Investment Agreement

EXECUTION COPY - --------------------------------------------------------------------------------


INVESTMENT AGREEMENT


DATED AS OF NOVEMBER 25, 1997


BETWEEN


LIH HOLDINGS II, LLC


AND


LUND INTERNATIONAL HOLDINGS, INC.


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INVESTMENT AGREEMENT, dated as of November 25, 1997, between LIH HOLDINGS II, LLC, a Delaware limited liability company (the "PURCHASER"), and LUND INTERNATIONAL HOLDINGS, INC., a Delaware corporation (the "COMPANY").


WHEREAS, LIH Holdings, LLC, a Delaware limited liability company ("LIH HOLDINGS I"), and an Affiliate of the Purchaser, is presently the owner of 1,686,893 shares of Common Stock, par value $0.10 per share (the "COMMON STOCK"), of the Company.


WHEREAS, pursuant to an Offer to Purchase dated the date hereof (the "OFFER TO PURCHASE"), Lund Acquisition Corp., a Delaware corporation ("LUND ACQUISITION"), and a wholly-owned subsidiary of the Company intends to make a tender offer to purchase for cash (the "TENDER OFFER") all of the issued and outstanding shares of common stock, par value $.01 per share (the "TARGET COMMON STOCK"), of Deflecta-Shield Corporation, a Delaware corporation ("TARGET"), at a price of $16.00 per share of Target Common Stock (the "OFFER PRICE").


WHEREAS, pursuant to the Tender Offer, and subject to the terms and conditions set forth in the Offer to Purchase, Lund Acquisition intends to purchase not less than such number of shares of Target Common Stock which shall constitute at least a majority of the issued and outstanding Target Common Stock on a fully diluted basis (the "MINIMUM AMOUNT OF TARGET SHARES").


WHEREAS, as soon as practicable following the consummation of the Tender Offer, the Company intends to effect a merger of Lund Acquisition with and into Target (the "MERGER").


WHEREAS, in order to provide a portion of the funds required for the consummation of the Tender Offer, Lund Acquisition has received a Commitment Letter, dated the date hereof (the "COMMITMENT LETTER"), from Heller Financial, Inc. in favor of Lund Acquisition.


WHEREAS, in order to provide a portion of the funds required for the consummation of the Tender Offer, the Company desires to sell to the Purchaser, and the Purchaser desires to purchase from the Company, 874,400 shares of Common Stock and 1,493,398 shares of Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), of the Company.


NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:


ARTICLE I


DEFINITION


I.1 DEFINITIONS. As used in this Agreement, the following defined terms shall have the meanings indicated below:


"ACTIONS OR PROCEEDINGS" means any action, suit, proceeding, arbitration or Governmental or Regulatory Authority investigation or audit.


"AFFILIATE" means, as applied to any Person, (i) any other Person directly or indirectly controlling, controlled by or under common control with that Person, (ii) any other Person that owns or controls 5% or more of any class of equity securities (including any equity securities issuable upon the exercise of any Option) of that Person or any of its Affiliates, or (iii) any member, director, partner, officer, agent, employee or relative of such Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by", and "under common control with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities or by contract or otherwise. For the purpose of this Agreement, (i) neither the Purchaser, LIH Holdings I, nor any of their respective Affiliates shall be deemed to be "Affiliates" of the Company or any Subsidiary and (ii) neither the Company, any Subsidiary, nor any of their respective Affiliates shall be deemed to be "Affiliates" of the Purchaser or LIH Holdings I.


"AGREEMENT" means this Investment Agreement and the schedules hereto and the certificates delivered in connection herewith, as the same may be amended, modified or restated from time to time in accordance with the terms hereof.


"AMENDED AND RESTATED GOVERNANCE AGREEMENT" means the Amended and Restated Governance Agreement, dated as of the date hereof, among LIH Holdings I, the Purchaser and the Company, in the form attached as EXHIBIT C.


"ASSETS AND PROPERTIES" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including without limitation cash, cash equivalents, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and intellectual property.


"BUSINESS DAY" means a day other than Saturday, Sunday or any day on which banks located in the State of New York or the State of Minnesota are authorized or obligated to close.


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"BUSINESS OR CONDITION OF THE COMPANY" means the business, condition (financial or otherwise), results of operations, and Assets and Properties of the Company and the Subsidiaries taken as a whole.


"CHARTER" means the Certificate of Incorporation of the Company, as amended, after giving effect to the filing of the Class B-1 Certificate of Designation and the Series A Certificate of Designation with the Secretary of State of the State of Delaware.


"CLAIM NOTICE" has the meaning ascribed to it in Section 9.2(a).


"CLASS B COMMON STOCK" has the meaning ascribed to it in Section 3.3.


"CLASS B-1 CERTIFICATE OF DESIGNATION" means the Certificate of Designation with respect to the Class B-1 Common Stock in the form attached as EXHIBIT A, to be filed with the Secretary of State of the State of Delaware prior to the Closing.


"CLASS B-1 COMMON STOCK" has the meaning ascribed to it in introductory paragraphs of this Agreement.


"CLOSING" means the closing of the transactions contemplated by Section 2.2.


"CLOSING DATE" means the date on which the Closing actually occurs.


"COMMITMENT LETTER" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"COMMON STOCK" has the meaning ascribed to it in introductory paragraphs of this Agreement.


"COMPANY" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"CONTRACT" means any agreement, lease, debenture, note, evidence of Indebtedness, mortgage, indenture, security agreement or other contract or other commitment (whether written or oral).


"CREDIT AGREEMENT" means the Credit Agreement to be entered into between Heller Financial, Inc. and Lund Acquisition on or prior to the Closing Date pursuant to the terms of the Commitment Letter.


"DISPUTE PERIOD" means the period ending thirty (30) calendar days following receipt by an Indemnifying Party of an Indemnity Notice.


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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.


"FINANCIAL STATEMENT DATE" means June 30, 1997.


"GAAP" means United States generally accepted accounting principles, consistently applied throughout the specified period and in all prior comparable periods.


"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision, any arbitrator, tribunal or panel of arbitrators and, shall include any stock exchange, quotation service and the National Association of Securities Dealers.


"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder.


"INDEBTEDNESS" of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.


"INDEMNIFIED PARTY" has the meaning ascribed to it in Section 9.1.


"INDEMNIFYING PARTY" has the meaning ascribed to it in Section 9.1.


"INDEMNITY NOTICE" has the meaning ascribed to it in Section 9.2(c).


"LAWS" means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.


"LIENS" means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or Contract committing to grant any of the foregoing.


"LIH HOLDINGS I" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


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"LOSS" means any and all damages, fines, fees, penalties, deficiencies, losses and expenses, including interest, reasonable expenses of investigation, court costs, reasonable fees and expenses of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment (such fees and expenses to include all fees and expenses, including, without limitation reasonable fees and expenses of attorneys, incurred in connection with (i) the investigation or defense of any Third Party Claims or (ii) asserting or disputing any rights under this Agreement or any Transaction Document, against the Company and, including as to any indemnifiable claim of the Purchaser, any diminution in the value of the Shares.


"MERGER" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of the date hereof, among the Company, Lund Acquisition and Target.


"MINIMUM AMOUNT OF TARGET SHARES" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"OFFER PRICE" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"OFFER TO PURCHASE" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"OPTION" with respect to any Person means any security, right, subscription, warrant, option, "phantom" stock right or other Contract that gives the right to (i) purchase or otherwise receive or be issued any shares of capital stock or other equity interests of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock or other equity interest of such Person or (ii) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of capital stock or other equity interests of such Person, including without limitation any rights to participate in the equity, income or election of directors, management committee members or officers of such Person.


"ORDER" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).


"PERSON" or "PERSON" means any individual, corporation, joint stock corporation, limited liability company or partnership, general partnership, limited partnership, proprietorship, joint venture, other business organization, trust, union, association, Governmental or Regulatory Authority or other entity of any kind.


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"PREFERRED STOCK" has the meaning ascribed to it in Section 3.3.


"PURCHASE PRICE" has the meaning ascribed to it in Section 2.1.


"PURCHASER" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"RESOLUTION PERIOD" means the period ending thirty (30) calendar days following receipt by an Indemnified Party of a Dispute Notice.


"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


"SERIES A CERTIFICATE OF DESIGNATION" means the Certificate of Designation with respect to the Series A Preferred Stock in the form attached as EXHIBIT B, to be filed with the Secretary of State of the State of Delaware prior to the Closing.


"SERIES A PREFERRED STOCK" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"SHARES" has the meaning ascribed to it in Section 2.1.


"SUBSIDIARY" means any Person in which the Company, directly or indirectly through Subsidiaries or otherwise, beneficially owns more than fifty percent (50%) of either the equity interests in, or the voting control of, such Person.


"TARGET" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"TARGET COMMON STOCK" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"TENDER OFFER" has the meaning ascribed to it in the introductory paragraphs of this Agreement.


"TENDER OFFER MATERIALS" means the Tender Offer Statement on Schedule 14D-1 to be filed by the Company and Lund Acquisition with the SEC pursuant to Section 14(d)(1) of the Exchange Act, together with all exhibits thereto, including the form of Offer to Purchase, as amended or supplemented from time to time, in connection with the Tender Offer.


"THIRD PARTY CLAIM" has the meaning ascribed to it in Section 9.2(a).


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"TRANSACTION DOCUMENTS" means the Amended and Restated Governance Agreement and any support or other agreement to be entered into between the parties hereto in connection with the transactions contemplated by this Agreement.


"VCOC" has the meaning ascribed to it in Section 5.3.
I.2 CERTAIN CONVENTIONS. Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender, (ii) words using the singular or plural number also include the plural or singular number, respectively, (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement, (iv) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement, and (v) the phrases "ordinary course of business" and "ordinary course of business consistent with past practice" refer to the business and practice of the Company or a Subsidiary. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.


ARTICLE II


SALE OF SHARES; CLOSING


II.1 PURCHASE AND SALE. On the terms and subject to the conditions of this Agreement, at the Closing, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, 874,400 shares of Common Stock and 1,493,398 shares of Series A Preferred Stock (together, the "Shares"), free and clear of all Liens, for an aggregate purchase price (payable in cash in the manner provided in Section 2.2) equal to $30,000,000 (the "PURCHASE PRICE").


II.2 CLOSING. The Closing will take place at such location as the parties mutually agree on the date on which each of the conditions precedent set forth in Article VI and Article VII shall have been satisfied or waived as provided therein. At the Closing, the Purchaser shall pay the Purchase Price by wire transfer of immediately available funds to the account specified by the Company by written notice delivered to the Purchaser at least two (2) Business Days before the Closing Date. Simultaneously, the Company shall deliver to the Purchaser certificates, registered in the name of the Purchaser, representing the Shares. At the Closing, there shall also be delivered to the Company and the Purchaser the opinions, certificates and other Contracts, documents and instruments to be delivered under Articles VI and VII.


ARTICLE III


REPRESENTATIONS AND WARRANTIES OF THE COMPANY


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The Company represents and warrants to the Purchaser that the statements contained in this Article III are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article III).


III.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions in which the ownership, use or leasing of its Assets and Properties or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed, admitted or in good standing will not, individually or in the aggregate, have a material adverse effect on the Business or Condition of the Company.


III.2 POWER AND AUTHORITY. The Company has the requisite power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder, to consummate the transactions contemplated hereby and thereby and to consummate the transactions contemplated by the Tender Offer Materials, the Merger Agreement, the Commitment Letter and the Credit Agreement. The execution and delivery by the Company of this Agreement and the Transaction Documents to which it is a party, the performance by the Company of its obligations hereunder and thereunder, the consummation of the transactions contemplated hereby and thereby and the consummation of the transactions contemplated by the Tender Offer Materials, the Merger Agreement, the Commitment Letter and the Credit Agreement, have been duly and validly authorized by all necessary action on the part of the Board of Directors of the Company, which action of the Board of Directors is the only corporate action necessary therefor. This Agreement has been duly and validly executed and delivered by the Company and constitutes, and upon the execution and delivery by the Company of each Transaction Document to which it is a party, each such Transaction Document will constitute, a legal, valid and binding obligation of the Company, in each case enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to the enforcement of creditors' rights generally and by general principles of equity.


III.3 CAPITAL. As of the date hereof and prior to the transactions contemplated by this Agreement, the Transaction Documents, the Tender Offer Materials and the Credit Agreement, the authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, 3,000,000 shares of Class B Common Stock, par value $0.01 (the "CLASS B COMMON STOCK"), and 2,000,000 shares of Preferred Stock, par value $0.01 (the "PREFERRED STOCK"), of which (i) 4,393,970 shares of Common Stock are outstanding, all of which are validly issued, fully paid and non-assessable, and have been issued in compliance with all applicable federal and state securities laws, (ii) no shares of Class B Common Stock are outstanding and (iii) no shares of Preferred Stock are outstanding. Immediately after giving


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effect to the Closing and the other transactions contemplated by this Agreement, the Transaction Documents, the Tender Offer Materials and the Credit Agreement to occur on the Closing Date, (i) the authorized capital stock of the Company will consist of 25,000,000 shares of Common Stock, 3,000,000 shares of Class B Common Stock, of which 1,493,398 shares shall be designated Class B-1 Common Stock, and 2,000,000 shares of Preferred Stock, of which 1,493,398 shares shall be designated Series A Preferred Stock, in each case having the terms and conditions specified in the Charter, and (ii) the outstanding capital stock of the Company will consist of 5,268,370 shares of Common Stock and 1,493,398 shares of Series A Preferred Stock. Except for the Class B-1 Common Stock, the Series A Preferred Stock or as set forth in SCHEDULE I hereto, there are no, and immediately after giving effect to the Closing and the other transactions contemplated by this Agreement, the Transaction Documents, the Tender Offer Materials and the Credit Agreement to occur on the Closing Date, there will not be any, outstanding Options with respect to the Company, no agreements, arrangements or understandings to issue Options with respect to the Company and no preemptive rights or agreements, arrangements or understandings to issue preemptive rights with respect to the issuance or sale of the Company's capital stock. Upon issuance at the Closing, the certificate or certificates representing the Shares purchased hereunder to the Purchaser will grant the Purchaser good and valid title to the Shares free and clear of all Liens, and all the Shares will have been duly authorized, validly issued and fully paid and will be nonassessable. The Company has taken all necessary corporate action to reserve the full number of shares of Common Stock issuable upon conversion of the Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares, and the full number of shares of Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares. The Common Stock issuable upon conversion of the Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares and the Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares, when issued upon such conversion, will be duly authorized, validly issued, fully paid and nonassessable. Neither the execution, delivery or performance by the Company of this Agreement or the Transaction Documents to which it is a party, the issuance of the Shares as contemplated hereby, the issuance of shares of Common Stock upon conversion of the Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares, the issuance of shares of Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares, nor the consummation of the transactions contemplated by this Agreement, the Transaction Documents, the Tender Offer Materials, the Merger Agreement and the Credit Agreement, will give rise to or result in (with or without notice, lapse of time or both) any antidilution adjustment, acceleration of vesting or other change under or to any Option, except as set forth in SCHEDULE I hereto.


III.4 SUBSIDIARIES. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its Assets and Properties. Each Subsidiary is duly qualified, licensed or


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admitted to do business and is in good standing in those jurisdictions in which the ownership, use or leasing of such Subsidiary's Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed, admitted or in good standing will not, individually or in the aggregate, have a material adverse effect on the Business or Condition of the Company. All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable, and are owned, beneficially and of record, by the Company or Subsidiaries wholly owned by the Company, free and clear of all Liens. There are no outstanding Options with respect to any Subsidiary. Except for the Subsidiaries, the Company holds no equity, partnership, joint venture or other interest in any Person.


III.5 NO CONFLICTS. The execution and delivery by the Company of this Agreement and the Transaction Documents to which it is a party, the performance by the Company of its respective obligations hereunder and thereunder, the consummation of the transactions contemplated hereby and thereby (including, without limitation, the filing of the Class B-1 Certificate of Designation and the Series A Certificate of Designation, the issuance of the Shares, the issuance of the Common Stock upon conversion of the Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares, and the issuance of the Class B-1 Common Stock issuable upon conversion of the Series A Preferred Stock included in the Shares), and the consummation of the transactions contemplated by the Tender Offer Materials, the Merger Agreement, the Commitment Letter and the Credit Agreement does not and will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Company's certificate of incorporation or by-laws; (b) conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to the Company or any Subsidiary or any of their respective Assets and Properties; or (c) except as set forth on SCHEDULE II hereto, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require the Company or any Subsidiary to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (iv) result in any termination, cancellation, acceleration or modification of, or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, (vi) other than liabilities under this Agreement, the Transaction Documents and the transactions contemplated by this Agreement, the Transaction Documents, the Tender Offer Materials, the Merger Agreement, the Commitment Letter and the Credit Agreement, result in the creation of any new, additional or increased liability of the Company or any Subsidiary under or (vii) result in the creation or imposition of any Lien upon the Company or any Subsidiary or any of their respective Assets and Properties under, any Contract to which the Company or any Subsidiary is a party or by which any of their respective Assets and Properties are bound.

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