             HEADWATERS INCORPORATED

         Headwaters Incorporated is a world leader in developing and deploying
alternative fuel and energy related technologies in the marketplace. Headwaters
is focused on converting fossil fuels such as gas, coal and heavy oils into
alternative energy products.

         Company History. Headwaters was incorporated in Delaware in 1995 under
the name Covol Technologies, Inc. In September 2000, the Company's name was
changed to Headwaters Incorporated. Our common stock trades under the Nasdaq
symbol HDWR.

         Business Strategy. We believe that the future of fossil fuels is at the
molecular level. Converting natural gas and refinery off-gas to liquid fuels,
coal to gas and clean transportation fuels, and heavy oils to light fuels are
all examples of changing the physical nature of the fossil fuel at the molecular
level. Broadly speaking, this is the technology that Headwaters has developed.
Headwaters has the ability to adjust the composition of the fossil fuel
molecules, converting the low value fossil fuel into a higher value product. The
conversion from low to high value products sometimes allows Headwaters to
extract troublesome elements, like sulfur, nitrogen, and heavy metals, out of
the fuel. The result is a higher value clean product.

         Through its operating division, Covol Fuels, Headwaters has developed,
patented and commercialized an innovative chemical technology that interacts
with carbon based feedstock to produce a solid alternative fuel that is eligible
for federal tax credits. Since 1996, Headwaters has licensed this technology for
royalty payments and also sells its chemical reagent products to its licensees
and other customers. To date, this technology has provided Headwaters with most
of its revenue.

         Additionally, Headwaters' subsidiary, Hydrocarbon Technologies, Inc.
("HTI"), which was acquired in August 2001, has developed catalyst and
nano-catalyst technologies to convert coal to liquid fuels, gas to liquid fuels,
and heavy/waste oils to clean light fuels. The development of nano-catalyst
technology by HTI places Headwaters at the forefront of applying advanced
molecular science to multiple energy and chemical processes.

         On July 16, 2002, we announced the proposed acquisition of Industrial
Services Group, Inc. ("ISG"), including its wholly-owned subsidiary ISG
Resources, Inc., which closed on September 19, 2002. The transaction is
described in more detail in the Form 8-K filed on October 4, 2002, which is
incorporated by reference into this prospectus. See "Where You Can Find More
Information."

                                  RISK FACTORS

         An investment in our common stock involves a significant degree of
risk. You should consider carefully the following risk factors, and all other
information contained in and incorporated by reference in this prospectus before
making an investment decision. See "Where You Can Find More Information."
Additional risks and uncertainties that are not yet identified or that we think
are immaterial may also materially harm our business, operating results and
financial condition and could result in a complete loss of your investment.

Leverage Risks

We have substantial debt and have significant interest payment requirements
under our senior and subordinated credit facilities.

         As of the closing of the acquisition of ISG and the related bank
financing, we have approximately $175 million in long-term debt (including
current portions) outstanding. Subject to restrictions in our senior and
subordinated credit facilities, we may also incur significant amounts of
additional debt for working capital, capital expenditures and other purposes.
Our high level of combined debt could have important consequences for our
company, including the following:

         o        we may have difficulty borrowing money for working capital,
                  capital expenditures, acquisitions or other purposes;
         o        we will need to use a large portion of our cash flow to pay
                  interest and the required principal payments on borrowings
                  under our senior and subordinated credit facilities, which
                  will reduce the amount of money available to finance our
                  operations, capital expenditures and other activities;
         o        our senior debt has a variable rate of interest, which exposes
                  us to the risk of increased interest rates;

                                       3


         o        borrowings under our senior credit facility will be secured by
                  our material assets;
         o        we will be more vulnerable to economic downturns and adverse
                  developments in our business;
         o        we will be less flexible in responding to changing business
                  and economic conditions, including increased competition and
                  demand for new products and services; and
         o        we may not be able to implement our business plans.

         Our ability to make scheduled payments of the principal of, to pay
interest on or to refinance our indebtedness depends on our future performance,
which to a certain extent is subject to economic, financial, competitive and
other factors beyond our control. There can be no assurance that our business
will continue to generate cash flow from operations in the future sufficient to
service our debt and make necessary capital expenditures. If unable to generate
such cash flow, we may be required to adopt one or more alternatives, such as
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these strategies could be effected on
satisfactory terms or without substantial additional expense to us. These and
other factors could have a material adverse effect on our results of operations,
liquidity and financial condition.

Covenant restrictions under our senior and subordinated credit facilities may
limit our ability to operate our business.

         Our senior and subordinated credit facilities contain, among other
things, covenants that may restrict our ability to finance future operations or
capital needs, to acquire additional businesses or to engage in other business
activities. Our senior and subordinated credit facilities restrict, among other
things, our ability and the ability of our subsidiaries to:

         o        borrow money;
         o        pay dividends or make distributions;
         o        purchase or redeem stock;
         o        make investments and extend credit;
         o        engage in transactions with affiliates;
         o        engage in sale leaseback transactions;
         o        consummate certain asset sales;
         o        effect a consolidation or merger or sell, transfer, lease or
                  otherwise dispose of all or substantially all of our assets;
                  and
         o        create liens on our assets.

         In addition, our senior and subordinated credit facilities and other
material agreements will require us to maintain specified financial ratios and
satisfy certain financial condition tests which may require that we take action
to reduce our debt or to act in a manner contrary to our business objectives.
Events beyond our control, including changes in general economic and business
conditions, may affect our ability to meet those financial ratios and financial
condition tests. We cannot assure you that we will meet those tests or that our
senior lenders will waive any failure to meet those tests. A breach of any of
these covenants would result in a default under our senior and subordinated
credit facilities and other material agreements. If an event of default under
our senior and subordinated credit facilities occurs, our lenders could elect to
declare all amounts outstanding under the credit facilities, together with
accrued interest, to be immediately due and payable. Such a default may, in
turn, cause a default under or an acceleration of our other outstanding
indebtedness and some of our material agreements. In such a case, there can be
no assurance that we would be able to refinance or otherwise repay such
indebtedness.

Covol Fuels and HTI Risks

Commercial viability of alternative fuel facilities depends on the continued
existence of tax credits under Section 29 of the Internal Revenue Code.

         Because to date the profitability of the alternative fuel facilities
that qualify for tax credits under Section 29 depends upon the economic benefits
from the tax credits in addition to the profits, if any, from operations, our
profits currently depend upon the existence of the tax credits under Section 29
of the Internal Revenue Code. Moreover, royalty payments under our license
agreements are typically based on a percentage of tax credits or profits earned.
Under current law, Section 29 expires on December 31, 2007, after which tax
credits will not apply to the alternative fuel facilities. In addition, there
have been legislative initiatives from time to time to consider the early repeal
or modification of Section 29, although they have not been successful. To date,
coal-based solid alternative fuel facilities that are not eligible for tax
credits have not been built, and we believe they could not presently be operated

                                       4


profitably. If the tax credits are not extended, or Section 29 is repealed or
adversely modified prior to the end of 2007, licensees, in order to remain
competitive and commercially viable after 2007, will have to manage their costs
of production and feedstock and develop the market for coal-based solid
alternative fuel with adequate prices to cover the costs. Following 2007, absent
an extension of tax credits, or any earlier repeal of Section 29, we will need
to renegotiate our license agreements with licensees to take into account the
absence of tax credits. If our licensees close their facilities after 2007, it
would have a material adverse effect on our business.

Ongoing financial profitability depends on operational success of licensees.

         Headwaters has licensed its coal-based solid alternative fuel
technology to a limited number of licensees. Headwaters' profitability depends
on the ability of our licensees to produce and sell alternative fuel that will
generate license fees. There are 28 alternative fuel facilities that license
Headwaters' patented technologies and reagent sales. To date, Headwaters has
earned license fees from the owners of 18 facilities, but most of the ongoing
royalties earned to date have been generated by eight facilities owned by three
licensees. If any one of these licensees shuts down its facilities, operates its
facilities at low production levels, or sells its facilities resulting in
short-term or long-term disruption of operations, our revenues could be
materially adversely affected. To successfully operate a facility, the plant
owner must produce and market a high-quality coal-based solid alternative fuel.
In order to do so, Headwaters' licensees must address all operational issues
including, but not limited to, feedstock availability, cost, moisture content,
Btu content, correct chemical reagent formulation and application, operability
of equipment, product durability, resistance to water absorption and overall
costs of operations. In some cases, licensees may be forced to relocate plants
and enter into new strategic contracts to address marketing and operational
issues. For example, some of the owners of facilities are moving the facilities
to new sites with better sources of raw materials for operation. Licensee plant
relocations disrupt production and delay generation of license fees for us. It
is not certain how much time our licensees will require for the full resolution
of all of these marketing and operational issues.

         Headwaters' profitable financial results have depended in part on
increased production over time of coal-based solid alternative fuel by its
licensees. While to date efficiencies in production and improvements in
facilities equipment and processes have allowed increased production, and we
believe that capacity of the facilities can continue to be increased, capacity
is ultimately finite for the specific facilities and could limit growth in the
future.

Our licensees may not qualify for tax credits granted by Congress to encourage
production of alternative fuels.

         Section 29 of the Internal Revenue Code provides a tax credit for the
production and sale of qualified alternative fuel, including coal-based solid
alternative fuel produced by using Headwaters' technologies. Headwaters'
royalties and chemical sales revenues are ultimately derived from its licensees'
ability to manufacture and sell qualified fuels that generate tax credits for
the facility owners. The IRS has issued at least 14 private letter rulings to
licensees of Headwaters' technologies covering 19 alternative fuel facilities.
These rulings may be modified or revoked by the Internal Revenue Service ("IRS")
if the IRS adopts regulations that are different from these rulings. Also, a
private letter ruling may not apply if the actual operating practice differs
from the information given to the IRS for the ruling. The IRS from time to time
reviews taxpayer use of the Section 29 tax credit, including whether there
should be restrictions on the availability of such credits. As discussed above,
ultimately it is within the power of Congress to repeal or extend Section 29.
Therefore, tax credits may not be available in the future, which would
materially adversely impact us.

         Based upon the language of Section 29 and private letter rulings issued
by the IRS to Headwaters and its licensees, Headwaters and its licensees believe
the coal-based solid alternative fuel facilities built and completed prior to
July 1, 1998, are eligible for Section 29 tax credits. However, the ability to
claim tax credits is dependent upon a number of conditions including, but not
limited to, the following:

         o        The facilities were constructed pursuant to a binding contract
                  entered into before January 1, 1997;
         o        All steps were taken for the facility to be considered placed
                  in service prior to July 1, 1998;
         o        Manufacturing procedures are applied to produce a significant
                  chemical change and hence a "qualified fuel";
         o        The alternative fuel is sold to an unrelated party; and
         o        The owner of the facility is in a tax-paying position and can
                  therefore use the tax credits.

         Licensees are subject to audit by the IRS. The IRS may challenge
Headwaters' licensees on any one of these or other conditions. Also, Headwaters'
licensees may not be in a financial position to claim the tax credits if they
are not profitable and therefore reduce the alternative fuel produced at their
facility. In addition, the Section 29 credit is subject to phase-out after the
unregulated oil price reaches a certain level, adjusted annually for inflation.
The inability of a licensee to claim tax credits could potentially reduce our
income from the licensee.

                                       5


We must be able to develop and improve our alternative fuel technologies.

         Our current business is dependent upon alternative fuel technologies.
To remain competitive, we must be able to develop or refine our technologies to
keep up with future alternative fuel requirements. As licensees develop and
modify their operations and choices of coal feedstocks, we will need to find new
methods, know-how, chemicals, and other techniques to meet licensee and customer
demands, such as demands for improved efficiencies, lower costs, and
improvements in alternative fuel products, including chemical change and
improved physical characteristics. If we are unable to develop or refine our
technologies, our revenues and business could be materially harmed.

HTI's technologies may not be commercially developed and marketed profitably.

         Headwaters acquired Hydrocarbon Technologies, Inc., or HTI, in August
2001. As an early stage company, HTI focuses on developing and commercializing
catalysts and catalytic processes for producing chemicals and converting
low-value fossil fuels into high-value alternative fuels. Although HTI has
developed and patented several potential processes, these processes are still in
the developmental stage. Market acceptance of these processes, if at all, will
depend on our ability to enter into agreements with licensees to further develop
and provide adequate funding to commercialize the processes. We can give no
assurances that we will be able to enter into any of these agreements or that
adequate funding will be available to fully develop and successfully
commercialize those processes or that they can be marketed profitably.

HTI will conduct business in China.

         HTI has recently entered into agreements with Shenhua Group, China's
largest coal company, which will license its direct coal liquefaction coal
technology for use in plants in China. In addition, other HTI activities are
likely to involve licensing of other technologies in China. There is the risk
that foreign intellectual property laws will not protect our intellectual
property rights to the same extent as under United States laws, leaving us
vulnerable to competitors who may attempt to copy our products, processes or
technologies. Further, the legal system of China is based on statutory law.
Under this system, prior court decisions may be cited as persuasive authority
but do not have binding precedential effect. Since 1979, the Chinese government
has been developing a comprehensive system of commercial laws and considerable
progress has been made in the promulgation of laws and regulations dealing with
economic matters, such as corporate organization and governance, foreign
investment, commerce, taxation and trade. As these laws, regulations and legal
requirements are relatively new and because of the limited volume of published
case law and judicial interpretations and the non-binding nature of prior court
decisions, the interpretation and enforcement of these laws, regulations and
legal requirements involve some uncertainty. These uncertainties could limit the
legal protection or recourse available to us. In addition, dependence on foreign
licenses and conducting foreign operations may subject us to increased risk to
political change, ownership issues, or repatriation or currency exchange
concerns.

We are involved in significant litigation.

         We are a party to some significant legal proceedings. These proceedings
will require that we incur substantial costs, including attorneys' fees,
managerial time, and other personnel resources and costs. Adverse resolution of
these proceedings could have a materially negative effect on such things as (i)
potential future revenues from licensees, (ii) our financial liabilities, and
(iii) the strength of some aspects of our intellectual property in the
alternative fuels industry. See our Form 10-K for fiscal year 2001, "ITEM 3.
LEGAL PROCEEDINGS" and our quarterly reports on Form 10-Q for a description of
the material pending legal proceedings.

ISG Risks

ISG's business is dependent upon increased use and market acceptance of fly ash.

         ISG's business strategy is to increase the use of fly ash in cement and
concrete through its marketing initiatives, which emphasize the environmental,
cost, and performance advantages of fly ash. If ISG's marketing initiatives are
not successful in the construction industry, or if environmental regulation does
not continue to emphasize the use and recycling of coal combustion products or
CCPs and therefore the use of the fly ash, ISG may not be able to sustain its
operations and future growth.

                                       6


ISG's business is dependent upon the price and sales of cement and concrete.

         A significant portion of ISG's business is based on the sale of cement
and concrete products containing fly ash. There is currently an overcapacity of
cement and concrete in the world market, causing potential price decreases.
Although the markets for ISG's products are regional, ISG's business is affected
by the availability of competing products. In addition, any slowing of the
construction business in ISG's markets, particularly highway construction, could
adversely affect ISG's sales.

Clean Air Act Amendments could adversely impact coal consumption.

         The federal Clean Air Act of 1970 and subsequent amendments
(particularly the Clean Air Act Amendments of 1990), and corresponding state
laws, which regulate the emissions of materials into the air, affect the coal
industry both directly and indirectly. The coal industry is directly affected by
Clean Air Act permitting requirements and/or emissions control requirements,
including requirements relating to particulate matter (such as, "fugitive
dust"). The coal industry may also be impacted by future regulation of fine
particulate matter. In July 1997, the United States Environmental Protection
Agency, or EPA, adopted new, more stringent National Ambient Air Quality
Standards, or NAAQS, for particulate matter and ozone. Because electric
utilities emit nitrogen oxides, which are precursors to ozone, ISG's utility
customers are likely to be affected when the new NAAQS are implemented by the
states. State and federal regulations relating to fugitive dust and the
implementation of the new NAAQS may reduce ISG's sources for its products. The
extent of the potential impact of the new NAAQS on the coal industry will depend
on the policies and control strategies associated with the state implementation
process under the Clean Air Act. Nonetheless, the new NAAQS could have a
material adverse effect on ISG's financial condition and results of operations.

         The Clean Air Act indirectly affects ISG's operations by limiting the
air emissions of sulfur dioxide and other compounds emitted by coal-fired
utility power plants. The affected utilities have been and may be able to meet
these requirements by, among other things, switching to lower sulfur fuels,
installing pollution control devices such as scrubbers, reducing electricity
generating levels or purchasing or trading "pollution credits." The affect on
ISG, of the Clean Air Act regulation of emissions cannot be completely
ascertained at this time.

         The 1990 Clean Air Act Amendments require utilities that are currently
major sources of nitrogen oxides in moderate or higher ozone non-attainment
areas to install reasonably available control technology for nitrogen oxides.
EPA currently plans to finalize stricter ozone NAAQS (discussed above) by 2004.
EPA promulgated a rule (the "SIP call") in 1998 requiring 22 eastern states to
make substantial reductions in nitrogen oxide emissions. Under this rule, EPA
expects that states will achieve these reductions by requiring power plants to
make substantial reductions in their nitrogen oxide emissions. Installation of
reasonably available control technology and additional control measures required
under the SIP call will make it more costly to operate coal-fired utility power
plants and could make coal a less attractive fuel alternative in the planning
and building of utility power plants in the future. Any material reduction in
coal's share of the capacity for power generation could have a material adverse
effect on ISG's financial condition and results of operations. The effect that
such regulation or other requirements may have on the coal industry in general
and on ISG in particular cannot be predicted with certainty. No assurance can be
given that the implementation of the 1990 Clean Air Act Amendments or any future
regulatory provisions will not materially adversely affect ISG.

         In addition, the 1990 Clean Air Act Amendments require a study of
utility power plant emissions of certain toxic substances, including mercury,
and direct EPA to regulate these substances, if warranted. EPA has submitted
reports to Congress on Mercury (1997) and Utility Air Toxics (1998). On December
14, 2000, EPA announced its finding that regulation of hazardous air pollutant
emissions from oil- and coal-fired electric utility steam generating units is
necessary and appropriate. EPA expects to propose emission standards by December
15, 2003 and to finalize them by December 15, 2004. These regulations are likely
to require reductions in mercury emissions, and such requirements, if
promulgated, could result in reduced use of coal if utilities switch to other
sources of fuel.

         The Clear Skies Initiative, announced by the Bush Administration in
February 2002, seeks to develop strategies for reducing emissions of sulfur
dioxide, nitrogen oxides and mercury from power plants. Because the Initiative
is still in its early stages, its effect on ISG cannot be determined at this
time.

                                       7


ISG's business is dependent upon the quality and quantity of the CCPs it uses in
its products.

         Coal-fired boilers have been impacted by regulations under the Clean
Air Act and the 1990 Clean Air Act Amendments, which established specific
emissions levels for sulfur dioxide, or SOx, and nitrogen oxides, or NOx. These
emissions levels have required utilities to undertake many of the following
changes: change their fuel source(s), add scrubbers to capture sulfur dioxide,
add new boiler burner systems to control NOx, add or modify fuel pulverizers/air
handling systems to control NOx, introduce flue gas conditioning materials to
control particulate emissions in conjunction with meeting sulfur dioxide
emissions targets and in some very isolated cases shut down a plant. All of
these changes can impact the quantity and quality of CCPs produced at a power
plant. Furthermore, proposed regulations to control mercury emissions could
result in implementation of additional technologies at power plants that could
negatively affect fly ash quality. Inappropriate use of CCPs can result in
faulty end products.

Property damage claims; uncertainty of insurance coverage; litigation.

         ISG and its subsidiaries are involved in numerous legal proceedings,
including property damage actions related to its stucco and mortar manufactured
products. Currently, each of the proceedings is being defended by attorneys
retained by various insurance carriers pursuant to "reservation of rights"
letters. While, to date, none of these proceedings have required that ISG incur
substantial costs, there is no guarantee of coverage or continuing coverage, and
these and future proceedings may result in substantial costs to ISG, including
attorneys' fees, managerial time, and other personnel resources and costs.
Adverse resolution of these proceedings could have a materially negative effect
on ISG's business, financial condition and results of operation, and its ability
to meet its financial obligations. Although ISG carries general and product
liability insurance, ISG cannot assure that such insurance coverage will remain
available, that ISG's insurance carrier will remain viable or that the insured
amounts will cover all future claims in excess of ISG's uninsured retention.
Furthermore, future rate increases may make such insurance uneconomical for ISG
to maintain.

ISG's business could be adversely affected by fluctuations in seasonality and
cyclicality.

         ISG's business consists of managing CCPs and other materials for
utilities and other industrial facilities and marketing these materials to end
users. Materials management services often include disposal operations and
landfill services that are directly tied to year-round plant operations,
providing relatively evenly distributed revenue generation. However, CCP sales
are keyed to construction market demands that tend to generally follow national
trends in construction with predictable responses to seasonal peaks. ISG's CCP
sales have historically reflected these seasonal trends, with the largest
percentage of total annual revenues being realized in the quarters ended June 30
and September 30. Low seasonal demand normally results in reduced shipments and
revenues in the quarter ended March 31.

         The CCP industry is cyclical and is affected by changes in general and
local economic conditions, such as building construction and highway
(infrastructure repair) construction. A downturn in the economy in one or more
markets served by ISG could have a material adverse effect on ISG's sales.

If ISG's coal-fired electric utility industry suppliers fail to provide ISG with
CCPs on a timely basis, ISG's costs could increase and our growth could be
hindered.

         ISG currently relies on the production of CCPs by coal-fired electric
utilities. ISG has occasionally experienced delays and other problems in
receiving CCPs from its coal-fired electric utility suppliers and may, in the
future be unable to obtain CCP's on the scale and within the time frames
required by ISG to meet its customers' needs. If ISG is unable to obtain, or if
it experiences a delay in the delivery of CCPs, ISG may be forced to incur
significant unanticipated expenses to secure alternative sources of CCPs or to
otherwise maintain supply to its customers.

Operational Risks

We have significant competition.

         Coal-based solid alternative fuels made using our technologies compete
with other alternative fuel products, as well as traditional fuels. Competition
may come in the form of the licensing of competing technologies to process coal
derivatives, the marketing of competitive chemical reagents, the marketing of
end products qualifying as synthetic fuel, and the development of alternative
fuel projects. We also experience competition from traditional coal and fuel
suppliers and natural resource producers, in addition to those companies that
specialize in the recycling and upgrading of industrial waste products. These
companies may have greater financial, management and other resources than we
have. Further, many industrial coal users are limited in the amount of
alternative fuel product they can purchase from Headwaters' licensees because
they have committed to purchase a substantial portion of their coal requirements
through long-term contracts for standard coal. We may not be able to compete
successfully in the future.

                                       8


         Alternative fuel sources and the recycling of waste products are the
subject of extensive research and development by our competitors. If a
competitive technology is developed that greatly increases the demand for waste
products or reduces the costs of alternative fuels or other resources, the
economic viability of our technologies and business could be adversely affected.

         Generally, the markets for ISG's traditional CCPs and manufactured
products are highly competitive, with many local, regional and national
companies that compete for market share in these areas with similar products and
with numerous other products which are substitutable. ISG competes with respect
to obtaining materials management contracts with utility and other industrial
companies, the marketing of CCPs and related industrial materials, and the
marketing of its manufactured products. The markets for the management of CCPs,
related industrial materials and manufactured products are highly fragmented.
Although ISG believes it is the largest manager of CCPs in North America and the
only company providing such management services on a national basis, due to the
high cost of transportation relative to sales price, competition is generally
regional. ISG has a presence in every region in the United States. Although ISG
typically has long-term contracts with its clients, some of such contracts
provide for the termination of such contract at the convenience of the utility
company upon a minimum 90-day notice. Moreover, some of ISG's most significant
competitors on a regional basis appear to be seeking a broader national
presence. Some of these competitors have substantially greater resources than
ISG, and there can be no assurance that if they were to begin to compete in the
national market, or in regions where they currently do not have operations, ISG
would not be adversely affected.

If we fail to successfully manage or integrate acquisitions of companies or
technologies, such as the acquisition of ISG, our business may be disrupted and
harmed.

         Successful management and integration of acquisitions, such as the
acquisition of ISG, are subject to a number of risks, including:

         o        difficulties in assimilating acquired operations, technologies
                  or products including loss of key employees;

         o        diversion of management's attention from core business
                  operations;

         o        adverse effects on business relationships with suppliers and
                  customers or those of the acquired business;

         o        assumption of contingent liabilities; and

         o        incurrence of potential significant write-offs.

         There can be no assurance that we will be successful in implementing
our acquisition of ISG. Further, as part of our general business strategy, we
may seek to acquire or invest in other businesses, products or technologies that
we believe could complement or expand our business, augment our market coverage,
enhance our technical capabilities or otherwise offer growth opportunities. In
addition to the risks outlined above, our ability to successfully implement our
strategy is subject to a number of risks, including difficulties in identifying
acceptable acquisition candidates, consummating acquisitions on favorable terms
and obtaining adequate financing, which may adversely affect our ability to
develop new products and services and to compete in our rapidly changing
marketplace. In addition, if we consummate acquisitions through an exchange of
our securities, our existing stockholders could suffer significant dilution.
There can be no assurance that we will be successful in implementing our
acquisition strategy, that such strategy will improve our operating results, or
that these activities will not have a significant dilutive effect on existing
shareholders.

Our business could be harmed if we are unable to protect our proprietary
technology.

         We rely primarily on a combination of trade secrets, patents, copyright
and trademark laws and confidentiality procedures to protect our technology.
Despite these precautions, unauthorized third parties may infringe upon, copy or
reverse engineer portions of our technology. We do not know if current or future
patent applications will be issued with the scope of the claims sought, if at
all, or whether any patents issued will be challenged or invalidated. Our
business could be harmed if we infringe upon the intellectual property rights of
others. We have been, and may be in the future, notified that we may be
infringing intellectual property rights possessed by third parties. If any such
claims are asserted against us, we may seek to enter into royalty or licensing
arrangements. There is a risk in these situations that no license will be
available or that a license will not be available on reasonable terms,
precluding our use of the applicable technology. Alternatively, we may decide to
litigate such claims or to design around the patented technology. These actions
could be costly and would divert the efforts and attention of our management and
technical personnel. As a result, any infringement claims by third parties or
claims for indemnification by customers resulting from infringement claims,
whether or not proven to be true, may materially harm our business and
prospects.

                                       9


Headwaters' and its subsidiaries' operations must comply with government
environmental regulations.

         Our operations are subject to federal, state and local environmental
regulation. Headwaters' ordinary course of business involves using its
facilities to perform R&D activities, process and recycle oil and to research
and develop technologies involving waste coal, oil chemicals and energy
technologies, including liquefaction of coal. As a result, petroleum and other
hazardous materials have been and are present on Headwaters' and its
subsidiaries' properties. Regulatory noncompliance or accidental discharges, in
spite of safeguards, could create an environmental liability. Therefore
operations entail risk of environmental damage and Headwaters or its
subsidiaries could incur liabilities in the future arising from the discharge of
pollutants into the environment or from waste disposal practices.

         Materials sold by ISG vary in chemical composition. Although fossil
fuel combustion wastes have been excluded from regulation as "hazardous wastes"
under the Resource Conservation and Recovery Act ("RCRA"), the EPA has
determined that regulations are warranted for coal combustion wastes disposed of
in landfills or surface impoundments, or used to fill surface or underground
mines. EPA is planning to publish a proposed rulemaking in March 2003. ISG
manages a number of landfill and pond operations that may be affected by EPA's
proposed regulations. In most of these operations the permitting is
contractually retained by the client and the client would be liable for any
costs associated with new permitting requirements. However, the effect of such
regulations on ISG cannot be completely ascertained at this time.

         While CCPs are not "hazardous wastes" under RCRA, they may contain
small concentrations of metals that are considered as "hazardous substances"
under the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA"). Land application of CCPs is regulated by a variety of federal and
state statutes, which impose testing and management requirements to ensure
environmental protection. Under limited circumstances, mismanagement of CCPs can
give rise to CERCLA liability.

         ISG is engaged in providing services at one landfill operation that is
permitted and managed as a hazardous waste landfill. The client process is
intended to convert aluminum potliner, a hazardous waste, into a "non-hazardous
condition" through the use of its patented treatment process. ISG provides the
services necessary to landfill the residues of this treatment process and
operates certain in-plant equipment and systems for the client. Although
environmental liabilities related to the project are assumed by the client,
there can be no assurance that ISG will not be named in third party claims
relating to the project.

Risks Relating to an Offering of Our Securities

Our stock price has been and could remain volatile.

         The market price for Headwaters' common stock has been and may continue
to be volatile and subject to significant price and volume fluctuations in
response to market and other factors, including the following, some of which are
beyond our control:

         o        variations in our quarterly operating results from the
                  expectations of securities analysts or investors;
         o        downward revisions in securities analysts' estimates or
                  changes in general market conditions;
         o        announcements of technological innovations or new products or
                  services by us or our competitors;
         o        announcement by us or our competitors of significant
                  acquisitions, strategic partnerships, joint ventures or
                  capital commitments;
         o        additions or departures of key personnel;
         o        investor perception of our industry or our prospects;
         o        insider selling or buying;
         o        regulatory developments affecting our industry; and
         o        general technological or economic trends.

         In the past, following periods of volatility in the market price of
their stock, many companies have been the subject of securities class action
litigation. If we became involved in securities class action litigation in the
future, it could result in substantial costs and diversion of our management's
attention and resources and could harm our stock price, business, prospects,
results of operations, and financial condition.

                                       10


Future sales of our common stock could adversely affect our stock price.

         Substantial sales of our common stock in the public market, or the
perception by the market that such sales could occur, could lower our stock
price or make it difficult for us to raise additional equity capital in the
future. As of September 30, 2002, we had 27,327,346 shares of common stock
outstanding, including the 2,100,000 shares issued to ISG's stockholders in the
acquisition.

         In addition, as of September 30, 2002, 3,623,860 shares of Headwaters'
common stock were required to be reserved for issuance under Headwaters' stock
option and other benefit plans and 179,233 shares of our common stock were
required to be reserved for issuance pursuant to outstanding warrants. As of
September 30, 2002, options to purchase 2,990,364 shares of Headwaters' common
stock were issued and outstanding under Headwaters' stock option plans at a
weighted average exercise price of $7.56 per share, of which options to purchase
1,897,952 shares had vested. Warrants to purchase 179,233 shares of Headwaters
common stock are outstanding and are vested.

         We cannot predict if future sales of our common stock, or the
availability of our common stock for sale, will harm the market price for our
common stock or our ability to raise capital by offering equity securities.

We do not pay dividends and do not anticipate paying any dividends in the
future, so any short-term return on your investment will depend on the market
price of our capital stock and/or our ability to make payments on our debt
securities.

         Headwaters has never declared or paid cash dividends on its common
stock. We currently intend to retain any earnings to finance our operations and
growth. The terms and conditions of our senior and subordinated credit
facilities each restrict and limit payments or distributions in respect of our
capital stock. Therefore, we do not expect to pay any dividends. Any short-term
return on our investment will depend on the market price for our shares and/or
our ability to make payments on our debt securities.

                       WHERE YOU CAN FIND MORE INFORMATION

         We have filed a registration statement on Form S-3 with the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933. This
prospectus is part of the registration statement but the registration statement
incorporates by reference additional information and exhibits. We are a
reporting company and file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy the
registration statement and any document we file with the SEC at the public
reference room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that
contains reports, proxy and information statements and other information
regarding companies, such as us, that file documents electronically with the
SEC. The address of that site on the world wide web is http://www.sec.gov. The
information on the SEC's web site is not part of this prospectus, and any
references to this web site or any other web site are inactive textual
references only.

         The SEC permits us to "incorporate by reference" the information
contained in documents we file with the SEC, which means that we can disclose
important information to you by referring you to those documents rather than by
including them in this prospectus. Information that is incorporated by reference
is considered to be part of this prospectus and you should read it with the same
care. Later information that we file with the SEC will automatically update and
supersede the information that is either contained herein or incorporated by
reference herein, and will be considered to be a part of this prospectus from
the date such documents are filed. We have filed with the SEC, and incorporate
by reference in this prospectus:

         o        our Annual Report on Form 10-K/A for the year ended
                  September 30, 2001, filed with the SEC on July 22, 2002;

         o        the description of our common stock contained in our amended
                  Annual Report on Form 10-K/A, filed with the SEC on
                  April 24, 1996;

         o        our Definitive Proxy Statement on Schedule 14A filed with the
                  SEC on January 25, 2002;

                                       11


         o        our Quarterly Reports on Form 10-Q for the quarters ended
                  December 31, 2001, March 31, 2002 and June 30, 2002, filed
                  with the SEC on February 8, 2002, April 26, 2002 and
                  August 9, 2002, respectively; and

         o        our Current Reports on Form 8-K, filed with the SEC on
                  December 27, 2001, May 10, 2002, July 18, 2002, July 22, 2002
                  and October 4, 2002.

         We also incorporate by reference all additional documents that we file
with the SEC under the terms of Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, that are made after the initial filing date of the registration
statement of which this prospectus is a part and before the termination of any
offering of securities offered by this prospectus. Any statement contained in
this prospectus or in a document incorporated in, or deemed to be incorporated
by reference to, this prospectus shall be deemed to be modified or superseded,
for purposes of this prospectus, to the extent that a statement contained in

         o        the prospectus;

         o        any other subsequently filed document which also is
                  incorporated in, or is deemed to be incorporated by reference
                  to this prospectus;

modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.

         Upon your written or oral request of any or all of the documents
incorporated by reference but not delivered with this prospectus, we will send
to you the copies you requested at no charge. However, we will not send exhibits
to such documents, unless such exhibits are specifically incorporated by
reference in such documents. You should direct requests for such copies to the
Corporate Secretary, Headwaters Incorporated, 11778 South Election Road, Suite
210, Draper, Utah 84020. Our telephone number is (801) 984-9400.

         You should rely only on the information incorporated by reference or
provided in this prospectus, any prospectus supplement and the registration
statement. We have not authorized anyone else to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities
in any state where the offer or sale is not permitted. You should assume that
the information in this prospectus and any prospectus supplement, or
incorporated by reference, is accurate only as of the dates of those documents.
Our business, financial condition, results of operations and prospects may have
changed since those dates.

                  SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

         Some of the statements in the section entitled "Risk Factors" and
elsewhere in this prospectus constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our or our industry's results, levels of activity, or achievements to
be materially different from any future results, levels of activity or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those listed under "Risk Factors" and elsewhere
in this prospectus.

         In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "intend," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," or
the negative of such terms or other comparable terminology.

         Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
events, levels of activity, performance or achievements. Except as may be
required by law, we undertake no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.

                                 USE OF PROCEEDS

         The net proceeds from the sale of common stock will be received by the
selling stockholders. Headwaters will not receive any of the proceeds from any
sale of the shares by the selling stockholders.

                                       12


                              SELLING STOCKHOLDERS

         The information in the table below is current as of September 30, 2002.
The selling stockholders listed in the table do not necessarily intend to sell
any of their shares. Headwaters filed the registration statement which includes
this prospectus due to registration rights granted to the selling stockholders,
not because the selling stockholders had expressed an intent to immediately sell
their shares.


                                                                                        Shares Beneficially Owned After
                                                                                               the Offering,
                                                                    Shares to be          Assuming All Registered
                                          Number of Shares         Registered for             Shares Are Sold
              Name of                 Beneficially Owned Prior      Sale in the        -------------------------------
        Beneficial Owner (1)             to the Offering (2)        Offering(2)             Number       Percent(3)
- --------------------------------------------------------------------------------------------------------------------
                                                                                                 
Citicorp Venture Capital, Ltd.              1,530,000                1,530,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------
CCT Partners IV, L.P. (4)                     270,000                  270,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------
Natasha Partnership                            64,000                   64,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------
Richard M. Cashin, Jr.                         64,000                   64,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------
David F. Thomas                                64,000                   64,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------
Joseph M. Silvestri                             8,000                    8,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------
Raul A. Deju                                  100,000                  100,000                 0             0%
- --------------------------------------------------------------------------------------------------------------------

(1) All persons listed in the selling stockholder table above are current or
    former directors, officers, lenders or shareholders of ISG.
(2) This column indicates shares of common stock currently owned by the named
    stockholder.
(3) Indicates the percentage of Headwaters' common stock outstanding.
(4) CCT Partners IV, L.P. is expected to be liquidated in early 2003, at which
    time its interests will be distributed to the following partners: Citicorp
    Venture Capital, Ltd., William Comfort-GP, Natasha Foundation, Paul Schorr,
    DFT Family LP 94, Richard Cashin, Alchemy, LP, Joseph Silvestri, Michael
    Delaney, Saleem Muqaddam, James Urry, David Howe, John Weber, Charles
    Corpening.
- ---------------

    This prospectus applies to the offer and sale by the selling stockholders of
common stock of Headwaters.

                              PLAN OF DISTRIBUTION

         The selling stockholders may sell some or all of their shares at any
time and in any of the following ways:

         o        To underwriters who buy the shares for their own account and
                  resell them in one or more transactions, including negotiated
                  transactions, at a fixed public offering price or at varying
                  prices determined at the time of sale. Any public offering
                  price and any discount or concessions allowed or reallowed or
                  paid to dealers may be changed from time to time;
         o        Through brokers, acting as principal or agent, in
                  transactions, which may involve block transactions, on The
                  Nasdaq National Market or on other exchanges on which the
                  shares are then listed, in special offerings, exchange
                  distributions pursuant to the rules of the applicable
                  exchanges or in the over-the-counter market, or otherwise, at
                  market prices prevailing at the time of sale, at prices
                  related to such prevailing market prices, at negotiated prices
                  or at fixed prices;
         o        Directly or through brokers or agents in private sales at
                  negotiated prices;
         o        In open market transactions in reliance upon Rule 144 under
                  the Securities Act, provided the selling stockholders comply
                  with the requirements of the rule; or
         o        By any other legally available means.

         The selling stockholders may pay part of the proceeds from the sale of
shares in commissions and other compensation to underwriters, dealers, brokers
or agents who participate in the sales.

         To the knowledge of Headwaters, the sellers purchased in the ordinary
course of investment.

         At the time the selling stockholders purchased the securities to be
resold, they represented to Headwaters that they had purchased the securities
for their own account and not with a view to distribution or resale.

                                       13


         Some states may require shares to be sold only through registered or
licensed brokers or dealers. In addition, some states may require the shares to
be registered or qualified for sale unless an exemption from registration or
qualification is available and complied with.

         We have agreed to indemnify the selling stockholders against certain
liabilities under the Securities Act and to contribute to payments the selling
stockholders may be required to make under the Securities Act. We note however,
that in the opinion of the Commission, indemnification against liabilities
arising under federal securities laws is against public policy and may be
unenforceable.

                                  LEGAL MATTERS

         Harlan M. Hatfield, Vice President and General Counsel of Headwaters,
has rendered an opinion as to the validity of the shares offered under this
prospectus.

                                     EXPERTS

         The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K/A for the year ended September 30, 2001, have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

         Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Industrial Services Group, Inc. and Subsidiaries at
December 31, 2001 and 2000 and for each of the three years in the period ended
December 31, 2001 as set forth in their report included in our Current Report on
Form 8-K filed with the Securities and Exchange Commission on July 18, 2002. We
have incorporated these consolidated financial statements by reference in this
prospectus in reliance upon Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.

                                       14