AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1995
REGISTRATION NO. 33-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 25-0742820
(State of incorporation) (IRS Employer
Identification Number)

255 ELM STREET
OIL CITY, PENNSYLVANIA 16301
(814) 676-7676

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

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

PAUL E. KONNEY
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
QUAKER STATE CORPORATION
255 ELM STREET
OIL CITY, PENNSYLVANIA 16301
(814) 676-7676

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

COPIES TO:

ANN BAILEN FISHER MORTON A. PIERCE
SULLIVAN & CROMWELL DEWEY BALLANTINE
250 PARK AVENUE 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10177 NEW YORK, NEW YORK 10019

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement, as determined
by market conditions and other factors.

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

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ___________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / ___________________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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

CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT* OFFERING PRICE* REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------

% Notes Due 2005.................... $100,000,000 100% $100,000,000 $34,483
===========================================================================================================

* Estimated solely for the purpose of determining the registration fee and not a
representation as to the actual offering or re-offering price.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 6, 1995.
[LOGO]
$100,000,000

Quaker State Corporation

% Notes Due 2005
Interest payable and Due , 2005

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

The Notes will be redeemable in whole or in part, at the option of the Company
at any time, at a redemption price equal to the greater of (i) 100% of their
principal amount and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted, on a
semiannual basis, at the Treasury Yield (as defined herein) plus 15
basis points, together with accrued interest to the date of
redemption. The Notes will not be subject to any sinking
fund.

The Notes will be represented by one or more Global Securities (as defined
herein) registered in the name of the nominee of The Depository Trust Company
("DTC"). Except as provided herein, Notes in definitive form will not
be issued. Settlement for the Notes will be made in immediately
available funds. The Notes will trade in DTC's Same-Day Funds
Settlement System until Maturity, and secondary market
trading activity for the Notes will therefore settle in
immediately available funds. See "Description of
Notes" herein.

Application will be made to have the Notes approved for listing on the New York
Stock Exchange.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)(2)
--------- ------------- -------------

Per Note..................................... % % %
Total........................................ $ $ $

(1) Plus accrued interest, if any, from , 1995.
(2) Before deduction of expenses payable by the Company estimated at
$ .
------------------

The Notes are offered by the several Underwriters when, as and if issued by
the Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Notes, in book-entry form, will be made through the facilities of DTC on or
about , 1995, against payment in immediately available funds.

CS First Boston J.P. Morgan Securities Inc.

The date of this Prospectus is , 1995.
3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Room 1400,
7 World Trade Center, Suite 1300, New York, New York 10048, and Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information concerning the
Company may also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005 and the Pacific Stock Exchange, 301 Pine
Street, San Francisco, California 94104, on which exchanges the common stock of
the Company is listed.

This Prospectus does not contain all information set forth in the
Registration Statement on Form S-3 and Exhibits thereto which the Company has
filed with the Commission, certain portions of which have been omitted pursuant
to the Rules and Regulations of the Commission, and to which reference is hereby
made.

INFORMATION INCORPORATED BY REFERENCE

The Company hereby incorporates into this Prospectus by reference the
following documents filed with the Commission:

(i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994;

(ii) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1995; and

(iii) the Company's Current Reports on Form 8-K, dated July 24, 1995
and August 21, 1995 and Current Report on Form 8-K/A1, dated September 20,
1995.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Notes covered by this Prospectus shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the dates of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the information incorporated by reference in the Registration
Statement of which this Prospectus is a part, other than exhibits to such
information unless specifically incorporated by reference in such information.
Written requests should be addressed to: Quaker State Corporation, 255 Elm
Street, Oil City, Pennsylvania 16301, Attention: Secretary. Telephone requests
may be directed to (814) 676-7676.

2
4

THE COMPANY

Quaker State Corporation ("Quaker State" or the "Company") is a leading
producer and marketer of branded and private label motor oils and other
lubricants. The Company also operates fast lube centers throughout the United
States and Canada, manufactures and sells vehicular safety lighting equipment
and operates a materials handling facility in Canada.

The Company's Motor Oil Division produces, markets and distributes major
national brand, private label and proprietary brand lubricants and other
automotive aftermarket products. The base oil stocks used in Quaker State
lubricants are blended with additives and packaged at manufacturing facilities
operated by the Company in the United States and Canada. Approximately
one-quarter of the base oil stocks used by the Company are produced at its Congo
refinery in West Virginia. The Motor Oil Division also provides collection,
transportation and recycling services for used oil, brake fluid, antifreeze and
filters in certain regions of the United States. During the first six months of
1995, revenues from the Motor Oil Division comprised approximately 78% of the
Company's total revenues from continuing operations.

Quaker State believes that, through its fast lube subsidiaries ("Q Lube"),
it is one of the largest operators of fast lube centers in the United States.
Fast lube centers offer consumers quick and economical oil changes and related
services for passenger vehicles. As of June 30, 1995, there were 434 Q Lube
stores in the United States, of which 326 were owned or leased and operated by Q
Lube and 108 were operated by franchisees. These stores are located in 24
states, primarily in the West, Midwest and Southeast. The Company also has 26
fast lube centers in the Province of Ontario that are owned and operated or
franchised through a joint venture. During the first six months of 1995,
revenues from Q Lube comprised approximately 12% of the Company's total revenues
from continuing operations.

The Company's Truck-Lite subsidiary manufactures safety lighting equipment
for trucks and automobiles, which is sold to original equipment manufacturers
and replacement parts distributors. During the first six months of 1995,
revenues from Truck-Lite comprised approximately 10% of the Company's total
revenues from continuing operations.

The Company also operates an iron ore pellet and potash terminal and a bulk
materials handling dock accessible to Lake Superior at Thunder Bay, Ontario.
During the first six months of 1995, revenues from the materials handling
operations comprised less than 1% of the Company's total revenues from
continuing operations.

Following the appointment of Herbert M. Baum as Chairman and Chief
Executive Officer in June 1993, the Company has taken initiatives to increase
its share of the branded motor oil market. These efforts have included
introducing new products and repositioning the Company's current product line,
extending the Company's existing brands, creating niche markets for the
Company's products, offering incentive programs and marketing allowances to
customers and independent distributors, and emphasizing the Quaker State name
through a new logo, contemporary packaging and increased advertising. According
to the NPD Group, Inc., an independent market research firm, the Company's share
of the U.S. motor oil market increased from 13.3% for 1992 to 14.9% for the
six-month period ended June 30, 1995.

Quaker State's goal is to continue the growth of its core lubricants and
lubricant services businesses and to strengthen further its position as a
leading North American motor oil company by capitalizing on the Company's brand
name, expanding its Q Lube operations, emphasizing its distribution, customer
service and technological capabilities and providing comprehensive lubricant
products and services, including the recycling of used oil and related
materials.

Consistent with the Company's focus on its core businesses, Quaker State
opportunistically has exited non-core businesses and made selective acquisitions
while maintaining a capital structure that the Company believes is conservative.
The Company discontinued its coal operations in December 1992; sold its
insurance subsidiary, Heritage Insurance Group, Inc. ("Heritage"), in August
1994; and sold most of the assets of its Natural Gas Exploration and Production
Division ("E&P") in the third quarter of 1995.

3
5

The Company has made two principal acquisitions which have expanded the
product range and distribution capabilities of its Motor Oil Division. First, in
September 1994, the Company acquired the Specialty Oil Companies ("Specialty")
and Westland Oil Company, Inc. ("Westland"), which together have provided the
Company with a substantial private label motor oil business, two additional
blending and packaging facilities and a network of approximately 25 sales and
distribution operations. In addition, in July 1995, the Company acquired Slick
50, Inc. ("Slick 50"), a producer of automotive engine treatments and related
automotive chemicals. While Quaker State believes that acquisitions and
divestitures will be an important aspect of its corporate strategy, there can be
no assurance that the Company will be successful in finding other suitable
acquisition or expansion opportunities or will exit any of its other businesses.

Quaker State has initiated a restructuring program aimed at integrating its
recent acquisitions, consolidating management and administrative activities and
streamlining operations. As part of these efforts, in April 1995, the Company
announced plans to relocate its corporate headquarters, the headquarters of its
Motor Oil Division and the headquarters of certain of its subsidiaries to the
Dallas, Texas area by early 1996. The Company currently estimates that,
following the anticipated completion of its restructuring program in 1996 (other
than certain actions relating to Q Lube, which are expected to continue beyond
the end of 1996), it will realize an annualized reduction in operating costs of
up to $10 million.

The Company, a Delaware corporation formed in 1931, has its principal
executive offices at 255 Elm Street, Oil City, Pennsylvania 16301. Its telephone
number is (814) 676-7676.

USE OF PROCEEDS

The net proceeds from the sale of the Notes are estimated to be
approximately $ million, of which approximately $56 million will be used to
prepay the Company's outstanding Senior Notes due 2002 which bear interest at a
fixed rate of 8.73%. The remainder of the net proceeds will be used for general
corporate purposes, acquisitions, capital expenditures or the reduction of other
indebtedness. Funds not required immediately for such purposes may be invested
temporarily in short-term marketable securities. The precise amounts and timing
of the application of proceeds will depend upon the funding requirements of the
Company and the availability of other funds. The Company considers certain
acquisitions from time to time but currently has no specific plans to enter into
any such transactions.

4
6

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of August 31, 1995, and as adjusted to reflect the sale of the Notes
offered hereby and the application of a portion of the net proceeds to prepay
the Company's outstanding Senior Notes due 2002. (See "Use of Proceeds.") This
table should be read in conjunction with the Consolidated Financial Statements
of the Company included in this Prospectus.

AUGUST 31, 1995
(UNAUDITED)
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN MILLIONS)

Cash.................................................................... $ 52.2 $
===== =====
Short-term Debt......................................................... $ 4.3 $ 4.3
===== =====
Long-term Debt:
Revolving credit loan due 1998(1)..................................... -- --
Revolving credit loan due 1997(2)..................................... 9.0 9.0
8.73% Senior Notes Due 2002........................................... 50.0 --
% Notes Due 2005.................................................. -- 100.0
Other................................................................. 12.2 12.2
----- -----
Total Long-term Debt............................................... 71.2 121.2
Total Stockholders' Equity.............................................. 281.5 281.5
----- -----
Total Capitalization.................................................... $352.7 $ 402.7
===== =====

- ---------------
(1) Revolving credit loan of the Company. On October 4, 1995, the Company
terminated its revolving credit agreement and executed a new $45.0 million
credit agreement due on September 28, 1996.

(2) Revolving credit loan of Westland.

5
7

SELECTED FINANCIAL INFORMATION

The following table sets forth summary financial information relating to
the Company. The summary financial data for the five years ended December 31,
1994 are derived from the Consolidated Financial Statements of the Company which
have been audited by Coopers & Lybrand L.L.P., independent certified public
accountants to the Company. In the third quarter of 1995, the Company sold most
of the assets of E&P. Accordingly the operating results of E&P have been
excluded from continuing operations and reclassified as discontinued operations
on the following table for the six months ended June 30, 1995 and 1994 and the
five years ended December 31, 1994. The financial data for the six-month periods
ended June 30, 1995 and 1994 are derived from the unaudited consolidated
financial statements of the Company. Operating results for the six months ended
June 30, 1995 are not necessarily indicative of the results that may be expected
for the full year ending December 31, 1995. The data should be read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Prospectus.

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------- -------------------
1994 1993 1992 1991 1990 1995 1994
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)

STATEMENT OF OPERATIONS DATA
Total revenues............................. $739.5 $612.7 $596.7 $582.0 $654.6 $502.8 $332.1
Costs and expenses
Cost of sales and operating costs........ 503.5 421.9 408.8 399.7 473.2 354.1 220.5
Selling, general and administrative...... 193.4 156.4 158.9 139.7 140.1 115.7 90.8
Depreciation and amortization ........... 21.8 19.2 20.1 20.1 20.8 14.6 10.0
Interest................................. 5.1 5.7 4.8 4.6 5.2 3.1 2.4
Unusual items............................ -- -- 3.2 -- (5.4) 15.8 --
Income from continuing operations before
income taxes............................. 15.7 9.5 0.9 17.9 20.7 (0.5) 8.4
Provision for (benefit from) income
taxes.................................... 6.2 2.5 0.2 7.5 7.5 (0.2) 4.7
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing operations... 9.5 7.0 0.7 10.4 13.2 (0.3) 3.7
Income (loss) from discontinued operations
(net of taxes)........................... 9.3 6.7 (31.9) 5.1 6.4 2.7 7.0
Cumulative effect of accounting changes.... -- -- (62.6) 7.2 -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss).......................... $18.8 $13.7 $(93.8) $22.7 $19.6 $2.4 $10.7
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA
Cash and cash equivalents.................. $ 29.8 $ 15.6 $ 41.3 $ 15.1 $ 12.1 $ 11.6 $ 8.8
Working capital............................ 101.4 35.4 74.9 43.0 41.3 129.9 36.7
Total assets............................... 630.0 783.7 792.8 751.5 757.2 631.7 788.1
Long-term debt............................. 69.5 51.2 73.7 84.1 67.5 68.5 51.2
Total debt................................. 73.2 51.5 79.2 88.9 72.1 71.8 51.3
Stockholders' equity....................... 251.9 188.8 191.2 307.8 304.5 248.4 191.5

6
8

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------- -----------------
1994 1993 1992 1991 1990 1995 1994
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)

SEGMENT INFORMATION
REVENUES
Motor Oil................ $541.2 $439.3 $441.0 $444.0 $512.2 $399.5 $235.1
Q Lube................... 113.7 105.3 104.4 98.5 93.0 60.3 54.1
Truck-Lite............... 99.6 80.8 63.9 49.9 54.4 49.6 51.2
Materials Handling....... 3.0 3.0 5.3 5.6 6.1 1.7 1.5
Intersegment sales....... (24.9) (21.3) (22.0) (20.4) (15.8) (13.9) (11.8)
------ ------ ------ ------ ------ ------ ------
Total.................... $732.6 $607.1 $592.6 $577.6 $649.9 $497.2 $330.1
====== ====== ====== ====== ====== ====== ======
OPERATING PROFITS
Motor Oil................ $ 16.4 $ 17.5 $ 23.3 $ 36.8 $ 18.8 $ 12.9 $ 8.3
Unusual item(1).......... -- -- -- -- 5.4 -- --
------ ------ ------ ------ ------ ------ ------
Total Motor
Oil............ 16.4 17.5 23.3 36.8 24.2 12.9 8.3
Q Lube................... 5.7 3.1 2.0 (1.1) 6.1 4.1 2.8
Unusual item(2).......... -- -- (3.2) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total Q Lube..... 5.7 3.1 (1.2) (1.1) 6.1 4.1 2.8
Truck-Lite............... 11.7 5.7 (3.6) (0.3) 3.9 7.3 7.4
Materials Handling....... 1.8 1.1 2.1 1.9 2.5 0.5 0.5
------ ------ ------ ------ ------ ------ ------
Total operating profits.... 35.6 27.4 20.6 37.3 36.7 24.8 19.0
------ ------ ------ ------ ------ ------ ------
Corporate income......... 3.2 2.7 .2 .2 -- 2.6 1.2
Interest expense......... (4.5) (5.4) (4.3) (3.3) (3.3) (3.0) (2.3)
Corporate expense........ (18.6) (15.2) (15.6) (16.3) (12.7) (9.1) (9.5)
Unusual item(3).......... -- -- -- -- -- (15.8) --
------ ------ ------ ------ ------ ------ ------
Income from continuing
operations before
income taxes.......... $ 15.7 $ 9.5 $ .9 $ 17.9 $ 20.7 $ (0.5) $ 8.4
====== ====== ====== ====== ====== ====== ======
OTHER STATISTICS
EBITDA(4).................. $ 42.6 $ 34.4 $ 29.0 $ 42.6 $ 41.3 $ 33.0 $ 20.8
Capital expenditures(5).... 27.9 18.9 12.7 15.0 23.3 15.7 9.5
Ratio of EBITDA to gross
interest expense......... 8.4x 6.0x 6.0x 9.3x 7.9x 10.6x 8.7x
Ratio of total debt to
EBITDA(6)................ 1.7x 1.5x 2.7x 2.1x 1.7x 1.1x 1.2x
Ratio of earnings to fixed
charges.................. 2.3x 1.8x 1.1x 2.6x 2.9x 0.9x(7) 2.4x

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

(1) Gain on the sale of the McKean, Pennsylvania and Emlenton, Pennsylvania
facilities.

(2) In the fourth quarter of 1992, Q Lube recorded a pretax charge of $3.2 to
reserve for the future replacement of signage and other assets impaired by
the planned conversion of existing Minit-Lube stores into the Q Lube format.

(3) The restructuring charge of $15.8 includes $9.3 that relates to the Motor
Oil Division.

(4) EBITDA means income from continuing operations before interest, taxes,
unusual items, depreciation and amortization. EBITDA is used as a measure of
the Company's debt service ability. EBITDA should not be construed as an
alternative to cash flows from operating activities or as an indicator of
operating performance.

(5) For continuing operations.

(6) For purposes of this computation, EBITDA for the six months ended June 30,
1994 and June 30, 1995 have been annualized.

(7) Ratio is less than one as a result of the $15.8 restructuring charge
recorded in the second quarter of 1995 which impacted earnings.

7
9

BUSINESS

MOTOR OIL

The Company's Motor Oil Division produces, markets and distributes major
national brand, private label and proprietary brand lubricants and other
automotive aftermarket products. Lubricants produced by the Company include
motor oils, transmission fluids, gear lubricants for automobiles and trucks, as
well as specialty lubricants designed for sport-utility vehicles, marine craft,
farm equipment, motorcycles, snowmobiles and other types of vehicles. Quaker
State also sells certain by-products of its refining process, such as gasoline,
fuel oils (diesel fuel and heating oils) and kerosene, which are not used in the
manufacture of its lubricants. Greases and some specialty lubricants sold by
Quaker State are made by others to the Company's specifications. In addition,
the Company purchases and resells automotive consumer products such as oil, air
and fuel filters, antifreeze, brake and power steering fluids, fuel additives,
spray lubricants and cleaners and automotive undercoatings. The Company's
products are sold under the Quaker State, Slick 50 and certain private label and
proprietary brand names.

Recent Acquisitions. The Company has made two principal acquisitions which
have expanded the product range and distribution capabilities of its Motor Oil
Division.

In September 1994, the Company acquired Specialty, which had been the
Company's largest independent distributor, and Westland, a related blending and
packaging company, in a combined transaction for total consideration of
approximately $119.0 million, consisting of $20.0 million in cash, 4,000,000
shares of Quaker State common stock, approximately $1.5 million for the purchase
of certain related equipment and approximately $40.0 million of assumed
indebtedness. The Specialty and Westland acquisitions have significantly
increased the size of the Company's lubricants business by providing the Company
with an extended product portfolio in branded and private label niche markets, a
stronger distribution network and greater operating efficiencies. These
acquisitions also have provided Quaker State with a significant presence in the
fleet, commercial and industrial markets. Through the Environmental Services
Division of Specialty, Quaker State provides collection, transportation and
recycling services for used oil, brake fluid, antifreeze and oil filters in
certain regions of the country.

In July 1995, the Company acquired Slick 50, a manufacturer of automotive
engine treatments and related automotive chemicals, for total consideration
consisting of approximately $22.0 million in cash, 1,260,403 shares of Quaker
State common stock and approximately $11.0 million in satisfaction of certain
Slick 50 indebtedness. Additional consideration may be payable in the event that
certain financial performance levels are achieved by Slick 50 during the fiscal
years ending December 31, 1996, 1997 and 1998, subject to offset for
indemnification obligations of Slick 50 stockholders. Through the acquisition of
Slick 50, the Company's product line has been expanded to include automotive
engine treatments and related chemicals. Slick 50 had revenues of approximately
$39.1 million and $89.1 million for the six months ended June 30, 1995 and the
fiscal year ended December 31, 1994, respectively. In connection with the Slick
50 acquisition, the Company increased its goodwill and other intangible assets
by approximately $50.0 million which will be amortized on a straight line basis
over periods not exceeding 40 years.

Raw Materials. Motor oils are produced by blending additives with base oil
stocks which are refined from crude oil. Quaker State's motor oils are made from
base oil stocks produced at its Congo refinery located in Newell, West Virginia
or purchased from other refiners. Currently, approximately one-quarter of the
Company's base oil stock requirements are produced at the Congo refinery.

The Congo refinery is designed to produce base oil stocks specifically from
Pennsylvania Grade crude oil. Quaker State purchases most of its crude oil
requirements from suppliers with which Quaker State has been doing business for
many years. During 1994, Quaker State purchased Pennsylvania Grade crude oil
from approximately 1,400 producers, the largest of which accounted for
approximately 12% of Quaker State's purchases. Purchases are made pursuant to
informal arrangements which may be terminated at any time or pursuant to joint
venture, operating, farmout or similar agreements under which Quaker State has
the contractual right to purchase the crude oil, if produced. Raw materials
other than crude oil consist primarily of base oil stocks produced by other
refiners, chemicals, fuels and additives, all of which are currently available

8
10

from a number of sources. During the first six months of 1995, the weighted
average price per barrel of crude oil purchased by Quaker State was $17.27.

Availability of Pennsylvania Grade crude oil depends primarily on the price
which purchasers, including Quaker State, are willing to pay, which in turn
depends on the prevailing world market prices for all types of crude oil.
Although the available supply of Pennsylvania Grade crude oil has been declining
for some time and is expected to continue to decline, Quaker State believes that
an adequate supply of Pennsylvania Grade crude oil will be available for the
Congo refinery for the near future. The Company is studying the cost and
availability of alternatives for the Congo refinery.

Manufacturing. The Congo refinery, which was built in 1971, remains one of
the newer lubricant stock refineries in the United States. The Company believes
the Congo refinery has sufficient capacity to meet currently planned production
requirements. During the year ended December 31, 1994, 3,919,000 barrels of
Pennsylvania Grade crude oil were processed at the Congo refinery. A portion of
the base oil stocks produced at the Congo refinery are also sold to third
parties. As of June 30, 1995, gasoline, fuel oils and kerosene, which are
by-products of the refining process, accounted for approximately 56% of the
output (by volume) of the Congo refinery. Wax is also a by-product of the
refining process and is sold to third parties.

Quaker State owns and operates blending and packaging plants, where it
blends base oil stocks with chemical additives to produce motor oils, at the
Congo refinery and in Vicksburg, Mississippi, Carson, California, San Antonio,
Texas, and Burlington, Ontario. The Company also blends base oil stocks and
chemical additives into finished lubricants and related products and packages
its products at a leased blending and packaging plant in Shreveport, Louisiana.
The Company has announced plans for a development project at the Red River port
in Shreveport, Louisiana which will serve as its lubricants manufacturing and
technical headquarters. The port development project is subject to a number of
conditions, including the availability of state and local funding for land and
certain infrastructure which, to date, has not been finalized.

Domestic Sales. Quaker State sells motor oils and other lubricants and
automotive consumer products through independent distributors and directly to
retailers, including national and regional chain stores and fast lube centers.
Direct sales are also made to resellers and end users primarily in large
metropolitan areas. Resellers include wholesalers, and end users include
industrial and commercial accounts and fleet customers.

Independent distributors resell to service stations, retailers, automobile
dealers, repair shops, fast lube centers, automobile parts stores, retail food
chains, fleet and commercial customers and wholesale outlets. Independent
distributors sell motor oils and lubricants produced by other companies in
addition to Quaker State products. As of June 30, 1995, Quaker State had 97
independent distributors which sell its products throughout all 50 states. These
independent distributors accounted for approximately 25% of Quaker State's total
branded motor oil sales revenues in the United States during the first six
months of 1995.

Gasoline, fuel oils and kerosene are sold F.O.B. the Congo refinery to
wholesalers located primarily in Ohio, Pennsylvania and West Virginia.

Foreign and Export Sales. Quaker State sells its motor oils in over 74
foreign countries through subsidiaries and independent distributors. The Company
also exports small amounts of greases, gear lubricants and automotive consumer
products, such as filters and chemicals. During the first six months of 1995 and
the three years ended December 31, 1994, total revenues from foreign operations,
including export sales, were approximately $35.7 million, $68.7 million, $55.4
million and $47.4 million, respectively. The largest component of these revenues
was attributable to sales in Canada.

Quaker State believes that its motor oils are the largest selling
independent branded motor oil in Canada as well as the leading private brand in
Mexico and the Dominican Republic. During 1994 and the first six months of 1995,
a significant part of the Company's export sales also were made to Guatemala,
Ecuador, Poland, Sweden and Taiwan. Efforts are being made to increase export
sales by strengthening management, adding distributors and entering into joint
ventures with current distributors and others.

9
11

Sales in Canada are made primarily through independent distributors under
contract with the Company's Canadian subsidiary, but are also made directly to
customers. The Company sells branded motor oils in Japan through a subsidiary.
Sales in Mexico are made through a licensee.

Marketing. Quaker State aggressively markets its branded lubricants and
automotive consumer products. The Company believes that the motor oil business
is brand-driven and has created a marketing strategy which focuses on the
establishment of a unique identity for the Company's products. In particular,
Quaker State relies heavily on media advertising to project the quality image of
its motor oils and other products. In addition to media advertising, the
Company's marketing efforts include sponsorship of automobile racing teams,
participation in automotive trade shows and distribution of promotional
materials. Quaker State also provides marketing allowances to its customers and
has incentive programs for its direct retail customers and independent
distributors.

Following the introduction of Quaker State's new logo in late 1993, the
Company developed a contemporary design for its packaging to heighten the
visibility of Quaker State products. In the spring of 1994, the Company launched
its "Intelligent Oil" advertising campaign which promotes the Quaker State brand
as a high-tech motor oil that adapts to the changing needs of automotive
engines. In the fall of 1994, the Company introduced Quaker State 4X4 motor oil,
a brand designed to meet the needs of sport-utility vehicles.

Quaker State has trademark registrations in effect or applications pending
covering the use of its trademarks "Quaker State," "Quaker State 4X4," "Slick
50," "Lubriguard," "Itasca" and other product names, logos and designs utilized
in connection with the sale of its products. The trademark registrations expire
at various dates, but in each case may be renewed.

Q LUBE

Quaker State believes that, through its fast lube subsidiaries, Q Lube,
Inc. and McQuik's Oilube, Inc. (collectively, "Q Lube"), it is one of the
largest operators of fast lube centers in the United States. Fast lube centers
offer consumers quick and economical oil changes and related services for
passenger vehicles. As of June 30, 1995, there were 434 Q Lube stores in the
United States, of which 326 were owned or leased and operated by Q Lube and 108
were operated by franchisees. These stores are located in 24 states, primarily
in the West, Midwest and Southeast. In addition, Q Lube owns and operates or
franchises 26 fast lube centers in Ontario, Canada through a joint venture.
Quaker State supplies most of the motor oils used and sold in the Q Lube stores,
which, collectively, are the largest purchasers of Quaker State motor oils sold
in bulk.

Fast lube operations have experienced significant growth over the past
several years as the installed ("do-it-for-me") segment of the motor oil market
has become more in demand by consumers. As a result, the "do-it-for-me" segment
of the motor oil market has outpaced the "do-it-yourself" segment, capturing
approximately 42% of the motor oil market in 1994, as compared to 27% of the
motor oil market in 1985. In 1994, sales in the "do-it-for-me" segment of the
motor oil market increased more than 4%. The Company's Q Lube operations
recorded an 8% increase in revenues in 1994 and an 11% increase for the first
six months of 1995.

Certain of the Company's fast lube centers are operated under the names
McQuik's Oilube and Quaker State Minit Lube. In 1992, the Company began
conversion of its fast lube centers to the name Q Lube in order to emphasize the
relationship between Quaker State and its fast lube centers. As of June 30,
1995, approximately 55% of Company-operated centers were operated under the Q
Lube name. The Company plans to complete the conversion of the remaining
Company-operated centers by 1997.

In September 1994, Q Lube entered into a license agreement with Interline
Resources Corporation ("Interline") which provides for the use by Q Lube of
Interline's re-refining technology for the conversion of waste oil into reusable
products in the United States, Canada and Mexico. Q Lube's construction of its
first used oil recovery unit utilizing the technology is nearing completion.
Construction of any additional units will depend upon, among other things, the
operating results of the first unit.

10
12

TRUCK-LITE

Truck-Lite Co., Inc. ("Truck-Lite"), a subsidiary of Quaker State,
manufactures safety lighting equipment for trucks and automobiles, which is sold
to original equipment manufacturers and replacement parts distributors.
Truck-Lite's product line consists of custom-designed safety and interior lights
for passenger cars, light trucks and vans; sealed and bulb replaceable stop,
turn and indicator lights for heavy-duty trucks; and sealed wiring harness
systems for heavy-duty truck trailers. The Company plans to emphasize the heavy-
duty truck and truck trailer lighting businesses which the Company believes
offer more attractive margins than Truck-Lite's other product lines.

Most of Truck-Lite's products for passenger cars, light trucks and vans are
manufactured and distributed from a Company owned and operated facility in
Falconer, New York. Most of the products for heavy-duty trucks and truck
trailers are manufactured at a leased facility in McElhattan, Pennsylvania and a
Company-owned facility in Wellsboro, Pennsylvania and distributed from leased
distribution centers in McElhattan, Pennsylvania and Sacramento, California.

MATERIALS HANDLING

Quaker State's subsidiary, Valley Camp, Inc., operates an iron ore pellet
and potash terminal and a bulk materials handling dock accessible to Lake
Superior at Thunder Bay, Ontario, pursuant to a contract scheduled to expire on
December 31, 1997. The Company currently plans to renew the contract, provided
favorable terms can be negotiated.

DIVESTITURES AND DISCONTINUED OPERATIONS

Consistent with the Company's focus on its core lubricants and lubricant
services businesses, Quaker State opportunistically has exited certain of its
non-core businesses during the past several years.

Natural Gas Exploration and Production Division. In the third quarter of
1995, Quaker State sold most of the assets of E&P for approximately $65.2
million (net gain of approximately $11.2 million after taxes), subject to
certain adjustments. The sales included interests in approximately 1,460
producing oil and gas wells in New York, Ohio, Pennsylvania and West Virginia,
approximately 250,000 leasehold acres, gas-gathering lines, and approximately
10,000 timber acres.

Insurance. From 1984 to 1994, Quaker State was engaged in the insurance
business, including credit life insurance, accident and health insurance and
specialty indemnity coverages for automobiles and consumer appliances, through
Heritage. In August 1994, Quaker State sold Heritage for approximately $82.0
million after satisfaction of certain intercompany obligations.

Coal. From 1976 to 1992, Quaker State was engaged in coal operations
through its subsidiary, The Valley Camp Coal Company ("Valley Camp"). In
December 1992, Valley Camp discontinued its coal operations. Reclamation work
continues at the mines formerly operated by two of Valley Camp's subsidiaries,
as do sales of the remaining assets related to the discontinued coal operations.

COST REDUCTION AND RELOCATION

11
13

COMPETITION

The branded motor oil business is highly competitive. In the United States,
the major competitors of Quaker State and their principal brands of motor oil
are Pennzoil Company (Pennzoil), Ashland Inc. (Valvoline), Texaco Inc.
(Havoline) and Burmah Castrol PLC (Castrol). In foreign countries, Quaker State
competes with foreign manufacturers (including some that are government-owned)
and with its major U.S. competitors. The principal methods of competition in the
branded motor oil business are product quality, distribution capability,
advertising and sales promotion. Many of the competitors, particularly the major
integrated oil companies, have greater motor oil production capacities and
financial resources substantially greater than those of the Company. Quaker
State also competes with Pennzoil Company and Witco Corporation in the purchase
of Pennsylvania Grade crude oil.

In the sale of private label lubricants, Quaker State competes with a
number of small blending and packaging companies. The principal methods of
competition are product quality and price. In the waste oil collection,
transportation, management and recycling business, Quaker State competes with
Safety-Kleen Corp., International Petroleum Corp., the First Recovery, Inc.
division of Ashland Inc. and a number of regional waste oil haulers. The
principal methods of competition are reliability and quality of service and
price.

The fast lube business is also highly competitive. The major competitors of
Quaker State are Jiffy Lube International, Inc. (a subsidiary of Pennzoil
Company) and Ashland Inc. through its Valvoline Instant Oil Change centers.
There are also a significant number of independent fast lube chains operating on
a local or regional basis. In addition to competing with other fast lube
centers, Q Lube competes with local automobile dealers, service stations and
garages. The principal methods of competition are quality of service, price and
sales promotion.

The market for vehicular safety lighting equipment is highly competitive.
Truck-Lite competes with other independent manufacturers including Grote
Industries, Inc., Peterson Manufacturing Co., Inc. and the Signal-Stat Division
of Federal-Mogul Corporation, as well as with companies owned by truck and
automobile manufacturers. The principal methods of competition are quality,
price, delivery and technical innovation.

GOVERNMENT REGULATION

Environmental. Quaker State and its subsidiaries are subject to extensive
federal, state and local laws and regulations governing, among other things, air
emissions, waste water discharges, hazardous materials, land use, waste
management and employee health and safety. In particular, these laws and
regulations affect motor oil refining and manufacturing operations, natural gas
and crude oil producing activities, used oil and other automotive fluids
collection and fast lube operations. In motor oil refining and manufacturing,
permits are required for, among other things, the discharge of waste water, air
emissions and for hazardous waste activities. In natural gas and crude oil
production, the laws and regulations relate principally to the discharge of
crude oil, the disposal of wastes such as brine from drilling operations and the
cleanup and plugging of wells upon abandonment of producing properties.
Regulations govern the collection, transportation and disposition of used motor
oil and other automotive fluids. Federal regulations impose standards for tanks
and tank farms storing these materials, recordkeeping and labelling requirements
and management standards. In the fast lube operations, waste management
regulations apply to the handling and disposition of used motor oil and filters,
other petroleum products and antifreeze. While the Company does not believe that
current and anticipated future environmental compliance requirements are likely
to have a material adverse effect upon its financial position, environmental
laws and regulations are subject to frequent change and have become more
stringent in recent years so that there can be no assurance that future
environmental requirements would not have a material adverse effect on the
Company's future quarterly or annual results of operations or cash flows.

Certain environmental laws, such as the federal Superfund law, can impose
joint and several liability for the cleanup of hazardous waste sites upon
certain statutorily defined categories of parties regardless of the lawfulness
of the original activity or disposal. Quaker State and certain of its
subsidiaries have received notices from the U.S. Environmental Protection Agency
(the "EPA") and similar state agencies that they may be responsible for response
and cleanup costs with respect to certain Superfund and state waste sites.
Although the Company does not anticipate, based on current information, that
environmental liabilities associated with

12
14

third party waste sites or currently or formerly owned properties are likely to
have a material adverse effect upon its financial position, there can be no
assurance that new or changed remediation requirements, information regarding
site conditions or liability allocations would not have a material adverse
effect upon the Company's future quarterly or annual results of operations or
cash flows. (See "Legal Proceedings" and "Capital Expenditures.")

Other. Truck-Lite's products are subject to regulations of the U.S.
Department of Transportation that govern the brightness, placement and physical
durability of vehicular lighting.

CAPITAL EXPENDITURES

In April 1995, the Company announced plans for a $25 million development
project for the Red River port in Shreveport, Louisiana which will serve as the
Company's lubricants manufacturing and technical headquarters. The port
development will include a blending, packaging and warehousing facility in
Shreveport, as well as a laboratory and tank farm near the Red River. In
addition, the Company plans to improve and upgrade existing plant and
facilities, and construct additional storage tanks and bulk loading and
unloading facilities near the Red River. The port development project is subject
to a number of conditions, including the availability of state and local funding
for land and certain infrastructure which, to date, has not been finalized.

Capital expenditures in 1995 are anticipated to be $39.7 million, of which
approximately $16.2 million was incurred as of June 30, 1995. Approximately 62%
is planned for use by the Motor Oil Division primarily for manufacturing
upgrades and capital commitments to enhance long-term branded motor oil volumes.
Another 21% is allocated to Q Lube to convert Company stores to the new Q Lube
format. The total planned capital expenditures for 1995 includes approximately
$4.5 million related to the $25 million development project in Shreveport,
Louisiana which should commence in the fourth quarter of 1995.

Capital expenditures for pollution control facilities during the first six
months of 1995 and the three years ended December 31, 1994 were $1.3 million,
$3.2 million, $1.8 million and $2.0 million, respectively. Capital expenditures
for pollution control facilities during the remainder of 1995 are expected to
amount to approximately $1.4 million. Capital expenditures for pollution control
facilities in 1994, 1993 and 1992 included upgrading and replacing underground
storage tanks in Q Lube's operations. During the three years ended December 31,
1994, expenditures were made in connection with new drilling by E&P which was
sold in the third quarter of 1995. Anticipated expenditures in 1995 for
pollution control facilities include expenditures related to continued upgrading
and replacement of underground storage tanks in the Q Lube operations and the
installation of new boiler stacks, monitoring equipment and flow meters at the
Congo refinery to comply with the federal Clean Air Act.

LEGAL PROCEEDINGS

In December 1993, the United States commenced a lawsuit against the Company
in the U.S. District Court for the Northern District of West Virginia. The
complaint alleges the Company violated the federal Resource Conservation and
Recovery Act and the Clean Air Act at the Congo refinery on various dates
starting in 1980 and seeks civil penalties not to exceed $25 thousand per day
for each violation. While the Company intends to defend this lawsuit vigorously,
it has engaged in settlement discussions with the EPA. In 1994, the Company
accrued $1.0 million in accordance with its estimate of the probable liability
associated with this lawsuit. In recent settlement discussions, the Company has
proposed supplemental environmental projects and waste water treatment plant
modifications as part of its settlement proposal which would be implemented over
time and which could cost the Company a total of approximately $2.0 million to
$3.0 million.

Quaker State and certain of its subsidiaries have received notices from the
EPA and a similar state agency that they may be responsible for response and
cleanup costs with respect to certain Superfund sites.

The Company has been named as a party or a potentially responsible party in
a number of government and private actions based on environmental laws and
regulations. The Company anticipates future liability for

13
15

long-term remediation or reclamation at certain formerly owned facilities,
including three refineries and various coal operations.

In April 1994, class actions were commenced in the U.S. District Court for
the Western District of Pennsylvania against the Company and two other refiners
of Pennsylvania Grade crude oil. The consolidated amended complaint alleges
violations of Section 1 of the Sherman Act based upon an allegation that the
defendants, since at least January 1, 1981, combined and conspired to fix,
lower, maintain and stabilize the purchase price of Pennsylvania Grade crude oil
purchased from the plaintiffs and others. The plaintiffs purport to represent a
class of all persons who sold Pennsylvania Grade crude oil to one or more of the
defendants during the period from January 1, 1981 to the present. The complaint
alleges that the applicable statute of limitations has been tolled by a
fraudulent concealment of the alleged combination and conspiracy. The complaint
seeks a class determination, treble damages, an injunction and the recovery of
costs, including attorneys' fees. In July 1995, the U.S. District Court
certified the proceeding as a class action and denied the defendants' motion for
summary judgment, without prejudice to renewal after the close of discovery.
Discovery in this proceeding is continuing. The Company believes there is no
basis for the allegations in the complaint.

Quaker State sold its crude oil refinery in St. Mary's, West Virginia in
December 1987. The purchaser filed for bankruptcy in December 1988, and in
August 1991 the bankruptcy trustee sold the refinery to a second purchaser. In
connection with this transaction, Quaker State provided certain indemnities with
respect to the environmental conditions at the refinery. In April 1990, Quaker
State sold its crude oil refinery in Farmers Valley, Pennsylvania and a wax
plant (formerly also a crude oil refinery) in Emlenton, Pennsylvania and
provided the purchaser with similar indemnities. Quaker State expects that it
will incur some expenditures related to these indemnities and also expects that
it will incur some expenditures for environmental conditions associated with its
discontinued coal operations.

The Company and a subsidiary are involved in several non-judicial
proceedings in which the Federal Trade Commission and two competitors separately
are challenging the accuracy of advertising for different products. The Company
is involved in various other legal proceedings incidental to the normal course
of its business.

While it is impossible at this time to determine with certainty the
ultimate outcome of all current and potential environmental and legal matters
involving the Company, Quaker State has accrued reserves for all items which are
believed by the Company to be probable and can be reasonably estimated and does
not expect any material adverse effect on its financial position. However, not
all of these matters can be predicted with certainty so it is possible that one
or more of these matters could be decided against the Company and result in a
material adverse impact on future quarterly or annual results of operations or
cash flows when resolved. (See "Government Regulation.")

14
16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information set forth below is derived from management's discussion and
analysis contained or incorporated by reference in the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 and the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 (the "10-K"), each of
which is incorporated by reference into the Registration Statement of which this
Prospectus forms a part. In the third quarter of 1995, the Company sold most of
the assets of E&P. Accordingly, the operating results of E&P have been excluded
from continuing operations and reclassified as discontinued operations in the
following discussions.

References in the following discussion to specific notes to the financial
statements are references to notes in the Consolidated Financial Statements,
incorporated by reference in the 10-K and included elsewhere in this Prospectus,
as relates to the discussion for the annual periods.

SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994

Consolidated Review of Operations

Quaker State's net income for the first six months of 1995 was $2.4 million
compared to $10.7 million for the first six months of 1994. Sales and operating
revenues from continuing operations were $497.2 million for the first six months
of 1995 compared to $330.1 million for the corresponding period in 1994. The
1995 sales and operating revenues included $164.6 million of additional sales
and operating revenues for the first six months of 1995 from Specialty and
Westland. Expenses for the first six months of 1995 include a pretax
restructuring charge of $15.8 million related to the Company's announced
relocation to the Dallas, Texas area. Total costs under the restructuring plan
are estimated to be $25.0 million with the remainder of such costs to be
expensed as incurred. This charge accounted for the pretax loss from continuing
operations of $495 thousand for the first six months of 1995. Operating profits
from continuing operations, excluding restructuring charges, increased 31%, to
$24.8 million for the first six months of 1995, compared with $19.0 million in
1994, reflecting higher sales for branded motor oil and improved Q Lube
operating results.

Income from discontinued operations was $2.7 million for the first six
months of 1995 compared to $7.0 million for the comparable period of 1994.
Income from discontinued operations in 1994 also included the E&P operations and
the insurance operations of Heritage which were discontinued and sold in 1994.

Motor Oil. Operating profits for the Motor Oil Division, excluding
restructuring charges of $9.3 million, were $12.9 million for the first six
months of 1995 compared to $8.3 million for the comparable period of 1994. Sales
and operating revenues of $399.5 million in this period increased 70% over the
comparable period of 1994 and included 1995 revenues from Specialty and
Westland. Operating profits improved as a result of a 2% increase in branded
motor oil sales volume in the first six months of 1995 compared to the first six
months of 1994. In addition, refinery product margins improved as a result of
higher sales prices for base stocks, gasoline and fuel oil. Operating results
also include $1.5 million of LIFO inventory profits recorded in the second
quarter of 1995 as a result of liquidating certain inventory quantities. In the
Motor Oil Division's private label and industrial lubricants business, operating
results improved in the second quarter of 1995 as first quarter sales price
increases partially offset the impact of higher materials costs.

Q Lube. Q Lube reported operating profits during the first six months of
1995 of $4.1 million on sales and operating revenues of $60.3 million compared
to profits of $2.8 million on sales and operating revenues of $54.1 million for
the comparable period of 1994. Car counts in 1995 increased 6% and average per
car sales were up 5% in the first six months of 1995 compared to the first six
months of 1994 to account for the revenue and operating result improvements.
Higher advertising, depreciation and amortization expenses resulting from the
conversion of fast lube centers to the Q Lube format partially offset the
improvement in operating results. This conversion is expected to continue in the
remainder of 1995 with approximately 100 additional stores expected to be
completed during 1995.

Truck-Lite. Truck-Lite's operating profits in the first six months of 1995
were $7.3 million compared to $7.4 million in the comparable period of 1994.
Sales and operating revenues were down 3% to $49.6 million for

15
17

the first six months of 1995 from $51.2 million during the first six months of
1994. Lower sales volume and negative product mix adversely affected operating
results. Automotive sales slowed down in the second quarter of 1995 as the
overall car market softened. Management was able to reduce operating expenses
for the first six months of 1995 by approximately $1.5 million which partially
offset the slowdown in the business.

Materials Handling. Operating profits during the first six months of 1995
were $481 thousand compared to $469 thousand for the comparable period of 1994.
Sales and operating revenues were $1.7 million for the first six months of 1995
compared to $1.5 million for the comparable period of 1994.

Corporate. Corporate income for the first six months of 1995 was $2.6
million compared to $1.2 million for the comparable period of 1994 and included
approximately $1.0 million of additional royalty payments received for coal
deliveries made by the purchaser under a long-term coal sales agreement.
Six-month interest expense in 1995 increased 30% over the comparable period of
1994 to $3.0 million as a result of debt assumed in the acquisition of Westland.
Corporate expenses were $9.1 million for the first six months of 1995 compared
to $9.5 million for the comparable period of 1994. Lower salary and benefit
expenses account for the reduction in corporate expenses. An unusual charge of
$15.8 million was recorded in the second quarter of 1995 to reserve for
severance costs, employee benefit expenses and the write-off of assets related
to the Company's relocation to the Dallas, Texas area. Approximately $9.3
million of this charge relates to the Motor Oil Division.

The effective tax rate of 38% for continuing operations is higher than the
35% federal rate due to the added impact of state and foreign taxes. The
effective tax rate for continuing operations of 38% is lower than the 1994 rate
of 56% due to lower income from continuing operations, a reduction in the
estimated state tax rate and other changes in estimates.

1994 COMPARED TO 1993 COMPARED TO 1992

In 1994, Quaker State management made two strategic moves, the disposition
of Heritage and the acquisition of Specialty, which were consistent with the
Company's strategy to focus on its core lubricants and lubricant services
businesses and which had a significant impact on the 1994 operations. As a
result of the sale of Heritage in August 1994, as described under
"BUSINESS -- Divestitures and Discontinued Operations -- Insurance," the
operating results of the insurance business, including the gain on the sale,
were segregated and reported as a discontinued operation in the Consolidated
Statement of Operations for the year ended December 31, 1994. Prior year
financial statements were reclassified to conform to current year presentation.
(See Note 3 to the Consolidated Financial Statements.)

In September 1994, the Company acquired the stock of Specialty and Westland
for $19.5 million and 4,000,000 shares of Quaker State common stock valued at
$57.8 million. The Company also purchased certain related equipment for $1.5
million and assumed approximately $40.0 million of debt of the acquired
companies. The operating results of Specialty and Westland have been included in
the Company's Consolidated Financial Statements from the date of acquisition.
Specialty and Westland revenues and operating results are reported as part of
the Motor Oil Division. (See "BUSINESS -- Motor Oil Division.")

Consolidated Review of Operations

Quaker State reported net income of $18.8 million in 1994 compared to $13.7
million in 1993. Net income included discontinued operations income of $9.3
million in 1994 compared to $6.7 million in 1993. A net loss of $93.8 million
was recorded in 1992. The 1992 loss included several accounting adjustments
totalling $102.3 million for discontinuing the coal operations of Valley Camp,
implementing Financial Accounting Standards Board Standard Nos. 106 and 109 and
recording a charge for impaired assets. (See Notes 4, 5, 12 and 13 to the
Consolidated Financial Statements.)

Income from continuing operations in 1994 was $9.5 million compared to $7.0
million in 1993. Operating profit improvements, primarily based on sales volume
increases over 1993, were realized by three of the business segments. At Q Lube,
car counts increased 8% while operating profit rose 88%; and automotive and
heavy duty lighting sales volume rose 17% at Truck-Lite which resulted in a 105%
increase in operating

16
18

profits. Branded motor oil sales volume, including sales by Specialty and
Westland in the fourth quarter, increased 7% in 1994, but higher selling,
marketing, freight and administrative expenses of approximately $19.0 million
combined with a shift in product sales mix from packaged goods to bulk sales,
for which the gross margin is lower, reduced motor oil operating profit by 6%.
Specialty and Westland contributed $654 thousand of operating profit to the
Motor Oil Division in 1994. Operating results from materials handling included a
pretax gain of $1.1 million from the termination of a pension plan in the fourth
quarter of 1994. An increase in the 1994 continuing operations effective tax
rate resulted from higher income and adjustments in 1993 due to a federal tax
rate change and a reduction in the valuation allowance.

Income from continuing operations in 1993 improved to $7.0 million from
$656 thousand in 1992. This increase resulted primarily from a $9.4 million
improvement in operating profits at Truck-Lite which experienced a sales volume
increase of 19% along with reduced operating costs. In addition, Q Lube
operating profits improved $4.3 million primarily because 1992 results included
a charge related to future conversions to the Q Lube name. Higher corporate
interest income also contributed to the improved 1993 results. These
improvements were partially offset by an operating profit decline in the Motor
Oil Division. Increased promotion and advertising costs, a shift in product
sales mix from packaged goods to bulk sales, for which the gross margin is
lower, and decreased motor oil volume negatively affected 1993 Motor Oil
Division results. Increased income taxes also negatively impacted 1993 income
from continuing operations.

Sales and operating revenues from continuing operations for 1994 were
$732.6 million compared to $607.1 million in 1993 and $592.6 million in 1992.
Higher sales volumes at each of the major businesses accounted for the increased
revenues in 1994, while a 19% increase in 1993 sales volume at Truck-Lite
accounted for the increase in 1993 revenues.

Motor Oil. Operating profits in 1994 declined 6% to $16.4 million from
$17.5 million in 1993 and included $654 thousand from the Specialty and Westland
businesses acquired on September 30, 1994. Branded motor oil sales volume was 7%
ahead of 1993 and automotive consumer product sales were up 20%. The increase in
operating profits resulting from the higher sales volume was offset by the
negative impact of a shift in product mix to more bulk sales where the gross
margin is lower and an increase of approximately $19.0 million in marketing,
selling, freight and administrative expenses. These increased expenses resulted
primarily from higher volumes and aggressive share-building programs geared
towards developing additional sales volume. The Company also recorded $1.7
million of expenses and reserves associated with a lawsuit commenced against the
Company for alleged environmental violations at the Congo refinery. (See
"BUSINESS -- Legal Proceedings" and Note 10 to the Consolidated Financial
Statements.) For segment reporting purposes, motor oils and other automotive
consumer products, such as filters, are sold by the Motor Oil Division to Q Lube
at prices comparable to the prices the Motor Oil Division charges to other
customers.

Sales and operating revenues in 1994 of $541.2 million, including $71.4
million from fourth quarter sales at Specialty and Westland, were 23% ahead of
1993's total of $439.3 million. This resulted from a 7% increase in branded
motor oil volume and an additional 20% of automotive consumer product sales.
Despite a 3% price increase for branded motor oil, effective September 1, 1994,
the 1994 average sales price for these products declined due to a shift in
product mix to bulk sales where the average sales price was 33% below that for
packaged goods. Another price increase took effect in January 1995 for branded
motor oil which improved gross margins in 1995. Gasoline, fuel oil and kerosene
sales volumes were up 3% in 1994, but the average sales prices were down 4%.

Operating profits in 1993 of $17.5 million were 25% below profits of $23.3
million in 1992. Several items contributed to the decline, including a 7%
increase in promotion and advertising expenses, an 11% increase in freight costs
related to a higher percentage of bulk motor oil sales, approximately $1.4
million of LIFO inventory costs resulting from reduced inventory levels, an 8%
drop in the average price of gasoline and fuel oil, a 2% decline in 1993 motor
oil sales volume and a charge of approximately $750 thousand to close the
Company's St. Louis blending and warehouse facility.

Motor Oil Division sales and operating revenues declined $1.7 million in
1993 to $439.3 million from $441.0 million in 1992. Slight increases in lube
stock volume and automotive consumer product sales were offset by declines in
the sale of gasoline, fuel oil and excess crude oil.

17
19

Q Lube. Operating profits in 1994 of $5.7 million were up 88% compared to
$3.1 million in 1993. An 8% increase in the number of cars serviced in
Company-operated stores primarily accounted for the improvement in operating
results. Advertising, depreciation and repair and maintenance expenses increased
$2.0 million. The higher sales volume and expenses resulted from the conversion
of 67 Company stores in 1994 to Q Lube format. Q Lube revenues of $113.7 million
in 1994 were up 8% as a result of the increase in the number of cars serviced at
Company stores.

The 1993 operating profits of $3.1 million compared to an operating loss of
$1.2 million in 1992. The 1992 loss included an unusual charge of $3.2 million
representing the impairment of certain assets as a result of the planned
conversion of existing Minit-Lube stores to Q Lube. Excluding the unusual item,
operating profits were $2.0 million in 1992. The Company's divestiture of 16
stores in unprofitable markets in the first quarter of 1993 and reduced
operating expenses accounted for the improved 1993 operating profits.

Sales and operating revenues of $105.3 million in 1993 were flat compared
to $104.4 million in 1992 as total cars serviced and average ticket price
remained about the same.

Truck-Lite. Truck-Lite had a record year in 1994 for both sales volume and
operating profits. Sales volume increased 17% and resulted in operating profits
of $11.7 million which more than doubled 1993 operating profits of $5.7 million.
Strong sales were recorded in both the automotive business and the heavy duty
safety lighting business. Selling, general and administrative expenses were up
$1.3 million in 1994 as a result of higher legal, environmental and incentive
costs. Operating results included a $1.5 million charge recorded in the fourth
quarter of 1994 to reserve for future losses associated with a contract to
manufacture automotive safety lights. In the future, the Company plans to
emphasize its heavy duty truck and trailer lighting businesses which offer more
attractive margins than other product lines.

Sales and operating revenues in 1994 increased to $99.6 million from $80.8
million in 1993, due to the sales volume increase and a shift in product mix to
higher priced products.

Operating profits in 1993 increased to $5.7 million compared to a loss of
$3.6 million in 1992, as a result of a 19% sales volume increase combined with
manufacturing efficiencies and a 22% reduction in selling, general and
administrative expenses. The 1992 operating loss included a $1.6 million
write-off of unrecoverable development costs.

Sales and operating revenues increased 26% to $80.8 million from $63.9
million in 1992 due to the higher sales volume.

Materials Handling. Operating profits in 1994 of $1.8 million compared to
$1.1 million in 1993. The 1994 operating profits included a pretax gain of $1.1
million from the termination of a pension plan in the fourth quarter of 1994.
Revenues in each of 1993 and 1994 were approximately $3.0 million.

Operating profits in 1993 were $1.1 million on sales and operating revenues
of $3.0 million compared to operating profits of $2.1 million on sales and
operating revenues of $5.3 million in 1992. The decline in 1993 sales and
operating revenues and operating profits resulted from the sale of the Company's
U.S. materials handling operation in December 1992 and a new long-term contract
at the Company's Canadian materials handling operation.

Corporate. Corporate expenses in 1994 increased $3.4 million to $18.6
million from $15.2 million in 1993. Higher expenses for postretirement benefits,
performance incentives and legal services accounted for this increase.

Corporate income of $3.2 million in 1994 included additional interest of
$614 thousand on the proceeds from the sale of Heritage. In 1993, corporate
income was $2.7 million compared to $187 thousand in 1992. The 1993 income
includes $1.1 million of interest on an income tax refund and $1.5 million of
interest on supplemental payments from the December 30, 1992 sale of certain
coal assets. (See Note 4 to the Consolidated Financial Statements.) Corporate
expenses of $15.2 million in 1993 did not change significantly from 1992.

18
20

Interest expense of $4.5 million in 1994 was down 16% from 1993 due to
lower average debt in 1994. Higher interest expense in 1993, over 1992, included
the cost of the 8.73% Senior Notes due 2002.

The 1994 effective tax rate of 39% for continuing operations was higher
than the 1993 rate of 27% due to higher income in 1994 and benefits in 1993 from
an enacted federal rate change that increased the value of deferred tax assets,
net adjustments to the valuation allowance and other credits. (See Note 12 to
the Consolidated Financial Statements.)

LIQUIDITY AND FINANCIAL CONDITION

Net cash provided by operations for the first six months of 1995 was $2.2
million compared to $19.1 million for the comparable period in 1994. This
decrease resulted from additional working capital requirements and the loss of
operating cash flows from Heritage which was sold in the third quarter of 1994.
Cash used by discontinued coal activities in the first six months of 1995 was
$5.8 million compared to $8.9 million in the corresponding period of 1994. Cash
used in financing activities was $7.8 million and included $6.3 million paid for
dividends and $1.5 million paid on long-term debt, primarily related to
Westland. It is expected that $9.0 million of cash will be used in discontinued
coal operations in 1995.

Cash used by investing activities during the first six months of 1995
included capital expenditures of $16.2 million and proceeds from the sale of
property and equipment of $3.6 million, of which $412 thousand related to
discontinued coal operations. In July 1995, the Company acquired Slick 50 for
total consideration that included $22.0 million in cash and approximately $11.0
million in satisfaction of certain Slick 50 indebtedness.

Capital expenditures for 1995 are anticipated to be approximately $39.7
million. Approximately 62% is planned for use by the Motor Oil Division,
including Specialty and Westland, primarily for manufacturing upgrades and
capital commitments to enhance long-term branded motor oil volume. Another 21%
is allocated to Q Lube to convert Company stores to the Q Lube format.

Total debt at June 30, 1995 was $71.8 million, compared to $73.2 million at
December 31, 1994 with a total debt to total capital ratio of 22.4% and 22.5% at
June 30, 1995 and December 31, 1994, respectively. The Company had $68.2 million
of unused lines of credit at June 30, 1995.

In light of the Slick 50 acquisition and employee loans which the Company
has made in connection with its relocation to Dallas, Texas and in order to
facilitate the offering of the Notes contemplated hereby, the Company has
obtained waivers through December 30, 1995 from compliance with certain of the
covenants under the Note Agreement, dated as of September 1, 1992, as amended
(the "Note Agreement"), relating to the Company's 8.73% Senior Notes Due
September 30, 2002. The waivers relate to covenants requiring the Company to
maintain a specified minimum Consolidated Tangible Net Worth (as defined),
covenants restricting loans to employees and covenants relating to maximum
leverage and maintenance of a specified minimum fixed charge coverage ratio. The
Company has committed to the lenders under the Note Agreement that, upon
completion of the offering contemplated hereby, it will notify the lenders of
its intention to repay the indebtedness under the Note Agreement, as described
under "Use of Proceeds." In addition, on October 4, 1995, the Company executed a
$45.0 million credit agreement with Morgan Guaranty Trust Company of New York
(an affiliate of J.P. Morgan Securities Inc.), as agent, and terminated its
revolving credit agreement with a different group of banks which contained
covenants similar to those in the Note Agreement. The new credit agreement
expires on September 28, 1996.

Working capital at June 30, 1995 was approximately $129.9 million with a
ratio of current assets to current liabilities of 2.0 to 1.0 compared to $101.4
million and 1.8 to 1.0 at December 31, 1994.

Stockholders' equity at June 30, 1995 was $248.4 million compared to $251.9
million at December 31, 1994. The net deferred tax asset recorded on the balance
sheet at December 31, 1994 of $40.3 million will be realized either through the
carryback provisions of the tax law or recovered in the future through existing
levels of taxable income from continuing operations.

19
21

On July 27, 1995, the Board of Directors of the Company declared a
quarterly dividend of $0.10 per share, payable September 15, 1995 to
shareholders of record as of August 15, 1995.

ADDITIONAL FINANCIAL AND OTHER INFORMATION

The effect of inflation has a minor impact on the Company's results of
operations and the carrying value of its assets and liabilities. Historically,
the Company has been able to meet the effects of inflation through increased
productivity, adjustments to selling prices and cost controls.

On May 25, 1995, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of Quaker State common stock from 37,500,000 to 95,000,000 shares.

On September 28, 1995, the Board of Directors of the Company adopted a
stockholder rights plan.

RECENT ACCOUNTING STATEMENTS

In March 1995, the Financial Accounting Standards Board issued Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The new Standard must be
implemented in 1996. The Company is currently evaluating what effect, if any,
this Standard will have on its financial position and results of operations.

20
22

DESCRIPTION OF NOTES

The Notes will be issued under an Indenture, to be dated as of
, 1995 (the "Indenture") between the Company and Chemical Bank,
as Trustee (the "Trustee"), a form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete,
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Indenture, including the definitions therein of certain
terms. Section references appearing below are references to sections in the
Indenture. Whenever particular sections or defined terms of the Indenture are
referred to herein, such sections and defined terms are incorporated herein by
reference.

GENERAL

The Notes will be unsecured obligations of the Company, will be limited to
$100,000,000 aggregate principal amount, will mature on , 2005
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company. The Notes are not redeemable prior to Maturity by
the Company except as provided below and do not provide for any sinking fund.
The Notes will bear interest at the rate per annum stated on the cover page of
this Prospectus from , 19 or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on and of each year, commencing
, 19 , to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the preceding or
, as the case may be. (Sections 301 and 307)

Principal of (and premium, if any) and interest on the Notes will be
payable, and, subject to the limitations applicable to global securities, the
Notes will be exchangeable and transfers thereof will be registrable, at the
corporate trust office of the Trustee in New York, New York. In addition, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the Security Register.
Payment of any interest due on any Note will be made to the Person in whose name
such Note is registered at the close of business on the Regular Record Date for
such interest. (Sections 301, 305, 307 and 1002)

OPTIONAL REDEMPTION

The Notes will be redeemable in whole or in part, at the option of the
Company at any time, at a redemption price equal to the greater of (i) 100% of
their principal amount and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted, on a semiannual
basis, at the Treasury Yield plus 15 basis points, together with accrued
interest to the date of redemption. Interest shall be calculated on the basis of
a 360-day year consisting of twelve 30-day months.

Holders of Notes to be redeemed will receive notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption.

GLOBAL NOTES; FORM, EXCHANGE AND TRANSFER

The Notes will be issued in the form of one or more fully registered global
securities (collectively, a "Global Note") registered in the name of The
Depository Trust Company (the "Depositary") or the Depositary's nominee. Such
Global Note will be deposited with, or on behalf of, the Depositary and will
bear a legend regarding the restrictions on exchange and registration of
transfer thereof as provided for in the Indenture. Unless and until it is
exchanged in whole or in part for Notes in definitive form as set forth below, a
Global Note may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such
Depositary.

Upon the issuance of a Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by such Global Note to the accounts of institutions that
have accounts with the Depositary or its nominee ("Participants"). The accounts
to be credited will be designated by the Underwriters, dealers or agents.
Ownership of beneficial interests in a

21
23

Global Note will be limited to Participants and to Persons that may hold
beneficial interests through Participants. Ownership of beneficial interests in
such Global Note will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to Participants' interests) or any such Participant (with respect
to interests of Persons held by such Participants on their behalf). The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. The depositary arrangements
described above and such laws may impair the ability to transfer or pledge
beneficial interests in a Global Note.

As long as the Depositary, or its nominee, is the registered Holder of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Note and the Notes
represented thereby for all purposes under the Notes and the Indenture. Except
as set forth below, owners of beneficial interests in the Global Note will not
be entitled to have the Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
certificated Notes in definitive form and will not be considered to be the
owners or Holders of any Notes under the Indenture. Accordingly, each Person
owning a beneficial interest in a Global Note must rely on the procedures of the
Depositary and, if such Person is not a Participant, on the procedures of the
Participant through which such Person owns its interest, to exercise any rights
of a Holder of Notes under the Indenture or such Global Note. The Company
understands that under existing industry practice, in the event the Company
requests any action of Holders of Notes or an owner of a beneficial interest in
a Global Note desires to take any action that the Depositary, as the holder of
such Global Note, is entitled to take, the Depositary would authorize the
Participants to take such action, and that the Participants would authorize
beneficial owners owning through such Participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.

All payments of principal of (and premium, if any) and interest on a Global
Note will be made to the Depositary or its nominee, as the case may be, as the
Holder thereof. The Company has been advised that the Depositary, upon receipt
of any payment of principal of (and premium, if any) or interest in respect of a
Global Note, will credit immediately the accounts of the Participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Note as shown on the records of the
Depositary. The Company expects that payments by Participants to owners of
beneficial interests in a Global Note held through such Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of such Participants. None of
the Company, the Trustee or any agent of the Company or the Trustee will have
any responsibility or liability for any aspect of the Depositary's or any
Participant's records relating to, or for payments made on account of,
beneficial interests in a Global Note, or for maintaining, supervising or
reviewing any records relating to such beneficial interests.

Notes represented by a Global Note will be exchangeable for Notes in
definitive form of like tenor as such Global Note in denominations of $1,000 and
in any greater amount that is an integral multiple thereof if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for such Global Note and is not replaced by a successor depositary approved by
the Trustee, or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company in its sole discretion at
any time determines not to have all of the Notes represented by the Global Note
and notifies the Trustee thereof or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Notes represented by such
Global Note. Any Global Note that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated Notes in definitive form issuable in
authorized denominations and registered in such names as the Depositary shall
direct and an owner of a beneficial interest in a Global Note will be entitled
to physical delivery of such Notes in definitive form. Subject to the foregoing,
a Global Note is not exchangeable except for a Global Note or Global Notes of
the same aggregate denominations to be registered in the name of the Depositary
or its nominee. (Sections 204 and 305)

Subject to the terms of the Indenture and the limitations applicable to
Global Notes, Notes may be presented for exchange as provided above or for
registration of transfer (duly endorsed or with the form of transfer endorsed
thereon duly executed) at the office of the Security Registrar or at the office
of any transfer agent designated by the Company for such purpose. No service
charge will be made for any registration of

22
24

transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the Person making the request. The Company
has appointed the Trustee as Security Registrar. (Section 305) The Company may
at any time designate additional transfer agents or rescind the designation of
any transfer agent or approve a change in the office through which any transfer
agent acts, except that the Company will be required to maintain a transfer
agent in each Place of Payment for the Notes. (Section 1002)

The Depositary has advised the Company and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of Participants and to facilitate the
clearance and settlement of securities transactions among the Participants in
deposited securities through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of securities
and certificates. Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations, some of which (and/or their representatives) own the
Depositary. Access to the Depositary's book-entry system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants or
indirect Participants. The rules applicable to the Depositary and the
Participants are on file with the Commission. The Depositary currently accepts
only notes denominated and payable in U.S. dollars.

SAME DAY SETTLEMENT AND PAYMENT

Settlement for the Notes will be made by the Underwriters in immediately
available funds. Secondary trading in notes and debentures of corporate issuers
is generally settled in clearinghouse (next-day) funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity, and
secondary market trading activity in the Notes will therefore settle in
immediately available funds. No assurance can be given as to the effect, if any,
of settlements in immediately available funds on trading activity in the Notes.

CERTAIN COVENANTS OF THE COMPANY

Restrictions on Liens

The Indenture contains a covenant providing that so long as any of the
Notes are Outstanding, the Company will not, and will not permit any Restricted
Subsidiary to, issue, assume, incur or guarantee any Indebtedness secured by a
Lien on or with respect to any Principal Property of the Company or any
Restricted Subsidiary, or upon any shares of capital stock or indebtedness of
any Restricted Subsidiary, whether now owned or leased or hereafter acquired,
without in any such case effectively providing that the Notes shall be secured
equally and ratably with (or prior to) such Indebtedness, except that the
foregoing restrictions shall not apply to (a) Liens existing as of the date of
the Indenture, (b) Liens to secure the payment of all or any part of the
purchase price or cost of construction or improvements in respect of property or
properties acquired by the Company or a Restricted Subsidiary after the date of
the Indenture securing Indebtedness incurred prior to, at the time of, or within
270 days after, the acquisition of any such property or the completion of any
such construction or improvements and which secure indebtedness not in excess of
the amount expended in the acquisition of, or construction or improvements on,
such properties, (c) Liens upon any property owned or leased by any Restricted
Subsidiary when it becomes a Restricted Subsidiary, (d) Liens existing on any
property at the time of its acquisition by the Company or a Restricted
Subsidiary (including acquisition through merger or consolidation), (e) Liens
securing Indebtedness of a Restricted Subsidiary to the Company or to another
Restricted Subsidiary and (f) the extension, renewal or replacement (or
successive extensions, renewals or replacements), in whole or in part, of any
Lien referred to in the foregoing clauses (a) through

23
25

(e), or of any Indebtedness secured thereby, but only if the principal amount of
Indebtedness secured by the Lien immediately prior thereto is not increased and
the Lien is not extended to other property. Notwithstanding the foregoing, the
Company or any Restricted Subsidiary may issue, assume, incur or guarantee
Indebtedness secured by Liens which otherwise would be subject to the foregoing
restrictions, in an aggregate amount which, together with all other such
Indebtedness outstanding secured by Liens as provided above (not including
Indebtedness excluded as provided in clauses (a) through (f) above) and all
Attributable Debt in respect of Sale and Leaseback Transactions which would not
be permitted by either clause (a), (b) or (c) under "Restrictions on Sale and
Leaseback Transactions" below, does not exceed 15% of Consolidated Net Tangible
Assets.

Restrictions on Sale and Leaseback Transactions

The Indenture contains a covenant providing that so long as any of the
Notes are Outstanding, the Company will not, nor will it permit any Restricted
Subsidiary to, enter into any arrangement with any Person (other than the
Company or a Restricted Subsidiary) providing for the leasing by the Company or
any Restricted Subsidiary of any Principal Property, whether now owned or
hereafter acquired, which has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such Persons with the intention of
taking back a lease on such property (a "Sale and Leaseback Transaction") unless
(a) such transaction involves a lease or right to possession or use for a
temporary period not to exceed three years following such sale, by the end of
which it is intended that the use of such property by the lessee will be
discontinued, (b) the Company or such Restricted Subsidiary would, on the
effective date of such transaction, be entitled to issue, assume or guarantee
Indebtedness secured by a Lien on such property at least equal in an amount to
the Attributable Debt in respect thereof, without equally and ratably securing
the Notes as set forth in the Indenture, or (c) if the proceeds of such sale (i)
are equal to or greater than the fair market value (as determined by the Board
of Directors of the Company) of such property and (ii) are applied within 270
days after the receipt of the proceeds of sale or transfer to either the
purchase or acquisition of fixed assets or equipment used in the operation of
the business or the construction of fixed improvements on real property or to
the repayment of Notes or Senior Funded Debt of the Company or any Restricted
Subsidiary. The preceding restrictions shall not apply to any Sale and Leaseback
Transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries. Notwithstanding the foregoing, the Company or any
Restricted Subsidiary may enter into Sale and Leaseback Transactions in addition
to any permitted by the two immediately preceding sentences and without any
obligation to retire any Notes or other Indebtedness, provided that, at the time
of entering into such Sale and Leaseback Transactions, and after giving effect
thereto, the amount of Attributable Debt in respect of such Sale and Leaseback
Transaction, together with all such other Attributable Debt outstanding and all
Indebtedness outstanding secured by Liens (not including Indebtedness excluded
as provided in clauses (a) through (f) under "Restrictions on Liens" above),
does not exceed 15% of Consolidated Net Tangible Assets.

Certain Definitions. Set forth below are certain significant terms which
are defined in Section 101 of the Indenture:

"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at the time of determination, the then present value (discounted at the actual
rate of interest of such transaction) of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).

"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
Notes. "Independent Investment Banker" means CS First Boston Corporation or, if
such firm is unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by the
Trustee.

24
26

"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Quotations. "Reference Treasury Dealer
Quotations" means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the Trustee by such Reference
Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption
date.

"Consolidated" when used with respect to any of the terms defined in the
Indenture, refers to such terms as reflected in a consolidation of the accounts
of the Company and its Subsidiaries in accordance with GAAP.

"Funded Debt" means Indebtedness of the Company and its Restricted
Subsidiaries, whether incurred, assumed or guaranteed, which by its terms
matures more than one year from the date of creation thereof, or which is
extendable or renewable at the sole option of the obligor so that it may become
payable more than one year from such date.

"GAAP" means, unless otherwise specified in the Indenture, such accounting
principles as are generally accepted in the United States as of the date of the
relevant calculation.

"Indebtedness" of any person means, without duplication, notes, bonds,
debentures or other evidences of indebtedness for borrowed money and all
indebtedness under purchase money mortgages or other purchase money liens or
conditional sales or similar title retention agreements, in each case where such
indebtedness has been created, incurred, assumed or guaranteed by such person or
where such person is otherwise liable therefor, and indebtedness for borrowed
money secured by any mortgage, pledge or other lien or encumbrance upon property
owned by such person even though such person has not assumed or become liable
for the payment of such indebtedness.

"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority, or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).

"Net Tangible Assets" means the total amounts of assets (less depreciation
and valuation reserves and other reserves and items deductible from gross book
value of specific asset accounts under generally accepted accounting principles)
which under GAAP would be included on a balance sheet after deducting therefrom
(a) all liability items except Funded Debt and stockholders' equity and (b) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, which in each such case would be so included
on such balance sheet.

"Principal Property" means any refinery, processing or manufacturing plant
(together with any pipeline, terminal or other facility related to such refinery
or processing or manufacturing plant and necessary for its economic operation),
blending, packaging or bulk materials handling facility, distribution center,
service center or store in any case located in the United States or Canada and
owned or leased by the Company or a Subsidiary or any interest of the Company or
any Subsidiary in such property (in each case including the real estate related
thereto), except any such property which the Company's Board of Directors, in
its good faith opinion, reasonably determines not to be of material importance
to the business of the Company and its Subsidiaries, as evidenced by a Board
Resolution.

"Reference Treasury Dealer" means each of CS First Boston Corporation and
J.P. Morgan Securities Inc. and their respective successors; provided, however,
that if any of the foregoing shall cease to be a primary

25
27

U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.

"Restricted Subsidiary" means any Subsidiary that owns or leases any
Principal Property.

"Senior Funded Debt" means all Funded Debt, except Funded Debt the payment
of which is subordinated to the payment of the Notes.

"Subsidiary" means a corporation, partnership or other business entity of
which more than 50% of the outstanding voting stock is owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For the purposes of this definition,
"voting stock" means stock which ordinarily has voting power for the election of
directors, managers or trustees, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency.

"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.

CONSOLIDATION, MERGER AND DISPOSITION OF ASSETS

The Company may not consolidate with or merge into, or convey, transfer or
lease its properties and assets substantially as an entirety to, any Person, and
may not permit any Person to consolidate with or merge into, or convey, transfer
or lease its properties and assets substantially as an entirety to, the Company,
unless (a) the successor is a Person organized and validly existing under the
laws of any domestic jurisdiction, and such successor, if other than the
Company, expressly assumes the Company's obligations under the Indenture and the
Notes, (b) immediately after giving effect to such transaction, no Event of
Default under the Indenture or event which, after notice or lapse of time or
both, would become an Event of Default thereunder would exist and be continuing,
(c) if, as a result of such transaction, properties or assets of the Company
would become subject to a Lien that would not be permitted under the limitation
on Liens described above under "Certain Covenants of the Company," the Company
takes such steps as shall be necessary to secure the Notes equally and ratably
with (or prior to) all indebtedness secured by such Lien and (d) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction complies with the Indenture. Upon compliance
with these provisions, the successor Person will succeed to, and be substituted
for, the Company under the Indenture, and the Company will be relieved (except
in the case of a lease) of its obligations under the Indenture and the Notes.
(Sections 801 and 802)

EVENTS OF DEFAULT

Each of the following will constitute an "Event of Default" under the
Indenture with respect to the Notes: (a) default in the payment of any interest
upon any Note when due, continued for 30 days, (b) default in the payment of
principal of (or premium, if any, on) any Note, (c) default in the performance,
or breach, of any covenant or warranty of the Indenture (other than a covenant
or warranty otherwise specifically dealt with in the Indenture) continued for 60
days after written notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 10% in principal amount of the
Outstanding Notes, (d) default in the payment of principal at maturity (subject
to any applicable grace period) of any indebtedness for money borrowed by the
Company or any Subsidiary in an aggregate principal amount of $15 million or
more or the acceleration of such indebtedness, if such acceleration is not
rescinded or annulled within 10 days after written notice as specified in clause
(c), and (e) certain events of bankruptcy, insolvency or reorganization.
(Section 501)

If an Event of Default (other than an Event of Default described in clause
(e) above) with respect to the Outstanding Notes shall occur and be continuing,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Outstanding Notes may, by notice in writing to the Company (and to
the Trustee if given by Holders), declare the principal amount of all Notes to
be due and payable immediately. If an Event of Default described in clause (e)
above with respect to the Notes shall occur, the principal amount

26
28

of all the Notes will automatically, and without any action by the Trustee or
any Holder, become immediately due and payable. (Section 502) After any such
acceleration, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of a majority in aggregate principal
amount of the Outstanding Notes may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
(Section 502) For information as to waiver of defaults, see "--Modification and
Waivers."

The Indenture will provide that the Trustee shall, within 90 days after the
occurrence of a default with respect to the Notes, give to the Holders of the
Notes notice of such default known to it, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of or interest on any of the Notes, the Trustee shall
be protected in withholding such notice if in good faith it determines that the
withholding of such notice is in the interest of such Holders; and provided,
further, that in the case of a default in respect of certain covenants and
warranties, no such notice shall be given until at least 60 days after the
occurrence of such default. (Section 602) The Indenture provides that, subject
to the duty of the Trustee during a default to act with the required standard of
care, the Trustee will not be under an obligation to exercise any right or power
under the Indenture at the request or direction of any of the Holders, unless
the Holders shall have offered to the Trustee a reasonable indemnity. (Sections
601 and 603) The Indenture provides that the Holders of a majority in aggregate
principal amount of the Outstanding Notes may direct the time, method and place
of conducting proceedings for remedies available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Notes. (Section
512)

No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (a) such Holder shall have previously
given to the Trustee written notice of a continuing Event of Default with
respect to the Notes, (b) the Holders of not less than 25% in aggregate
principal amount of the Outstanding Notes shall have made written request to the
Trustee to institute proceedings as Trustee, (c) such Holder or Holders shall
have offered to the Trustee reasonable indemnity, (d) the Trustee shall have
failed to institute such proceeding within 60 days thereafter and (e) the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Notes a direction inconsistent with such
request. (Section 507) However, such limitations do not apply to a suit
instituted by a Holder of a Note for the enforcement of payment of the principal
of and premium, if any, or interest on such Note or after the applicable due
date specified in such Note. (Section 508)

The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of its obligations under the Indenture and
as to any default in such performance. (Section 1004)

MODIFICATION AND WAIVERS

Modifications and amendments of the Indenture may be made by the Company
and the Trustee, with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes, by executing supplemental indentures
for the purpose of adding any provisions to, or changing or eliminating any of
the provisions of, the Indenture or modifying the rights of the Holders of the
Outstanding Notes; provided, that no such modification or amendment may, without
the consent of the Holders of each Outstanding Note affected thereby, (a) change
the Stated Maturity of the principal of, or any installment of interest on, any
Note, (b) reduce the principal amount of, or premium or interest on, any Note,
(c) change the place or currency of payment of principal of, or the premium or
any interest on, any Note, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note when due, (e) reduce
the percentage of aggregate principal amount of Outstanding Notes necessary to
modify or amend the Indenture or for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, or (f) modify
certain provisions of the Indenture with respect to modification and waiver.
(Section 902)

The Holders of at least a majority in aggregate principal amount of the
Outstanding Notes may waive compliance by the Company with certain restrictive
provisions of the Indenture. (Section 1010) The Holders of not less than a
majority in aggregate principal amount of the Outstanding Notes may waive any
past default

27
29

under the Indenture, except a default in the payment of the principal of (or
premium, if any) or interest on any Note and certain covenants and provisions of
the Indenture which cannot be modified or amended without the consent of the
Holder of each Outstanding Note. (Section 513)

DEFEASANCE AND COVENANT DEFEASANCE

Defeasance and Discharge

The Indenture will provide that the Company, at its option, (a) will be
discharged from any and all obligations with respect to the Notes (except for
certain obligations which include exchanging or registering the transfer of the
Notes, replacing stolen, lost or mutilated Notes, maintaining paying agencies
and holding monies for payment in trust) ("defeasance"), or (b) need not comply
with certain restrictive covenants of the Indenture ("covenant defeasance"), and
the occurrence of certain Events of Default will be deemed not to be or result
in an Event of Default with respect to the Notes, upon the deposit with the
Trustee, in trust for the benefit of the Holders of the Notes, of money or U.S.
Government Obligations, or both, which through the payment of principal of (or
premium, if any) and interest in respect thereof in accordance with their terms
will provide money in an amount sufficient to pay principal of and any premium
and interest on the Notes on the dates such payments are due in accordance with
the terms of the Indenture. To establish such defeasance or covenant defeasance,
the Company will be required to meet certain conditions, including delivery to
the Trustee of an Opinion of Counsel to the effect that the Holders of the Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred. In the case of defeasance pursuant to clause (a), such Opinion of
Counsel must refer to and be based upon either (i) a ruling received by the
Company from, or published by, the Internal Revenue Service or (ii) a change in
applicable Federal income tax law after the date of the Indenture. (Article 11)

Defeasance and Events of Default

In the event the Company establishes covenant defeasance and the Notes are
declared due and payable because of the occurrence of any Event of Default, the
amount of money and U.S. Government Obligations on deposit with the Trustee
should be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. In such case, the
Company would remain liable for such payments. (Sections 1103 and 1104)

NOTICES

Notices to Holders of Notes will be given by mail to the addresses of such
Holders as they may appear in the Security Register. (Sections 106 and 305)

TITLE

The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Note is registered as the absolute owner
thereof (whether or not such Note may be overdue) for the purpose of making
payment and for all other purposes. (Section 308)

GOVERNING LAW

The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York. (Section 112)

CONCERNING THE TRUSTEE

Chemical Bank is the Trustee under the Indenture. The Company may maintain
banking and other commercial relationships with the Trustee in the ordinary
course of business. (See "Underwriting.")

28
30

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated , 1995 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom CS First Boston
Corporation and J.P. Morgan Securities Inc. are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Company the following respective principal amounts of the Notes:

PRINCIPAL
UNDERWRITER AMOUNT
------------ ---------

CS First Boston Corporation............................................ $
J.P. Morgan Securities Inc. ...........................................
Chemical Securities Inc. ..............................................
NationsBanc Capital Markets, Inc. .....................................
------------
Total........................................................ $100,000,000
============

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Notes, if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.

The Company has been advised by the Representatives that the Underwriters
propose to offer the Notes to the public initially at the public offering price
set forth on the cover page of this Prospectus and, through the Representatives,
to certain dealers at such price less a concession of % of the principal
amount per Note, and the Underwriters and such dealers may allow a discount of
% of such principal amount per Note on sales to certain other dealers.
After the initial public offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.

Application will be made to have the Notes approved for listing on the New
York Stock Exchange.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.

In the ordinary course of their respective businesses, the Representatives
and Chemical Securities Inc. and their respective affiliates have engaged, and
may in the future engage, in financial advisory, commercial banking and
investment banking transactions with the Company and affiliates of the Company.
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., is the sole agent for the Company's $45.0 million credit
agreement, dated as of September 29, 1995. Chemical Bank, an affiliate of
Chemical Securities Inc., is Trustee under the Indenture related to the Notes.
(See "Description of Notes -- Concerning the Trustee.")

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Notes.

29
31

REPRESENTATIONS OF PURCHASERS

Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."

RIGHTS OF ACTION AND ENFORCEMENT

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #88/5, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.

VALIDITY OF NOTES

The validity of the Notes will be passed upon for the Company by Sullivan &
Cromwell, New York, New York. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.

EXPERTS

The consolidated financial statements of the Company and its Subsidiaries
at December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994 appearing in this Prospectus and the consolidated
financial statements and the related financial statement schedule included in
the Company's Annual Report on Form 10-K which is incorporated by reference into
the Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein by reference and in the Registration Statement, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.

30
32

QUAKER STATE CORPORATION

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF COOPERS & LYBRAND L.L.P., INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....... F-5
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations for each of the three years in the period
ended December 31, 1994....................................................... F-6
Consolidated Statement of Cash Flows for each of the three years in the period
ended December 31, 1994....................................................... F-7
Consolidated Balance Sheet as of December 31, 1994 and 1993...................... F-8
Consolidated Statement of Stockholders' Equity for each of the three years in the
period ended December 31, 1994................................................ F-9
Notes to Consolidated Financial Statements....................................... F-10-24
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations for each of the six-month periods ended June
30, 1995 and 1994............................................................. F-25
Consolidated Statement of Cash Flows for each of the six-month periods ended June
30, 1995 and 1994............................................................. F-26
Consolidated Balance Sheet as of June 30, 1995................................... F-27
Other Financial Information for each of the six-month periods ended June 30, 1995
and 1994...................................................................... F-28
Notes to Consolidated Financial Statements....................................... F-29-31

F-1
33

SEGMENT INFORMATION

The company's operations are organized into four segments. The Motor Oil
segment produces and markets lubricants and also sells related petroleum and
automotive aftermarket products to distributors and national and regional
retailers. On September 30, 1994, the company purchased the Specialty Oil
Companies and Westland Oil Company, Inc. (Specialty/Westland). In addition to
the above activities, the Specialty/Westland companies package, sell and
distribute private label lubricants, antifreeze and greases and collect and
transport used motor oil, brake fluid, antifreeze and used oil filters. The
revenues and operating profits generated by the Specialty/Westland companies
from the date of acquisition to December 31, 1994, are included in the 1994
Motor Oil segment revenues and operating profits.

Q Lube is the fast service automobile oil change and lubrication business
operated through company owned and franchised centers. Truck-Lite manufactures
and sells automotive and heavy-duty truck lighting. The Materials Handling
operation is a bulk material handling dock accessible to Lake Superior at
Thunder Bay, Ontario, Canada.

Intersegment Motor Oil sales are at market. Operating profits are total
segment revenues less segment expenses. Corporate expenses are those which are
not directly related to the company's segments. Corporate assets consist
principally of deferred tax assets, cash and cash equivalents and assets not
identifiable with the operations of a segment.

Revenues and operating profits exclude Natural Gas Exploration and
Production Division which was discontinued in the second quarter of 1995,
Insurance, which was discontinued in the second quarter of 1994, and Coal, which
was discontinued in the fourth quarter of 1992. (Refer to Notes 3, 4 and 17 of
Notes to Consolidated Financial Statements.)

1994 1993 1992
-------- -------- --------
(IN THOUSANDS)

REVENUES
Motor Oil
Lubricants....................................... $419,408 $343,767 $337,347
Fuels............................................ 47,874 48,351 53,651
Other............................................ 73,923 47,165 50,007
-------- -------- --------
Total Motor Oil.................................... 541,205 439,283 441,005
Q Lube............................................. 113,674 105,361 104,398
Truck-Lite......................................... 99,638 80,776 63,878
Materials Handling................................. 2,997 2,955 5,319
Intersegment Motor Oil sales....................... (24,880) (21,290) (21,950)
-------- -------- --------
Total.............................................. $732,634 $607,085 $592,650
======== ======== ========
OPERATING PROFITS
Motor Oil.......................................... $ 16,401 $ 17,484 $ 23,336
-------- -------- --------
Q Lube............................................. 5,726 3,045 1,958
Unusual item (Note 5)............................ -- -- (3,200)
-------- -------- --------
Total Q Lube..................................... 5,726 3,045 (1,242)
-------- -------- --------
Truck-Lite......................................... 11,756 5,731 (3,665)
Materials Handling................................. 1,753 1,138 2,137
-------- -------- --------
Total operating profits............................ 35,636 27,398 20,566
-------- -------- --------
Corporate income................................... 3,235 2,730 187
Interest expense................................... (4,534) (5,410) (4,282)
Corporate expense.................................. (18,669) (15,193) (15,570)
-------- -------- --------
Income from continuing operations before income
taxes............................................ $ 15,668 $ 9,525 $ 901
======== ======== ========

F-2
34

1994 1993 1992
-------- -------- --------
(IN THOUSANDS)

IDENTIFIABLE ASSETS
Motor Oil.......................................... $309,894 $144,687 $151,348
Q Lube............................................. 113,733 114,703 122,692
Truck-Lite......................................... 37,497 33,433 37,501
Materials Handling................................. 2,481 2,112 3,438
Discontinued operations............................ 49,449 389,179 355,794
-------- -------- --------
Subtotal......................................... 513,054 684,114 670,773
Corporate.......................................... 116,964 99,563 122,047
-------- -------- --------
Total.............................................. $630,018 $783,677 $792,820
======== ======== ========
CAPITAL EXPENDITURES
Motor Oil.......................................... $ 13,385 $ 11,459 $ 7,523
Q Lube............................................. 11,463 5,522 3,489
Truck-Lite......................................... 2,978 1,884 1,583
Materials Handling................................. -- 5 135
Discontinued operations............................ 8,618 10,890 12,976
-------- -------- --------
Total.............................................. $ 36,444 $ 29,760 $ 25,706
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION
Motor Oil.......................................... $ 12,784 $ 10,767 $ 10,680
Q Lube............................................. 6,597 5,879 6,109
Truck-Lite......................................... 2,426 2,496 2,393
Materials Handling................................. 38 38 895
Discontinued operations............................ 10,414 9,578 15,006
-------- -------- --------
Total.............................................. $ 32,259 $ 28,758 $ 35,083
======== ======== ========

F-3
35

QUAKER STATE CORPORATION AND SUBSIDIARIES

FIVE-YEAR SUMMARY OF NET INCOME AND COMPARATIVE STATISTICAL DATA

YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AND STATISTICAL DATA)

REVENUES
Sales and operating revenues....................... $732,634 $607,085 $592,650 $577,613 $649,892
Other, net......................................... 6,923 5,595 4,063 4,450 4,694
----------- ----------- ----------- ----------- -----------
Total............................................ 739,557 612,680 596,713 582,063 654,586
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales and operating costs.................. 503,539 421,894 408,830 399,747 473,219
Selling, general and administrative................ 193,390 156,359 158,920 139,709 140,112
Depreciation and amortization...................... 21,845 19,181 20,077 20,148 20,796
Interest........................................... 5,115 5,721 4,785 4,567 5,172
Unusual items...................................... -- -- 3,200(c) -- (5,398)(d)
----------- ----------- ----------- ----------- -----------
Total............................................ 723,889 603,155 595,812 564,171 633,901
----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES............................... 15,668 9,525 901 17,892 20,685
PROVISION FOR INCOME TAXES......................... 6,167 2,534 245 7,443 7,518
----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES..................... 9,501 6,991 656 10,449 13,167
INCOME (LOSS) FROM DISCONTINUED OPERATIONS(a)...... 9,265 6,711 (31,904) 5,090 6,390
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES............................... 18,766 13,702 (31,248) 15,539 19,557
CUMULATIVE EFFECT OF ACCOUNTING CHANGES(b)......... -- -- (62,600) 7,170 --
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS).................................. $ 18,766 $13,702 $(93,848) $ 22,709 $ 19,557
=========== =========== =========== =========== ===========
PER SHARE:
Income from continuing operations before cumulative
effect of accounting changes..................... $ .33 $ .25 $ .02 $ .39 $ .48
Income (loss) from discontinued operations(a)...... .33 .25 (1.17) .19 .24
Cumulative effect of accounting changes(b)......... -- -- (2.30) .26 --
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. $.66 $.50 $(3.45) $.84 $.72
----------- ----------- ----------- ----------- -----------
DIVIDENDS:
Cash per share................................... $.40 $.60 $.80 $.80 $.80
Amount........................................... 11,358 16,310 21,720 21,704 21,700
Capital expenditures............................... 36,444 29,760 25,706 32,037 40,178
Working capital.................................... 101,439 35,403 74,911 43,041 41,311
Total assets....................................... 630,018 783,677 792,820 751,496 757,229
Total debt......................................... 73,249 51,450 79,183 88,924 72,146
Stockholders' equity............................... 251,850 188,750 191,194 307,790 304,511
Book value per share............................... 8.00 6.93 7.04 11.34 11.23
----------- ----------- ----------- ----------- -----------
Number of stockholders of record................... 11,792 12,147 12,606 12,308 12,172
Weighted average capital and equivalent shares
outstanding...................................... 28,459,000 27,234,000 27,184,000 27,167,000 27,155,000
=========== =========== =========== =========== ===========

- ---------------
(a) In the second quarter of 1995 the company discontinued its Natural Gas
Exploration and Production (E&P) business. Prior year amounts have been
reclassified to exclude E & P activities. In the second quarter of 1994 the
company decided to exit the insurance business. In the fourth quarter of
1992 the company decided to exit the coal business. These businesses have
been reported as discontinued operations. Refer to Notes 3, 4 and 17 of
Notes to Consolidated Financial Statements.

(b) Cumulative effect of implementing Statement of Financial Accounting Standard
No. 106, "Employers' Accounting For Postretirement Benefits Other than
Pensions" and Standard No. 109, "Accounting For Income Taxes" in 1992 and
Standard No. 96, "Accounting For Income Taxes" in 1991. Refer to Notes 12
and 13 of Notes to Consolidated Financial Statements.

(c) Charge for assets to be replaced by future conversion of Minit-Lube stores
to Q Lube facilities. Refer to Note 5 of Notes to Consolidated Financial
Statements.

(d) Gain on the sale of the McKean and Emlenton facilities.

F-4
36

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To Stockholders
Quaker State Corporation

We have audited the accompanying consolidated balance sheets of Quaker
State Corporation and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Quaker State
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.

As discussed in Notes 12 and 13 of Notes to Consolidated Financial
Statements, the company changed its methods of accounting for income taxes and
postretirement benefits other than pensions in 1992.

Coopers & Lybrand L.L.P.

600 Grant Street
Pittsburgh, Pennsylvania
January 25, 1995, except as to Note 17, for which
the date is August 9, 1995.

F-5
37

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)

REVENUES
Sales and operating revenues............................... $732,634 $607,085 $592,650
Other, net................................................. 6,923 5,595 4,063
-------- -------- --------
Total.................................................... 739,557 612,680 596,713
-------- -------- --------
COSTS AND EXPENSES
Cost of sales and operating costs.......................... 503,539 421,894 408,830
Selling, general and administrative........................ 193,390 156,359 158,920
Depreciation and amortization.............................. 21,845 19,181 20,077
Interest................................................... 5,115 5,721 4,785
Unusual item (Note 5)...................................... -- -- 3,200
-------- -------- --------
Total.................................................... 723,889 603,155 595,812
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES.................. 15,668 9,525 901
-------- -------- --------
PROVISION FOR (BENEFIT FROM) INCOME TAXES (NOTE 12)
Current.................................................... 9,550 9,800 6,064
Deferred................................................... (3,383) (7,266) (5,819)
-------- -------- --------
Total.................................................... 6,167 2,534 245
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES.................................... 9,501 6,991 656
-------- -------- --------
DISCONTINUED OPERATIONS (NOTES 3, 4 AND 17)
Income from operations, net of taxes....................... 8,888 6,711 5,796
Income (loss) on disposition, net of taxes................. 377 -- (37,700)
-------- -------- --------
Total.................................................... 9,265 6,711 (31,904)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGES.................................................. 18,766 13,702 (31,248)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NOTES 12 AND
13)...................................................... -- -- (62,600)
-------- -------- --------
NET INCOME (LOSS).......................................... $ 18,766 $ 13,702 $(93,848)
======== ======== ========
PER SHARE:
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES.................................... $ .33 $ .25 $ .02
INCOME (LOSS) FROM DISCONTINUED OPERATIONS................. .33 .25 (1.17)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES.................... -- -- (2.30)
-------- -------- --------
NET INCOME (LOSS) PER SHARE................................ $ .66 $ .50 $ (3.45)
======== ======== ========

The accompanying notes are an integral part of the financial statements.

F-6
38

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
------- --------- ---------
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................... $18,766 $ 13,702 $ (93,848)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation, depletion and amortization........................ 32,259 28,758 35,083
Deferred income taxes and investment tax credit................. 2,669 3,380 (4,900)
Postretirement benefits other than pensions..................... 826 2,810 5,600
Unusual items -- noncurrent..................................... -- -- 3,200
(Gain) loss on disposition of discontinued operations
(Notes 3 and 4)............................................... (377) -- 37,700
Cumulative effect of changes in accounting principles
(Notes 12 and 13)............................................. -- -- 62,600
Increase (decrease) from changes in:
Receivables................................................... (4,711) 2,746 (8,011)
Inventories................................................... (3,894) 11,887 (3,705)
Other current assets.......................................... 3,911 1,708 7,817
Accounts payable.............................................. (8,537) 3,267 (5,453)
Accrued liabilities........................................... (11,434) (25,028) (17,753)
Other......................................................... 458 (8,621) 7,694
Changes in discontinued operations.............................. 7,626 12,626 5,801
-------- --------- ---------
Net cash provided by operating activities......................... 37,562 47,235 31,825
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment.................... 4,556 1,741 6,806
Capital expenditures................................................ (36,444) (29,760) (25,706)
Proceeds from sale of discontinued operations, net of discontinued
operations cash (Notes 3 and 4)................................... 78,529 6,261 47,929
Discontinued insurance operations:
Proceeds from sale of bonds and securities........................ 47,781 105,052 41,520
Purchase of bonds and securities.................................. (60,513) (112,206) (46,786)
Acquisitions, net of cash acquired (Notes 2 and 15)................. (28,366) -- --
-------- --------- ---------
Net cash provided by (used in) investing activities............... 5,543 (28,912) 23,763
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid...................................................... (11,358) (16,310) (21,720)
Proceeds from long-term debt........................................ 418 223 93,918
Payments on long-term debt.......................................... (17,988) (27,956) (101,535)
-------- --------- ---------
Net cash used in financing activities............................. (28,928) (44,043) (29,337)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents................ 14,177 (25,720) 26,251
-------- --------- ---------
Cash and cash equivalents at beginning of year:
Other than insurance.............................................. 6,220 34,146 9,305
Discontinued insurance operations................................. 9,408 7,202 5,792
-------- --------- ---------
Total cash and cash equivalents at beginning of year................ 15,628 41,348 15,097
-------- --------- ---------
Cash and cash equivalents at end of year:
Other than insurance.............................................. 29,805 6,220 34,146
Discontinued insurance operations................................. -- 9,408 7,202
-------- --------- ---------
TOTAL CASH AND CASH EQUIVALENTS AT END OF YEAR...................... $29,805 $ 15,628 $ 41,348
======== ========= =========

The accompanying notes are an integral part of the financial statements.

F-7
39

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31,
---------------------
1994 1993
-------- --------

(IN THOUSANDS
EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 29,805 $ 6,220
Accounts and notes receivable, less allowance of $2,185 in 1994
and $1,679 in 1993................................................... 91,858 55,290
Inventories (Note 6)................................................... 73,442 39,954
Deferred income taxes (Note 12)........................................ 11,790 18,375
Other current assets................................................... 11,708 16,911
Discontinued operation assets (Note 17)................................ 3,537 2,234
-------- --------
Total current assets................................................. 222,140 138,984
-------- --------
Property, plant and equipment, net of accumulated depreciation
(Note 7).............................................................. 199,983 175,047
Discontinued operation assets (Note 17)................................ 37,491 40,458
Other assets (Note 6).................................................. 170,404 93,226
-------- --------
Total assets other than insurance.................................... 630,018 447,715
-------- --------
Discontinued insurance assets (Note 3)................................. -- 335,962
-------- --------
TOTAL ASSETS......................................................... $630,018 $783,677
======== ========
LIABILITIES
Current liabilities:
Accounts payable....................................................... $ 58,500 $ 35,980
Accrued liabilities (Note 8)........................................... 58,487 67,339
Debt payable within one year........................................... 3,714 262
-------- --------
Total current liabilities............................................ 120,701 103,581
-------- --------
Long-term debt, less debt payable within one year (Note 9)............. 69,535 51,188
Other long-term liabilities (Note 8)................................... 187,932 179,054
-------- --------
Total liabilities other than insurance............................... 378,168 333,823
-------- --------
Discontinued insurance liabilities (Note 3)............................ -- 261,104
-------- --------
Commitments and contingencies (Note 10)

STOCKHOLDERS' EQUITY
Capital stock $1.00 par value; authorized shares, 37,500,000; issued
shares, 31,517,305 in 1994 and 27,250,818 in 1993 (Note 11).......... 31,517 27,251
Treasury stock, 33,498 shares, at cost................................. (467) --
Additional capital..................................................... 120,131 63,044
Retained earnings (Note 9)............................................. 104,286 98,877
Cumulative foreign currency translation adjustment..................... (709) 75
Unearned compensation (Note 11)........................................ (2,908) (497)
-------- --------
Total stockholders' equity........................................... 251,850 188,750
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $630,018 $783,677
======== ========

The accompanying notes are an integral part of the financial statements.

F-8
40

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOREIGN
CURRENCY
CAPITAL ADDITIONAL RETAINED TRANSLATION UNEARNED
STOCK CAPITAL EARNINGS ADJUSTMENT COMPENSATION TOTAL
------- ---------- -------- ----------- ------------ --------
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)

BALANCE, DECEMBER 31, 1991....... $27,145 $ 61,921 $217,147 $ 1,577 -- $307,790
------- -------- -------- ------- ------- --------
Net loss......................... -- -- (93,848) -- -- (93,848)
Cash dividends ($.80 per
share)......................... -- -- (21,720) -- -- (21,720)
7,183 shares of capital stock
issued under stock option plan
(Note 11)...................... 7 83 -- -- -- 90
Net changes in unrealized gains
and losses on marketable equity
securities of discontinued
insurance operations........... -- -- 56 -- -- 56
Change in foreign currency
translation.................... -- -- -- (1,174) -- (1,174)
------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1992....... 27,152 62,004 101,635 403 -- 191,194
------- -------- -------- ------- ------- --------
Net income....................... -- -- 13,702 -- -- 13,702
Cash dividends ($.60 per
share)......................... -- -- (16,310) -- -- (16,310)
98,963 shares of capital stock
issued under stock option plans
and employment contract (Note
11)............................ 99 1,040 -- -- $ (497) 642
Net changes in unrealized gains
and losses on marketable equity
securities of discontinued
insurance operations........... -- -- (150) -- -- (150)
Change in foreign currency
translation.................... -- -- -- (328) -- (328)
------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1993....... 27,251 63,044 98,877 75 (497) 188,750
------- -------- -------- ------- ------- --------
Net income....................... -- -- 18,766 -- -- 18,766
Cash dividends ($.40 per
share)......................... -- -- (11,358) -- -- (11,358)
265,687 shares of capital stock
issued under stock option and
incentive plans (Note 11)...... 266 3,337 -- -- (2,411) 1,192
Net changes in unrealized gains
and losses on marketable equity
securities of discontinued
insurance operations........... -- -- (1,999) -- -- (1,999)
Change in foreign currency
translation.................... -- -- -- (784) -- (784)
4,000,000 shares issued for
acquisition (Note 2)........... 4,000 53,750 -- -- -- 57,750
Purchase of 33,497 shares
for treasury................... (33) (434) -- -- -- (467)
------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1994....... $31,484 $ 119,697 $104,286 $ (709) $ (2,908) $251,850
======= ======== ======== ======= ======= ========

The accompanying notes are an integral part of the financial statements.

F-9
41

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. BASIS OF CONSOLIDATION: The consolidated financial statements include
the accounts of Quaker State Corporation and all of its subsidiaries more than
50% owned (the company). Intercompany accounts and transactions are eliminated.

b. INVENTORIES: Inventories are stated at the lower of cost or market.
Cost is determined on the last-in, first-out (LIFO) basis for all crude oil, the
majority of company refined petroleum products and vehicular lighting. For other
inventories, including purchased finished lubricating oils and automotive
aftermarket products, cost is determined on the first-in, first-out (FIFO)
basis.

c. PROPERTY, PLANT AND EQUIPMENT, AT COST: Costs of buildings and
equipment, other than natural gas and crude oil producing properties, are
charged against income over their estimated useful lives, using the straight
line method of depreciation. Repairs and maintenance, which are not considered
betterments and do not extend the useful life of property, are charged to
expense as incurred. When property, plant and equipment is retired or otherwise
disposed of, the asset and accumulated depreciation are removed from the
accounts and the resulting profit or loss is reflected in income.

The company capitalizes interest cost as a part of constructing major
facilities. Interest cost capitalized in 1994, 1993 and 1992 was not material.

d. INCOME TAXES AND INVESTMENT CREDIT: The company uses the liability
method of accounting for income taxes. The company accounts for investment
credit on the deferral method which recognizes the investment credit as a
reduction of the provision for income taxes over the life of the related assets.

e. EARNINGS PER SHARE: The calculation of earnings per share is based on
the weighted average number of shares of capital stock outstanding and capital
stock equivalents which would arise from the exercise of stock options.

f. PRE-OPENING COSTS: Costs associated with the opening of new fast
service automobile lubrication centers are expensed as incurred.

g. CASH EQUIVALENTS: The company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.

h. FOREIGN CURRENCY TRANSLATION: For all foreign operations the functional
currency is the local currency. The assets and liabilities for the company's
foreign operations are translated into U.S. dollars using current exchange
rates. Income statement items are translated at average exchange rates
prevailing during the period. Exchange gains or losses are not material.

i. ENVIRONMENTAL EXPENDITURES: Costs in connection with compliance and
monitoring of compliance with existing environmental regulations as they relate
to ongoing operations are expensed or capitalized as appropriate. Costs
associated with remediation efforts resulting from prior activities are recorded
no later than at the completion of an environmental site assessment. A liability
is recorded earlier if it is probable that a liability exists and a cost can be
reasonably estimated. All cleanup estimates are based on current technology.
Evaluations of the probability of potential insurance or other third party
recoveries are made independently of the liability assessment. Environmental
costs are capitalized only if they extend the life, increase the capacity, or
improve the safety or efficiency of the property.

j. INTANGIBLES: Goodwill and other intangible assets arising from
acquisitions are being amortized on a straight line basis over periods not
exceeding 40 years. The company regularly evaluates whether events or
circumstances have occurred that indicate the intangible asset may not be
recoverable. When factors indicate the asset may not be recoverable, the company
uses an estimate of the related undiscounted future cash flows compared to the
carrying value of intangibles to determine if an impairment exists. Adjustments
are made if the sum of expected future net cash flows is less than carrying
value.

F-10
42

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

K. ADVERTISING COSTS: Advertising costs are expensed as incurred.

2. ACQUISITION

On September 30, 1994, the company acquired all the stock of the Specialty
Oil Companies (Specialty) and Westland Oil Company, Inc. (Westland) of
Shreveport, Louisiana. Specialty was acquired for $19,500,000. The purchase
price of Westland was 4,000,000 shares of capital stock with a market value of
$57,750,000. The company also purchased certain related equipment for
approximately $1,500,000 and assumed approximately $40,000,000 of debt of the
acquired companies of which approximately $22,000,000 was satisfied by the
company at the time of closing.

The agreements also provide for the purchase by the company of certain real
property used in the acquired companies' operations for $9,000,000 at a later
date. The company indemnified the prior owners for certain loan obligations,
tax-related and other liabilities.

Specialty and Westland are engaged in the blending, packaging, sale and
distribution of private label and branded lubricants, antifreeze and greases and
the collection and transportation of used motor oil, brake fluid, antifreeze and
used oil filters.

The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of Specialty and Westland are included in the
accompanying consolidated financial statements from the date of acquisition.

The acquisition resulted in goodwill of $54,072,000 and other intangible
assets, primarily covenants not to compete and brand names, of $26,525,000.
These items are being amortized monthly on a straight-line basis over periods of
8 years for $6,525,000 of covenants not to compete and 40 years for the
remaining intangible assets.

The following summary is prepared on a pro forma basis as though Specialty
and Westland had been acquired as of the beginning of the periods presented,
after including the impact of adjustments, such as amortization of intangible
assets, the intercompany sales elimination, and related tax effects. The
discontinued insurance and Natural Gas Exploration and Production operations
have also been excluded.

1994 1993
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)

Revenues..................................................... $ 981,945 $ 895,197
Income from continuing operations............................ $ 12,216 $ 9,506
Income per share from continuing operations.................. $ .39 $ .30

The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the entire periods presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combining the operations.

3. DISCONTINUED INSURANCE OPERATIONS

On August 31, 1994, the company sold the stock of its wholly owned
subsidiary, Heritage Insurance Group, Inc., to General Electric Capital
Corporation for approximately $82,000,000 paid at the time of closing after
satisfaction of certain intercompany obligations. Accordingly, the operating
results of the insurance business, including the gain on the sale, have been
segregated and reported as a discontinued operation in the accompanying
Consolidated Statement of Operations. Prior year financial statements have been
reclassified to conform to the current year presentation.

F-11
43

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A gain on the sale of $377,000, net of taxes of $2,695,000, was recorded in
the third quarter. Taxes related to the sale included $1,969,000 to reflect the
probable tax liability which will result from certain tax elections to be made
by the purchaser. If the purchaser does not make such elections, the company
will record $1,969,000 as additional gain on the sale of discontinued insurance
operations at that time.

Condensed income statements for the eight months ended August 31, 1994 and the
years ended December 31, 1993 and 1992 are presented below:

1994 1993 1992
-------- --------- ---------
(IN THOUSANDS)

Revenues......................................... $ 87,566 $ 131,265 $ 114,440
Costs and expenses............................... (82,392) (127,741) (109,033)
-------- --------- ---------
Income before income taxes....................... 5,174 3,524 5,407
Provision for (benefit from) income taxes........ 790 (286) 569
-------- --------- ---------
Net income....................................... $ 4,384 $ 3,810 $ 4,838
======== ========= =========

The effective tax rates for discontinued insurance operations differ from
the federal statutory rate due primarily to tax exempt interest and dividends
received deductions.

Effective January 1, 1994, the company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" which addresses the accounting and reporting for investments
in equity securities that have readily determinable values and for investments
in debt securities. This Standard did not have a material impact on the
company's financial position and results of operations.

4. DISCONTINUED COAL OPERATIONS

In December 1992, the company discontinued its coal operations. The
operating results of the coal business have been segregated and reported as a
discontinued operation in the accompanying Consolidated Statement of Operations.
The company recorded an estimated loss on disposal of $37,700,000, net of income
tax benefits of $22,700,000.

The sale of certain coal assets resulted in a payment to be received from
the purchaser from 1994 through 2013 which was recorded as an $18,800,000
receivable, at present value at the time of the sale. Amounts in excess of the
minimum payment may be received subject to the delivery requirements of a
long-term coal sales agreement of the purchaser.

The cessation of the coal operations continued throughout 1994 and 1993. No
adjustments to the 1992 estimated loss on disposition were required as a result
of 1994 and 1993 activity.

The Condensed Statement of Operations relating to the discontinued coal
operations for the year December 31, 1992 is presented below:

1992
---------------
(IN THOUSANDS)

Revenues............................................... $ 95,140
Costs and expenses..................................... (102,181)
---------
Loss before income taxes............................... (7,041)
Income tax benefit..................................... 4,100
---------
Net income............................................. $ (2,941)
=========

F-12
44

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1994 and 1993, assets held for sale of approximately
$2,200,000 and $4,400,000, respectively, related to the discontinued coal
operations are classified as other current assets in the Consolidated Balance
Sheet. Other liabilities at December 31, 1994 and 1993 related to the
discontinued coal operations include workers' compensation and black lung
liabilities of $21,300,000 and $24,300,000 and health care and death benefit
liabilities of $23,400,000 and $25,700,000 respectively.

5. UNUSUAL ITEMS

In the fourth quarter of 1992, the company's fast lube subsidiary, Q Lube,
Inc., recorded a pretax charge of $3,200,000 to reserve for the future
replacement of signage and other assets impaired by the planned conversion of
existing Minit-Lube stores to the Q lube format.

6. INVENTORIES AND OTHER ASSETS

Inventories consist of:

1994 1993
------- -------
(IN THOUSANDS)

Crude oil........................................................ $ 1,328 $ 2,442
Finished and in-process petroleum products....................... 49,252 23,225
Other............................................................ 22,862 14,287
------ ------
Total............................................................ $73,442 $39,954
====== ======

The reserve to reduce the carrying value of inventories from current costs
to the LIFO basis amounted to $19,915,000 in 1994 and $18,807,000 in 1993.

At December 31, 1994 and 1993, $38,268,000 and $19,734,000, respectively,
of inventories were valued on the LIFO basis.

During 1993 and 1992 certain inventory quantities were reduced resulting in
liquidations of LIFO inventory. The effect of these liquidations was a decrease
in net income of $900,000 or $.03 per share, in 1993 and an increase in net
income of $400,000, or $.01 per share, in 1992.

Other assets consist of:

1994 1993
-------- -------
(IN THOUSANDS)

Goodwill........................................................ $ 58,656 $ 4,756
Other intangible assets......................................... 32,861 6,184
Deferred tax asset.............................................. 39,300 45,130
Notes and royalties receivable.................................. 28,726 27,998
Prepaid pension cost............................................ 9,483 8,423
Other........................................................... 1,378 735
------- ------
Total........................................................... $170,404 $93,226
======= ======

F-13
45

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PROPERTY, PLANT AND EQUIPMENT

Major classes of property, including land and construction work in progress
of $45,205,000 in 1994 and $46,961,000 in 1993 are:

1994 1993
-------- --------
(IN THOUSANDS)

MOTOR OIL
Refining..................................................... $ 97,710 $ 97,453
Marketing.................................................... 126,360 98,425
Q LUBE......................................................... 122,611 118,316
TRUCK-LITE..................................................... 31,341 33,595
MATERIALS HANDLING............................................. 12,948 12,948
------- -------
Subtotal..................................................... 390,970 360,737
Less: accumulated depreciation................................. 190,987 185,690
------- -------
Total.......................................................... $199,983 $175,047
======= =======

8. ACCRUED LIABILITIES, OTHER LONG-TERM LIABILITIES AND ADVERTISING EXPENSES

Accrued liabilities include workers' compensation and health
self-insurance, advertising accruals and accrued royalties of $5,704,000,
$6,672,000 and $1,330,000, respectively, at December 31, 1994 and $6,888,000,
$9,255,000 and $7,013,000, respectively, at December 31, 1993.

Other long-term liabilities include postretirement benefits, other employee
benefits and environmental reserves of $91,206,000, $48,660,000 and $21,800,000,
respectively, at December 31, 1994 and $90,380,000, $53,500,000 and $18,200,000,
respectively, at December 31, 1993.

Advertising expenses were $77,791,000, $71,297,000 and $67,834,000 in 1994,
1993, and 1992, respectively.

9. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

Long term debt consists of:

1994 1993
------- -------
(IN THOUSANDS)

Senior Notes due 2002 (a)........................................ $50,000 $50,000
Revolving credit loan due 1997 (b)............................... -- --
Revolving credit loan due 1997 (c)............................... 9,000 --
Term loan due 1997 (c)........................................... 10,184 --
Other, 3% to 10.50% due in various installments to 2005.......... 4,065 1,450
------- -------
Subtotal.................................................... 73,249 51,450
Less: payments due within one year............................... 3,714 262
------- -------
Total............................................................ $69,535 $51,188
======= =======

(a) On September 30, 1992, the company issued $50,000,000 of Senior Notes, due
September 30, 2002. The notes have a fixed interest rate of 8.73%, are
subject to an early prepayment premium and do not require payment on
principal until maturity.

(b) This agreement provides for a $45,000,000 revolving line of credit until
June 30, 1997, with annual extensions available at the option of the
lenders, and has a variable interest rate based, at the option of the

F-14
46

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

company, upon prime, LIBOR or CD rates for one, two, three or six month
periods. The annual commitment fee is 1/4 percent of the average daily
unborrowed funds.

(c) This agreement provides to the company's subsidiary, Westland Oil Company,
Inc., a $15,000,000 revolving line of credit and a term loan for
$10,720,000 until September 1, 1997. The revolving line of credit and term
loan have a variable interest rate based upon LIBOR rates plus one percent.
The unpaid balance of the revolving line of credit is to be paid at
termination date and the term loan is to be repaid in monthly installments
until termination date. The revolving line of credit has an annual
commitment fee of 1/4 percent of the average daily unborrowed funds. The
loans are collateralized by Westland Oil Company, Inc.'s accounts
receivable, inventory and cash funds. In addition, the loans are guaranteed
by the current Vice Chairman and Chief Executive Officer, Motor Oil
Division and a Vice President of the Motor Oil Division, both previous
owners of Westland Oil Company, Inc.

At December 31, 1994, the company had unused bank lines of credit
aggregating $68,200,000 providing for borrowings at various rates.

The debt agreements contain various restrictions pertaining to tangible net
worth, financial ratios, and dividends. Under the most restrictive of these
provisions, approximately $19,700,000 of consolidated retained earnings at
December 31, 1994, was free of any restrictions as to payment of cash dividends.

The aggregate long-term debt maturing in the next five years is
approximately as follows: 1995-$3,714,000; 1996-$2,720,000; 1997-$15,444,000;
1998-$554,000; 1999-$493,000.

The fair value of debt at December 31, 1994 was $71,994,000 and for other
financial instruments the fair value does not materially differ from the value
reflected in the financial statements. The fair value of the instruments was
based upon quoted market prices of the same or similar instruments or on a
discounted basis using the rates available to the company for instruments of the
same remaining maturity.

10. COMMITMENTS, RELATED PARTIES AND CONTINGENCIES

The company has operating leases for continuing operations in effect for
equipment and facilities with initial terms ranging from 2 to 20 years, with
renewal options generally being available. Future minimum annual rentals, net of
estimated sublease rentals under operating leases of $13,900,000, during each of
the next five years are: 1995-$14,200,000; 1996-$11,500,000; 1997-$10,600,000;
1998-$8,800,000; 1999-$7,200,000 and thereafter $56,500,000.

Rental expenses for continuing operations amounted to approximately
$15,500,000 for 1994, $15,200,000 for 1993 and $15,500,000 for 1992, net of
sublease rentals of approximately $3,800,000 for 1994, $3,900,000 for 1993 and
$3,600,000 for 1992.

As part of its acquisition of the Specialty Oil Companies (refer to Note 2)
the company assumed the terms of 10 operating leases, which expire in 2004, for
facilities located throughout the southwest. These facilities are leased from a
real estate firm that is owned, in part, by the current Vice Chairman and Chief
Executive Officer of the Motor Oil Division. The amount paid for these leases
since October 1994 was $376,000.

On September 13, 1994, the company's subsidiary, Q Lube Inc. (Q Lube),
entered into license and construction agreements with Interline Resources
Corporation (Interline) that provide for the exclusive use of Interline's used
oil rerefining technology in North America and for the construction of
facilities at which the re-refining process will be conducted by Q Lube. Under
the agreement Q Lube could pay up to $9,400,000 over six years to maintain the
exclusivity rights; however, Q Lube is not obligated to pay in full for these
rights. Q Lube paid $500,000 in 1994 for these rights.

F-15
47

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Westland Oil Company, Inc. regularly purchases lubricant base stocks from
Calumet Lubricants Co., the President of which is a Director of the company. The
amount of such purchases in the fourth quarter of 1994 was $393,000 at prices
comparable to other purchases. In addition, in October 1994, the company and
Legacy Resources Company (Legacy), a limited partnership in which the same
Director owns partnership interests, entered into a farmout agreement for the
development of certain oil and gas properties owned by the company. The amount
paid to the company by Legacy was $364,000.

In December 1993, the United States commenced a lawsuit against the company
in the U.S. District Court for the Northern District of West Virginia. The
complaint alleges the company violated the federal Resource Conservation and
Recovery Act and the federal Clean Air Act at the Congo refinery on various
dates starting in 1980 and seeks civil penalties not to exceed $25,000 per day
for each violation. The company intends to vigorously defend this lawsuit. In
1994, the company recorded a charge of $1,000,000 as its estimate of probable
liability associated with this lawsuit.

In addition, the company has received notices from the EPA and others that
it is a "potentially responsible party" relative to certain waste disposal sites
identified by the EPA and may be required to share in the cost of cleanup. The
company has accrued for all matters which are probable and can be reasonably
estimated.

In April 1994, purported class actions were commended in the U.S. District
Court for the Western District of Pennsylvania against the company and two other
oil companies. The complaints allege violations of Section 1 of the Sherman Act.
The company believes there is no basis for the allegations in the complaint and
intends to defend the matter vigorously.

Contingent liabilities of an indeterminate amount exist in connection with
suits and claims arising in the ordinary course of business.

In the opinion of management, all matters discussed above are adequately
accrued for or covered by insurance or, if not so provided for, are without
merit or the disposition is not anticipated to have a material effect on the
company's financial position; however, one or more of these matters could have a
material effect on future quarterly or annual results of operations or cash flow
when resolved.

11. STOCK OPTIONS AND MANAGEMENT COMPENSATION

The company has various stock option, incentive and award plans.

Under these plans, options have been granted to employees to purchase
capital stock at a price no less than 100% of the market value on the date of
grant. Options granted may not be exercised for at least six months from the
date of grant and substantially all options must be exercised within ten years
of the date granted.

Options issued prior to December 31, 1991, also provide for stock
appreciation rights (SARs), which are an alternate form of settlement on an
option giving an optionee the right, subject to certain conditions, to surrender
an option or portion of an option and receive cash and/or shares of capital
stock of the company, having a value equal to the appreciation on such option or
portion thereof. The change in appreciation of the optioned shares most likely
to be surrendered for SARs results in a charge or credit to income as
applicable.

In May 1994, the company's stockholders approved the 1994 Stock Incentive
Plan. Under this plan, 1,250,000 shares may be issued and the plan includes
stock options, SARs, cash payment rights, restricted shares, performance shares
and other share awards. In 1994, 225,800 shares were issued under this plan to
certain key employees as follows: (1) 165,800 performance restricted shares and
(2) 60,000 restricted shares. Of the 165,800 performance restricted shares,
65,800 shares are subject to forfeiture if certain three year performance goals
are not met and are expensed as compensation expense over the performance
period. The remaining 100,000 performance restricted shares are subject to
forfeiture if the market price of the company's

F-16
48

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock does not achieve specified levels prior to August 1999. Compensation
expense will be recorded related to these shares upon achieving the specified
stock market price levels. The 60,000 restricted shares are subject to certain
employment restrictions that expire at various dates through July 1997 and are
expensed as compensation expense over the restriction period. As a result of the
grant of these shares, the company recognized $485,000 as compensation expense
for 1994 and recorded unearned compensation of $2,624,000 at December 31, 1994
on the Consolidated Balance Sheet. Unearned compensation and related
compensation expense are adjusted for the performance restricted shares based on
the appreciation or depreciation in the company's stock market price.

In May 1994, the company's stockholders also approved the 1994 Non-Employee
Directors' Stock Option Plan. The number of shares which may be issued under
this plan is 100,000. Each non-employee who is a member of the Board of
Directors of the company is annually granted a non-statutory stock option to
purchase 1,000 shares of the company's capital stock. The exercise price for
each stock option is the fair market value of the stock on the date the stock
option is granted. In 1994, 8,000 shares were granted under this plan.

In conjunction with the acquisition of the Specialty and Westland Companies
(refer to Note 2) employment contracts were issued to certain key employees of
those companies. These contracts were for five years and included provisions for
a base salary, grants of an aggregate of 390,000 stock options and non-
competition clauses that extend three years beyond the end of the employment
contracts. Expenses related to these contracts amounted to $237,000 since
October 1994.

During 1993, the company entered into an employment contract with Herbert
M. Baum who was named Chairman and Chief Executive Officer. In 1994 a new
contract was executed that provides for annual compensation, a signing bonus,
stock award grants and stock option grants. In connection with the stock award
grant, the company issued 90,000 shares of capital stock, at no cost, of which
55,000 shares are subject to restrictions which expire at various dates through
August 1998. Compensation expense is charged to earnings over the initial
employment contract term. The unearned compensation related to these restricted
grants was $284,000 and $497,000 at December 31, 1994 and 1993, respectively, on
the Consolidated Balance Sheet. In 1994 and 1993, the company recognized
$213,000 and $532,000, respectively, as compensation expense for these stock
grants and approximately $800,000 and $1,000,000, respectively, for all other
provisions of this employment contract. The stock option grant provides for the
purchase of 270,000 shares of capital stock at various prices, no less than
market value on the date of grant ($11.625 to $17.935), at various dates. These
options expire at various dates through June 2005.

The options outstanding at the end of 1994 were exercisable at $9.4375 to
$26.4375 per share except for 648,500 shares which will become exercisable
between March 29, 1995 and October 27, 1999 at a range of $11.625 to $17.9375.
At December 31, 1994 and 1993, 905,449 and 122,013 shares of capital stock,
respectively, are available for grant.

At December 31, 1994, 1993 and 1992, 2,512,520, 1,465,917 and 1,285,120
shares of capital stock, respectively, were reserved for options outstanding and
for options or other awards which may be granted in the future.

F-17
49

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information with respect to shares under option for the aforementioned
plans is summarized below:

1994 1993 1992
--------- --------- ---------

Outstanding stock options at the beginning of
year............................................ 1,343,904 1,073,414 911,094
Options granted during the year:
1994, $13.375 to $16.50 per share
1993, $11.625 to $17.9375 per share
1992, $12.4375 per share........................ 434,000 378,200 245,250
Options exercised at $13.125 to $15.9375.......... (40,704) (8,963) (7,183)
Options surrendered upon exercise of SARs......... (49,296) (24,287) (30,567)
Options lapsed and canceled....................... (80,833) (74,460) (45,180)
--------- --------- ---------
Outstanding stock options at end of year.......... 1,607,071 1,343,904 1,073,414
========= ========= =========

12. INCOME TAXES

Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standard No. 109 "Accounting for Income Taxes." The cumulative effect
of the accounting change was not material.

Income before income taxes from continuing operations consists of:

1994 1993 1992
------- ------ -------
(IN THOUSANDS)

Domestic $12,914 $8,471 $(1,140)
Foreign 2,754 1,054 2,041
------ ----- ------
Total $15,668 $9,525 $ 901
====== ===== ======

The components of the provision for income taxes from continuing operations
are as follows:

1994 1993 1992
------- ------- -------
(IN THOUSANDS)

Current:
Federal............................................. $ 7,170 $ 6,394 $ 2,395
State............................................... 680 2,056 1,369
Foreign............................................. 1,700 1,350 2,300
Deferred:
Federal............................................. (2,827) (4,531) (3,160)
State............................................... 44 (1,835) (859)
Foreign............................................. (200) -- (600)
Tax credits amortized............................... (400) (900) (1,200)
----- ------ ------
Total................................................. $ 6,167 $ 2,534 $ 245
===== ====== ======

F-18
50

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The 1993 tax provision benefited from an adjustment of $1,200,000 to
deferred taxes for the enacted U.S. tax rate changes and an adjustment to the
beginning of the year valuation allowance of $1,400,000 to recognize the
realizability of deferred tax assets in future years. A reconciliation from the
federal statutory tax rate to the effective tax rate for continuing operations
follows:

1994 1993 1992
---- ----- -----
(% OF PRETAX INCOME)

Federal statutory tax rate........................................... 35.0 35.0 34.0
Add (deduct) the tax effect of:
Investment credit.................................................. (2.4) (6.6) (87.5)
Net adjustment to valuation allowance.............................. -- (14.3) --
Enacted rate change................................................ -- (12.4) --
Other tax credits.................................................. (1.2) (2.1) (5.7)
State and foreign income taxes..................................... 4.7 11.7 22.2
Other, net......................................................... 3.2 15.3 64.2
---- ----- -----
Effective tax rate................................................... 39.3 26.6 27.2
==== ===== =====

The deferred tax assets and liabilities as of December 31, 1994 and 1993
are as follows:

DEFERRED DEFERRED DEFERRED
TAX DEFERRED TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
1994 1994 1993 1993
------- ------------ -------- -----------
(IN THOUSANDS)

Depreciation, depletion and
amortization.......................... -- $ 32,553 -- $26,572
Employee benefits....................... $56,287 -- $ 56,387 --
Coal loss provision..................... 1,436 -- 6,604 --
Insurance policy reserves............... -- -- 31,795 --
Deferred policy acquisition costs....... -- -- -- 20,402
Due from reinsurers..................... -- -- -- 11,267
Environmental reserves.................. 8,308 -- 7,278 --
Other................................... 14,980 7,595 21,877 7,591
------- ------- -------- -------
Subtotal.............................. 81,011 40,148 123,941 65,832
Valuation allowance..................... 539 -- 1,101 --
------- ------- -------- -------
Total................................... $80,472 $ 40,148 $122,840 $65,832
======= ======= ======== =======

Deferred investment tax credit amounted to $600,000 and $900,000 at
December 31, 1994 and 1993, respectively.

13. EMPLOYEE RETIREMENT AND BENEFIT PLANS

The company has noncontributory pension plans covering substantially all of
its employees. Plans covering salaried employees provide pension benefits that
are generally based on the employees' compensation and length of service. Plans
covering hourly employees provide benefits of stated amounts for each year of
service. The company's funding policy is based on an actuarially determined cost
method allowable under statutory regulations.

F-19
51

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net pension cost for 1994, 1993, 1992 is summarized below:

1994 1993 1992
-------- -------- --------
(IN THOUSANDS)

Service cost benefits earned during the period..... $ 3,675 $ 3,130 $ 3,996
Interest cost...................................... 9,015 8,840 8,584
Actual return on assets............................ (1,025) (13,371) (11,850)
Net amortization and deferral...................... (11,188) 1,325 (280)
-------- -------- --------
Total pension cost (income)........................ 477 (76) 450
Less: pension cost (income) of discontinued
operations....................................... 186 204 (753)
-------- -------- --------
Pension cost (income) of continuing operations..... $ 291 $ (280) $ 1,203
======== ======== ========

The funded status of the plans is reconciled to prepaid pension cost at
December 31, 1994 and 1993 as follows:

1994 1993
-------- --------
(IN THOUSANDS)

Plan assets at fair value, primarily investments in IPG
insurance contracts and pooled separate accounts............. $127,623 $135,807
-------- --------
Accumulated benefit obligation, including vested benefits of:
1994 -- $104,320; 1993 -- $112,052........................... 111,640 120,001
Effect of future salary increases.............................. 11,692 12,681
-------- --------
Projected benefit obligation................................... 123,332 132,682
-------- --------
Plan assets in excess of projected benefit obligations......... 4,291 3,125
Unrecognized net loss.......................................... 16,458 18,035
Unrecognized transition asset.................................. (11,266) (12,737)
-------- --------
Prepaid pension cost........................................... $ 9,483 $ 8,423
======== ========

Significant assumptions used in determining net pension costs and related
pension obligations are:

DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----

Discount rate................................................. 8% 7% 7 1/2%
Rate of increase in compensation levels....................... 4 1/2% 4 1/2% 4 1/2%
Expected long-term rate of return on assets................... 9% 9% 9%

Former hourly employees of the discontinued coal operations are covered by
a pension plan of the United Mine Workers of America (UMWA). Former salaried
coal employees are covered by the company's pension plan. Payments made to the
plan administered by the UMWA were based on hours worked and were $526,000 and
$4,153,000 for 1993 and 1992. As a result of the company's decision to
discontinue coal operations in 1992 (refer to Note 4), the company will withdraw
from the UMWA plan resulting in an estimated withdrawal liability of
approximately $11,000,000. In addition, in 1992 the company recognized a
$4,519,000 pension curtailment gain related to the salaried coal employees. The
withdrawal liability and the curtailment gain are reflected in the 1992
Consolidated Statement of Operations as a component of the loss on disposition
related to the discontinued coal operations.

In 1994, the Materials Handling operation terminated a pension plan that
resulted in a pre-tax gain of $1,100,000.

F-20
52

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The company has certain defined contribution plans including a Thrift and
Stock Purchase Plan and an Employee Stock Ownership Plan. The 1994 cost of these
plans was $2,450,000 and the 1993 and 1992 cost of these plans was $1,100,000
per year.

In addition to providing pension benefits, Quaker State and certain of its
subsidiaries provide health care and life insurance benefits for active and
retired employees. These plans are unfunded, and the company retains the right
to modify or eliminate these benefits.

Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions."

As of January 1, 1992, the company recognized the full amount of its
estimated accumulated postretirement benefit obligation on that date, which
represented the present value of the estimated future benefits payable to
current retirees and a pro rata portion of the estimated benefits payable to
eligible active employees after retirement. The accounting change resulted in a
one-time charge to 1992 earnings of approximately $62,600,000, net of taxes of
$40,100,000, or $2.30 per share. The components of periodic expense for
postretirement benefits in 1994, 1993 and 1992 were as follows:

1994 1993 1992
------ ------ -------
(IN THOUSANDS)

Service costs of benefits earned........................ $ 805 $ 947 $ 1,865
Interest cost on liability.............................. 6,812 7,300 8,485
Amortization of gain.................................... (115) (240) --
------ ------ -------
Net periodic postretirement benefit cost................ 7,502 8,007 10,350
Less: discontinued operations cost...................... 267 257 6,591
------ ------ -------
Continuing operations cost.............................. $7,235 $7,750 $ 3,759
====== ====== =======

The accumulated postretirement benefit obligation (APBO) at December 31,
1994 and 1993 is summarized below:

1994 1993
------- -------
(IN THOUSANDS)

Retirees......................................................... $74,154 $74,803
Fully eligible active participants............................... 6,906 6,667
Other active participants........................................ 9,910 13,035
------- -------
APBO............................................................. 90,970 94,505
Unrecognized net gain............................................ 5,236 875
Less: current portion............................................ (5,000) (5,000)
------- -------
Long-term portion................................................ $91,206 $90,380
======= =======

As a result of the company's decision during 1992 to discontinue its coal
operations (refer to Note 4), it recognized in 1992 a $16,206,000 curtailment
gain related to its postretirement benefit plans other than pension plans. This
curtailment gain is reflected in the 1992 Consolidated Statement of Operations
as a component of the loss on disposition related to the discontinued coal
operations.

For measurement purposes, a 10% annual rate of increase in the per capita
claims cost was assumed for 1995, declining gradually to 5% by the year 2002 and
thereafter.

F-21
53

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant assumptions used in determining postretirement benefit expenses
and accumulated postretirement benefit obligations are:

DECEMBER 31,
-------------------
1994 1993 1992
--- --- ---

Discount rate.................................................. 8% 7 1/2% 8 1/2%
Rate of increase in compensation levels........................ 4 1/2% 5% 5 1/2%

The health care cost trend rate assumption has a significant effect on the
APBO and net periodic benefit costs. A 1% increase in the trend rate for health
care costs would have increased the APBO at December 31, 1994 by 11% and 1994
service and interest costs by 12%.

In 1993, the company adopted Statement of Financial Accounting Standard No.
112, "Employers' Accounting for Postemployment Benefits." This Standard requires
the cost of benefits provided for former or inactive employees, after employment
and before retirement, be recognized on the accrual basis of accounting. The
cumulative effect of this accounting change was not material.

14. FINANCIAL RESULTS BY QUARTER

QUARTERS ENDED
-------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
------------------- ------------------- ------------------- -------------------
1994 1993 1994 1993 1994 1993 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)

Revenues (a).............. $168,515 $144,431 $161,545 $158,217 $179,702 $154,765 $222,872 $149,672
Gross profit
(a)(b)(c)(d)............ 58,586 42,520 50,958 48,162 57,051 48,881 62,500 45,628
Income from continuing
operations (a)(e)....... 2,284 126 1,622 1,169 3,872 5,101 1,724 595
Income (loss) from
discontinued
operations.............. 3,299 3,277 3,447 3,212 1,526 (1,125) 992 1,347
Net income................ $ 5,583 $ 3,403 $ 5,069 $ 4,381 $ 5,398 $ 3,976 $ 2,716 $ 1,942
======== ======== ======== ======== ======== ======== ======== ========
PER SHARE:
Income from continuing
operations.............. $ .08 $ .01 $ .06 $ .04 $ .14 $ .18 $ .06 $ .02
Income (loss) from
discontinued
operations.............. .12 .12 .13 .12 .05 (.04) .03 .05
Net Income................ .20 .13 .19 .16 .19 .14 .09 .07
Dividends................. .10 .20 .10 .20 .10 .10 .10 .10
======== ======== ======== ======== ======== ======== ======== ========

- ---------------
(a) In the second quarter of 1995, the company discontinued the Natural Gas
Exploration and Production (E & P) business and reported it as a
discontinued operation. Amounts exclude E & P activities which are reported
as discontinued operations (refer to Note 17). In the second quarter of
1994, the company decided to exit the insurance business and report it as a
discontinued operation. Amounts exclude insurance activities which are
reported as income from discontinued operations (refer to Note 3).

(b) Gross profit equals total sales and operating revenues less cost of sales
and operating costs (excluding depreciation and amortization) and unusual
items.

(c) Gross profit for the third and fourth quarter of 1993 was impacted
negatively by the effect of LIFO liquidations of approximately $600,000 and
$800,000.

(d) Truck-Lite operating results included a $1,500,000 charge recorded in the
fourth quarter of 1994 to reserve for future losses associated with a
contract to manufacture automotive safety lights.

F-22
54

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Income from continuing operations in the third quarter of 1994 and 1993 was
positively impacted by a change of $1,400,000 due to a reduction in the
estimated state tax rate and additional tax credits and a one-time benefit
of $1,200,000 related to the change in U.S. corporate tax rate,
respectively. Income from continuing operations in the fourth quarter of
1993 was impacted positively by a change of $1,300,000 in estimated taxes,
resulting from a lower tax rate due to valuation allowance adjustments and
lower earnings in 1993.

15. SUPPLEMENTAL CASH FLOW INFORMATION

1994 1993 1992
-------- ------ -------
(IN THOUSANDS)

CASH PAID DURING THE YEAR FOR:
Interest, net of amounts capitalized................ $ 5,101 $5,717 $ 6,126
Income taxes........................................ 9,174 9,714 14,581
======= ===== ======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Supplemental receivable (Note 4).................... -- -- $18,800
Preferred stock..................................... -- -- 10,000
Capital stock issued for acquisition (Note 2)....... $ 57,750 -- --
Capital stock issued under incentive plan (Note
11).............................................. 3,109 -- --
======= ===== ======
DETAILS OF ACQUISITION (NOTE 2):
Fair value of assets acquired....................... $171,219 -- --
Liabilities assumed................................. 82,748 -- --
Stock issued........................................ 57,750 -- --
------- ----- ------
Cash paid........................................... 30,721 -- --
Less: cash acquired................................... 2,355 -- --
------- ----- ------
Net cash paid for acquisition......................... $ 28,366 -- --
======= ===== ======

In 1992, as a result of the bankruptcy of the purchaser of the McKean and
Emlenton plants, the company eliminated preferred stock and deferred income,
associated with the sale, from the Consolidated Balance Sheet.

16. SEGMENT INFORMATION

Information on the company's operations in different segments is contained
on pages F-2 and F-3 of this report.

17. SUBSEQUENT EVENTS

On July 11, 1995, Quaker State completed the acquisition of all the stock
of Slick 50 through the merger of Slick 50 into a wholly owned subsidiary of
Quaker State named Quaker State -- Slick 50, Inc. The consideration given in the
acquisition included payment of approximately $22,000,000 in cash and the
issuance of 1,260,403 shares of Quaker State capital stock. In addition, the
company paid approximately $11,000,000 to satisfy certain Slick 50 indebtedness
outstanding prior to the closing. Under the terms of the Merger Agreement,
additional consideration may be payable by Quaker State for Slick 50 stock
depending upon the merged company's performance during the fiscal years ending
December 31, 1996, 1997 and 1998 but subject to offset for indemnification
obligations of Slick 50 stockholders under the Merger Agreement. The acquisition
will be accounted for under the purchase method.

On August 9, 1995 the company sold most of the assets of its Natural Gas
Exploration and Production Division. Accordingly, the operating results of the
Natural Gas Exploration and Production Division have

F-23
55

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

been reclassified as discontinued operations in the Consolidated Statement of
Operations for the years ended December 31, 1994, 1993, and 1992. All prior
periods have been reclassified to conform to this presentation. Additionally,
the assets of the Natural Gas Exploration and Production Division have been
reclassified as discontinued operation assets on the Consolidated Balance Sheet
as of December 31, 1994 and 1993. Notes to Consolidated Financial Statement have
been restated to exclude the Natural Gas and Production Division where the
information was available and it was practical to do.

Condensed income statements for the years ended December 31, 1994, 1993,
and 1992 are presented below:

1994 1993 1992
------- ------- -------
(IN THOUSANDS)

Revenues.............................................. $29,751 $28,010 $27,752
Cost and expenses..................................... 24,364 24,907 23,917
------ ------ ------
Income before income taxes............................ 5,387 3,103 3,835
Provision for (benefit from) income taxes............. 883 202 (64)
------ ------ ------
Net income............................................ $ 4,504 $ 2,901 $ 3,899
====== ====== ======

F-24
56

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

SIX MONTHS ENDED
-----------------------
6/30/95 6/30/94
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA,
UNAUDITED)

Revenues
Sales and operating revenues......................................... $497,231 $330,060
Other, net........................................................... 5,609 2,073
-------- --------
502,840 332,133
Costs and expenses
Cost of sales and operating costs.................................... 354,136 220,516
Selling, general and administrative.................................. 115,711 90,857
Depreciation and amortization........................................ 14,570 10,004
Interest............................................................. 3,118 2,403
Unusual item (Note 6)................................................ 15,800 --
-------- --------
503,335 323,780
-------- --------
Income (loss) from continuing operations before income taxes......... (495) 8,353
-------- --------
Provision for (benefit from) income taxes
Current............................................................ (400) 6,000
Deferred........................................................... 212 (1,317)
-------- --------
(188) 4,683
-------- --------
Income (loss) from continuing operations............................. (307) 3,670
Income from discontinued operations, net of taxes (Note 11).......... 2,678 6,982
-------- --------
Net income (loss).................................................... $ 2,371 $ 10,652
======== ========
Per share:
Income (loss) from continuing operations............................. $ (.01) $ .13
Income from discontinued operations.................................. .09 .26
-------- --------
Net income (loss) per share.......................................... $ .08 $ .39
======== ========
Weighted average shares outstanding.................................. 31,591 27,358
======== ========
Cash dividends paid per share........................................ $ .20 $ .20
======== ========

The accompanying notes are an integral part of the financial statements.

F-25
57

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS,
UNAUDITED)

Cash flows from operating activities
Net income............................................................. $ 2,371 $ 10,652
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization............................. 19,289 15,465
Unusual item......................................................... 15,800 --
Deferred income taxes and investment tax credit...................... 1,861 (121)
Increase (decrease) from changes in:
Receivables....................................................... (13,945) (6,336)
Inventories....................................................... (1,988) (5,182)
Other current assets.............................................. (268) (911)
Accounts payable.................................................. 3,245 525
Accrued liabilities............................................... (7,924) 1,687
Other............................................................. (16,195) (1,934)
Changes in discontinued insurance operations......................... -- 5,224
-------- --------
Net cash provided by operating activities....................... 2,246 19,069
-------- --------
Cash flow from investing activities
Proceeds from disposal of property and equipment....................... 3,175 1,544
Capital expenditures................................................... (16,189) (11,555)
Proceeds from sale of discontinued coal operation assets............... 412 1,568
Discontinued insurance operations
Proceeds from sale of bonds and securities........................... -- 37,046
Purchase of bonds and securities..................................... -- (49,259)
-------- --------
Net cash used in investing activities........................... (12,602) (20,656)
-------- --------
Cash flow from financing activities
Dividends paid......................................................... (6,303) (5,457)
(Payments on) Proceeds from notes payable.............................. (34) 320
Payments on long-term debt............................................. (1,464) (137)
-------- --------
Net cash used in financing activities........................... (7,801) (5,274)
-------- --------
Net increase (decrease) in cash and cash equivalents................... (18,157) (6,861)
Cash and cash equivalents at beginning of year:
Other than discontinued insurance operations......................... 29,805 6,220
Discontinued insurance operations.................................... -- 9,408
-------- --------
Total cash and cash equivalents at beginning of year................... 29,805 15,628
-------- --------
Cash and cash equivalents at end of period:
Other than discontinued insurance operations......................... 11,648 3,063
Discontinued insurance operations.................................... -- 5,704
-------- --------
Cash and cash equivalents at end of period............................. $ 11,648 $ 8,767
======== ========

The accompanying notes are an integral part of the financial statements.

F-26
58

QUAKER STATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

6/30/95 12/31/94*
-------- -----------
(UNAUDITED)
(IN THOUSANDS EXCEPT
SHARE DATA)

ASSETS
Current assets:
Cash and cash equivalents............................................... $ 11,648 $ 29,805
Accounts and notes receivable, less allowance of $3,049
at 6/30/95 and $2,185 at 12/31/94..................................... 104,920 91,858
-------- --------
Inventories: (Note 2)
Crude oil............................................................. 1,816 976
Finished and in-process petroleum products............................ 45,533 49,252
Other................................................................. 27,797 22,862
-------- --------
Total inventories.................................................. 75,146 73,090
-------- --------
Deferred income taxes................................................... 9,929 11,790
Other current assets.................................................... 11,637 11,708
Discontinued operation assets (Note 11)................................. 48,052 3,889
-------- --------
Total current assets.................................................. 261,332 222,140
Property, plant, and equipment, net of accumulated depreciation
of $202,126 at 6/30/95 and $190,986 at 12/31/94....................... 199,962 199,983
Discontinued operation assets (Note 11)................................. -- 48,257
Other assets............................................................ 170,401 159,638
-------- --------
Total assets....................................................... $631,695 $630,018
======== ========
LIABILITIES
Current Liabilities:
Accounts payable........................................................ $ 61,711 $ 58,500
Accrued liabilities..................................................... 66,363 58,487
Installments on long-term debt.......................................... 3,314 3,714
-------- --------
Total current liabilities............................................. 131,388 120,701
-------- --------
Long-term debt, less debt payable within one year....................... 68,471 69,535
Other long-term liabilities............................................. 183,456 187,932
-------- --------
Total liabilities..................................................... 383,315 378,168
-------- --------
Commitments and contingencies (Note 3)
STOCKHOLDERS' EQUITY
Capital stock, $1.00 par value; authorized shares, 95,000,000;
issued shares, 31,513,968 at 6/30/95 and 31,517,305 at 12/31/94....... 31,514 31,517
Treasury stock, at cost, 49,786 shares at 6/30/95 and 33,498 shares at
12/31/94.............................................................. (690) (467)
Additional capital...................................................... 120,757 120,131
Retained earnings....................................................... 100,354 104,286
Cumulative foreign currency translation adjustment...................... (488) (709)
Unearned compensation................................................... (3,067) (2,908)
-------- --------
Total stockholders' equity............................................ 248,380 251,850
-------- --------
Total liabilities and stockholders' equity......................... $631,695 $630,018
======== ========

- ---------------
* Amounts are from December 31, 1994 audited balance sheet and footnotes.

The accompanying notes are an integral part of the financial statements.

F-27
59

OTHER FINANCIAL INFORMATION

QUAKER STATE CORPORATION AND SUBSIDIARIES

The sales and operating revenues and contributions to income from
continuing operations, by industry segment, are as follows:

SIX MONTHS ENDED
---------------------
6/30/95 6/30/94
-------- --------
(IN THOUSANDS,
UNAUDITED)

Sales and operating revenue
Motor oil.............................................................. 399,577 235,047
Fast lube.............................................................. 60,264 54,126
Truck-Lite............................................................. 49,617 51,218
Materials Handling..................................................... 1,662 1,447
Intersegment sales..................................................... (13,889) (11,778)
-------- --------
Total sales and operating revenue.................................... $497,231 $330,060
======== ========
Operating profit (loss)
Motor oil.............................................................. 12,874 8,268
Fast lube.............................................................. 4,140 2,779
Truck-Lite............................................................. 7,343 7,434
Materials Handling..................................................... 481 469
-------- --------
Total operating profit from continuing operations...................... 24,838 18,950
Corporate income....................................................... 2,577 1,253
Interest expense....................................................... (3,023) (2,318)
Corporate expenses..................................................... (9,087) (9,532)
Unusual item*.......................................................... (15,800) --
-------- --------
Income (loss) from continuing operations before income taxes........... (495) 8,353
======== ========

- ---------------
* The restructuring charge of $15,800 includes $9,280 that relates to Motor oil.

The accompanying notes are an integral part of the financial statements.

F-28
60

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. In the opinion of management of Quaker State Corporation (the company), the
accompanying financial statements include all adjustments which are
necessary to a fair statement of the results for such periods. All of these
adjustments are of a normal recurring nature. These statements should be
read in conjunction with the financial statements included as a part of the
1994 annual report on Form 10-K.

2. Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis for all crude oil, the majority of
company refined petroleum and vehicular lighting products; and on the
first-in, first-out (FIFO) basis for other inventories. The reserve to
reduce the carrying value of inventories from FIFO basis to LIFO basis
amounted to $22,255,000 at June 30, 1995, and $20,267,000 at December 31,
1994.

In the second quarter of 1995 certain inventory quantities were reduced
resulting in liquidations of LIFO inventory. The effect of these
liquidations was an increase in net income of $900,000, or $.03 per share.

3. In December 1993, the United States commenced a lawsuit against the company
in the U.S. District Court for Northern District of West Virginia. The
complaint alleges the company violated the federal Resource Conservation and
Recovery Act and the federal Clean Air Act at the Congo refinery on various
dates starting in 1980 and seeks civil penalties not to exceed $25,000 per
day for each violation. The company intends to vigorously defend this
lawsuit. However, the ultimate outcome of this litigation cannot presently
be determined.

In addition, the company has received notices from the EPA and others
that it is a "potentially responsible party" relative to certain waste
disposal sites identified by the EPA and may be required to share in the
cost of cleanup. The company has accrued for all matters which are probable
and can be reasonably estimated.

In April 1994, purported class actions were commenced in the U.S.
District Court for the Western District of Pennsylvania against the company
and two other oil companies. The complaints allege violations of Section 1
of the Sherman Act. In July 1995, the United States District Court certified
the proceeding as a class action and denied the defendants' motion for
summary judgment. The company believes there is no basis for the allegations
in the complaint and intends to defend the matter vigorously.

Contingent liabilities of an indeterminate amount exist in connection
with suits and claims arising in the ordinary course of business.

In the opinion of management, all matters discussed above are
adequately accrued for or covered by insurance or, if not so provided for,
are without merit or the disposition is not anticipated to have a material
effect on the company's financial position; however, one or more of these
matters could have a material effect on future quarterly or annual results
of operations when resolved.

4. The effective tax rate of 38% for continuing operations is higher than the
35% federal rate due to the added impact of state and foreign taxes. The
effective tax rate for continuing operations of 38% is lower than the 1994
rate of 56% due to lower income from continuing operations, a reduction in
the estimated state tax rate, and other changes in estimates.

5. On July 11, 1995, Quaker State completed the acquisition of all the stock of
Slick 50 through the merger of Slick 50 into a wholly owned subsidiary of
Quaker State named Quaker State-Slick 50, Inc. The consideration given in
the acquisition included payment of approximately $22,000,000 in cash and
the issuance of 1,260,403 shares of Quaker State capital stock. In addition,
the company paid approximately $11,000,000 to satisfy certain Slick 50
indebtedness outstanding prior to the closing. Under the terms of the Merger
Agreement, additional consideration may be payable by Quaker State for Slick
50 stock depending upon the merged company's performance during the fiscal
years ending December 31, 1996,

F-29
61

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

1997 and 1998 but subject to offset for indemnification obligations of Slick
50 stockholders under the Merger Agreement.

The source of funds used for cash consideration in the transaction and
the payment of Slick 50 indebtedness was borrowing under Quaker State's
$45,000,000 Revolving Credit Agreement.

The acquisition will be accounted for under the purchase method.

6. On April 28, 1995 the company announced plans to restructure its
organization to integrate recent acquisitions, consolidate management and
administrative activities, and move its corporate headquarters and Motor Oil
Division to the Dallas, Texas area. The company plans to complete the move
by the first quarter of 1996. The pre-tax costs and expenses associated with
the restructuring and relocating the workforce and closing the headquarters
facility in Oil City, Pennsylvania and its administrative unit in
Shreveport, Louisiana will approximate $25,000,000. A charge of $15,800,000
was recorded in the second quarter, of which $9,280,000 related directly to
the Motor Oil Division. The after tax restructuring charge recorded in the
quarter was $9,490,000. The remainder will be expensed as incurred.

7. On April 28, 1995 the company announced that the Board of Directors approved
a $25,000,000 development project for the Red River port in Shreveport,
Louisiana, which will become the company's manufacturing and technical
headquarters.

8. The following schedule is prepared on a pro forma basis as though Specialty
and Westland had been acquired as of the beginning of 1994, after including
the impact of adjustments, such as amortization of intangible assets,
intercompany sales elimination and related tax effects.

For the six months ended June 30, 1994

For the Six Months Ended
6/30/94
------------------------
(in thousands except
per share data,
unaudited)

Revenues............................................... $483,979
Income from continuing operations (Note 11)............ $ 6,520
Income per share from continuing
operations........................................... $ 0.21

The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combining the
operations.

9. In March 1995, the Financial Accounting Standards Board issued Standard No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of " which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. The new
Standard must be implemented in 1996. The company is currently evaluating
what effect, if any, this Standard will have on its financial position and
results of operations.

10. On May 25, 1995 the company's stockholders approved the Amendment of Quaker
State's Certificate of Incorporation to increase the authorized number of
shares of Quaker State's capital stock from 37,500,000 to 95,000,000 shares.

11. On July 26, 1995 Quaker State signed a definitive agreement to sell most of
the assets of its Natural Gas Exploration and Production Division to Belden
& Blake Corporation of Canton, Ohio for a purchase price of $56,000,000
subject to certain possible adjustments. Accordingly, the operating results
of Natural Gas Exploration and Production have been reported as a
discontinued operation in the accompanying

F-30
62

QUAKER STATE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

Consolidated Statement of Operations for the period ending June 30, 1995.
Prior year and prior period financial statements have been reclassified to
conform to the current period presentation. Completion of the transaction
occurred on August 9, 1995. The company expects to record a gain from the
sale of these assets which will be reported under discontinued operations in
the third quarter.

F-31
63

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

PAGE
----

Available Information.................
Information Incorporated by
Reference...........................
The Company...........................
Use of Proceeds.......................
Capitalization........................
Selected Financial Information........
Business..............................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Description of Notes..................
Underwriting..........................
Notice to Canadian Residents..........
Validity of Notes.....................
Experts...............................
Index to Consolidated Financial
Statements.......................... F-1

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

[LOGO]
QUAKER STATE
CORPORATION

$100,000,000

% Notes Due 2005

P R O S P E C T U S

CS First Boston

J.P. Morgan Securities Inc.

- ------------------------------------------------------
64

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*

The fees and expenses to be paid in connection with the distribution of the
Notes being registered hereby are established as follows:

Registration Fee.......................................................... $ 34,483
National Association of Securities Dealers, Inc. Filing Fee............... 10,500
Legal Fees and Expenses................................................... *
Printing and Engraving Expenses........................................... *
Trustee Fees.............................................................. *
Accounting Fees and Expenses.............................................. *
Rating Agency Fees........................................................ *
Blue Sky Fees and Expenses (including legal fees and disbursements)....... *
Miscellaneous............................................................. *
-------
Total........................................................... $ *
=======

- ---------------
* To be completed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Certificate of Incorporation of the Company provides that to the
fullest extent that the law of the State of Delaware, as the same exists or may
hereafter be amended, permits elimination of the personal liability of
directors, no director of the Company shall be personally liable to the Company
or to its stockholders for monetary damages for breach of fiduciary duty as a
director. The Delaware General Corporation Law (the "DGCL") permits a
corporation's certificate of incorporation to provide that no director of the
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for any breach of his or her fiduciary duty as a director;
provided that such provision shall not eliminate or limit the liability of a
director (1) for any breach of a director's duty of loyalty to the corporation
or its stockholders, (2) for acts or omissions that are not in good faith or
involve intentional misconduct or a knowing violation of the law, (3) under
Section 174 of the DGCL or (4) for any transaction from which the director
derived an improper personal benefit.

The Certificate of Incorporation of the Company also provides, in general,
that the Company shall indemnify its officers and directors against reasonable
expenses and any liability paid or incurred by such person in connection with
any actual or threatened claim, action, suit or proceeding, civil, criminal,
administrative, investigative or other, whether brought by or in the right of
the Company or otherwise, in which he or she may be involved, as a party or
otherwise, by reason of such person being or having been a director or officer
of the Company or by reason of the fact that such person is or was serving at
the request of the Company as a director, officer, employee, fiduciary or other
representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity, except as prohibited by law. Section 145
of the DGCL provides, in general, that each director and officer of a
corporation may be indemnified against expenses (including attorneys' fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceedings in which he is involved by reason of the fact
that he is or was a director or officer if he acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, if he
had no reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the corporation, the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he shall have

II-1
65

been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless a court determines otherwise.

In addition, the Certificate of Incorporation of the Company provides that
the Company may purchase and maintain insurance to protect itself and any
director or officer entitled to indemnification pursuant to the Certificate of
Incorporation. Accordingly, the Company carries directors and officers liability
coverage which is subject to certain limitations and exclusions.

Reference is made to the indemnity agreements contained in the Underwriting
Agreement relating to the Notes filed as Exhibit 1 to the Registration
Statement.

ITEM 16. EXHIBITS

The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:

EXHIBIT
NUMBER DESCRIPTION
- ------- ------------

1.1 Form of Underwriting Agreement.*

4.1 Form of Indenture, to be dated as of , 1995, between the Company and
Chemical Bank, as Trustee.*

5.1 Opinion of Sullivan & Cromwell with respect to the legality of the Notes.

10.1 Credit Agreement, dated as of September 29, 1995, among the Company, the Banks from
time to time party thereto and Morgan Guaranty Trust Company of New York, as Agent.

12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.

23.1 Consent of Sullivan & Cromwell (included in its opinion filed as Exhibit 5.1).

23.2 Consent of Coopers & Lybrand L.L.P.

24.1 Powers of Attorney (included as part of the signature page).

25.1 Statement of Eligibility on Form T-1 of Chemical Bank, as trustee for the Notes
(bound separately).

- ---------------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnifica-

II-2
66

tion by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
67

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oil City, Commonwealth of Pennsylvania, on October 6,
1995.

QUAKER STATE CORPORATION

By: /s/ HERBERT M. BAUM
------------------------------------

POWER OF ATTORNEY

We, the undersigned officers and directors of Quaker State Corporation,
hereby severally constitute Conrad A. Conrad and Paul E. Konney and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below the
Registration Statement filed herewith and any and all amendments to said
Registration Statement, and generally to do all such things in our name and
behalf in our capacities as officers and directors to enable Quaker State
Corporation to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney have been signed by the following
persons in the capacities and on the date indicated.

NAME TITLE DATE
---- ----- -----

/s/ HERBERT M. BAUM Chairman of the Board, Chief
- ---------------------------------------- Executive Officer and Director
(Herbert M. Baum) (Principal Executive Officer)

/s/ CONRAD A. CONRAD Vice Chairman, Chief Financial
- ---------------------------------------- Officer and Director (Principal
(Conrad A. Conrad) Financial Officer)

/s/ KEITH S. KRZEMINSKI Controller (Principal Accounting
- ---------------------------------------- Officer)
(Keith S. Krzeminski)

/s/ LEONARD M. CARROLL Director
- ----------------------------------------
(Leonard M. Carroll)

/s/ LAUREL CUTLER Director
- ----------------------------------------
(Laurel Cutler)

/s/ C. FREDERICK FETTEROLF Director
- ----------------------------------------
(C. Frederick Fetterolf)

II-4
68

NAME TITLE DATE
- ---------------------------------------- ---------------------------------- ----------------

/s/ THOMAS A GARDNER Director
- ----------------------------------------
(Thomas A. Gardner)

/s/ F. WILLIAM GRUBE Director
- ----------------------------------------
(F. William Grube)

/s/ FORREST R. HASELTON Director
- ----------------------------------------
(Forrest R. Haselton)

/s/ DELBERT J. MCQUAIDE Director
- ----------------------------------------
(Delbert J. McQuaide)

/s/ L. DAVID MYATT Director
- ----------------------------------------
(L. David Myatt)

/s/ RAYMOND A. ROSS, JR. Director
- ----------------------------------------
(Raymond A. Ross, Jr.)

/s/ LORNE R. WAXLAX Director
- ----------------------------------------
(Lorne R. Waxlax)

II-5
69

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----

1.1 Form of Underwriting Agreement* ...............................................

4.1 Form of Indenture, to be dated as of , 1995, between the Company
and Chemical Bank, as Trustee* ................................................

5.1 Opinion of Sullivan & Cromwell with respect to the legality of the Notes ......

10.1 Credit Agreement, dated as of September 29, 1995, among the Company, the Banks
from time to time party thereto and Morgan Guaranty Trust Company of New York,
as Agent ......................................................................

12.1 Statement re Computation of Ratio of Earnings to Fixed Charges ................

23.1 Consent of Sullivan & Cromwell (included in its opinion filed as
Exhibit 5.1)...................................................................

23.2 Consent of Coopers & Lybrand L.L.P. ...........................................

24.1 Powers of Attorney (included as part of the signature page) ...................

25.1 Statement of Eligibility on Form T-1 of Chemical Bank, as trustee for the Notes
(bound separately). ...........................................................

- ---------------
* To be filed by amendment.