-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WTsxR4WXYHVzBm2yYUKcZrEVxjEscNlFkzXYyYve0ifZiCbIuW1ENt4C1YBOF/Lf OcERjLj9nzBqjgIu9u9DmA== 0001038838-04-000864.txt : 20040928 0001038838-04-000864.hdr.sgml : 20040928 20040928153049 ACCESSION NUMBER: 0001038838-04-000864 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040922 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20040928 DATE AS OF CHANGE: 20040928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEADWATERS INC CENTRAL INDEX KEY: 0001003344 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PRODUCTS OF PETROLEUM & COAL [2990] IRS NUMBER: 870547337 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27808 FILM NUMBER: 041049794 BUSINESS ADDRESS: STREET 1: 10653 SOUTH RIVERFRONT PARKWAY STREET 2: SUITE 300 CITY: SOUTH JORDAN STATE: UT ZIP: 84095 BUSINESS PHONE: 801-984-9400 MAIL ADDRESS: STREET 1: 10653 SOUTH RIVERFRONT PARKWAY STREET 2: SUITE 300 CITY: SOUTH JORDAN STATE: UT ZIP: 84095 FORMER COMPANY: FORMER CONFORMED NAME: COVOL TECHNOLOGIES INC DATE OF NAME CHANGE: 19951113 8-K 1 form8k092204.txt FORM 8-K DATED SEPTEMBER 22, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 22, 2004 Headwaters Incorporated ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 0-27808 87-0547337 - ----------------------------- -------------- ---------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification Number) 10653 South River Front Parkway, Suite 300 South Jordan, UT 84095 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 984-9400 Not Applicable -------------------------------------------------------------- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01. Entry into a Material Definitive Agreement. On September 22, 2004, Tapco International Corporation ("Tapco"), a wholly-owned subsidiary of Headwaters Incorporated ("Headwaters"), entered into an executive employment agreement and an executive change in control agreement with John N. Lawless, III, as President of Tapco. As part of the employment agreement, Headwaters has agreed to enter into an executive change in control agreement with Mr. Lawless having an effect date as of September 22, 2004. Mr. Lawless was the former president of Tapco Holdings, Inc., which Headwaters acquired on September 8, 2004. In connection with the acquisition and as an inducement to Mr. Lawless to accept employment with Tapco, on September 9, 2004, Headwaters announced that its compensation committee had approved a grant to Mr. Lawless of an option to purchase 125,000 shares of Headwaters common stock. Effectiveness of the option grant was subject to Headwaters, Tapco and Mr. Lawless agreeing to the terms of his employment agreement with Tapco. Accordingly, on September 22, 2004, the grant of the option became effective. The option vests over approximately four and one-half years and has an exercise price equal to $28.49 per share. Under the terms of the employment agreement, Mr. Lawless is entitled to severance pay and benefits in the event that his employment is terminated without cause by Tapco (or its successor) or is voluntarily terminated for good reason by Mr. Lawless. Further, under the terms of the change in control agreement and the option, the shares subject to the option granted to Mr. Lawless would become fully vested and exercisable in the event of a change in control of Headwaters as described in the change in control agreement, and Mr. Lawless would be entitled to severance pay and benefits in the event that his employment is involuntarily terminated without cause by Headwaters (or its successor) or is voluntarily terminated for good reason by Mr. Lawless within a certain period following a change in control of Headwaters. Copies of Mr. Lawless' employment agreement, stock option agreement and change in control agreement are filed as Exhibits 10.90, 10.90.1 and 10.90.2 hereto. Item 9.01: Financial Statements and Exhibits. (c) Exhibits. Exhibit 10.90: Employment Agreement with John N. Lawless, III dated September 22, 2004 Exhibit 10.90.1: Nonstatutory Stock Option Grant Notice effective as of September 22, 2004 Exhibit 10.90.2: Executive Change in Control Agreement with John N. Lawless, III effective as of September 22, 2004 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: September 28, 2004 HEADWATERS INCORPORATED (Registrant) By /s/ Kirk A. Benson ------------------------------ Kirk A. Benson Chief Executive Officer (Principal Executive Officer) 3 EX-10.90 2 ex1090form8k092204.txt EMPLOYMENT AGREEMENT WITH JOHN N. LAWLESS, III Exhibit 10.90 TAPCO INTERNATIONAL CORPORATION 29797 Beck Road Wixom, MI 48939 22 September 2004 Mr. John N. Lawless, III c/o TAPCO INTERNATIONAL CORPORATION 29797 Beck Road Wixom, Michigan 48939 Re: Employment Agreement Dear Jack: I am pleased to offer you employment as the President of Tapco International Corporation ("the Company") on the terms and conditions set forth in this letter agreement (this "Agreement"). You may accept this Agreement by signing and returning a copy of this Agreement as provided below. 1. Term of Employment. Your employment under this Agreement shall commence on 8 September 2004 ("Start Date") and continue until 30 September 2007, unless it is terminated earlier either by you or the Company or is extended by both you and the Company in a signed writing ("Separation Date"). Your employment under this Agreement is terminable at will by you or the Company at any time (for any reason or for no reason) subject to the provisions of Section 3. 2. Position and Duties. During the term of this Agreement, the Company shall employ you as the President of the Company and you shall report to the Chief Executive Officer of Headwaters Incorporated ("Headwaters"). Your duties shall include the duties set forth in the bylaws of the Company for your position and any other duties the Board and the Chief Executive Officer of Headwaters may delegate to you from time to time. You will be expected to commit your attention and efforts to the position on a full-time basis subject to a reasonable amount of time that you may spend on Permitted Activities (as defined below). This Agreement is personal to you and you may not assign or delegate any of your rights or obligations hereunder. 3. Compensation and Benefits. In consideration for your services to the Company during the time period in which this Agreement is effective, you shall receive the following compensation and benefits: (a) Base Salary. The Company shall pay you your current base salary through 30 September 2004. Beginning 1 October 2004, the Company shall pay you an annual base salary at the rate of $275,000.00 per year to be paid in installments according to the Company's regular payroll policy. Thereafter, your salary will be reviewed on an annual basis, and may be increased at the discretion of the Company. The Company shall withhold and deduct all applicable federal and state income and employment and disability taxes from your base salary as required by applicable laws. (b) Annual Incentive Opportunity. You will receive 11/12ths of the fiscal year 2004 cash bonus you would otherwise be entitled to under the Company's current bonus plan at the time such bonus is to be paid in the ordinary course of the Company's business. Thereafter, in lieu of Company bonus Page 1 or other incentive compensation plans, you shall be eligible to participate in any bonus plan which Headwaters may maintain or establish for the executives of Headwaters and its subsidiaries on the terms of such plan and the awards thereunder. Currently, Headwaters maintains an Incentive Bonus Plan and you will be eligible to participate in that plan effective 1 October 2004 with an assigned Bonus Percent for Headwaters fiscal 2005 of 50%. For Headwaters' fiscal year 2005, the EVA Multiplier for your Award calculation under the Incentive Bonus Plan shall be adjusted upwards, if necessary, so that your total cash compensation shall not be less than your Company fiscal year 2004 total cash compensation (but subject to your individual 2005 Performance Adjustment Factor). (c) Stock Options. Headwaters shall grant you stock options to purchase up to 125,000 shares of the common stock of Headwaters (the "Options") outside of any plan of Headwaters or the Company at an exercise price equal $28.49 per share. The Options will be granted on the form of grant and agreement ("Option Agreement") attached hereto as Exhibit A. (i) Terms of the Options. The Options shall be governed by the terms of the Option Agreement, the policies of Headwaters (including but not limited to the insider trading policy of Headwaters), and applicable laws (including but not limited to state and federal securities laws). The Company will use reasonable commercial efforts to register under federal securities laws the shares underlying the Options. (ii) Vesting of the Options. The Options shall vest in equal increments of 20% per year beginning on 31 March 2005 and each anniversary thereof ending on 31 March 2009, subject to your remaining in continuous employment or service with Headwaters or any of its subsidiaries, including the Company, as required by the Option Agreement. After your employment or service with Headwaters or any of its subsidiaries, including the Company has terminated, the vesting of the Options shall cease immediately; provided, that if your employment or service with Headwaters or any of its subsidiaries, including the Company, has terminated for reason of Disability or death or without Cause or for Good Reason (as such terms are defined below), any unvested Options shall immediately vest upon the occurrence of said event. (iii) Exercisability of the Options. You may exercise the vested portion of the Options while you remain in employment or service with Headwaters or any of its subsidiaries, including the Company. You or your estate (if applicable) may exercise the vested portion of your Options following the termination of your employment or service in accordance with the Option Agreement. (d) Future Stock Incentive Grants. You shall be eligible to participate in future stock incentive grants under such stock incentive plans which Headwaters may maintain or establish, on the terms of such plan and grants thereunder. (e) Section 401(k) Plan and Other Benefits. Beginning 1 October 2004, after the Company's fiscal 2004, you shall be eligible to participate in Headwaters' 401(k) Plan, subject to the terms of that plan. Subject to the terms of such other plans of the Company, you shall be eligible to receive such other benefits or rights as may be provided under any employee benefit plans provided by the Company to its executives that are now or hereafter will be in effect, including participation in life, medical, disability and dental insurance plans. The Company will continue to provide you with a Company car through the term of this Agreement. (f) Vacation and Sick Leave. You shall be entitled to paid vacation plus sick leave on the same basis as all other executives of the Company in accordance with the terms and conditions of the vacation and sick leave policies of the Company. Page 2 (g) Termination and Change in Control. (1) Termination for Cause, Termination for Other than Good Reason or Termination Due to Death or Disability. In the event that your employment with the Company is terminated by the Company for "Cause" (as defined below), is terminated by you for reasons other than "Good Reason" (as defined below), or is terminated due to your death or Disability, then you (or your estate, if applicable) shall be entitled to payment of your accrued but unpaid salary and vacation pay through the date of the termination of your employment. (2) Termination Without Cause or for Good Reason. In the event that your employment is terminated by the Company without Cause or is terminated by you for a Good Reason, then you shall be entitled to payment of your accrued but unpaid salary and vacation pay through the date of the termination of your employment plus an additional 24 months of your base salary paid by the Company to you immediately preceding the Start Date or, if greater, your regular base salary payable immediately prior to the termination of your employment, and the Company shall continue your health insurance coverage for such 24 month period, provided that you execute an effective release in a form to be provided by the Company with terms substantially as set forth in the attached Exhibit B. (3) Change in Control. Effective on the Start Date, Headwaters shall enter into a change in control agreement in the form attached as Exhibit C. In the event you become eligible to receive the severance payments and benefits under the change in control agreement, such as in the event your employment with the Company is terminated within the protection period prior to and following a "Change in Control" as defined in the change in control agreement, then any severance payments and benefits to be provided to you by the Company shall be made under the change in control agreement in lieu of severance payments and benefits under this Agreement and the provisions of the change in control agreement pertaining to the your employment and post-termination covenants and arbitration as provided in the change in control agreement shall apply to you instead of the provisions herein pertaining to your employment and post-termination covenants and arbitration set forth in Sections 4 and 8, respectively. (h) Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (1) "Cause" shall mean: (i) your engaging in willful misconduct against Headwaters or the Company that is materially injurious to Headwaters or the Company; provided that any action undertaken with a reasonable and good faith belief that it is in the best interests of Headwaters or the Company shall not constitute willful misconduct for purposes of this clause (i). (ii) your engaging in any activity that is a conflict of interest or competitive with the Company (other than (1) any action not taken in bad faith and which is promptly remedied by you upon notice by the Company, (2) your management of current personal investments, provided, that the investments described in clause (2) do not require your active participation in the management or the operation of the investments, and further provided, that such service does not constitute a breach of your fiduciary duties to the Company or prevent you from discharging all of your duties under this Agreement (the activities described in clause (2) are hereafter referred to as "Permitted Activities"); Page 3 (iii) your engaging in any act of fraud or dishonesty that is materially injurious to the Company, Headwaters, or any of their affiliates or any material breach of federal or state securities or commodities laws or regulations; (iv) your engaging in an act of assault or other acts of violence in the workplace; (v) your harassment after the Start Date of this Agreement of any individual in the workplace based on age, gender or other protected status or class or violation of any policy of the Company regarding harassment (subject to a factual finding made by a court of law that you have in fact engaged in the above prohibited conduct); or (vi) your conviction, guilty plea or plea of nolo contendre for any felony crime. (2) "Disability" shall mean a disability as determined under the Company's long-term disability plan that prevents you from performing your duties under this Agreement (even with a reasonable accommodation by the Company) for a period of six months or more. (3) "Good Reason" shall mean any one of the following without your consent: (i) a demotion or any action by the Company which results in diminution of your position, authority, duties or responsibilities (other than any insubstantial action not taken in bad faith and which is promptly remedied by the Company upon notice by you); (ii) requirement that you report to work more than 60 miles from the Company's existing headquarters (not including normal business travel required of your position); (iii) a reduction in your base salary or benefits of more than ten percent (10%) (unless, in the case of a reduction in benefits only, such reduction in benefits applies to all officers of the Company); (iv) a material breach by the Company of its obligations hereunder which is not cured within thirty (30) days following written notice to the Board by you; or (v) any failure by a successor to the Company to assume and agree to perform the Company's obligations hereunder. (4) "Service" shall mean service to the Company, Headwaters, or any of their affiliates, other than as an employee, such as a member of the Board or a consultant. 4. Employment and Post Termination Covenants. By accepting the terms of this Agreement and as a condition for the termination payments and benefits you hereby agree to the following covenants in addition to any obligations you may have by law and make the following representations: (a) Confidentiality. You acknowledge that, in connection with your employment by the Company, you will have access to trade secrets of the Company and other information and materials which the Company desires to keep confidential, including customer lists, supplier lists, financial statements, business records and data, marketing and business plans, and information and materials relating to the Company's services, products, methods of operation, key personnel, proprietary software and other proprietary intellectual property and information disclosed to the Company of third parties to which the Company Page 4 owes a duty of nondisclosure (collectively, the "Confidential Information"); provided, however, that Confidential Information does not include information which (i) is or becomes publicly known other than as a result of your actions in violation of this Agreement; (ii) is or becomes available to you from a source (other than the Company) that you reasonably believe is not prohibited from disclosing such information to you by a contractual or fiduciary obligation to the Company, (iii) has been made available by the Company, directly or indirectly, to a non-affiliated third party without obligation of confidentiality; (iv) you are obligated to produce as a result of a court order or pursuant to governmental action or proceeding, provided that you give the Company prompt written notice of such requirement prior to such disclosure and assistance in obtaining an order protecting such Confidential Information from public disclosure; or (v) business knowledge you have acquired unrelated to any specific proprietary information relating to the Company. You covenant and agree that, both during and after the term of your employment with the Company, you will keep secret all Confidential Information and will not disclose, reveal, divulge or otherwise make known any Confidential Information to any person (other than the Company or its employees or agents in the course of performing you duties hereunder) or use any Confidential Information for your own account or for the benefit of any other individual or entity, except with the prior written consent of the Company. (b) Ownership of Intellectual Property. You agree that all inventions, copyrightable material, software, formulas, trademarks, trade secrets and the like which are developed or conceived by you in the course of your employment by the Company or on the Company's time or property (collectively, the "Intellectual Property") shall be disclosed promptly to the Company and the Company shall own all right, title and interest in and to the Intellectual Property. The parties expressly agree that any and all of the Intellectual Property developed by the Employee shall be considered works made-for-hire for the Company pursuant to the United States Copyright Act of 1976, as amended from time to time. In order to ensure that the Company shall own all right, title and interest in and to the Intellectual Property in the event that any of the Intellectual Property is not deemed a work made-for-hire (as defined in the Copyright Act of 1976) and in any other event, you hereby sell and assign all right, title and interest in and to all such Intellectual Property to the Company, and you covenant and agree to affix to the Intellectual Property appropriate legends and copyright notices indicating the Company's ownership of all Intellectual Property and all underlying documentation to the extent reasonably appropriate, and shall execute such instruments of transfer, assignment, conveyance or confirmation as the Company reasonably considers necessary to transfer, confirm, vest, perfect, maintain or defend the Company's right, title and interest in and to the Intellectual Property throughout the world. Your obligation under this Section 4(b) to assign to the Company inventions created or conceived by you shall not apply to an invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities, or trade secret information, provided that those inventions (i) do not or did not relate directly, at the time of conception or reduction to practice of the invention, to the Company's business as conducted at such time or actual or demonstrably anticipated research or development of the Company; and (ii) do not or did not result from any work performed by you for the Company. (c) Non-Solicitation. You agree for a period of not less than twelve (12) months following termination of your employment or service (whichever is later) with Headwaters or its affiliated companies that you shall not solicit the services or employment or engage the services or employ any of the employees of Headwaters or its affiliated companies. Page 5 (d) Non-Competition. You agree not to compete directly or indirectly by becoming a principal, partner, shareholder, equity holder, limited liability company member, agent, officer, other employee, advisor, consultant, member of a board of directors, or by becoming interested in any other capacity, with any of the following entities, their successors or affiliates: Alcoa, Dinesol, Alpha, Girardin, Pinckney Molded Plastics, and any business or firm that you establish or form, during the period of 24 months following the termination of your employment or service with the Company or its affiliated companies in the geographic markets in which the Company or its affiliated companies operate as of the Separation Date. (e) Authorization to Work for the Company. You represent that you are legally authorized to work in the United States and that your employment with the Company shall not constitute a violation of any contractual or other legal obligation you may have to another entity or employer. (f) Breach of Terms of Section 4. The parties to this Agreement agree that (i) if you breach the provisions set forth in Sections 4, 6 and 8 of this Agreement, the damage to the Company may be substantial, although difficult to ascertain, and money damages will not afford the Company an adequate remedy, and (ii) if you are in breach of any provisions of Sections 4 and 6 of this Agreement or threaten a breach of any provision of Sections 4 and 6 of this Agreement, the Company shall be entitled, in additional to all other rights and remedies as may be provided by law, to seek specific performance and injunctive and other equitable relief to prevent or restrain a breach of any provision of this Sections 4 and 6 of this Agreement. 5. Business Expenses. You shall be entitled to reimbursement by the Company for such customary, ordinary and necessary business expenses as are incurred by you in the performance of your duties and activities associated with promoting or maintaining the business of the Company. All expenses as described in this paragraph shall be reimbursed only upon presentation by you of such documentation as may be reasonably necessary to substantiate that all such expenses were incurred in the performance of your duties in accordance with the Company's policies. 6. Return Of Company Property. On the Separation Date or as earlier requested by the Company, you agree to return to the Company all Company documents (and all copies thereof) and other Company property in your possession or control, including, but not limited to, Company files, correspondence, memos, notebooks, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property and equipment, credit cards, entry cards, identification badges and keys; and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part) (collectively, the "Company Property"). You agree to conduct a good faith and diligent search of your belongings in advance of the aforementioned deadline to ensure your compliance with the provisions of this Section 6. 7. Binding on Successors. This Agreement may be assigned by the Company to Headwaters or any of its subsidiaries that become your employer. Further, this Agreement may be assigned by the Company to a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company and shall be binding upon the Company and any entity which is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, or an affiliate of any such entity, and becomes your employer by reason of (or as the direct result of) any direct or indirect sale or other disposition of the Company or substantially all of the assets of the business currently carried on by the Company, without regard to whether or not such person actively adopts this letter agreement. 8. Arbitration. The parties agree that any future disputes between Executive and Headwaters (the "parties") under this Agreement including but not limited to disputes relating to the Release of Claims shall be resolved by binding arbitration, except where the law specifically forbids the use of arbitration as a final and binding remedy as provided below, except as provided in Section 8(g) below. Page 6 (a) The complainant shall provide the other party a written statement of the claim. Such statement shall identify any supporting witnesses or documents and the relief requested. (b) The respondent shall furnish a statement of the relief, if any, that it is willing to provide, and identifying supporting witnesses or documents. If the matter is not resolved, the parties agree to submit their dispute to a non-binding mediation paid for by Headwaters, provided, however, that if the amount in dispute is $50,000 or less, this step may be waived at the election of either party. (c) If the matter is not resolved, the parties agree that the dispute shall be resolved by binding arbitration pursuant to the commercial arbitration rules of the American Arbitration Association, including any provisions thereof pertaining to discovery. If the parties are not able to agree upon the selection of an arbitrator, an arbitrator shall be selected according to the applicable procedures established by the American Arbitration Association. (d) The arbitrator shall have the authority to determine whether the conduct complained of in Section 8(a) violates the complainant's rights under this Agreement and, if so, to grant any relief authorized by law; subject to the provisions of Section 8(g) below. The arbitrator shall not have the authority to modify, change or refuse to enforce any lawful term of this Agreement and the Release of Claims. (e) Headwaters shall pay for the arbitrator's fees, while each party shall pay its own attorneys' fees. (f) Arbitration shall be the exclusive final remedy for any dispute between the parties under this Agreement and disputes involving claims for discrimination or harassment (such as claims under the Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, or the Age Discrimination in Employment Act), wrongful termination, breach of contract, breach of public policy, physical or mental harm or distress or any other disputes, and the parties agree that no dispute shall be submitted to arbitration where the complainant has not complied with the preliminary steps provided for in Sections 8(a) and (b) above. (g) The parties agree that the arbitration award shall be enforceable in any court having jurisdiction to enforce this Agreement and Release of Claims, so long as the arbitrator's findings of fact are supported by substantial evidence on the whole and the arbitrator has not made errors of law; however, either party may bring an action in a court of competent jurisdiction, regarding or related to matters involving Headwaters' confidential, proprietary or trade secret information, or regarding or related to inventions that Executive may claim to have developed prior to or after joining Headwaters, seeking preliminary injunctive relief in court to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration. (h) The arbitration shall be held at a location within 50 miles of Wixom, Michigan unless the parties mutually agree to a different location for the arbitration. (i) In the event that Headwaters wishes to contest or dispute a termination for Good Reason by Executive, it must give written notice of such dispute within the ninety (90) calendar day period after the date of Executive's resignation. If Executive wishes to contest or dispute a termination for Cause by Headwaters, or any failure to make payments claimed to be due hereunder, Executive must give written notice of such dispute within ninety (90) calendar days of receiving a Notice of Termination. Executive may, at Executive's or Headwaters' option, be suspended from all duties during the pendency of such a contest or dispute. If Executive prevails in any such contest or dispute, Headwaters or its successor or assign shall thereupon be liable for the full amounts due under Section 3 as of the date of termination after adjustments for amounts already paid. Page 7 9. Indemnification. Effective on the Start Date, Headwaters shall enter into an indemnification agreement in the form attached as Exhibit D. In addition, Headwaters shall maintain a Directors and Officers insurance policy covering directors and officers of the Company consistent with prevailing commercial practice. 10. Miscellaneous. (a) This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to the terms and conditions of your employment with the Company and your anticipated termination of employment. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations and any other written or oral statements concerning your rights to any compensation, equity or benefits from the Company, its predecessors or successors in interest. (b) Subject to the mandatory arbitration provided in Section 8 above, jurisdiction and venue in any action to enforce any arbitration award or to enjoin any action that violates the terms of this Agreement shall be in the state and federal courts serving the locality of Wixom, Michigan. (c) This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement shall bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this Agreement and the provision in question shall be modified by the court so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible. Headings and subheadings in this Agreement are solely for convenience and do not constitute terms of this Agreement. (d) This Agreement may be signed in counterparts and the counterparts taken together shall constitute one agreement. Facsimile or photocopied signatures shall be deemed as effective as original signatures. (e) This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of Michigan irrespective of any conflicts of law analysis. If this Agreement is acceptable to you, please sign below and return the original, fully executed Agreement to Harlan M. Hatfield, General Counsel of Headwaters. A copy of the Agreement is also being provided to you for your records. I look forward to your future contributions to the Company. Sincerely, TAPCO INTERNATIONAL CORPORATION By: /s/ Steven G. Stewart - ----------------------------------- Its: Vice President - Finance AGREED AND ACCEPTED: /s/ John N. Lawless, III September 22, 2004 - ----------------------------------- ------------------------- John N. Lawless, III Date Page 8 EXHIBIT A STOCK OPTION AGREEMENT See Exhibit 10.90.1 of this Form 8-K EXHIBIT B GENERAL RELEASE LANGUAGE Executive agrees, for himself, his spouse, heirs, executor or administrator, assigns, insurers, attorneys and other persons or entities acting or purporting to act on his behalf (the "Executive's Parties"), to irrevocably and unconditionally release, acquit and forever discharge the Company, its parent, affiliates, subsidiaries, directors, officers, employees, shareholders, partners, agents, representatives, predecessors, successors, assigns, insurers, attorneys, benefit plans sponsored by the Company and said plans' fiduciaries, agents and trustees (the "Company's Parties"), from any and all actions, cause of action, suits, claims, obligations, liabilities, debts, demands, contentions, damages, judgments, levies and executions of any kind, whether in law or in equity, known or unknown, which the Executive's Parties have, have had, or may in the future claim to have against the Company's Parties by reason of, arising out of, related to, or resulting from Executive's employment with the Company or the termination thereof. This release specifically includes without limitation any claims arising in tort or contract, any claim based on wrongful discharge, any claim based on breach of contract, any claim arising under federal, state or local law prohibiting race, sex, age, religion, national origin, handicap, disability or other forms of discrimination, any claim arising under federal, state or local law concerning employment practices, and any claim relating to compensation or benefits. This specifically includes, without limitation, any claim which the Executive has or has had under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans With Disabilities Act, as amended, and the Employee Retirement Income Security Act of 1974, as amended. It is understood and agreed that the waiver of benefits and claims contained in this section does not include a waiver of the right to payment of any vested, nonforfeitable benefits to which the Executive or a beneficiary of the Executive may be entitled under the terms and provisions of any employee benefit plan of the company which have accrued as of the separation date and does not include a waiver of the right to benefits and payment of consideration to which Executive may be entitled under this Agreement or any of the agreements contemplated hereby (including the indemnification agreement and the stock option agreements). Executive acknowledges that he is only entitled to the severance benefits and compensation set forth in this Agreement, and that all other claims for any other benefits or compensation are hereby waived, except those expressly stated in the preceding sentence. EXHIBIT C CHANGE IN CONTROL AGREEMENT See Exhibit 10.90.2 of this Form 8-K EXHIBIT D INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT is made and entered into as to this 22nd day of September 2004 ("Agreement"), by and between Headwaters Incorporated, a Delaware corporation (the "Company"), and John N. Lawless, III (the "Indemnitee"), with reference to the following facts: A. The Company desires the benefits of having Indemnitee serve as an officer and/or director secure in the knowledge that any expenses, liability and/or losses incurred by him in his good faith service to the Company or any of its affiliates will be borne by the Company or its successors and assigns, and that the Company will defend Indemnitee against the same; B. Indemnitee is willing to serve in his position with the Company only on the condition that he be indemnified for such expenses, liability and/or losses; C. The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and agents of a corporation at reasonable cost; D. The Company and Indemnitee recognize that there has been an increase in litigation against corporate directors, officers and agents; and E. The Company's Restated Certificate of Incorporation and Bylaws allow the Company to indemnify its directors, officers and agents to the maximum extent not prohibited under Delaware law; NOW, THEREFORE, the parties hereby agree as follows: 1. Definitions. For purposes of this Agreement: 1.1 "Agent" shall mean any person who (a) is or was a director, officer, employee or agent of the Company or a subsidiary of the Company whether serving in such capacity or as a director, officer, employee, agent, fiduciary or other official of another corporation, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company or (b) was a director, officer, employee or agent of a corporation which was a predecessor corporation of the Company or a subsidiary of the Company whether serving in such capacity or as a director, officer, employee, agent, fiduciary or other official of another corporation, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of such predecessor corporation or subsidiary. 1.2 "Change of Control" shall mean the occurrence of any of the following events after the date of this Agreement: (a) A change in the composition of the board of directors of the Company (the "Board"), as a result of which fewer than two-thirds of the incumbent directors are directors who either (a) had been directors of the 1 Company 24 months prior to such change or (b) were elected, or nominated for election, to the Board 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 the election or nomination; or (b) Any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) through the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent 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 "Capital Stock"), except that any change in ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of 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. 1.3 "Disinterested Director" shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee. 1.4 "Expenses" shall be broadly construed and shall include, without limitation, (a) all direct and indirect costs incurred, paid or accrued, (b) all attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, food and lodging expenses while traveling, duplicating costs, printing and binding costs, telephone charges, postage, delivery service, freight or other transportation fees and expenses, (c) all other disbursements and out-of-pocket expenses, (d) amounts paid in settlement, to the extent not prohibited by Delaware Law, and (e) reasonable compensation for time spent by Indemnitee for which he is otherwise not compensated by the Company or any third party, actually and reasonably incurred in connection with or arising out of a Proceeding, including a Proceeding by Indemnitee to establish or enforce a right to indemnification under this Agreement, applicable law or otherwise. 1.5 "Independent Counsel" shall mean a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent: (a) the Company, an affiliate of the Company or Indemnitee in any matter material to either party or (b) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's right to indemnification under this Agreement. 1.6 "Liabilities" shall mean liabilities of any type whatsoever, including, but not limited to, judgments or fines, ERISA or other excise taxes and penalties, and amounts paid in settlement (including all interest, assessments or other charges paid or payable in connection with any of the foregoing) actually and reasonably incurred by Indemnitee in connection with a Proceeding. 1.7 "Delaware Law" means the Delaware General Corporation Law as amended and in effect from time to time or any successor or other statutes of Delaware having similar import and effect. 2 1.8 "Proceeding" shall mean any pending, threatened or completed action, hearing, suit or any other proceeding, whether civil, criminal, arbitrative, administrative, investigative or any alternative dispute resolution mechanism, including without limitation any such Proceeding brought by or in the right of the Company. Employment Rights and Duties 2. Employment Rights and Duties. Subject to any other obligations imposed on either of the parties by contract or by law, and with the understanding that this Agreement is not intended to confer employment rights on either party which they did not possess on the date of its execution, Indemnitee agrees to serve as a director or officer so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Restated Certificate of Incorporation (the "Certificate") and Bylaws (the "Bylaws") of the Company or any subsidiary of the Company and until such time as he resigns or fails to stand for election or until his employment terminates. 2.1 Directors' and Officers' Insurance. (a) The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible Proceeding, the Company, subject to Section 2(b), shall maintain directors' and officers' insurance in full force and effect. (b) The Company shall have no obligation to maintain directors' and officers' insurance or any specific coverages or limits if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance is disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. 3. Indemnification. The Company shall indemnify, defend, and hold harmless Indemnitee to the fullest extent not prohibited by Delaware Law and the provisions of the Certificate and Bylaws of the Company in effect on the date hereof and as the Delaware Law, the Certificate and Bylaws may from time to time be amended (but, in the case of any such amendment, only to the extent such amendment permits the Company to provide broader indemnification rights than Delaware Law, the Certificate and Bylaws permitted the Company to provide before such amendment). The right to indemnification conferred in the Bylaws shall be presumed to have been relied upon by Indemnitee in serving or continuing to serve the Company as a director or officer and shall be enforceable as a contract right. Without in any way diminishing the scope of the indemnification provided by the Bylaws and this Section 3, the Company will indemnify, defend, and hold harmless Indemnitee if and whenever he is or was a witness, party or is threatened to be made a witness or a party to any Proceeding, by reason of the fact that he is or was an Agent or by reason of anything done or not done, or alleged to have been done or not done, by him in such capacity, against all Expenses and Liabilities actually and reasonably incurred by Indemnitee or on his behalf in connection with the investigation, defense, settlement or appeal 3 of such Proceeding. In addition to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 4, 5 and 6 below. 4. Payment of Expenses. 4.1 All Expenses incurred by or on behalf of Indemnitee shall be advanced by the Company to Indemnitee immediately after the receipt by the Company of a written request for such advance which may be made from time to time, whether prior to or after final disposition of a Proceeding (unless there has been a final determination by a court of competent jurisdiction that Indemnitee is not entitled to be indemnified for such Expenses). Indemnitee's entitlement to advancement of Expenses shall include those incurred in connection with any Proceeding by Indemnitee seeking a determination, an adjudication or an award in arbitration pursuant to this Agreement. The requests shall reasonably evidence the Expenses incurred by Indemnitee in connection therewith. Indemnitee hereby undertakes to repay the amounts advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified pursuant to the terms of this Agreement. 4.2 Notwithstanding any other provision in this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, Indemnitee shall be indemnified against all Expenses and Liabilities actually and reasonably incurred by Indemnitee in connection therewith. 4.3. The Company acknowledges that it has agreed to advance Expenses hereunder in order to promote the business interests of the Company and the Company agrees with Indemnitee that it will not fail to comply with its obligation to advance Expenses to Indemnitee as required under this Agreement on the ground that such advancement violates or would violate Section 13(k) of the Securities Exchange Act of 1934, as amended, unless the Company has received an affirmative and unqualified written opinion of Independent Counsel to the effect that such an advance of Expenses would result in a violation of said Section 13(k). 5. Procedure for Determination of Entitlement to Indemnification. 5.1 Whenever Indemnitee believes that he is entitled to indemnification and/or defense pursuant to this Agreement, Indemnitee shall submit a written request for indemnification and/or defense (the "Indemnification Request") to the Company to the attention of the President with a copy to the Secretary. This request shall include documentation or information which is necessary for the determination of entitlement to indemnification and/or defense and which is reasonably available to Indemnitee. Determination of Indemnitee's entitlement to indemnification and/or defense shall be made no later than 20 days after receipt of the Indemnification Request. The President or the Secretary shall, promptly upon receipt of Indemnitee's request for indemnification and/or defense, advise the Board in writing that Indemnitee has made such request for indemnification. 5.2 The Indemnification Request shall set forth Indemnitee's selection of which of the following forums shall determine whether Indemnitee is entitled to indemnification: 4 (1) A majority vote of a quorum consisting of Disinterested Directors. (2) A written opinion of an Independent Counsel. (3) A majority vote of the stockholders at a meeting at which a quorum is present, with the shares owned by the person to be indemnified not being entitled to vote thereon. (4) The court in which the Proceeding is or was pending upon application by Indemnitee. The Company agrees to bear any and all costs and expenses incurred by Indemnitee or the Company in connection with the determination of Indemnitee's entitlement to indemnification and defense by any of the above forums. 6. Presumptions and Effect of Certain Proceedings. No initial finding by the Board, its counsel, Independent Counsel, arbitrators or the stockholders shall be effective to deprive Indemnitee of the protection of this indemnity, nor shall a court or other forum to which Indemnitee may apply for enforcement of this indemnity give any weight to any such adverse finding in deciding any issue before it. Upon making a request for indemnification, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proof to overcome that presumption in reaching any contrary determination. The termination of any Proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, (a) adversely affect the rights of Indemnitee to indemnification except as indemnification may be expressly prohibited under this Agreement, (b) create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or (c) with respect to any criminal action or proceeding, create a presumption that Indemnitee had reasonable cause to believe that his conduct was unlawful. 7. Remedies of Indemnitee in Cases of Determination not to Indemnify or to Advance Expenses. 7.1 In the event that (a) an initial determination is made that Indemnitee is not entitled to indemnification or defense, (b) advances for Expenses are not made when and as required by this Agreement, (c) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement or (d) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in an appropriate court of the State of Delaware of his entitlement to such indemnification, defense, or advance. Alternatively, Indemnitee at his option may seek an award in arbitration to be conducted in Salt Lake City by submitting the dispute to Judicial Arbitration & Mediation Services, Inc. ("JAMS"). If the parties are unable to agree on a JAMS arbitrator, the parties shall provide JAMS with a statement of the nature of the dispute and the desired qualifications of the arbitrator. JAMS will then provide a list of three available arbitrators. Each party may strike one of the names on the list, and the remaining person will serve as the arbitrator. If both parties strike the same person, JAMS will select the arbitrator from the other two names. The arbitration award shall be made within 90 days following the demand for arbitration. The Company shall not oppose Indemnitee's right to seek any such adjudication or arbitration award. In 5 any such proceeding or arbitration Indemnitee shall be presumed to be entitled to indemnification and defense under this Agreement and the Company shall have the burden of proof to overcome that presumption. 7.2 An initial determination, in whole or in part, that Indemnitee is not entitled to indemnification or defense shall create no presumption in any judicial proceeding or arbitration that Indemnitee has not met the applicable standard of conduct for, or is otherwise not entitled to, indemnification or defense. 7.3 If an initial determination is made or deemed to have been made pursuant to the terms of this Agreement that Indemnitee is entitled to indemnification and defense, the Company shall be bound by such determination in the absence of (a) a misrepresentation of a material fact by Indemnitee in the request for indemnification and defense or (b) a specific finding (which has become final) by a court of competent jurisdiction that all or any part of such indemnification and defense is expressly prohibited by law. 7.4 The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, will be inadequate, impracticable and difficult of proof, and further agree that such breach would cause Indemnitee irreparable harm. Accordingly, the Company and Indemnitee agree that Indemnitee shall be entitled to temporary and permanent injunctive relief to enforce this Agreement without the necessity of proving actual damages or irreparable harm. The Company and Indemnitee further agree that Indemnitee shall be entitled to such injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bond or other undertaking in connection therewith. Any such requirement of bond or undertaking is hereby waived by the Company, and the Company acknowledges that in the absence of such a waiver, a bond or undertaking may be required by the court. 7.5 The Company shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Company shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. 7.6 Expenses incurred by Indemnitee in connection with his request for indemnification and defense under, seeking enforcement of or to recover damages for breach of this Agreement shall be borne and advanced by the Company. 8. Other Rights to Indemnification. Indemnitee's rights of indemnification, defense, and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under applicable law, the Certificate, the Bylaws, an employment agreement, vote of stockholders or Disinterested Directors, insurance or other financial arrangements or otherwise. 9. Limitations on Indemnification. No indemnification pursuant to Section 3 shall be paid by the Company nor shall Expenses be advanced pursuant to Section 3: 6 9.1 Insurance. To the extent that Indemnitee is reimbursed pursuant to such insurance as may exist for Indemnitee's benefit. Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from the Company pursuant to this Agreement by assigning to the Company any claims under such insurance to the extent Indemnitee is paid by the Company. Indemnitee shall reimburse the Company for any sums he receives as indemnification from other sources to the extent of any amount paid to him for that purpose by the Company; 9.2 Section 16(b). On account and to the extent of any wholly or partially successful claim against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) or the Securities Exchange Act of 1934, as amended, and amendments thereto or similar provisions of any federal, state or local statutory law; or 9.3 Indemnitee's Proceedings. Except as otherwise provided in this Agreement, in connection with all or any part of a Proceeding which is initiated or maintained by or on behalf of Indemnitee, or any Proceeding by Indemnitee against the Company or its directors, officers, employees or other agents, unless (a) such indemnification is expressly required to be made by Delaware Law, (b) the Proceeding was authorized by a majority of the Disinterested Directors or (c) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under Delaware Law. 10. Duration and Scope of Agreement; Binding Effect. This Agreement shall continue so long as Indemnitee shall be subject to any possible Proceeding subject to indemnification and defense by reason of the fact that he is or was an Agent and shall be applicable to Proceedings commenced or continued after execution of this Agreement, whether arising from acts or omissions occurring before or after such execution. This Agreement shall be binding upon the Company and its successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company) and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators and other legal representatives. 11. Notice by Indemnitee and Defense of Claims. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which may be subject to indemnification hereunder, whether civil, criminal, arbitrative, administrative or investigative; but the omission so to notify the Company will not relieve it from any liability which it may have to Indemnitee if such omission does not actually prejudice the Company's rights and, if such omission does prejudice the Company's rights, it will relieve the Company from liability only to the extent of such prejudice; nor will such omission relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding: (a) The Company will be entitled to participate therein at its own expense; 7 (b) Except as otherwise provided below, the Company jointly with any other indemnifying party similarly notified shall assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its assumption of such defense, the Company will not be liable to Indemnitee under this Agreement for any attorney fees or costs subsequently incurred by Indemnitee in connection with Indemnitee's defense except as otherwise provided below. Indemnitee shall have the right to employ his counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof and the assumption of such defense shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action or that the Company's counsel may not be adequately representing Indemnitee or (iii) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company; and (c) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim affected without its consent. The Company shall not settle any action or claim in any manner without Indemnitee's consent. Neither the Company nor Indemnitee will unreasonably withhold its or his consent to any proposed settlement. 11.1 Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Agreement is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or part, the Company shall, in such an event, after taking into account, among other things, contributions by other directors and officers of the Company pursuant to indemnification agreements or otherwise, and, in the absence of personal enrichment, acts of intentional fraud or dishonesty or criminal conduct on the part of Indemnitee, contribute to the payment of Indemnitee's losses to the extent that, after other contributions are taken into account, such losses exceed: (i) in the case of a director of the Company or any of its subsidiaries who is not an officer of the Company or any of such subsidiaries, the amount of fees paid to the director for serving as a director during the 12 months preceding the commencement of the Proceeding; or (ii) in the case of a director of the Company or any of its subsidiaries who is also an officer of the Company or any of such subsidiaries, the amount set forth in clause (i) plus 5% of the aggregate cash compensation paid to said director for service in such office(s) during the 12 months preceding the commencement of the Proceeding; or (iii) in the case of an officer of the Corporation or any of its subsidiaries, 5% of the aggregate cash compensation paid to such officer for service in such office(s) during the 12 months preceding the commencement of such Proceeding. 12. Miscellaneous Provisions. 12.1 Severability; Partial Indemnity. If any provision or provisions of this Agreement (or any portion thereof) shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable for any reason whatever: (a) such provision shall be limited or modified in its application to the minimum extent necessary to avoid the invalidity, illegality or unenforceability of such provision; (b) the validity, legality and enforceability of the 8 remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (c) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision (or portion thereof) held invalid, illegal or unenforceable. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Liabilities of any type whatsoever incurred by him in the investigation, defense, settlement or appeal of a Proceeding but not entitled to all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which it has been determined pursuant to Section 5 hereof that Indemnitee is not entitled. 12.2 Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. 12.3 Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and defense to Indemnitee to the fullest extent not now or hereafter prohibited by law. 12.4 Headings. The headings of the Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 12.5 Pronouns. Use of the masculine pronoun shall be deemed to include use of the feminine pronoun where appropriate. 12.6 Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties to this Agreement. No waiver of any provision of this Agreement shall be deemed to constitute a waiver of any of the provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. No waiver of any provision of this Agreement shall be effective unless executed in writing. 12.7 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to: John N. Lawless, III 46816 Pickford Northville, Michigan 48167 (248) 348-2980 (fax) with a copy to: Daniel R. Shemke DANIEL R. SHEMKE, P.C. 206 South Main Street Suite 206 Ann Arbor, Michigan 48104 (734) 663-1191 (fax) 9 (b) If to the Company to: CEO, Headwaters Incorporated 10653 S. Riverfront Parkway, Suite 300 South Jordan, UT 84095 with a copy to: General Counsel, Headwaters Incorporated 10653 S. Riverfront Parkway, Suite 300 South Jordan, UT 84095 or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. 12.8 Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 12.9 Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this agreement and agree that any action instituted under this agreement shall be brought only in the state courts of the State of Delaware. 12.10 Entire Agreement. This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understanding between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Sections 8 and 2.1 hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Headwaters Incorporated By: ----------------------------- Its: Chief Financial Officer Indemnitee ----------------------------- John N. Lawless, III 10 EX-10.90.1 3 ex10901form8k092204.txt NONSTATURORY STOCK OPTION GRANT NOTICE Exhibit 10.90.1 HEADWATERS INCORPORATED NONSTATUTORY STOCK OPTION GRANT NOTICE (GRANT OUTSIDE OF A PLAN) Headwaters Incorporated, a Delaware corporation (the "Company"), hereby grants an option (the "Option") to purchase shares of its common stock, par value $0.001 per share ("Common Stock"), to the individual named below (the "Optionee"). The terms and conditions of the Option are set forth in this Grant Notice, and in the attachments, the terms of which are incorporated herein by this reference. The Option is granted outside of any plan of the Company and is made as an inducement to the Optionee to accept and continue employment with the Company. Date of Grant: September 22, 2004 Name of Optionee: John N. Lawless, III______________________ Number of Shares Covered by Option: One Hundred Twenty Five Thousand (125,000) Exercise Price (Per Share): $28.49____________________________________ Vesting Start Date: September 22, 2004________________________ Expiration Date: One Day Prior to Tenth Anniversary of Date of Grant Permissible Forms of Payment: Payment of the exercise price may be made in cash, check or any other method provided in the Stock Option Agreement. Vesting Schedule: The total number of shares subject to this Option shall vest according to the following schedule, subject to the Optionee's Continuous Service and satisfaction of all applicable conditions to vesting and exercisability set forth in the Stock Option Agreement. Percentage of Total Shares Vesting Date Vesting On Vesting Date ------------ ----------------------- March 31, 2005 20% March 31, 2006 20% March 31, 2007 20% March 31, 2008 20% March 31, 2009 20% No additional shares shall vest after your "Continuous Service" (as defined in the attached Stock Option Agreement) has terminated except as otherwise set forth in the Stock Option Agreement. By signing below, you acknowledge and agree to all of the terms and conditions set forth herein and in the attached Stock Option Agreement and Notice of Exercise. Optionee: ------------------------------------ (Signature) Company: ------------------------------------ Steven G. Stewart (Signature) Title: Chief Financial Officer Attachments Attachment I: Stock Option Agreement Attachment II: Form of Notice of Exercise ATTACHMENT I STOCK OPTION AGREEMENT HEADWATERS INCORPORATED STOCK OPTION AGREEMENT Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock Option Agreement, Headwaters Incorporated, a California corporation (the "Company"), has granted you an option (the "Option") to purchase the number of shares of the Company's common stock, par value $0.001 per share ("Common Stock"), indicated in the Grant Notice at the exercise price indicated in such Grant Notice, subject to the terms set forth herein. This Option is granted in order to induce you to accept and continue employment with the Company. This Option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). This Option is granted outside of, and is not subject to, the Company's 2003 Stock Incentive Plan or any other stock plan of the Company. The terms of the Option are as follows: 1. VESTING. Subject to the limitations contained herein, the Option will vest as provided in your Grant Notice, provided that, except to the extent expressly set forth herein, vesting will cease upon the termination of your Continuous Service (as defined in Section 6 below). 2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to the Option and your exercise price per share are set forth in your Grant Notice and shall be adjusted for Capitalization Adjustments, if any, as provided in Section 9 below. 3. METHOD OF PAYMENT. Payment of the applicable exercise price is due in full upon exercise of all or any part of the Option. You may elect to make payment of the exercise price in cash or by check or pursuant to one of the following methods: (a) In the Company's sole discretion at the time you exercise the Option and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL, payment may be made pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds of the shares of Common Stock underlying the Option (a "cashless exercise"). (b) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL, payment may be made by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company's reported earnings (generally six months) or that you did not acquire, directly or indirectly, from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. "Delivery" for these purposes, in the sole discretion of the Company at the time you exercise the Option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise the Option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. 2 "Fair Market Value" means, as of any date, the value of the Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange or traded on the NASDAQ National Market or the NASDAQ SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or (ii) in the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board of Directors of the Company. 4. WHOLE SHARES. You may exercise the Option only for whole shares of Common Stock. 5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise the Option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act of 1933, as amended (the "Securities Act"), or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations. 6. TERM. The term of the Option commences on the Date of Grant (as specified in your Grant Notice) and expires upon the EARLIEST of the following: (a) three (3) months after the termination of your Continuous Service for any reason other than your Disability, death or termination without "Cause" (as defined in your employment agreement with the Company or its affiliated corporation) or for "Good Reason" (as defined in your employment agreement with the Company or its affiliated corporation); PROVIDED that if during any part of such three- (3-) month period the Option is not exercisable solely because of the condition set forth in the preceding paragraph relating to "Securities Law Compliance," the Option shall not expire until the earlier of the Expiration Date indicated in your Grant Notice or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; (b) twelve (12) months after the termination of your Continuous Service as an Employee, Director or Consultant due to your Disability; (c) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates; (d) six (6) months after the termination of your Continuous Service as a result of a termination of your employment without "Cause" (as defined in your employment agreement with the Company or its affiliated corporation) or for "Good Reason" (as defined in your employment agreement with the Company or its affiliated corporation); or (e) the Expiration Date indicated in your Grant Notice. Notwithstanding the foregoing, the terms of this Stock Option Agreement shall be subject to acceleration of vesting and extension of exercisability pursuant to Section 10 and Section 12, as applicable. For purposes of your option, "Continuous Service" means that your service with the Company or an affiliate of the Company, whether as an employee, director or 3 consultant, is not interrupted or terminated. Your Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which you render service to the Company or an affiliate as an employee, consultant or director or a change in the entity for which you render such service, provided that there is no interruption or termination of your Continuous Service. For example, a change in status from an employee of the Company directly to a consultant of an affiliate or a director will not constitute an interruption of Continuous Service. The Board of Directors of the Company (the "Board") or the Compensation Committee of the Board, in each body's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence, including sick leave, military leave or any other personal leave. For purposes of your option, "Disability" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. 7. EXERCISE. (a) You may exercise all or any portion of the vested portion of the Option during its term by delivering a Notice of Exercise (in the attached form, or such other form as may be designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require. (b) By exercising the Option you agree that, as a condition to any exercise of all or part of the Option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of the Option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise or (3) the disposition of shares of Common Stock acquired upon such exercise. 8. TRANSFERABILITY. The Option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise the Option, subject to the terms and conditions otherwise applicable to such exercise, the issuance of Common Stock pursuant to such exercise and the subsequent transfer of such Common Stock. 9. CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock subject to the Option without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), this Stock Option Agreement will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to the Option. Such adjustments shall be made by the Board, determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.) 10. CORPORATE SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of (i) a sale of all of the securities of the Company or a consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such sale, consolidation, merger or reorganization, own less than 50% of the outstanding voting power of the surviving entity (or its parent) following the consolidation, merger or reorganization or (ii) any 4 transaction (or series of related transactions involving a person or entity, or a group of affiliated persons or entities) in which in excess of fifty percent (50%) of the Company's outstanding voting power is transferred, then any surviving corporation or acquiring corporation shall continue or assume the Option under this Agreement or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders of the Company in the transaction described in this Section 10) for the Option under this Agreement. In the event any surviving corporation or acquiring corporation in such transaction refuses to assume the Option under this Agreement or to substitute similar stock awards for the Option under this Agreement, then (i) the Company shall give written notice to you within a reasonable period of time of not less than ten (10) days prior to the effectiveness of the transaction that the surviving corporation or acquiring corporation has refused to assume the Option or to substitute similar stock awards for the Option under this Agreement, and (ii) the vesting and exercisability of the Option under this Agreement (and, if applicable, the time during which the Option may be exercised) shall be accelerated in full immediately prior to such transaction provided that the transaction occurs (so that you will have the opportunity to exercise the Option under this Agreement prior to the transaction), and the Option under this Agreement shall terminate if not exercised (if applicable) upon the effectiveness of such transaction. 11. OPTION NOT A SERVICE CONTRACT. The Option is not an employment or service contract, and nothing herein shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an affiliate, or of the Company or an affiliate to continue your employment. In addition, nothing herein shall obligate the Company or an affiliate, their respective stockholders, Boards of Directors, officers or employees to continue any relationship that you might have as a director or consultant for the Company or an affiliate. 12. ACCELERATION OF EXERCISABILITY AND VESTING. (a) Notwithstanding any other provision herein and subject and pursuant to the terms and conditions of the Executive Change in Control Agreement between the Company and the Optionee effective as of September 22, 2004 (the "CIC Agreement"), in the event that a "Change in Control" (as defined in the CIC Agreement) occurs prior to the expiration or exercise in full of the Option, the Option shall, immediately prior to the effectiveness of the Change in Control, vest in full and shall become fully exercisable, and, unless the Option is terminated because the Option is not continued, assumed or substituted for as provided in Section 10 above, the Option shall remain exercisable for a period of twenty-four (24) months following the termination of the Optionee's employment (as determined under the CIC Agreement). In the event the Change in Control is not consummated, this provision shall not have any force or effect. (b) The Board shall retain the power to accelerate the time at which the Option may first be exercised or the time during which the Option or any part thereof will vest, notwithstanding the provisions in the Grant Notice or this Stock Option Agreement stating the time at which it may first be exercised or the time during which it will vest. (c) The Company shall give written notice to you within a reasonable period of time of not less than ten (10) days of the expected date of the effectiveness of the Change in Control. 13. STOCKHOLDER RIGHTS. You shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to the Option unless and until you have satisfied all requirements for exercise of the Option pursuant to its terms. 14. WITHHOLDING OBLIGATIONS. (a) At the time you exercise the Option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a "cashless 5 exercise" pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an affiliate of the Company, if any, which arise in connection with the exercise of the Option. (b) Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of the Option a number of whole shares of Common Stock having a fair market value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of the Option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of the Option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of the Option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility. Notwithstanding the foregoing, the Company shall not be authorized to withhold shares of Common Stock in excess of the minimum statutory withholding requirements for federal and state tax purposes, including payroll taxes. (c) You may not exercise the Option unless the tax withholding obligations of the Company and/or any affiliate are satisfied. Accordingly, you may not be able to exercise the Option when desired even though your option is vested, and the Company shall have no obligation to issue such shares of Common Stock. 15. NOTICES. Any notices provided for or required in connection with the Option shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five calendar (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. 16. CHOICE OF LAW. This option shall be governed by, and construed in accordance with the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State. 17. GOVERNING AUTHORITY. This Option is subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted by the Company. This authority shall be exercised by the Board, or by a committee of one or more members of the Board in the event that the Board delegates its authority to a committee. The Board, in the exercise of this authority, may correct any defect, omission or inconsistency in this Option in a manner and to the extent the Board shall deem necessary or desirable to make this Option fully effective. References to the Board also include any committee appointed by the Board to administer and interpret this option. Any interpretations, amendments, rules and regulations promulgated by the Board shall be final and binding upon the Company and its successors in interest as well as you and your heirs, assigns, and other successors in interest. 6 18. AMENDMENT OF OPTION. The Board at any time, and from time to time, may amend the terms of this Option; PROVIDED, HOWEVER, that the rights under this Option shall not be impaired by any such amendment unless (i) the Company requests your consent and (ii) you consent in writing. 7 ATTACHMENT II FORM OF NOTICE OF EXERCISE NOTICE OF EXERCISE Headwaters Incorporated (the "Company") 10653 S. River Front Parkway, Suite 300 South Jordan, UT 84095 Date of Exercise: ____________ Ladies and Gentlemen: This constitutes notice under my nonstatutory stock option that I elect to purchase the number of whole shares of the common stock of the Company for the price set forth below. Stock option dated: _______________________ Number of shares as to which option is exercised: _____________________(the "Shares") Certificates to be issued in name of: ________________________ Total exercise price: $_______________________ Cash payment delivered herewith: $_______________________ By this exercise, I agree (i) to provide such additional documents as you may require and (ii) to provide for the payment by me to the Company (in the manner designated by the Company) of your withholding obligation, if any, relating to the exercise of this option. By this exercise, I also hereby agree to be bound by the insider trading policies of the Company and its affiliated corporations. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act of 1933, as amended, and any applicable state securities laws. I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to my Shares whiles such covenants are applicable. Very truly yours, 8 EX-10.90.2 4 ex10902form8k092204.txt EXECUTIVE CHANGE IN CONTROL AGREEMENT Exhibit 10.90.2 HEADWATERS INCORPORATED EXECUTIVE CHANGE IN CONTROL AGREEMENT THIS EXECUTIVE CHANGE IN CONTROL AGREEMENT (this "Agreement") is entered into by and between Headwaters Incorporated, a Delaware corporation, and the undersigned executive employee of the Company ("Executive") to be effective as of the 22nd day of September, 2004 (the "Start Date"). As used in this Agreement, the term "Company" shall refer to Headwaters Incorporated and any of its affiliates, unless the context requires otherwise. WHEREAS, Executive has entered in an employment agreement with an affiliate of the Company of even date (the "Employment Agreement") which makes reference to this Agreement; WHEREAS, in the event that the Board of Directors of the Company determines that it would be in the best interests of the Company and its stockholders to consider a possible sale, merger or other change in control of the Company, the Company recognizes that the possibility of such transaction may have an adverse effect on its retention of key management personnel, and that the possibility of such transaction may make it difficult for such personnel to function effectively in the best interests of the Company and its stockholders in managing the businesses of the Company and in negotiating such transaction with another entity; WHEREAS, the Board has determined that it is appropriate to offer additional security in the form of salary and benefits continuation to certain key management personnel in the event of a transaction to better enable them to function effectively without distraction in the event that uncertainties as to the future control of the Company should arise and to provide them with a reasonable incentive to negotiate such possible transaction in the best interests of the stockholders of the Company; WHEREAS, contemporaneous with this Agreement, the Company has a granted a stock option to Executive (the "Options") outside of the Headwaters Incorporated 2003 Stock Incentive Plan for the purpose of providing equity compensation to Executive and aligning Executive's interests with those of the stockholders of the Company; WHEREAS, the Company has determined that it would be in the best interests of the Company and its stockholders to provide for acceleration of the vesting and extension of the post-termination exercise period of the Options and future stock awards granted to Executive in the event of a Change in Control (as defined below) of the Company in order to align further the interests of Executive with those of the stockholders of the Company; NOW, THEREFORE, the parties hereby agree that in the event of the occurrence of a Change in Control (as described below), the Company shall provide the following stock award rights and severance payments and benefits to Executive as follows: 1. Stock Award Rights and Severance Pay and Benefits. 1 (a) Acceleration of Vesting and Extension of Period of Exercisability of Stock Awards Following a Change in Control. Executive's Options or future stock awards from the Company shall, immediately prior to the effective date of a Change in Control (provided that the Change in Control transaction closes), vest in full and if applicable, become fully exercisable to the extent not previously vested or exercisable, and shall (notwithstanding the provisions of the applicable stock award agreements for the exercisable stock awards) be continued, assumed or substituted for by the Company or its successor or assign and the continued or assumed Options or substitute options shall continue to be exercisable for a period of twenty-four (24) months following the termination of the employment of the Executive or until the Expiration Date stated in Executive's grant notices for such stock awards, whichever period is shorter. (b) Severance Pay and Benefits. In addition to all unpaid salary and incentive payments to which Executive is entitled and in lieu of any of any severance pay and benefits payable under Executive's employment agreement (if any), if Executive's employment with the Company or its successor is terminated by reason of an Involuntary Termination without Cause (as defined below) or a Voluntary Termination For Good Reason (as defined below) within three (3) months prior to and twenty (24) months following the effective date of the closing of the Change in Control, and provided Executive executes a valid release in substantially the form attached as Exhibit A ("Release of Claims"), then the Company shall provide the following severance pay and benefits to Executive as follows: (1) Severance Pay. Within five (5) business days of the effective date of the Release of Claims (following the expiration of any required rescission period under any applicable law), the Company shall pay Executive an amount equal to twice the Executive's annual base salary at the higher of the rate in effect as of Executive's termination of employment or the rate in effect immediately preceding the Start Date. (2) Severance Health Benefits. The Company shall continue and pay for the same or similar group health benefits coverage for the benefit of Executive and Executive's covered dependents at the time of the Change in Control at the same level that it paid for such coverage prior to the termination of Executive's employment, for two years. Such coverage shall apply towards the period of continuation coverage required to be offered by the Company to a terminated employee under section 4980B of the federal Internal Revenue Code of 1986, as amended, and section 601, et seq., of the federal Employee Retirement Income Security Act of 1974, as amended. 2. Definitions. The following terms in this Agreement shall have the meanings set forth below solely for purposes of this Agreement. (a) "Involuntary Termination without Cause" shall mean the involuntary termination of Executive's employment by the Company for reasons other than (1) the conviction of Executive or a plea of nolo contendre by Executive to a felony, (2) any act of fraud, embezzlement or misappropriation of property of the Company by Executive which has a materially adverse impact on the business or affairs of the Company, (3) any intentional unauthorized use or disclosure by Executive of confidential information or trade secrets of the 2 Company, (4) any other intentional misconduct by Executive which has a materially adverse impact on the business or affairs of the Company, (5) the death of Executive, (6) the inability of Executive to perform Executive's duties due to a disability for a period of six months or more (as defined and determined under the terms of the Company's long-term disability plan), or (7) the failure or refusal by Executive to perform the duties of Executive's position with the Company, provided that solely for the purpose of this item (7), Executive shall be given thirty (30) days written notice (and the opportunity to correct such conduct if such conduct can be corrected during that notice period) of the Company's intention to terminate the employment of Executive and to deem the termination of Executive's employment to be for the foregoing reason. As used in this Subsection (a), an action shall not be determined to be "intentional" if it is undertaken with a reasonable and good faith belief that it is in the best interests of the Company. (b) "Voluntary Termination With Good Reason" shall mean Executive's voluntary resignation within sixty (60) calendar days following the occurrence of any of the following actions without Executive's consent ("Good Reason"): (1) the material, involuntary reduction in Executive's title, responsibilities, authorities or functions as an employee of the Company as in effect immediately prior to a Change in Control (but not merely a change in title or reporting relationships), except in connection with the termination of Executive's employment for death, disability, retirement, fraud, misappropriation, embezzlement or any other conduct listed under the definition of Cause; (2) a reduction in Executive's level of compensation (including base salary, fringe benefits and target bonuses under any corporate-performance based bonus or incentive programs) by more than ten percent (10%) unless such reduction is part of a general reduction applicable to all of the executives of the Company, (3) a relocation of Executive's regular place of employment by more than sixty (60) miles, (4) the imposition of business travel requirements substantially more demanding of Executive than such travel requirements existing immediately prior to the date of the Change in Control, (5) any material breach by the Company or its successor or assign of any employment agreement between the Company and Executive, or (6) any failure by the Company to obtain the assumption of any material agreement, including but not limited to this Agreement and the material provisions of any stock incentive grant, between Executive and the Company from any successor or assign of the Company following a Change in Control. Notwithstanding the foregoing, Executive must provide the Company with twenty (20) calendar days advance written notice of Company's conduct giving rise to Good Reason prior to Executive's resignation as a Voluntary Termination With Good Reason (the "Cure Period") and during the Cure Period, the Company may attempt to rescind or correct the matter giving rise to Good Reason. If the Company does not rescind or correct the conduct giving rise to Good Reason to Executive's reasonable satisfaction by the expiration of the Cure Period, Executive may then resign Executive's employment and to claim that such resignation is a Voluntary Termination With Good Reason. (c) "Change in Control" shall mean any of the following events: (1) a sale, lease or other disposition of all or substantially all of the assets of the Company so long as the Company's stockholders immediately prior to such transaction will, immediately after such transaction, fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the acquiring entity (for 3 purposes of this section, any person who acquired securities of the Company prior to the occurrence of such asset transaction in contemplation of such transaction and who after such transaction possesses direct or indirect ownership of at least ten percent (10%) of the securities of the acquiring entity immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction); (2) either a merger or consolidation in which the Company is not the surviving corporation and the stockholders of the Company immediately prior to the merger or consolidation fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the securities of the surviving corporation (or if the surviving corporation is a controlled Subsidiary of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the surviving corporation and is not itself a controlled Subsidiary of any other entity) immediately following such transaction, or a reverse merger in which the Company is the surviving corporation and the stockholders of the Company immediately prior to the reverse merger fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the securities of the Company (or if the Company is a controlled Subsidiary of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the Company and is not itself a controlled Subsidiary of any other entity) immediately following the reverse merger (for purposes of this section, any person who acquired securities of the Company prior to the occurrence of a merger, reverse merger, or consolidation in contemplation of such transaction and who after such transaction possesses direct or indirect beneficial ownership of at least ten percent (10%) of the securities of the Company or the surviving corporation (or if the Company or the surviving corporation is a controlled Subsidiary, then of the appropriate entity as determined above) immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction); (3) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or a subsidiary or other controlled Subsidiary of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors; or (4) the individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds (2/3) of the Board. If the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board. Notwithstanding the foregoing, neither a public offering of the securities of the Company nor a reincorporation of the Company in another state shall be considered a "Change in Control." 3. Employment and Post Termination Covenants. By accepting the terms of this Agreement and as a condition for the termination payments and benefits 4 Executive hereby agrees to the following covenants in addition to any obligations Executive may have by law and makes the following representations. (a) Confidentiality. Executive acknowledges that, in connection with Executive's employment by the Company, Executive will have access to trade secrets of the Company and other information and materials which the Company desires to keep confidential, including customer lists, supplier lists, financial statements, business records and data, marketing and business plans, and information and materials relating to the Company's services, products, methods of operation, key personnel, proprietary software and other proprietary intellectual property and information disclosed to the Company of third parties to which the Company owes a duty of nondisclosure (collectively, the "Confidential Information"); provided, however, that Confidential Information does not include information which (i) is or becomes publicly known other than as a result of your actions in violation of this Agreement; (ii) is or becomes available to Executive from a source (other than the Company) that Executive reasonably believes is not prohibited from disclosing such information to Executive by a contractual or fiduciary obligation to the Company, (iii) has been made available by the Company, directly or indirectly, to a non-affiliated third party without obligation of confidentiality; (iv) Executive is obligated to produce as a result of a court order or pursuant to governmental action or proceeding, provided that Executive gives the Company prompt written notice of such requirement prior to such disclosure and assistance in obtaining an order protecting such Confidential Information from public disclosure; or (v) is business knowledge you have acquired unrelated to any specific proprietary information relating to the Company. Executive covenants and agrees that, both during and after the term of Executive's employment with the Company, Executive will keep secret all Confidential Information and will not disclose, reveal, divulge or otherwise make known any Confidential Information to any person (other than the Company or its employees or agents in the course of performing Executive's duties hereunder) or use any Confidential Information for Executive's own account or for the benefit of any other individual or entity, except with the prior written consent of the Company. (b) Ownership of Intellectual Property. Executive agrees that all inventions, copyrightable material, software, formulas, trademarks, trade secrets and the like which are developed or conceived by Executive in the course of Executive's employment by the Company or on the Company's time or property (collectively, the "Intellectual Property") shall be disclosed promptly to the Company and the Company shall own all right, title and interest in and to the Intellectual Property. The parties expressly agree that any and all of the Intellectual Property developed by the Employee shall be considered works made-for-hire for the Company pursuant to the United States Copyright Act of 1976, as amended from time to time. In order to ensure that the Company shall own all right, title and interest in and to the Intellectual Property in the event that any of the Intellectual Property is not deemed a work made-for-hire (as defined in the Copyright Act of 1976) and in any other event, Executive hereby sells and assigns all right, title and interest in and to all such Intellectual Property to the Company, and Executive covenant and agree to affix to the Intellectual Property appropriate legends and copyright notices indicating the Company's ownership of all Intellectual Property and all underlying documentation to the extent reasonably appropriate, and shall execute such instruments of transfer, assignment, conveyance or confirmation as the Company reasonably considers necessary to transfer, confirm, vest, perfect, maintain or defend the Company's right, title and interest in and to the Intellectual Property throughout the world. Executive's obligation under this Section 4(b) to assign to the Company inventions created or conceived by Executive shall not apply to an invention that Executive developed entirely on 5 Executive's own time without using the Company's equipment, supplies, facilities, or trade secret information, provided that those inventions (i) do not or did not relate directly, at the time of conception or reduction to practice of the invention, to the Company's business as conducted at such time or actual or demonstrably anticipated research or development of the Company; and (ii) do not or did not result from any work performed by Executive for the Company. (c) Non-Solicitation. Executive agrees for a period of not less than twelve (12) months following termination of Executive's employment or service (whichever is later) with the Company or its affiliated companies that Executive shall not solicit or engage the services or employment of the employees of the Company or its affiliated companies. (d) Non-Competition. Executive agrees not to compete directly or indirectly by becoming a principal, partner, shareholder, equity holder, limited liability company member, agent, officer, other employee, advisor, consultant, member of a board of directors, or by becoming interested in any other capacity, with any of the following entities, their successors or affiliates: Alcoa, Dinesol, Alpha, Girardin, Pinckney Molded Plastics, and any firm or business formed or established by Executive, during the period of twelve (12) months following the termination of Executive's employment or service with the Company or its affiliated companies. 4. Alternate Dispute Resolution and Attorneys Fees and Costs. (a) Arbitration. The parties agree that any future disputes between Executive and the Company (the "parties") under this Agreement including but not limited to disputes relating to the Release of Claims shall be resolved by binding arbitration, except where the law specifically forbids the use of arbitration as a final and binding remedy, except as provided in Section 4(a)(7) below. (1) The complainant shall provide the other party a written statement of the claim. Such statement shall identify any supporting witnesses or documents and the relief requested. (2) The respondent shall furnish a statement of the relief, if any, that it is willing to provide, and identifying supporting witnesses or documents. If the matter is not resolved, the parties agree to submit their dispute to a non-binding mediation paid for by the Company, provided, however, that if the amount in dispute is $50,000 or less, this step may be waived at the election of either party. (3) If the matter is not resolved, the parties agree that the dispute shall be resolved by binding arbitration according to the commercial arbitration rules of the American Arbitration Association, including any provisions thereof pertaining to discovery. If the parties are not able to agree upon the selection of an arbitrator, an arbitrator shall be selected according to the applicable procedures established by the American Arbitration Association. (4) The arbitrator shall have the authority to determine whether the conduct complained of in Section 4(a)(1) violates the complainant's rights under this Agreement and, if so, to grant any relief 6 authorized by law; subject to the provisions of Section 4(a)(7) below. The arbitrator shall not have the authority to modify, change or refuse to enforce any lawful term of this Agreement and the Release of Claims. (5) The Company shall bear the costs of the arbitration, provided, however, if the Company prevails in the arbitration, Executive shall pay any arbitration costs of the Company awarded by the Arbitrator to the same extent as if the matter had been heard in a court of general jurisdiction. (6) Arbitration shall be the exclusive final remedy for any dispute between the parties under this Agreement and disputes involving claims for discrimination or harassment (such as claims under the Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, or the Age Discrimination in Employment Act), wrongful termination, breach of contract, breach of public policy, physical or mental harm or distress or any other disputes, and the parties agree that no dispute shall be submitted to arbitration where the complainant has not complied with the preliminary steps provided for in Sections 4(a)(1) and (2) above. (7) The parties agree that the arbitration award shall be enforceable in any court having jurisdiction to enforce this Agreement and Release of Claims, so long as the arbitrator's findings of fact are supported by substantial evidence on the whole and the arbitrator has not made errors of law; however, either party may bring an action in a court of competent jurisdiction, regarding or related to matters involving the Company's confidential, proprietary or trade secret information, or regarding or related to inventions that Executive may claim to have developed prior to or after joining the Company, seeking preliminary injunctive relief in court to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration. (8) The arbitration shall be held in a location within 50 miles of Wixom, Michigan unless the parties mutually agree to a different location for the arbitration. (9) In the event that the Company wishes to contest or dispute a Voluntary Termination for Good Reason by Executive, it must give written notice of such dispute within the fifteen (15) business day period after the date of Executive's resignation. If Executive wishes to contest or dispute a termination for cause by the Company, or any failure to make payments claimed to be due hereunder, Executive must give written notice of such dispute within ninety (90) calendar days of receiving a Notice of Termination (or, if the claim is with respect to stock award rights under Section 1(a) above, within ninety (90) calendar days after Executive first learns that the Company or its successor does not recognize Executive's rights under Section 1(a) following the closing of a Change in Control). In the event of a dispute as to whether Executive's employment was terminated due to a Involuntary Termination Without Cause, the Company shall continue to pay Executive's full base salary and continue all of Executive's employee benefits in force until the final resolution of any such dispute by mutual agreement, arbitrator's award or the final judgment, decree or order of a court of competent jurisdiction (including any appeals, if such are perfected). Executive may, at Executive's or the Company's option, be suspended from all duties during the pendency of such a contest or dispute. If Executive prevails in any such contest or dispute, the Company or its successor or assign shall thereupon be liable for the full amounts due under Section 1 as of the date of termination after adjustments for amounts already paid. If the Company or its successor or assign prevails in any 7 such contest or dispute, all payments and benefits being paid to Executive shall immediately cease subject only to the Company's obligations under applicable law to provide notice of the right to continue such benefits as may be applicable to the situation. (b) Fees and Expenses and Interest Accruals. (1) Fees and Expenses. Subject to the provisions of Section 4(a)(5) above, the Company will pay all reasonable fees and expenses, including reasonable attorneys' fees, incurred by Executive in good faith contesting or disputing any termination after a Change in Control or in seeking to obtain or enforce any right or benefit provided by this Agreement. (2) Interest Accruals. In the event that any payments due hereunder shall be delayed for any reason beyond the date set forth in Section 1(b), the unpaid amounts due shall bear simple interest at the rate of ten percent (10%) per annum, or, if lower, such maximum legal rate permitted by applicable law, until paid. Notwithstanding the provisions as to time of payment as above set forth, Executive may at Executive's sole discretion elect to have some or all of such amounts due Executive deferred to a date or dates of your choosing over a period not to exceed three (3) years to the extent permitted by applicable tax laws without immediate taxation of Executive, in which event the unpaid balances shall not bear interest during the deferred period elected by Executive. 5. Tax Withholding and Deductions. All payments under this Agreement shall be made subject to all applicable tax withholding and other deductions required by law. 6. No Additional Rights. This Agreement and the provisions herein shall not be construed to be a grant to or modification of any right of the Executive to continued employment with the Company or its successor. Such right, if any, shall be governed by any other employment agreements between Executive and the Company. 7. Notices. Notices to the parties under this Agreement shall be made to the following persons and addresses (or such other persons and addresses designated by the recipient party): To Executive: John N. Lawless, III 46816 Pickford Northville, Michigan 48167 (248) 348-2980 (fax) with a copy to: Daniel R. Shemke DANIEL R. SHEMKE, P.C. 206 South Main Street Suite 206 Ann Arbor, Michigan 48104 (734) 663-1191 (fax) 8 To Company: CEO, Headwaters Incorporated 10653 S. Riverfront Parkway, Suite 300 South Jordan, UT 84095 Fax: (801) 984-9410 with a copy to: General Counsel, Headwaters Incorporated 10653 S. Riverfront Parkway, Suite 300 South Jordan, UT 84095 Fax: (801) 984-9430 Delivery may be made by U.S. Mail or by facsimile transmission to the facsimile telephone numbers set forth above with the name of the recipient set forth in the facsimile transmission. 8. Successors and Assigns. This Agreement shall be binding on the successors and assigns of the Company (including but not limited to any successors or assigns of the Company following a Change in Control) for the benefit of Executive. 9. Complete Agreement and Modification of this Agreement. This Agreement represents the sole agreement of the parties regarding the subject matter of this Agreement and supersedes any prior or contemporaneous verbal or written agreements, promises or representations regarding the subject matter of this Agreement. This Agreement may not be modified except by a written instrument signed by both parties. In the event that a court of competent jurisdiction determines that any provision of this Agreement is unlawful or unenforceable, the Agreement shall be administered without such provision or be reformed to carry out the intent of the parties to this Agreement. 10. Jurisdiction and Governing Law. Subject to the mandatory arbitration provisions set forth above, jurisdiction and venue in any action to enforce any arbitration award or to enjoin any action that violates the terms of this Agreement shall be in the state and federal courts serving the locality of Wixom, Michigan. This Agreement shall be governed by the laws of the state of Michigan without regard to conflict of laws principles of the laws of that state. 9 In Witness Whereof, the parties hereto have executed this Agreement to be effective as of the date first above written. Executive Headwaters Incorporated - --------------------------- -------------------------------- John N. Lawless, III By: Steven G. Stewart Its: Chief Financial Officer 10 EXHIBIT A GENERAL RELEASE LANGUAGE Executive agrees, for himself, his spouse, heirs, executor or administrator, assigns, insurers, attorneys and other persons or entities acting or purporting to act on his behalf (the "Executive's Parties"), to irrevocably and unconditionally release, acquit and forever discharge the Company, its affiliates, subsidiaries, directors, officers, employees, shareholders, partners, agents, representatives, predecessors, successors, assigns, insurers, attorneys, benefit plans sponsored by the Company and said plans' fiduciaries, agents and trustees (the "Company's Parties"), from any and all actions, cause of action, suits, claims, obligations, liabilities, debts, demands, contentions, damages, judgments, levies and executions of any kind, whether in law or in equity, known or unknown, which the Executive's Parties have, have had, or may in the future claim to have against the Company's Parties by reason of, arising out of, related to, or resulting from Executive's employment with the Company or the termination thereof. This release specifically includes without limitation any claims arising in tort or contract, any claim based on wrongful discharge, any claim based on breach of contract, any claim arising under federal, state or local law prohibiting race, sex, age, religion, national origin, handicap, disability or other forms of discrimination, any claim arising under federal, state or local law concerning employment practices, and any claim relating to compensation or benefits. This specifically includes, without limitation, any claim which the Executive has or has had under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans With Disabilities Act, as amended, and the Employee Retirement Income Security Act of 1974, as amended. It is understood and agreed that the waiver of benefits and claims contained in this section does not include a waiver of the right to payment of any vested, non-forfeitable benefits to which the Executive or a beneficiary of the Executive may be entitled under the terms and provisions of any employee benefit plan of the company which have accrued as of the separation date and does not include a waiver of the right to benefits and payment of consideration to which Executive may be entitled under this agreement. Executive acknowledges that he is only entitled to the severance benefits and compensation set forth in this agreement, and that all other claims for any other benefits or compensation are hereby waived, except those expressly stated in the preceding sentence. Executive expressly waives and relinquishes all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to his release of claims. 11 -----END PRIVACY-ENHANCED MESSAGE-----