UNIVERSAL MANUFACTURING CO, 10KSB, 1999-10-28

UNIVERSAL MANUFACTURING CO
10KSB, 1999-10-28
MOTOR VEHICLE PARTS & ACCESSORIES

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<PAGE>

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended July 31, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]

For the transition period from_______________________to_______________________

Commission file number 0-2865

UNIVERSAL MFG. CO.
------------------
(Name of small business issuer in its charter)

Nebraska 42-0733240
- -------------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

405 Diagonal Street, Algona, Iowa 50511
- -------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: 515/295-3557
------------

Securities registered under Section 12(g) of the Exchange Act:

Common Stock ($1.00 par value)
------------------------------
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
-- --
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year. $19,511,446

State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act).

Common Stock ($1.00 par value) - $4,221,466.38 for October 20, 1999.

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

Common Stock ($1.00 par value) - 816,000 shares as of October 20, 1999.

This document consists of 45 pages. Page 1 of 45 Pages
See Page 10 for Exhibit Index

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of shareholders to
be held November 16, 1999, are incorporated by reference in Part III.

Transitional Small Business Disclosure Format (check one): Yes ; No X
--- ---

Page 2 of 45 Pages

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

(a) The Company is a Nebraska corporation which became incorporated on
December 12, 1945. During the fiscal year ended July 31, 1993, the Company
phased out remanufacturing of engines and increased its remanufacturing and sale
of component automotive parts to other Ford Authorized Remanufacturers. The
Company continues to market and distribute remanufactured engines. The Company's
source for such remanufactured engines is other Ford Authorized Remanufacturers.
The Company also distributes Ford branded parts and products to Ford dealers,
including, without limitation, remanufactured diesel parts, transmissions and
Ford branded car care products.

Due to the recent substantial growth in its distribution operations,
the Board of Directors authorized the organization of a separate limited
liability company to effect the separation of the manufacturing and distribution
operations of the Company. On June 17, 1999, the Company filed Articles of
Organization for "Universal Distribution LLC" and the Nebraska Secretary of
State's Office issued a Certificate of Organization. The Company owns a
ninety-nine percent (99%) membership interest in Universal Distribution LLC and
Mr. Donald D. Heupel owns the remaining one percent (1%) membership interest.
The Company is also the manager of Universal Distribution LLC. Profits and
losses from Universal Distribution LLC are allocated to the members based on
their capital accounts and thus, the Company will receive ninety-nine percent
(99%) and Mr. Heupel will receive one percent (1%) of the profits and losses.

In order to accommodate the increased inventories necessary to comply
with the requirements of Ford, the Company sold the warehouse it owned in Des
Moines, Iowa in April 1999. The sale of the Des Moines warehouse resulted in a
significant gain for the Company which amounted to $177,507. The Company is now
leasing a larger warehouse in Des Moines. The operating lease provides for
monthly base rent payments of $3,732, plus an allocation of lessor operating
expenses, currently $1,289 per month, through November 2001. As a result of the
Ford requirements, the Company also expanded its warehouse in Peoria, Illinois
to include an additional 9,000 square feet. The cost of this expansion was
approximately $360,000.

(b) The Company is engaged in the business of selling on a wholesale
basis remanufactured automotive parts for Ford, Lincoln and Mercury automobiles
and trucks. It is a franchised remanufacturer for Ford Motor Company. Used
automotive parts are the basic raw materials. The principal markets for the
Company's products are automotive dealers, parts jobber supply houses and other
Ford Authorized Remanufacturers. The Company has refocused its distribution
efforts from parts jobber supply houses to independent warehouse distributors
and warehouses. In addition to its remanufacturing activities, the Company also
sells, under a warehouse distributorship agreement with Ford Motor Company,
clutches, pressure plates, torque converters, transmissions, engine assemblies,
remanufactured diesel parts, power steering pumps, steering gears, starters,
alternators, ABS modules and Ford branded car care products.

The Company purchases approximately 55% of its new (i.e., non-used) raw
materials and all of its car care products from Ford Motor Company. Used parts
to be remanufactured are obtained in exchange with dealers, parts jobber supply
houses and other Ford Authorized Remanufacturers, or are purchased from salvage
dealers and other used parts suppliers. Approximately 75% of such used raw
materials are obtained by such exchange with the remaining 25% being purchased.
The Company purchases approximately 80% of its completed engine assemblies from
AER Mfg. Co. of Carrollton, Texas.

As an authorized distributor of remanufactured products, the Company's
competitive position is strongly related to that of Ford Motor Company. As of
April 1, 1995, the Company entered into an Authorized Remanufactured Product
Distributor Agreement with Ford Motor Company. A copy of such agreement is
attached as Exhibit 10(ii) to the Form 10-KSB for the fiscal year ended July 31,
1995. Among other things, the agreement provides that a Ford dealer may purchase
products from any Ford authorized remanufacturer and the agreement changed the
designation of the Company's status with respect to Ford Motor Company from
remanufacturer to distributor, with remanufacturing activities to be governed by
a specific annexed agreement (a copy of which is attached as part of Exhibit
10(ii) to the Form 10-KSB for the fiscal year ended July 31, 1995). The
Company's agreement with Ford Motor Company requires it to observe
specifications for remanufacturing which are provided by the engineering
department of Ford Motor

Page 3 of 45 Pages
<PAGE>

Company. Under the arrangement Ford Motor Company is permitted to inspect for
quality control purposes the plant and products of the Company. The Company
attempts to maintain a rigid program of quality control to assure conformance
with the specifications of Ford Motor Company. The Company's agreement with Ford
Motor Company to operate as an authorized distributor of remanufactured products
may be cancelled by either party upon thirty days' notice by the Company or upon
five days' notice by Ford Motor Company upon the occurrence of certain events
described in the agreement.

Effective October 1, 1998, the Company signed a new sales agreement with
the Ford Customer Service Division of the Ford Motor Company. This sales
agreement establishes the Company as a Ford Authorized Distributor and requires
the Company to distribute remanufactured products, Motorcraft branded products
and certain other Ford branded products to Ford Motor Company and
Lincoln-Mercury dealerships in territories near the Company's distribution
centers according to prescribed distribution standards. A copy of this
agreement is attached to this Form 10-KSB for the fiscal year ended July 31,
1999 as Exhibit 10(ii).

Ford Motor Company also published a price list for certain distribution
items distributed by the Company in early October which provided for reduced
gross margins (for example, from 21% to 15% on steering products). Shortly
thereafter, Ford Motor Company announced advance information on the addition of
two more product lines to be distributed by the Company (starters and
alternators), indicating similar gross margins. At the present time,
distribution activity represents approximately 75% of the Company's total sales.
Because of Ford Motor Company's deauthorization actions, present and
anticipated, the Company's distribution activities are expected to constitute a
higher percentage of overall sales.

While it is currently anticipated that total sales volume will increase
as a result of Ford Motor Company's recent actions, increased competition and
the reduced margins established by Ford Motor Company could adversely affect
future earnings. The Company is in the process of formulating and implementing a
strategic plan for alternative manufacturing and remanufacturing activities in
order to utilize its existing plant and attain other opportunities for
profitable operation.

The Company carries a substantial inventory of both raw materials and
finished parts. Relatively large stocks of raw material parts are required
because the Company remanufactures parts which may be as much as 30 years old.
The Company's business also requires that a range of finished engines and other
parts be maintained at each of its three warehouse facilities in order to serve
customers promptly. Each customer is entitled to return purchased items so long
as the dollar amount on return items does not exceed 5% of the customer's total
annual purchases. All sales are on an account receivable basis with payment due
by the 10th day of the following month.

The Company faces a wide range of competitors selling both new and used
engines and parts, including franchises of the other large automotive companies
and numerous independent suppliers. Competition is based upon price, service,
warranty terms and product performance.

The Company has filed a registration with the United States Patent &
Trademark Office seeking registration for the following mark as a trademark and
service mark: "Universal Remanufacturing Specialists" and design.

Under the 1979 amendments to the Clean Air Act, standards have been and
are being formulated which apply to automotive engines as newly manufactured.
Such regulatory standards have affected and will continue to affect the
Company's business by changing the design of the products which the Company
remanufactures. Refer to Item 3--Legal Proceedings for information with respect
to the implementation of certain remedial projects which include the separation,
removal and transportation of hazardous wastes related primarily to residues
from cleaning operations in response to a complaint against the Company filed by
the EPA.

As of July 31, 1999, the Company had 72 employees, all which were
full-time employees. In May 1993, the Company entered into a three year
agreement with the United Auto Workers Union ("UAW"), which represents the
Company's production employees. Effective May 5, 1996, the Company entered into
a new three year agreement with the UAW. The agreement calls for 2.6% hourly
wage increases of $.25, $.27 and $.29 on May 5 of each year of the agreement. By
mutual consent, the agreement has been extended for one year with no changes and
therefore, expires on May 5, 2000.

Page 4 of 45 Pages
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

The location and general description of the principal plants of the
Company are as follows:

<TABLE>
<CAPTION>
Location General Description Owned or Leased
----------------- ------------------- ---------------
<S> <C> <C>
Algona, Iowa Manufacturing Plant Owned
Des Moines, Iowa Warehouse Leased
Peoria, Illinois Warehouse Owned
Omaha, Nebraska Warehouse Owned
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

On February 25, 1991, the Company was served with a complaint,
compliance order and notice of opportunity for hearing from the United States
Environmental Protection Agency ("EPA") Region VII, Kansas City, Kansas. The
complaint contained eight counts of alleged violations of the Resource
Conservation and Recovery Act of 1976 and the Hazardous Waste Amendments of 1984
and sought to impose civil penalties against the Company totaling $511,535.

On May 6, 1994, the Company entered into a Consent Agreement and
Consent Order (the "Agreement") with the EPA. The Agreement settled all issues
arising under the 1991 complaint. The Company approved the Agreement without
admitting the allegations of the complaint and solely to avoid further costs of
litigation.

The Agreement imposed an immediate civil penalty of $32,955 which has
been paid by the Company. It also imposed an additional penalty of $176,374,
which has been deferred by the EPA pending the Company's performance and EPA's
approval of a Supplemental Environmental Project (the "Project") relating to the
removal of sludge from, and cleaning of, four wastewater collection pits at the
Company's manufacturing facility in Algona, Iowa. The terms of the Agreement
called for the entire deferred penalty to be offset and permanently waived upon
certain conditions, including completion of the Project to the satisfaction of
the EPA and that actual costs of the Project exceed or equal the $149,725
estimate of the Company's engineering firm. In the event that the Company's
actual costs for the Project are less than $149,725, the Company will be
required to pay an additional penalty equal to 62% of the difference between
$149,725, and the amount expended on the Project.

During July and August of 1994 the Company undertook the Project and
incurred costs of $91,076, or $58,649 less than the engineer's estimate,
potentially subjecting the Company to a deferred penalty of $36,362. After the
sludge was removed, however, additional contamination was found in the largest
of the wastewater collection pits. On June 10, 1998, the Company received notice
from the EPA authorizing submission of a detailed technical proposal for an
additional Project to ascertain information concerning environmental conditions
at the Company's Plant. The EPA notice stated that if approved, the cost of the
additional Project work could be used to offset the remaining approximately
$37,000 in deferred penalties owed by the Company to EPA under the Agreement. On
August 6, 1998, the Company's consultant submitted a proposed Project plan to
the EPA detailing soil sampling work and groundwater studies to be conducted
over a 48-week period at an estimated cost of $62,000, yielding an anticipated
$38,840 in after tax costs to the Company for offset against the remaining
deferred penalty. The EPA approved the consultant's proposal on September 11,
1999 and the work has been undertaken, but is not yet completed.

The Agreement also required the Company to proceed with preparation and
implementation of a closure plan for certain solid waste treatment and storage
facilities at its manufacturing facility in Algona, Iowa. This closure was
completed by the Company under EPA supervision in February of 1995 at a cost of
approximately $20,000. On July 25, 1995, the EPA determined that the closure met
all regulatory requirements and released $64,796 in deposits which the Company
previously was required to maintain for the costs of closure and for liability
assurance purposes under the EPA regulations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No response required.

Page 5 of 45 Pages
<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

THE COMPANY'S STOCK

The Company's stock is traded in the over-the-counter market and is
listed on the NASDAQ Small-Cap Market under the trading symbol UFMG. As of
September 8, 1999, there were 214 holders of record of the Company's common
stock. The following table lists the dividend declarations on the Company's
stock during the last two fiscal years:

<TABLE>
<CAPTION>
AMOUNT AMOUNT
DATE PER SHARE DATE PER SHARE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
September 22, 1998 $ .20 October 29, 1997 $ .25
January 19, 1999 .15 January 20, 1998 .25
April 20, 1999 .15 April 20, 1998 .20
July 20, 1999 .15 July 21, 1998 .20
- ---------------------------------------------------------------------------
1999 TOTAL $ .65 1998 TOTAL $ .90
</TABLE>

The high and low bid and asked prices for the Company's common stock
during the last two fiscal years are shown in the table below:

<TABLE>
<CAPTION>
HIGH LOW
CALENDAR QUARTERS BID ASKED BID ASKED
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3rd Quarter 1997 16 17 1/2 16 17 1/2
4th Quarter 1997 17 17 1/2 15 16
1st Quarter 1998 15 3/8 16 1/4 13 3/4 15 1/2
2nd Quarter 1998 15 1/4 15 3/4 10 11
3rd Quarter 1998 10 1/2 11 1/8 9 9 3/4
4th Quarter 1998 10 1/2 11 1/4 9 1/4 9 3/4
1st Quarter 1999 9 3/4 10 1/8 6 3/8 8
2nd Quarter 1999 6 3/4 8 1/2 4 7/16 4 5/8
</TABLE>

Information concerning stock prices has been obtained from The NASDAQ
Stock Market, Inc. The above quotations may reflect inter-dealer prices and may
not reflect retail mark-up, mark-down or commission or necessarily represent
actual transactions.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------

In fiscal 1999, Company sales increased .7%, as increases in sales of
remanufactured transmission assemblies, remanufactured engine assemblies, and
Motorcraft branded products offset the decrease in sales of remanufactured small
parts. In fiscal 1998, Company sales increased 1.5% due to continued increases
in sales to other Ford Authorized Remanufacturers and sales of Ford
Remanufactured distribution products.

Remanufactured engine unit sales in fiscal year 1999 were 3092, which
represents an increase of 115 units. Engine sales in fiscal 1998 were 2977.

Transmission unit sales increased by 791 in fiscal year 1999 to 4900
units. Transmission sales in fiscal 1998 were 4109, an increase of 326 over the
previous year.

Fiscal 1999 was the first year of sales of Motorcraft branded parts.
Sales totaled $896,075, with unit sales of 139,805.

Sales of Ford distribution products in fiscal 1999 were $10,605,806
compared to $6,770,540 in fiscal 1998. This increase was due to more product
lines being included in the distribution program. Sales to other Ford Authorized
Remanufacturers decreased to $2,539,721 in fiscal 1999 from $3,057,983 in fiscal
1998. This decrease is due to the deauthorization of some product lines.

In March 1999, prices were reviewed, resulting in no significant price
changes. In March 1998, prices were reviewed, but again net price changes were
not significant. In February 1997, prices were reviewed and selectively
increased about 2.5%.

A three year agreement between the Company and the United Auto Workers,
which represents the production employees, expired in May 1999. However, by
mutual consent the agreement was extended one year with no changes.

Interest income for fiscal 1999 was $71,787; in fiscal 1998 it was
$43,213; and in fiscal 1997 it was $49,109. Investment amounts were generally
higher during fiscal 1999 than during fiscal 1998, and available investment
rates were approximately the same. Investment amounts were slightly lower during
fiscal 1998 than during fiscal 1997, and again available rates were
approximately the same.

The following table shows the comparison for the last five fiscal years
of gross profit and selling, general, and administrative expenses as a
percentage of net sales. The reduced gross margin is the result of the sales mix
changing to more Ford Remanufactured distribution products. The increased
selling, general, and administrative expenses were due to the higher costs of
meeting the standards of the Ford distribution program.

<TABLE>
<CAPTION>
GROSS PROFIT SELLING, GENERAL AND
AS PERCENTAGE ADMINISTRATIVE EXPENSES AS
FISCAL YEAR OF NET SALES PERCENTAGE OF NET SALES
- -------------------------------------------------------------------------------
<S> <C> <C>
1995 21.4% 12.8%
1996 21.7% 11.4%
1997 20.8% 10.8%
1998 19.8% 11.0%
1999 15.8% 13.7%
</TABLE>

Earnings per share of common stock decreased $.77 due to a lower gross
margin and increased selling expenses. Earnings per share of common stock
decreased $.07 in fiscal 1998 also due to lower gross margin and increased
selling, general, and administrative expenses. Earnings per share of common
stock increased $.02 in fiscal 1997 due to increased sales volume.

The ratio of current assets to current liabilities of 1.86 to 1 is
lower than the ratio of 2.5 a year ago. However, most of the difference is
attributable to the deferred purchase terms of Ford distribution products, so
reasonable liquidity continues to be maintained. Inventories in fiscal 1999 were
higher than in fiscal 1998. Our total cash and short-term investments at fiscal
year-end for the past three years were:

<TABLE>
<CAPTION>
TOTAL OF CASH AND
FISCAL YEAR SHORT TERM INVESTMENTS
- -----------------------------------------------------------
<S> <C>
1999 $ 424,188
1998 $ 1,234,007
1997 $ 881,389
</TABLE>

It is anticipated that certain capital expenditures will be required to
increase the current level of business and service. Continued growth in
distribution programs will require investment in additional inventories.
Management believes that some debt may be required to make the transition to
higher levels of inventory and to finance future capital needs.

The process of incorporating the change in Ford's distribution program
continues, as more products which were remanufactured are deauthorized, and as
more product lines are made available for distribution. The Company is uncertain
which products will be included in future remanufacturing activities, and what
distribution opportunities will be available in the future.

In connection with the complaint filed by the Environmental Protection
Agency (EPA) described in Note 6 of the Notes to Consolidated Financial
Statements, the Company accrued an expense of $149,725 in fiscal 1994 to account
for clean up costs or additional penalty as provided in the settlement agreement
with the Environmental Protection Agency (EPA). Portions of this amount were
expended in each of fiscal 1994, 1995, and 1999.

The Company had no bank borrowings during the fiscal year ended July
31, 1999.

UNIVERSAL DISTRIBUTION LLC

Due to the substantial growth in its distribution operations, the Board
of Directors authorized the organization of a separate limited liability company
to effect the separation of the manufacturing and distribution operations of the
Company. On June 17, 1999, the Company filed Articles of Organization for
"Universal Distribution LLC" and the Nebraska Secretary of State's Office issued
a Certificate of Organization. The Company owns a ninety-nine percent (99%)
membership interest in Universal Distribution LLC and Mr. Donald D. Heupel owns
the remaining one percent (1%) membership interest. The Company is also the
manager of Universal Distribution LLC. Profits and losses from Universal
Distribution LLC are allocated to the members based on their capital accounts
and thus, the Company will receive ninety-nine percent (99%) and Mr. Heupel will
receive one percent (1%) of the profits and losses.

In order to capitalize Universal Distribution LLC and to enable the
newly organized entity to commence distribution operations, Universal Mfg. Co.
made an initial capital contribution of $99,000 and transferred approximately
$2,709,566.00 worth of cash and inventory to Universal Distribution LLC. Title
to all other assets, including, without limitation, all land, buildings,
machinery and equipment remains with Universal Mfg. Co. In exchange for his one
percent (1%) membership interest, Mr. Heupel made an initial capital
contribution of $1,000 and contributed an additional $27,095.66.

The Company loaned Mr. Heupel the principal sum of $27,095.66 pursuant
to a Loan Agreement and Promissory Note dated July 31, 1999. The loan enabled
Mr. Heupel to satisfy the supplemental capital call made by the Company as the
controlling member of Universal Distribution LLC. The Promissory Note is payable
in five equal annual installments and the unpaid principal balance accrues
interest until maturity at an annual rate of 5.82%. Thereafter, any unpaid
principal and interest due on the Promissory Note will bear interest until paid
at the rate of 8% per annum. The Loan Agreement further obligates the Company to
loan Mr. Heupel additional funds to satisfy future capital calls on
substantially the same terms and conditions.

YEAR 2000 DISCLOSURE

Computer programs written over the past twenty-five years with a
2-digit standard, rather than 4-digits, have caused the year 2000 predicament we
are in today. "Year fields" are assigned 2-digits instead of 4-digits in
computer software programs throughout the world. The 2-digit year standard was
employed to save expensive storage space and reduce keystrokes. The use of
2-digit years is widespread, including software programs, data files, electronic
interchange systems and micro code embedded in purchased hardware and equipment.
Like all businesses, the Company is faced with the challenges of modifying its
software, hardware, firmware, and equipment to make it correctly store, sort,
calculate, and process date data before, during, and after January 1, 2000.

In fiscal year 1998, through routine upgrades, the Company made the
computer software programs and equipment utilized at the Company's facilities
year 2000 compliant. These upgrades include, but are not limited to, the
manufacturing, financial and accounting, invoicing, production, sales, and
warehouse management systems. The Company has not incurred significant
identifiable costs as a result of the upgrade of its internal system to year
2000 compliance.

The Company is investigating the year 2000 status of the Company's
non-information/technology systems ("Non-IT Systems") which includes phones,
voice mail, heating/air conditioning, electricity, security systems, and lift
trucks. Letters and communications received from the manufacturers or suppliers
for the Company's Non-IT Systems indicate that the Company's Non-IT Systems are
currently year 2000 compliant. The Company will continue to investigate to
confirm that all Non-IT Systems are in fact year 2000 compliant.

In addition to reviewing its internal systems, the Company initiated
formal communications with its mission-critical outside vendors, distributors,
suppliers, customers, and freight carriers (collectively "Suppliers") to
determine whether they are year 2000 compliant and to attempt to identify any
potential issues for the Company. The Company has received responses from almost
all of its mission-critical Suppliers indicating that the year 2000 should not
interrupt the flow of goods or services to the Company. The interdependent
relationship between the Company and these Suppliers makes the Company
vulnerable to the Suppliers' failure to remediate their own year 2000 issues. If
these third parties do not achieve year 2000 compliance before the end of 1999,
the Company may experience a variety of problems which may have a material
adverse effect on the Company.

To the extent the Company's vendors are not year 2000 compliant, such
vendors may fail to deliver ordered materials and products to the Company and
may fail to bill the Company properly and promptly. Consequently, the Company
may not have the correct inventory to send to its customers and may experience a
shortage of inventory. Any disruption in manufacturing services provided by the
Company as a result of year 2000 noncompliance could have a material adverse
affect on the Company's business, financial condition, and results from
operations.

Management is committed to devoting the appropriate resources to ensure
a timely year 2000 solution and will continue to test current and new versions
of the Company's computer software and equipment, and will work with necessary
third parties.

FORWARD LOOKING STATEMENT SAFE HARBOR

Statements that are not historical facts, including without limitation,
statements about our confidence, strategies, expectations and beliefs,
technologies and opportunities, industry and market segment growth, demand and
acceptance of new and existing products, and return on investments in products
and markets are forward looking statements that involve risks and uncertainties,
including, without limitation, the affect of general economic and market
conditions, customer requirements for our products, the continuing strength of
the automotive industry, competitive pricing, maintenance of our current
momentum, weather conditions and other factors.

ITEM 7. FINANCIAL STATEMENTS

- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------

To the Stockholders and Board of Directors
Universal Mfg. Co.:

We have audited the accompanying consolidated balance sheets of
Universal Mfg. Co. and subsidiary (Company) as of July 31, 1999 and 1998 and the
related consolidated statements of income and retained earnings and of cash
flows for each of the three years in the period ended July 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of July 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended July 31, 1999 in conformity with generally
accepted accounting principles.

/s/ Deloitte & Touche LLP
Des Moines, Iowa
August 27, 1999

<PAGE>

UNIVERSAL MFG. CO. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 31,
---------------------------------
ASSETS 1999 1998
------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 424,188 $ 1,234,007
Accounts receivable 2,559,918 2,141,099
Inventories 3,620,018 2,611,961
Income taxes recoverable 23,545
Prepaid expenses 12,027 19,798
------------- -----------
Total current assets 6,616,151 6,030,410
------------- -----------

DEFERRED INCOME TAXES 277,505 24,188

PROPERTY:
Land 120,499 120,499
Buildings 1,352,776 1,406,747
Machinery and equipment 1,038,810 1,013,923
Furniture and fixtures 304,083 264,924
Trucks and automobiles 755,590 870,579
Construction in progress 341,155
------------- -----------
Total property 3,912,913 3,676,672
Less accumulated depreciation (2,266,225) (2,201,225)
------------- -----------
Property - net 1,646,688 1,475,447
------------- -----------

$ 8,540,344 $ 7,530,045
------------- -----------
------------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $ 3,089,945 $ 2,199,744
Dividends payable 122,400 163,200
Income taxes payable 226,989
Accrued payroll taxes 41,195 27,828
Accrued compensation 59,443 81,495
Accrued local taxes 18,625 17,570
------------- -----------
Total current liabilities 3,558,597 2,489,837
------------- -----------

MINORITY INTEREST IN SUBSIDIARY 4,201
------------- -----------

STOCKHOLDERS' EQUITY:
Common stock, $1 par value - authorized, 2,000,000 shares; issued
and outstanding, 816,000 shares 816,000 816,000
Additional paid-in capital 17,862 17,862
Retained earnings 4,143,684 4,206,346
------------- -----------
Total stockholders' equity 4,977,546 5,040,208
------------- -----------

$ 8,540,344 $ 7,530,045
------------- -----------
------------- -----------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNIVERSAL MFG. CO. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE YEARS ENDED JULY 31, 1999

1999 1998 1997
------------- ------------ ------------

<S> <C> <C> <C>
NET SALES $19,511,446 $19,372,976 $19,089,166

COST OF GOODS SOLD 16,438,008 15,532,466 15,111,618
------------- ------------ ------------

GROSS PROFIT 3,073,438 3,840,510 3,977,548

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,666,512 2,132,669 2,068,321
------------- ------------ ------------

INCOME FROM OPERATIONS 406,926 1,707,841 1,909,227

OTHER INCOME:
Interest income 71,787 43,213 49,109
Gain on sales of property 159,535 4,589 2,459
Other 7 14,231 10,582
------------- ------------ ------------
Total other income 231,329 62,033 62,150
------------- ------------ ------------

INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 638,255 1,769,874 1,971,377

MINORITY INTEREST 3,201
------------- ------------ ------------

INCOME BEFORE INCOME TAXES 635,054 1,769,874 1,971,377

INCOME TAXES 167,316 680,221 818,450
------------- ------------ ------------

NET INCOME 467,738 1,089,653 1,152,927

RETAINED EARNINGS, BEGINNING OF YEAR 4,206,346 3,851,093 3,514,166

LESS CASH DIVIDENDS - ($.65, $.90, and $1.00 per share in 1999, 1998
and 1997, respectively) 530,400 734,400 816,000
------------- ------------ ------------

RETAINED EARNINGS, END OF YEAR $ 4,143,684 $ 4,206,346 $ 3,851,093
------------- ------------ ------------
------------- ------------ ------------

BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.57 $ 1.34 $ 1.41
------------- ------------ ------------
------------- ------------ ------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNIVERSAL MFG. CO. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JULY 31, 1999

1999 1998 1997
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 467,738 $ 1,089,653 $ 1,152,927
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation 236,296 196,186 190,749
Deferred income taxes (253,317) 20,020 (1,879)
Gain on sales of property (159,535) (4,589) (2,459)
Minority interest in subsidiary 3,201
Effect of changes in operating assets and liabilities:
Accounts receivable (418,819) (256,182) (229,925)
Inventories (1,008,057) (199,249) 67,001
Income taxes recoverable 23,545 (365) (23,180)
Prepaid expenses 7,771 51,131 (20,647)
Accounts payable 890,201 780,019 (88,219)
Accrued payroll taxes 13,367 2,884 14,405
Income taxes payable 226,989 - (56,790)
Accrued compensation (22,052) (6,136) (2,415)
Accrued local taxes 1,055 (4,699) 8,285
------------- ------------ ------------
Net cash flows from operating activities 8,383 1,668,673 1,007,853
------------- ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property 203,116 19,050 88,400
Purchases of property (451,118) (559,905) (332,936)
------------- ------------ ------------
Net cash flows from investing activities (248,002) (540,855) (244,536)
------------- ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (571,200) (775,200) (816,000)
Proceeds from issuance of minority interest in subsidiary 1,000
------------- ------------ ------------
Net cash flows from financing activities (570,200) (775,200) (816,000)
------------- ------------ ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS (809,819) 352,618 (52,683)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,234,007 881,389 934,072
------------- ------------ ------------

CASH AND CASH EQUIVALENTS, END OF YEAR $ 424,188 $ 1,234,007 $ 881,389
------------- ------------ ------------
------------- ------------ ------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes $ 170,099 $ 662,445 $ 898,426
------------- ------------ ------------
------------- ------------ ------------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES

As discussed in Note 3, the Company advanced $27,379 to its president
which, together with $1,000 cash, were contributed to Universal Distribution LLC
in exchange for a 1% ownership.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNIVERSAL MFG. CO. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JULY 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS - Universal Mfg. Co. and subsidiary (Company) is
engaged in the business of remanufacturing and distributing, on a
wholesale basis, engines and other automotive parts for Ford, Lincoln
and Mercury automobiles and trucks. Remanufactured engines for non-Ford
vehicles are also marketed on a limited basis. During the year ended
July 31, 1999, Ford deauthorized the remanufacturing of several
automotive parts which were being remanufactured by the Company. On
October 1, 1998, the Company signed a new sales agreement with Ford
Motor Company (Ford) authorizing the Company to be a Ford authorized
distributor. The Company purchases the majority of its new raw
materials and distribution product from Ford. The principal markets for
the Company's products are automotive dealers and jobber supply houses
located in the Midwest.

PRESENTATION - The accompanying consolidated financial statements
include the accounts of Universal Mfg. Co. and its subsidiary,
Universal Distribution LLC. Universal Distribution LLC, owned 99% by
Universal Mfg. Co. and 1% by the Company's president, was established
on June 30, 1999 to operate the Company's distribution operations. The
remanufacturing operations remained within Universal Mfg. Co. All
intercompany balances and transactions have been eliminated in
consolidation.

CASH EQUIVALENTS - The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash
equivalents.

INVENTORIES - Inventories are stated at the lower of cost, determined
on a last-in, first-out (LIFO) basis or market.

PROPERTY - Property is depreciated generally using accelerated methods
over the following estimated lives:

ASSETS LIVES
------ -----
<S> <C>
Buildings 10-20 years
Machinery and equipment 7-10 years
Furniture and fixtures 5-7 years
Trucks and automobiles 3-5 years
</TABLE>

Maintenance and repairs are charged to operations as incurred. Renewals
and betterments are capitalized and depreciated over their estimated
useful service lives. Gains or losses are recognized at the time of
disposal.

LONG-LIVED ASSETS - The Company reviews the carrying amount of
long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.

ACCRUED WARRANTY COSTS - The Company accrues estimated future warranty
claims based on historical experience.

REVENUE RECOGNITION - Revenues are recognized upon shipment of
products.

INCOME TAXES - The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Accordingly, deferred tax assets and
liabilities are established for temporary differences between the
financial reporting bases and tax bases of the Company's assets and
liabilities.

USE OF ESTIMATES - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

FINANCIAL INSTRUMENTS - Cash and cash equivalents, accounts receivable
and accounts payable are short-term in nature and the values at which
they are recorded are considered to be reasonable estimates of their
fair values.

EARNINGS PER SHARE - Earnings per share have been computed on the
weighted average number of shares outstanding during each respective
year (816,000 shares).

NEWLY-ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, effective for fiscal years beginning after June 15,
1999. The Company has not yet determined the financial statement impact
of adopting FASB 133.

2. INVENTORIES

The major classes of inventory are as follows:

<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Product cores $ 2,286,891 $ 1,169,485
Raw materials 315,861 470,768
Finished engines 287,779 336,941
Finished small parts 1,351,866 634,767
------------ -------------
4,242,397 2,611,961
Obsolescence reserve (622,379)
------------ -------------

$ 3,620,018 $ 2,611,961
------------ -------------
------------ -------------
</TABLE>

If inventories were valued at the lower of cost (first-in, first-out
method) or market, inventories would have been $6,601,714 and
$5,655,407 at July 31, 1999 and 1998, respectively.

3. NOTE RECEIVABLE - OFFICER

During the year ended July 31, 1999, the Company exchanged a 1%
interest in Universal Distribution LLC for a note receivable of $27,379
from its president plus $1,000 cash. The note is payable in annual
installments of $6,401, including interest at 5.82%, through August 1,
2004. The note has been netted against minority interest in the
accompanying consolidated balance sheet.

4. INCOME TAXES

The provision for income taxes consists of the following for the years
ended July 31:

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current income taxes $ 420,633 $ 660,201 $ 820,329
Deferred income taxes (253,317) 20,020 (1,879)
------------ ------------- -----------
Income tax provision $ 167,316 $ 680,221 $ 818,450
------------ ------------- -----------
------------ ------------- -----------
</TABLE>

Deferred tax assets are comprised of the following at July 31:

<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Inventory obsolescence $ 248,951
Depreciation (24,384) $ (30,480)
Uniform inventory capitalization 26,299 12,867
Vacation pay accruals 16,956 11,770
EPA liability 8,010 23,885
Other 1,673 6,146
--------- ---------
Deferred income taxes $ 277,505 $ 24,188
--------- ---------
--------- ---------
</TABLE>

A reconciliation between statutory and effective tax rates is as follows:

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income before income taxes $ 635,054 $ 1,769,874 $ 1,971,377
Statutory rate 34% 34% 34%
---------- --------- ---------
Income taxes at statutory rates 215,918 601,757 670,268
Tax effect of:
State taxes 48,899 130,074 159,387
State tax refunds - prior years (50,000)
Other (47,501) (51,610) (11,205)
---------- --------- ---------

Total income taxes $ 167,316 $ 680,221 $ 818,450
---------- --------- ---------
---------- --------- ---------
</TABLE>

5. 401(k) PLAN

The Company sponsors a 401(k) plan which covers substantially all
non-union employees. Company matching contributions are at the
discretion of management. Total expenses under the plan were $29,498,
$42,790 and $20,667 for the years ended July 31, 1999, 1998 and 1997,
respectively.

6. EPA PROJECT COSTS

In February, 1991, the Company was served with a complaint from the
United States Environmental Protection Agency (EPA) which contained
eight counts of alleged violations of the Resource Conservation and
Recovery Act of 1976 and the Hazardous Solid Waste Amendments of 1984.
The complaint alleged, among other things, that the Company failed to
adequately test and properly transport certain residue of hazardous
wastes which it was treating at its facility. The Company entered into
a Consent Agreement and Consent Order with the EPA dated May 6, 1994,
which provided for settlement of this complaint.

This settlement called for payment of a civil penalty of $32,955, and
for the completion of certain remedial projects, estimated to cost
$149,725. Total amounts paid through July 31, 1999 were $129,701. The
remaining amount of $20,024 is recorded as a liability in the
accompanying consolidated financial statements.

On June 10, 1998, the Company received notice from the EPA authorizing
submission of a proposal for treatment on additional contamination
found after the initial hazardous waste was removed. The EPA approved
that costs related to studies for the removal of the additional
contamination could be offset against the remaining liability, if
approved. On August 6, 1998, the Company received a proposal to study
the additional contamination with an estimated cost approximating the
liabilities recorded at July 31, 1999 and 1998.

7. CREDIT ARRANGEMENTS

The Company has a $500,000 line of credit with a local bank. Advances
under this line of credit bear interest at an annual rate of 7.5%. The
line of credit expires on April 17, 2000. At July 31, 1999, there were
no outstanding borrowings under this facility.

8. OPERATING LEASES

The Company has entered into lease agreements for five trucks. Each
operating lease provides for monthly payments ranging from $880 to $913
through April 2002. The Company has also entered into a lease agreement
for a warehouse. The operating lease provides for monthly base rent
payments of $3,732, plus an allocation of lessor operating expenses,
currently $1,289 per month, through November 2001. Rent expense for the
year ended July 31, 1999 totaled $67,968.

Future minimum lease payments under noncancellable operating leases are
as follows:

<TABLE>
<CAPTION>
Year ending July 31

9. SEGMENT INFORMATION

Beginning with the formation of Universal Distribution LLC on June 30,
1999 (see note 1), the Company has two operating segments:
manufacturing and distribution. Operating segments are determined on
the basis of product and legal entity. The manufacturing segment
remanufacturers various automotive parts. The distribution segment
purchases and distributes finished engines and other automotive parts.
Both segments sell their product primarily to Ford automobile dealers
located in the Midwest.

The accounting policies of the segments are the same as those described
in the summary of significant accounting policies (see note 1).
Allocations of certain administrative expenses are made between
segments. Selected financial information for each segment as of and for
the year ended July 31, 1999, is presented below. Information regarding
the distribution segment is from June 30, 1999 forward.

<TABLE>
<CAPTION>
MANUFACTURING DISTRIBUTION TOTAL

<S> <C> <C> <C>
Revenues $17,834,749 $ 1,676,697 $19,511,446
Interest income 69,118 2,669 71,787
Depreciation expense 225,694 10,602 236,296
Income tax expense 83,814 83,502 167,316
Net income 234,306 233,432 467,738
Total assets 1,120,995 7,419,349 8,540,344
Purchases of property 451,118 451,118
</TABLE>

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

No response required.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The following information set forth in the Company's proxy statement
for its annual meeting of shareholders to be held November 16, 1999, is
incorporated by reference:

"Election of Directors" - Pages 3, 4, and 5.
"Management" - Page 5-6.
"Section 16(a) Beneficial Ownership Reporting Compliance" -
Page 10.

ITEM 10. EXECUTIVE COMPENSATION

The following information set forth in the Company's proxy statement
for its annual meeting of shareholders to be held November 16, 1999, is
incorporated by reference:

"Compensation of President and Directors" - Page 6.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following information set forth in the Company's proxy statement
for its annual meeting of shareholders to be held November 16, 1999, is
incorporated by reference:

"Ownership of Voting Securities by Directors and Nominees" -
Pages 7 and 8.
"Principal Holders of Voting Securities" - Page 11.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following information set forth in the Company's proxy statement
for its annual meeting of shareholders to be held November 16, 1999, is
incorporated by reference:

"Certain Transactions" - Page 8
"Indebtedness of Management" - Page 8.

Page 6 of 45 Pages

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) List of Exhibits

(2) Plan or acquisition, reorganization,
arrangement, liquidation or succession. None
required.

(3)(i) Articles of Incorporation. The Articles of
Incorporation of the Company are incorporated
by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended July
31, 1980, Page 26, to the Company's Annual
Report on Form 10-K for the fiscal year ended
July 31, 1986, Pages 15 to 16 and to the
Company's Annual Report for the fiscal year
ended July 31, 1987, Pages 15 to 16.

(ii) Bylaws. The Bylaws of the Company are
incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended July 31, 1993, Pages 12-24.

(4) Instruments defining the rights of security
holders, including indentures. None required.

(9) Voting trust agreement. None required.

(10) Material contracts.

(i) The Company's Rent Agreement with
Dealers Manufacturing Co., dated May
26, 1993, is incorporated by reference
to the Company's Annual Report on Form
10-KSB for the fiscal year ended July
31, 1993, Pages 25-29.

(ii) Effective October 1, 1998, the Company
entered into a Ford Authorized
Distributor Sales Agreement and
Battery Distributor Addendum a copy of
which is attached hereto. See pages
12-37.

(11) Statement re: computation of per share
earnings. None required.

(13) Annual or quarterly reports, Form 10-Q. None
required.

(16) Letter on change in certifying accountant.
None required.

(18) Letter on change in accounting principles.
None required.

(21) Subsidiaries of the registrant. See page 38.

(22) Published report regarding matters submitted
to vote. None required.

(23) Consent of experts and counsel. None
required.

Page 7 of 45 Pages
<PAGE>

(24) Power of attorney. None required.

(27) Financial Data Schedule. See page 39.

(99) Additional Exhibits.

(i) Universal Mfg. Co. Form 8-K filed
October 21, 1998 and incorporated
by reference.

(ii) Universal Mfg. Co. national press
release issued February 25, 1999
describing the reduced earnings for
the second quarter of fiscal year
1999. See pages 43-44.

(iii) Universal Mfg. Co. national press
release issued June 11, 1999
announcing the addition of Steve
Nelson to its management team as
Director of Distribution
Operations. See page 45.

(iv) Universal Mfg. Co. Form 8-K filed
August 10, 1999 and incorporated by
reference.

(b) Form 8-Ks filed during the fiscal year ended July 31,
1999.

(i) The Company filed a current report on
Form 8-K on October 21, 1998 reporting
recent actions of Ford Motor Company
which incorporated a press release
issued October 20, 1998.

(ii) The Company filed a current report on
Form 8-K on August 10, 1999 reporting
the formation of Universal
Distribution LLC and the separation
Universal Mfg. Co.'s manufacturing and
distribution operations which
incorporated a press release issued
August 9, 1999.

Page 8 of 45 Pages
<PAGE>

SIGNATURES

In accordance with Section 13 of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

UNIVERSAL MFG. CO.

By: By:
---------------------------------- ----------------------------------
Donald D. Heupel, President, Chief T. Warren Thompson, Secretary and
Executive Officer, Chief Financial Director
Officer and Director

Date: October 27, 1999 Date: October 27, 1999

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.

By: Date: October 27, 1999
---------------------------------
Richard R. Agee/Director

By: Date: October 27, 1999
---------------------------------
Richard E. McFayden/Director

By: Date: October 27, 1999
---------------------------------
Helen Ann McHugh/Director

By: Date: October 27, 1999
---------------------------------
Harry W. Meginnis/Director

By: Date: October 27, 1999
---------------------------------
Thomas W. Rasmussen/Director

Page 9 of 45 Pages
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Page
No. Description Method of Filing Location
------- ----------- ---------------- ------------
<S> <C> <C> <C>
3(i) Articles of Incorporation Incorporated by reference to the Company's Annual --
Report on Form 10-K for the fiscal year ended July
31, 1980, Page 26, to the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1986,
Pages 15-16 and to the Company's Annual Report for
the fiscal year ended July 31, 1987, Pages 15-16.

3(ii) Bylaws Incorporated by reference to the Company's Annual --
Report on Form 10-KSB for the fiscal year ended July
31, 1993, Pages 12-24.

10(i) The Company's Rent Agreement Incorporated by reference to the Company's Annual --
with Dealers Manufacturing Report on Form 10-KSB for the fiscal year ended July
Co., dated May 26, 1993 31, 1993, Pages 25-29.

10(ii) Ford Authorized Distributor Filed herewith. 12-37
Agreement effective October
1, 1998

21 Subsidiaries of Registrant Filed herewith 38

27 Financial Data Schedule Filed herewith. 39

99(i) Form 8-K filed October 21, Incorporated by reference. --
1998

99(ii) Press Release issued February Filed herewith. 43-44
25, 1999.

99(iii) Press released issued June Filed herewith. 45
11, 1999.

99(iv) Form 8-K filed August 10, Incorporated by reference. --
1999.
</TABLE>

Page 10 of 45 Pages

<PAGE>

EXHIBIT 10(ii)

FORD DISTRIBUTION AGREEMENT

See attached

Page 11 of 45 Pages

<PAGE>
[FORD LOGO]

FORD AUTHORIZED DISTRIBUTOR SALES AGREEMENT
FORD CUSTOMER SERVICE DIVISION
FORD MOTOR COMPANY

AGREEMENT made as of this 1st day of October, 1998, by and between
Universal Mfg. Co. ,
- -----------------------------------------------------
(Give Name(s) of Individual, Partners or Corporation)

[]an individual, []a partnership,
[X] a(n) Nebraska Corporation, doing business as,
------------------------
(State of Incorporation)
Universal Mfg. Co. with a principal place of business at
- --------------------------
(Distributor's Trade Name)
405 Diagonal Street, Algona IA 50511
- -------------------- --------------------------, (hereinafter called
(Street and Number) (City, State and Zip Code)
the "Distributor") and Ford Motor Company, a Delaware corporation with its
principal place of business in Dearborn, Michigan (hereinafter called the
"Company").

PREAMBLE

The purpose of this Agreement is to establish the Distributor as a Ford
Authorized Distributor of Authorized Products, as hereinafter defined, and to
set forth the respective responsibilities of the Company and the Distributor
in the sale of Authorized Products by the Company to the Distributor and the
resale of Authorized Products by the Distributor. The Distributor must
continuously demonstrate, fulfill and satisfy all of the requirements and
obligations set forth in this Agreement.

In consideration of the mutual agreements and acknowledgments herein
made, the Company and the Distributor agree as follows:

A. DEFINITIONS. As used herein, the following terms shall have the
following meanings:

1. "Authorized Product" shall mean product(s) identified in section B
of this Agreement and the corresponding written Addendum's, if any, referred
to therein.

2. "Distributor Price" shall mean the price established by the Company
which may be changed from time to time, for each Authorized Product sold by
the Company to the Distributor.

3. "Distributor's Area" shall mean the geographic area, within the
United States, around the Distributor's location for which the Distributor
can meet all "Ford Authorized Distributor-to-Dealer Standards," which may
change from time to time.

4. "Authorized Dealers" shall mean those Ford and Lincoln-Mercury
motor vehicle dealers in the United States who are authorized by the Company
to sell and service automotive products offered by the Company.

FCS 7391 Sales, August 1998 (Previous editions may not be used)

<PAGE>

Page 2

5. "Ford Authorized Distributor-to-Dealer Standards" shall mean those
performance standards relating to the level of service the Distributor
provides to Authorized Dealers with respect to each type of Authorized
Product, which may change from time to time.

6. "Ford Authorized Distributor Policy and Procedure Manual" shall
mean the manual provided by the Company to the Distributor setting forth the
policies and procedures affecting the business relationship between the
Company and the Distributor, as well as the standards to which the
Distributor shall comply, which may change from time to time.

B. AUTHORIZED PRODUCT(S). The Company hereby appoints the Distributor
as a Ford Authorized Distributor to purchase from the Company and sell to
Authorized Dealers and other customers, subject to the terms of this
Agreement and the Standard Provisions, the following designated products
which shall be deemed to be "Authorized Product(s)" for purposes of this
Agreement:

(INITIAL THE SUBPARAGRAPH(S) WHICH APPLY)

Initials
--------
1. Automotive replacement parts or products made or sold by the
Ford Customer Service Division under the "Motorcraft" and "Ford"
trademarks and other Ford remanufactured automotive replacement
parts or products offered by the Ford Customer Service Division
to the Distributor for resale (except Powertrain components and
Bulk Lubricants) and all such other products the Ford Customer
Service Division may offer from time to time to the Distributor
for resale. These products also shall include Motorcraft Batteries
as defined in the Addendum to Ford Authorized Distributor Sales DH
Agreement, FCS 7391E, dated August 1998. --------

2. Powertrain components which shall mean engines, transmissions,
torque converters, clutch discs, pressure plates, short blocks,
long blocks, cylinder heads, associated Navistar diesel parts, DH
and other products offered by the Company from time to time. --------

3. Motorcraft Bulk Lubricants as defined in the Addendum to Ford SECTION 3
Authorized Distributor Sales Agreement, FCS 7391D, dated STRICKEN
August 1998. TEXT
--------

4. Motorcraft Batteries as defined in the Addendum to Ford
Authorized Distributor Sales Agreement, FCS 7391E, dated DH
August 1998. --------

5. Ford Authorized Remanufactured Products, which shall mean
any automotive product approved by the Company and which is
remanufactured by the Distributor in accordance with the Company DH
specification. --------

The Distributor hereby accepts such appointment and agrees to carry out
the responsibilities as herein provided.

<PAGE>

Page 3

C. PRODUCT DE-AUTHORIZATIONS AND CHANGES. From time to time, the
Company may change, deauthorize or discontinue offering a line (or part of a
line) of Authorized Products or deauthorize a Distributor from purchasing or
selling a line (or part of a line) or one or more of the Authorized Products,
at which time "Authorized Products" for that Distributor shall be deemed to
be redefined so as to take into account those deauthorizations or changes.
Such de-authorizations or changes may occur at any time and from time to time
and without obligation with respect to any Authorized Products previously
ordered or purchased by or delivered to the Distributor. After
deauthorization, such products may not be sold or promoted in any way by the
Distributor.

D. SOURCE OF AUTHORIZED PARTS. Unless otherwise specified in writing
by the Company, the Distributor shall purchase its inventory of Authorized
Products solely from the Company's Customer Service Division except that Ford
Authorized Distributors with Authorized Products covered by paragraph B5,
may sell (and other Ford Authorized Distributors may purchase from it) such
Authorized Products.

E. PERSONAL AGREEMENT; OWNERSHIP AND MANAGEMENT. In view of the
personal nature of this Agreement, the Company has entered into this
Agreement in reliance upon the Distributor's representation and agreement
that (i) the following person(s) or corporation and only the following
person(s) or corporation shall substantially participate in the ownership of
the Distributor:

<TABLE>
<CAPTION>
PERCENTAGE
NAME MAILING ADDRESS OF OWNERSHIP
---- --------------- ------------
<S> <C> <C>
Various Stockholders (Public Corporation) 85.07 %
Eloise Rogers Agee 2541 Woodleigh Lane, Lincoln NE 68502 9.26 %
Mary McFayden Donahue 1301 South 80th St., Omaha NE 68124 5.67 %
</TABLE>

and (ii) the following person(s) and only the following person(s) shall have
full managerial authority for the operation of the Distributor, and are
authorized to execute any and all agreements and related documents on behalf
of the Distributor.

<TABLE>
<CAPTION>
NAME MAILING ADDRESS TITLE
---- --------------- -----
<S> <C> <C>
Donald D. Heupel 405 Diagonal Street, Algona IA 50511 President
Harold Pursley 405 Diagonal Street, Algona IA 50511 Vice President/Treasurer
T. Warren Thompson 11663 North 114th Place, Scottsdale AZ 85259 Secretary
</TABLE>

The Distributor shall give the Company prior written notice of any
proposed change in the above ownership or managerial authority of any such
person(s) or corporation, and immediate written notice of the death or physical
or mental incapacity of any such person or the dissolution of any such
corporation. No such change or notice and no assignment of this Agreement or of
any right or interest herein, shall be effective against the Company until
approved by the Company by executing and delivering an appropriate amendment to
this Agreement executed in accordance with paragraph H.

<PAGE>

Page 4

F. AUTHORIZED LOCATIONS. In addition to the location identified above
as the Distributor's principal place of business, the Distributor shall
maintain facilities and operate its distribution business from the following
locations (hereinafter called "Authorized Locations").

DISTRIBUTOR NAME SHIPPING ADDRESS
- ---------------- ----------------
<S> <C>
Universal Mfg. Co. 1415 Jones Street, Omaha NE 68102
Universal Mfg. Co. 5177 N.E. 17th Street, Des Moines, IA 50313
Universal Mfg. Co. 2240 W. Altorfer Street, Peoria IL 61615
</TABLE>

The Distributor shall not move or directly or indirectly operate its
distribution business pursuant to this Agreement, in whole or in part, in
facilities other than an Authorized Location without the prior written
consent of the Company and a written Amendment to this Agreement.

G. STANDARD PROVISIONS. The attached Ford Authorized Distributor Sales
Agreement Standard Provisions (Form FCS 7390, August 1998, hereinafter
referred to as the "Standard Provisions"), which have been read and agreed to
by the Distributor, are hereby made a part of this Agreement with the same
force and effect as if set forth in full herein.

H. EXECUTION. This Agreement shall bind the Company when it bears the
facsimile signature of the Vice President-General Manager of the Ford
Customer Service Division of the Company (or his/her designee or successor)
and is countersigned by the Director Global Parts Supply and Logistics (or
his/her designee or successor) or the Ford Authorized Distributor Manager of
the Ford Customer Service Division of the Company (or his/her designee or
successor), and a fully executed copy is delivered personally or postpaid
registered or certified U.S. mail to the Distributor at the Distributor's
principal place of business.

I. AMENDMENTS/TERMINATIONS. The Distributor acknowledges that (i) this
Agreement may be executed only in the manner provided in paragraph H; (ii) no
one except the Vice President-General Manager or the Director Global Parts
Supply and Logistics (or his/her designee or successor) or the Ford Authorized
Distributor Manager of the Ford Customer Service Division of the Company (or
his/her designee or successor) or the Secretary or an Assistant Secretary of
the Company is authorized to make or execute any other agreement relating to
the subject matter hereof, or in any manner to enlarge, vary or modify the
terms hereof, and then only by an instrument in writing; and (iii) no one
except the Vice President-General Manager (or his/her designee or successor)
or the Director Global Parts Supply and Logistics (or his/her designee or
successor) or the Ford Authorized Distributor Manager of the Ford Customer
Service Division (or his/her designee or successor) or the Secretary or an
Assistant Secretary of the Company is authorized to terminate this Agreement
on behalf of the Company, and then only by notice in writing.

<PAGE>

Page 5

J. DURATION. The Agreement shall continue in force and effect from and
after the date of its execution until terminated by either party under the
provisions of paragraph 14 of the Standard Provisions made a part hereof.

IN WITNESS HEREOF, the parties hereto have duly executed this Agreement
in duplicate as of the day and year first above written.

FORD MOTOR COMPANY Universal Mfg. Co.
-------------------------------------
(Distributor's Trade Name)

By: /s/ Donald D. Heupel
---------------------------------
/s/ Ronald E._________ Title: President
---------------------------------

By:
Vice President - General Manager ---------------------------------
Ford Customer Service Division Title:
------------------------------

By:
---------------------------------
Title:
------------------------------

Countersigned by

/s/ Garry L. Frederick
- -----------------------------------
G.L. Frederick
Ford Authorized Distributor Manager

<PAGE>

[LOGO]

FORD AUTHORIZED DISTRIBUTOR SALES AGREEMENT - STANDARD PROVISIONS
FORD CUSTOMER SERVICE DIVISION
FORD MOTOR COMPANY

1. PUBLICATIONS. The Company, from time to time, shall publish and
distribute to the Distributor procedures governing the relationship between
the Company and the Distributor, including, but not limited to definitions,
administration of warranty and policy, credit and other terms of sale, and
such other information as the Company may deem necessary to enable the
Distributor to carry out its responsibilities under this Agreement. If
anything in any such publication is or appears to be inconsistent with the
terms contained herein, the terms contained herein shall govern.

2. OPERATION OF BUSINESS. The responsibilities of the Distributor shall
including the following:

a. SALES.

(i) The Distributor shall actively and aggressively promote and
make sales of Authorized Products, make direct contact with all
Authorized Dealers in the Distributor's Area on a regular basis and
provide prompt and efficient core pickup and delivery service in a
satisfactory volume and manner, and according to standards and criteria
for each type of Authorized Product as set forth herein and by the
Company from time to time.

(ii) The Distributor shall sell to Authorized Dealers only
Authorized Products; except that Distributor may sell to Authorized
Dealers products other than Authorized Products if such other products
are for use in, or on non-Ford products and there is no Ford part number
that could be substituted for such use.

(iii) The Distributor shall sell parts and other products sold by
the Company under the "Ford" trademark only to Authorized Dealers; the
Distributor shall not sell parts and other products sold by the Company
under the "Ford" trademark to customers other than Authorized Dealers.

(iv) The Distributor shall not operate its business under this
Agreement or sell Authorized Products to its parent, division,
subsidiary, affiliate, partnership, joint venture or other entity or
individual related to the Distributor, its officers, directors,
managers, owners, employees or agents without prior written consent of
the Company.

(v) Neither the Distributor nor its officers, directors,
managers, owners, employees or agents may own, operate or invest to any
extent, either individually or in conjunction with others, in any
company, corporation, partnership, joint venture or other business
entity or enterprise that designs, manufactures, distributes or sells to
Authorized Dealers any products that compete with any Authorized
Products identified in Paragraph B of the Preamble irrespective of
whether the products are Authorized Products for this specific Distributor.

FCS 7390 Sales, August 1998 (Previous editions may not be used)
<PAGE>

Page 2

(vi) The Distributor's Area is not exclusive to the Distributor, and
the Distributor may sell outside such area, but only if within the United
States. The Distributor's Area shall be deemed, however, the primary area
of the Distributor's sales responsibility for Authorized Products and the
Distributor's primary responsibility shall be to sell to and service
Authorized Dealers in that area. In those circumstances where an Authorized
Dealer is not within any Distributor's Area, Distributor must take orders
from and deliver Authorized Products to such an Authorized Dealer upon its
request.

(vii) The Distributor's performance of its sales responsibility shall
be measured by such criteria as the Company may establish from time to
time for each type of Authorized Product, which may include, but shall
not be limited to:

-- Authorized Dealer and Company evaluations of the Distributor's
performance versus "Ford Authorized Distributor-to-Dealer
Standards" for each type of Authorized Product; and

-- the Distributor's sales of Authorized Products to Authorized
Dealers in the Distributor's Area as a percentage of
objectives established by the Company from time to time.

b. ADMINISTRATIVE AND PROMOTIONAL ASSISTANCE. The Distributor, to the
satisfaction of the Company, shall provide all Authorized Dealers with such
administrative and promotional assistance requested or required for the
marketing of Authorized Products.

c. FACILITIES/LOCATIONS. At each Authorized Location, the Distributor
shall maintain such facilities of a size, layout, and appearance, including a
warehouse, sales and office space, computer information systems and other
equipment, as will meet the standards established by the Company from time to
time, and will enable the Distributor to fulfill all of the Distributor's
responsibilities under this Agreement. The Distributor shall not move or
directly or indirectly operate its business under this Agreement, in whole or
in part, at other than Authorized Locations or through a parent, division
subsidiary, affiliate, partnership, joint venture or other related entity or
individual without the prior written consent of the Company and a written
Amendment to this Agreement. At its sole discretion, the Company may consent
to or deny any request for such an Amendment taking into account such factors
as the Company deems relevant.

d. PERSONNEL. The Distributor shall employ such number of adequately
trained and competent personnel of good character, including but not limited
to managers, salespersons and warehouse personnel as will meet the standards
established by the Company from time to time, and will enable the Distributor
to fulfill all of the Distributor's responsibilities under this Agreement.

e. INVENTORY. The Distributor shall maintain an inventory of all
Authorized Products, in quantities sufficient to meet the Authorized Dealers'
current and reasonably anticipated needs. The Distributor may, but is not
required to, stock non-bulk lubricant products.

<PAGE>

Page 3

f. ORDERS. The Distributor shall submit orders for its requirements of
Authorized Products, at such times and in the manner prescribed by the
Company from time to time. The Distributor shall not submit orders to the
Company for products other than Authorized Products.

g. COMMUNICATION. To assist the Company to meet customer expectations
and performance standards, the Distributor shall provide electronic data
interfaces as required by the Company from time to time.

h. DELIVERY AND AVAILABILITY. The Distributor will provide parts
delivery and core pickup service in a manner sufficient to satisfy Ford
Authorized Distributor-To-Dealer Standards with respect to each type of
Authorized Product.

i. CAPITALIZATION. The Distributor shall employ at all times, in
connection with its operations under this Agreement, such net working
capital, other capital, net worth and line(s) of credit or other funding as
may be required by the Company from time to time in order to ensure that the
Distributor is able to fulfill all its responsibilities under this Agreement.

j. CUSTOMER HANDLING, TRADE PRACTICES AND ADVERTISING. The Distributor
shall: (i) make all reasonable efforts to handle satisfactorily all matters
relating to the sale and use of Authorized Products; (ii) report to the
Company any complaint about any Authorized Product that the Distributor
cannot remedy; (iii) conduct business in a manner that will reflect favorably
at all times on the Distributor, Authorized Dealers, the Company, Authorized
Products, and the good name, goodwill and reputation thereof; and (iv) avoid
in every way any practice or advertising that is misleading, deceptive or
unethical or to which the Company may object as being detrimental to the
Distributor, Authorized Dealers, the Company, Authorized Products, other
Company products, persons dealing therein, the public or to the good name,
goodwill or reputation thereof. The Distributor shall make reasonable efforts
to ensure compliance of its customers with the foregoing. The Distributor
shall not, and shall take reasonable measures to assure that its customers
will not, represent a part to be an Authorized Product if it is not in fact
an Authorized Product, whether such representation is by name, logo, part
number or otherwise. All remanufactured Authorized Products and their
packaging, shall be identified as such with appropriate markings, labels or
other devices approved by the Company. The Distributor shall not represent
that any remanufactured Authorized Product has been remanufactured by the
Company.

k. REPORTS. The Distributor shall submit to the Company, at the times
and in the manner prescribed by the Company, accurate reports of the
Distributor's sales of Authorized Products, and such other reports and data
relating to the ownership or management of the Distributor, or its business
hereunder, as the Company may request from time to time. The Distributor will
furnish the Company with an annual balance sheet and operating statement, as
soon as practicable following the close of the Distributor's fiscal year, to
permit evaluation of the Distributor's operating and financial condition so
that the Company may give advice and counsel on matters pertaining thereto.

Financial information furnished by the Distributor shall be handled on a
confidential basis by the Company; however, this shall not preclude the
Company from providing such information to a wholly-owned or controlled
subsidiary of the Company and using such information at the Company's
discretion.

<PAGE>

Page 4

Moreover, the Company shall not be prohibited from offering such information
in evidence in judicial or arbitration proceedings, or to other parties as
required by law. However, such information will not otherwise be released to
third parties without the written consent of the Distributor or as required
by law.

l. INSPECTIONS AND RECORD RETENTION. To assure the Company that the
Distributor is carrying out the provisions of this Agreement, the Distributor
shall permit persons designated by the Company, at reasonable times and
intervals during normal business hours, to examine the Distributor's records,
contracts, accounts and data related in any way to the Authorized Products.
The Distributor shall retain for at least two (2) years all records,
contracts, accounts and data upon which claims to the Company for refund,
credit, rebate, incentive, allowance, discount, reimbursement or other
payment of any kind have been made.

m. BUSINESS, INDUSTRY AND PROCESS CERTIFICATIONS. The Distributor
shall actively and periodically assess and improve its distribution and
overall business operations so as to cost-effectively increase sales,
delivery standards and overall service performance. The Distributor shall
have its employees attend training or courses offered or required by the
Company from time to time. The Distributor shall attain any standard, level
or certification requirements as may be established by the Company from time
to time (e.g. ISO certification).

n. COMPANY'S TRADEMARKS AND TRADENAMES. Neither the Distributor nor
its customers shall (i) use in any trade name any trademark or trade name
used or claimed by the Company; (ii) use the word "Ford" or "Motorcraft"
except in connection with advertising and dealings in such parts; (iii) use
any trademark or trade name used or claimed by the Company, including the use
of "Motorcraft" or "Ford" in advertising and dealings, except as first
approved in writing by the Company; or (iv) contest the right of the Company
to exclusive use of any trademark or trade name used or claimed by the
Company.

3. OTHER SALES AND PURCHASES. The Distributor reserves the right to make
purchases of products other than Authorized Products from others and to make
sales of Authorized Products to customers other than Authorized Dealers,
except as otherwise provided in this Agreement, and provided that the
Distributor in no circumstance shall be relieved of any responsibility
assumed by it under this Agreement. The Distributor further agrees that any
such sales to others shall not adversely affect the Distributor's sales
obligations with respect to Authorized Products under this Agreement. The
Company reserves the right to make sales to others (including, without
limitation, other distributors) without obligation or liability of any kind
to the Distributor.

4. PROMOTIONAL MATERIAL. The Company may, at its discretion, provide the
Distributor with materials for the promotion and sale of Authorized Products,
and if so, the Distributor shall provide its customers with such materials.
The Distributor shall also provide its customers with additional materials of
a quantity and quality proportionally equal to that which it provides for
other automotive replacement parts handled by the Distributor.

5. ACCEPTANCE OF ORDERS. An order for Authorized Products shall be deemed
accepted when the Company issues to the Distributor its FCSD order number.
The Company shall make reasonable efforts to fill each order accepted by it,
but shall not be liable in any way for the consequences of a

<PAGE>

Page 5

failure to ship or any delays in shipment due, in whole or in part, to
fulfillment of the Company's own requirements, a shortage or curtailment of
material, labor, transportation, utility services, or any labor or production
difficulty in any plant of the Company, its suppliers, or any cause beyond
the Company's control, fault or negligence.

6. PRICES AND CHARGES. The Distributor shall pay the price established by
the Company for each Authorized Product purchased by the Distributor from the
Company, less any applicable discount and/or allowance allowed by the Company
on the invoice, plus any Company transportation charge and (if not included in
the established price) a charge equivalent to or in reimbursement for
all applicable taxes on the manufacture, distribution, ownership, use or sale
of such a part. The Company may change at any time and from time to time,
without prior notice, the price or charge for any Authorized Product or any
applicable discount or allowance. A description of any discounts or
allowances, the qualifications and methods of submitting and substantiating
claims therefor and the manner of payment by the Company will be contained
in the Ford Authorized Distributor Policy and Procedure Manual as amended by
the Company from time to time. Except as otherwise specified by the Company
in writing, such price, discounts, charges and allowances shall be those in
effect at time the Distributor's order is accepted by the Company. Delivery
to the Distributor shall be deemed made and the order filled, on the date the
Authorized Product is delivered to the carrier or the Distributor, whichever
is first. No price, holdback, discount, allowance or other charge is or
shall be considered or deemed to be a franchise fee; rather, all such items
are and shall be considered to be elements of a bona fide wholesale price.

7. POLICY AND PROCEDURE/STANDARDS. The Distributor will comply with all
provisions of the Ford Authorized Distributor Policy and Procedure Manual,
including the "Distributor-to-Dealer Standards", which are hereby incorporated
by reference. The provisions of the Manual and the Standards may be changed
by the Company at its discretion, upon written notice to the Distributor.

8. TERMS AND TITLE.

a. PAYMENT. The Distributor shall pay the Company for each purchase of
Authorized Products under this Agreement within the time specified in the
Fort Authorized Distributor Policy and Procedure Manual or pursuant to
special program terms as may be granted by the Company from time to time.
All credits shall be applied to the Distributor's monthly statement.

b. TITLE. Title to each Authorized Product purchased by the
Distributor from the Company shall pass to the Distributor upon delivery to
the carrier or to the Distributor, whichever is first.

c. DEMURRAGE AND DIVERSION LIABILITY. The Distributor shall pay for
and bear all demurrage, storage or other charges that accrue after arrival of
any shipment at its destination, except with respect to a shipment made in
error by the Company. If the Distributor shall fail or refuse for any reason
(other than a shipping error by the Company, natural disaster or catastrophe,
or act of God) to accept delivery of any Authorized Product ordered by the
Distributor, the Distributor shall also pay for and bear all expenses
incurred by the Company in shipping the same to the Distributor and in
reshipping the same to the original shipping point or another destination,
but such reshipping expenses shall not exceed the expenses of returning the
part to the original shipping point.

<PAGE>

Page 6

d. SECURITY AGREEMENT. The Distributor shall execute a Security
Agreement, pursuant to which the Distributor will grant the Company a
security interest in all Authorized Products purchased by the Distributor
from the Company (and any Authorized Products produced by the Distributor,
pursuant to this Agreement, if applicable) and any proceeds therefrom. The
Company may, at its discretion, require a Personal Guarantee from either the
principal of the Distributor or the principal of an Authorized Location of
the Distributor and supported by the grant of a security interest in
collateral owned by such a principal. If so required by the Company, the
Distributor, the Distributor principal, or the principal of an Authorized
Location shall execute all appropriate documents, including a form UCC-1, to
perfect and evidence security interests in the relevant collateral.

e. STATE AND LOCAL TAXES. The Distributor represents and warrants that
all Authorized Products shall be purchased or produced for resale in the
ordinary course of the Distributor's business, and that the Distributor shall
comply with pertinent state and local laws prerequisite to the collection
and/or payment by the Distributor of sales, use and any other taxes
applicable to all such resale transactions and furnish evidence thereof to
the Company. Those representations and warranties shall be deemed a part of
each order given by the Distributor to the Company. If any Authorized Product
is put to a taxable use by the Distributor, produced or purchased by the
Distributor other than for resale, the Distributor shall make timely return
and payment to the proper taxing authority of all sales, use and the like
taxes applicable thereto, and shall indemnify the Company against such taxes,
and penalties and interest thereon.

9. COMPLIANCE WITH LAWS AND REGULATIONS. The Distributor shall comply with
all federal, state and local laws, rules, regulations or ordinances
applicable to the Distributor's business operation. The Distributor agrees to
indemnify, defend and hold harmless the Company from any claims losses,
damages or expense, including costs and reasonable attorney's fees, arising
out of or related to the Distributor's failure to comply with any applicable
laws, rules, regulations or ordinances. Without limiting the foregoing, the
Distributor agrees to indemnify, defend and hold harmless the Company from
any claims, losses, damages or expenses, including costs and reasonable
attorney's fees, arising under any federal, state or local laws, rules,
regulations or ordinances related to environmental or hazardous materials or
substances and resulting from or related to any activity associated with the
Distributor's business operations, including, without limitation, the
storage, handling, transportation, release or disposal of Authorized Products.

10. WARRANTY. The Company warrants to the Distributor that each Authorized
Product sold by the Company to the Distributor will be free under normal use
and service from defects in workmanship and material for the period of time
from the date of delivery of such part to the original retail customer, or
for the amount of use, whichever is first, specified for such part in the
Ford Authorized Distributor Policy and Procedure Manual in effect at the time
such part is sold to the retail customer or at the time such defect is
discovered, whichever is more liberal. This warranty shall be fulfilled by
the Company replacing such item, or giving credit therefor, in accordance
with the terms and conditions of such Ford Authorized Distributor Policy and
Procedure Manual. This limited warranty is the exclusive remedy, recourse or
damage for any defect in workmanship and material. The Distributor may not
submit warranty claims on Authorized Products that the Company sold directly
to Authorized Dealers.

<PAGE>

Page 7

The Distributor, acting only on its own behalf shall extend to each of its
customers, and shall require each such customer to extend this warranty to
each of its accounts and customers. The Company and the Distributor each
shall perform and fulfill promptly all the terms and conditions of their
respective warranties for the ultimate benefit of the final purchaser at
retail and Distributor shall require each level of distribution to do
likewise.

The Distributor, acting on its own behalf only, shall extent to each of its
customers, in a form satisfactory to the Company, a written warranty for each
Authorized Product covered by paragraph B5 of the Preamble. Such warranty
shall be at least as favorable to the customer, in the Company's opinion, as
the warranty extended to the Distributor on each such Authorized Product by
another Distributor, or the Company's Service Parts Warranty, specified in
the Ford Authorized Distributor Policy and Procedure Manual, whichever is
greater. The Distributor shall perform and fulfill promptly, and shall
require each level of distribution to perform and fulfill promptly, all the
terms and conditions of the warranty for the ultimate benefit of the final
purchaser at retail.

11. INDEMNIFICATION. The Company shall defend, indemnify, hold harmless and
protect the Distributor from all losses, damages or expenses, including costs
and reasonable attorney's fees, resulting from lawsuits commenced against the
Distributor on or after the date of this Agreement by third parties alleging
bodily injury or property damage arising out of an occurrence caused solely
by a "product defect". "Product defect" means a defect in material,
workmanship or design in an Authorized Product sold to a Distributor by the
Company. The above stated obligation arises only if the "product defect"
could not have been discovered by the Distributor through reasonable and
prudent inspection methods.

The Company's obligation set forth above arises only upon receipt of
written notice of the lawsuit, including a copy of the most recently filed
complaint. Until the Company has agreed to accept the Distributor's tender of
defense and the Company's attorneys have been substituted as attorneys of
record for it, the Distributor shall take all necessary steps to preserve its
rights and defend the suit and shall be responsible for all costs and fees
incurred. If the Company agrees to indemnify and defend the Distributor, the
Company shall have sole control, discretion, and authority in the defense of
the suit and in any decisions regarding its settlement or resolution. The
Distributor shall fully cooperate in the defense of allegations against
either the Distributor or the Company, including but not limited to,
maintaining, preserving, and providing the Company and its attorneys access
to any documents and other tangible evidence relevant to the lawsuit and
providing the Company and its attorneys access to any of Distributor's
premises and employees that the Company may deem relevant to or necessary for
the lawsuit. The Company maintains the sole authority and discretion to
determine what, if any, Distributor employees to call as witnesses for
deposition or at time of trial. The Company maintains the right to continue
the litigation in the name of the Distributor at its sole discretion.

Distributor shall defend, indemnify and hold the Company harmless from
and against all losses, claims, damage or other costs of any nature or other
costs of any nature or kind whatsoever arising directly or indirectly out of
or related to (i) the breach of any warranty, representation or agreement
made by Distributor to Company in this Agreement; (ii) the negligence or
intentional misconduct of Distributor, its officers, employees, agents or
contractors, or (iii) an Authorized Product covered by paragraph B5 of the
Preamble. Such indemnity shall include, but not be limited to, reasonable
expenses, attorneys' fees, court costs and other expenses of investigation,
litigation and settlement of any such claim.

<PAGE>

Page 8

12. NO AGENCY. This Agreement does not in any way create the relationship of
principal and agent between the Company and the Distributor, under no
circumstances shall the Distributor or any of the Distributor's employees,
directors or customers be considered agents of the Company. The Distributor
shall make clear to others that it is not an agent of the Company and shall
not act or attempt to act, or represent itself directly or by implication, as
an agent of the Company or in any manner assume or create, or attempt to
assume or create, any obligation on behalf of or in the name of the Company.

13. RELATIONSHIP BETWEEN COMPANY AND DISTRIBUTOR. The requirements of this
Agreement as to the facilities to be supplied by the Distributor, as to the
conduct of the business of dealing in Authorized Products and as to relations
between the Distributor and others are intended to protect the good name,
good will and reputation of Company and to assure the Company that Authorized
Products will be made available to Authorized Dealers and that the
Distributor's financial and operating condition is adequate. Except as herein
specified, nothing herein contained shall impose any liability on Company in
connection with the Distributor's operations under this Agreement or
otherwise or for any expenditure made or incurred by the Distributor in
preparation or performance of the Distributor's responsibilities under this
Agreement.

14. TERMINATION.

a. This Agreement may be terminated, in whole or in part, by either
party at any time, with or without cause, upon thirty (30) days prior written
notice to the other party.

b. The Company may terminate this Agreement upon five (5) days prior
written notice to the Distributor in any of the following events: (i) any
assignment or attempted assignment by the Distributor of any interest in this
Agreement without the prior written consent of the Company; (ii) any sale,
transfer or relinquishment, voluntary or involuntary, by operation of law or
otherwise, of any interest in the direct or indirect ownership in the
Distributor or any change in the operating management of the Distributor
without the prior written consent of the Company; (iii) if Distributor
operates its business under this Agreement or sells Authorized Products to a
parent, division subsidiary, affiliate, partnership, joint venture or other
related entity or individual without the prior written consent of the Company
and a written Amendment to this Agreement; (iv) failure of the Distributor
for any reason to function in the ordinary course of business or failure for
a period of ten (10) consecutive business days to keep its facilities open
during, and for not less than, the hours customary in the trade in the
Distributor's principal location; (v) a disagreement between or among owners,
managers, officers or principals of the Distributor which, in the opinion of
the Company, may adversely affect the operation, management, business or
interest of the Distributor or the Company; (vi) conviction in a court of
competent jurisdiction of the Distributor, or an owner, manager or officer of
the Distributor for any violation of law, or any conduct of such person
unbecoming a reputable business person; or, (vii) submission by the
Distributor to the Company, of false or fraudulent reports, statements or
claims or refusal of the Distributor to permit the Company to examine the
Distributor's records in accordance with paragraph 2(l) of this Agreement.
The Distributor shall advise the Company immediately in writing of the
happening of any of the events specified in clauses (i) through (vi) above.

<PAGE>

Page 9

c. Either party may terminate this Agreement upon five (5) days prior
written notice to the other in any of the following events: (i) dissolution
of the Distributor if the Distributor is a partnership or corporation;
(ii) insolvency of the Distributor, filing by the Distributor of a voluntary
petition under any law relating to bankruptcy or insolvency, filing against
the Distributor of an involuntary petition that is not dismissed within 30
days, court appointment of a temporary or permanent receiver, trustee or
custodian for the Distributor or the Distributor's business or an assignment
of the Distributor for the benefit of creditors; (iii) failure by either
party to obtain or maintain any license required to permit such party to
carry out its obligations under this Agreement; (iv) death or physical or
mental incapacity of the Distributor or any principal, officer or manager of
the Distributor, provided, however, that in order to facilitate orderly
termination and liquidation of the Distributor, the Company may defer the
effective date of any termination pursuant to clause (iv) for a period of from
three (3) months to one (1) year, as the Company may determine.

d. The Company may terminate this Agreement anytime upon thirty (30)
days written notice to the Distributor in the event the Company offers the
Distributor a new or amended sales agreement.

e. The Company may terminate this Agreement if the Distributor fails
to fulfill or breaches any of its obligations and duties under this
Agreement, including but not limited to its responsibilities under paragraph 2
of this Agreement.

f. Acts in Good Faith.

1. The Distributor acknowledges that each of its responsibilities
under this Agreement is reasonable, proper and fundamental to the purpose of
this Agreement and that (i) its failure to fulfill any of them would
constitute a material breach of this Agreement, (ii) the occurrence of any of
the events set forth in subparagraphs 14(b), (c) and (e) would seriously
impair fundamental considerations upon which this Agreement is based, and
(iii) the rights of termination reserved in the events specified in
subparagraph 14(b), (c) and (e) are necessary to permit the Company to remain
competitive at all times. The Distributor acknowledges that any such failure,
occurrence or event constitutes a reasonable, fair, good, due and just cause
and provocation for non-renewal or termination of this Agreement by the
Company.

2. The Distributor agrees that if the Company or any of its
representatives (i) requests the Distributor to fulfill any of such
responsibilities, (ii) believes that any such failure, occurrence or event
is occurring or has occurred and advises the Distributor that, unless
remedied, such failure, occurrence or event may result in Company termination
or non-renewal of this Agreement, (iii) gives the Distributor notice of
termination or non-renewal, or terminates or fails to renew this Agreement,
because of any such failure, occurrence or event, then such request, advice,
notice, termination or non-renewal shall not be considered to constitute or
be evidence of coercion or intimidation, or threat thereof or to be
unreasonable, unfair, undue or unjust, or to be not in good faith.

15. DISTRIBUTOR'S OBLIGATIONS UPON TERMINATION. Upon termination of this
Agreement by either party under Paragraph 14 above as to any Authorized
Products, the Distributor shall cease to be a Ford Authorized Distributor and
shall:

<PAGE>

Page 10

a. Pay to the Company all sums owing to the Company with respect to
Authorized Products less estimated authorized returns within normal credit
terms pursuant to the Ford Authorized Distributor Policy and Procedure
Manual. Any balance remaining thereafter shall be paid within thirty (30) days
of the date of notice to the Distributor of the final determined amount.

b. At the Distributor's expense (i) remove any signs erected or used
by the Distributor, or any business affiliated with the Distributor that bear
the trademark or trade name used or claimed by the Company in connection with
such Authorized Products; (ii) obliterate all such trademarks, trade names
and words associated with such Authorized Products from all forms, stationery
and other papers used by the Distributor, or by any business affiliated with
the Distributor, (iii) permanently discontinue all advertising of the
Distributor as an authorized distributor of Authorized Products; and (iv)
refrain from doing anything whether or not specified above that would
indicate the Distributor is or was a Ford Authorized Distributor of any
Authorized Products.

If the Distributor does not comply with any of the requirements of this
paragraph 15, the Distributor shall reimburse the Company for all costs and
expenses, including reasonable attorney's fees, incurred by the Company in
effecting and enforcing compliance.

16. REACQUISITIONS ON TERMINATION.

a. Upon termination of this Agreement, the Company shall have at its
sole option, discretion and judgment the right, but not the obligation, to
request and accept from the Distributor each new, unused and undamaged
Authorized Product (excluding batteries, oil and lubricant, and refrigerant
products, or any items classified as hazardous materials) which is in the
Distributor's inventory and unsold on the effective date of termination,
provided such product is in first class saleable condition, in the original
unopened package, offered for sale by the Company in the Company's
then-current price list and was purchased by the Distributor from the Company
during the ninety (90) day period immediately preceding the effective date of
termination.

b. Within ninety (90) days after the effective date of termination,
the Distributor shall carefully pack and box, at its own expense, all
Authorized Products repurchased by the Company under this paragraph, and
ship, freight prepaid, to the Company's parts distribution center from which
the Distributor normally purchased Authorized Products, or to such other
destination as the Company may designate. The price for each such part shall
be the price to distributors established by the Company in effect on the
effective date of termination, less all prior refunds, credits, rebates,
incentives, allowances, discounts, reimbursements and other payments with
respect thereto either made by the Company or to which the Distributor would
have been entitled had the Distributor applied therefor but for which the
Distributor did not apply.

c. Upon repurchase by the Company of Authorized Products eligible for
repurchase hereunder, the Company shall be released from any and all
liability to the Distributor with respect to all relationships and actions
between the Distributor and the Company, however claimed to arise, except for
the performance of any obligation of the Company under this Paragraph 16, and
except for such amounts as the Company may have agreed in writing to pay the
Distributor. Payment by the Company to the Distributor for any Authorized
Products repurchased hereunder shall be made only upon receipt of good clear
title and a clear title and a general release executed by the Distributor and
delivered to the Company. The Company may offset any obligations then owing
by the Distributor to the Company.

<PAGE>

Page 11

17. NEW AGREEMENT. The termination of this Agreement by the Company in
connection with the offer by the Company of a new or amended form of sales
agreement to the Distributor or to the Distributor's successor in interest
shall not give rise to the rights and obligations provided in Paragraphs 15
and 16, unless otherwise specified by the Company in writing.

18. ACKNOWLEDGEMENTS. Each party acknowledges that, except as set forth in
a written instrument signed by both parties, no representation, statement,
understanding or agreement has been made or exists relating to the subject
matter hereof other than this Agreement, and that in entering into this
Agreement, it has not relied upon anything done or said or any presumption in
law or fact (i) with respect to this Agreement, or the duration, termination
or renewal of this Agreement, or the relationship between the parties, other
than as expressly set forth in this Agreement; or (ii) that in any way tends
to change or modify the terms, or any of them, of this Agreement or to
prevent this Agreement from becoming effective, or (iii) that in any way
affects or relates to the subject matter of this Agreement.

19. ASSIGNMENT. Neither this Agreement nor any right hereunder may be
assigned by the Distributor without the prior written consent of the Company.
The Distributor agrees that the Company shall have the right to select its
distributors and may decline to appoint as a distributor of the Company any
purchaser or prospective purchaser of any of the assets or capital stock of
the Distributor upon termination or non-renewal of this Agreement or
otherwise.

20. CONFIDENTIALITY.

a. All business information and all materials containing business
information provided by Company to Distributor, including but not limited to
methods of operation, plans or strategies, policies, reports, details of
contracts and other business affairs of Company and any of its affiliates
learned by Distributor, which are not a matter of public knowledge, are and
shall be treated as confidential. Distributor agrees for itself and on behalf
of its directors, officers, employees and agents to whom such information and
materials are disclosed, that it and they shall keep such information and
materials confidential and retain them in strictest confidence both during
and after the term of this Agreement. Such information shall not be disclosed
by Distributor to any person except to officers and employees of Distributor
requiring such information or materials to perform pursuant to this
Agreement, and shall not be used for the benefit of Distributor or any third
party except in connection with services rendered pursuant to this Agreement.
Distributor acknowledges and agrees that such unauthorized disclosure or
other breach of this provision will cause irreparable injury to Company and
that money damages alone will not provide an adequate remedy to Company.
Accordingly, in addition to any other rights or remedies which may be
available to Company, Company shall be entitled to recover from Distributor
its costs, expenses and attorneys' fees incurred in enforcing its rights
under this paragraph. Distributor shall return to Company all such
information and materials and all embodiments thereof immediately upon
termination of this Agreement.

b. These obligations of confidentiality shall not apply to any
information which (i) was known to the receiving party at the time of
receipt; (ii) was in the public domain at the time of receipt; (iii) becomes
public through no fault of the party obligated to keep it confidential; (iv)
such party legitimately learns from third parties who are under no obligation
of confidentiality with respect to the information; or (v) is required by
applicable law to be divulged.

<PAGE>

Page 12

21. WAIVER. The waiver by either party, or the failure by either party to
claim a breach, of any provision of this Agreement, shall not be or be held
to be a waiver of any subsequent breach or as affecting in any way the
effectiveness of such provision.

22. TRANSACTIONS AFTER TERMINATION. In the event either party has any
business relation with the other after termination of this Agreement, any
such relation shall not be construed as a renewal of this Agreement or a
waiver of such termination, but all transactions shall be governed by terms
identical with the terms of this Agreement relating thereto unless the
parties otherwise agree in writing.

23. NOTICES. Any notice required or permitted by this Agreement, or given in
connection with this Agreement, shall be in writing and shall be given by
personal delivery or postpaid registered or certified U.S. mail. Notices to
the Company shall be delivered to or addressed to the Ford Authorized
Distributor Manager of the Ford Customer Service Division or his/her designee.

Notices to the Distributor shall be directed to the Distributor at the
Distributor's address as indicated on the Sales Agreement.

24. SUPERSEDURE. This Agreement cancels and supersedes all other agreements,
written or oral, between the parties relating to Authorized Products and
constitutes the entire agreement between the parties with respect to the
subject matter hereof.

25. MICHIGAN AGREEMENT - SEVERABILITY OR TERMINATION. This Agreement has
been signed by the Distributor and sent to the Company in Michigan for final
approval and execution and then delivery to the Distributor. The parties
intend this Agreement to be executed as a Michigan agreement. This Agreement
and the rights and obligations of the parties shall be governed and construed
in accordance with the laws of the State of Michigan. If any provision of
this Agreement is invalid or unenforceable under the law, the Company may
elect either to terminate this Agreement in its entirety, or to consider this
Agreement divisible as to such provision and treat such provision as
inoperative, and to continue the remainder of this Agreement in full force
and effect as if such provision had not been included herein.

26. DISPUTE RESOLUTION.

a. If a dispute arises between the parties relating to this Agreement,
before either party may pursue other available remedies (except injunctive
relief from a court where appropriate to maintain the status quo), the
parties shall hold a meeting promptly, attended by persons with
decision-making authority regarding the dispute, to attempt in good faith to
negotiate a resolution of the dispute, provided, however that no such meeting
shall be deemed to violate or reduce the obligations and liabilities of the
parties or be deemed a waiver by a party hereto of any remedies to which such
party would otherwise be entitled.

b. If the parties do not succeed in negotiating a resolution of the
dispute and either party initiates litigation, the other party shall have the
right to initiate mediation and binding arbitration in accordance with the
Model Procedure for Mediation of Business Disputes of the Center for Public
Resources, and in the case of arbitration, the CPR Rules for Non-Administered
Arbitration of Business Disputes ("CPR"). Each party will bear equally the
costs of the mediation and arbitration.

<PAGE>
Page 13

1. The parties will jointly appoint a mutually acceptable mediator
or arbitrator, seeking assistance in such regard from CPR, as appropriate, if
they have been unable to agree upon such appointment within 20 days.

2. The parties agree to participate in good faith in the mediation
and negotiations related thereto for a period of 30 days. If the parties are
not successful in resolving the dispute through the mediation, then the
parties agree to submit the matter to binding arbitration by a solo
arbitrator in accordance with CPR Rules for Non-Administered Arbitration of
Business Dispute.

3. Unless otherwise agreed by the parties in writing, mediation or
arbitration involving Ford Motor Company and/or any U.S. subsidiary, joint
venture or other operation located in the U.S. shall take place in the City
of Dearborn, Michigan and this clause is subject to the Federal Arbitration
Act. 9 U.S.C.A. sec. 1 et seq. and judgment upon the award rendered by the
Arbitrator, if any, may be entered by an U.S. court having jurisdiction
thereof.

IN WITNESS HEREOF, the parties herein have duly executed this Agreement in
duplicate as of the day and year first above written.

FORD MOTOR COMPANY Universal Mfg. Co.
-----------------------------------
(Distributor's Trade Name)

By: /s/ Donald D. Heupel
-----------------------------------
/s/ Ronald E.___________ Title: President

Vice President - General Manager By:
Ford Customer Service Division -----------------------------------
Title:
-----------------------------------

By:
-----------------------------------
Title:
-----------------------------------

Countersigned by

/s/ Garry L. Frederick
- ------------------------------------
G. L. Frederick
Ford Authorized Distribution Manager

<PAGE>

[LOGO]

FORD CUSTOMER SERVICE DIVISION
DOCUMENT RECEIPT

The following Ford Customer Service Division documents have been received,
read and are understood:

<TABLE>
<S> <C>
[X] Ford Authorized Distributor Sales [ ] Ford Authorized Distributor Warranty and
Agreement (FCS 7391) Policy Procedures Manual
[ ] Bulk Lubricant Addendum to [ ] Revisions to Ford Authorized Distributor
Ford Authorized Distributor Sales Warranty and Policy Manual
Agreement (FCS 7391D) [X] Ford Authorized Remanufactured Distributor
[X] Battery Distributor Addendum Warranty Acknowledgment
to Ford Authorized Distributor
Sales Agreement (FCS 7391E) [ ] Ford Authorized Distributor Policy and
[ ] Motorcraft Battery Deferment Procedure Manual
Assistance Plan Agreement (FCS 8151) [ ] Revisions to Ford Authorized Distributor
[ ] Amendment to Ford Authorized Distributor Policy and Procedure Manual
Sales Agreement (FCS 7391B)
[ ] Addendum to Ford Authorized Distributor [ ] Special Market Account Policy and
Sales Agreement (FCS 7391A) Procedure Manual
[ ] Special Market Account Sales [ ] Revisions to Special Market Account
Agreement (FCS 8323) Policy and Procedure Manual
[ ] Change of Name and/or Address
Letter
</TABLE>

FORD MOTOR COMPANY Account Information:

Universal Manufacturing Co.
- ------------------------------ -------------------------------------
(Region) (Account Trade Name)

/s/ John J. Roy 405 Diagonal Street
- ------------------------------ -------------------------------------
(By) (Street Address)

FAR Account Manager Algona IA 50511
- ------------------------------ -------------------------------------
(Title) (City, State, Zip Code)

10-2-98
- ------------------------------
(Date)
/s/ Donald D. Heupel
-------------------------------------
(By)

President
-------------------------------------
(Title)

10-12-98
-------------------------------------
(Date)

Instructions:

Document Receipt is to be SIGNED by:
1. Ford Motor Company, Ford Customer Service Division Representative, and
2. Account Principal.

One copy is to be RETAINED by:
1. Ford Motor Company, Ford Customer Service Division Parts Distribution
Center Office
2. Account Principal.

<PAGE>
[LOGO]

ADDENDUM TO FORD AUTHORIZED DISTRIBUTOR SALES AGREEMENT - BATTERY DISTRIBUTOR
FORD CUSTOMER SERVICE DIVISION
FORD MOTOR COMPANY

SUPPLEMENTAL AGREEMENT, made at Dearborn, Michigan as of this 1st day of
-------
October , 1998 between Universal Mfg. Co.
- ------------ ---- ----------------------------------------------------
(Give Name(s) of Individual, Partners or Corporation)

[ ] an individual, [ ] a partnership, [X] a(n) Nebraska Corporation doing
-------------
(State of
Incorporation)

business as Universal Mfg. Co. with a principal place of business at
---------------------------
(Distributor's Trade Name)

405 Diagonal Street , Algona IA 50511
- ---------------------------- -----------------------------------
(Street and Number) (City, State and Zip Code)

(hereinafter called "Distributor") and Ford Motor Company, a Delaware
corporation with its principal place of business at Dearborn, Michigan
(hereinafter called "Company").

The parties hereto extend this to be an Addendum to the Ford Authorized
Distributor Sales Agreement dated October 1, 1998 and are to be made a
-------------------
part thereof.

This Addendum will serve to appoint the undersigned Ford Authorized
Distributor as a Motorcraft Battery Distributor under the terms of the Ford
Authorized Distributor Sales Agreement dated October 1, 1998 between
--------------------
Ford Authorized Distributor (hereinafter called "Distributor") and Ford Motor
Company (hereinafter called "Company"). Further, this Addendum, along with
the Ford Authorized Sales Agreement, sets forth the requirements and
operating procedures for the Motorcraft Battery Distributor and the Company.

In the event the Distributor fails to comply with any part of this Addendum,
the Company may, at its option, terminate this Addendum and/or the Ford
Authorized Distributor Sales Agreement in accordance with the terms of the
Ford Authorized Distributor Sales Agreement.

1. MOTORCRAFT BATTERY PRODUCT TERMS AND AVAILABILITY. Motorcraft
batteries will be available to the Distributor for purchase from Ford in bulk
quantities (on pallets which must be saved for reuse) for sale only to
primary end users, predominately Ford and Lincoln-Mercury dealers. The terms
and trademarks associated with Motorcraft batteries ("Motorcraft," "Heat
Tough," "Tested Tough," "Marinecraft," "Farm Tough," "Truckin' Tough," "Gel
Cell," "BXT-USA" and Motorcraft trademarks created in the future) apply only
to lead-acid batteries manufactured for and marketed by the Company.

2. DISTRIBUTOR DUTIES AND REQUIREMENTS.

A. Distributor personnel shall be trained in proper battery
handling, charging, testing, and warranty claim processing.

B. The Distributor must rotate the dealer's battery inventory
on a regular basis.

C. The Distributor must pick up discharged batteries for
recharging and restocking.

D. The Distributor must pick up spent lead-acid batteries from
all customers in accordance with municipal and/or state and
federal guidelines outlined by the U. S. Department of
Transportation, Environmental Protection Agency, and the
Battery Council International, or a minimum of per once
a week.

E. The Distributor must meet the Ford Authorized Distributor to
Dealer Standards, as referred to in Paragraph A of the
Preamble in the Ford Authorized Distributor Sales Agreement
and Paragraph 7 of the Standard Provisions.

F. The Distributor must stock, maintain, review, and supply to
customers all point-of-purchase signage promoting
Motorcraft, its products, programs, recycling requirements
and efforts. Also, the Distributor will support all future
programs and promotional efforts made available by the
Company. The undersigned also understands that the Company
can, at any time, require the Distributor to stock
newly-created products and implement promotions in the
interest of maintaining the national profile, strategy and
integrity of the Motorcraft battery program.

3. DISTRIBUTOR TRANSPORT REQUIREMENTS.

FCS7391B Sales, August 1998 (Previous editions may not be used)
<PAGE>

Page 2

A. The Distributor must comply with municipal and/or state and
federal guidelines Hazardous Material Regulations now and
hereafter in effect.

B. All vehicles used for battery transport must be equipped
with safety equipment (e.g., rubber gloves and aprons, eye
protection, fire extinguisher, 10 mil poly bags for leaking
batteries), emergency response telephone number, and any
other materials as required by the Distributor's insurance
carrier, or federal, state and local laws and regulations.

C. The Distributor must carry battery testing equipment in good
operating condition, as specified in the Ford Authorized
Distributor Policy and Procedure Manual.

4. BUSINESS OPERATION.

A. The Distributor must actively and aggressively provide
prompt and efficient delivery service to Ford and
Lincoln-Mercury dealers according to standards and criteria
as set forth by the Company from time to time.

B. The Distributor will be subject to periodic audits,
performed by Ford personnel and/or its designated agents or
representatives, designed to check operational procedures.

C. The Distributor must have available scrap battery handling
area signage for distribution to dealers.

5. SPENT LEAD-ACID BATTERY HANDLING AND STATUTORY/REGULATORY
REQUIREMENTS. Without in any way limiting the Distributor's obligation to
comply with all applicable laws, regulations or ordinances (as setforth in
Paragraph 9 of the Ford Authorized Distributor Sales Agreement), the
Distributor must:

1) Pick up all lead-acid batteries from all accounts
serviced by the Distributor during the course of his
business day.

2) Handle, store and process all batteries (new and
spent) in accordance with current federal, state and
local laws and regulations including, but not limited
to U. S. Environmental Protection Agency and
Department of Transportation regulations such as
"40CFR261.6(a)(2)(v) and 40CFR266.80.subpart G - Spent
Lead-Acid Batteries Being Reclaimed."

3) Ensure that all of the spent lead-acid batteries
processed and stored at the Distributor's facilities
are ultimately returned to an Environmental Protection
Agency-approved agent/smelter for disposal.

4) Maintain records of all transactions pertaining to
spent lead-acid battery transport and delivery to an
Environmental Protection Agency-approved recycling
center. These records must be kept current and be made
available to all Ford personnel and, in the case of an
Environmental Protection Agency audit, to appropriate
municipal, state and federal authorities.

6. PACKAGING, LABELING AND DISTRIBUTION.

A. The Distributor may NOT:

1) Repackage or alter Motorcraft battery shipments into
any containers other than the packaging provided by the
Company.

2) Alter the Motorcraft product name or individual
trademarks (see above) as used by the Company.

3) Alter the Cold Cranking Amps (CCA), Cranking Amps
(CA), Reserve Capacity (RC), etc. designations or
product specifications provided by the Company in
association with the Battery Council International
(BCI).

4) Alter internationally-recognized BCI performance
categories used by the Company.

5) Substitute other branded battery products in place of
Motorcraft or Ford to Ford, and Lincoln-Mercury Dealers
and any of their outlets (i.e. AutoCare, Quick Lube,
and Fast Lube).

<PAGE>

Page 3

B. The Company reserves the right to inspect the Distributor's
facilities, battery storage areas, equipment, and to
document/photograph work areas/processes during normal
business hours to ensure that the requirements/integrity of
the program and its products are not adulterated, misapplied
or misidentified. In the event such an inspection reveals
that Motorcraft products/programs/requirements have been
adulterated, misapplied or misidentified, or if the
Distributor is conducting his business in such a manner
likely to result, in the opinion of Ford personnel, in a
misrepresentation of the Company, the Company, at its
option, may terminate this Addendum and/or the Ford
Authorized Distributor Sales Agreement in its entirety.

C. The Distributor will be fully responsible for misapplication
and misidentification of all Motorcraft battery products
occurring after receipt from the Company and prior to custody
transfer to dealerships, retailers, auto parts stores,
marinas and any/all end users of Motorcraft battery products.

D. Under any circumstances Motorcraft batteries must be loaded,
transported, unloaded, and stored in accordance with
Segregation Requirements outlined in U.S. Federal Hazardous
Material Regulations now and hereafter in effect.

E. This Addendum gives the Distributor the right to use the
Motorcraft name only on lead-acid battery products and only
in association with this program. The Motorcraft name CANNOT
be used for Distributor products, programs and retail sales
separate from the lead-acid batteries or other products
authorized by the Company.

F. The Distributor shall maintain and retain all records of
Motorcraft battery purchases, shipments, warranty claims,
damaged merchandise, etc. Furthermore, the Distributor shall
agree to allow the Company, at reasonable times, to audit
said books, records and accounts to determine the quantities
and qualities of the Motorcraft lead-acid battery shipments
produced during the previous twelve (12) months.

7. OTHER OPERATING PROVISIONS. Other operating provisions are set
forth in "Ford Authorized Distributor Standards." The current version of
these Standards is contained in the "Ford Authorized Distributor Policy and
Procedure Manual". These Standards may be changed from time to time by the
Company at its discretion.

IN WITNESS WHEREOF the parties hereto have executed this Addendum as of the
day and year first above written and the Company is authorized to deliver the
same to the Distributor by placing the Distributor's copy thereof in the
United States mail duly stamped and addressed to the Distributor at his
principal place of business, or by delivery to such place of business or the
Distributor in person.

FORD MOTOR COMPANY Universal Mfg. Co.
-----------------------------------
(Distributor's Trade Name)

By /s/ Donald D. Heupel
-----------------------------------
/s/ Ronald E.__________ Title: President

Vice President - General Manager By
Ford Customer Service Division -----------------------------------
Title:
-----------------------------------

Countersigned by

/s/ Garry L. Frederick
- ------------------------------------
G. L. Frederick
Ford Authorized Distributor Manager
<PAGE>

[LOGO]

FORD CUSTOMER SERVICE DIVISION
DOCUMENT RECEIPT

The following Ford Customer Service Division documents have been received,
read and are understood:

<TABLE>
<S> <C>
[ ] Ford Authorized Distributor Sales [ ] Ford Authorized Distributor Warranty
Agreement (FCS 7391) and Policy Procedures Manual
[ ] Bulk Lubricant Addendum to [ ] Revisions to Ford Authorized
Ford Authorized Distributor Sales Distributor Warranty and Policy Manual
Agreement (FCS 7391D) [ ] Ford Authorized Remanufactured
[ ] Battery Distributor Addendum Distributor Warranty Acknowledgement
to Ford Authorized Distributor
Sales Agreement (FCS 7391E) [ ] Ford Authorized Distributor Policy and
[ ] Motorcraft Battery Deferment Procedure Manual
Assistance Plan Agreement (FCS 8151) [ ] Revisions to Ford Authorized
[ ] Amendment to Ford Authorized Distributor Distributor Policy and Procedure Manual
Sales Agreement (FCS 7391B)
[ ] Addendum to Ford Authorized Distributor [ ] Special Market Account Policy and
Sales Agreement (FCS 7391A) Procedure Manual
[ ] Special Market Account Sales [ ] Revisions to Special Market Account
Agreement (FPS 8323) Policy and Procedure Manual
[X] Ford Authorized Distributor Sales
Agreement (FCS 7391G)
</TABLE>

FORD MOTOR COMPANY Account Information

Universal Mfg., Inc.
- ---------------------------------- ----------------------------------
(Region) (Account Trade Name)

/s/ John J. Roy 405 Diagonal Street
- ---------------------------------- ----------------------------------
(By) (Street Address)

FAR ACCT MGR. Algona, IA 50511
- ---------------------------------- ----------------------------------
(Title) (City, State, Zip Code)

12/10/98
- ---------------------------------- /s/ Donald D. Heupel
(Date) ----------------------------------
(By)

President
----------------------------------
(Title)

12-7-98
----------------------------------
(Date)

Instructions:

Document Receipt is to be SIGNED by:
1. Ford Motor Company, Ford Customer Service Division Representative, and
2. Account Principal.

One copy is to be RETAINED by:
1. Ford Motor Company, Ford Customer Service Division Parts Distribution
Center Office
2. Account Principal.

<PAGE>

[LOGO]

AMENDMENT TO FORD AUTHORIZED DISTRIBUTOR SALES AGREEMENT
FORD CUSTOMER SERVICE DIVISION
FORD MOTOR COMPANY

SUPPLEMENTAL AGREEMENT, made at Dearborn, Michigan as of this _______ day of

___________, 1998 between Universal Mfg. Inc.
----------------------------------------------------
(the Name(s) of Individual, Partners or Corporation)

[ ] an individual, [ ] a partnership, [X] a(n) Nebraska Corporation doing
--------------
(State of Incorporation)

business as Universal Mfg., Inc. with a principal place of business at
--------------------------
(Distributor's Trade Name)

405 Diagonal Street Algona, IA 50511
- --------------------------, -------------------------------,
(Street and Number) (City, State and Zip Code)

(hereinafter called "Distributor") and Ford Motor Company, a Delaware
corporation with its principal place of business at Dearborn, Michigan
(hereinafter called "Company").

The parties hereto have previously entered into a Ford Authorized Distributor
Sales Agreement dated October 1, 1998 and now desire to make certain changes
therein. ---------------
(Date of Agreement)

NOW THEREFORE, in consideration of these premises the parties hereto mutually
agree that said Ford Authorized Distributor Sales Agreement be amended by
changing Paragraph F to read as follows:

"F. In addition to the location identified above as the Distributor's
principal place of business, Distributor shall maintain facilities and
operate its distribution business from the following locations (hereinafter
called "Authorized Locations"):

DISTRIBUTOR/REMANUFACTURER TRADE NAME AND MAILING ADDRESS

<TABLE>
<CAPTION>
<S> <C>
Universal Mfg., Inc. 1415 Jones Street, Omaha NE 68102
Universal Mfg., Inc. 4161 Dixon Avenue, Des Moines IA 50313
Universal Mfg., Inc. 2240 W. Altorfer Street, Peoria IL 61615

</TABLE>
The Distributor shall not move or directly or indirectly operate its
distribution business pursuant to this Agreement, in whole or in part, in
facilities other than an Authorized Location without the prior written
consent of the Company and a written Amendment to this Agreement.

This Supplemental Agreement is subject to all the terms and conditions
contained in the Ford Authorized Distributor Sales Agreement, except insofar
as such terms and conditions may be inconsistent with the express terms
hereof.

FCS7391B Sales, August 1998 (Previous editions may not be used)
<PAGE>

Page 2

IN WITNESS WHEREOF the parties hereto have executed this agreement as of the
day and year first above written and the Company is authorized to deliver the
same to the Distributor by placing the Distributor's copy thereof in the
United States mail duly stamped and addressed to the Distributor at his
principal place of business, or by delivery to such place of business or the
Distributor in person.

FORD MOTOR COMPANY UNIVERSAL MFG., INC.
--------------------------------------
(Distributor's Trade Name)

/s/ Garry L. Frederick By /s/ Donald D. Heupel
- ------------------------- ------------------------------------
G. L. Frederick
Ford Authorized Distributor Manager President
Title
--------------------------------

By
-----------------------------------

Title
--------------------------------

<PAGE>

ACKNOWLEDGEMENT OF CONTINUED WARRANTY RESPONSIBILITY

UNIVERSAL MFG. CO. , being or having been a Ford Authorized Remanufactured
Distributor, acknowledges that it retains all warranty responsibility and
liability for any remanufactured products it produced and/or distributed
under its Ford Authorized Remanufactured Distribution Agreement(s) with Ford
Motor Company (paragraph "10. Warranty" of FAR Agreement), notwithstanding
the fact that such Agreement(s) may be terminated.

DISTRIBUTOR'S NAME

UNIVERSAL MFG. CO.
- ---------------------------------

By: /s/ Donald D. Heupel
------------------------------

Title: President
---------------------------

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF REGISTRATION

NAME OF SUBSIDIARY: Universal Distribution LLC

STATE OF ORGANIZATION: Nebraska

OTHER NAMES: None

Page 38 of 45 Pages

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 424,188
<SECURITIES> 0
<RECEIVABLES> 2,559,918
<ALLOWANCES> 0
<INVENTORY> 3,620,018
<CURRENT-ASSETS> 6,616,151
<PP&E> 3,912,913
<DEPRECIATION> 2,266,225
<TOTAL-ASSETS> 8,540,344
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0
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<COMMON> 816,000
<OTHER-SE> 4,161,546
<TOTAL-LIABILITY-AND-EQUITY> 8,540,344
<SALES> 19,511,446
<TOTAL-REVENUES> 19,511,446
<CGS> 16,938,008
<TOTAL-COSTS> 19,104,520
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<PAGE>

EXHIBIT 99(ii)

PRESS RELEASE ISSUED FEBRUARY 25, 1999

PRESS RELEASE

DISTRIBUTION: To Business Editor

DATELINE: February 24, 1999; Universal Mfg. Co., Algona, Iowa

BODY:

Effective October 1, 1998, Universal Mfg. Co. signed a new sales
agreement with Ford Motor Company. This agreement establishes Universal as a
Ford Authorized Distributor, and as such, Universal distributes to Ford and
Lincoln-Mercury dealerships remanufactured parts produced by Ford Motor Company,
along with remanufactured parts produced in Universal's plant, remanufactured
engines and transmissions, and Motorcraft branded products. The Motorcraft
branded products are a new line for Universal.

Universal competes with other distributors for the distribution of Ford
remanufactured parts and Motorcraft products.

The sales agreement with Ford requires, and competition dictates, that
same-day delivery service be offered to as many dealerships as possible. This
required Universal to add trucks, drivers, warehouse space, warehouse personnel,
computer system capability, and sales personnel. These additions have increased
sales and distribution costs. Sales revenues have not increased correspondingly,
thus the reduction in earnings reflected in the figures below:

CONSOLIDATED SIX MONTH OPERATING REPORT
FOR SECOND QUARTER ENDED JANUARY 31, 1999
(Not audited by Independent Public Accountants)

<TABLE>
<CAPTION>
Second Six
Quarter Ended Months Ended

1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 4,267,937 $ 4,117,510 $ 9,259,667 $ 9,493,294
Income Before Income Taxes (151,783) 373,318 359,904 1,010,136
Income Taxes (Est.) (60,435) 145,594 139,123 393,953
Net Income (91,348) 227,724 220,781 616,183
Earnings Per Share (.11) .28 .27 .76
</TABLE>

Other factors contributed to the reduced earnings. For a few product
lines, such as starters and alternators, sales of lower margin Ford
remanufactured units displaced units remanufactured by Universal. Some one time
costs were also incurred by liquidation of discontinued parts and cores.

Page 43 of 45 Pages
<PAGE>

Sales were negatively affected early in the quarter by higher than
usual product returns from Universal's customers, prompted by the
deauthorization of certain Ford Authorized Remanufactured product lines. Despite
a period of very strong sales during a very cold period in early January,
weather was very mild through most of the quarter.

Universal has initiated an aggressive marketing program for Motorcraft
parts and Ford Remanufactured parts, with positive initial results. Universal is
also aggressively seeking alternative markets for parts remanufactured in its
plant. Universal is optimistic that these efforts, combined with additional
distribution opportunities planned by Ford Motor Company should return it to
normal profitability in the near future.

This press release contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Investors are
cautioned that statements herein that are not historical facts, including
statements about the Company's confidence and strategies and the Company's
expectations about future market opportunities, market demand or acceptance of
the Company's products are forward looking statements that involve risks and
uncertainties. These uncertainties include, without limitation, the effect of
general economic and market conditions, customer requirement for our products,
the continuing strength of the automotive industry, competitor pricing,
maintenance of our current momentum, weather conditions and other factors.

For additional information on this matter please contact Donald D.
Heupel, President of Universal, at (515) 295-3557.

Page 44 of 45 Pages

<PAGE>

EXHIBIT 99(iii)

PRESS RELEASE ISSUED JUNE 11, 1999

PRESS RELEASE

DISTRIBUTION: To Business Editor

DATELINE: June 11, 1999; Universal Mfg. Co., Algona, Iowa (NASDAQ: UFMG)

BODY: Universal Announces New Hire

Universal Mfg. Co announced today an addition of Mr. Steve Nelson to
its management team. Nelson's position with the Company will be Director,
Distribution Operations and he will be based in Des Moines, Iowa. With the new
distribution agreement between the Company and Ford Motor Company, the Company
determined that it needed a distribution expert to round out the management
team.

Going forward, Universal's focus will remain with its core business --
serving the area's Ford and Lincoln Mercury dealers with Ford Remanufactured,
Ford Authorized Remanufactured and Motorcraft products. The Company will further
develop plans to widen its customer base and develop strategic solutions for
serving present customers.

Nelson's career path includes tenures with John Deere, Toyota Motor
Sales, USA and Mazda, North America. His most recent post was with Amati
Service, Parts, Systems and C.S. development.

Universal is very excited about the addition of Nelson who will join
the Company on July 6, 1999.

For additional information on this matter please contact Donald D.
Heupel, President of Universal, at (515) 295-3557.

Page 45 of 45 Pages