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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(MARK ONE)

[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
        For the fiscal year ended December 31, 1997

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
        EXCHANGE ACT OF 1934 
        For the transition period from __________ to __________

        COMMISSION FILE NUMBER 1-2677

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

         Delaware                                          25-0742820
 (State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                         Identification No.)


   225 East John Carpenter Freeway
          Irving, Texas                                     75062
(Address of principal executive offices)                  (Zip Code)


        Registrant's telephone number, including area code: 972-868-0400


           Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of each exchange
       Title of each class                            on which registered
       -------------------                            ---------------------

     Capital Stock, par value                      New York Stock Exchange
         $1.00 per share                               Pacific Exchange

  Rights to Purchase Capital Stock,                 New York Stock Exchange
      par value $1.00 per share                        Pacific Exchange

        6.625% Notes due 2005                       New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 14(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for at least the past 90 days. Yes  X    No 
                                                      ------   ------ 
         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

         The registrant  estimates that as of March 17, 1998 the aggregate  
market value of the shares of its Capital Stock held by non-affiliates of the
registrant was more than $561,481,000.

         As of March 17, 1998, there were 36,302,879 shares of Capital Stock of
the registrant outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Proxy  Statement for Quaker State's Annual Meeting of  
Stockholders to be held on May 15, 1998 are incorporated by reference in Part
III of this annual report on Form 10-K.
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PART I

ITEM 1.  BUSINESS.

         Quaker State Corporation ("Quaker State" or the "Company") is a leading
producer and marketer of motor oils and other lubricants. The Company also
operates fast lube centers in certain areas of the United States and Canada,
markets automobile engine and fuel treatments, automotive window shades and
automotive accessories, and manufactures and sells automobile polishes, car wash
products and automotive air fresheners.

         The Company markets and distributes major national brand, private label
and proprietary brand lubricants and other automotive aftermarket products
primarily in the United States, Canada and Mexico. Quaker State's Q Lube, Inc.
("Q Lube") subsidiary operates fast lube centers that offer consumers quick and
economical oil changes and related services for passenger vehicles (primarily
under the name "Q Lube"). Quaker State also provides collection, transportation
and recycling services for used oil, antifreeze and filters in certain regions
of the United States.

         The Company has taken initiatives to increase its share of the motor
oil market by introducing new products and repositioning the Company's current
product line, extending the Company's existing brands, acquiring new brands,
creating niche markets for certain of the Company's products and offering
incentive programs and marketing allowances to customers and independent
distributors.

         Quaker State's goal is to continue the growth of its 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 oils and related
materials.

         The Company's Consumer Products segment is comprised of Blue
Coral/Slick 50, Ltd. ("Blue Coral"), Quaker State International, Limited
("Quaker State International"), Rain-X Corporation ("Rain-X"), and Medo
Industries, Inc. ("Medo"). In July 1995, the Company acquired Slick 50, Inc.
("Slick 50"), a marketer of automotive engine treatments and related automotive
chemicals. In June 1996, the Company acquired Blue Coral, Inc., a manufacturer
and marketer of automobile appearance products, commercial and industrial
cleaning products and commercial car wash products. In early 1997, Blue Coral,
Inc. and Slick 50 were consolidated to form one operating entity called Blue
Coral, and the international operations of Blue Coral, Inc. and Slick 50 were
consolidated under the name Quaker State International. At that time, Blue
Coral's commercial car wash business was transferred to a newly formed
subsidiary, Blue Coral Systems, Inc. ("BC Systems"). In October 1996, the
Company acquired Medo, a company engaged in the design, manufacture and
marketing of air fresheners primarily for use in automobiles.

         In August 1997, Medo acquired the assets of Auto-Shade, L.L.C. and
Auto-Shade (Overseas) L.L.C. and created a separate operating division (now
operated under the name Axius/AutoShade division of Medo, hereafter "Axius").
Axius designs and markets automotive window sun protection products and
automotive accessories. In November 1997, the Company acquired Rain-X, the
marketer of the leading brand of rain repellant for automobile windows, and
incorporated its operations into Blue Coral. The Company plans to continue to
expand its Consumer Products segment through internal growth and by other
acquisitions in the automotive aftermarket that capitalize on the Company's
strong sales, distribution and customer service capabilities.

         Quaker State believes that acquisitions will be an important aspect of
its corporate strategy. However, there can be no assurance that the Company will
be successful in finding other suitable acquisition or expansion opportunities.


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         In November 1997, the Company sold its subsidiary Truck-Lite Co., Inc.
("Truck-Lite") to a third party. Truck-Lite manufactures safety lighting
equipment for trucks and automobiles, which is sold to original equipment
manufacturers and replacement parts distributors.

         The Company, a Delaware corporation formed in 1931, has its principal
executive offices at 225 E. John Carpenter Freeway, Irving, Texas 75062. Its
telephone number is (972) 868-0400. For further information about Quaker State's
business segments, see Lubricants and Lubricant Services and Consumer Products,
below.

RECENT DEVELOPMENTS

         In December 1997, the Company announced a restructuring plan to reduce
costs, streamline and consolidate its operations, and take advantage of
potential synergies from recent acquisitions of consumer car care products
businesses. The restructuring includes plans for a work force reduction and the
closure of certain manufacturing and distribution facilities owned or operated
by the Lubricants and Lubricant Services segment or the Consumer Products
segment. The restructuring plan is expected to be completed by 1999.

         In December 1997, the Company also announced that it had initiated a
major overhaul of its information systems. As part of the overhaul, the Company
has begun an enterprise-wide program to identify and resolve problems in the
Company's computer systems and embedded technologies (i.e., built-in systems)
that could be caused by the Year 2000 data processing issue. The project is
expected to be completed by 1999. The Company is expending significant resources
to ensure that its computer systems are reprogrammed, and its software and
embedded technologies are replaced or corrected, in time to deal effectively
with transactions in the Year 2000 and beyond. The Year 2000 creates risk for
the Company from unforeseen problems in its own computer systems and embedded
technologies and in those of third parties with which the Company does business.
The Company will request information from its customers and suppliers to assess
the impact, if any, on the Company due to the effects of the Year 2000 on
third-party systems. The Company does not expect that the cost to correct Year
2000 issues will be material to its business and financial position. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," for further information.

LUBRICANTS AND LUBRICANT SERVICES

         Quaker State blends, packages, markets and sells lubricants (primarily
motor oils for automobiles and trucks). The lubricants also include transmission
fluids, gear lubricants and greases for automobiles and trucks, as well as
specialty lubricants designed for other types of vehicles, such as sport utility
vehicles, marine craft, motorcycles and snowmobiles. The lubricants are sold
under the Quaker State brand name and certain private label and proprietary
brand names. Quaker State also purchases and resells automotive consumer
products such as oil and air filters and antifreeze. The administrative offices
for the Lubricants and Lubricant Services segment are located in Irving, Texas
and Salt Lake City, Utah.

         Quaker State provides collection, transportation and recycling services
for used oil, antifreeze and used oil filters in certain regions of the United
States through Specialty Environmental Services ("SES").

         During 1997, revenues from the Lubricants and Lubricant Services
segment comprised approximately 76% of the Company's total sales and operating
revenues from continuing operations. See "Marketing by the Lubricants and
Lubricant Services and Consumer Products Segments" below for further
information. Sales to one customer by the Lubricants and Lubricant Services
segment were material to the segment.

         Manufacturing. Motor oils and lubricants are made by blending additives
with lubricant stocks refined from crude oil at five blending and packaging
plants operated by Quaker State and its subsidiaries in Vicksburg, Mississippi;
Newell, West Virginia; Shreveport, Louisiana; San Antonio, Texas; and Carson,
California. The Newell, West Virginia location is leased and the other locations
are owned. Quaker State's motor oils are made from lubricant stocks purchased
from a number of refiners. During 1997, 14% of the lubricant stocks used by
Quaker State were produced at the former Congo refinery in Newell, West Virginia
(which was sold to a third party in July, 1997), 58% of the Company's lubricant
stocks were purchased from one supplier and approximately 


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90% of the Company's additives were purchased from one supplier. The Company
believes that alternative sources of supply for lubricant stocks and additives
are readily available.

         Quaker State sells its branded motor oils in packages ranging in size
from four ounces to 55 gallons and sells a significant amount in bulk. Packaged
motor oils are sold primarily in one quart plastic bottles, which, in the United
States, are made by others to Quaker State's specifications. Quaker State makes
certain other containers itself and purchases the remainder from a number of
suppliers. Greases and some specialty lubricants manufactured by Quaker State
are privately labeled and sold by third parties using their brands.

         Domestic Sales. Quaker State sells motor oils and other lubricants
directly to retailers and through independent distributors. Quaker State
distributes its products from 31 warehouse and distribution facilities located
around the United States, of which 13 are owned and 18 are leased.

         Direct sales are made to national and regional chain stores, to fast
lube centers and to resellers and end users primarily in large metropolitan
areas. The resellers include wholesalers and retailers, and the end users
include industrial and commercial accounts and fleet customers.

         As of December 31, 1997, there were 79 independent distributors selling
Quaker State products in all 50 states. 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.

         The leading products sold by this segment, other than lubricants, are
oil, air and fuel filters. The Company also sells antifreeze, brake and power
steering fluids, fuel additives, spray lubricants and cleaners and automotive
undercoatings. These automotive consumer products are sold to the same entities
to which lubricant sales are made.

         Foreign and Export Sales. Quaker State's Canadian subsidiary, Quaker
State, Inc. ("QSI"), has been a producer and marketer of private label and
Quaker State branded motor oils in Canada for many years. Sales in Canada are
made primarily through independent distributors and fast lube centers under
contract with QSI, but also directly to customers. Quaker State believes that
its motor oil is the largest selling brand in Canada.

         Quaker State sells branded motor oils in Japan through a Quaker State
subsidiary and in Mexico through a licensee. Quaker State believes that Quaker
State motor oil is the largest selling independent brand in Mexico.

         Quaker State sells its motor oils in 66 foreign countries through
independent distributors. The largest amount of export sales is made to the
Dominican Republic. During 1997, Quaker State also made a significant part of
its export sales to Guatemala, Puerto Rico, Korea, Ecuador, Poland, Sweden and
Taiwan.

         During the three years ended December 31, 1997, total revenues from
foreign operations in the Lubricants and Lubricant Services segment, including
export sales, were: 1997 - $71,460,000; 1996 - $77,368,000; and 1995 -
$78,260,000. The largest component of these revenues comes from Canada.

         Fast Lube Centers. Quaker State's Q Lube subsidiary is one of the
largest operators and franchisers of fast lube centers in the United States.
Fast lube centers owned by Q Lube and its franchisees are operated under the
names Q Lube, McQuik's Oilube or Quaker State Minit-Lube. Fast lube centers are
service outlets providing quick and inexpensive oil changes, lubrication and
related services and products for automobiles. Q Lube recently began offering
similar services for boats at its Q Lube Marine Centers. Q Lube provides oil
changes and lubrication services to consumer vehicles and related products and
services such as air filters, breathers, PCVs, wipers, headlights, engine
treatments, coolant system drain and refill services, and automatic transmission
service. Q Lube is expanding its service offerings in certain locations to
include coolant flushing, vacuuming, air-conditioning system recharging and
other services.

         Q Lube is one of Quaker State's largest outlets for Quaker State motor
oils. In 1991, Q Lube began to convert its company-operated fast lube centers to
the name Q Lube, featuring heightened Quaker State 



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identification. At the end of 1997, the conversion to the Q Lube name at all
Company-operated stores was substantially complete. At December 31, 1997 there
were 573 Q Lube locations in the United States and Canada. In the United States,
143 locations are owned, 246 locations are leased and operated by Q Lube, and
152 are licensed franchise locations. Q Lube also owns one marine lube center
and three mobile oil change centers in the United States. Q Lube centers are
located in 28 states primarily in the Western, Midwestern and Southern United
States. Q Lube also owns an interest in 17 outlets and has 11 franchise
locations in Canada.

CONSUMER PRODUCTS

         During 1996, the Company formed a new Consumer Products segment, which
was comprised of Slick 50, Blue Coral, Inc. and Medo. During 1997, Rain-X and
Axius became part of the segment.

         The Consumer Products segment accounted for 24% of the Company's total
consolidated sales and operating revenues in 1997. Sales to one customer by the
Consumer Products segment were material to that segment.

         Manufacturing. Blue Coral purchases motor oils, additives and
chemicals, and either manufactures finished engine and fuel treatments itself in
Cleveland, Ohio or contracts with an outside packager to produce finished
products in accordance with Blue Coral's specifications. Blue Coral purchases
chemicals, waxes and cleaners from a variety of suppliers, and blends and
packages finished automotive protectants at the Cleveland facility. Blue Coral
owns its manufacturing and headquarters facilities, and leases its distribution
facilities, in Cleveland.

         BC Systems arranges for the bulk manufacturing of car wash soaps, waxes
and polishes which it sells to commercial users.

         Medo purchases paperboard, containers and fragrances from a variety of
suppliers, and manufactures and distributes finished air fresheners from a
leased Baltimore, Maryland facility. Axius designs and markets automotive window
sun protection products and automotive accessories. Axius purchases its
automotive window sun protection and other accessory products from a variety of
suppliers and distributes sunshades and other automotive accessories from a
leased Moorpark, California facility.

         Quaker State International uses third party contract manufacturers in
the United Kingdom to produce products such as automotive appearance products
and engine, fuel and radiator additives and leases its United Kingdom
headquarters facilities.

         Domestic Sales. Products are generally sold to major national
retailers, mass merchandisers, and automotive chains. Sales by the Consumer
Products segment to the major national retailers are in most cases made directly
and sales to other accounts are made through independent distributors. BC
Systems sells car appearance products to commercial users such as car washes,
primarily through its sales staff.

         Foreign and Export Sales. Products are sold in approximately 75 foreign
countries, through subsidiaries of the Company and independent distributors.
Quaker State International sells Blue Coral automotive appearance products and
Slick 50 engine treatment and other products in 40 foreign countries. Quaker
State International also leases warehouse space in the United Kingdom and
Singapore. Quaker State International's principal foreign markets are the United
Kingdom, Spain, France, Germany, Australia and Asia. Quaker State International
has exclusive distributors in France, Germany, Japan, Poland and Turkey. Medo
distributes all its branded products internationally in 75 countries through
independent third party distributors. Axius purchases its automotive window sun
protection and other accessory products from a variety of foreign suppliers and
operates a leased facility in Hong Kong that supports sales and distribution of
its products in 34 countries.

         During the three years ended December 31, 1997, total revenues from
foreign operations in the Consumer Products segment, including export sales,
were: 1997 - $46,224,000; 1996 - $12,543,000; and 1995 - $3,298,000. The
revenues from 1995 include Slick 50 revenues from the date of acquisition and
for 1996 include Blue Coral, 




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Inc. and Medo from the dates of acquisition. The revenues for 1997 include Axius
and Rain-X from the respective dates of acquisition. The largest component of
these revenues comes from sales in the United Kingdom.

MARKETING BY THE LUBRICANTS AND LUBRICANT SERVICES AND CONSUMER PRODUCTS 
SEGMENTS

         Quaker State's Lubricants and Lubricant Services and Consumer Products
segments aggressively market their products. In particular, these segments rely
heavily on media advertising to project the quality image of their products and
to maintain their respective competitive positions.

         In addition to media advertising, marketing costs 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.

         Quaker State has U.S. and foreign trademark registrations or
applications in effect covering the use of its trademarks and service marks
Quaker State(R), Q Lube(R) and other product names, logos and designs utilized
in connection with the sale of products in the Lubricants and Lubricant Services
segment. Quaker State also has U.S. and foreign trademark registrations,
applications or licenses in effect covering the use of its trademarks and
service marks Slick 50(R), Blue Coral(R), Black Magic(TM), Westley's(R),
Bleche-Wite(R), T-Plus(R), Rain-X(R), Medo(R), leaf design(R), Ultra Norsk(R),
and Ozium(R) by the Consumer Products segment. Quaker State believes that these
registrations and applications are important to the success of its marketing
efforts and have been effective in preventing use of the trademarks by others.
The trademark registrations expire at various dates, but in each case may be
renewed.

         The Company has various patents that expire from time to time and
applies for patents on new products on an ongoing basis. Although the Company
believes that, in the aggregate, its patents constitute an important asset, it
does not believe its business is materially dependent upon any single patent or
any group of related patents.

         Medo, Axius, BC Systems and Blue Coral use a number of patents and
trademarks owned by third parties pursuant to license agreements that expire on
various dates. These agreements are material to the business of the Consumer
Products segment and the segment generally negotiates extensions as the
agreements expire.

         In 1997, sales to Wal*Mart Stores, Inc. and its affiliated companies
exceeded 10% of Quaker State's consolidated revenues.

DISCONTINUED TRUCK-LITE OPERATIONS

         In November 1997, the Company completed the sale of all of the capital
stock of Quaker State's Truck-Lite subsidiary to a subsidiary of Penske Capital
Partners L.L.C. Truck-Lite manufactures vehicular safety lighting equipment sold
to original equipment manufacturers and replacement parts distributors. For
further information with respect to the discontinued Truck-Lite operations, see
Note 5 to the "Notes to Consolidated Financial Statements."

FINANCIAL INFORMATION BY BUSINESS SEGMENT

         Financial information (capital expenditures, identifiable assets,
depreciation, depletion and amortization) for Quaker State's operations by
business segment is set forth in the segment information which appears on pages
37 and 38 hereof as well as under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations." This financial
information is incorporated in this item by reference.




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COMPETITION

         Lubricants and Lubricant Services. The motor oil business is highly
competitive. The major competitors of Quaker State and their principal brands of
motor oil are Pennzoil Company (Pennzoil(R)), Ashland Inc. (Valvoline(R)),
Texaco, Inc. (Havoline(R)), Burmah Castrol PLC (Castrol(R)), and Mobil Oil
Corporation (Mobil1(R)). Quaker State also competes with a number of independent
blending and packaging companies. The principal methods of competition in the
motor oil business are product quality, price, distribution capability,
advertising and sales promotion. Many of the competitors, particularly the major
integrated oil companies, have substantially greater finished motor oil
capacities and financial resources than Quaker State.

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

         In the waste oil collection, transportation, management and recycling
business, SES competes with Safety-Kleen Corp.; International Petroleum Corp.;
First Recovery, Inc., a division of Ashland, Inc.; and a number of regional
waste oil haulers. The principal methods of competition are price, location,
quality, environmental indemnification and reliability of service.

         Outside the United States, Quaker State competes with foreign
manufacturers (including some that are government-owned) and with its major U.S.
competitors. Internationally, the primary methods of competition are price,
service, sales support programs, brand acceptance, and marketing programs.

         Consumer Products. All of the product lines sold by the Consumer
Products segment are in highly competitive businesses. The major competitors of
Slick 50 products and their principal brands of engine additives and functional
fluids are Ashland Inc. (Valvoline TM8(TM) engine treatment); Howe Laboratories,
Inc. (Duralube(R) brand engine treatment and fuel system cleaner); Turtle Wax,
Inc. (Lubricator 2001(TM) engine treatment and Sure Fire(TM) fuel treatment);
Prestone Products Corporation, a subsidiary of Allied Signal Automotive Products
Group, Inc. (Prestone(R) brand functional fluids); Pennzoil Company (Snap(R)
products and Gumout(R) fuel system cleaner); Octane Boost Corporation (104+
Octane Boost(R) fuel system cleaner); Chevron Corporation (Pro-Gard(R) fuel
system cleaner); and Burmah Castrol PLC (Castrol(R) fuel treatment).

         The major competitors of the Blue Coral and/or Rain-X brands are The
Clorox Company (Armor All(R) brand products), Turtle Wax, Inc. (Turtle Wax(R)
products), and First Brands Corporation (STP(R) Son of a Gun!(R) cleaners,
Simoniz(R) waxes, and STP(R) Vision Blade(R) automotive window protectants). BC
Systems competes with the same companies as Blue Coral and with Zep
Manufacturing Company (Zep(R) brand products).

         The major competitor of Medo is Car Freshner Corporation (Tree
design(R)), and Medo competes with many other smaller companies, including
California Scents Corporation (California Scents(R), Cool Gel(R), and
Spritzers(R) brands), and New Ideas International, Inc. (New Ideas
International(R), Filtermate(R), and Scent Clip(R)). The major competitors of
Axius are Courtaulds Performance Films, Inc. (Gila Sunshine(R) sun protection
and film); Superior Industries International, Inc. (Sport Grip(R) steering wheel
covers); and H&L Products, Inc. (Samsonite(TM) automotive organizers). Axius
also competes with many other smaller companies.

         The principal methods of competition for the Consumer Products segment
are price, quality, delivery, warranty terms, technical innovation, advertising
and sales promotion.

         Quaker State International competes through price, product performance,
co-operative advertising support and services. The primary international
competitors of the Blue Coral and Slick 50 product lines are Wynn's
International, Inc., Holt Lloyd Group Limited, and the main United States
competitors.



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RESEARCH AND DEVELOPMENT

         Research and development activities in the Lubricants and Lubricant
Services segment are directed toward continued improvement of Quaker State motor
oils, other lubricants and engine additives and the development of new or
improved automotive consumer products. Research and development personnel
develop quality control programs to assure the continuous production of high
quality products and provide extensive technical services to the manufacturing,
packaging, sales and marketing operations as well as to customers and consumers.
Research and development activities in the Consumer Products segment primarily
involve the development of new and innovative products. The amounts spent on
research and development by Quaker State during the three years ended December
31, 1997 were not material.

ENVIRONMENTAL REGULATIONS AND CAPITAL EXPENDITURES

         Quaker State and certain of its subsidiaries as well as its competitors
are subject to federal, state and local air, water, land use and waste
management laws and regulations. In particular, these laws and regulations
affect all manufacturing operations, product distribution locations, the
collection of used oil and other automotive fluids and fast lube operations.
These laws also require Quaker State to remediate the effects on the environment
that some of Quaker State's past operations, including discontinued operations,
have had. Expenditures related to past and discontinued operations are accrued
when they are probable and reasonably estimable. Some expenditures relate to
environmental indemnities for discontinued or sold operations, including several
refineries formerly operated by the Company, and Quaker State anticipates that
it will continue to incur expenses related to such indemnities.

         Quaker State and certain of its subsidiaries have received notices from
the United States Environmental Protection Agency (the "USEPA") and similar
state agencies that they may be a potentially responsible party ("PRP") under
federal and/or state Superfund laws for response and cleanup costs at various
locations. Quaker State is one of many PRPs notified at the locations and in
most instances is a de minimis PRP. Quaker State's total potential liability at
these sites is not anticipated to be material.

         Capital expenditures for environmental and pollution control facilities
during 1997 were $306,237 and capital expenditures for pollution control
facilities during 1998 are expected to amount to approximately $445,000.

         The capital expenditures for environmental control facilities in 1997
were primarily made for upgrading and replacing underground storage tanks in Q
Lube's operations, and upgrading bulk oil storage facilities at other Company
locations. Anticipated expenditures in 1998 for environmental and pollution
control facilities include continued upgrading and replacement of underground
storage tanks in the Q Lube operations, and upgrading of bulk oil storage
facilities.

         Congo Refinery Consent Agreement. On February 10, 1997, Quaker State
entered into a Consent Decree with the United States which requires Quaker State
to upgrade the wastewater treatment plant and certain air pollution control
equipment at its former Congo Refinery (See Note 12 to the "Notes to
Consolidated Financial Statements"). In addition, Quaker State is obligated to
perform supplemental environmental projects ("SEPs") in partial satisfaction of
a cash penalty. The work required by the Consent Decree is expected to be
completed in 1998. Quaker State spent approximately $12.2 million in 1997 and
anticipates spending approximately $6.5 million in 1998 to satisfy its
obligations under this Consent Decree. All costs to complete these projects are
provided for in the Company's environmental reserves.

         For further information with respect to environmental expenditures, see
the information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Notes 1, 11 and 12 to the
"Notes to Consolidated Financial Statements."




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EMPLOYEES

         As of December 31, 1997,  Quaker State and its subsidiaries had 5,254 
employees, of whom 4,830 were full-time employees and 424 were temporary and
part-time employees.

ITEM 2.  PROPERTIES.

         Information with respect to the location and general character of the
materially important principal properties of Quaker State and its subsidiaries,
identified by the business segments utilizing such properties, is included in
Item 1 of this annual report and is incorporated herein by reference.

ITEM 3.  LEGAL PROCEEDINGS.

         Petrochem/Ekotek Superfund Site. In December 1988, Q Lube received a
notice from the USEPA pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), identifying Q Lube as a
PRP for response and clean-up costs with respect to a waste disposal site known
as the Petrochem/Ekotek Superfund Site in Salt Lake City, Utah. In August 1989,
Q Lube and 34 other respondents entered into a Consent Order under which they
agreed to fund the costs to clean up the surface of the contaminated property.
The respondents have advanced $10,000,000 toward these costs, of which Q Lube's
share to date has amounted to approximately $600,000. A comprehensive remedial
investigation and feasibility study of this site has been completed, and the
USEPA has issued its record of decision ("ROD") containing the plan for further
remediation. On January 31, 1997, the PRP group of which Q Lube is a member
received a special notice letter from the USEPA offering them the opportunity to
negotiate a settlement to perform remedial design/remedial action ("RD/RA")
activities to implement the ROD. During December 1997, the USEPA and the PRP
group reached an agreement in principle to perform RD/RA work that is subject to
USEPA and Department of Justice approval and public comment.

         For further information with respect to CERCLA matters, see the
information under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Note 12 to the Notes to Consolidated
Financial Statements.

         Slick 50. The Federal Trade Commission ("FTC") filed an administrative
proceeding on July 16, 1996 seeking an order that the Company's subsidiary,
Slick 50, and several Slick 50 subsidiaries cease and desist from making certain
product claims concerning Slick 50(R) engine treatment and refrain from making
other product claims without adequate substantiation. On December 16, 1997, the
FTC announced that it had approved and entered a consent decree settling the
administrative proceeding. The consent decree includes restrictions on the
future advertising of Slick 50(R) products and an agreement by the FTC not to
seek consumer redress provided Slick 50 makes available by January 1999 at least
$10 million in consumer redress in the form of coupons, refunds or free products
for former purchasers of Slick 50 products. The consent decree specifically
provides that it does not constitute an admission of wrongdoing by Slick 50. The
Company does not anticipate that the consent decree will have a significant
effect on its results of operations or liquidity as a result of the restrictions
imposed on the advertising of Slick 50 products by the consent decree. However,
there can be no assurance that the consent decree will not have an adverse
effect on the product sales and market position of Slick 50 products.

         The respondents in the FTC proceeding and the Company in some instances
were later named as defendants in a series of lawsuits filed on behalf of
purported classes of purchasers of Slick 50 engine treatment alleging that
false, misleading, deceptive and /or unsubstantiated advertising claims were
made for Slick 50 engine treatment. The representative plaintiffs in such
actions, the date of filing and the court in which each suit is pending are,
respectively:

         a)       Torres, July 18, 1996, the District Court for Harris County,
                  Texas. On October 2, 1997 the District Court for Harris
                  County, Texas entered an order-transferring venue in this case
                  to the 68th Judicial District Court of Dallas County, Texas;



                                       8
<PAGE>   10


         b)       Lombardi, July 19, 1996, U.S. District Court for the Eastern
                  District of New York. On September 28, 1997, the U.S. District
                  Court for the Eastern District of New York entered an order
                  remanding this case to the Supreme Court of New York;
         c)       Weiss, July 23, 1996, U.S. District Court for the Southern
                  District of New York. On June 23, 1997, the United States
                  District Court for the Southern District of New York entered
                  an order remanding this case to the Supreme Court of New York;
         d)       Kerksieck, October 11, 1996, the Superior Court for San 
                  Francisco County, California;
         e)       Hammack, December 19, 1996, the Circuit Court of Franklin 
                  County, Alabama;
         f)       Mayo, February 5, 1997, Circuit Court of Cook County,
                  Illinois;
         g)       Garza, March 14, 1997, District Court of Hidalgo County,
                  Texas. The District Court of Hidalgo County, Texas on May 25,
                  1997 entered an order certifying this case as a class action,
                  with a class consisting of all purchasers of Slick 50 engine
                  treatment; and
         h)       Cianciulli, June 3, 1997, Supreme Court for Nassau County, 
                  New York.

The complaints allege claims in various combinations for fraud, deceit,
negligent misrepresentation, and violation of certain state consumer protection
laws and seek compensatory and punitive damages, imposition of a constructive
trust, restitution and injunctive relief, attorneys' fees, court costs and
interest on behalf of the purported classes. The Company has reached a tentative
settlement with counsel in all of the above actions except the Mayo action,
under which the Company would make available to class members $20 million in
cash rebates usable against future purchases of a variety of the products or
services of the Company and its subsidiaries and to pay attorneys' fees to
counsel for the class as approved by the court but not in any event to exceed
$3.25 million. The Company will also pay all costs of notice and settlement
administration. The tentative settlement will be presented for approval to the
District Court for Dallas County, Texas. The tentative settlement of the class
action suits would fulfill the consumer redress requirements under the FTC
consent decree.

         On July 31, 1997, an action was filed in the United States District
Court for the District of New Jersey by Conte Bros. Automotive, Inc. and Hi/Tor
Automotive, individually and on behalf of all others similarly situated who
offered for sale or sold engine additives or treatments which compete with Slick
50(R) engine treatments. The action names as defendants Quaker State-Slick 50,
Inc., its successor and several of its subsidiaries and affiliates. The
complaint alleges that the defendants falsely and misleadingly advertised and
marketed Slick 50(R) engine treatments in violation of the New Jersey Consumer
Fraud Act and the federal Lanham Act and seeks restitution, damages, and
injunctive relief. On January 28, 1998, the court entered an order dismissing
this action in its entirety, which order has been appealed by the plaintiffs to
the United States Court of Appeals for the Third Circuit.

         Dura Lube. On July 21, 1997, Dura Lube Corporation and certain of its
affiliated companies filed a suit in the United States District Court for the
District of Delaware. The complaint names the Company and its Slick 50
subsidiary as defendants and asserts claims under the Sherman Act and the
Clayton Act, for tortious interference with business relations and for civil
conspiracy. Plaintiff alleges that the Company has attempted and conspired to
monopolize the market for engine treatment by, among other things, entering into
exclusive dealing arrangements with major automotive parts retailers around the
country. Plaintiff seeks treble damages, punitive damages, attorneys' fees and
costs as well as injunctive relief. The Company intends to contest the action
vigorously. There can be no assurance, however, that the plaintiffs will not be
awarded injunctive relief and/or damages, some or all of which may be payable by
the Company.

         Blue Coral. On May 14, 1997, a purported class action lawsuit was filed
in the United States District Court for the Northern District of Illinois by
John A. Garner and Steven G. Grant on their own behalf and on behalf of a class
of persons who purchased wax, polish or protectant products sold by a number of
defendants. The action names as defendants a number of car wax manufacturers
including the Company's Blue Coral subsidiary, and certain of its present and
former officers. The complaint alleges that the defendants falsely advertised
and marketed such products and seeks treble damages, attorneys' fees and costs
for the class for alleged violations of the federal Racketeer Influenced and
Corrupt Organizations Act and compensatory damages for alleged violations of the
Ohio Consumer Sales Practices Act as well as for breach of express warranty. The
Company has filed a 



                                       9
<PAGE>   11

motion to dismiss this action and intends to contest the action vigorously.
There can be no assurance, however, that the plaintiffs will not be awarded
damages, some or all of which may be payable by the Company.

         On October 1, 1997, Hot Wax, Inc. filed a suit in the United States
District Court for the Northern District of Illinois against Blue Coral.
Plaintiff purports to be a Wisconsin corporation that manufactures a wax product
called "Hot Wax" designed for use in automated car washes. The case is brought
under the federal Lanham Act, and the complaint alleges that Blue Coral falsely
represented the character of certain products it marketed, advertised and sold
to consumers and retailers. Plaintiff seeks an injunction against Blue Coral and
also seeks to recover damages, attorneys' fees and costs. The Company intends to
contest the action vigorously. There can be no assurance, however, that the
plaintiff will not be awarded injunctive relief and/or damages, some or all of
which may be payable by the Company.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of 1997.

EXECUTIVE OFFICERS OF QUAKER STATE

         The following table lists the names, periods of service with the
Company, ages and positions held with Quaker State of all executive officers of
Quaker State as of March 17, 1998. There is no family relationship between any
executive officer or Director of Quaker State and any other Director or
executive officer of Quaker State. The executive officers serve at the
discretion of the Board of Directors and are elected annually by the Board of
Directors immediately after each Annual Meeting of Stockholders.


<TABLE>
<CAPTION>

                        With Company
         Name               Since                 Position
         ----           ------------              --------
<S>                         <C>        <C>               
John D. Barr                1995       Director since October 1995; President 
                                       and Chief Operating Officer since July
                                       1995;  Senior  Vice President of Ashland 
                                       Inc. and President of its subsidiary The 
                                       Valvoline Company (manufacturer of motor
                                       oils and lubricants) from March 1987 to 
                                       July 1995; Director of HomeBase, Inc.; 
                                       age 50.


Herbert M. Baum             1993       Chairman and Chief Executive Officer 
                                       since June 1993;  President of Quaker 
                                       State from  September 1994 to July 1995; 
                                       Executive Vice President of Campbell Soup
                                       Company  (manufacturer of food products) 
                                       from November 1989 to June 1993, and 
                                       President, Campbell North and South 
                                       America from January 1992 to June 1993; 
                                       Director of Dial Corporation, Meredith 
                                       Corporation, Midas, Inc. and Whitman 
                                       Corporation; age 61.
Charles F. Bechtel          1993       Vice President of Quaker State and 
                                       President, Quaker State Lubricants since 
                                       November 1996; Senior Vice President, 
                                       Sales, Lubricants and Lubricant Services 
                                       Division (formerly Motor Oil Division) 
                                       from October 1995 to October 1996; 
                                       Executive Vice President, Sales and 
                                       Marketing, Motor Oil Division from 
                                       November 1994 to October 1995; Executive 
                                       Vice President, Sales, Motor Oil Division
                                       from November 1993 to November 1994; 
                                       President, Bechtel and Associates (sales 
                                       consulting firm), from October 1992 to 
                                       November 1993;  and Executive Vice 
                                       President, Sales of 21st Century Foods, 
                                       Inc. from September 1992 to November 
                                       1993; age 53.



</TABLE>


                                       10
<PAGE>   12



Conrad A. Conrad            1974       Director since January 1988; Vice 
                                       Chairman of Quaker State since September 
                                       1994; Chief Financial Officer of Quaker
                                       State since July 1995; Chief 
                                       Administrative Officer of Quaker State 
                                       from September 1994 to July 1995; 
                                       President and Chief Operating Officer of 
                                       Quaker State from February 1990 to 
                                       September 1994; age 52.
Paul E. Konney              1994       Senior Vice President, General Counsel
                                       and Secretary since July 1996; Vice 
                                       President and General Counsel from 
                                       September 1994 to July 1996 and Secretary
                                       since January 1995; private practice of 
                                       law from July 1993 to September 1994; 
                                       Senior Vice President-General Counsel and
                                       Secretary of Tambrands Inc. from April 
                                       1989 to July 1993; age 53.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Quaker State capital stock is listed on the New York Stock Exchange and
the Pacific Exchange and trades under the trading symbol KSF. The number of
shareholders of record as of March 17, 1998 was 8,420. Stock price ranges and
dividends declared and paid were as follows:

<TABLE>
<CAPTION>


                          --------------------------------------------------------------------------------------------------
                                                                    Quarter Ended
                          --------------------------------------------------------------------------------------------------
                                 March 31                 June 30               September 30              December 31
                          --------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
1997
<S>                              <C>                      <C>                   <C>                
   High                             16                     16 1/4                  17 3/8                   17 1/8
   Low                            13 3/8                   14 3/8                 14 15/16                  13 5/16
   Dividend                         .10                     .10                      .10                      .10
----------------------------------------------------------------------------------------------------------------------------
1996
   High                           14 5/8                   16 1/8                  17 1/2                   18 1/4
   Low                            12 3/4                   13 7/8                    14                       14
   Dividend                         .10                     .10                      .10                      .10
----------------------------------------------------------------------------------------------------------------------------
1995
   High                           15 1/8                   15 1/8                  16 1/2                   14 3/4
   Low                            13 3/8                   13 1/2                  14 5/8                   12 1/8
   Dividend                         .10                     .10                      .10                      .10
----------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       11
<PAGE>   13



RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is information
regarding all equity securities of Quaker State sold by Quaker State within the
past three years which were not registered under the Securities Act of 1933, as
amended (the "Act"). All references in the chart to "Quaker State Shares" mean
Quaker State Capital Stock, par value $1.00 per share.

<TABLE>
<CAPTION>


----------------------------------------------------------------------------------------------------------------------------
DATE OF         NUMBER OF  QUAKER  
SALE            STATE SHARES              DESCRIPTION OF TRANSACTION INCLUDING PARTIES AND CONSIDERATION
----------------------------------------------------------------------------------------------------------------------------

<S>             <C>                       <C>                                                                            
7/11/95         1,260,403                 Quaker State Shares and other  Quaker State equity  rights were  exchanged
                                          in connection  with the  acquisition  of shares of Slick 50 from the Slick
                                          50, Inc. I  stockholders.  The total value of the Quaker State Shares upon
                                          issuance  was  $19.5  million.  The  Quaker  State  equity  rights  had no
                                          ascertainable  value  upon  issuance.   The  exemption  from  registration
                                          relied upon was  Section  4(2) or  Regulation  D, Rule 506 under the Act.*
                                          In accordance with such exemption,  Quaker State  reasonably  believed all
                                          of the Slick 50,  Inc. I  stockholders  were  "accredited  investors,"  as
                                          defined  in  Regulation  D,  Rule  501(a),  of  the  Act  or  constituted,
                                          collectively, no more than 35 non-accredited investors.
----------------------------------------------------------------------------------------------------------------------------

6/30/96         2,956,328                 Quaker State Shares were exchanged in connection  with the  acquisition of
                                          shares of Blue Coral from the Blue Coral stockholders.  The total value of
                                          the Quaker State Shares upon  issuance was $43.5  million.  The  exemption
                                          from  registration  relied upon was Section 4(2) or Regulation D, Rule 506
                                          under  the  Act.*  In  accordance  with  such   exemption,   Quaker  State
                                          reasonably   believed  that  all  of  the  Blue  Coral  stockholders  were
                                          "accredited  investors,"  as defined in Regulation D, Rule 501(a),  of the
                                          Act.
----------------------------------------------------------------------------------------------------------------------------

12/10/96        354,374                   Quaker State Shares were exchanged in connection  with the  relinquishment
                                          of certain  Quaker State equity rights held by the former Slick 50, Inc. I
                                          stockholders.  The total value of the Quaker  State  Shares upon  issuance
                                          was  $6.0  million.  The  exemption  from  registration  relied  upon  was
                                          Section  3(a)(9)  of the  Act.* In  accordance  with such  exemption,  the
                                          former Slick 50, Inc. I  stockholders  were existing  security  holders of
                                          Quaker  State who  exchanged  securities  of Quaker State for Quaker State
                                          Shares and did not pay any additional  consideration for such Quaker State
                                          Shares.  No commission or other  remuneration  was paid or given  directly
                                          or indirectly for soliciting  such exchange.
----------------------------------------------------------------------------------------------------------------------------

10/14/97        1,104,203                 Quaker State Shares were exchanged in connection  with the  acquisition of
                                          shares of Rain-X  from its  shareholders.  The total  value of the  Quaker
                                          State  Shares  upon  issuance  was  $16.8  million.   The  exemption  from
                                          registration  relied upon was Section  4(2) or  Regulation  D, Rule 506 of
                                          the Act.  In  accordance  with such  exemption,  Quaker  State  reasonably
                                          believed that all of the Rain-X shareholders were "accredited  investors,"
                                          as defined in Regulation D, Rule 501(a), of the Act.
----------------------------------------------------------------------------------------------------------------------------

</TABLE>


* On December 23, 1996 a Form S-3 registration statement was declared effective
which registered 2,024,989 shares of restricted stock for resale through April
22, 1997. These shares included all shares held by the former Slick 50, Inc. I
shareholders and some of the shares held by certain former shareholders of Blue
Coral. On July 9, 1997, a post-effective amendment to Form S-3 was filed to
deregister 1,332,702 shares that were not sold by April 22, 1997.



                                       12
<PAGE>   14




ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>


Years ended December 31
(in thousands, except per share
   and statistical data)                                      1997            1996           1995            1994           1993
------------------------------------------------------   ------------    ------------   ------------    ------------   ------------

<S>                                                      <C>             <C>            <C>             <C>            <C>         
Sales and operating revenues                             $  1,193,971    $  1,113,504   $    945,258    $    632,996   $    526,309
Income (loss) from continuing
     operations before extraordinary item (a)                  (7,389)          9,651         (4,223)          2,345          3,510
Income from discontinued operations (b)                        30,477           4,072         20,462          16,421         10,192
Income before extraordinary item                               23,088          13,723         16,239          18,766         13,702
Extraordinary item, net of taxes (c)                               --              --         (4,139)             --             --
Net income                                               $     23,088    $     13,723   $     12,100    $     18,766   $     13,702
------------------------------------------------------   ------------    ------------   ------------    ------------   ------------
Per Share (basic and diluted):
Income (loss) from continuing
     operations before extraordinary item                $       (.21)   $        .28   $       (.13)   $        .08   $        .12
Income from discontinued operations                               .87             .12            .64             .58            .38
Extraordinary item, net of taxes                                   --              --           (.13)             --             --
Net income per share                                     $        .66    $        .40   $        .38    $        .66   $        .50
------------------------------------------------------   ------------    ------------   ------------    ------------   ------------
Dividends:
   Cash per share                                        $        .40    $        .40   $        .40    $        .40   $        .60
   Amount                                                      14,117          13,762         12,867          11,358         16,310
Capital expenditures                                           71,185          60,123         45,130          36,444         29,760
As of December 31:
Working capital (d)                                           105,378          20,376        132,073         101,439         35,403
Total assets                                                1,169,715       1,029,009        707,651         614,991        776,007
Total debt and capital lease obligations                      455,695         407,408        125,758          72,667         50,163
Stockholders' equity                                          331,901         298,669        272,155         251,850        188,750
Book value per share                                             9.15            8.60           8.29            8.00           6.93
------------------------------------------------------   ------------    ------------   ------------    ------------   ------------
Number of stockholders of record                                8,571           9,193          9,776          11,792         12,147
Weighted average capital and equivalent
   shares outstanding - basic                              35,213,000      34,352,000     32,119,000      28,368,000     27,203,000
------------------------------------------------------   ------------    ------------   ------------    ------------   ------------


</TABLE>

a.   In 1997, the Company recorded pretax charges of $48.4 million related to
     restructuring, systems integration and other special charges. In 1996, the
     Company recorded pretax charges of $19.5 million related primarily to asset
     write-downs and restructuring charges and a $5 million pretax gain upon the
     settlement of a long-term receivable. In 1995, the Company recorded $22.6
     million of pretax restructuring charges and a pretax settlement of $4.4
     million for a class action lawsuit. See Note 3 to Consolidated Financial
     Statements.
b.   The Company sold its truck lighting business in 1997, its exploration and
     production business in 1995, and its insurance business in 1994. These
     businesses have been reported as discontinued operations. See Note 5 to
     Consolidated Financial Statements.
c.   Premium on early extinguishment of $50 million, 8.73% Senior Notes. See 
     Note 10 to Consolidated Financial Statements. 
d.   Working capital as of December 31, 1996 has been reduced by $142 million 
     of debt which the company refinanced in 1997. 
e.   Certain prior year information has been reclassified to conform to 
     current year presentation.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules, regulations and releases. The Company cautions
investors that any such forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements. The following are some of the
factors that 



                                       13
<PAGE>   15

could cause actual results to differ materially from estimates
contained in the Company's forward-looking statements:

      o       The pattern of the Company's sales, including variations in sales
              volume within periods and sales to significant customers, which
              makes forward-looking statements about sales and earnings
              difficult and may result in the variance of actual results from
              those contained in statements made at any time prior to any given
              period's close;
      o       The Company's ability to develop, produce and market new and
              innovative products and services on which future operating results
              depend. There are a number of risks inherent in these activities,
              including technological changes, manufacturing facility capacity,
              availability of raw materials and critical manufacturing
              equipment, changing customer needs and competitive reactions;
      o       Vigorous competition within the Company's product markets,
              including pricing and promotional, advertising or other activities
              in order to preserve or gain market share in any segment, the
              timing and intensity of which cannot be foreseen;
      o       Global or regional economic factors and potential changes in laws
              and regulations affecting the Company's various businesses in over
              75 countries around the world, including changes in product mix,
              currency exchange rate fluctuations, changes in monetary policy
              and tariffs, and federal, state and international laws regulating
              the environment, which could impact the Company's financial
              condition and results of operations;
      o       The market price of the Company's Capital Stock or other
              securities, which could be subject to fluctuation in response to
              quarterly variations in operating results, changes in analysts'
              earnings estimates, market conditions, press releases issued by
              the Company, and general economic conditions and other factors
              external to the Company, thereby affecting the availability of
              capital to the Company;
      o       The impact of special charges resulting from ongoing evaluation
              of business strategies, asset valuations and organizational and
              corporate structures, and the implementation of restructuring
              plans, including new computer and logistics systems;
      o       The costs, effects and liabilities associated with legal,
              regulatory or administrative proceedings and any required remedial
              action, anticipated or unanticipated;
      o       Real estate costs and the Company's ability to negotiate
              effectively based on competitive factors, which could cause the
              number of new Q Lube facilities to differ from the number
              projected and could affect expenses in other segments; and
      o       Significant competitive pricing pressures and intense competition
              for qualified, skilled employees, which could affect
              profitability, productivity and/or expenses.

         The consolidated financial statements and related notes (pages 21 to 
39) should be read as an integral part of this review.

ACQUISITIONS AND DIVESTITURES

         In 1997, the Company acquired substantially all the assets and certain
liabilities of Axius for $51.3 million in cash. The acquisition resulted in
$40.5 million of goodwill, brands and other intangible assets. In addition, the
company acquired all the stock of Rain-X for $23.2 million in cash, the issuance
of 1,104,203 shares of capital stock with a market value of $16.8 million, and
the payment of $1.8 million to satisfy certain indebtedness. The acquisition
resulted in $40.1 million of goodwill, brands and other intangible assets. The
operating results of these acquisitions from the date of acquisition are
included in the Consumer Products segment. These acquisitions are expected to
contribute $65 to $70 million in annual revenues.

         Also in 1997, the Company sold Truck-Lite for $82 million in cash. The
disposition resulted in a gain of $27.5 million or $.78 per share. The operating
results of Truck-Lite, including the gain on the sale, have been reclassified as
discontinued operations in the accompanying Consolidated Statement of Income.
The Company's West Virginia refinery and related inventories were also sold in
1997 for $34.8 million in cash and a $5 million note receivable.



                                       14



<PAGE>   16

RESTRUCTURING, SYSTEMS INTEGRATION AND OTHER SPECIAL CHARGES

         In December 1997, the Company announced a restructuring plan to
significantly reduce costs, streamline operations, leverage synergies from
recent consumer products acquisitions and implement an information systems
overhaul to fully integrate the operational, administrative and customer service
functions of its businesses. The restructuring includes a reduction of sales,
operations and administrative positions and the closure of certain manufacturing
and distribution facilities. The Company expects to realize up to $20 million in
annualized savings from the restructuring. In connection with the restructuring,
systems integration and other special charges, the Company recorded pretax
charges of $48.4 million ($29.6 million after tax or $.84 per share) in 1997
(see Note 3 to Consolidated Financial Statements).

CONSOLIDATED REVIEW OF OPERATIONS

         Net income for 1997 was $23.1 million, or $.66 per share compared to
$13.7 million, or $.40 per share in 1996. Net income for the year ended December
31, 1997 included a gain on the sale of joint venture interests in certain Q
Lube markets of $2.1 million, net of taxes, or $.06 per share, restructuring,
systems integration and other special charges of $29.6 million, net of taxes, or
$.84 per share, income of $4.6 million, net of taxes, or $.13 per share from the
discontinued operations of Truck-Lite, and $25.9 million, net of taxes, or $.74
per share from the gain on the disposition of discontinued operations, primarily
Truck-Lite (see Note 5 to Consolidated Financial Statements). Income from
continuing operations was positively impacted by the inclusion of a full year of
Blue Coral and Medo operations in 1997. This positive impact was offset by lower
operating profit in the Lubricants and Lubricant Services segment and a $.02 per
share dilution from the Axius and Rain-X acquisitions, due to the seasonal
nature of these businesses. The Consumer Products segment contributed $44.7
million in operating profit in 1997 compared to $14.4 million in 1996, when
Slick 50 was the only business unit in the segment for the whole year.

         The restructuring, systems integration and other special charges are
comprised of $12 million, net of taxes, related to severance and facility
closures, $3.4 million, net of taxes, for systems integration, $3.4 million, net
of taxes, in connection with the Company's disposition of its West Virginia
refinery, $5.3 million, net of taxes, related to environmental charges, $2.8
million, net of taxes, in connection with the write-down of certain assets and
$2.7 million, net of taxes, in connection with other special charges (see Note 3
to Consolidated Financial Statements).

         Net income for 1996 included $9.3 million, net of taxes, or $.27 per
share related to special charges consisting of the write-down of certain assets,
primarily the Company's West Virginia refinery and restructuring charges of
$12.4 million, net of taxes, or $.36 per share and a gain on the settlement of a
long-term receivable of $3.1 million, net of taxes, or $.09 per share (see Note
3 to Consolidated Financial Statements). Net income for 1996 also includes $4.1
million, net of taxes, or $.12 per share from discontinued operations (see Note
5 to Consolidated Financial Statements). Net income in 1996 was negatively
impacted by the dilutive effect of the June 1996 acquisition of Blue Coral, due
to the seasonal nature of Blue Coral's business and a shortfall in second-season
sales, partially offset by the positive impact of Medo. Net income for 1995
included $16.5 million, net of taxes, or $.51 per share, related to special
charges consisting of restructuring charges of $13.8 million, or $.43 per share,
and the settlement of a class action lawsuit for $2.7 million, or $.08 per share
(see Note 3 to Consolidated Financial Statements). Additionally, 1995 included
$20.5 million, or $.64 per share, related to a gain on sale and income from
discontinued operations (see Note 5 to Consolidated Financial Statements) and
$4.1 million, or $.13 per share, for an extraordinary item related to early
extinguishment of debt (see Note 10 to Consolidated Financial Statements).

         Sales and operating revenues in 1997 were up 7% to $1.2 billion
compared to $1.1 billion in 1996. Recent acquisitions contributed to the
increase in revenues in 1997. Sales and operating revenues in 1996 were up 18%
over $945.3 million in 1995 as a result of acquisitions and increased sales
volumes at each of the Company's major businesses.


                                       15

<PAGE>   17

LUBRICANTS AND LUBRICANT SERVICES

         Operating profit before special charges for 1997 was $33.7 million
compared to $46.1 million in 1996. This decrease is primarily due to reduced
refining profits in 1997 as a result of poor refining margins, increased
marketing, selling and distribution costs, higher than anticipated start-up
losses at a fast lube joint venture and a decline in Q Lube operating profit as
a result of increased operating and labor costs per car. These negative factors
were partially offset by lower raw material costs and increased LIFO profits of
$2 million in 1997. Total motor oil volume was down 4% in 1997. Branded motor
oil volumes continue to show strength in a shrinking market, up 3% in 1997.
However, this was offset by an 11% decline in private label/controlled brand
motor oil volume.

         In 1996, operating profit was favorably impacted by a 7% and 16%
increase in branded and private label/controlled brand motor oil volumes, and a
3% increase in car counts and average ticket prices at Q Lube, offset by reduced
LIFO profits of $1.1 million. Operating profit before special charges in 1996
was up 16% over $39.9 million in 1995.

         Special charges of $27 million in 1997 compared to $17.9 million in
1996 and $17.8 million in 1995. The 1997 charges related to increased
environmental reserves at formerly owned facilities of $8.6 million, $7.7
million related to the Company's restructuring program, $5.6 million in
connection with exiting the refining business, $2.8 million for systems
integration and $2.3 million to write down certain assets to net realizable
value. The 1996 charges included $15.4 million to write down the West Virginia
refinery to net realizable value, as a result of the Company's decision to exit
the refining business, and other asset write-downs and restructuring costs of
$2.5 million. The 1995 charges included $13.4 million related to the
restructuring and relocation to the Dallas, Texas area and a $4.4 million class
action lawsuit settlement.

         Operating revenues were down 6% to $914.7 million in 1997 compared to
$972.4 million in 1996. The decrease is primarily due to exiting the refining
business, offset by an 8% increase in car counts and a 3% increase in average
ticket price at Q Lube. Operating revenues for 1996 were up 7% compared to
$906.2 million in 1995 primarily due to the improved motor oil volume and
increased car counts and average ticket prices at Q Lube.

CONSUMER PRODUCTS

         Operating profit before special charges for 1997 was $44.7 million
compared to $14.4 million in 1996. The Consumer Products segment recorded
revenues of $287.6 million in 1997 compared to $143.9 million in 1996 and $40
million in 1995. These increases are primarily due to the inclusion of Blue
Coral and Medo for a full year in 1997 and the acquisitions of Axius and Rain-X
in 1997.

         Special charges of $13.8 million in 1997 related to $10.3 million for
restructuring program costs, $2.8 million for systems integration and $700,000
to write down certain assets to net realizable value. The 1996 charges of
$239,000 related to the restructuring and consolidation of the Blue Coral and
Slick 50 businesses.

CORPORATE AND OTHER

         Corporate income was down 70% to $912,000 in 1997 from $3 million in
1996, due to reduced interest income received in 1996 on the long-term
receivable settled in December 1996. To leverage the growth of the Company's
fast lube business, the Company sold interests in joint ventures in certain fast
lube markets and recognized a gain of $3.5 million ($2.1 million after tax) in
1997. Corporate expenses excluding special charges were $18.9 million in 1997
and thus slightly higher than 1996 expenses of $18.8 million. Interest expense
increased $14.3 million to $26.9 million in 1997 from $12.6 million in 1996 as a
result of utilizing debt in recent acquisitions.

         Corporate income was down 45% in 1996 from $5.5 million in 1995. The
decrease was due to reduced cash on hand and reduced royalty income received
from the acquirer of certain coal assets. Corporate expenses excluding special
charges decreased 5% in 1996 from $19.8 million in 1995. Interest expense
increased 75% in 1996 from $7.2 million in 1995 as a result of utilizing debt in
acquisitions.


                                       16

<PAGE>   18


         Special charges of $7.6 million in 1997 compared to a gain of $3.6
million in 1996 and charges of $9.2 million in 1995. The 1997 charges primarily
related to a charge of $4.4 million for previously unrecorded pension
obligations, $1.7 million in connection with the Company's restructuring program
and $1.5 million for other one-time charges. The 1996 gain was comprised of a $5
million gain on the sale of a $19.5 million long-term receivable from the
acquirer of certain coal assets for $24.5 million, partially offset by $1.1
million for restructuring and relocation costs of the corporate headquarters,
and $300,000 for other one-time charges. The 1995 charges include $9.2 million
related to the restructuring and relocation of corporate headquarters to the
Dallas, Texas area.

LIQUIDITY AND FINANCIAL CONDITION

         Cash flow from operations was down $6.4 million primarily due to cash 
used to exit the refining business partially offset by decreased working capital
requirements.

         The Company expects to make $43 million of capital expenditures in 1998
compared to $71.2 million in 1997. As in 1997, the 1998 expenditures will relate
primarily to adding Q Lube stores, through construction or acquisitions, various
plant and equipment expenditures, including environmental capital expenditures
and computer hardware and software in connection with the information systems
integration. The Company also expects to incur approximately $18 to $20 million
of expenses related to the implementation of SAP information systems.

         The Company continued to expand its Q Lube operations, opening or
converting 105 outlets in 1997 and increasing the total Company-operated and
franchised outlets at December 31, 1997 to 573. The Company expects to continue
the expansion of its Q Lube network; however, continued growth is subject to
locating and acquiring appropriate sites.

         As discussed above, the Company intends to restructure its overall
operations in 1998. In addition to the accruals that were discussed, the Company
expects to incur additional costs of $5 million in 1998 in connection with
relocation and other restructuring costs.

         As a result of the Company's Axius and Rain-X acquisitions, total debt
increased $39.9 million to $440.7 million at December 31, 1997, compared to
$400.8 million at December 31, 1996. In 1997, the Company replaced $305 million
of revolving credit lines with a $400 million Credit Agreement which expires
June 2002. Future acquisitions may be financed through additional debt or
issuance of equity.

         The Company's working capital was $105.4 million at December 31, 1997,
with a current ratio of 1.5 to 1, compared to $20.4 million and 1.1 to 1 at
December 31, 1996. This increase is primarily due to the refinancing of debt in
1997.

ADDITIONAL FINANCIAL INFORMATION

         The net deferred tax assets at December 31, 1997 of $68.9 million will
be either realized through the carryback provisions of the tax law or recovered
in the future through existing levels of taxable income from continuing
operations.

         Federal, state, and local environmental laws continue to have an impact
on the Company's operations. Compliance with such laws has been accomplished
without a material effect on the Company's financial position.

         In December 1993, the United States commenced a lawsuit against the
Company alleging that the Company violated the federal Resource Conservation and
Recovery Act and the federal Clean Air Act at its West Virginia refinery. In
1996, a $2.9 million settlement was reached that required the Company to pay
$1.7 million in cash penalties and complete supplemental environmental projects.
In addition, the Company was required to make certain capital improvements to
the facility. The Company incurred $12.2 million in 1997 in connection with



                                       17
<PAGE>   19

these capital expenditures. The Company sold the refinery in 1997 but retained
certain past environmental liabilities associated with this facility. The
Company expects to complete the projects required by the environmental
settlement in 1998. The costs to complete these projects are provided for in the
Company's environmental reserves.

         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 some liability for long-term
remediation or reclamation at formerly owned facilities including four
refineries and various coal operations.

         In 1996, the FTC filed an administrative proceeding seeking an order
that Slick 50 cease from making certain product claims and refrain from making
other product claims without adequate substantiation. In addition, class action
suits were filed against Slick 50 alleging false, misleading, deceptive and/or
unsubstantiated claims relating to Slick 50 engine treatment. These actions seek
damages on behalf of the purported classes. In December 1997, the FTC approved
and entered a consent decree settling the administrative proceeding. The consent
decree includes restrictions on the future advertising of Slick 50 products and
an agreement by the FTC not to seek consumer redress provided Slick 50 makes
available at least $10 million in consumer redress in the form of coupons,
refunds or free products for former purchasers of Slick 50 products. The Company
has reached a tentative settlement with counsel in all of the above actions
except one, under which the Company would make available to class members $20
million in cash rebates usable against future purchases of a variety of the
products or services of the Company and its subsidiaries and to pay attorneys'
fees to counsel for the class as approved by the court but not in any event to
exceed $3.25 million. The Company will also pay all costs of notice and
settlement administration. The tentative settlement will be presented for
approval to the District Court for Dallas County, Texas. The tentative
settlement of the class action suits would fulfill the consumer redress
requirements under the FTC consent decree.

         While it is impossible at this time to determine with certainty the
ultimate outcome of all environmental and legal matters involving the Company,
the Company has accrued for all items that are probable and can be reasonably
estimated, and does not expect any material adverse effect on its financial
position. However, it is possible that one or more of these matters may be
decided against the Company and could have a material impact on results of
operations or cash flow in that period.

YEAR 2000

         In 1997, the Company initiated a SAP/R3 ("SAP") information systems
implementation project. The SAP information systems will enable the Company to
integrate the critical operational, administrative and customer service
functions of its lubricants and consumer products businesses. The SAP
information systems, which are Year 2000 compliant, are scheduled to be fully
operational by 1999.

         The Company has initiated an enterprise-wide program to identify and
resolve problems that could be caused by the Year 2000 in computer systems and
embedded technologies not being replaced by the SAP software. This program is
expected to be completed by 1999. The Company presently believes that, through
modifications or conversions to new software, hardware and embedded
technologies, the Year 2000 issue can be mitigated. The Company expects to
utilize both internal and external resources to reprogram, replace, and test
software and embedded technologies for Year 2000 modifications.

         The Company also plans to communicate with customers, vendors and
others to ensure that their systems are Year 2000 compliant. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material effect on the Company.

         The cost of Year 2000 compliance, excluding the cost of the SAP
project, has not yet been finalized; however, it is not expected to have a
material effect on the Company's financial position.





                                       18
<PAGE>   20

RECENTLY ISSUED ACCOUNTING STANDARDS

         In 1997, the Financial Accounting Standards Board issued Standard No.
130 "Reporting Comprehensive Income," which will require the Company to present
comprehensive income as defined in the Standard. The new Standard must be
adopted in 1998. The Company is evaluating the impact of this standard on the
financial statements.

         In 1997, the Financial Accounting Standards Board issued Standard No. 
131 "Disclosure about Segments of an Enterprise and Related Information," which
will require the Company to evaluate the presentation of its segment data. The
new Standard must be adopted in the fourth quarter of 1998. The Company is
evaluating the impact of this standard on the financial statements.

         In 1998, the Financial Accounting Standards Board issued Standard No.
132 "Employers' Disclosure about Pension and Other Postretirement Benefits,"
which will require the Company to evaluate the presentation of its employee
benefit plans. The new Standard must be adopted in 1999. The Company is
evaluating the impact of this standard on the financial statements.

ITEM 8.  FINANCIAL STATEMENTS.


<TABLE>
<CAPTION>


Index to Financial Statements and financial statement schedule
--------------------------------------------------------------

                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
Report of Independent Accountants                                                                                 20
Financial Statements:
Consolidated Statement of Income for the years ended December 31, 1997, 1996, 1995                                21
Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996, 1995                            22
Consolidated Balance Sheet as of December 31, 1997 and 1996                                                       23
Consolidated Statement of Stockholders' Equity for the years
         ended December 31, 1997, 1996, 1995                                                                      24
Notes to Consolidated Financial Statements                                                                        25
Financial Statement Schedule II. Valuation and Qualifying Accounts                                                46

</TABLE>


                                       19
<PAGE>   21




REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders Quaker State Corporation:

         We have audited the consolidated financial statements and the financial
statement schedule of Quaker State Corporation and Subsidiaries listed in the
index on page 19 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.


Coopers & Lybrand L.L.P.

Dallas, Texas
January 27, 1998



                                       20
<PAGE>   22



QUAKER STATE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income

<TABLE>
<CAPTION>


YEARS ENDED DECEMBER 31
(in thousands, except per share data)                    1997           1996          1995
==============================================================================================
REVENUES

<S>                                                  <C>            <C>            <C>        
Sales and operating revenues                         $ 1,193,971    $ 1,113,504    $   945,258
Other, net                                                 6,372          7,674          9,782
                                                     -----------    -----------    -----------
                                                       1,200,343      1,121,178        955,040
                                                     -----------    -----------    -----------
COSTS AND EXPENSES
Cost of sales and operating costs                        761,317        759,912        654,564
Selling, general and administrative                      337,342        280,818        241,561
Depreciation and amortization                             41,266         35,781         30,460
Interest                                                  26,913         12,609          7,178
Restructuring, systems integration and
     other special charges (Note 3)                       48,411         14,507         27,000
                                                     -----------    -----------    -----------
                                                       1,215,249      1,103,627        960,763
                                                     -----------    -----------    -----------
Gain on sale of joint venture interests                    3,517             --             --
                                                     -----------    -----------    -----------
Income (loss) from continuing operations before income
     taxes and extraordinary item                        (11,389)        17,551         (5,723)
Provision for (benefit from) income taxes (Note 4)
     Current                                              12,500         25,300          7,800
     Deferred                                            (16,500)       (17,400)        (9,300)
                                                     -----------    -----------    -----------
                                                          (4,000)         7,900         (1,500)
                                                     -----------    -----------    -----------
Income (loss) from continuing operations
     before extraordinary item                            (7,389)         9,651         (4,223)
Discontinued operations (Note 5)
     Discontinued operations, net of taxes                 4,570          4,072          7,767
     Income on disposition, net of taxes                  25,907             --         12,695
                                                     -----------    -----------    -----------
                                                          30,477          4,072         20,462
                                                     -----------    -----------    -----------
Income before extraordinary item                          23,088         13,723         16,239
Extraordinary item, net of taxes (Note 10)                    --             --         (4,139)
                                                     -----------    -----------    -----------
NET INCOME                                           $    23,088    $    13,723    $    12,100
==============================================================================================

PER SHARE (BASIC AND DILUTED):
Income (loss) from continuing operations
     before extraordinary item                       $      (.21)   $       .28    $      (.13)
Income from discontinued operations                          .87            .12            .64
Extraordinary item                                            --             --           (.13)
                                                     -----------    -----------    -----------
NET INCOME                                           $       .66    $       .40    $       .38
==============================================================================================

Weighted average shares outstanding - Basic               35,213         34,352         32,119
Weighted average shares outstanding - Diluted             35,213         34,531         32,119
==============================================================================================


</TABLE>

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






                                       21
<PAGE>   23



QUAKER STATE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows


<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31
(in thousands)                                                               1997         1996         1995
=============================================================================================================     
<S>                                                                       <C>          <C>          <C>      

CASH FLOW FROM OPERATING ACTIVITIES
Net income                                                                $  23,088    $  13,723    $  12,100
Adjustments to reconcile net income to net cash provided
     by operating activities:
   Depreciation, depletion and amortization                                  44,085       38,578       38,330
   Noncurrent special charges                                                19,698       17,712        7,864
   Gain on disposition of discontinued operations (Note 5)                  (25,907)          --      (12,695)
   Changes in discontinued operations                                           249       (1,418)      (6,728)
   Net gain on sale of assets and joint venture interests                    (3,680)        (806)          --
   Gain on settlement of long-term receivable                                    --       (5,053)          --
   Extraordinary loss on extinguishment of debt, net of taxes                    --           --        4,139
   Deferred income taxes and investment tax credit                          (16,051)     (10,547)     (17,937)
   Increase (decrease) from changes in:
       Receivables                                                           (5,924)      (6,559)     (24,511)
       Inventories                                                            4,574      (14,802)       2,479
       Other current assets                                                   6,201        6,885       (7,424)
       Accounts payable                                                      (5,771)      11,896       (5,373)
       Accrued liabilities                                                    9,727          304        8,810
       Other assets and liabilities and other                               (12,945)      (6,129)       5,874
                                                                          ---------    ---------    ---------
   Net cash provided by operating activities                                 37,344       43,784        4,928
                                                                          ---------    ---------    ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures                                                        (71,185)     (60,123)     (45,130)
Proceeds from disposal of property and equipment and refinery                36,992        2,953        4,910
Proceeds from settlement of long-term receivable, net of taxes paid              --       15,380           --
Acquisition of businesses, net of cash acquired (Note 2)                   (108,892)    (234,106)     (31,008)
Proceeds from sale of discontinued operations, net of
       discontinued operations cash and taxes paid (Note 5)                  81,612           --       47,213
Other, net                                                                     (978)      (8,046)      (5,685)
                                                                          ---------    ---------    ---------
   Net cash used in investing activities                                    (62,451)    (283,942)     (29,700)
                                                                          ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid                                                              (14,117)     (13,762)     (12,867)
Proceeds from debt                                                          210,999      282,774       99,375
Payments on debt                                                           (181,569)      (6,990)     (60,882)
Purchase of treasury stock                                                     (151)     (25,313)          --
Other                                                                           753        2,187           --
                                                                          ---------    ---------    ---------
   Net cash provided by financing activities                                 15,915      238,896       25,626
                                                                          ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents                         (9,192)      (1,262)         854
Total cash and cash equivalents at beginning of year                         29,397       30,659       29,805
                                                                          ---------    ---------    ---------
TOTAL CASH AND CASH EQUIVALENTS AT END OF YEAR                            $  20,205    $  29,397    $  30,659
=============================================================================================================     

</TABLE>

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



                                       22
<PAGE>   24



QUAKER STATE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet


<TABLE>
<CAPTION>

DECEMBER 31
(in thousands, except share data)                                                              1997           1996
======================================================================================================================

<S>                                                                                        <C>             <C>        
ASSETS
Current assets:
Cash and cash equivalents                                                                   $    20,205    $    29,397
Accounts and notes receivable, less allowance of $4,696 and $4,140 in 1997 and 1996             186,654        161,246
Inventories (Note 6)                                                                             90,821         97,522
Other current assets                                                                             20,068         26,082
Net assets of discontinued operations                                                                --         19,809
                                                                                            -----------    -----------
   Total current assets                                                                         317,748        334,056
                                                                                            -----------    -----------
Property, plant and equipment, at cost (Note 7)                                                 247,073        210,465
Goodwill, brands and other assets (Note 8)                                                      604,894        468,711
Net assets of discontinued operations                                                                --         15,777
                                                                                            -----------    -----------
     TOTAL ASSETS                                                                           $ 1,169,715    $ 1,029,009
======================================================================================================================

LIABILITIES
Current liabilities:
Accounts payable                                                                            $    70,805    $    71,651
Accrued liabilities (Note 9)                                                                    130,088         82,825
Debt payable within one year                                                                     11,477         17,204
Debt to be refinanced (Note 10)                                                                      --        142,000
                                                                                            -----------    -----------
   Total current liabilities                                                                    212,370        313,680
                                                                                            -----------    -----------
Long-term debt (Note 10)                                                                        429,198        241,619
Other long-term liabilities (Note 11)                                                           196,246        175,041
                                                                                            -----------    -----------
   Total liabilities                                                                            837,814        730,340
                                                                                            -----------    -----------
Commitments and contingencies (Note 12)

STOCKHOLDERS' EQUITY
Capital stock $1.00 par value; authorized shares, 250,000,000 and 95,000,000
   in 1997 and 1996; issued shares, 37,977,144 and 36,322,312 in 1997 and 1996                   37,977         36,322
Additional capital                                                                              210,734        187,560
Retained earnings                                                                               112,451        103,480
Cumulative foreign currency translation adjustment                                                  133            411
Treasury stock, at cost, 1,699,593 and 1,593,582 shares in 1997 and 1996                        (26,924)       (25,433)
Unearned compensation                                                                            (2,470)        (3,671)
                                                                                            -----------    -----------
   Total stockholders' equity                                                                   331,901        298,669
                                                                                            -----------    -----------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                             $ 1,169,715    $ 1,029,009
======================================================================================================================


</TABLE>

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




                                       23
<PAGE>   25



QUAKER STATE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity

<TABLE>
<CAPTION>


                                                                          Foreign
                                                                          Currency                 Unearned
(in thousands except shares and      Capital    Additional   Retained    Translation  Treasury      Compen-
   per share)                         Stock      Capital     Earnings    Adjustment     Stock       sation        Total
==========================================================================================================================
<S>                                 <C>         <C>         <C>          <C>          <C>          <C>          <C>      
BALANCE, DECEMBER 31, 1994          $  31,517   $ 120,131   $ 104,286    $    (709)   $    (467)   $  (2,908)   $ 251,850
Net income                                 --          --      12,100           --           --           --       12,100
Cash dividends ($.40 per share)            --          --     (12,867)          --           --           --      (12,867)
103,030 shares of capital stock
     issued under incentive plans          47         661          --           --          789         (117)       1,380

Change in foreign currency
     translation                           --          --          --          598           --           --          598
1,260,403 shares issued
     for acquisitions                   1,260      18,276          --           --           --           --       19,536
Purchase of 30,529 shares                  --          --          --           --         (442)          --         (442)
                                    ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE, DECEMBER 31, 1995             32,824     139,068     103,519         (111)        (120)      (3,025)     272,155
                                    ---------   ---------   ---------    ---------    ---------    ---------    ---------
Net income                                 --          --      13,723           --           --           --       13,723
Cash dividends ($.40 per share)            --          --     (13,762)          --           --           --      (13,762)
187,453 shares of capital stock
     issued under incentive plans         187       2,345          --           --           --         (646)       1,886

Change in foreign currency
     translation                           --          --          --          522           --           --          522
3,310,702 shares issued
     for acquisitions                   3,311      46,147          --           --           --           --       49,458
Purchase of 1,585,135 shares               --          --          --           --      (25,313)          --      (25,313)
                                    ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE, DECEMBER 31, 1996             36,322     187,560     103,480          411      (25,433)      (3,671)     298,669
                                    ---------   ---------   ---------    ---------    ---------    ---------    ---------
Net income                                 --          --      23,088           --           --           --       23,088
Cash dividends ($.40 per share)            --          --     (14,117)          --           --           --      (14,117)
90,611 shares of capital stock
     issued under incentive plans          91       1,229          --           --           --         (139)       1,181

Change in foreign currency
     translation                           --          --          --         (278)          --           --         (278)
1,564,203 shares issued
     for acquisitions                   1,564      21,945          --           --           --           --       23,509
96,477 restricted shares
     forfeited                             --          --          --           --       (1,340)       1,340           --
Purchase of 9,534 shares                   --          --          --           --         (151)          --         (151)
                                    ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE, DECEMBER 31, 1997          $  37,977   $ 210,734   $ 112,451    $     133    $ (26,924)   $  (2,470)   $ 331,901
==========================================================================================================================
</TABLE>

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






                                       24
<PAGE>   26



QUAKER STATE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Quaker State Corporation and Subsidiaries (the "Company") is principally a
producer of motor oil and lubricants for passenger cars, fleets, commercial and
industrial applications. The Company also is a manufacturer and marketer of
products and services in the automotive aftermarket and offers a full range of
high-quality automotive chemical treatment, appearance, accessory and air
freshener products. The Company's products are sold primarily to distributors
and national and regional retailers.

a. BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Quaker State Corporation and all of its subsidiaries more than 50%
owned. The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

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

c. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out ("LIFO") basis for manufactured products.
For other inventories, such as purchased finished lubricating oils and purchased
automotive aftermarket products, cost is determined on the first-in, first-out
("FIFO") basis.

d. DEPRECIATION, AMORTIZATION AND VALUATION OF INTANGIBLES: Depreciation is
recorded on a straight-line basis. Goodwill, brands and other intangible assets
are amortized on a straight-line basis. When factors indicate an intangible
asset may not be recoverable, the Company evaluates the related undiscounted
future cash flows compared to the carrying value of the intangible asset to
determine if an impairment exists. The following table summarizes the years over
which significant assets are generally depreciated or amortized:

Fast lube, office and other equipment             3 to 10 years 
Software and other intangible assets              3 to 10 years 
Fast lube rental properties and improvements      5 to 20 years 
Buildings and improvements                        20 to 40 years 
Goodwill and brands                               20 to 40 years

e. FOREIGN CURRENCY TRANSLATION: For all foreign operations, the functional
currency is the local currency. The assets and liabilities of 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.

f. ADVERTISING  COSTS:  Advertising costs are expensed as incurred.  Advertising
costs were $129.3 million,  $122.2 million,  and $91.8 million in 1997, 1996,
and 1995, respectively.

g. 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 and reclamation efforts resulting from prior
operations 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 and are on an undiscounted basis. Actual results could
differ from those estimates.


                                       25

<PAGE>   27

h. 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.

i. EARNINGS PER SHARE: As of December 31, 1997, the Company adopted Statement of
financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings per
share. The adoption of the SFAS No. 128 did not have a material impact on the
Company's earnings per share. Basic earnings per share and diluted earnings per
share are based on the weighted average number of shares of capital stock
outstanding and capital stock equivalents. The difference between basic and
diluted weighted average shares of capital stock outstanding is due to
outstanding capital stock options.

2.  ACQUISITIONS:

In 1997, the Company acquired substantially all the net assets of Auto-Shade,
L.L.C. and Auto-Shade (Overseas) L.L.C. ("Axius") for $51.3 million in cash. The
acquisition resulted in $40.5 million of goodwill, brands and other intangible
assets. In connection with the acquisition, the Company recorded reserves of
$2.4 million primarily related to severance and facility exit costs. In
addition, the Company acquired substantially all the stock of Rain-X Corporation
("Rain-X") for $23.2 million in cash, the issuance of 1,104,203 shares of
capital stock with a market value of $16.8 million, and the payment of $1.8
million to satisfy certain indebtedness. The acquisition resulted in $40.1
million of goodwill, brands and other intangible assets. Additional
consideration may be payable by the Company depending upon the sales performance
of Rain-X products during the next 15 years.

The Company also made various other acquisitions in 1997 for $33.5 million in
cash, 460,000 shares of capital stock with a market value of $6.7 million and a
note payable for $10.3 million. These acquisitions resulted in $48.6 million of
goodwill, brands and other intangible assets.

In 1996, the Company acquired all the stock of Blue Coral, Inc. ("Blue Coral")
for $43.5 million in cash, the issuance of 2,956,328 shares of capital stock
with a market value of $43.5 million, and the payment of $27.9 million to
satisfy certain Blue Coral indebtedness. The acquisition resulted in $84.7
million of goodwill, brands and other intangible assets. In 1996, the Company
sold one of the Blue Coral businesses for $7.2 million in cash. Also in 1996,
the Company acquired all the stock of Medo Industries, Inc. and its affiliated
companies ("Medo") for $142.3 million in cash and the payment of $17.7 million
to satisfy certain Medo indebtedness. The acquisition resulted in $145.9 million
of goodwill, brands and other intangible assets.

In 1995, the Company acquired all the stock of Slick 50, Inc. ("Slick 50") for
$22.6 million in cash, the issuance of 1,260,403 shares of capital stock with a
market value of $19.5 million, and the payment of $11 million to satisfy certain
Slick 50 indebtedness. In December 1996, under performance consideration terms
of the Merger Agreement, additional consideration of 354,374 shares of capital
stock with a market value of $6 million was paid to the former Slick 50
stockholders. The total goodwill, brands and other intangible assets resulting
from the Slick 50 acquisition was $82.1 million.

The following summary is prepared on a pro forma basis as though Axius, Rain-X,
Blue Coral and Medo had been acquired as of January 1, 1996 and Truck-Lite Co.,
Inc. ("Truck-Lite") was sold as of January 1, 1996 (see Note 5) after including
the impact of adjustments, such as amortization of goodwill, brands and other
intangible assets, interest expense and related tax effects.

<TABLE>
<CAPTION>

(unaudited, in thousands except per share amounts)                           1997                1996
--------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>                 <C>        
Revenues                                                                $ 1,245,338         $ 1,282,043
Income from continuing operations                                            (5,806)             13,882
Income per share from continuing operations                                    (.16)                .39
==============================================================================================================
</TABLE>


                                       26
<PAGE>   28

The pro forma results are not necessarily indicative of what would have occurred
if the acquisitions 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. RESTRUCTURING, SYSTEMS INTEGRATION AND OTHER SPECIAL CHARGES:

Restructuring, systems integration and other special charges consists of:

<TABLE>
<CAPTION>

(in thousands)                                                                1997     1996       1995
---------------------------------------------------------------------------------------------------------

<S>                                                                       <C>        <C>         <C>     
Restructuring and integration:
   Severance and other employee related costs                             $ 10,097   $  1,753    $ 11,556
   Facility closure and other costs                                          9,604         --      11,044
Systems integration                                                          5,579         --          --
Refinery write-down and related exit costs                                   5,587     15,380          --
Environmental charges                                                        8,612         --          --
Pension obligations                                                          4,437         --          --
Asset write-downs and other                                                  4,495      2,427          --
Gain on settlement of long-term receivable                                      --     (5,053)         --
Settlement of class action lawsuit                                              --         --       4,400
                                                                          --------   --------    --------
Total                                                                     $ 48,411   $ 14,507    $ 27,000
=========================================================================================================

</TABLE>

In 1997, the Company announced plans to restructure its organization, integrate
recent acquisitions and manufacturing and distribution facilities and
consolidate management and administrative activities. A charge of $19.7 million
($12 million after tax) was recorded in the fourth quarter of 1997, which
primarily related to employee severance and employee benefit reserves, the
write-down of various facilities to net realizable value and other facility exit
costs for certain manufacturing and distribution facilities. The restructuring
includes a reduction of approximately 200 selling, operational and
administrative positions at the affected units. The restructuring program is
expected to be completed by 1999. In connection with the restructuring, the
Company is implementing SAP information systems. The Company incurred $5.6
million ($3.4 million after tax) in 1997 in connection with the implementation
of the SAP information systems. The implementation is scheduled to be completed
by 1999. The Company also incurred $4.9 million of capital expenditures in 1997
relating to licenses and hardware in connection with the implementation of the
SAP information systems.

In 1997, the Company sold its West Virginia refinery and related inventory for
$34.8 million in cash and a $5 million note receivable. The sale resulted in a
charge of $5.6 million ($3.4 million after tax) primarily related to certain
contractual obligations and other exit costs. In the fourth quarter, the Company
conducted various environmental studies at formerly owned refineries which
resulted in an $8.6 million ($5.3 million after tax) increase in the Company's
environmental reserves. The Company also recognized a $4.4 million ($2.7 million
after tax) charge in connection with previously unrecorded pension obligations,
which were not material to any previous year, and $4.5 million ($2.8 million
after tax) in connection with the write-down of certain assets to net realizable
value.

In 1996, the Company recorded pretax charges of $19.5 million ($12.4 million
after tax) primarily related to the write-down of certain assets to net
realizable value and restructuring costs. The asset write-downs related
primarily to the Company's decision to sell its West Virginia refinery.
Additionally, the Company settled a $19.5 million long-term receivable for $24.5
million, resulting in a pretax gain of $5 million ($3.1 million after tax).

In 1995, the Company recognized pretax costs and expenses associated with the
restructuring and relocation of the motor oil division and corporate
headquarters of $22.6 million ($13.8 million after tax) and settled a class
action lawsuit for $4.4 million ($2.7 million after tax).



                                       27
<PAGE>   29



4.  INCOME TAXES:


<TABLE>
<CAPTION>

Income (loss) before income taxes from continuing operations consists of:

(in thousands)                                                                1997             1996              1995
------------------------------------------------------------------------------------------------------------------------    

<S>                                                                     <C>               <C>              <C>           
Domestic                                                                $     (12,929)    $      14,456    $      (5,745)
Foreign                                                                         1,540             3,095               22
                                                                        ----------------- ---------------- -------------    
Total                                                                   $     (11,389)    $      17,551    $      (5,723)
========================================================================================================================

</TABLE>

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

<TABLE>
<CAPTION>

(in thousands)                                                              1997        1996        1995
----------------------------------------------------------------------------------------------------------
Current:

<S>                                                                       <C>         <C>         <C>     
          Federal                                                         $  8,700    $ 21,100    $  5,800
          State                                                              2,400       2,800       1,300
          Foreign                                                            1,400       1,400         700
Deferred:
          Federal                                                          (14,700)    (15,200)     (7,200)
          State                                                             (1,700)     (1,900)     (1,300)
          Foreign                                                             (100)       (100)       (600)
          Tax credits amortized                                                 --        (200)       (200)
                                                                          --------    --------    --------
Total                                                                     $ (4,000)   $  7,900    $ (1,500)
==========================================================================================================

</TABLE>

A reconciliation from the federal statutory tax rate to the effective tax rate 
for continuing operations follows:

<TABLE>
<CAPTION>

(% of pretax income)                                                          1997        1996        1995
----------------------------------------------------------------------------------------------------------

<S>                                                                          <C>          <C>        <C>   
Federal statutory tax expense (benefit)                                      (35.0)       35.0       (35.0)
Goodwill amortization                                                          7.6         4.6        12.2
Investment credit                                                               --        (1.0)       (2.7)
Other tax credits                                                             (6.3)       (3.6)       (6.5)
State and foreign income taxes                                                 (.8)        4.0        (1.2)
Other, net                                                                     (.6)        6.0         7.0
                                                                          --------    --------    --------
Effective tax rate                                                           (35.1)       45.0       (26.2)
==========================================================================================================

</TABLE>

The deferred tax assets and liabilities as of December 31, 1997 and 1996 are as 
follows:

<TABLE>
<CAPTION>

(in thousands)                                                                            1997        1996
----------------------------------------------------------------------------------------------------------
Deferred tax assets:

<S>                                                                                   <C>         <C>     
     Employee benefits                                                                $ 58,373    $ 57,966
     Environmental reserves                                                              9,087       7,789
     Other                                                                              21,219      26,746
                                                                                      --------    --------
Gross deferred tax asset                                                                88,679      92,501
Valuation allowance                                                                       (274)       (322)
                                                                                      --------    --------
Total deferred tax assets                                                               88,405      92,179
                                                                                      --------    --------
Deferred tax liabilities
     Depreciation                                                                       13,834      25,656
     Other                                                                               5,654      10,708
                                                                                      --------    --------
Total deferred tax liabilities                                                          19,488      36,364
                                                                                      --------    --------
Net deferred tax assets                                                               $ 68,917    $ 55,815
==========================================================================================================

</TABLE>




                                       28
<PAGE>   30



5.  DISCONTINUED OPERATIONS:

In 1997, the Company sold Truck-Lite for $82 million. Accordingly, the operating
results of Truck-Lite have been reported as discontinued operations in the
accompanying Consolidated Statement of Income for the three years ended December
31, 1997. The sale resulted in a gain on disposition of $27.5 million, net of
taxes of $17.6 million. Additionally, the net assets of Truck-Lite are reported
as discontinued operation assets in the Consolidated Balance Sheet as of
December 31, 1996. Condensed income statements relating to Truck-Lite's
operations for the ten months ended October 31, 1997, and the years ended
December 31, 1996 and 1995 are presented below:

<TABLE>
<CAPTION>


(in thousands)                                                             1997      1996      1995
-----------------------------------------------------------------------------------------------------

<S>                                                                       <C>       <C>       <C>    
Revenues                                                                  $78,977   $86,521   $90,424
Costs and expenses                                                         71,457    79,849    80,651
                                                                          -------   -------   -------
Income before income taxes                                                  7,520     6,672     9,773
Provision for income taxes                                                  2,950     2,600     3,800
                                                                          -------   -------   -------
Income from discontinued operations                                       $ 4,570   $ 4,072   $ 5,973
======================================================================================================

</TABLE>

Additionally in 1997, the Company recognized a charge of $2.7 million ($1.6
million after tax) relating to additional reserves associated with the Company's
previously discontinued coal and exploration and production businesses. These
reserves related to asset write-downs to net realizable value and environmental
obligations retained by the Company.

In 1995, the Company sold the assets of its Natural Gas Exploration and
Production division ("E&P") for $67.7 million. The sale resulted in a gain on
disposition of $12 million, net of taxes of $7.5 million. Condensed income
statements relating to the E&P operations for the seven months ended July 31,
1995 are presented below:

<TABLE>
<CAPTION>

(in thousands)                                                             1995
----------------------------------------------------------------------------------

<S>                                                                       <C>    
Revenues                                                                  $14,641
Costs and expenses                                                         12,617
                                                                          -------
Income before income taxes                                                  2,024
Provision for income taxes                                                    230
                                                                          -------
Income from discontinued operations                                       $ 1,794
=================================================================================
</TABLE>

6.  INVENTORIES:

Inventories consist of:

<TABLE>
<CAPTION>

(in thousands)                                                              1997     1996
-------------------------------------------------------------------------------------------

<S>                                                                       <C>       <C>    
Lubricants and related materials                                          $59,242   $76,462
Consumer products                                                          31,579    21,060
                                                                          -------   -------
Total                                                                     $90,821   $97,522
===========================================================================================


</TABLE>

The reserve to reduce the carrying value of inventories from current costs to
the LIFO basis amounted to $7.5 million and $17.8 million in 1997 and 1996.

At December 31, 1997 and 1996, $24.5 million and $39.3 million, respectively, of
inventories were valued on the LIFO basis. Certain inventory quantities were
reduced resulting in liquidations of LIFO inventory which increased net income
by $2 million or $.06 per share in 1997, $650,000 or $.02 per share in 1996 and
$1.3 million or $.04 per share in 1995.



                                       29
<PAGE>   31



7.  PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of:


<TABLE>
<CAPTION>


(in thousands)                                                              1997      1996
---------------------------------------------------------------------------------------------
<S>                                                                       <C>        <C>     
Lubricants and lubricant services:
    Marketing                                                             $181,904   $166,551
    Refining                                                                    --    101,498
    Fast lube                                                              193,323    147,853
Consumer products                                                           20,848     15,634
                                                                          -------------------
                                                                           396,075    431,536
Less:  Accumulated depreciation                                            149,002    221,071
                                                                          -------------------
Total                                                                     $247,073   $210,465
=============================================================================================
</TABLE>

Depreciation expense was $24 million, $24 million, and $25 million in 1997,
1996, and 1995, respectively.

8.  GOODWILL, BRANDS AND OTHER ASSETS:

<TABLE>
<CAPTION>

Goodwill, brands and other assets consist of:

(in thousands)                                                              1997      1996
---------------------------------------------------------------------------------------------
<S>                                                                       <C>        <C>     
Goodwill, net of accumulated amortization of $18,237 and $11,003          $346,968   $251,155
Brands, net of accumulated amortization of $5,989 and $2,885               141,865    113,715
Other intangible assets, net of accumulated amortization
     of $19,357 and $12,544                                                 22,903     21,510
Net deferred tax asset                                                      62,725     50,259
Notes receivable                                                            21,521     18,228
Other                                                                        8,912     13,844
                                                                          -------------------
Total                                                                     $604,894   $468,711
=============================================================================================
</TABLE>

9.  ACCRUED LIABILITIES:

Accrued liabilities include accrued income taxes, restructuring reserves and
marketing accruals of $12.6 million, $15.9 million and $14.7 million,
respectively, at December 31, 1997 and $1.8 million, $458,000 and $14.8 million,
respectively, at December 31, 1996.

10.  LONG-TERM DEBT AND FINANCIAL INSTRUMENTS:

<TABLE>
<CAPTION>

Long-term debt consists of:

(in thousands)                                                              1997       1996
---------------------------------------------------------------------------------------------
<S>                                                                       <C>        <C>     
6.625% Notes due 2005, net of discount                                    $ 99,518   $ 99,458
Variable rate revolving credit agreements                                  328,000    292,000
Other, 2.5% to 8.5% due in various installments through 2005                13,157      9,365
                                                                          -------------------
                                                                           440,675    400,823
Less:  Payments due within one year                                         11,477     17,204
           Debt to be refinanced                                                --    142,000
                                                                          -------------------
Total                                                                     $429,198   $241,619
==============================================================================================

</TABLE>


As of December 31, 1997, the Company had available $430 million of committed
revolving credit agreements. The credit agreements provide for various borrowing
rate options and expire from 1998 to 2002. The weighted-




                                       30
<PAGE>   32

average interest rate on borrowings on these credit agreements as of December
31, 1997 was 6.22%. The credit agreements contain various covenants pertaining
to financial ratios and interest coverage.

In 1995, the Company issued $100 million of 6.625% Notes due 2005. A portion of
the proceeds of these notes was used to retire $50 million of 8.73% Senior Notes
due 2002. In connection with the early retirement of the notes, the Company paid
a premium of $6.5 million and wrote off $300,000 of unamortized debt issuance
costs. These transactions resulted in the extraordinary charge of $4.1 million,
net of tax benefits of $2.7 million.

The aggregate long-term debt maturing in the next five years is as follows:  
1998-$11.5  million;  1999-$600,000;  2000-$160,000;  2001-$160,000;  2002-$328
million.

The fair value of debt at December 31, 1997 was $441 million 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
similar maturity.

11.  OTHER LONG-TERM LIABILITIES:

Other long-term liabilities consist of :

<TABLE>
<CAPTION>

(in thousands)                                     1997      1996
--------------------------------------------------------------------
                                                 
<S>                                              <C>        <C>     
Postretirement benefits                          $ 99,580   $ 97,955
Environmental reserves                             19,881     13,203
Discontinued coal liabilities                      44,946     46,248
Other                                              31,839     17,635
                                                 -------------------
Total                                            $196,246   $175,041
====================================================================
</TABLE>

12.  COMMITMENTS, CONTINGENCIES AND RELATED PARTIES:

The Company has operating leases 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 $26.2 million, during each of the next five years are:
1998-$18 million; 1999-$17.4 million; 2000-$15.7 million; 2001-$13.2 million;
2002-$12.2 million and thereafter $73.6 million.

Rental expenses amounted to $28.1 million, $20.7 million, and $16.4 million for
1997, 1996, and 1995, respectively, net of sublease rentals of $4 million, $3.4
million, and $3.3 million for 1997, 1996, and 1995, respectively.

The Company leases certain real property from a company that is owned, in part,
by a director and employee of the Company. The Company paid $439,000, $465,000,
and $1.5 million in 1997, 1996, and 1995, respectively, for rental of the
property.

The Company regularly purchases  lubricant stocks from a company, the president
of which is a director of the Company. The Company purchased $709,000, $3.3
million, and $1.6 million in 1997, 1996 and 1995, respectively for lubricant
stocks.

The Company retained an advertising firm of which a director of the Company was
the vice chairman. The Company paid $14.9 million and $1.2 million in 1997 and
1996 for advertising and services.

In 1996, the Company entered into a long-term lube base stock supply agreement
with a major oil company. This agreement requires the Company to purchase a
certain volume of lube base stock based on a price formula.



                                       31
<PAGE>   33

In December 1996, the Company paid $24.8 million for 1,550,934 shares of its 
capital stock to a former owner of Blue Coral, who was a director of the
Company, and to an affiliated trust.

In 1993, the United States commenced a lawsuit against the Company alleging that
the Company violated the federal Resource Conservation and Recovery Act and the
federal Clean Air Act at the West Virginia refinery. In 1996, a $2.9 million
settlement was reached that required the Company to pay a cash penalty and
complete certain supplemental environmental projects. In addition, the Company
was required to make certain capital improvements to the facility. The Company
incurred $12.2 million in 1997 in connection with these capital expenditures.
The Company sold the refinery in 1997 (see Note 3) but retained certain past
environmental liabilities associated with this facility. The Company expects to
complete the projects required by the environmental settlement in 1998. All
costs to complete these projects are provided for in the Company's environmental
reserves.

The Company has received notices from the United States Environmental Protection
Agency ("USEPA") and others that it is a potentially responsible party relative
to certain waste disposal sites identified by the USEPA and that it may be
required to share in the cost of clean-up. The Company anticipates some
liability for long-term remediation at formerly owned facilities including four
refineries and various coal operations.

At December 31, 1997, the Company had $28.2 million accrued for all
environmental matters which are probable and can be reasonably estimated. The
Company currently expects most of these costs to be paid over the next five to
ten years.

In 1996, the Federal Trade Commission ("FTC") filed an administrative proceeding
seeking an order that Slick 50 cease from making certain product claims and
refrain from making other product claims without adequate substantiation. In
addition, class action suits were filed against Slick 50 alleging false,
misleading, deceptive and/or unsubstantiated claims relating to Slick 50(R)
engine treatment. These actions seek damages on behalf of the purported classes.
In December 1997, the FTC approved and entered a consent decree settling the
administrative proceeding. The consent decree includes restrictions on the
future advertising of Slick 50(R) products and an agreement by the FTC not to
seek consumer redress provided Slick 50 makes available at least $10 million in
consumer redress in the form of coupons, refunds or free products for former
purchasers of Slick 50 products. The Company has reached a tentative settlement
with counsel in all of the above actions except one, under which the Company
would make available to class members $20 million in cash rebates usable against
future purchases of a variety of the products or services of the Company and its
subsidiaries and to pay attorneys' fees to counsel for the class as approved by
the court but not in any event to exceed $3.25 million. The Company will also
pay all costs of notice and settlement administration. The tentative settlement
will be presented for approval to the District Court for Dallas County, Texas.
The tentative settlement of the class action suits would fulfill the consumer
redress requirements under the FTC consent decree.

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.

13.  STOCK OPTIONS AND MANAGEMENT COMPENSATION:

The Company has various stock option, incentive and award plans. The Company
applies APB Opinion 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for stock options issued under the plans. Had compensation
cost for the Company's plans been determined based on the fair value at the
grant dates for awards under those plans 



                                       32
<PAGE>   34

consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation" the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

(in thousands, except per share amount)                                    1997                      1996
--------------------------------------------------------------------------------------------------------------------

<S>                                                                    <C>                         <C>     
Net income                                                             $ 21,308                    $ 13,225
Earnings per share                                                          .61                         .38
====================================================================================================================
</TABLE>


Under current plans, 6,285,836 shares have been authorized for issuance.
Collectively, these plans include stock options, stock appreciation rights, cash
payment rights, restricted shares, performance shares and other share awards.
Under these plans, options have been granted to employees and non-employee
directors to purchase capital stock at a price no less than 100% of the fair
market value on the date of grant. Options granted may not be exercised for at
least six months from the date of grant and all options must be exercised within
ten years of the date granted.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996, and 1995: expected volatility of 26%,
risk-free interest rates of 6%, and expected lives of 3.5 years. A dividend
yield of 2.6%, 2.4%, and 2.4% was assumed for 1997, 1996, and 1995,
respectively. A summary of the status of the Company's stock option plans is
presented below:

<TABLE>
<CAPTION>

                                                    1997                  1996                   1995
                                         --------------------------------------------------------------------------
                                                         Weighted-              Weighted-              Weighted-
                                                         Average                Average                Average
                                                         Exercise               Exercise               Exercise
                                             Shares       Price     Shares       Price      Shares      Price
-------------------------------------------------------------------------------------------------------------------

<S>                                         <C>          <C>       <C>          <C>       <C>          <C>   
OUTSTANDING,  BEGINNING OF YEAR             1,770,348    $14.52    1,988,950    $14.71    1,607,071    $14.65
Granted
  Option price equal to market
    value                                   1,492,750    $14.57      223,500    $14.43      436,500    $14.22
  Option price greater than
   market value                                90,000    $19.50      125,000    $16.81       50,000    $21.74
Exercised                                     (66,400)   $12.56     (179,551)   $12.61      (64,201)   $12.40
Canceled or expired                          (136,800)   $16.99     (387,551)   $17.20      (40,420)   $19.07
--------------------------------------------------------------------------------------------------------------------
OUTSTANDING,  END OF YEAR                   3,149,898    $14.62    1,770,348    $14.52    1,988,950    $14.71
====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                             1997        1996        1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>         <C>         <C>      
Weighted-average fair value of options
  granted during the year
     Option price equal to market value                                        $3.18        $3.22        $3.18
     Option price greater than market value                                    $2.82        $2.31        $1.79
Options exercisable at December 31                                         2,431,523    1,430,348    1,168,950
Shares available for option                                                2,236,962      134,833      420,604
Capital stock reserved                                                     5,720,720    2,357,881    2,409,554
====================================================================================================================
</TABLE>




                                       33
<PAGE>   35



The following table summarizes information about the Company's stock options
outstanding at December 31, 1997:


<TABLE>
<CAPTION>

                                     Options Outstanding                       Options Exercisable
--------------------------------------------------------------------------------------------------------------
                                         Weighted-                     
                                          Average            Weighted-                          Weighted-
    Range of             Number          Remaining            Average           Number           Average
 Exercise Prices      Outstanding      Contract Life       Exercise Price     Exercisable     Exercise Price
--------------------------------------------------------------------------------------------------------------

<S>                    <C>                <C>                <C>              <C>              <C>                
$10.19-$14.00          1,068,198           6.53              $ 13.08            993,698          $ 13.07     
$14.06-$14.50          1,124,250           8.96              $ 14.26            639,875          $ 14.26     
$14.63-$23.81            957,450           7.18              $ 16.77            797,950          $ 16.92     
                       --------------------------------------------------------------------------------------
$10.19-$23.81          3,149,898           7.60              $ 14.62          2,431,523          $ 14.64     
============================================================================================================= 


</TABLE>


In 1997, 1996, and 1995, the Company issued 31,621, 45,000 and 72,845,
respectively, restricted shares with weighted-average fair values of $15.81,
$14.00 and $14.48 to certain key employees. Effective December 31, 1996, 96,477
performance restricted shares that had been issued in 1994 and 1995 were
canceled due to the non-achievement of certain three year performance goals
resulting in a credit to compensation expense of $1.2 million. The total impact
to compensation expense (benefit) for restricted stock awards was $309,000,
$(291,000), and $842,000 for 1997, 1996, and 1995, respectively.

14.  EMPLOYEE BENEFIT PLANS:

The Company has noncontributory pension plans covering substantially all of its
corporate and Lubricants and Lubricant Services employees. Plans covering
substantially all of the 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.

Net pension cost for 1997, 1996, and 1995 is summarized below:

<TABLE>
<CAPTION>


(in thousands)                                                              1997        1996        1995
----------------------------------------------------------------------------------------------------------

<S>                                                                       <C>         <C>         <C>     
Service cost benefits earned during the period                            $  2,401    $  2,496    $  2,886
Interest cost                                                               10,207       9,668       9,629
Actual return on assets                                                    (13,025)    (11,543)    (22,791)
Net amortization and deferral                                                 (341)       (858)     11,121
                                                                          --------------------------------
Total pension (benefit) costs (a)                                         $   (758)   $   (237)   $    845
==========================================================================================================

</TABLE>

a.   1997 excludes $600,000 curtailment loss and $800,000 of special termination
     benefits due to the sale of the West Virginia refinery and $1 million
     curtailment gain due to the sale of Truck-Lite. 1995 excludes $1.8 million
     and $800,000 curtailment gain and $3 million and $500,000 cost of special
     termination benefits due to restructuring and sale of E&P.



                                       34
<PAGE>   36


The funded status of the plans at December 31, 1997 and 1996 follows:


<TABLE>
<CAPTION>

                                                            1997                                 1996
                                                   ---------------------------------------------------------------------
                                                     Assets Exceed      Accumulated       Assets Exceed    Accumulated
                                                      Accumulated     Benefits Exceed      Accumulated       Benefits 
(in thousands)                                         Benefits            Assets           Benefits       Exceed Assets
------------------------------------------------------------------------------------------------------------------------

<S>                                                      <C>              <C>              <C>              <C>      
Vested benefit obligation                                $ 129,456        $   4,189        $ 125,171        $   1,013
                                                         ============================================================
Accumulated benefit obligation                             136,775            5,547          130,601            1,087
                                                         ============================================================
Projected benefit obligation                               144,942            5,835          139,438            1,308
Plan assets at fair value, primarily
     pooled separate accounts                              156,456               --          145,468               --
                                                         ------------------------------------------------------------
Projected benefit obligation less than
    (in excess of) plan assets                              11,514           (5,835)           6,030           (1,308)
Prior service cost not yet recognized
     in net periodic pension cost                            2,699               80            4,085               98
Unrecognized net loss                                        2,297               30            8,181               67
Unrecognized transition asset                               (6,280)             138           (7,987)             184
Minimum liability adjustment                                    --             (248)              --             (349)
                                                         ------------------------------------------------------------
Prepaid pension cost (liability)
     recognized in the balance sheet                     $  10,230        $  (5,835)       $  10,309        $  (1,308)
======================================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>

December 31,                                                                  1997    1996    1995
----------------------------------------------------------------------------------------------------

<S>                                                                           <C>      <C>      <C> 
Discount rate                                                                 7.0%     7.5%     7.0%
Rate of increase in compensation levels                                       4.0%     4.0%     4.0%
Expected long-term rate of return on assets                                   9.0%     9.0%     9.0%
====================================================================================================

</TABLE>


The Company has certain defined contribution plans including a Thrift and Stock
Purchase Plan and an Employee Stock Ownership Plan. The cost of these plans was
$1.8 million, $1.2 million, and $1.2 million in 1997, 1996, and 1995,
respectively.

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

The components of periodic expense for postretirement benefits in 1997, 1996 and
1995 were as follows:

<TABLE>
<CAPTION>

(in thousands)                                                                1997        1996        1995
------------------------------------------------------------------------------------------------------------

<S>                                                                         <C>          <C>         <C>    
Service costs of benefits earned                                            $ 1,609      $ 1,660     $   697
Interest cost on liability                                                    6,928        7,201       7,565
Amortization of (gain) loss                                                    (387)         477         129
                                                                            --------------------------------
Net periodic postretirement benefit cost (a)                                $ 8,150      $ 9,338     $ 8,391
============================================================================================================

</TABLE>

a.   1997 excludes $800,000 of curtailment gain due to sale of West Virginia 
     refinery. 1995 excludes $600,000 and $800,000 cost of curtailment due to
     restructuring and sale of E&P.




                                       35
<PAGE>   37


The status of the plans at December 31, 1997 and 1996 follows:

<TABLE>
<CAPTION>

(in thousands)                                                                1997        1996
--------------------------------------------------------------------------------------------------

<S>                                                                         <C>          <C>     
Retirees                                                                    $ 91,139     $ 90,526
Fully eligible active participants                                             3,165        3,848
Other active participants                                                      8,562        7,500
                                                                            ---------------------- 
Accumulated postretirement benefit obligation (APBO)                         102,866      101,874
Unrecognized net gain                                                          1,714        1,081
                                                                            --------     --------   
Accrued postretirement benefit costs                                        $104,580     $102,955
=================================================================================================

</TABLE>

For measurement purposes, a 7% annual rate of increase in the per capita claims
cost was assumed for 1997, declining gradually to 5% by the year 2001 and
thereafter. 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, 1997 by 12% and
1997 service and interest costs by 14%.

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

<TABLE>
<CAPTION>

December 31,                                                                  1997             1996              1995
---------------------------------------------------------------------------------------------------------------------

<S>                                                                           <C>              <C>               <C> 
Discount rate                                                                 7.0%             7.5%              7.0%
Rate of increase in compensation levels                                       4.0%             4.0%              4.0%
=====================================================================================================================

15.  SUPPLEMENTAL CASH FLOW INFORMATION:

(in thousands)                                                                 1997            1996            1995
---------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
     Interest, net of amounts capitalized                                   $  26,536       $  11,645       $   6,911
     Income taxes                                                              12,401          11,961          30,562
======================================================================================================================
Noncash investing and financing activities:
     Capital stock issued for acquisitions (Note 2)                         $  23,509       $  49,458       $  19,536
     Debt issued for acquisition (Note 2)                                      10,312              --              --
     Notes received in sale of assets                                           9,305              --              --
     Capital stock issued under incentive plans (Note 13)                         753             344           1,055
======================================================================================================================
Details of acquisitions (Note 2):
     Fair value of assets acquired                                          $ 158,501       $ 305,915       $  79,486
     Liabilities assumed                                                      (14,894)        (21,560)        (26,289)
     Debt issued                                                              (10,312)             --              --
     Stock issued                                                             (23,509)        (49,458)        (19,536)
                                                                            -----------------------------------------
     Cash paid                                                                109,786         234,897          33,661
     Less:  cash acquired                                                        (894)           (791)         (2,653)
                                                                            =========================================
     Net cash paid for acquisitions                                         $ 108,892       $ 234,106       $  31,008
======================================================================================================================

</TABLE>



                                       36
<PAGE>   38



16.  SEGMENT INFORMATION:

The Company's operations are organized into two segments. The Lubricants and
Lubricant Services segment produces and markets lubricants and provides fast
service automobile oil changes through the Company's Q Lube subsidiary. The
Company's Consumer Products segment consists of operations from its recent
acquisitions (see Note 2) of Slick 50, Blue Coral, Medo, Axius and Rain-X. The
Consumer Products segment manufactures and markets automotive aftermarket
products, including automotive chemicals, car appearance and air freshener
products. Intersegment sales are at market. Corporate assets consist principally
of deferred tax assets, cash and cash equivalents and assets not identifiable
with the operations of a segment.

<TABLE>
<CAPTION>


(in thousands)                                                                1997             1996              1995
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>              <C>        
Revenues (a)
Lubricants and lubricant services                                           $   914,682      $   972,390      $   906,158
Consumer products                                                               287,594          143,929           39,962
Intersegment sales                                                               (8,305)          (2,815)            (862)
                                                                            ---------------------------------------------
                                                                            $ 1,193,971      $ 1,113,504      $   945,258
=========================================================================================================================
Operating Profits
Lubricants and lubricant services                                           $    33,703      $    46,061      $    39,868
   Restructuring, systems integration and
     other special charges (Note 3)                                             (26,980)         (17,871)         (17,800)
                                                                            ---------------------------------------------
Total lubricants and lubricant services                                           6,723           28,190           22,068
                                                                            ---------------------------------------------
Consumer products                                                                44,658           14,383            2,880
   Restructuring, systems integration and
     other special charges (Note 3)                                             (13,833)            (239)              --
                                                                            ---------------------------------------------
Total consumer products                                                          30,825           14,144            2,880
                                                                            ---------------------------------------------
Total operating profits                                                          37,548           42,334           24,948
Corporate income                                                                    912            3,013            5,523
Gain on sale of joint venture interests                                           3,517               --               --
Interest expense                                                                (26,913)         (12,609)          (7,178)
Corporate expenses                                                              (18,855)         (18,790)         (19,816)
   Restructuring, systems integration and
     other special charges (Note 3)                                              (7,598)           3,603           (9,200)
                                                                            ---------------------------------------------
Total corporate expenses                                                        (26,453)         (15,187)         (29,016)
                                                                            ---------------------------------------------
Income (loss) from continuing operations
     before income taxes                                                    $   (11,389)     $    17,551      $    (5,723)
=========================================================================================================================
Identifiable Assets
Lubricants and lubricant services                                           $   575,554      $   505,236      $   448,674
Consumer products                                                               482,896          375,892           78,794
Discontinued operations                                                           1,851           36,798           35,543
                                                                            ---------------------------------------------
                                                                              1,060,301          917,926          563,011
Corporate                                                                       109,414          111,083          144,640
                                                                            ---------------------------------------------
                                                                            $ 1,169,715      $ 1,029,009      $   707,651
=========================================================================================================================
a. In 1997, 1996, and 1995, sales to one customer and its affiliated companies totaled 19%, 19%, and 18%, respectively, of
consolidated revenues.

</TABLE>




                                       37
<PAGE>   39




<TABLE>
<CAPTION>



(in thousands)                                                            1997          1996           1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>            <C>        
Capital Expenditures
Lubricants and lubricant services                                      $    63,040   $    53,519    $    39,363
Consumer products                                                            5,529         2,100           --
Discontinued operations                                                      2,616         4,504          5,767
                                                                       ----------------------------------------
                                                                       $    71,185   $    60,123    $    45,130
===============================================================================================================
Depreciation, Depletion and Amortization
Lubricants and lubricant services                                      $    27,531   $    27,668    $    27,940
Consumer products                                                           13,735         8,113          2,520
Discontinued operations                                                      2,819         2,797          7,870
                                                                       ----------------------------------------
                                                                       $    44,085   $    38,578    $    38,330
===============================================================================================================

</TABLE>

17.  QUARTERLY RESULTS (UNAUDITED):


<TABLE>
<CAPTION>


                                                                      Quarters Ended 1997
                                     --------------------------------------------------------------------------
(in thousands,
   except per share data)                    March 31,     June 30,   September 30,  December 31,      Total
----------------------------------------------------------------------------------------------------------------

<S>                                        <C>           <C>           <C>           <C>            <C>        
Revenues                                   $   294,353   $   319,274   $   303,356   $   276,988    $ 1,193,971
Gross profit (a)(b)(c)                         102,594       115,432       103,355        62,862        384,243
Income (loss) from continuing
     operations                                  5,771         7,567         3,832       (24,559)        (7,389)
Income from discontinued
     operations                                  1,094         1,277         1,477        26,629         30,477
Net income                                 $     6,865   $     8,844   $     5,309   $     2,070    $    23,088
===============================================================================================================
Per share:
Income (loss) from continuing
     operations                            $       .17   $       .21   $       .11   $      (.69)   $      (.21)
Income from discontinued
     operations                                    .03           .04           .04           .75            .87
Net income                                         .20           .25           .15           .06            .66
Dividends                                  $       .10   $       .10   $       .10   $       .10    $       .40
===============================================================================================================
a.   Gross profit equals total sales and operating revenues less cost of sales and operating costs (excluding 
     depreciation and amortization) and restructuring, systems integration and other special charges.
b.   Gross profit for the fourth quarter of 1997 was impacted positively by the effect of LIFO liquidations of 
     $3.1 million.
c.   Gross profit for the third and fourth quarters was impacted negatively by the effect of special charges of
     $5.3 million, and $43.1 million, respectively.

</TABLE>




                                      38
<PAGE>   40



<TABLE>
<CAPTION>


                                                          Quarters Ended 1996
                                  --------------------------------------------------------------------
(in thousands,
     except per share data)             March 31,   June 30,    September 30,  December 31,   Total
------------------------------------------------------------------------------------------------------

<S>                                    <C>          <C>          <C>          <C>           <C>       
Revenues                               $  255,251   $  279,092   $  289,197   $  289,964    $1,113,504
Gross profit (a)(b)(c)                     84,586       80,681       93,948       79,870       339,085
Income (loss) from continuing
     operations                             4,479        5,945        5,826       (6,599)        9,651
Income from discontinued
     operations                             1,227        1,228          928          689         4,072
Net income (loss)                      $    5,706   $    7,173   $    6,754   $   (5,910)   $   13,723
======================================================================================================
Per share:
Income (loss) from continuing
     operations                        $      .13   $      .18   $      .16   $     (.18)   $      .28
Income from discontinued
     operations                               .04          .04          .03          .02           .12
Net income (loss)                             .17          .22          .19         (.16)          .40
Dividends                              $      .10   $      .10   $      .10   $      .10    $      .40
======================================================================================================
a.   Gross profit equals total sales and operating revenues less cost of sales and operating costs 
     (excluding depreciation and amortization) and restructuring, systems integration and other special
     charges.
b.   Gross profit for the second, third and fourth quarters of 1996 was impacted positively by the 
     effect of LIFO liquidations of $300,000, $200,000 and $600,000, respectively.
c.   Gross profit for the first, second, third and fourth quarters was impacted negatively by the effect
     of special charges of $470,000, $340,000, $90,000 and $13.6 million, respectively.

</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.

PART III

ITEMS 10 THROUGH 13.

         Information concerning the executive officers of Quaker State appears
at the end of Part I of this annual report. In accordance with the provisions of
General Instruction G to Form 10-K, the other information required by Item 10
(Directors and Executive Officers of the Registrant) and the information
required by Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is incorporated in this annual report by reference from
the definitive Proxy Statement to be filed by Quaker State pursuant to
Regulation 14A no later than April 30, 1998 (except for the information required
to be included in such Proxy Statement by paragraphs (i), (k) and (l) of Item
402 of Regulation S-K).




                                      39
<PAGE>   41



PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A)(3) EXHIBITS:

         The exhibits listed below are filed as a part of this annual report:


<TABLE>
<CAPTION>
EXHIBIT
  NO                                     DOCUMENT
-------                                  --------
<S>               <C>
2(a)              Stock Purchase Agreement dated October 29, 1997 among Quaker
                  State Corporation, Quaker State Investment Corporation. and
                  Truck-Lite Acquisition Corporation with list of omitted
                  schedules (filed as Exhibit 2 to the Company's Current Report
                  on Form 8-K dated November 3, 1997 and incorporated herein by
                  reference).

2(b)              Asset Purchase Agreement by and among the Company, BC
                  Acquisition Corporation, Blue Coral, Inc. and the Blue Coral
                  Stockholders dated as of June 7, 1996, with list of omitted
                  schedules and exhibits (filed as Exhibit 2 to the Company's
                  Current Report on Form 8-K dated June 28, 1996 and
                  incorporated herein by reference).

2(b)(i)           Purchase Agreement dated December 12, 1996, among the Company,
                  Blue Coral, Inc., Sheldon Adelman, Joel Adelman and the Trust,
                  with exhibits (filed as Exhibit 99.3 to the Company's Current
                  Report on Form 8-K dated December 12, 1996 and incorporated
                  herein by reference).

2(c)              Stock Purchase Agreement by and among the Company and the Medo
                  Shareholders, dated as of August 30, 1996, with list of
                  omitted schedules and exhibits (filed as Exhibit 2(a) to the
                  Company's Current Report on Form 8-K dated October 2, 1996 and
                  incorporated herein by reference).

2(c)(i)           Amendment No. 1 to Stock Purchase Agreement Agreement by and 
                  among the Company and the Medo Shareholders, dated as of
                  October 2, 1996 (filed as Exhibit 2(b) to the Company's
                  Current Report on Form 8-K dated October 2, 1996 and
                  incorporated herein by reference).

3(i)              Composite Certificate of Incorporation of the Company amended 
                  as of May 16, 1997 (filed as Exhibit 3 to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1997 and incorporated herein by reference).

3(ii)             Bylaws of the Company, as amended to July 25, 1996 (filed as 
                  Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
                  the quarter ended September 30, 1996 and incorporated herein
                  by reference).

4(a)              Rights Agreement, dated as of September 28, 1995, between the
                  Company and Mellon Securities Trust Company, as Rights Agent
                  (filed as Exhibit 1 to the Company's Current Report on Form
                  8-K dated October 20, 1995 and incorporated herein by
                  reference).

4(b)              Form of Indenture between Quaker State and Chemical Bank, as
                  Trustee, related to $100,000,000 of 6.625% Notes due 2005
                  (filed as Exhibit 4(a) to the Company's Quarterly Report on
                  Form 10-Q for the quarter ended September 30, 1996 and
                  incorporated herein by reference).

4(c)              $400 Million Credit Agreement between Quaker State and Morgan 
                  Guaranty Trust Company of New York, as Agent, dated as of
                  June 12, 1997, with a list of omitted schedules and exhibits
</TABLE>




                                      40
<PAGE>   42

                  (filed as Exhibit 4(c) to the Company's Quarterly Report on
                  Form 10-Q for the quarter ended June 30, 1997 and
                  incorporated herein by reference).

10(a)             1986 Stock Option Plan, as amended through April 30,  1987 
                  (filed as Exhibit 10(b) to Form 10-K for the fiscal year
                  ended December 31, 1987 and incorporated herein by
                  reference).*

10(a)(i)          Resolution,  adopted on February 27, 1992 by the Board of  
                  Directors of Quaker State, amending Section 5(D) of the 1986
                  Stock Option Plan (filed as Exhibit 10(c) to Form 10-K for
                  the fiscal year ended December 31, 1991 and incorporated
                  herein by reference).*

10(a)(ii)         Third Amendment to the 1986 Stock Option Plan, dated October 
                  24, 1996 (filed as Exhibit 10(c) to the Company's Quarterly
                  Report on Form 10-Q for the quarter ended September 30, 1996
                  and incorporated herein by reference).*

10(b)             1994 Non-Employee Directors' Stock Option Plan (filed as 
                  Exhibit 10(d) to Form 10-K for the fiscal year ended December
                  31, 1994 and incorporated herein by reference).*

10(b)(i)          First Amendment to the 1994 Non-Employee Director's Stock 
                  Option Plan, dated October 24, 1996 (filed as Exhibit 10(d)
                  to the Company's Quarterly Report on Form 10-Q for the
                  quarter ended September 30, 1996 and incorporated herein by
                  reference).*

10(c)             1994 Stock Incentive Plan as amended and restated effective 
                  May 16, 1997 (filed as Exhibit 10(a) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1997 and incorporated herein by reference).*

10(d)             1996 Directors' Fee Plan, as amended and restated effective 
                  March 27, 1997 (filed as Exhibit 10(b) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1997 and incorporated herein by reference).*

10(e)             Forms of Split Dollar Life Insurance Agreement and related 
                  Collateral Assignment Agreement (filed as Exhibit 10(c) to
                  Form 10-K for the fiscal year ended December 31, 1987 and
                  incorporated herein by reference).*

10(e)(i)          First Amendment to Split Dollar Life Insurance Agreement 
                  (filed as Exhibit 10(g) to Form 10-K for the fiscal year
                  ended December 31, 1994 and incorporated herein by
                  reference).*

10(f)             Annual Incentive Bonus Plan, as amended and restated effective
                  January 1, 1995 (filed as Exhibit 10(h) to Form 10-K for the
                  fiscal year ended December 31, 1994 and incorporated herein
                  by reference).*

10(g)             Quaker State Amended and Restated Severance Plan, effective 
                  September 30, 1988 (filed as Exhibit 28.1 to Form 8-K filed
                  on October 17, 1988 and incorporated herein by reference).*

10(h)             Articles X and XI of the Quaker State Salaried Pension Plan,
                  as Amended and Restated effective July 1, 1989 for Quaker
                  State and certain of its subsidiaries (filed as Exhibit 28(b)
                  to Form 10-K for the fiscal year ended December 31, 1991 and
                  incorporated herein by reference).*

10(i)             Articles X and XI of the Quaker State Hourly Pension Plan, as
                  Amended and Restated effective July 1, 1989 for Quaker State
                  and certain of its subsidiaries (filed as Exhibit 28(e) to
                  Form 10-K for the fiscal year ended December 31, 1991 and
                  incorporated herein by reference).*

10(j)             Quaker State Supplemental Excess Retirement Plan (filed as 
                  Exhibit 10(k) to Form 10-K for the fiscal year ended December
                  31, 1992 and incorporated herein by reference).*



                                      41
<PAGE>   43

10(k)             Quaker State Supplemental Executive Retirement Plan 
                  (filed herewith).*

10(l)             Employment Agreement, dated as of August 1, 1994, between 
                  Quaker State Corporation and Herbert M. Baum (filed as
                  Exhibit 10(a) to Form 10-Q for the fiscal quarter ended
                  September 30, 1994 and incorporated herein by reference).*

10(l)(i)          Amendment to Employment Agreement with Herbert M. Baum dated 
                  May 10, 1996 (filed as Exhibit 10(a) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended September
                  30, 1996 and incorporated herein by reference).*

10(l)(ii)         Second Amendment to Employment Agreement with Herbert M. 
                  Baum dated March 20, 1997 (filed as Exhibit 10(k)(ii) to Form
                  10-K for the fiscal year ended December 31, 1996 and
                  incorporated herein by reference).*

10(l)(iii)        Third Amendment to Employment Agreement with Herbert M. Baum 
                  effective January 1, 1998 (filed herewith).*

10(m)             Employment Agreement, dated as of September 30, 1994, between 
                  Quaker State Corporation and L. David Myatt (filed as Exhibit
                  10(b) to Form 10-Q for the quarter ended September 30, 1994
                  and incorporated herein by reference).*

10(n)             Letter, dated as of June 5, 1995, between Quaker State and 
                  John D. Barr (filed as Exhibit 10(m) to the 1995 Form 10-K
                  and incorporated herein by reference).*

10(o)             Letter Agreement, dated February 28, 1996, between Quaker 
                  State and John D. Barr (filed as Exhibit 10(n) to the Form
                  10-K for the fiscal year ended December 31, 1995 and
                  incorporated herein by reference).*

10(p)             Letter Agreement, dated March 4, 1996, between Quaker State 
                  and Charles F. Bechtel (filed as Exhibit 10(o) to the Form
                  10-K for the fiscal year ended December 31, 1995 and
                  incorporated herein by reference).*

10(q)             Form of Indemnification and Insurance Agreement entered into 
                  between Quaker State and each of its directors (filed as
                  Exhibit 10(g) to Form 10-K for the fiscal year ended December
                  31, 1987 and incorporated herein by reference).

10(r)             Form of letter agreement entered into between Quaker State and
                  each of its non-employee directors regarding the retirement
                  benefits provided by Quaker State to its non-employee
                  directors (filed as Exhibit 10(n) to Form 10-K for the fiscal
                  year ended December 31, 1993 and incorporated herein by
                  reference).*

10(r)(i)          Resolution dated March 28, 1997 terminating the letter 
                  agreements entered into between Quaker State and each of its
                  current non-employee directors regarding the retirement
                  benefits provided by Quaker State to its non-employee
                  directors, (filed as Exhibit 10(c) to Form 10-Q for the
                  quarter ended June 30, 1997 and incorporated herein by
                  reference).*

10(s)             Outside Directors' Group Life Plan (filed as Exhibit 10(d) to
                  Form 10-K for the fiscal year ended December 31, 1986 and
                  incorporated herein by reference).*

10(t)             Form of amended and restated Employment Continuation Agreement
                  entered into between Quaker State and certain of its
                  executive officers (filed herewith).*

10(t)(i)          Amendment to amended and restated Employment Continuation 
                  Agreement between the Quaker State and Conrad A. Conrad
                  (filed herewith).*



                                      42
<PAGE>   44

11                Statement re Computation of Per Share Earnings (filed 
                  herewith).

12                Statement re Computation of Ratios (filed herewith).

21                List of subsidiaries of Quaker State Corporation (filed 
                  herewith).

23                Consent of Coopers & Lybrand L.L.P. (filed herewith).

24                Powers of Attorney (filed as part of Signature Page).

27                Financial Data Schedule (filed herewith).
--------
    *        Management contract or compensatory plan, contract or arrangement 
             required to be filed by Item 601(b)(10)(iii) of Regulation S-K.

         Quaker State agrees to furnish to the Commission upon request copies of
all instruments not listed above which define the rights of holders of long-term
debt of Quaker State and its subsidiaries.

         Copies of the above exhibits are available at a cost of $.20 per page 
to any stockholder upon written request to the Secretary, Quaker State
Corporation, 225 E. John Carpenter Freeway, Irving, Texas 75062.

(b)  REPORTS ON FORM 8-K:

The Company filed a current report on Form 8-K on November 17, 1997 and reported
under Item 2 the completion of the sale of the Company's subsidiary, Truck-Lite,
to a subsidiary of Penske Capital Partners LLC. Included with this current
report on Form 8-K were pro forma condensed consolidated statements of operation
of Quaker State and subsidiaries for the year and nine months ended December 31,
1996 and September 30, 1997, respectively, and a pro forma condensed
consolidated balance sheet for Quaker State and subsidiaries as of September 30,
1997, with corresponding notes.




                                      43
<PAGE>   45



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Quaker State has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               QUAKER STATE CORPORATION


                               By  /s/ Herbert M. Baum 
                                 --------------------------------------------
                                   Herbert M. Baum, Chairman of the Board and
                                   Chief Executive Officer

Date:  March 26, 1998


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 report on Form 10-K filed herewith and any and all amendments to said
report, 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 Exchange Act of 1934, 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
either of them, to said report and any and all amendments thereto.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report and Power of Attorney have been signed by the following persons in
the capacities and on the date indicated;


<TABLE>
<CAPTION>

            Name                                        Title                              Date
            ----                                        -----                              ----
<S>                                           <C>                                          <C>

/s/ Herbert M. Baum
-----------------------------
      (Herbert M. Baum)                       Chairman of the Board, Chief                 3/26/98
                                              Executive Officer and Director
                                              (Principal Executive Officer)

/s/ Conrad A. Conrad
-----------------------------
      (Conrad A. Conrad)                      Vice Chairman, Chief Financial               3/26/98
                                              Officer and Director (Principal
                                              Financial Officer)

/s/ Keith S. Krzeminski
-----------------------------
      (Keith S. Krzeminski)                   Vice President and Controller                3/26/98
                                              (Principal Accounting Officer)


</TABLE>


                                      44
<PAGE>   46

<TABLE>
<CAPTION>


<S>                                           <C>                                          <C>
/s/ John D. Barr                              Director                                     3/26/98
-----------------------------
      (John D. Barr)


/s/ Leonard M. Carroll                        Director                                     3/26/98
-----------------------------
      (Leonard M. Carroll)


/s/ J. Taylor Crandall                        Director                                     3/26/98
-----------------------------
      (J. Taylor Crandall)


/s/ Laurel Cutler                             Director                                     3/26/98
-----------------------------
      (Laurel Cutler)


/s/ C. Frederick Fetterolf                    Director                                     3/26/98
-----------------------------
      (C. Frederick Fetterolf)


/s/ Thomas A. Gardner                         Director                                     3/26/98
-----------------------------
      (Thomas A. Gardner)


/s/ F. William Grube                          Director                                     3/26/98
-----------------------------
      (F. William Grube)


/s/ Forrest R. Haselton                       Director                                     3/26/98
-----------------------------
      (Forrest R. Haselton)


/s/ Kenneth Lee                               Director                                     3/26/98
-----------------------------
      (Kenneth Lee)


/s/ L. David Myatt                            Director                                     3/26/98
-----------------------------
      (L. David Myatt)


/s/ Raymond A. Ross, Jr.                      Director                                     3/26/98
-----------------------------
      (Raymond A. Ross, Jr.)


/s/ Lorne R. Waxlax                           Director                                     3/26/98
-----------------------------
      (Lorne R. Waxlax)

</TABLE>


                                      45
<PAGE>   47



                   QUAKER STATE CORPORATION AND SUBSIDIARIES
                 Schedule II. Valuation and Qualifying Accounts
             for the years ended December 31, 1997, 1996, and 1995
                           (in thousands of dollars)

<TABLE>
<CAPTION>


                      Column A                        Column B       Column C       Column D          Column E
                      --------                        --------      --------        --------          --------
                                                                    Additions
                                                      Balance at    charged to                        Balance at
                                                      beginning     costs and                          end of
                     Description                      of period     expenses        Deductions         period
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>              <C>              <C>        
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
   NOTES RECEIVABLES:
1997 .........................................       $     4,140   $     3,881(a)   $     3,325(b)   $     4,696
1996 .........................................             3,475         1,981(a)         1,316(b)         4,140 
1995 .........................................             2,153         2,898(a)         1,576(b)         3,475 

(a) Includes $1.4 million. $1.5 million, and $1.4 million of additions due to business acquisition in 1997, 1996
    and 1995, respectively. 
(b) Accounts and notes receivable written off during the year.

</TABLE>



                                       46


<PAGE>   48



                                 EXHIBIT INDEX
                               TO 1997 FORM 10-K
                            QUAKER STATE CORPORATION


<TABLE>
<CAPTION>

EXHIBIT
  NO                                   DOCUMENT
-------                                --------

<S>               <C>
2(a)              Stock Purchase Agreement dated October 29, 1997 among Quaker
                  State Corporation, Quaker State Investment Corporation. and
                  Truck-Lite Acquisition Corporation with list of omitted
                  schedules, (filed as Exhibit 2 to the Company's Current Report
                  on Form 8-K dated November 3, 1997 and incorporated herein by
                  reference).

2(b)              Asset Purchase Agreement by and among the Company, BC
                  Acquisition Corporation, Blue Coral, Inc. and the Blue Coral
                  Stockholders dated as of June 7, 1996, with list of omitted
                  schedules and exhibits (filed as Exhibit 2 to the Company's
                  Current Report on Form 8-K dated June 28, 1996 and
                  incorporated herein by reference).

2(b)(i)           Purchase Agreement dated December 12, 1996, among the Company,
                  Blue Coral, Inc., Sheldon Adelman, Joel Adelman and the
                  Trust, with exhibits (filed as Exhibit 99.3 to the Company's
                  Current Report on Form 8-K dated December 12, 1996 and
                  incorporated herein by reference).

2(c)              Stock Purchase Agreement by and among the Company and the Medo
                  Shareholders, dated as of August 30, 1996, with list of
                  omitted schedules and exhibits (filed as Exhibit 2(a) to the
                  Company's Current Report on Form 8-K dated October 2, 1996 and
                  incorporated herein by reference).

2(c)(i)           Amendment No. 1 to Stock Purchase Agreement by and among the
                  Company and the Medo Shareholders, dated as of October 2,
                  1996 (filed as Exhibit 2(b) to the Company's Current Report
                  on Form 8-K dated October 2, 1996 and incorporated herein by
                  reference).

3(a)              Composite Certificate of Incorporation of the Company amended 
                  as of May 16, 1997 (filed as Exhibit 3 to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1997 and incorporated herein by reference).

3(b)              Bylaws of the Company, as amended to July 25, 1996 (filed as 
                  Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
                  the quarter ended September 30, 1996 and incorporated herein
                  by reference).

4(a)              Rights Agreement, dated as of September 28, 1995, between the
                  Company and Mellon Securities Trust Company, as Rights Agent
                  (filed as Exhibit 1 to the Company's Current Report on Form
                  8-K dated October 20, 1995 and incorporated herein by
                  reference).

4(b)              Form of Indenture between Quaker State and Chemical Bank, as
                  Trustee, related to $100,000,000 of 6.625% Notes due 2005
                  (filed as Exhibit 4(a) to the Company's Quarterly Report on
                  Form 10-Q for the quarter ended September 30, 1996 and
                  incorporated herein by reference).

4(c)              $400 Million Credit Agreement between Quaker State and Morgan 
                  Guaranty Trust Company of New York, as Agent, dated as of
                  June 12, 1997, with a list of omitted schedules and exhibits
                  (filed as Exhibit 4(c) to the Company's Quarterly Report on
                  Form 10-Q for the quarter ended June 30, 1997 and
                  incorporated herein by reference).

</TABLE>


                                      47

<PAGE>   49

<TABLE>
<CAPTION>

<S>               <C>
10(a)             1986 Stock Option Plan, as amended through April 30, 1987 
                  (filed as Exhibit 10(b) to Form 10-K for the fiscal year
                  ended December 31, 1987 and incorporated herein by
                  reference).*

10(a)(i)          Resolution, adopted on February 27, 1992 by the Board of 
                  Directors of Quaker State, amending Section 5(D) of the 1986
                  Stock Option Plan (filed as Exhibit 10(c) to Form 10-K for
                  the fiscal year ended December 31, 1991 and incorporated
                  herein by reference).*

10(a)(ii)         Third Amendment to the 1986 Stock Option Plan, dated October 
                  24, 1996 (filed as Exhibit 10(c) to the Company's Quarterly
                  Report on Form 10-Q for the quarter ended September 30, 1996
                  and incorporated herein by reference).*

10(b)             1994 Non-Employee Directors' Stock Option Plan (filed as 
                  Exhibit 10(d) to Form 10-K for the fiscal year ended December
                  31, 1994 and incorporated herein by reference).*

10(b)(i)          First Amendment to the 1994 Non-Employee Director's Stock 
                  Option Plan, dated October 24, 1996 (filed as Exhibit 10(d)
                  to the Company's Quarterly Report on Form 10-Q for the
                  quarter ended September 30, 1996 and incorporated herein by
                  reference).*

10(c)             1994 Stock Incentive Plan as amended and restated effective 
                  May 16, 1997 (filed as Exhibit 10(a) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1997 and incorporated herein by reference).*

10(d)             1996 Directors' Fee Plan, as amended and restated effective 
                  March 27, 1997 (filed as Exhibit 10(b) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1997 and incorporated herein by reference).*

10(e)             Forms of Split Dollar Life Insurance Agreement and related 
                  Collateral Assignment Agreement (filed as Exhibit 10(c) to
                  Form 10-K for the fiscal year ended December 31, 1987 and
                  incorporated herein by reference).*

10(e)(i)          First Amendment to Split Dollar Life Insurance Agreement  
                  (filed as Exhibit 10(g) to Form 10-K for the fiscal year
                  ended December 31, 1994 and incorporated herein by
                  reference).*

10(f)             Annual Incentive Bonus Plan, as amended and restated effective
                  January 1, 1995 (filed as Exhibit 10(h) to Form 10-K for the
                  fiscal year ended December 31, 1994 and incorporated herein
                  by reference).*

10(g)             Quaker State Amended and Restated Severance Plan, effective  
                  September 30, 1988 (filed as Exhibit 28.1 to Form 8-K filed
                  on October 17, 1988 and incorporated herein by reference).*

10(h)             Articles X and XI of the Quaker State Salaried Pension Plan,
                  as Amended and Restated effective July 1, 1989 for Quaker
                  State and certain of its subsidiaries (filed as Exhibit 28(b)
                  to Form 10-K for the fiscal year ended December 31, 1991 and
                  incorporated herein by reference).*

10(i)             Articles X and XI of the Quaker State Hourly Pension Plan, as
                  Amended and Restated effective July 1, 1989 for Quaker State
                  and certain of its subsidiaries (filed as Exhibit 28(e) to
                  Form 10-K for the fiscal year ended December 31, 1991 and
                  incorporated herein by reference).*

10(j)             Quaker State Supplemental Excess Retirement Plan (filed as
                  Exhibit 10(k) to Form 10-K for the fiscal year ended December
                  31, 1992 and incorporated herein by reference).*

10(k)             Quaker State Supplemental Executive Retirement Plan 
                  (filed herewith).*

</TABLE>


                                      48


<PAGE>   50

<TABLE>


<S>               <C>
10(l)             Employment Agreement, dated as of August 1, 1994, between 
                  Quaker State Corporation and Herbert M. Baum (filed as
                  Exhibit 10(a) to Form 10-Q for the fiscal quarter ended
                  September 30, 1994 and incorporated herein by reference).*

10(l)(i)          Amendment to Employment Agreement with Herbert M. Baum dated 
                  May 10, 1996 (filed as Exhibit 10(a) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended September
                  30, 1996 and incorporated herein by reference).*

10(l)(ii)         Second Amendment to Employment Agreement with Herbert M. Baum 
                  dated March 20, 1997 (filed as Exhibit 10(k)(ii) to Form 10-K
                  for the fiscal year ended December 31, 1996 and incorporated
                  herein by reference).*

10(l)(iii)        Third Amendment to Employment Agreement with Herbert M. Baum 
                  effective January 1, 1998 (filed herewith).*

10(m)             Employment Agreement, dated as of September 30, 1994, between 
                  Quaker State Corporation and L. David Myatt (filed as Exhibit
                  10(b) to Form 10-Q for the quarter ended September 30, 1994
                  and incorporated herein by reference).*

10(n)             Letter, dated as of June 5, 1995, between Quaker State and 
                  John D. Barr (filed as Exhibit 10(m) to the 1995 Form 10-K
                  and incorporated herein by reference).*

10(o)             Letter Agreement, dated February 28, 1996, between Quaker 
                  State and John D. Barr (filed as Exhibit 10(n) to the Form
                  10-K for the fiscal year ended December 31, 1995 and
                  incorporated herein by reference).*

10(p)             Letter Agreement, dated March 4, 1996, between Quaker State 
                  and Charles F. Bechtel (filed as Exhibit 10(o) to the Form
                  10-K for the fiscal year ended December 31, 1995 and
                  incorporated herein by reference).*

10(q)             Form of Indemnification and Insurance Agreement entered into 
                  between Quaker State and each of its directors (filed as
                  Exhibit 10(g) to Form 10-K for the fiscal year ended December
                  31, 1987 and incorporated herein by reference).

10(r)             Form of letter agreement entered into between Quaker State and
                  each of its non-employee directors regarding the retirement
                  benefits provided by Quaker State to its non-employee
                  directors (filed as Exhibit 10(n) to Form 10-K for the fiscal
                  year ended December 31, 1993 and incorporated herein by
                  reference).*

10(r)(i)          Resolution dated March 28, 1997 terminating the letter 
                  agreements entered into between Quaker State and each of its
                  current non-employee directors regarding the retirement
                  benefits provided by Quaker State to its non-employee
                  directors, (filed as Exhibit 10(c) to Form 10-Q for the
                  quarter ended June 30, 1997 and incorporated herein by
                  reference).*

10(s)             Outside Directors' Group Life Plan (filed as Exhibit 10(d) to 
                  Form 10-K for the fiscal year ended December 31, 1986 and
                  incorporated herein by reference).*

10(t)             Form of amended and restated Employment Continuation Agreement
                  entered into between Quaker State and certain of its
                  executive officers (filed herewith).*

10(t)(i)          Amendment to amended and restated Employment Continuation 
                  Agreement between the Quaker State and Conrad A. Conrad
                  (filed herewith).*

11                Statement re Computation of Per Share Earnings (filed herewith).

</TABLE>



                                      49
<PAGE>   51
<TABLE>
<CAPTION>

<S>        <C>
12         Statement re Computation of Ratios (filed herewith).
           
21         List of subsidiaries of Quaker State Corporation (filed herewith).
           
23         Consent of Coopers & Lybrand L.L.P. (filed herewith).
           
24         Powers of Attorney (filed as part of Signature Page).
           
27         Financial Data Schedule (filed herewith).
--------   
           
*          Management contract or compensatory plan, contract or arrangement 
           required to be filed by Item 601(b)(10)(iii) of Regulation S-K.
</TABLE>   

           
                               50
<PAGE>   52



                                                                  EXHIBIT 10(K)








                                                 APPROVED BY THE ORGANIZATION &
                                                 COMPENSATION COMMITTEE 2/28/95











                            QUAKER STATE CORPORATION
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN


                           EFFECTIVE JANUARY 1, 1995




                                      51
<PAGE>   53




                            QUAKER STATE CORPORATION
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----

<S>                    <C>                                                                                  <C>
                           PREAMBLE.................................................................        iii

ARTICLE  1.                DEFINITIONS..............................................................        1

ARTICLE     2.          BENEFITS...................................................................         3

   Section    2.01         Retirement Benefits......................................................        3
   Section    2.02         Death Benefits...........................................................        3
   Section    2.03         Beneficiary Designation..................................................        3

ARTICLE     3.          VESTING AND FORFEITURE OF BENEFITS..........................................        4

   Section    3.01      Vesting..................................................................           4
   Section    3.02         Forfeiture For Cause.....................................................        4
   Section    3.03         Forfeiture For Competition...............................................        4
   Section    3.04         No  Reinstatement........................................................        5
   Section    3.05      Other Remedies...........................................................           5

ARTICLE     4.             ADMINISTRATION............................................................       6

   Section 4.01            Committee and Agents.....................................................        6
   Section 4.02            Rules and Regulations....................................................        6
   Section 4.03            Committee Action.........................................................        6
   Section 4.04            Plan Interpretation......................................................        6
   Section 4.05            Notice of Participation..................................................        6
   Section 4.06            Costs....................................................................        6
   Section 4.07            Unsecured Creditor.......................................................        6
   Section 4.08            Authority of Board and Committee.........................................        6
   Section 4.09            Amendment, Modification or Termination...................................        7
   Section 4.10            Claim and Appeal Procedure...............................................        7
   Section 4.11            Status of Plan...........................................................        8
   Section 4.12            Tax Withholding..........................................................        8
   Section 4.13            Certificates and Reports.................................................        8

ARTICLE     5.             MISCELLANEOUS PROVISIONS.................................................        9

   Section 5.01            Merger or Consolidation..................................................        9
   Section 5.02            Gender and Number........................................................        9
   Section 5.03            Construction.............................................................        9
   Section 5.04            Non-alienation...........................................................        9
   Section 5.05            No Employment Rights.....................................................        9
   Section 5.06            Minor or Incompetent.....................................................        9
   Section 5.07            Illegal or Invalid  Provision............................................        10
   Section 5.08            Written Notice...........................................................        10


</TABLE>




                                      52
<PAGE>   54





                                    PREAMBLE

         The purpose of the Quaker State Corporation Supplemental Executive
Retirement Plan is to supplement the pension payable from the Quaker State
Corporation Salaried Pension Plan for designated executives which are limited
because the executive is not able to work the maximum years of service for which
pension benefits may be accrued under the Pension Plan. The main objectives of
the Plan are to enable Quaker State to attract and retain highly qualified
executives and to encourage executives to remain with Quaker State until
eligible for retirement. The Plan seeks to satisfy these objectives by providing
a supplemental pension.




                                      53
<PAGE>   55




                             ARTICLE 1. DEFINITIONS

         Section 1.01 - Definitions.  As used herein, the following words and 
phrases shall have the meanings  below,  unless the context  clearly  indicates
otherwise:

         (a)      "ACTUAL PENSION" shall mean the pension benefit under the 
                  Pension Plan which is paid to the Participant.

         (b)      "AVERAGE MONTHLY EARNINGS" shall mean the average monthly
                  earnings, as defined in the Pension Plan, which would be used
                  to calculate the Participant's pension under the Pension Plan
                  if the Participant retired as of the day after his last day as
                  a Participant in the Plan.

         (c)      "BENEFICIARY" shall mean the person or persons, natural or
                  legal, designated in writing by the Participant in accordance
                  with Section 2.03 to receive any benefits under the Plan which
                  may become payable in the event of the Participant's death, or
                  if none is designated or surviving at the time of the
                  Participant's death, the Participant's surviving spouse shall
                  be the Beneficiary or, if there is no surviving spouse, then
                  the estate of the Participant shall be the Beneficiary.

         (d)      "BOARD" shall mean the Board of Directors of Quaker State.

         (d)      "CODE" shall mean the Internal Revenue Code of 1986, as 
                  amended from time to time.

         (e)       "COMMITTEE" shall mean the Organization and Compensation
                  Committee of Quaker State.

         (g)      "EFFECTIVE DATE" shall mean January 1, 1995.

         (h)      "ERISA" shall mean the Employee Retirement Income Security Act
                  of 1974, as amended from time to time.

         (i)      "PARTICIPANT" shall mean any executive of Quaker State or a
                  Participating Entity who is at least age 55, is determined by
                  the Committee to be a member of a select group of management
                  or highly compensated employees for purposes of Title I of
                  ERISA, is specifically approved by the Committee to be a
                  participant in the Plan following a recommendation by the
                  Chief Executive Officer of Quaker State, and has executed a
                  Participation Agreement. The effective date for such executive
                  to be considered a Participant shall be established by the
                  Committee at the time of approval. An executive shall cease to
                  be a Participant if he either ceases to be an executive or the
                  Committee revokes participation hereunder (even if vested).

         (j)      "PARTICIPATION AGREEMENT" shall mean the agreement between
                  Quaker State or the Participating Entity and the Participant
                  which is provided by the Committee and required to be executed
                  pursuant to paragraph (i) above.

         (k)      "PARTICIPATING ENTITY" shall mean Quaker State and any other
                  subsidiary or affiliate of Quaker State which elects to
                  participate in the Plan with respect to Participants employed
                  by it and is approved by the Board or the Committee to
                  participate in the Plan, with such status as a Participating
                  Entity hereunder and participation in the Plan ceasing
                  automatically on the date the subsidiary or affiliate ceases
                  to be a subsidiary or affiliate of Quaker State.

         (l)      "PENSION PLAN" shall mean the Quaker State Corporation
                  Salaried Pension Plan until June 30, 1995 and the Quaker State
                  Corporation Pension Plan effective from June 30, 1995, or any
                  successor thereto, in effect from time to time.




                                      54
<PAGE>   56



         (m)      "PLAN" shall mean the Quaker State Corporation Supplemental
                  Executive Retirement Plan, as set forth herein or as it may be
                  amended hereafter.

         (n)      "PLAN YEAR" shall mean the calendar year.

         (o)      "QUAKER STATE" shall mean Quaker State Corporation.

         (p)      "TARGET PENSION" shall mean a monthly amount determined by
                  multiplying the Participant's Average Monthly Earnings while a
                  Participant by a percentage established by the Committee or
                  its delegate and specified in the Participant's Participation
                  Agreement.

                              ARTICLE 2. BENEFITS

         Section 2.01 - Retirement Benefits.

         (a)      A vested Participant shall receive a pension from the Plan
                  which is equal to the Target Pension, minus the Actual
                  Pension, minus any other defined benefit pension paid or
                  payable under a plan or agreement with Quaker State or a
                  Participating Entity other than this Plan. The amount payable
                  under the Plan shall be determined on the basis of the Actual
                  Pension and such other pension payable in the form of a single
                  life annuity beginning as of the later of the first day of the
                  month in which the Participant's 65th birthday occurs and the
                  first day of the month in which the Participant's Actual
                  Pension begins.

         (b)      Subject to (c) below, the pension payable from the Plan under
                  (a) above shall commence to the Participant, if then living,
                  in the form of a single life annuity at the same time as his
                  Actual Pension, but shall be adjusted for early commencement,
                  on the same basis as the Actual Pension is adjusted, if the
                  commencement date is prior to the month in which the
                  Participant's 65th birthday occurs.

         (c)      Notwithstanding (b) above, if the present value actuarial
                  equivalent of the amount to be paid under (a) above is not
                  more than $3,500, determined as of the first day of the month
                  in which occurs the Participant's termination of employment
                  which entitles the Participant to an Actual Pension, on the
                  basis of the assumptions used for calculating similar lump
                  sums under the Pension Plan, such lump sum amount shall be
                  paid to the Participant, if then living, either within thirty
                  (30) days after the Participant's termination of employment
                  occurs or not later than the first day of the month which is
                  at least forty-five (45) days after the Participant's
                  termination of employment occurs and shall be in lieu of all
                  other payments to the Participant under the Plan.

         Section 2.02 - Death Benefits. In the event of the death of the
Participant prior to the date on which a lump sum would have been made under
Section 2.01 (c) above, the payment shall be made on the scheduled payment date
to the Participant's Beneficiary and no other payments shall be due from the
Plan with respect to the Participant. No other death benefits are payable under
the Plan.

         Section 2.03 - Beneficiary Designation. A Participant may file with the
Committee or its delegate a completed Designation of Beneficiary Form as
prescribed by the Committee or its delegate. Such designation may be made,
revoked or changed by the Participant at any time before death or receipt of all
payments due under the Plan, but such designation will not be effective and
supersede all prior designations until it is received and acknowledged by the
Committee or its delegate. If the Committee has any doubt as to the proper
Beneficiary to receive payments hereunder, the Committee shall have the right to
withhold such payments until the matter is finally adjudicated. However, any
payment made in good faith shall fully discharge the Committee, Quaker State,
the Participating Entities and the Board from all further obligations with
respect to that payment.




                                      55
<PAGE>   57



                 ARTICLE 3. VESTING AND FORFEITURE OF BENEFITS

         Section 3.01 - Vesting. Subject to Sections 3.02 and 3.03 below, a
participant shall be 100% vested in the Participant's interest in the Plan as of
the later of completion of five (5) years as a Participant in the Plan or
becoming 100% vested in the Actual Pension pursuant to the Pension Plan. Any
Participant who fails to become 100% vested in his Actual Pension shall forfeit
all benefits under the Plan and shall not be entitled to any payment under the
Plan.

         Section 3.02 - Forfeiture for Cause. Notwithstanding any other
provisions in this Article 3 or elsewhere in the Plan, the Committee may
determine that the Participant shall forfeit and no longer be entitled to his or
her entire interest in the Plan (and any related death benefit shall also be
forfeited) if it finds that "cause" exists (whether before or after retirement
and whether or not the Participant retires or is dismissed). For this purpose,
"cause" shall mean:

         (a)      conviction of, or guilty plea or plea of nolo contendere to, a
                  felony, criminal misconduct involving a serious act of
                  dishonesty, fraud, embezzlement, or a crime involving moral
                  turpitude;

         (b)      negligent or willful failure to perform his duties and/or
                  fulfill the responsibilities of his position with Quaker State
                  or a Participating Entity;

         (c)      engaging in deliberate conduct injurious to Quaker State, a 
                  Participating Entity or its affiliates; or

         (d)      violation of a Quaker State or Participating Entity policy,
                  breach of any covenant contained in any Quaker State or
                  Participating Entity plan or agreement applicable to the
                  Participant, or breach of his fiduciary duty to Quaker State
                  or a Participating Entity.

         The Committee's determination as to cause and forfeiture shall be final
and binding.

         Section 3.03 - Forfeiture for Competition. Notwithstanding any other
provisions in this Article 3 or elsewhere in the Plan, the Committee may
determine that the Participant shall forfeit and no longer be entitled to his or
her entire interest in the Plan (and any related death benefit shall also be
forfeited) if it finds that the Participant has while employed by Quaker State,
a participating Entity, or its affiliates or within twenty-four (24) months
after retirement engaged in "Competition" with Quaker State, a Participating
Entity, or affiliates or, without the prior written consent of Quaker State, has
during the time disclosed "Confidential Information" or made it available to
anyone outside the organization at any time.

         (a)       "Competition" shall mean:

                  (1) entering into the employment of or rendering services in
         any capacity to, or having any ownership or other relationship directly
         or indirectly with, any business if such employment or services would
         involve or relate to the manufacture, sale or attempted sale, within
         the United States, or outside of the United States where Quaker State,
         a Participating Entity or an affiliate is doing business at the time of
         Participant's termination of employment, of products competitive with
         any products sold by Quaker State, a Participating Entity, or
         affiliates;

                  (2) calling on or otherwise soliciting, directly or
         indirectly, business from any of the customers or suppliers of Quaker
         State, a Participating Entity, or affiliates; or

                  (3) encouraging or soliciting, directly or indirectly, any
         employee of Quaker State, a Participating Entity, or affiliates to
         leave employment with Quaker State, a Participating Entity, or
         affiliates for any reason, or hiring any such employee.


                                      56

<PAGE>   58

         (b)      "Confidential Information" shall mean confidential and
                  proprietary data and trade secrets, including, but not limited
                  to, information concerning sales, sales volume, sales methods,
                  sales proposals, customers and prospective customers, identity
                  of customers and prospective customers, identity of key
                  purchasing personnel in the employ of customers and
                  prospective customers, amount or kind of customer purchases,
                  sources of supply, computer programs, system documentation,
                  special hardware, product hardware, related software
                  development, manuals, formulae, processes, methods, machines,
                  compositions, ideas, improvements, inventions, or other
                  confidential or proprietary information belonging to or
                  relating to the affairs of Quaker State, a Participating
                  Entity, or affiliates.

         Section 3.04 - No Reinstatement.  If a Participant's interest in the 
Plan is cancelled or forfeited for any reason, it cannot be reinstated.

         Section 3.05 - Other Remedies. The forfeiture of Plan benefits will not
provide an adequate or exclusive remedy for breach of the covenant not to engage
in Competition or the covenant not to disclose Confidential Information. Quaker
State and the Participating Entities shall have available for any such breach
the remedies of specific performance and injunctive relief, the right to sue the
Participant or other recipient to recover any amounts paid under the Plan, and
all other available remedies at law or in equity.

                           ARTICLE 4. ADMINISTRATION

         Section 4.01 - Committee and Agents. Full power and authority to
administer the Plan shall be vested in the Committee. The Committee may also
employ such agents as it deems appropriate to assist it with the administration
of the Plan.

         Section 4.02 - Rules and Regulations. The Committee may adopt such
rules and regulations of general application as are beneficial for the
administration of the Plan.

         Section 4.03 - Committee Action.  The Committee shall transact business
 relating to the Plan in accordance with its by-laws.

         Section 4.04 - Plan Interpretation. The Committee shall have the full
power and authority to construe and interpret the Plan, make all determinations
of benefits under the Plan, approve all Participants, and determine all facts
and other issues relating to claims and appeals under the Plan.

         Section 4.05 - Notice of Participation. Following a Participant's
termination of employment which entitles the Participant to an Actual Pension,
or following the death of the Participant, the Committee or its delegate shall
send a written notice informing the Participant or other person entitled to a
benefit under the Plan that he is entitled to a benefit under the Plan. Being a
Participant from time to time does not guarantee that a benefit will be payable
under the Plan.

         Section 4.06 - Costs.  All costs and expenses involved in the 
administration of the Plan shall be borne by Quaker State or the Participating
Entity.

         Section 4.07 - Unsecured Creditor. The Plan constitutes only a promise
by Quaker State or the Participating Entity to make benefit payments in the
future. Quaker State's and the Participating Entities' obligations under the
Plan shall be unfunded and unsecured promises to pay. Quaker State and the
Participating Entities shall not be obligated under any circumstance to fund
their respective financial obligations under the Plan. Any of them may, in its
discretion, set aside funds in a trust or other vehicle, subject to the claims
of its creditors, in order to assist it in meeting its obligations under the
Plan, if such arrangement will not cause the Plan to be considered a funded
deferred compensation plan under ERISA or the Code. Quaker State, the
Participating Entities, and the Plan do not give the Participant any beneficial
ownership interest in any asset of Quaker State or the Participating Entity. The
Participants and their Beneficiaries shall have the status of, and their rights
to 




                                      57
<PAGE>   59



receive payments under the Plan shall be no greater than the rights of,
general unsecured creditors of Quaker State or the applicable Participating
Entity.

         Section 4.08 - Authority of Board and Committee. Any determination or
action of the Committee or the Board as evidenced by their minutes or other
records shall be final, conclusive and binding on all Participants and other
recipients, and their beneficiaries, heirs, personal representatives, executors
and administrators. No Participant shall participate in any decision of the
Board or the Committee which directly or indirectly affects the Participant's
benefits under the Plan.

         Section 4.09 - Amendment, Modification or Termination. The Board or the
Committee, in its sole discretion, may amend, modify or terminate the Plan at
any time and from time to time, provided that no such amendment, modification,
or termination shall reduce the benefit then being paid to the Participant or
other person from the Plan or which would be payable if the Participant retired
or died on the day before any such amendment, modification or termination,
unless consented to by the affected Participant or by such other person if the
Participant is deceased.

         Section 4.10 - Claim and Appeal Procedure.

         (a)      In the event of a claim by a Participant or other person for 
                  or in respect of any benefit under the Plan, such Participant
                  or other person shall present the reason for the claim in
                  writing to the Committee, addressed to the principal place of
                  business of Quaker State, or to such other person or entity
                  designated by the Committee. The Committee shall, within
                  ninety (90) days after the receipt of such written claim,
                  send written notification to the Participant or other person
                  as to its disposition, unless special circumstances require
                  an extension of time for processing the claim. If such an
                  extension of time for processing is required, written notice
                  of the extension shall be furnished to the claimant prior to
                  the termination of the initial ninety (90) day period. In no
                  event shall such extension exceed a period of ninety (90)
                  days from the end of such initial period. The extension
                  notice shall indicate the special circumstances requiring an
                  extension of time and the date by which the Committee expects
                  to render the final decision.

                  In the event the claim is wholly or partially denied, the
         written notification shall state the specific reason or reasons for the
         denial, include specific references to pertinent Plan provisions on
         which the denial is based, provide an explanation of any additional
         material or information necessary for the Participant or other person
         to perfect the claim and a statement of why such material or
         information is necessary, and set forth the procedure by which the
         Participant or other person may appeal the denial of the claim. If the
         claim has not been granted and notice is not furnished within the time
         period specified in the preceding paragraph, the claim shall be deemed
         denied for the purpose of proceeding to appeal in accordance with
         paragraph (b) below.

         (b)      In the event a Participant or other person wishes to appeal
                  the claim denial, he may request a review of such denial by
                  making written application to the Committee, addressed to the
                  principal place of business of Quaker State, or to such other
                  person or entity designated by the Committee, within sixty
                  (60) days after receipt of the written notice of denial (or
                  the date on which such claim is deemed denied if written
                  notice is not received within the applicable time period
                  specified in paragraph (a) above). Such Participant or other
                  person (or his duly authorized representative) may, upon
                  written request to the Committee, review documents that are
                  pertinent to such claim, and submit in writing issues and
                  comments in support of his position.

                  Within sixty (60) days after receipt of the written appeal
                  (unless an extension of time is necessary due to special
                  circumstances or is agreed to by the parties, but in no event
                  more than one hundred and twenty (120) days after such
                  receipt), the Committee shall notify the Participant or other
                  person of its final decision. Such final decision shall be in
                  writing and shall include specific reasons for the decision,
                  written in a manner calculated to be understood by the
                  claimant, and specific references to the pertinent Plan
                  provisions on which the decision is based. If an 



                                      58
<PAGE>   60


                  extension of time for review is required because of special
                  circumstances, written notice of the extension shall be
                  furnished to the claimant prior to the commencement of the
                  extension. If the claim has not been granted and written
                  notice is not provided within the time period specified
                  above, the appeal shall be deemed denied.

         (c)      If a Participant or other person does not follow the
                  procedures set forth in paragraphs (a) and (b) above, he shall
                  be deemed to have waived the right to appeal benefit
                  determinations under the Plan. In addition, all determinations
                  by and decisions of the Committee under this Section shall be
                  binding on and conclusive as to the Participant or other
                  person.

         Section 4.11 - Status of Plan. The Plan is intended to constitute an
unfunded plan for tax purposes and for purposes of Title I of ERISA and is
intended to be maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees of
Quaker State and Participating Entities and to qualify for the exclusions from
Title I of ERISA which are provided for in Sections 201(2), 301 (a)(3) and 401
(a)(1) of ERISA. Notwithstanding any provision in this Plan to the contrary, in
the event that the Department of Labor, or any other regulatory or other body,
issues final regulations which provide, or a court issues a final determination,
that the Plan does not qualify for any of such exclusions under ERISA, the Board
or the Committee may amend the Plan and the Committee may revoke the
participation of all or some Participants, and the Committee may take such other
action as it determines to be appropriate in order for the Plan to qualify for
such exclusions notwithstanding Section 4.09 above.

         Section 4.12 - Tax Withholding. All benefits under the Plan shall be
subject to Federal income, FICA, and other tax withholding as required by
applicable law. At the time that tax withholding is required, if an amount is
payable under the Plan to the Participant the amount of the required tax
withholding shall be withheld from and reduce such payment. If, however, an
amount is not then payable or the amount payable under the Plan to the
Participant is less than the required withholding, the Participant shall pay, by
check or money order payable to Quaker State or the Participating Entity
employing the Participant, not later than the date such withholding is required,
the amount of the required tax withholding or, at the sole election of Quaker
State or such Participating Entity, the amount of required tax withholding shall
be withheld from other compensation or amounts payable to the Participant. The
Participant shall hold Quaker State or such Participating Entity harmless from
any liability for acting to satisfy the withholding obligation in this manner.

         Section 4.13 - Certificates and Reports. The members of the Committee
and the officers and directors of Quaker State and the Participating Entities
shall be entitled to rely on all certificates and reports made by any
accountants, and on all opinions given by legal counsel.

                      ARTICLE 5. MISCELLANEOUS PROVISIONS

         Section 5.01 - Merger or Consolidation. All obligations for amounts
earned but not yet paid under this Plan shall survive any merger, consolidation
or sale of all or substantially all of Quaker State's or a Participating
Entity's assets to any entity, and be the liability of the successor to the
merger or consolidation or the purchaser of assets, unless otherwise agreed by
the parties thereto.

         Section 5.02 - Gender and Number. The masculine pronoun whenever used
in the Plan shall include the feminine and vice versa. The singular shall
include the plural and the plural shall include the singular whenever used
herein unless the context requires otherwise.

         Section 5.03 - Construction. The provisions of the Plan shall be
construed, administered and governed by the laws of the Commonwealth of
Pennsylvania, including its statute of limitations provisions, to the extent not
preempted by ERISA or other applicable Federal law. Titles of Articles and
Sections of the Plan are for convenience of reference only and are not to be
taken into account when construing and interpreting the provisions of the Plan.



                                      59
<PAGE>   61

         Section 5.04 - Non-alienation. Except as may be required by law,
neither the Participant nor any other person shall have the right to, directly
or indirectly, alienate, assign, transfer, pledge, anticipate or encumber any
amount that is or may be payable hereunder, including in respect of any
liability of a Participant or other person for alimony or other payments for the
support of a spouse, former spouse, child or other dependent, prior to actually
being received by the Participant or other person hereunder, nor shall the
Participant's or other person's rights to benefit payments under the Plan be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or other person or to the debts, contracts, liabilities, engagements, or torts
of any Participant or other person, or transfer by operation of law in the event
of bankruptcy or insolvency of the Participant or other person, or any legal
process.

         Section 5.05 - No Employment Rights. Neither the adoption of the Plan
nor any provision of the Plan shall be construed as a contract of employment
between Quaker State or a Participating Entity and any Participant, or as a
guarantee or right of any Participant to future or continued employment with
Quaker State or a Participating Entity, or as a limitation on the right of
Quaker State or a Participating Entity to discharge any of its employees with or
without cause. Specifically, being a Participant does not create any rights, and
no rights are created under the Plan, with respect to continued or future
employment or conditions of employment.

         Section 5.06 - Minor or Incompetent. If the Committee determines that
any Participant or other person entitled to a payment under the Plan is a minor
or incompetent by reason of physical or mental disability, it may, in its sole
discretion, cause any payment thereafter becoming due to such person to be made
to any other person for his benefit, without responsibility to follow
application of amounts so paid. Payments made pursuant to this provision shall
completely discharge Quaker State, the Participating Entities, the Plan, the
Committee, and the Board.

         Section 5.07 - Illegal or Invalid Provision. In case any provision of
the Plan shall be held illegal or invalid for any reason, such illegal or
invalid provision shall not affect the remaining parts of the Plan, but the Plan
shall be construed and enforced without regard to such illegal or invalid
provision.

         Section 5.08 - Written Notice. Any notice to the Committee that shall
or may be given under the Plan shall be in writing and shall be delivered to the
Committee or its delegate. Notice to a Participant shall be addressed to the
current address on record with the Participating Entity. Any party may, from
time to time, change the address to which notices shall be marked by giving
written notice of such new address to the other party.



                                      60
<PAGE>   62



                                                             EXHIBIT 10(l)(iii)

                                THIRD AMENDMENT

                            TO EMPLOYMENT AGREEMENT



         This Third Amendment to Employment Agreement ("Third Amendment"), made
and entered into effective as of January 1, 1998, by and between Quaker State
Corporation (hereinafter called the "Corporation"), a Delaware Corporation, and
Herbert M. Baum, an individual currently residing in Irving, Texas (hereinafter
called the "Executive"),

                                WITNESSETH THAT:

         WHEREAS, the Executive is employed by the Corporation as its Chairman
and Chief Executive Officer under an Employment Agreement dated as of August 1,
1994, which was previously amended by the First and Second Amendments to
Employment Agreement dated as of May 10, 1996 and January 1, 1997, respectively,
(which agreement, as amended, is hereinafter called the "Employment Agreement");
and

         WHEREAS, the parties desire by this Third Amendment to modify the terms
of the Employment Agreement in certain respects as hereinafter set forth;

         NOW, THEREFORE, the Corporation and the Executive covenant and agree as
follows, intending to be legally bound:

1.       Paragraph 1(b) is hereby amended to substitute the date "December 31,
         1998" for the date "July 31, 1998" in the first sentence thereof, and
         to substitute the dates "January 1, 1999, January 1, 2000 and January
         1, 2001" for the dates "August 1, 1998, August 1, 1999 and August 1,
         2000" in the second sentence thereof.

2.       Paragraph 6(c) is hereby amended to insert the parenthetical clause
         "(but only if, at the relevant time, such entity or a direct or
         indirect parent or subsidiary of such entity continues to engage in
         competition with the Corporation or any of its direct or indirect
         parents or subsidiaries)" after the words "any direct or indirect
         parent or subsidiary of any of the foregoing companies" and before the
         comma at the end of such phrase.

3.        Paragraph 7(d)(vi) is hereby amended to substitute the dollar amount 
          "$300,000" for the dollar amount "$200,000" in the first sentence 
          thereof.

4.       Paragraph 8(c) is hereby amended to delete the second sentence of the
         first paragraph thereof and insert the following three new paragraphs
         following the second paragraph thereof:

                  In the event that any amount or benefit paid or distributed to
                  the Executive pursuant to this Agreement, taken together with
                  any amounts or benefits otherwise paid or distributed to the
                  Executive by the Corporation or any affiliated company
                  (collectively, the "Covered Payments"), are or become subject
                  to the tax (the "Excise Tax") imposed under Section 4999 of
                  the Code, or any similar tax that may hereafter be imposed,
                  the Corporation shall pay to the Executive at the time
                  specified below an additional amount (the "Tax Reimbursement
                  Payment") such that the net amount retained by the Executive
                  with respect to such Covered Payments, after deduction of any
                  Excise Tax on the Covered Payments and any Federal, state and
                  local income or employment tax and Excise Tax on the Tax
                  Reimbursement Payment provided for hereby, but before
                  deduction for any Federal, state and local income or
                  employment tax withholding on such Covered Payments, shall be
                  equal to the amount of the Covered Payments. For purposes of
                  determining whether any of the Covered Payments will be
                  subject to the Excise Tax and the amount of such Excise Tax,


                                      61

<PAGE>   63

         (i)             such Covered Payments will be treated as "parachute 
                  payments" within the meaning of Section 280G of the Code, and
                  all "parachute payments" in excess of the "base amount" (as
                  defined under Section 280G(b)(3) of the Code) shall be
                  treated as subject to the Excise Tax, unless, and except to
                  the extent that, in the good faith judgment of the
                  Corporation's independent certified public accountants
                  appointed prior to the Change of Control Date or tax counsel
                  selected by such Accountants (the "Accountants"), the
                  Corporation has a reasonable basis to conclude that such
                  Covered Payments (in whole or in part) either do not
                  constitute "parachute payments" or represent reasonable
                  compensation for personal services actually rendered (within
                  the meaning of Section 280G(b)(4)(B) of the Code) in excess
                  of the "base amount," or such "parachute payments" are
                  otherwise not subject to such Excise Tax, and

         (ii)            the value of any non-cash benefits or any deferred 
                  payment or benefit shall be determined by the Accountants in
                  accordance with the principles of Section 280G of the Code.

For purposes of determining the amount of the Tax Reimbursement Payment, the
Executive shall be deemed to pay:

         (x)      Federal income taxes at the highest applicable marginal rate
                  of Federal income taxation for the calendar year in which the
                  Tax Reimbursement Payment is to be made, and

         (y)      any applicable state and local income taxes at the highest
                  applicable marginal rate of taxation for the calendar year in
                  which the Tax Reimbursement Payment is to be made, net of the
                  maximum reduction in Federal income taxes which could be
                  obtained from the deduction of such state or local taxes if
                  paid in such year.

                  In the event that the Excise Tax is subsequently determined by
                  the Accountants or pursuant to any proceeding or negotiations
                  with the Internal Revenue Service to be less than the amount
                  taken into account hereunder in calculating the Tax
                  Reimbursement Payment made, the Executive shall repay to the
                  Corporation, at the time that the amount of such reduction in
                  the Excise Tax is finally determined, the portion of such
                  prior Tax Reimbursement Payment that would not have been paid
                  if such Excise Tax had been applied in initially calculating
                  such Tax Reimbursement Payment, plus interest on the amount of
                  such repayment at the rate provided in Section 1274(b)(2)(B)
                  of the Code. Notwithstanding the foregoing, in the event any
                  portion of the Tax Reimbursement Payment to be refunded to the
                  Corporation has been paid to any Federal, state or local tax
                  authority, repayment thereof shall not be required until
                  actual refund or credit of such portion has been made to the
                  Executive, and interest payable to the Corporation shall not
                  exceed interest received or credited to the Executive by such
                  tax authority for the period it held such portion. The
                  Executive and the Corporation shall mutually agree upon the
                  course of action to be pursued (and the method of allocating
                  the expenses thereof) if the Executive's good faith claim for
                  refund or credit is denied. In the event that the Excise Tax
                  is later determined by the Accountants or pursuant to any
                  proceeding or negotiations with the Internal Revenue Service
                  to exceed the amount taken into account hereunder at the time
                  the Tax Reimbursement Payment is made (including, but not
                  limited to, by reason of any payment the existence or amount
                  of which cannot be determined at the time of the Tax
                  Reimbursement Payment), the Corporation shall make an
                  additional Tax Reimbursement Payment in respect of such excess
                  (plus any interest or penalty payable with respect to such
                  excess) at the time that the amount of such excess is finally
                  determined.

                  The Tax Reimbursement Payment (or portion thereof) provided
                  for herein shall be paid to the Executive not later than 10
                  business days following the payment of the Covered Payments;
                  provided, however, that if the amount of such Tax
                  Reimbursement Payment (or portion thereof) cannot be finally
                  determined on or before the date on which payment is due, the
                  Corporation shall pay to the Executive by such date an amount
                  estimated in good faith by the Accountants to 

                                      62
<PAGE>   64

                  be the minimum amount of such Tax Reimbursement Payment and
                  shall pay the remainder of such Tax Reimbursement Payment
                  (together with interest at the rate provided in Section
                  1274(b)(2)(B) of the Code) as soon as the amount thereof can
                  be determined, but in no event later than 45 calendar days
                  after payment of the related Covered Payment. In the event
                  that the amount of the estimated Tax Reimbursement Payment
                  exceeds the amount subsequently determined to have been due,
                  such excess shall constitute a loan by the Corporation to the
                  Executive, payable on the fifth business day after written
                  demand by the Corporation for payment (together with interest
                  at the rate provided in Section 1274(b)(2)(B) of the Code).

5. Paragraph 10(b) is hereby amended in its entirety to provide as follows:

                  (b)       if to the Executive, to:

                           Herbert M. Baum
                           11468 E. Black Rock Rd.
                           Scottsdale, Arizona 85255

6. Paragraph 16 is hereby amended to substitute the words "State of Delaware" 
   for the words "Commonwealth of Pennsylvania", wherever they appear.

                  IN WITNESS WHEREOF, the parties have executed this Third
Amendment as of the day and year first set forth above.


                                 QUAKER STATE CORPORATION

                                 By: /s/ Conrad A. Conrad
                                    --------------------------------------------
                                 Its:  Vice Chairman and Chief Financial Officer



                                 EXECUTIVE

                                   /s/ Herbert M. Baum                    
                                 -----------------------------------------------
                                 Herbert M. Baum




                                      63
<PAGE>   65



                                                                  EXHIBIT 10(t)

                       EMPLOYMENT CONTINUATION AGREEMENT

         THIS AGREEMENT between Quaker State Corporation, a Delaware corporation
(the "Company"), and ___________ (the "Executive"), dated as of this _____ day
of ________, 199__.

                              W I T N E S S E T H:

         WHEREAS, the Company has employed the Executive in an officer position
and has determined that the Executive holds an important position with the
Company;

         WHEREAS, the Company believes that, in the event it is confronted with
a situation that could result in a change in ownership or control of the
Company, continuity of management will be essential to its ability to evaluate
and respond to such situation in the best interests of shareholders;

         WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;

         WHEREAS, the Company desires to assure itself of the Executive's
services during the period in which it is confronting such a situation, and to
provide the Executive certain financial assurances to enable the Executive to
perform the responsibilities of his position without undue distraction and to
exercise his judgment without bias due to his personal circumstances;

         WHEREAS, to achieve these objectives, the Company and the Executive
desire to enter into an agreement providing the Company and the Executive with
certain rights and obligations upon the occurrence of a Change of Control or
Potential Change of Control (as defined in Section 2);

         NOW, THEREFORE, in consideration of premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:

         1. Operation of Agreement. (a) Effective Date. The effective date of
this Agreement shall be the date on which a Change of Control occurs (the
"Effective Date"), provided that, except as provided in Section 1(b), if the
Executive is not employed by the Company on the Effective Date, this Agreement
shall be void and without effect.

         (b)  Termination of Employment Following a Potential Change of Control.
Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and (ii) a Change of Control occurs within one year of such termination, the
Executive shall be deemed, solely for purposes of determining his rights under
this Agreement, to have remained employed until the date such Change of Control
occurs and to have been terminated by the Company Without Cause immediately
after this Agreement becomes effective.

         2. Definitions. (a) Change of Control. For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if:

                  (i) any Person (as defined below) has acquired, "beneficial
         ownership" (within the meaning of Rule 13d-3, as promulgated under
         Section 13(d) of the Securities Exchange Act of 1934, as amended (the
         "Exchange Act")) of securities of the Company representing 30% or more
         of the combined Voting Power (as defined below) of the Company's
         securities;

                  (ii) as a result of a solicitation subject to Rule 14a-11
         under the Exchange Act (or any successor rule thereto), the persons who
         were directors of the Company immediately before such solicitation
         shall 



                                      64
<PAGE>   66

         cease to constitute at least a majority of the Board or the board
         of directors of any successor to the Company; or

                  (iii) the stockholders of the Company approve a merger,
         consolidation, share exchange, division, sale or other disposition of
         the assets of the Company (a "Corporate Event"), as a result of which
         the shareholders of the Company immediately prior to such Corporate
         Event shall not hold, directly or indirectly, immediately following
         such Corporate Event a majority of the Voting Power of (x) in the case
         of a merger or consolidation, the surviving or resulting corporation,
         (y) in the case of a share exchange, the acquiring corporation or (z)
         in the case of a division or a sale or other disposition of assets,
         each surviving, resulting or acquiring corporation which, immediately
         following the relevant Corporate Event, holds more than 10% of the
         consolidated assets of the Company immediately prior to such Event.

         (b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:

         (i) a Person commences a tender offer (with adequate financing) for 
securities representing at least 20% of the Voting Power of the Company's 
securities;

         (ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;

         (iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or

         (iv) any other event occurs which is deemed to be a Potential Change of
Control by the Board.

         (c) Person Defined. For purposes of this Section 2, "Person" shall have
the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as
supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that
Person shall not include (i) the Company or any subsidiary of the Company or
(ii) any employee benefit plan sponsored by the Company or any subsidiary of the
Company.

         (d) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors (without consideration of the rights of any
class of stock other than the common stock of the company to elect directors by
a separate class vote); and "Voting Securities" shall mean all securities of a
company entitling the holders thereof to vote in an annual election of directors
(without consideration of the rights of any class of stock other than the common
stock of the company to elect directors by a separate class vote).

         3. Employment Period. Subject to Section 6 of this Agreement, the
Company agrees to continue the Executive in its employ, and the Executive agrees
to remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the second anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position that the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.

         4. Position and Duties. (a) No Reduction in Position. During the
Employment Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.


                                      65

<PAGE>   67

         (b) Business Time. From and after the Effective Date, the Executive
agrees to devote his full attention during normal business hours to the business
and affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is otherwise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.

         5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly salary paid to the Executive by the Company and any of its affiliated
companies immediately prior to the Effective Date. The base salary shall be
reviewed at least once each year after the Effective Date, and may be increased
(but not decreased) at any time and from time to time by action of the Board or
any committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.

         (b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives) than the annual bonus
opportunity that had been made available to the Executive for the fiscal year
ended immediately prior to the Effective Date (the "Annual Bonus Opportunity").
Any amount payable in respect of the Annual Bonus Opportunity shall be paid as
soon as practicable following the year for which the amount (or prorated
portion) is earned or awarded, unless electively deferred by the Executive
pursuant to any deferral programs or arrangements that the Company may make
available to the Executive.

         (c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.

         (d) Benefit Plans. During the Employment Period, the Executive (and, to
the extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life, accidental death and travel accident
insurance plans and programs of the Company and its affiliated companies at a
level that is commensurate with the Executive's participation in such plans
immediately prior to the Effective Date, or, if more favorable to the Executive,
at the level made available to the Executive or other similarly situated
officers at any time thereafter.

         (e) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the policies and procedures of the Company as
in effective immediately prior to the Effective Date. Notwithstanding the
foregoing, the Company may apply the policies and procedures in effect after the
Effective Date to the Executive, if such policies and procedures are more
favorable to the Executive than those in effect immediately prior to the
Effective Date.

         (f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.


                                      66

<PAGE>   68

         (g) Indemnification. During and after the Employment Period, the
Company shall indemnify the Executive and hold the Executive harmless from and
against any claim, loss or cause of action arising from or out of the
Executive's performance as an officer, director or employee of the Company or
any of its Subsidiaries or in any other capacity, including any fiduciary
capacity, in which the Executive serves at the request of the Company to the
maximum extent permitted by applicable law and the Company's Certificate of
Incorporation and By-laws (the "Governing Documents"), provided that in no event
shall the protection afforded to the Executive hereunder be less than that
afforded under the Governing Documents as in effect immediately prior to the
Effective Date.

         (h) Office and Support Staff. The Executive shall be entitled to an
office with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.

         6. Termination. (a) Death, Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive's inability to perform the duties of his position, as determined in
accordance with the policies and procedures applicable with respect to the
Company's long-term disability plan, as in effect immediately prior to the
Effective Date.

         (b) Voluntary Termination. Notwithstanding anything in this Agreement
to the contrary, following a Change of Control the Executive may, upon not less
than 30 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive pursuant to Section 6(d) on account of Good Reason
(as defined therein) shall not be treated as a voluntary termination under this
Section 6(b).

         (c) Cause. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" means (i) the Executive's
conviction or plea of nolo contendere to a felony; (ii) an act or acts of
dishonesty or gross misconduct on the Executive's part which result or are
intended to result in material damage to the Company's business or reputation;
or (iii) repeated material violations by the Executive of his obligations under
Section 4 of this Agreement, which violations are demonstrably willful and
deliberate on the Executive's part and which result in material damage to the
Company's business or reputation.

         (d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:

                  (i) (A) the assignment to the Executive of any duties 
         inconsistent in any material adverse respect with the Executive's
         position, authority or responsibilities as contemplated by Section 4
         of this Agreement, or (B) any other material adverse change in such
         position, including title, authority or responsibilities;

                  (ii) any failure by the Company to comply with any of the
         provisions of Section 5 of this Agreement, other than an insubstantial
         or inadvertent failure remedied by the Company promptly after receipt
         of notice thereof given by the Executive;

                  (iii) the Company's requiring the Executive to be based at any
         office or location more than 50 miles (or such other distance as shall
         be set forth in the Company's relocation policy as in effect at the
         Effective Time) from that location at which he performed his services
         specified under the provisions of Section 4 immediately prior to the
         Change of Control, except for travel reasonably required in the
         performance of the Executive's responsibilities; or

                  (iv) any failure by the Company to obtain the assumption and
         agreement to perform this Agreement by a successor as contemplated by
         Section 12(b).


                                      67
<PAGE>   69

In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.

         (e) Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 13(e). For purposes
of this Agreement, a "Notice of Termination" means a written notice given, in
the case of a termination for Cause, within 10 business days of the Company's
having actual knowledge of the events giving rise to such termination, and in
the case of a termination for Good Reason, within 180 days of the Executive's
having actual knowledge of the events giving rise to such termination, and which
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the date
of receipt of such notice, specifies the termination date (which date shall be
not more than 15 days after the giving of such notice). The failure by the
Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.

         (f) Date of Termination. For the purpose of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a Notice
of Termination is required, the date of receipt of such Notice of Termination
or, if later, the date specified therein, as the case may be, and (ii) in all
other cases, the actual date on which the Executive's employment terminates
during the Employment Period.

         7. Obligations of the Company upon Termination. (a) Death or
Disability. If the Executive's employment is terminated during the Employment
Period by reason of the Executive's death or Disability, this Agreement shall
terminate without further obligations to the Executive or the Executive's legal
representatives under this Agreement other than those obligations accrued
hereunder at the Date of Termination, and the Company shall pay to the Executive
(or his beneficiary or estate) (i) the Executive's full Base Salary through the
Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits
owing to the Executive under the Company's otherwise applicable employee benefit
plans and programs, including any compensation previously deferred by the
Executive (together with any accrued earnings thereon) and not yet paid by the
Company and any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").

         Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 30 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.

         (b) Cause and Voluntary Termination. If, during the Employment Period,
the Executive's employment shall be terminated for Cause or voluntarily
terminated by the Executive (other than on account of Good Reason following a
Change of Control), the Company shall pay the Executive (i) the Earned Salary in
cash in a single lump sum as soon as practicable, but in no event more than 10
days, following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.




                                      68
<PAGE>   70



                  (c) Termination by the Company other than for Cause and
Termination by the Executive for Good Reason.

                  (i) Lump Sum Payments. If, during the Employment Period, the
         Company terminates the Executive's employment other than for Cause, or
         following a Change of Control the Executive terminates his employment
         for Good Reason, the Company shall pay to the Executive the following
         amounts:

                  (A)      the Executive's Earned Salary;

                  (B)      a cash amount (the "Severance Amount") equal to three
                           times the sum of

                                    (1)     the Executive's annual Base Salary; 
                                            and

                                    (2)     the average of the bonuses payable 
                                            to the Executive for the three 
                                            fiscal years of the Company ending 
                                            immediately prior to the Effective 
                                            Date;

                  (C)      a cash amount (the "Incremental Retirement Benefit") 
                           equal to the present value, calculated using a
                           discount rate equal to the then prevailing
                           applicable Federal rate as determined under Section
                           1274(d) of the Internal Revenue Code of 1986, as
                           amended (the "Code"), of the additional retirement
                           benefits (including, without limitation, any
                           pension, retiree life or retiree medical benefits)
                           that would have been payable or available to the
                           Executive under any employee benefit plan qualified
                           (a "Qualified Plan") under Section 401(a) of the
                           Code and under any supplemental retirement plan
                           based on (x) the age and service the Executive would
                           have attained or completed had the Executive
                           continued in the Company's employ until the
                           expiration of the Employment Period and (y) where
                           compensation is a relevant factor, his pensionable
                           compensation at the Date of Termination;

                  (D)      the Accrued Obligations.

         The Earned Salary, Severance Amount and Incremental Retirement Benefit
         shall be paid in cash in a single lump sum as soon as practicable, but
         in no event more than 30 days (or at such earlier date required by
         law), following the Date of Termination. Accrued Obligations shall be
         paid in accordance with the terms of the applicable plan, program or
         arrangement.

                  (ii) Continuation of Benefits. If, during the Employment
         Period, the Company terminates the Executive's employment other than
         for Cause, or following a Change of Control the Executive terminates
         his employment for Good Reason, the Executive (and, to the extent
         applicable, his dependents) shall be entitled, after the Date of
         Termination until the earlier of (1) the second anniversary of the Date
         of Termination (the "End Date") and (2) the date the Executive becomes
         eligible for comparable benefits under a similar plan, policy or
         program of a subsequent employer, to continue participation in all of
         the Company's employee and executive welfare and fringe benefit plans
         (the "Benefit Plans"). To the extent any such benefits cannot be
         provided under the terms of the applicable plan, policy or program, the
         Company shall provide a comparable benefit under another plan or from
         the Company's general assets. The Executive's participation in the
         Benefit Plans will be on the same terms and conditions that would have
         applied had the Executive continued to be employed by the Company
         through the End Date.

         (d) Discharge of the Company's Obligations. Except as expressly
provided in the last sentence of this Section 7(d), the amounts payable to the
Executive pursuant to this Section 7 (whether or not reduced pursuant to Section
7(e) following termination of his employment shall be in full and complete
satisfaction of the Executive's rights under this Agreement and any other claims
he may have in respect of his employment by the Company or any of its
Subsidiaries. Such amounts shall constitute liquidated damages with respect to
any and all such rights 



                                      69
<PAGE>   71


and claims and, upon the Executive's receipt of such amounts, the Company shall
be released and discharged from any and all liability to the Executive in
connection with this Agreement or otherwise in connection with the Executive's
employment with the Company and its Subsidiaries. Nothing in this Section 7(d)
shall be construed to release the Company from its commitment to indemnify the
Executive and hold the Executive harmless from and against any claim, loss or
cause of action arising from or out of the Executive's performance as an
officer, director or employee of the Company or any of its Subsidiaries or in
any other capacity, including any fiduciary capacity, in which the Executive
served at the request of the Company to the maximum extent permitted by
applicable law and the Governing Documents.

         (e)      Certain Further Payments by the Company.

                  (i) In the event that any amount or benefit paid or
         distributed to the Executive pursuant to this Agreement, taken together
         with any amounts or benefits otherwise paid or distributed to the
         Executive by the Company or any affiliated company (collectively, the
         "Covered Payments"), are or become subject to the tax (the "Excise
         Tax") imposed under Section 4999 of the Code, or any similar tax that
         may hereafter be imposed, the Company shall pay to the Executive at the
         time specified in Section 7(e) (v) below an additional amount (the "Tax
         Reimbursement Payment") such that the net amount retained by the
         Executive with respect to such Covered Payments, after deduction of any
         Excise Tax on the Covered Payments and any Federal, state and local
         income or employment tax and Excise Tax on the Tax Reimbursement
         Payment provided for by this Section 7(e), but before deduction for any
         Federal, state or local income or employment tax withholding on such
         Covered Payments, shall be equal to the amount of the Covered Payments.

                  (ii) For purposes of determining whether any of the Covered
         Payments will be subject to the Excise Tax and the amount of such
         Excise Tax,

                  (A)      such Covered Payments will be treated as "parachute
                           payments" within the meaning of Section 280G of the
                           Code, and all "parachute payments" in excess of the
                           "base amount" (as defined under Section 280G(b) (3)
                           of the Code) shall be treated as subject to the
                           Excise Tax, unless, and except to the extent that, in
                           the good faith judgment of the Company's independent
                           certified public accountants appointed prior to the
                           Change of Control Date or tax counsel selected by
                           such Accountants (the "Accountants"), the Company has
                           a reasonable basis to conclude that such Covered
                           Payments (in whole or in part) either do not
                           constitute "parachute payments" or represent
                           reasonable compensation for personal services
                           actually rendered (within the meaning of Section
                           280G(b) (4) (B) of the Code) in excess of the "base
                           amount," or such parachute payments" are otherwise
                           not subject to such Excise Tax, and

                  (B)      the value of any non-cash benefits or any deferred
                           payment or benefit shall be determined by the
                           Accountants in accordance with the principles of
                           Section 280G of the Code.

                  (iii) For purposes of determining the amount of the Tax
         Reimbursement Payment, the Executive shall be deemed to pay:

                  (A)      Federal income taxes at the highest applicable
                           marginal rate of Federal income taxation for the
                           calendar year in which the Tax Reimbursement Payment
                           is to be made, and

                  (B)      any applicable state and local income taxes at the
                           highest applicable marginal rate of taxation for the
                           calendar year in which the Tax Reimbursement Payment
                           is to be made, net of the maximum reduction in
                           Federal income taxes which could be obtained from the
                           deduction of such state or local taxes if paid in
                           such year.

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<PAGE>   72

                  (iv) In the event that the Excise Tax is subsequently
         determined by the Accountants or pursuant to any proceeding or
         negotiations with the Internal Revenue Service to be less than the
         amount taken into account hereunder in calculating the Tax
         Reimbursement Payment made, the Executive shall repay to the Company,
         at the time that the amount of such reduction in the Excise Tax is
         finally determined, the portion of such prior Tax Reimbursement Payment
         that would not have been paid if such Excise Tax had been applied in
         initially calculating such Tax Reimbursement Payment, plus interest on
         the amount of such repayment at the rate provided in Section 1274(b)
         (2) (b) of the Code. Notwithstanding the foregoing, in the event any
         portion of the Tax Reimbursement Payment to be refunded to the Company
         has been paid to any Federal, state or local tax authority, repayment
         thereof shall not be required until actual refund or credit of such
         portion has been made to the Executive, and interest payable to the
         Company shall not exceed interest received or credited to the Executive
         by such tax authority for the period it held such portion. The
         Executive and the Company shall mutually agree upon the course of
         action to be pursued (and the method of allocating the expenses
         thereof) if the Executive's good faith claim for refund or credit is
         denied.

                  In the event that the Excise Tax is later determined by the
         Accountants or pursuant to any proceeding or negotiations with the
         Internal Revenue Service to exceed the amount taken into account
         hereunder at the time the Tax Reimbursement Payment is made (including,
         but not limited to, by reason of any payment the existence or amount of
         which cannot be determined at the time of the Tax Reimbursement
         Payment), the Company shall make an additional Tax Reimbursement
         Payment in respect of such excess (plus any interest or penalty payable
         with respect to such excess) at the time that the amount of such excess
         is finally determined.

                  (v) The Tax Reimbursement Payment (or portion thereof)
         provided for in Section 7(e) (i) above shall be paid to the Executive
         not later than 10 business days following the payment of the Covered
         Payments; provided, however, that if the amount of such Tax
         Reimbursement Payment (or portion thereof) cannot be finally determined
         on or before the date on which payment is due, the Company shall pay to
         the Executive by such date an amount estimated in good faith by the
         Accountants to be the minimum amount of such Tax Reimbursement Payment
         and shall pay the remainder of such Tax Reimbursement Payment (together
         with interest at the rate provided in Section 1274(b) (2) (B) of the
         Code) as soon as the amount thereof can be determined, but in no event
         later than 45 calendar days after payment of the related Cover Payment.
         In the event that the amount of the estimated Tax Reimbursement Payment
         exceeds the amount subsequently determined to have been due, such
         excess shall constitute a loan by the Company to the Executive, payable
         on the fifth business day after written demand by the Company for
         payment (together with interest at the rate provided in Section 1274(b)
         (2) (B) of the Code).

         8. Non-Exclusivity of Rights. Except as expressly provided herein,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other plan or program
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other agreements with the
Company or any of its affiliated companies, including employment agreements or
stock option agreements. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan or program.

         9. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others whether by reason of the
subsequent employment of the Executive or otherwise. In the event that the
Executive shall in good faith give a Notice of Termination for Good Reason and
it shall thereafter be determined that Good Reason did not exist, the employment
of the Executive shall, unless the Company and the Executive shall otherwise
mutually agree, be deemed to have terminated, at the date of giving such
purported Notice of Termination, by mutual consent of the Company and the
Executive and, except as provided in the last preceding sentence, the Executive
shall be entitled to receive only those payments and benefits which he would


                                      71


<PAGE>   73

have been entitled to receive upon a voluntary termination, including his Earned
Salary and the Accrued Obligations.

         10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expense (or cause such expenses to
be paid) including, without limitation, his reasonable attorneys' fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if the Executive shall not prevail, in whole or in part, as to any material
issue as to the validity, enforceability or interpretation of any provision of
this Agreement.

         11. Confidential Information; Company Property. For and in
consideration of the salary and benefits to be provided by the Company
hereunder, including the severance arrangements set forth herein, the Executive
agrees that:

         (a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.

         (b) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.

         (c) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law. Therefore, the
Executive agrees that the Company shall (i) be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 and (ii) have no further obligation
to make any payments to the Executive hereunder following any finding by a court
or an arbitrator that the Executive has engaged in a material violation of the
covenants and obligations contained in this Section 11. These remedies are
cumulative and are in addition to any other rights and remedies the Company may
have at law or in equity. In no event shall an asserted violation of the
provisions of this Section 11 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.

         12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.

         (b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company shall require any successor to all
or substantially all of the business and/or assets of the Company, whether
direct or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.




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<PAGE>   74


         13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, applied
without reference to principles of conflict of laws.

         (b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
Dallas, Texas and except to the extent inconsistent with this Agreement, shall
be conducted in accordance with the Expedited Employment Arbitration Rules of
the American Arbitration Association then in effect at the time of the
arbitration, and otherwise in accordance with principles which would be applied
by a court of law or equity. The arbitrator shall be acceptable to both the
Company and the Executive. If the parties cannot agree on an acceptable
arbitrator, the dispute shall be heard by a panel of three arbitrators, one
appointed by each of the parties and the third appointed by the other two
arbitrators.

         (c) Amendments. This Agreement not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.

         (d) Entire Agreement. This Agreement (as supplemented in accordance
with Section 1(b)) constitutes the entire agreement between the parties hereto
with respect to the matters referred to herein. No other agreement relating to
the term of the Executive's employment by the Company, oral or otherwise, shall
be binding between the parties unless it is in writing and signed by the party
against whom enforcement is sought. There are no promises, representations,
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
this Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.

         (e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

      If to the Executive:            at the home address of the Executive noted
                                      on the records of the Company

      If to the Company:              Quaker State Corporation
                                      225 E. John Carpenter Freeway
                                      Irving, Texas  75062
                                      Attn.: Corporate Secretary

               with a copy to:
                                      Debevoise & Plimpton
                                      875 Third Avenue
                                      New York, NY  10022
                                      Attn.: Lawrence K. Cagney, Esq.

or to such other address as either party shall have furnished to the other in
writing n accordance herewith. Notice and communications shall be effective when
actually received by the addressee.

         (f) Tax Withholding. The Company shall withhold from any amounts
payable under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.

         (g) Severability; Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of Section 11(a) is not enforceable in accordance with its
terms, the Executive and the Company agree that such Section shall be reformed
to make such Section enforceable in a manner which provides the Company the
maximum rights permitted at law.



                                      73

<PAGE>   75

         (h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.

         (i) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.

         (j) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force and effect.



                                      74
<PAGE>   76



         IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf, and
its corporate seal to be hereunto affixed and attested by its Secretary, all as
of the day and year first above written.

                                              QUAKER STATE CORPORATION

                                               /s/ HERBERT M. BAUM
                                              -------------------------------
                                              By: Herbert M. Baum
                                              Title: Chairman and Chief
                                                     Executive Officer


[SEAL]

WITNESSED:


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


                                            EXECUTIVE:


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


WITNESSED:


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





                                      75
<PAGE>   77

<TABLE>
<CAPTION>

                               INDEX TO EXHIBITS


EXHIBIT
 NUMBER                            DESCRIPTION                             PAGE
-------                            -----------                             ----
<S>                      <C>                                               <C>
10(t)(i)                 First Amendment to Employment Continuation
                         Agreement

11                       Computation of Net Income Per Share

12                       Computation of Ratio of Earnings to Fixed Charges

21                       List of Subsidiaries

23                       Consent of Independent Certified Public Accountants

27                       Financial Data Schedule
</TABLE>