<PAGE>
 
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                                 UNITED STATES
                      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, 1996
 
                                      OR
  [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                      For the Transition period from to
 
                          COMMISSION FILE NO. 1-13514
 
                               ----------------
 
                                CLARK USA, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                               ----------------
 
               DELAWARE                              43-1495734
    (STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)
 
 
         8182 MARYLAND AVENUE                        63105-3721
          ST. LOUIS, MISSOURI                        (ZIP CODE)
    (ADDRESS OF PRINCIPAL EXECUTIVE
               OFFICES)
 
 
      Registrant's Telephone Number, Including Area Code: (314) 854-9696
 
  Securities registered pursuant to Section 12(b) of the Act:  None
 
  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 15(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 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]
 
  Number of shares of registrant's common stock, $.01 par value, outstanding
as of March 20, 1997:
 
                 CLASS                           SHARES OUTSTANDING
           Common Stock                              19,051,818
         Class A Common Stock                        10,162,509
 
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<PAGE>
 
                                CLARK USA, INC.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
                                     PART I
 
<S>                                                                        <C>
Items 1 and 2.Business; Properties........................................   1
Item 3.Legal Proceedings..................................................  17
Item 4.Submission of Matters to a Vote of Security Holders................  19
 
                                    PART II
 
Item 5.Market for the Registrant's Common Stock and Related Shareholder
 Matters..................................................................  19
Item 6.Selected Financial Data............................................  19
Item 7.Management's Discussion and Analysis of Financial Condition and
                Results of Operations.....................................  22
Item 8.Financial Statements and Supplementary Data........................  30
Item 9.Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure......................................  31
 
                                    PART III
 
Item 10.Directors and Executive Officers of the Registrant................  31
Item 11.Executive Compensation............................................  33
Item 12.Security Ownership of Certain Beneficial Owners and Management....  36
Item 13.Certain Relationships and Related Transactions....................  40
 
                                    PART IV
 
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K...  40
Glossary of Terms.........................................................  45
Signatures................................................................  71
</TABLE>
 
Certain industry terms are defined in the Glossary of Terms
<PAGE>
 
                                    PART I
 
ITEMS 1 AND 2. BUSINESS; PROPERTIES
 
COMPANY OVERVIEW
 
  Substantially all of the operations of Clark USA, Inc., a Delaware
corporation, (the "Company" or "Clark USA") are conducted through Clark
Refining & Marketing, Inc. ("Clark"). The Company is the fifth largest
independent refiner and marketer of petroleum products in the United States
("U.S.") with one Texas refinery and two Illinois refineries representing over
350,000 barrels per day of rated crude oil throughput capacity. The Company is
also currently the seventh largest direct operator of gasoline and convenience
stores in the U.S. with over 800 retail outlets in 10 Midwestern states.
Clark's retail network has conducted operations under the Clark brand name for
65 years. The Company also markets gasoline, diesel fuel and other petroleum
products on a wholesale branded and unbranded basis.
 
  The Company's principal executive offices are located at 8182 Maryland
Avenue, St. Louis, Missouri 63105 and its telephone number is (314) 854-9696.
 
COMPANY HISTORY
 
  The Company was formed in November 1988 by TrizecHahn Corporation,
previously known as The Horsham Corporation ("TrizecHahn"), and AOC Limited
Partnership ("AOC L.P.") to hold all of the capital stock of Clark and certain
other assets. Pursuant to a stockholder agreement (the "Stockholder
Agreement") among AOC L.P., TrizecHahn, the Company and Clark, TrizecHahn
purchased 60% of the equity capital of the Company and AOC L.P. purchased the
remaining 40% interest. The Company's primary business assets were acquired on
November 22, 1988 out of bankruptcy proceedings. The assets acquired consisted
of (i) substantially all of the assets of Apex Oil Company, Inc., a Wisconsin
corporation (formerly OC Oil & Refining Corporation and prior thereto Clark
Oil & Refining Corporation, a Wisconsin corporation) and its subsidiaries
("Old Clark") and (ii) certain other assets and liabilities of the
Novelly/Goldstein Partnership (formerly Apex Oil Company), a Missouri general
partnership ("Apex"), the indirect owner of Old Clark and an affiliate of AOC
L.P.
 
  On December 30, 1992, TrizecHahn and the Company entered into a Stock
Purchase and Redemption Agreement (the "AOC Stock Purchase Agreement") with
AOC L.P. to purchase and redeem all of the shares and options to purchase
shares of the Company owned by AOC L.P., resulting in TrizecHahn owning 100%
of the outstanding equity of the Company at that time.
 
  On February 27, 1995, the Company sold $135 million of common stock to a
wholly owned subsidiary of TrizecHahn. The TrizecHahn subsidiary immediately
resold $120 million of such stock to Tiger Management Corporation ("Tiger"),
representing an equity ownership interest of 40% of the Company at that time.
The Company used the proceeds of the sale along with existing cash to acquire
from Chevron USA, Inc. ("Chevron") its Port Arthur, Texas refinery and related
assets (the "Port Arthur Refinery") for approximately $70 million, plus
approximately $122 million for inventory and spare parts, and the assumption
of certain liabilities estimated at $19.4 million. The Company is also
obligated under certain circumstances to pay to Chevron contingent payments
(the "Chevron Contingent Payments") pursuant to a formula based on refining
industry margin indicators and the volume of crude oil processed at the Port
Arthur refinery over a five-year period. The maximum total amount of the
Chevron Contingent Payments is $125 million. See "Management's Discussion and
Analysis Of Financial Condition And Results of Operations--Liquidity and
Capital Resources." The Port Arthur Refinery increased the Company's crude oil
throughput capacity by over 140% and expanded its market to the Gulf Coast of
the U.S.
 
  In December 1995, subsidiaries of Occidental Petroleum Corporation
("Occidental") and Gulf Resources Corporation ("Gulf") acquired approximately
23% of the equity in the Company in exchange for the delivery of certain
amounts of crude oil over a six year period ending in 2001. See "--The Advance
Crude Oil Purchase Receivable Transactions." The Company sold the advance
crude oil purchase receivable acquired from Occidental in October 1996 for net
proceeds of $235.4 million.
 
                                       1
<PAGE>
 
BUSINESS STRATEGY
 
  The Company's business strategy focuses on maximizing productivity,
minimizing operating costs, optimizing capital expenditures and growing both
its refining and marketing operations to strengthen the Company's business and
financial profile. This strategy is designed to address the commodity-based
nature of the industry the Company operates in.
 
 . Improving productivity. The Company implements relatively low cost projects
  in its refining and marketing operations designed to increase production,
  sales volumes and production yields and to improve sales mix while reducing
  input costs and operating expenses. Improvements at the newly acquired Port
  Arthur refinery, increased yields and crude oil throughput capability at its
  Illinois refineries and improved monthly fuel volumes, convenience product
  sales and margins in the retail division are examples of these types of
  initiatives.
 
 . Optimizing capital investment. The Company optimizes capital investments by
  linking discretionary capital spending to cash flow generated, focusing its
  efforts first on those productivity initiatives that require no capital
  investment and then those which have relatively short payback periods. As an
  example, in response to weak 1995 and 1996 industry refining market
  conditions, discretionary capital expenditures were scaled back
  significantly from historical levels. The Company implemented an image
  improvement program within its retail store network to incorporate its new
  On The Go(R) theme at a cost per store that the Company believes is less
  than that incurred by competitors for upgrades of retail facilities.
 
 . Promoting entrepreneurial culture. The Company emphasizes an entrepreneurial
  management approach which uses employee incentives to enhance financial
  performance and safety. All of the Company's employees participate in either
  its performance management, profit sharing or other incentive plans. In
  addition, the Company has adopted a stock incentive plan for certain key
  employees.
 
 . Growing through opportunistic acquisitions. The Company intends to continue
  to expand its refining and marketing operations through opportunistic
  acquisitions which can benefit from its business strategy, create critical
  mass, increase market share or access new markets. Since 1994, the Company
  more than doubled its refining capacity by acquiring the Port Arthur
  Refinery and strengthened its Northern Illinois and Michigan presence by
  adding 122 retail stores in these core markets.
 
 . Strengthening the balance sheet. The Company will continue to seek to
  improve its capital structure. The financing of the Port Arthur refinery
  acquisition principally with equity and the partial financing of the advance
  crude oil purchase transactions with equity lowered the Company's leverage
  in 1995 and 1996.
 
REFINING
 
 Overview
 
  The refining division currently operates one refinery in Texas and two
refineries in Illinois with a combined crude oil throughput capacity of
approximately 350,000 barrels per day. The Company also owns 16 product
terminals located in its Midwest and Gulf Coast market areas, a crude oil and
LPG terminal associated with the Port Arthur refinery and crude and product
pipeline interests. The Company's refining crude oil throughput capacity ranks
it as one of the five largest independent refining and marketing companies in
the U.S.
 
 Strategy
 
  Since the refining division operates in a commodity-based market environment
in which market prices for crude oil and refined products fluctuate
significantly, the refining division's business strategy focuses on those
areas it can control. The refining industry is capital intensive and has not
provided adequate returns in recent years. The Company believes this
environment provides the opportunity to implement a contrarian approach. The
refining division's strategy is consistent with the Company's overall business
strategy and includes the following key elements:
 
 . Improving Productivity. The refining division focuses on initiatives
  requiring little or no capital investment that increase production, improve
  product yields and recoveries or reduce operating costs. Comprehensive
 
                                       2
<PAGE>
 
 plant level programs focus on comparisons to industry benchmark studies as a
 tool to develop strategies that improve plant reliability.
 
 . Optimizing Capital Investments. Refining capital expenditures are linked to
  cash flow generated from operations. The Company emphasizes an
  entrepreneurial approach to discretionary expenditures, and to perceived
  mandatory expenditures, such as those required to comply with reformulated
  and low sulfur fuels regulations. The Company may seek to comply with
  regulations through the use of alternative markets for existing products if
  adequate returns on investment are not assured. Most discretionary capital
  expenditures in the past three years have had payback periods of less than
  four years.
 
 . Promoting Entrepreneurial Culture. Refining division employees are involved
  in a team-based approach aimed at improving operations. All employees are
  incented through some form of gain-sharing program. The Company believes
  this philosophy has significantly contributed to past productivity gains.
 
 . Growth. As part of its growth strategy, the refining division seeks
  attractive assets that may be acquired at favorable valuations. The Port
  Arthur refinery acquisition is an example of this type of strategy. The
  Company believes current industry conditions may offer similar opportunities
  in the future.
 
 Port Arthur Refinery
 
  The Port Arthur Refinery is located in Port Arthur, Texas and is situated on
an approximately 4,000 acre site. The refinery has a rated crude oil
throughput capacity of approximately 212,000 barrels per day and the ability
to process 100% sour crude oil, including up to 20% heavy crude oil, and has
coking capabilities. Sour and heavy crude oil has historically been available
at substantially lower cost when compared to light sweet crude oil such as
West Texas Intermediate ("WTI"). The Port Arthur refinery has the ability to
produce jet fuel, 100% low sulfur diesel fuel, 55% summer reformulated
gasoline ("RFG") and 75% winter RFG. The refinery's Texas Gulf Coast location
provides access to numerous cost effective domestic and international crude
oil sources, and its products can be sold in the mid-continent and eastern
U.S. as well as in export markets.
 
  Since acquiring the Port Arthur Refinery in early 1995 for approximately $70
million, plus approximately $122 million for inventory and spare parts, and
the assumption of certain liabilities, the Company has increased crude oil
throughput capability from approximately 178,000 barrels per day to its
current 212,000 barrels. In addition, operating expenses were lowered by
approximately 50c per barrel by reducing employee and contractor staffing
levels and environmental remediation requirements. During the past two years,
the Company also identified numerous improvement initiatives which it believes
can be implemented at relatively low cost.
 
                                       3
<PAGE>
 
  The feedstocks and production of the Port Arthur Refinery for the ten months
it was owned in 1995 and for the full year 1996 were as follows:
 
                PORT ARTHUR REFINERY FEEDSTOCKS AND PRODUCTION
                            (BARRELS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                TEN MONTHS ENDED   DECEMBER 31,
                                               DECEMBER 31, 1995       1996
                                               ------------------  ------------
                                                 BBLS       %       BBLS    %
                                               ------------------  ------ -----
<S>                                            <C>       <C>       <C>    <C>
FEEDSTOCKS
  Light Sweet Crude Oil.......................    22,268     35.0% 11,018  14.5%
  Light Sour Crude Oil........................    31,518     49.5  36,855  48.3
  Heavy Sweet Crude Oil.......................       --       --   23,920  31.4
  Heavy Sour Crude Oil........................     7,488     11.8   1,327   1.7
  Unfinished & Blendstocks....................     2,349      3.7   3,128   4.1
                                               --------- --------  ------ -----
    Total.....................................    63,623    100.0% 76,248 100.0%
                                               ========= ========  ====== =====
PRODUCTION
Gasoline
  Unleaded....................................    13,966     21.8  20,840  27.0
  Premium Unleaded............................    13,030     20.4  12,258  15.9
                                               --------- --------  ------ -----
                                                  26,996     42.2  33,098  42.9
                                               --------- --------  ------ -----
Other Products
  Low Sulfur Diesel Fuel......................    14,739     23.1  17,443  22.6
  Jet Fuel....................................     9,047     14.1  11,166  14.5
  Petrochemical Products......................     5,382      8.4   6,751   8.7
  Others......................................     7,794     12.2   8,704  11.3
                                               --------- --------  ------ -----
                                                  36,962     57.8  44,063  57.1
                                               --------- --------  ------ -----
    Total.....................................    63,958    100.0% 77,162 100.0%
                                               ========= ========  ====== =====
    Output/day................................     207.7            210.8
</TABLE>
 
 Illinois Refineries
 
  The Company's Illinois refineries, Blue Island near Chicago and Hartford
near St. Louis, Missouri, are supplied by common carrier crude oil pipelines
and are also located on inland waterways with barge access. The refineries not
only have access to multiple sources of foreign and domestic crude oil supply,
but also benefit from crude oil input flexibility. The two refineries are
connected by products pipelines, increasing flexibility relative to stand-
alone operations. The Company's product terminals allow efficient distribution
of refinery production through pipeline systems. The Company believes that the
Midwest location of these refineries provides relatively high refining margins
and less volatility than comparable operations located in other regions of the
U.S. on an historical basis principally because, in the past, demand for
refined products has exceeded production in the region. This excess demand has
historically been satisfied by imports from other regions, providing Midwest
refineries with a transportation advantage.
 
 Blue Island Refinery
 
  The Blue Island refinery is located in Blue Island, Illinois, approximately
17 miles south of Chicago. The refinery is situated on a 170 acre site,
bounded by the town of Blue Island and the Calumet-Sag Canal. The facility was
initially constructed in 1945 and, through a series of improvements and
expansions, has reached a crude oil capacity of 75,000 barrels per day,
although actual average monthly throughput rates are sustained at levels in
excess of rated capacity during certain times of the year. Blue Island has
among the highest capabilities to produce gasoline relative to the other
refineries in its market area and through productivity initiatives has
achieved the flexibility to produce up to 60% RFG and some low sulfur diesel
fuel when the market warrants
 
                                       4
<PAGE>
 
and based on the clean fuels attainment of Clark's total refining system.
During most of the year, gasoline is the most profitable refinery product.
 
  Since 1992, the Company has increased the crude oil throughput capability at
the Blue Island refinery by approximately 10,000 barrels per day, introduced
light sour crude oil as a lower cost feedstock, improved the FCC unit
capability by 25% and introduced the capability to produce RFG.
 
  The feedstocks and production of the Blue Island refinery for the years
ended December 31, 1994, 1995 and 1996 were as follows:
 
                BLUE ISLAND REFINERY FEEDSTOCKS AND PRODUCTION
                            (BARRELS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                       ----------------------------------------
                                           1994        1995(A)       1996(A)
                                       ------------  ------------  ------------
                                        BBLS    %     BBLS    %     BBLS    %
                                       ------ -----  ------ -----  ------ -----
<S>                                    <C>    <C>    <C>    <C>    <C>    <C>
FEEDSTOCKS
  Light Sweet Crude Oil............... 20,780  71.3% 18,975  74.0% 21,203  82.7%
  Light Sour Crude Oil................  7,120  24.5   6,318  24.6   3,860  15.1
  Unfinished & Blendstocks............  1,233   4.2     347   1.4     566   2.2
                                       ------ -----  ------ -----  ------ -----
    Total............................. 29,133 100.0% 25,640 100.0% 25,629 100.0%
                                       ====== =====  ====== =====  ====== =====
PRODUCTION
Gasoline
  Unleaded............................ 12,571  43.7  12,737  50.1  12,497  50.9
  Premium Unleaded....................  5,558  19.3   3,540  13.9   2,922  11.6
                                       ------ -----  ------ -----  ------ -----
                                       18,129  63.0  16,277  64.0  15,419  62.5
                                       ------ -----  ------ -----  ------ -----
Other Products
  Diesel Fuel.........................  6,376  22.1   5,133  20.2   5,690  22.5
  Others..............................  4,293  14.9   4,016  15.8   3,755  15.0
                                       ------ -----  ------ -----  ------ -----
                                       10,669  37.0   9,149  36.0   9,445  37.5
                                       ------ -----  ------ -----  ------ -----
    Total............................. 28,798 100.0% 25,426 100.0% 24,864 100.0%
                                       ====== =====  ====== =====  ====== =====
    Output/Day........................   78.9          69.7          68.0
</TABLE>
--------
(a) Output during 1995 and 1996 was reduced by significant planned and
    unplanned downtime.
 
 Hartford Refinery
 
  The Hartford refinery is located in Hartford, Illinois, approximately 17
miles northeast of St. Louis. The refinery is situated on a 400 acre site. The
facility was initially constructed in 1941 and, through a series of
improvements and expansions, has reached a crude oil refining capacity of
approximately 65,000 barrels per day. The Hartford refinery includes a coker
unit and consequently has the ability to process a variety of crude oil
including lower cost, heavy sour crude oil into higher value products such as
gasoline and diesel fuel. The Hartford refinery has the capability to process
approximately 50% heavy sour crude oil and 25% medium sour crude oil. This
upgrading capability allows the refinery to benefit from higher margins if
heavy sour crude oil is at a significant discount to light sweet crude oil.
 
  Since 1992, the Company has increased the crude oil throughput capability at
the Hartford refinery by approximately 10,000 barrels per day, improved
overall liquid recovery by approximately 3%, improved FCC unit yields by
approximately 3%, increased higher valued crude unit yields by approximately
2,000 barrels per day and dramatically reduced combined recordable and days
away from work rates from 27 in 1990 to 4 in 1996.
 
 
                                       5
<PAGE>
 
  The feedstocks and production of the Hartford refinery for the years ended
December 31, 1994, 1995 and 1996 were as follows:
 
                  HARTFORD REFINERY FEEDSTOCKS AND PRODUCTION
                            (BARRELS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                       ----------------------------------------
                                         1994 (A)        1995          1996
                                       ------------  ------------  ------------
                                        BBLS    %     BBLS    %     BBLS    %
                                       ------ -----  ------ -----  ------ -----
<S>                                    <C>    <C>    <C>    <C>    <C>    <C>
FEEDSTOCKS
  Light Sweet Crude Oil...............  6,037  26.2%  5,008  20.8%  3,725  15.5%
  Light Sour Crude Oil................  7,696  33.4  13,520  56.0  19,588  81.4
  Heavy Sour Crude Oil................  8,800  38.2   4,960  20.6     179   0.7
  Unfinished & Blendstocks............    506   2.2     637   2.6     567   2.4
                                       ------ -----  ------ -----  ------ -----
    Total............................. 23,039 100.0% 24,125 100.0% 24,059 100.0%
                                       ====== =====  ====== =====  ====== =====
PRODUCTION
Gasoline
  Unleaded............................  9,777  43.6  11,497  47.2  10,882  44.9
  Premium Unleaded....................  1,732   7.7   1,723   7.1   1,728   7.1
                                       ------ -----  ------ -----  ------ -----
                                       11,509  51.3  13,220  54.3  12,610  52.0
                                       ------ -----  ------ -----  ------ -----
OTHER PRODUCTS
  High Sulfur Diesel Fuel.............  7,801  34.8   8,090  33.2   8,950  36.9
  Others..............................  3,106  13.9   3,060  12.5   2,703  11.1
                                       ------ -----  ------ -----  ------ -----
                                       10,907  48.7  11,150  45.7  11,653  48.0
                                       ------ -----  ------ -----  ------ -----
    Total............................. 22,416 100.0% 24,370 100.0% 24,263 100.0%
                                       ====== =====  ====== =====  ====== =====
    Output/Day........................   61.4          66.8          66.2
</TABLE>
--------
(a) The 1994 results reflect maintenance turnaround downtime of approximately
    one month on selected units.
 
 Terminals and Pipelines
 
  Refined products are distributed primarily through the Company's terminals,
company-owned and common carrier product pipelines and by leased barges over
the Mississippi, Illinois and Ohio rivers. The Company owns 14 product
terminals with a combined capacity of approximately 3.8 million barrels
throughout its upper Midwest market area. In addition to cost efficiencies in
supplying its retail network, the terminal distribution system allows
efficient distribution of refinery production. The Company also owns a crude
oil and refined product terminal, a refined products terminal and an LPG
terminal with a combined capacity of approximately 7.1 million barrels
associated with the Port Arthur refinery in Texas.
 
  The Company enters into refined product exchange agreements with
unaffiliated companies to broaden its geographical distribution capabilities,
and products are also received through exchange terminals and distribution
points throughout the Central U.S.
 
  The Company's pipeline interests, as of December 31, 1996, were as follows:
 
<TABLE>
<CAPTION>
       PIPELINE              TYPE        INTEREST            ROUTE
       --------              ----        --------            -----
   <S>                <C>                <C>      <C>
   Southcap           Crude                36.0%  St. James, LA to Patoka, IL
   Chicap             Crude                22.7   Patoka, IL to Mokena, IL
   Capwood            Crude                33.1   Patoka, IL to Hartford, IL
   Clark Port Arthur  Crude and products  100.0   Port Arthur and Beaumont, TX
   Wolverine          Products              9.5   Chicago, IL to Toledo, OH
   West Shore         Products             11.1   Chicago, IL to Green Bay, WI
</TABLE>
 
 
                                       6
<PAGE>
 
  These pipelines operate as common carriers pursuant to published pipeline
tariffs, which also apply to use by the Company. The Company also owns a
proprietary products pipeline from the Blue Island refinery to its terminal in
Hammond, Indiana and from the Port Arthur refinery to its LPG terminal in
Fannett, Texas.
 
 Supply and Distribution
 
  The Company's integrated refining and marketing assets are strategically
located in the Central U.S. in close proximity to a variety of supply and
distribution channels. As a result, the Company has the flexibility to acquire
economic domestic or foreign crude oil and has the ability to distribute its
products to its own system and to most domestic wholesale markets.
 
  The Port Arthur refinery's Texas Gulf Coast location provides access to
numerous cost-effective domestic and international crude oil sources which can
be accessed by waterborne delivery or through the West Texas Gulf pipeline.
The Company's Illinois refineries are located on major inland water
transportation routes and are connected to various local, interstate and
Canadian common carrier pipelines. The Company has a minority interest in
several of these pipelines. The Blue Island refinery can receive Canadian
crude oil through the Lakehead Pipeline from Canada, foreign and domestic
crude oil through the Capline Pipeline system originating in the Louisiana
Gulf Coast region, and domestic crude oil originating in West Texas, Oklahoma
and the Rocky Mountains through the Arco Pipeline system. The Hartford
refinery has access to foreign and domestic crude oil supplies through the
Capline/Capwood Pipeline systems and access to Canadian crude oil through the
Express Pipeline and the Mobil/IPL pipeline system. Both refineries are
situated on major water transportation routes which provide flexibility to
receive crude oil or intermediate feedstocks by barge when economical.
 
  The Company has several crude oil supply contracts that total approximately
106,000 barrels per day with several third party suppliers including, P.M.I.
Comercio Internacional, S.A. de C.V., an affiliate of Petroleos Mexicanos,
S.A. de C.V., Lagoven, an affiliate of Petroleos de Venezuela and Gulf Canada.
These contracts are generally cancelable upon one to three months' notice by
either party, but are intended to remain in place for the foreseeable future.
The remainder of the Company's crude oil supply requirements are acquired on
the spot market from third party foreign and domestic sources.
 
  In addition to gasoline, the Company's refineries produce other types of
refined products. No. 2 diesel fuel is used mainly as a fuel for diesel
burning engines. No. 2 diesel fuel production is moved via pipeline or barge
to the Company's 16 product terminals and is sold over the Company's terminal
truck racks or through refinery pipeline or barge movement. The Port Arthur
refinery produces jet fuel which is generally sold through pipelines. Other
production includes residual oils (slurry oil and vacuum tower bottoms) which
are used mainly for heavy industrial fuel (e.g., power generation) and in the
manufacturing of roofing flux or for asphalt used in highway paving. The
Company has agreements to sell to Chevron 24,000 barrels per day of gasoline
and 1,000 barrels per day of low-sulfur diesel from the Port Arthur refinery
through February 28, 1999. This contract is cancelable upon 90 day notice by
either party. The Company supplies gasoline and diesel fuel to its retail
system first, then distributes products to its wholesale operations based on
the highest average market returns before being sold into the spot market.
 
  The Company also has an agreement to exchange certain refined products and
chemicals with Chevron Chemical Company, which have averaged approximately
25,000 barrels per day during 1995 and 1996. This contract is cancelable upon
18 months notice by either party or mutual agreement.
 
  The Port Arthur refinery's product can be sold in the mid-continent and
eastern U.S. as well as export markets. These markets can be accessed through
the Explorer, Texas Eastern and Colonial pipelines or by ship or barge. The
Company's Illinois refineries can distribute their products through various
common carrier and proprietary pipelines which connect the 14 Midwest product
terminals or by barge.
 
 
                                       7
<PAGE>
 
 Inventory Management
 
  The Company employs several strategies to minimize the impact on
profitability due to the volatility in feedstock costs and refined product
prices. These strategies generally involve the purchase and sale of exchange-
traded, energy-related futures and options with a duration of six months or
less. In addition, the Company to a lesser extent uses energy swap agreements
similar to those traded on the exchanges, such as crack spreads and crude oil
options, to better match the specific price movements in the Company's markets
as opposed to the delivery point of the exchange-traded contract. These
strategies are designed to minimize, on a short-term basis, the Company's
exposure to the risk of fluctuations in crude oil prices and refined product
margins. The number of barrels of crude oil and refined products covered by
such contracts varies from time to time. Such purchases and sales are closely
managed and subject to internally established risk standards and covenants
contained in Clark's working capital agreement. The results of these hedging
activities affect refining costs of sales and inventory costs. The Company
does not engage in speculative futures or derivative transactions.
 
  The Company manages its total inventory position in a manner consistent with
a risk management policy which states that a normal operating inventory level
(base load) will not be offset using risk management techniques, while
material builds or draws from this normal level may be offset by appropriate
risk management strategies to protect against an adverse impact due to
unfavorable price moves. The Company's retail network also reduces overall
risk by providing ratable market sales which represent approximately 40% of
the refineries' gasoline production. In addition, the retail network benefits
from a reliable and cost-effective source of supply.
 
  Due to the Port Arthur refinery's Gulf Coast location, the Company has the
opportunity to limit its exposure to price fluctuations on crude oil and
finished product production through the use of U.S. Gulf Coast based energy
derivatives, such as forward futures and option contracts relating to Gulf
Coast crack spreads. There exists a market for Gulf Coast refinery crack
spreads based on published spot market product prices and exchange-traded
crude oil. Since the Company sells the majority of the Port Arthur refinery's
production into the Gulf Coast spot market, the Company believes that forward
future and option contracts related to crack spreads may be used effectively
to hedge refining margins. While the Company's hedging program is intended to
provide a more predictable profit margin on a portion of the Port Arthur
refinery production, the use of such a program could limit the Company's
ability to participate in an improvement in Gulf Coast crack spreads.
 
 Clean Air Act/Reformulated Fuels
 
  Under the Clean Air Act, the U.S. Environmental Protection Agency ("EPA")
promulgated regulations mandating low sulfur diesel fuel for all on-road
consumers, and RFG for ozone non-attainment areas, including Chicago,
Milwaukee and Houston in the Company's direct market area.
 
  The Clean Air Act requires the EPA to review national ambient air quality
standards for pollutants every five years. Upon review, the EPA has proposed a
more restrictive standard for ground level ozone (smog) and particulate matter
(soot). The proposed rule, if enacted, would expand non-attainment areas
requiring additional pollution controls and RFG, and possible new diesel fuel
standards. Because the new standard is still in the early comment phase, it is
too early to determine if this proposal will be implemented and if so what
impact it would have on the Company.
 
  Expenditures required to comply with reformulated fuels regulations are
primarily discretionary, subject to market conditions and economic
justification. The reformulated fuels programs impose restrictions on
properties of fuels to be refined and marketed, including those pertaining to
gasoline volatility, oxygenated content, detergent addition and sulfur
content. The regulations regarding these fuel properties vary in markets in
which the Company operates, based on attainment of air quality standards and
the time of the year. The Company's Port Arthur, Blue Island and Hartford
refineries have the capability to produce up to 60%, 60%, and 25%,
respectively, of their gasoline production in RFG. Each refinery's maximum RFG
production may be limited based on the clean fuels attainment of Clark's total
refining system. The Port Arthur refinery has the capability to produce 100%
low sulfur diesel fuel.
 
                                       8
<PAGE>
 
 Market Environment
 
  The Company's products are principally commodities and, as such, are
significantly affected by a variety of factors beyond its control, including
the supply of, and demand for, crude oil, gasoline and other refined products,
which in turn depend on, among other factors, such as changes in domestic and
foreign economies, weather conditions, political affairs, production levels,
the rate of industry investment, the availability of imports, the marketing of
competitive fuels and the extent of government regulation.
 
  Since late 1994, the Company believes that refining margins were adversely
impacted by several factors. These include uncertainties related to the
transition to RFG in several markets, an unseasonably warm 1994-1995 Northern
Hemisphere winter that reduced demand for distillates and rising, volatile and
high crude oil prices in 1996.
 
  Over the long term, the Company believes that refining industry
profitability is closely linked to the expansion of refined fuels production
capability, the discount for lower quality crude oil and the rate of demand
growth. U.S. gasoline demand has increased by an average of 1% to 2% annually
over the last decade because of increases in miles driven and stabilization of
the U.S. fleets fuel efficiency. A narrowing price benefit for using heavy and
sour crude oil has been experienced since the early 1990s. The Company
believes that this is principally because of the Iraqi oil embargo and new
light sweet crude oil fields coming onstream while export producers were
maximizing light sweet crude oil production. This has occurred while demand
for heavy crude oil increased following industry construction of upgrading
capability associated with the favorable heavy and sour crude oil
differentials of the early 1990s. The Company believes that recent heavy and
sour crude oil differentials would not justify further significant upgrading
construction and industry studies indicate that long-term crude oil reserves
favor sour crude oil.
 
  Crude oil distillation capacity utilization for the industry equaled an
estimated 93% in 1996. The Company believes that the maximum sustainable
refining industry capacity utilization is near this level due to requirements
for regular maintenance. Increases in industry refined fuels production
capability can result from debottlenecking, increased upgrading capability and
new refinery additions. The Company believes that significant additional
domestic grass roots construction is unlikely because of high capital costs
and stringent environmental regulations. The last grass roots refinery in the
U.S. was built in the mid-1970s. As noted above, the Company does not believe
that recent crude oil quality differentials would justify significant
upgrading construction. The Company believes some refineries increased light
production capabilities through debottlenecking in conjunction with
environmental-related capital spending in the early 1990s. The Company expects
minor debottlenecking to continue, but with a reduction in recent industry
capital spending related to poor industry earnings and decreased new
environmental regulations, these additions are expected to be limited.
 
THE ADVANCE CRUDE OIL PURCHASE RECEIVABLE TRANSACTIONS
 
  In late 1995, the Company completed merger agreements and a series of
related agreements with subsidiaries of Occidental and Gulf pursuant to which
the Company acquired the right to receive the equivalent of 17.661 million
barrels and 3.164 million barrels of crude oil, respectively, over a six year
period (the "Oil Transactions"). In connection with the Oil Transactions, the
Company issued common stock valued at approximately $120 million, or $22 per
share (5,454,545 shares), and paid $100 million in cash to Occidental. The
Company issued common stock valued at approximately $26.9 million, or $22 per
share (1,222,273 shares), to Gulf. The Company sold the Occidental advance
crude oil purchase receivable for net cash proceeds of $235.4 million in
October 1996 after receiving value for approximately 1.5 million barrels
during 1996. The Company still owns the Gulf advance crude oil purchase
receivable. However, Gulf has not made their required deliveries since July
1996.
 
                                       9
<PAGE>
 
MARKETING
 
  The Company markets gasoline and convenience products in ten Midwestern
states through a retail network of company-operated stores and also markets
refined petroleum products through a wholesale program to distributors, chain
retailers and industrial consumers. Clark's retail presence is predominately
in the Great Lakes region of the U.S. where Company-operated stores (826 at
January 31, 1997) market value-oriented gasoline products and a unique mix of
On-The-Go(R) convenience products. The Company's wholesale operation markets
petroleum products in both the Midwest and Gulf Coast regions of the U.S. In
1996, the Company sold approximately 1.1 billion gallons of fuel and over $250
million of convenience products through approximately 200 million retail
transactions and sold an additional 1.1 billion gallons of fuel to wholesale
customers ranging from Clark-branded retailers to major transportation and
commercial companies.
 
 Retail Division
 
  The Company's retail strategy is based on two primary objectives,
optimization and growth, and is intended to accomplish four strategic goals:
(i) optimize core market stores, (ii) minimize the value deterioration of non-
strategic stores, (iii) grow earnings through acquisitions and new initiatives
designed to leverage existing expertise, product knowledge and market/brand
strength, and (iv) control operating and general and administrative expenses.
 
 . Optimization. The retail division operating strategy centers around
  optimizing the productivity of existing assets by maximizing overall gross
  margin and controlling expenses. The Company believes that continued
  improvements in existing processes and initiatives such as gasoline pricing,
  growth of higher margin premium gasoline grades and On The Go(R) convenience
  product lines, growth of other income/new concept initiatives (such as
  lottery, money orders, fast food, car washes, etc.) together with the proper
  management of controllable expenses are the most effective ways to improve
  core assets.
 
 . Growth. In order to support its retail strategic objectives, the Company
  performs thorough fundamental market analyses. The Company's analytical
  system evaluates each existing and potential market to identify those that
  it believes will produce the highest return on investment.
 
  The retail division's optimization and growth strategy is consistent with
the Company's overall business strategy and includes the following key
elements:
 
 . Improving Productivity. The retail division's goal is to achieve significant
  productivity gains exclusive of external market factors. Examples of key
  productivity initiatives include increasing gasoline and convenience product
  sales volumes, improving gasoline pricing and shifting product mixes to
  higher margin products.
 
 . Optimizing Capital Investments. Retail division capital expenditures are
  linked to the retail business earnings with strict emphasis made on
  internally funding capital projects. Capital is primarily budgeted for
  projects relating to environmental compliance plans and discretionary
  productivity improvements.
 
 . Promoting Entrepreneurial Culture. The retail division employs a
  decentralized team-oriented culture with training programs and employee
  incentives designed to deliver service that exceeds customer expectations.
  The Company's store managers have the flexibility to price gasoline and to
  select and price convenience products, but also have the responsibility to
  achieve acceptable results. The Company believes that customer satisfaction
  is linked to employee satisfaction, and that its incentive systems and
  feedback processes will contribute to the performance and motivation of its
  workforce.
 
  In markets where the Company has a competitive strength on which to build or
where opportunities have been identified by preferred market analysis, the
Company will consider making opportunistic acquisitions to expand market share
in existing markets as well as larger acquisitions to enter new markets. The
Company believes that continued growth through such acquisitions as the 122
stores acquired since 1994, contributes to building the Clark brand in core
markets. In markets where the Company has experienced value deterioration in
assets and the preferred market analysis has defined there to be no long-term
market potential, the Company will
 
                                      10
<PAGE>
 
consider divesting retail locations if favorable sale opportunities arise or
if the Company determines the locations would be more viable by conversion to
branded jobber locations.
 
 Retail Operations Overview
 
  The Company's retail system began operations during the 1930s with the
opening of Old Clark's first store in Milwaukee, Wisconsin. Old Clark then
expanded throughout the Midwest. At its peak in the early 1970s, Old Clark had
more than 1800 retail stores and had established a strong market reputation
for the sale of high octane gasoline at discount prices. In subsequent years,
Old Clark, in line with the general industry trends, rationalized its
operating stores by closing marginal locations. During the 1970s, the majority
of Old Clark's stores were dealer-operated. During the years 1973 through
1983, Old Clark assumed operation of most of its stores to ensure more direct
control of its marketing and distribution network.
 
  As of January 31, 1997, the Company had 825 Company-operated and one dealer
operated retail locations, all of which operated under the Clark brand name.
Of these stores, 637 were owned (77%) and 189 were leased (23%). The Company
believes a high proportion of Company-operated stores enables it to respond
more quickly and uniformly to changing market conditions than many of its
competitors, including major oil companies whose focus has generally been
operating their stores through dealer or jobber networks.
 
  The Company's six highest volume core metropolitan markets, with market
share of 5% to 18%, consist of Chicago, Central Illinois, Southern Michigan,
Cleveland, Milwaukee and Toledo. The Company's core markets are markets in
which the Company believes it can maintain or develop market share of 7.5% to
15% in order to leverage brand recognition, promotions and other marketing and
operating activities.
 
  Over the past few years the Company has grown its market share in several of
its core markets through retail store acquisitions. Agreements were signed in
October 1994 for 25 stores in metropolitan Chicago acquired from State Oil and
in April 1995 for 35 stores in Central Illinois acquired from Illico
Independent Oil Company. In March 1996 agreements were reached with State Oil
for four additional stores and with Bell Fuels, Inc. for the acquisition of 10
high volume Chicago locations. The latter acquisition increased the Company's
market share in Chicago from approximately 8.7% to 9.7%. In January 1997, the
Company acquired 48 stores in Southern Michigan from Silcorp, Ltd. This
transaction increased the Company's Southern Michigan market share from
approximately 5% to 7%.
 
  Simultaneous with growing the Company's market share in core markets through
acquisitions, the Company continues to evaluate its remaining non-core markets
for possible divestiture. In the past few years, the Company has divested 64
stores in its Louisville, Kentucky, Evansville, Indiana, Minnesota, Kansas and
Western Missouri markets.
 
  The geographic distribution of retail stores by state as of January 31, 1997
was as follows:
 
                  GEOGRAPHICAL DISTRIBUTION OF RETAIL STORES
 
<TABLE>
             <S>                                   <C>
             Illinois............................. 266
             Michigan............................. 210
             Ohio................................. 156
             Indiana..............................  79
             Wisconsin............................  70
             Missouri (a).........................  30
             Other States (b).....................  15
                                                   ---
               Total.............................. 826
                                                   ===
</TABLE>
--------
(a) Includes one dealer-operated store
(b) Iowa, Kentucky, Pennsylvania and West Virginia
 
                                      11
<PAGE>
 
  In addition to developing its retail store network through acquisitions and
divestitures, the Company continues to optimize its retail stores through
productivity achieved from improved operations, profit enhancing capital
expenditures and the addition of incremental new concept and other income
initiatives. From 1993 to 1996, the Company transformed the image of its
retail network by converting it from a 1950s look to a new vibrant color
scheme. In 1993, the Company initiated a strategy to increase the sales of On
The Go(R) products to reduce the Company's reliance on cigarette sales. This
was accomplished by remodeling store interiors and adding soda fountain
machines and interior beverage coolers. In an effort to continue to improve
gasoline volume and pricing, growth of higher margin premium gasoline grades
and On The Go(R) convenience product lines, the Company continues to upgrade
the equipment for core market stores including canopies and multiple product
dispensers ("MPDs"). Currently, approximately 90% of stores have canopies and
approximately 70% of stores have MPDs. It is believed that MPDs improve
volumes and margins by enabling the Company to market a more profitable mid-
grade gasoline product without the large capital expenditures required for
underground storage tanks. The installation of canopies enhances gasoline
volumes with better lighting and shelter from adverse weather conditions. In
1996, the Company added "pay at the pump" credit card technology at 53
locations, and will continue to evaluate the addition of similar technology at
additional locations, as well as additional other income initiatives,
including car washes and branded fast food.
 
  As a result of the above initiatives and recent acquisitions, the Company
has from 1992 to 1996 improved monthly fuel volume per store by 16% to 104,500
gallons, increased monthly convenience product sales per store by 33% to
$25,500, increased the mix of On The Go(R) convenience products from 32% to
42% of total convenience product sales, and improved monthly convenience
product gross margin per store by 47% to $6,600.
 
  The Company has implemented a number of environmental projects at its retail
stores. These projects include the ongoing response to the September 1988
regulations that provided for a 10 year transition period through 1998, and
are related to the design, construction, installation, repair and testing of
underground storage tanks ("UST") and the requirement of the Clean Air Act to
install Stage II vapor recovery systems at certain retail stores. The Company
has UST leak detection devices installed at nearly all retail locations.
Approximately 56% of current locations meet the December 1998 federal UST
compliance standards. The Company estimates that mandatory retail capital
expenditures for environmental and regulatory compliance for 1997 and 1998
will be approximately $23 million. Costs to comply with future regulations
cannot be estimated.
 
 Market Environment
 
  The sale of gasoline at the retail level is considered a mature industry as
consumption typically increases at 1% to 2% per year, and industry studies
indicate that many markets have reached saturation in terms of the number of
retail outlets and fuel dispensing capability. The retail markets in which
Clark operates are highly competitive. Many well-capitalized major oil
companies and numerous independent marketers have made substantial investments
in their retail assets. Historically, this competitive environment has caused
retail gasoline margins in the Company's Midwest markets to be among the
lowest in the country.
 
  The Company believes that the increased sale of convenience products and
fast food and the expanded offering of other services like car washes and pay-
at-the-pump technology will be the primary avenues for individual site growth
in the industry. Industry studies also indicate that the retail markets have
been characterized by several significant trends including (i) increased
rationalization of stores and consolidation of companies, (ii) changing
consumer demand to emphasize convenience and value, (iii) the impact of
governmental regulations on product offerings and services, and during 1996
(iv) unstable gasoline unit margins due to crude oil and related wholesale
price volatility.
 
 . Rationalization/Consolidation. During the past several years, major oil
  companies have rationalized their retail systems to gain efficiencies. These
  companies divested non-strategic locations to focus on areas near strategic
  supply sources, which has put a higher concentration of market share in
  fewer geographic regions for many of these companies. In addition, smaller
  operators have closed marginal and unprofitable locations due to the
  investment requirements to meet the 1998 UST environmental compliance
  deadline.
 
 
                                      12
<PAGE>
 
 More recently, oil companies and convenience store chains have sought to
 consolidate through mergers, acquisitions and joint ventures. The lack of
 availability of favorable new locations, the high cost of construction of new
 facilities and the opportunity to achieve significant cost reduction and
 brand building synergies make this attractive for many companies.
 
 . Changing Consumer Demand. Industry studies indicate that consumer buying
  behavior continues to reflect the effect of increasing demands on consumer
  time and money. Consumers have generally become time constrained, value
  minded buyers that expect quality goods for reasonable prices.
 
 . Government Regulations. The gasoline and convenience store industry is
  subjected to significant governmental regulations. The environmental
  requirements for Stage II vapor recovery and UST upgrades have been
  partially responsible for the closing of more than 31,000 retail stores or
  close to 14% of U.S. outlets over the five year period of 1990 to 1994. This
  trend is expected to continue through 1998. It is anticipated that these
  regulations may also cause many companies with vehicle fleet programs to
  abandon on-site fueling in favor of retail fueling. Most recently, the Food
  and Drug Administration has initiated a series of regulations intended to
  stop the sale of tobacco products to minors. Such regulations, if enacted,
  may impact the way such tobacco products are marketed throughout the
  country.
 
 . Volatile Wholesale Costs. The volatility of crude oil and wholesale costs
  can materially affect the profitability of retail gasoline operations.
  Typically, there is a delay in changes between retail gasoline prices and
  changes in wholesale product costs that prevents operators from maintaining
  stable gasoline margins. During periods of rapidly rising wholesale costs,
  margins are usually compressed. Conversely, during periods of falling
  wholesale costs, margins usually expand.
 
 Wholesale Division
 
  The Company's wholesale division strategy is to leverage its strengths in
the distribution and marketing of petroleum and On-The-Go(R) products to
create value through commercial relationships with minimal capital investment.
The wholesale division strategy is designed to create value by focusing on
distinct channels of trade and offering products and services that meet the
unique needs of targeted customers. Wholesale marketing can be divided into
four primary functions: (i) fuel sales to commercial and transportation end-
users, (ii) fuel sales to reseller-distributors, (iii) branded franchise
marketing, and (iv) new business franchise marketing.
 
  The Company currently sells gasoline and diesel fuel on an unbranded basis
to approximately 500 distributors and chain retailers. The Company believes
these sales offer higher profitability than spot market alternatives.
Wholesale sales are also made to the transportation and commercial sector,
including airlines, railroads, barge lines and other industrial end-users. In
1997, the Company continued growth of a new branded jobber program, ending the
year with 21 outlets owned and operated by branded jobbers. As part of its new
business franchise marketing initiative, the Company added two outlets in
Texas located on grocery store parking lots. The Company believes that a
branded distributor program, new business franchise marketing, and further
focus on the transportation and commercial sector offer significant
opportunity for incremental sales volumes and earnings in the future.
 
  Fuel sales to all channels of trade focus on maximizing netback realizations
(revenue less all distribution and working capital investment costs). The
wholesale division continues to refine and integrate netback management tools
to identify the most attractive short-term sales opportunities as well
identify the most profitable markets over the long-term. Channel of trade,
product, and market specific strategies are continually refined and optimized
through this netback methodology. Efforts focus on improving returns and
optimizing the core Midwest system while expanding Gulf Coast marketing
activities around the supply of refined products available from the Port
Arthur refinery.
 
COMPETITION
 
  The refining and marketing segment of the oil industry is highly
competitive. Many of the Company's principal competitors are integrated
multinational oil companies that are substantially larger and better known
 
                                      13
<PAGE>
 
than the Company. Because of the diversity, integration of operations, larger
capitalization and greater resources, these major oil companies may be better
able to withstand volatile market conditions, compete on the basis of price
and more readily obtain crude oil in times of shortages.
 
  The principal competitive factors affecting the Company's refining division
are crude oil and other feedstock costs, refinery efficiency, refinery product
mix and product distribution and transportation costs. Certain of the
Company's larger competitors have refineries which are larger and, as a
result, could have lower per barrel costs or high margins per barrel of
throughput. The Company has no crude oil reserves and is not engaged in
exploration and production activities. The Company obtains nearly all of its
crude oil requirements from unaffiliated sources. The Company believes that it
will be able to obtain adequate crude oil and other feedstocks at generally
competitive prices for the foreseeable future.
 
  The principal competitive factors affecting the Company's retail marketing
division are locations of stores, product price and quality, appearance and
cleanliness of stores, brand identification and market share. Competition from
large, integrated oil and gas companies, as well as convenience stores which
sell motor fuel, is expected to continue. The principal competitive factors
affecting the Company's wholesale marketing business are product price and
quality, reliability and availability of supply and location of distribution
points.
 
ENVIRONMENTAL MATTERS
 
 Compliance Matters
 
  Operators of refineries and gasoline stores are subject to comprehensive and
frequently changing federal, state and local environmental laws and
regulations, including those governing emissions of air pollutants, discharges
of wastewaters and storm waters, and the handling and disposal of non-
hazardous and hazardous waste. Federal, state and local laws and regulations
establishing various health and environmental quality standards and providing
penalties for violations thereof affect nearly all of the operations of the
Company. Included among such statutes are the Clean Air Act, Resource
Conservation and Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). Also
significantly affecting the Company are the rules and regulations of
Occupational Safety and Health Administration. Many of these laws authorize
the imposition of civil and criminal sanctions upon companies that fail to
comply with applicable statutory or regulatory requirements. The Company
believes that, in all material respects, its existing operations are in
compliance with such laws and regulations.
 
  The Company's existing operations are large and complex. The numerous
environmental regulations to which the Company is subject are complicated,
sometimes ambiguous, and often changing. In addition, the Company may not have
detected certain violations of environmental laws and regulations because the
conditions that constitute such violations may not be apparent. It is
therefore possible that certain of the Company's operations are not currently
in compliance with state or Federal environmental laws and regulations, and
that such non-compliance could result in fines and payments that could have a
material adverse effect on the Company's financial condition, results of
operations, cash flow or liquidity. Accordingly, the Company may be required
to make additional expenditures to comply with existing environmental
requirements.
 
  Regulations issued by the EPA in 1988 with respect to USTs require the
Company, over a period of up to ten years, to install, where not already in
place, detection devices and corrosion protection on all USTs and piping at
its retail gasoline outlets. The regulations also require periodic tightness
testing of USTs and piping. Commencing in 1998, operators will be required
under these regulations to install continuous monitoring systems for
underground tanks. See "--Marketing--Retail Operations Overview."
 
  The Company cannot predict what environmental legislation or regulations
will be enacted in the future or how existing or future laws or regulations
will be administered or interpreted with respect to products or activities to
which they have not previously been applied. Compliance with more stringent
laws or regulations, as well as more vigorous enforcement policies of the
regulatory agencies or stricter interpretation of existing laws which
 
                                      14
<PAGE>
 
may develop in the future, could have an adverse effect on the financial
position or operations of the Company and could require substantial additional
expenditures by the Company for the installation and operation of pollution
control systems and equipment. See "--Legal Proceedings."
 
 Remediation Matters
 
  In addition to environmental laws that regulate the Company's on-going
operations, Clark's various operations also are subject to liability for the
remediation of contaminated soil and groundwater. Under CERCLA and analogous
state laws, certain persons may be liable as a result of the release or
threatened release of hazardous substances into the environment. Such persons
include the current owner or operator of property where such releases or
threatened releases have occurred, any persons who owned or operated such
property during the time that hazardous substances were released at such
property, and persons who arranged for the disposal of hazardous substances at
such property. Liability under CERCLA is strict. Courts have also determined
that liability under CERCLA is, in most cases where the government is the
plaintiff, joint and several, meaning that any responsible party could be held
liable for all costs necessary for investigating and remediating a release or
threatened release of hazardous substances. As a practical matter, liability
at most CERCLA (and similar) sites is shared among all the solvent
"potentially responsible parties" ("PRPs"). The most relevant factors in
determining the probable liability of a party at a CERCLA site usually are the
cost of investigation and remediation, the relative amount of hazardous
substances contributed by the party to the site and the number of solvent
PRPs. While the Company maintains property and casualty insurance in the
normal course of its business, such insurance does not typically cover
remediation and certain other environmental expenses.
 
  The release or discharge of petroleum and hazardous materials can occur at
refineries, terminals and retail stores. The Company has identified a variety
of potential environmental issues at its refineries, terminals and retail
stores. In addition, each refinery has areas on-site which may contain
hazardous waste or hazardous substance contamination and which may have to be
addressed in the future at substantial cost. Many of the terminals may also
require remediation due to the age of tanks and facilities and as a result of
current or past activities at the terminal properties including several
significant spills and past on-site waste disposal practices.
 
 Legal and Governmental Proceedings
 
  As a result of its activities, Clark is the subject of a number of legal and
administrative proceedings relating to environmental matters. While it is not
possible at this time to estimate the ultimate amount of liability with
respect to the environmental matters described below, the Company is of the
opinion that the aggregate amount of any such liability will not have a
material adverse effect on its financial position. However, an adverse outcome
of any one or more of these matters could have a material effect on quarterly
or annual operating results or cash flows when resolved in a future period.
 
  Hartford Groundwater Contamination. Clark and other area oil companies were
contacted by the Illinois Environmental Protection Agency ("IEPA") and the
Illinois Attorney General regarding the presence of gasoline contamination in
the groundwater beneath the northern portion of the Village of Hartford,
Illinois. Clark installed a gasoline vapor recovery system in Hartford. The
successful installation and operation of the vapor recovery system
substantially met the concerns of the regulatory authorities. No claim has
been filed by the state authorities. Based upon the estimates of an
independent environmental engineering firm, in 1991 Clark established a $10
million provision for the estimated costs of its mitigation and recovery
efforts, of which approximately $4 million remained for future remediation at
December 31, 1996.
 
  Hartford Pollution Control Board Litigation. On June 7, 1995, Clark was
served with a complaint entitled People of the State of Illinois v. Clark
Refining & Marketing, Inc. PCB No. 95-163. This matter was substantially
settled in 1996 for $235,000. One issue concerning the exempt status of
Clark's wastewater treatment system is being submitted to an Administrative
Law Judge on a stipulation of facts. No estimate of any liability with respect
to this remaining element of the complaint can be made at this time.
 
 
                                      15
<PAGE>
 
  Hartford FCCU. In early April, 1996, Clark learned that its Hartford,
Illinois refinery is the subject of a Clean Air Act enforcement referral by
the EPA to the United States Department of Justice. The referral pertains to
alleged violations of the Clean Air Act and regulations promulgated thereunder
in the operation and permitting of the Hartford refinery fluid catalytic
cracking unit ("FCCU") and alleged modification of the FCCU. Although a
complaint has not yet been filed, the government requested additional
information from Clark pursuant to Section 114 of the Clean Air Act for the
stated purpose of completing its pre-enforcement evaluation. Clark submitted
the requested information and is cooperating with the government in its
investigation. No estimate can be made at this time of Clark's potential
liability, if any, as a result of this enforcement referral.
 
  Blue Island Federal Enforcement. On September 30, 1996 the EPA served a
Notice of Violation and a Finding of Violation on Clark, alleging that Clark
is in violation of the Clean Air Act national emission standard for hazardous
air pollutants for benzene at the Blue Island refinery, and that Clark was in
violation of certain leak detection and recordkeeping requirements issued
pursuant to the Illinois state implementation plan. No estimate can be made at
this time of Clark's potential liability, if any, as a result of this Notice
of Violation and this Finding of Violation. On January 14, 1997, Clark
received a demand for information concerning a variety of water pollution, air
pollution, and solid waste management practices and procedures. On March 3,
1997, the EPA initiated a multimedia investigation at the Blue Island
refinery. The investigation is proceeding in stages and is currently in
progress. On March 25, 1997, Clark received a Grand Jury subpoena requesting
certain documents relating to water discharges. Clark is cooperating fully and
will produce the documents responsive to the subpoena. No estimate can be made
at this time whether any potential for liability exists as result of this
investigation.
 
  Blue Island, Illinois Refinery. People ex rel Ryan v. Clark Refining &
Marketing, Inc., Cir. Ct. Cook County, III., Case No. 95-CH-2311, is currently
pending in the Circuit Court of Cook County, Illinois. The first count of this
lawsuit concerns a fire that occurred in the Isomax unit at the Blue Island
refinery on March 13, 1995 in which two employees were killed and three other
employees were injured. The second count of the lawsuit concerns a release of
hydrogen fluoride ("HF") on May 16, 1995 from a catalyst regeneration portion
of the HF unit at the Blue Island refinery. At the request of the Illinois
Attorney General, and with Clark's consent, the Circuit Court of Cook County,
Illinois entered an order prohibiting the restart of the regeneration unit of
the HF unit pending an investigation of the cause of the release. On August 8,
1995, an order was entered by the Court allowing Clark to resume operation of
the HF regeneration unit. The order also requires Clark, pursuant to an
agreement between Clark and the Illinois Attorney General, to implement
certain HF release mitigation and detection measures that are substantially
complete. The next three counts of the lawsuit concern releases into the air
that occurred in the past three years at the Blue Island refinery. One of
those air emissions, which occurred on October 7, 1994, is also the basis for
Rosolowski, et al v. Clark Refining & Marketing, Inc., Cir. Ct. Cook County,
Ill., Case No. 95-L-01 4703. See "--Legal Proceedings." The next five counts
of the lawsuit concern several alleged releases of process wastewater and
contaminated stormwater to the Cal Sag Channel from the Blue Island refinery.
Clark has filed an Answer denying the material allegations in the lawsuit.
Following an explosion on October 19, 1996, in a propane gas line at the Blue
Island refinery, the State of Illinois brought an action seeking a temporary
restraining order requiring the refinery to cease operations, temporarily,
pending a safety review. On November 8, 1996, the court denied the requested
order. No estimate of any liability with respect to this matter can be made at
this time.
 
  Ninth Avenue Site. On January 5, 1995, Clark received a Unilateral
Administrative Order from the EPA pursuant to CERCLA alleging that "Clark Oil
& Refining Corp." is a PRP with respect to shipments of hazardous substances
to a solid waste disposal site known as the Ninth Avenue Site, Gary, Indiana.
The alleged shipments all occurred prior to 1987. The Order instructs Clark
and the other approximately ninety PRPs to design and implement certain
remedial work at the site. Clark has informed the EPA that it is not a proper
party to this matter, because its purchase of certain assets of Old Clark was
"free and clear" of all Old Clark liabilities. Information provided with the
Order estimates that the remedial work may cost approximately $25 million. No
estimate of Clark's liability can be made with respect to this proceeding at
this time. In addition, on December 28, 1994, Clark was served with a summons
and complaint brought by certain private parties seeking to recover all past
and future response costs with respect to the Ninth Avenue Site. Clark, along
with approximately eighty other parties, is alleged to be a PRP with respect
to that site on the basis of shipments of hazardous substances
 
                                      16
<PAGE>
 
allegedly made prior to 1987. Clark moved to dismiss this action on the basis
that the action is barred by the "free and clear" Order pursuant to which
Clark purchased certain assets of Old Clark. On April 19, 1996, the District
Court denied Clark's Motion to Dismiss holding that at this early procedural
stage of the case and prior to gathering facts regarding the plaintiffs'
opportunity to participate in the bankruptcy case which issued the "free and
clear" order, the Court would not dismiss the case. No estimate of any
liability with respect to this case can be made at this time.
 
  St. Louis Terminal. On April 13, 1995, Clark was served with two Grand Jury
Records Subpoenas issued by the Office of the United States Attorney,
Environmental Crimes Section, in St. Louis. The Subpoenas seek documentary
information primarily about a gasoline spill at the St. Louis terminal which
occurred in January, 1994. Clark is cooperating fully with the United States
Attorney Office's investigation, and on June 26, 1995 Clark produced documents
responsive to the Subpoena. At this time it is not possible to estimate any
potential exposure to Clark from this inquiry.
 
  Sashabaw Road. On May 5, 1993 Clark received correspondence from the
Michigan Department of Natural Resources ("MDNR") indicating that the MDNR
believes that Clark may be a PRP in connection with groundwater contamination
in the vicinity of one of its retail stores in the Sashabaw Road area north of
Woodhull Lake and Lake Oakland, Oakland County, Michigan. On July 22, 1994,
MDNR commenced suit against Clark and Chevron U.S.A. Products Co. seeking
$450,000 for past response activity costs incurred by MDNR in connection with
this site. MDNR subsequently dropped Chevron from its litigation and raised
its demand to Clark to $750,000. No estimate of any liability with respect to
this matter can be made at this time.
 
  Port Arthur Refinery. The original refinery on the site of the Port Arthur
refinery began operating in 1904, prior to modern environmental laws and
methods of operation. While the Company believes, as a result, that there is
extensive contamination at the site, the Company is unable to estimate the
cost of remediating such contamination. While Chevron will be obligated to
perform the required remediation of most pre-closing contamination, the
Company assumed responsibility for environmental contamination beneath and
within 25 to 100 feet of the facility's active processing units. Based on the
estimates of independent environmental consultants, the Company accrued
approximately $7.5 million as part of the Port Arthur refinery acquisition for
its cost of remediation in this area. In addition, as a result of the
acquisition, Clark may become jointly and severally liable under CERCLA for
the costs of investigation and remediation at the site. In the event that
Chevron is unable (as a result of bankruptcy or otherwise) or unwilling to
perform the required remediation at the site, Clark may be required to do so.
The cost of any such remediation could be substantial and could be beyond the
Company's financial ability.
 
EMPLOYEES
 
  As of February 28, 1997, the Company employed approximately 7,400 people,
approximately 1,000 of whom were covered by collective bargaining agreements
at the Blue Island, Hartford and Port Arthur refineries. The Hartford and Port
Arthur refinery contracts expire in February 1999 and the Blue Island refinery
contract expires in August 1999. In addition, the Company has union contracts
for certain employees at its Hammond, Indiana and St. Louis, Missouri
terminals which expire March 31, 1998 and March 5, 1998, respectively.
Relationships with the unions have been good and neither Old Clark nor the
Company has ever experienced a work stoppage as a result of labor
disagreements.
 
ITEM 3. LEGAL PROCEEDINGS
 
  Clark was named as a defendant in thirty-four suits filed in December 1991
in the Circuit Court of the Third Judicial District, Madison County, Illinois,
by plaintiff residents and property owners in the Village of Hartford,
Illinois. These suits sought damages for the presence of gasoline in the soil
and groundwater beneath plaintiffs properties. See "Business; Properties--
Environmental Matters." Twenty-five of these suits were settled by Clark and
Shell at a total cost to Clark of less than $150,000 with the exception of one
case in the process of settlement and one remaining case. No estimate can be
made of Clark's potential loss in these remaining cases, if any, at this time.
 
                                      17
<PAGE>
 
  Rosolowski et al v. Clark Refining & Marketing, Inc., Cir. Ct. Cook County,
III., Case No. 95-L-014703. This purported class action lawsuit, filed on
October 11, 1995, relates to an on-site electrical malfunction at Clark's Blue
Island refinery on October 7, 1994, which resulted in the release to the
atmosphere of used catalyst containing low levels of heavy metals, including
antimony, nickel and vanadium. This release resulted in the temporary
evacuation of certain areas near the refinery, including a high school, and
approximately fifty people were taken to area hospitals. Clark has offered to
reimburse the medical expenses incurred by persons receiving treatment. Clark
was previously sued by one individual who claimed medical costs as a result of
the incident; that case was settled. The purported class action lawsuit was
filed on behalf of various named individuals and purported plaintiff classes,
including residents of Blue Island, Illinois and students at Eisenhower High
School, alleging claims based on common law nuisance, negligence, willful and
wanton negligence and the Illinois Family Expense Act as a result of this
incident. Plaintiffs seek to recover damages in an unspecified amount for
alleged medical expenses, diminished property values, pain and suffering and
other damages. Plaintiffs also seek punitive damages in an unspecified amount.
On November 22, 1995, an amended complaint was filed in this action which adds
several additional plaintiffs and two supplemental counts. Otherwise, the
amended complaint was substantially identical to the original complaint. On
January 6, 1997, several counts of the Amended Complaint were dismissed or
withdrawn subject to refiling. At this time no estimate can be made as to
Clark's potential loss, if any, with respect to this matter.
 
  Other Blue Island Tort Cases, alleging various losses due to emissions from
the Blue Island refinery were filed in September and October, 1996. These
cases, Banks v. UOP and Clark Refining & Marketing, Inc.; Boucher v. Clark
Refining & Marketing, Inc.; Loranger v. Clark Refining & Marketing, Inc.;
Marciano v. Clark Refining & Marketing, Inc.; Szabla v. Clark Refining &
Marketing, Inc.; Webb v. Clark Refining & Marketing, Inc. all brought by named
individuals, seek damages of less than $100,000 each. At this time, no
estimate can be made as to Clark's potential loss, if any, with regard to this
litigation.
 
  EEOC v. Clark Refining & Marketing, Inc., Case No. 94 C 2779, is currently
pending in the United States District Court for the Northern District of
Illinois. In this action, the Equal Employment Opportunity Commission (EEOC)
has alleged that Clark engaged in age discrimination in violation of the Age
Discrimination in Employment Act through a "pattern and practice" of
discrimination against a class of former retail managers over the age of
forty. The EEOC has identified 40 former managers it believes have been
affected by the alleged pattern and practice. However, two of those managers
have since been dismissed from the case. The relief sought by the EEOC
includes reinstatement or reassignment of the individuals allegedly affected,
payment of back wages and benefits, an injunction prohibiting employment
practices which discriminate on the basis of age and institution of practices
to eradicate the effects of any past discriminatory practices. Fact discovery
is nearing completion. A scheduling order has been entered indicating that a
trial will not be held before the fourth quarter of 1997, unless earlier
dismissed. At this point, no estimate can be made as to Clark's potential
loss, if any, with respect to this litigation.
 
  On May 23, 1995 Clark was served with a Petition entitled Anderson, et al v.
Chevron and Clark, filed in Jefferson County, Texas by twenty-four individual
plaintiffs who were Chevron employees who did not receive offers of employment
from Clark at the time of the purchase of the Port Arthur Refinery. Chevron
and the outplacement service retained by Chevron are also named as defendants.
An Amended Petition has now been filed increasing the number of plaintiffs to
forty. Clark filed an Answer denying all material allegations of the Amended
Petition. Subsequent to the filing of the lawsuit, the plaintiffs have each
filed individual charges with the EEOC and the Texas Commission of Human
Rights. At this point, no estimate can be made as to Clark's potential
liability, if any, with respect to this litigation or the individual charges
filed.
 
  While it is not possible at this time to estimate the ultimate amount of
liability with respect to the legal proceedings described above, the Company
is of the opinion that the aggregate amount of any such liability will not
have a material adverse effect on its financial position, however, an adverse
outcome of any one or more of these matters could have a material effect on
quarterly or annual operating results or cash flows when resolved in a future
period.
 
 
                                      18
<PAGE>
 
  Clark is also the subject of various environmental and other governmental
proceedings. See "Business; Properties--Environmental Matters."
 
  In addition to the specific matters discussed above or under "Business;
Properties--Environmental Matters", Clark has also been named in various other
suits and claims. While it is not possible to estimate with certainty the
ultimate legal and financial liability with respect to these other legal
proceedings, the Company believes the outcome of these other suits and claims
will not have a material adverse effect on the Company's financial position.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
 
  Inapplicable.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
 
  Inapplicable.
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The following table sets forth, for the periods and dates indicated,
selected financial data derived from the Consolidated Financial Statements of
the Company for each of the years in the five-year period ended December 31,
1996. The Consolidated Financial Statements of the Company for each of the
years in the five-year period ended December 31, 1996 were audited by Coopers
& Lybrand L.L.P. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes.
 
 
                                      19
<PAGE>
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                      ------------------------------------------------
                                                        1992      1993      1994      1995      1996
                                                      --------  --------  --------  --------  --------
                                                       (IN MILLIONS, EXCEPT RATIOS AND OPERATING
                                                                         DATA)
<S>                                                   <C>       <C>       <C>       <C>       <C>
INCOME STATEMENT DATA:
  Net sales and operating revenues................... $2,253.5  $2,264.7  $2,441.2  $4,486.8  $5,073.1
  Cost of sales......................................  1,949.8   1,930.3   2,086.6   4,015.2   4,557.0
  Operating expenses (a).............................    218.6     209.5     225.6     375.5     419.9
  General and administrative expenses (a)............     38.3      41.4      51.5      52.4      59.5
  Inventory (recovery of) write-down to market value.      --       26.5     (26.5)      --        --
  Depreciation and amortization (b)..................     30.5      35.4      37.4      43.5      48.5
                                                      --------  --------  --------  --------  --------
  Operating income (loss)............................ $   16.3  $   21.6  $   66.6  $    0.2  $  (11.8)
  Interest and financing costs, net (c)..............     28.6      43.7      53.7      59.2      47.5
  Other income (expense) (d).........................     14.7      11.4      (1.1)      --        --
                                                      --------  --------  --------  --------  --------
  Earnings (loss) from continuing operations before
   taxes, extraordinary items and cumulative effect
   of change in accounting principles................ $    2.4  $  (10.7) $   11.8  $  (59.0) $  (59.3)
  Income tax provision (benefit).....................      1.3      (4.2)      4.0     (21.9)     (3.1)
                                                      --------  --------  --------  --------  --------
  Earnings (Loss) from continuing operations before
   extraordinary items and cumulative effect of
   changes in accounting principles.................. $    1.1  $   (6.5) $    7.8  $  (37.1) $  (56.2)
                                                      ========  ========  ========  ========  ========
BALANCE SHEET DATA:
  Cash, cash equivalents and short-term investments.. $  218.9  $  232.9  $  155.0  $  149.8  $  354.8
  Total assets.......................................    802.0     865.4     891.7   1,364.9   1,432.8
  Long-term debt.....................................    401.5     538.1     553.3     765.0     781.4
  Stockholders' equity...............................     66.1      49.5      56.2     154.2     214.4
SELECTED FINANCIAL DATA:
  Cash flows from operating activities............... $   37.3  $   57.8  $   56.3  $  (81.5) $   22.4
  Cash flows from financing activities...............    (38.7)     29.7      (6.5)    298.9      (4.7)
  Ratio of earnings to fixed charges (e).............   (f)       (f)         1.14x   (f)       (f)
  Expenditures for turnaround........................      2.7      20.6      11.2       6.5      13.9
  Expenditures for property, plant and equipment.....     59.5      68.1     100.4      42.2      45.0
  Refinery acquisition expenditures..................      --        --       13.5      71.8       --
                                                      --------  --------  --------  --------  --------
  Total capital expenditures......................... $   62.2  $   88.7  $  125.1  $  120.5  $   58.9
                                                      ========  ========  ========  ========  ========
OPERATING DATA:
Refining Division:
  Port Arthur Refinery (acquired February 27, 1995)
    Production (m bbls/day)..........................      --        --        --      207.7     210.8
    Gross margin (per bbl) (a).......................      --        --        --   $   2.37  $   2.78
    Operating expenses (per bbl) (a).................      --        --        --       1.90      2.13
  Blue Island, Hartford and other refining
    Production (m bbls/day)..........................    142.4     134.7     140.3     136.5     134.2
    Gross margin (per bbl) (a)....................... $   3.03  $   3.24  $   3.48  $   2.64  $   2.53
    Operating expenses (per bbl) (a).................     2.17      2.12      2.28      2.61      2.58
  Refining contribution to operating income (mm) (a).   N/A         45.2      47.8      12.8      26.5
Retail Division:
  Number of stores (average).........................      885       860       834       852       823
  Gasoline volume (mm gals)..........................    956.7   1,014.8   1,028.5   1,063.8   1,031.9
  Gasoline volume (m gals pmps)......................     90.1      98.6     102.8     104.1     104.5
  Gasoline gross margin (c/gal) (a)..................     10.0c     11.1c     10.9c     11.4c     10.4c
  Convenience product sales (mm)..................... $  203.4  $  218.0  $  231.6  $  252.6  $  251.7
  Convenience product sales (pmps)...................     19.2      21.2      23.1      24.7      25.5
  Convenience product gross margin and other income
   (mm)..............................................     47.7      54.8      57.2      62.9      65.8
  Convenience product gross margin (pmps)............      4.5       5.3       5.7       6.1       6.6
  Operating expenses (mm) (a)........................     96.0     100.1     104.6     121.6     126.2
  Retail contribution to operating income (mm) (a)...   N/A         52.9      45.9      45.4      25.0
</TABLE>
 
                                       20
<PAGE>
 
--------
(a) Certain reclassifications have been made to prior periods to conform to
    current period presentation.
(b) Amortization includes amortization of turnaround costs and organizational
    costs.
(c) Interest and financing costs, net, includes amortization of debt issuance
    costs of $2.9 million, $1.7 million, $1.8 million, $6.5 million and $10.2
    million for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
    respectively. Interest and financing costs, net, also includes interest on
    all indebtedness, net of capitalized interest and interest income.
(d) Other expense in 1994 includes financing costs associated with a withdrawn
    debt offering. Other income in 1993 includes the final settlement of
    litigation with Drexel Burnham Lambert Incorporated ("Drexel") of $8.5
    million and a gain from the sale of non-core stores of $2.9 million. Other
    income in 1992 includes the settlement of litigation with Apex and Drexel
    of $9.2 million and $5.5 million, respectively.
(e) The ratio of earnings to fixed charges is computed by dividing (i)
    earnings before income taxes (adjusted to recognize only distributed
    earnings from less than 50% owned persons accounted for under the equity
    method) plus fixed charges by (ii) fixed charges. Fixed charges consist of
    interest on indebtedness, including amortization of discount and debt
    issuance costs and the estimated interest components (one-third) of rental
    and lease expense.
(f) As a result of the losses for the years ended December 31, 1992, 1993,
    1995 and 1996, earnings were insufficient to cover fixed charges by $2.5
    million, $13.2 million, $61.8 million and $60.5 million, respectively.
 
                                      21
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Report.
 
RESULTS OF OPERATIONS
 
 Overview
 
  Because Clark is the principal operating subsidiary of the Company, a
discussion of the Company's results of operations consists principally of a
discussion of Clark's results of operations. The Company's results are
significantly affected by a variety of factors beyond its control, including
the supply of, and demand for, crude oil, gasoline and other refined products
which in turn depend on, among other factors, changes in domestic and foreign
economies, weather conditions, domestic and foreign political affairs and
production levels, the availability of imports, the marketing of competitive
fuels and the extent of government regulation. Although margins are
significantly affected by industry and regional factors, the Company can
influence its margins through the efficiency of its operations. While the
Company's net sales and operating revenues fluctuate significantly with
movements in industry crude oil prices, such prices do not generally have a
direct long-term relationship to net earnings. Crude oil price movements may
impact net earnings in the short-term because of fixed crude oil purchase
commitments which average approximately 5 million barrels. The effect of
changes in crude oil prices on the Company's operating results is determined
more by the rate at which the prices of refined products adjust to reflect
such changes. The Company believes that, in general, low crude oil prices
indirectly benefit operating results over the longer term due to increased
demand and decreased working capital requirements. Conversely, the Company
believes that high crude oil prices generally result in decreased demand and
increased working capital requirements over the long term. Increased refinery
production is typically associated with improved results of operations, while
reduced production, which generally occurs during scheduled refinery
maintenance turnarounds, negatively affects results of operations.
 
  The following table illustrates the potential pre-tax earnings impact based
on historical operating rates estimated by the Company resulting from changes
in: (i) sweet crude oil cracking margins--the spread between gasoline and
diesel fuel prices and input (e.g., a benchmark sweet crude oil) costs; (ii)
sweet/sour differentials--the spread between a benchmark sour crude oil and a
benchmark sweet crude oil; (iii) heavy/light differentials--the spread between
a benchmark light crude oil and a benchmark heavy crude oil and (iv) retail
margins--the spread between product prices at the retail level and wholesale
product costs.
 
<TABLE>
<CAPTION>
                                                        PRE-TAX EARNINGS IMPACT
                                                                  ON
                                                            THE COMPANY (A)
                                                        -----------------------
                                                        BEFORE PORT AFTER PORT
                                                          ARTHUR      ARTHUR
          EARNINGS SENSITIVITY              CHANGE      ACQUISITION ACQUISITION
          --------------------         ---------------- ----------- -----------
      <S>                              <C>              <C>         <C>
      Refining margins
        Sweet crude cracking margin... $0.10 per barrel $ 5 million $12 million
        Sweet/sour differentials......  0.10 per barrel   3 million   9 million
        Heavy/light differentials.....  0.10 per barrel   1 million   2 million
      Retail margin................... $0.01 per gallon $10 million  10 million
</TABLE>
--------
(a) Based on an assumed production of approximately 210,000 barrels per day
    for the Port Arthur refinery and 140,000 barrels per day for the Illinois
    refineries.
 
 
                                      22
<PAGE>
 
 1996 compared with 1995 and 1994:
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                   ----------------------------
                                                     1994      1995      1996
                                                   --------  --------  --------
                                                         (IN MILLIONS)
      <S>                                          <C>       <C>       <C>
      FINANCIAL RESULTS: (A)
        Net sales and operating revenues.........  $2,441.2  $4,486.8  $5,073.1
        Cost of sales............................   2,086.6   4,015.2   4,557.0
        Operating expenses (b)...................     225.7     375.5     419.9
        General and administrative expenses (b)..      50.3      52.4      59.5
        Depreciation and amortization............      37.4      43.5      48.5
        Interest and financing costs, net........      47.1      59.2      58.4
                                                   --------  --------  --------
        Earnings (loss) before income taxes (c)..      (5.9)    (59.0)    (70.2)
        Income tax provision (benefit) (c).......      (2.8)    (21.9)     (7.3)
                                                   --------  --------  --------
        Earnings (loss) before unusual items (c).      (3.1)    (37.1)    (62.9)
        Unusual items, after taxes (c)...........      10.9       --        6.7
                                                   --------  --------  --------
          Net earnings (loss)....................  $    7.8  $  (37.1) $  (56.2)
                                                   ========  ========  ========
      OPERATING INCOME:
        Refining contribution to operating income
         (b).....................................  $   47.8  $   12.8  $   26.5
        Retail contribution to operating income
         (b).....................................      45.9      45.4      25.0
        Corporate general and administrative
         expenses................................      15.1      14.5      14.8
        Depreciation and amortization............      37.4      43.5      48.5
        Unusual items (c)........................      25.4       --        --
                                                   --------  --------  --------
          Operating income (loss)................  $   66.6  $    0.2  $  (11.8)
                                                   ========  ========  ========
</TABLE>
--------
(a) This table provides supplementary data and is not intended to represent an
    income statement presented in accordance with generally accepted
    accounting principles.
(b) Certain reclassifications have been made to prior periods to conform to
    current period presentation.
(c) The Company considers certain items in 1994 and 1996 to be "unusual".
    Detail on these items is presented below.
 
                                      23
<PAGE>
 
  The Company reported a net loss of $56.2 million in 1996 compared with a net
loss of $37.1 million in 1995 and net earnings of $7.8 million in 1994.
Excluding an unusual item, discussed below, net earnings were flat with 1995,
while 1995 was below 1994. Improvements in productivity and fundamental
refining industry indicators for crack spreads and crude oil quality
differentials in 1996 were offset by the impact of rising, volatile and high
crude oil prices. Narrow crude oil differentials, an extremely warm 1994-1995
winter and the resulting oversupply of distillates and market uncertainty
related to the introduction of RFG reduced 1995 results from 1994 levels. The
late February 1995 acquisition of the 210,000 barrel per day Port Arthur,
Texas refinery increased net sales and operating revenues, cost of goods sold,
operating and general and administrative expenses and depreciation and
amortization. Net sales and operating revenues and cost of goods sold were
also higher in 1996 due to higher hydrocarbon prices as reflected by 20%
higher prices for benchmark WTI crude oil. Interest and financing costs, net
fluctuated significantly from 1994 to 1996 because of the Port Arthur refinery
acquisition and the acquisition in December 1995 of two advance crude oil
purchase receivables.
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                               DECEMBER 31,
                                                             ------------------
                                                             1994   1995  1996
                                                             -----  ----- -----
                                                               (IN MILLIONS)
      <S>                                                    <C>    <C>   <C>
      UNUSUAL ITEMS:
        Recovery of inventory market value write-down....... $26.5  $ --  $ --
        Other...............................................  (1.1)   --    --
                                                             -----  ----- -----
          Impact on operating income........................  25.4    --    --
        Gain on sale of advance crude oil purchase
         receivable.........................................   --     --   10.9
        Short-term investment losses........................  (6.6)   --    --
        Other...............................................  (1.1)   --    --
                                                             -----  ----- -----
          Total............................................. $17.7  $ --  $10.9
                                                             =====  ===== =====
          Net of income taxes............................... $10.9  $ --  $ 6.7
                                                             =====  ===== =====
</TABLE>
 
  Several items which are considered by management as "unusual" are excluded
throughout this discussion of the Company's results of operations. In 1996, in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, the Company recorded a valuation allowance on its deferred income tax
asset of approximately $18.8 million (not included in the table above). See
Note 12 "Income Taxes" to the Consolidated Financial Statements. The Company
also sold one of its advance crude oil purchase receivables in October 1996
recognizing a gain of $10.9 million that was recorded as finance income. A
non-cash accounting charge of $26.5 million was taken in the fourth quarter of
1993 to reflect the decline in the value of petroleum inventories below
carrying value caused by a substantial drop in petroleum prices. Crude oil and
related refined product prices rose in 1994 allowing the Company to recover
the original charge. Accordingly, a reversal of the inventory write-down to
market was recorded in 1994. In 1994, the Company realized losses on the sale
of short-term investments due to an increase in market interest rates.
 
                                      24
<PAGE>
 
 Refining
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER
                                                                 31,
                                                         ---------------------
                                                          1994   1995   1996
                                                         ------  ----- -------
                                                         (IN MILLIONS, EXCEPT
                                                           OPERATING DATA)
      <S>                                                <C>     <C>   <C>
      OPERATING STATISTICS:
      PORT ARTHUR REFINERY (ACQUIRED
       FEBRUARY 27, 1995)
        Crude oil throughput (m bbls/day)...............    --   198.9   199.8
        Production (m bbls/day).........................    --   207.7   210.8
        Gross margin (per barrel of production) (a).....    --   $2.37  $ 2.78
        Operating expenses (per barrel of production)
         (a)............................................    --   $1.90  $ 2.13
        Net margin (a)..................................    --   $30.0  $ 49.6
      BLUE ISLAND, HARTFORD AND OTHER REFINING
        Crude oil throughput (m bbls/day)...............  138.2  133.6   132.7
        Production (m bbls/day).........................  140.3  136.5   134.2
        Gross margin (per barrel of production) (a)..... $ 3.48  $2.64  $ 2.53
        Operating expenses (per barrel of production)
         (a)............................................ $ 2.28  $2.61  $ 2.58
        Net margin (a).................................. $ 61.4  $ 1.5 $  (2.3)
        Clark Pipe Line net margin......................    1.3    1.7     2.3
        Divisional general and administrative expenses
         (a)............................................   14.9   20.4    23.1
        Contribution to operating income (a)............ $ 47.8  $12.8  $ 26.5
</TABLE>
--------
(a) Certain reclassifications have been made to prior periods to conform to
    current period presentation.
 
  Refining division contribution to operating income in 1996 was $26.5 million
more than double 1995 levels ($12.8 million), but below 1994 results ($47.8
million). Contribution improved over 1995 principally because of an
improvement in the Port Arthur refinery gross margin resulting from
improvements in operational rates, reliability and overall yields. The
Hartford refinery realized the benefit from a capital project designed to
recover additional higher value products from processing units. Certain key
refining market indicators also improved in 1996, including gasoline and
distillate margins and crude oil quality differentials. More normal winter
weather, and corresponding demand, contributed to a 2.4% increase in fuels
demand from 1995 to 1996. However, these positive market trends were more than
offset by reduced by-product margins and the increased cost of crude oil
acquisition activities caused by rising, volatile and high absolute crude oil
prices. Refining results for 1995 were below 1994 levels as refining margins
were particularly weak in 1995 and late 1994 due to the warmest Northern
Hemisphere winter in 40 years, which reduced demand for heating oil, and the
transition to RFG. Several geographical areas unexpectedly opted not to switch
to RFG which caused confusion and concern in the marketplace, and caused
gasoline prices to fall relative to the price of crude oil.
 
  Operating expenses increased at the Port Arthur refinery from 1995 to 1996
principally due to increased refinery fuel costs associated with higher
natural gas prices. Operating expenses increased in 1995 over 1994 principally
due to the addition of the Port Arthur refinery and related terminal expenses
in early 1995 and expenses associated with unplanned downtime at the Blue
Island refinery. Reduced throughput at the Company's Illinois refineries due
to poor first quarter 1995 market conditions and scheduled and unscheduled
downtime also contributed to lower production and a higher per barrel
operating costs in 1996 and 1995 as compared with 1994. Divisional general and
administrative expenses increased in 1996 and 1995 principally because of the
inclusion of administrative functions located at the Port Arthur refinery.
 
                                      25
<PAGE>
 
 Retail
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                     -------------------------
                                                      1994     1995     1996
                                                     -------  -------  -------
                                                      (IN MILLIONS, EXCEPT
                                                         OPERATING DATA)
      <S>                                            <C>      <C>      <C>
      OPERATING STATISTICS:
        Gasoline volume (mm gals)................... 1,028.5  1,063.8  1,031.9
        Gasoline gross margin (c/gal) (a)...........    10.9c    11.4c    10.4c
        Gasoline gross margin (a)................... $ 112.3  $ 121.7  $ 107.0
        Convenience product sales................... $ 231.6  $ 252.6  $ 251.7
        Convenience product gross margin and other
         income.....................................    57.2     62.9     65.8
        Operating expenses (a)...................... $ 104.6  $ 121.6  $ 126.2
        Divisional general and administrative
         expenses (a)...............................    19.0     17.6     21.6
        Contribution to operating income (a)........ $  45.9  $  45.4  $  25.0
      PER MONTH PER STORE:
      Company operated stores (average).............     834      852      823
      Gasoline volume (m gals)......................   102.8    104.1    104.5
      Convenience product sales (m)................. $  23.1  $  24.7  $  25.5
      Convenience product gross margin (m).......... $   5.7  $   6.1  $   6.6
</TABLE>
--------
(a) Certain reclassifications have been made to prior periods to conform to
    current period presentation.
 
  The retail division contributed $25.0 million to operating income in 1996
(1995--$45.4 million; 1994--$45.9 million). The retail division contribution
was below 1995 levels due mostly to a sharp drop in retail gasoline margins.
This resulted from an increase in wholesale gasoline costs associated with
higher crude oil prices that was not fully captured in retail selling prices
due to an extremely competitive Midwest retail market environment. This was
particularly the case in the last half of 1996. In addition, high retail
prices impaired sales of higher margin premium gasoline grades. Gross margins
on convenience product sales and monthly convenience product sales and gross
margins per store improved over the last three years due to the addition of
larger stores and an improved mix of higher margin On The Go(R) (non-
cigarette) products. Operating and general and administrative expenses
increased in 1996 and 1995 over 1994 principally due to operating leases and
other costs related to new store acquisitions and increased costs related to
the expansion of Clark's credit card programs. Year over year credit card
sales increased 31% in 1996 and 41% in 1995.
 
  During 1996, the retail network continued to be upgraded in the core Great
Lakes' markets. This was achieved by acquiring 10 high volume stores in the
Chicago market, introducing a branded marketer program and closing
underperforming stores. A further 48 store acquisition was completed in
Michigan in January 1997. In 1995, the Company acquired through an operating
lease 35 retail stores in central Illinois. In late 1994, the Company
similarly acquired 25 stores in Chicago, Illinois. Four additional stores
related to the Chicago acquisition were added in 1996. Consistent with the
Company's strategy to exit non-core markets, the Company divested 41 stores in
the Kansas, western Missouri and Minnesota markets in late 1995 and early 1996
and 11 Dayton, Ohio stores were converted to branded marketer locations in
January 1997. As part of its overall growth strategy, the Company expects to
continue to consider retail store growth in both existing and new markets
while also evaluating underperforming markets for possible divestiture.
 
OTHER FINANCIAL MATTERS
 
  Depreciation and amortization expenses increased in 1996 and 1995
principally because of the Port Arthur refinery acquisition and 1994 capital
expenditures.
 
  Interest and financing costs, net in 1996 were below 1995 principally due to
the finance income recognized related to the advance crude oil purchase
receivables. Interest expense increased in 1996 and 1995 primarily because of
the compounding effect related to the Senior Secured Zero Coupon Notes due
2000 (the
 
                                      26
<PAGE>
 
"Zero Coupon Notes") and the issuance in December 1995 of $175 million of 10
7/8% Senior Notes (the "10 7/8% Notes"). Financing costs increased in 1995 and
1996 principally due to higher amortization associated with Clark's larger
working capital facility which was increased to support the crude oil supply
needs of the Port Arthur Refinery and higher amortization of bondholder
consent payments paid in connection with the acquisition of the Port Arthur
Refinery and the advance crude oil purchase receivables. Interest income
improved in 1996 due to $20.9 million of finance income associated with the
advance crude oil purchase receivables and higher levels of cash and cash
equivalents. See Note 8 "Long-Term Debt" and Note 14 "Occidental/Gulf
Transactions" to the Consolidated Financial Statements.
 
  In December 1995, the Company completed separate transactions with
Occidental and Gulf. Pursuant to a merger agreement and a series of related
agreements with Occidental, the Company acquired the right to receive the
equivalent of 17.661 million barrels of WTI to be delivered over six years
according to a defined schedule. This contract was sold in 1996 for $235.4
million. Pursuant to a merger agreement and a series of related agreements
with Gulf, the Company acquired the right to receive 3.164 million barrels of
certain royalty oil to be received by Gulf pursuant to agreements among Gulf,
an Occidental subsidiary and the Government of the Congo. The crude oil was to
be delivered over six years according to a minimum schedule of (in millions of
barrels) 0.72, 0.62, 0.56, 0.48, 0.42 and 0.36 in 1996, 1997, 1998, 1999, 2000
and 2001, respectively. Gulf has not made their required deliveries since July
1996.
 
OUTLOOK
 
  Since most of the Company's products are commodities, supply and demand for
crude oil and refined products has a significant impact on the Company's
results. Demand for fuels products has grown by an average of 2% since 1992
primarily as a result of increased miles driven and little improvement in the
fuel efficiency of the U.S. automobile fleet. The Company believes that
capital spending in the refining sector is highly correlated to refining
industry profitability. As a result of the high capital spending levels of the
early 1990s, the industry's ability to produce products exceeded demand in
recent years. Since then, industry refinery capital spending has declined. The
Company expects that there will continue to be volatility in refining margins
and the Company's earnings because of the seasonal nature of refined product
demand and the commodity nature of the Company's products. In the first
quarter of 1997 the Company completed a maintenance turnaround at its Port
Arthur refinery which reduced production for the quarter by approximately one-
third.
 
  In the short-term, retail margins are generally squeezed in periods of rapid
oil price increases, as was the case in 1996, and widen as prices stabilize or
fall. Prices for crude oil have fallen substantially since the end of 1996.
Longer term, the Company believes margins are driven by market share and
concentration. The Company believes that over the last five years the
Company's Midwest market has averaged among the lowest margins in the U.S. due
to its relatively high level of fragmentation.
 
LIQUIDITY AND CAPITAL RESOURCES
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER
                                                                   31,
                                                           --------------------
                                                            1994   1995   1996
                                                           ------ ------ ------
                                                              (IN MILLIONS)
      <S>                                                  <C>    <C>    <C>
      FINANCIAL POSITION:
        Cash and short-term investments................... $155.0 $149.8 $354.8
        Working capital...................................  164.1  249.8  430.1
        Property, plant and equipment.....................  431.4  550.9  557.3
        Long-term debt....................................  553.3  765.0  781.4
        Stockholders' equity..............................   56.2  154.2  214.4
        Operating cash flow............................... $ 47.2 $  7.6 $  4.2
</TABLE>
 
 
                                      27
<PAGE>
 
  Operating cash flow (cash generated by operating activities before working
capital changes) for the year ended December 31, 1996 was $4.2 million
compared with $7.6 million in 1995 and $47.2 million in 1994. Cash flow
declined from 1994 to 1996 principally because of the weaker refining margin
environment and a decline in retail gasoline margins in 1996. Working capital
at December 31, 1996 was $430.1 million, a 2.10 to 1 current ratio, versus
$249.8 million at December 31, 1995, a 1.63 to 1 current ratio and $164.1
million at December 31, 1994, a 1.68 to 1 current ratio. Working capital
increased in 1996 as a result of the sale of one of the Company's advance
crude oil purchase receivables for net cash proceeds of $235.4 million. An
increase was realized in 1995 due to the Port Arthur refinery acquisition and
partial financing with equity of the refinery's working capital requirements.
 
  As part of its overall inventory management and crude acquisition
strategies, the Company routinely buys and sells, in varying degrees, crude
oil in the spot market. Such on-going activities carry various payment terms
and require the Company to maintain adequate liquidity and working capital
facilities. The Company's short-term working capital requirements (primarily
letter of credit issuances to support crude oil requirements) fluctuate with
the pricing and sourcing of crude oil. Historically, the Company's internally
generated cash flows have been sufficient to meet its needs. Clark has a $400
million committed revolving line of credit (the "Clark Credit Agreement") for
limited short-term cash borrowings and for the issuance of letters of credit
primarily for purchases of crude oil, other feedstocks and refined products.
See Note 7 "Working Capital Facility" to the Consolidated Financial
Statements. Under the defined borrowing base of the Clark Credit Agreement,
$400 million was available at December 31, 1996. At December 31, 1996, $299
million of the facility was used for letters of credit. There were no direct
borrowings under Clark's line of credit at December 31, 1994, 1995 or 1996.
 
  The Clark Credit Agreement contains covenants and conditions which, among
other things, limit dividends, indebtedness, liens, investments, contingent
obligations and capital expenditures, and require Clark to maintain its
property and insurance, to pay all taxes and comply with all laws, and to
provide periodic information and conduct periodic audits on behalf of the
lenders. Clark is also required to comply with certain financial covenants.
Clark renegotiated certain covenants in the Clark Credit Agreement in
connection with the 1995 and 1996 advance crude oil purchase transactions,
received consent for the issuance of the 10 7/8% Notes, modified the change of
control provisions and received approval of a bondholder consent solicitation.
The financial covenants are: (i) maintenance of working capital of at least
$150 million at all times; (ii) maintenance of a tangible net worth (as
defined) of at least $254 million adjusted quarterly to give effect to a
portion of future earnings or capital contributions by the Company to Clark;
(iii) maximum indebtedness to tangible net worth ratio (as defined) of 2.5 to
1.0; (iv) maintenance of minimum levels of balance sheet cash (as defined) of
$50 million at all times; and (v) a minimum ratio of adjusted cash flow (as
defined) to debt service (as defined) of 1.5 to 1.0. The covenants also limit
Clark's ability to pay dividends to the Company to an amount not exceeding the
Net Cash Proceeds (as defined) from the sale of one of the advance crude oil
purchase receivables less $40 million, plus the lesser of (i) $10 million
during any consecutive two quarter period and $20 million during any
consecutive four quarter period or (ii) a dividend basket, which consists of
the greater of $20 million less previous dividend payments of Clark's
cumulative Adjusted Free Cash Flow, as defined in the Clark Credit Agreement,
provided there is no default under the Clark Credit Agreement. As of February
28, 1997, the total amount available for dividends was $215.4 million. The
Clark Credit Agreement also limits the amount of future indebtedness that may
be incurred by the Company without creating an event of default to an amount
equal to $25 million less the amount of certain future debt incurred by Clark.
From December 29, 1995 to January 31, 1997, the Company made $80 million of
equity contributions to Clark in connection with certain modifications to the
Clark Credit Agreement. Clark was in compliance with all covenants of the
Clark Credit Agreement at December 31, 1996.
 
  Cash flows from investing activities (excluding short-term investment
activities which the Company manages similar to cash and cash equivalents) are
primarily affected by acquisitions and capital expenditures, including
refinery maintenance turnarounds. Cash flows provided by investing activities
(excluding short-term investments) in 1996 was $187.4 million as compared to
cash flow used in 1995 and 1994 of $224.5 million and
 
                                      28
<PAGE>
 
$119.1 million, respectively. Cash flow was generated in 1996 from the sale of
one of the advance crude oil purchase receivables. The increased use of cash
in 1995 was principally due to the acquisition of the advance crude oil
purchase receivables from Occidental and Gulf and the Port Arthur refinery
acquisition. Capital expenditures for property, plant and equipment totaled
$45.0 million in 1996 (1995--$42.2 million; 1994--$100.4 million) and
expenditures for refinery maintenance turnarounds totaled $13.9 million
(1995--$6.5 million; 1994--$11.2 million). Capital expenditures were reduced
in 1996 and 1995 in response to lower operating cash flow. Refining division
capital expenditures were $19.4 million in 1996 (1995--$15.9 million, 1994--
$59.7 million). Approximately one-half of 1996 expenditures were discretionary
with the balance and most of 1995 expenditures primarily for mandatory
maintenance and environmental expenditures. In 1994, projects included adding
the capability to produce RFG at the Blue Island refinery and a revamp of the
FCC and alkylation units at the Hartford refinery. Retail capital expenditures
in 1996 totaled $24.6 million (1995--$25.2 million; 1994--$38.2 million).
Approximately one-half of 1996 and 1995 expenditures were for regulatory
compliance, principally underground storage tank related work and vapor
recovery. The remainder of 1996 and 1995 retail capital expenditures were
discretionary and primarily related to new store acquisitions, a reimaging
program and miscellaneous store equipment. In 1994, approximately one-third of
retail division capital expenditures was for regulatory compliance with the
balance for discretionary projects such as reimaging locations, canopies,
expansion of store interior selling space and systems automation.
 
  The Company invested $25 million in a project initiated to produce low
sulfur diesel fuel at the Hartford refinery (the "DHDS Project") which was
delayed in 1992 based on internal and third party analyses that indicated an
oversupply of low sulfur diesel fuel capacity in the Company's marketplace.
Based on these analyses, the Company projected relatively narrow price
differentials between low and high sulfur diesel products. This projection has
thus far been borne out. High sulfur diesel fuel is utilized by the railroad,
marine and farm industries. If price differentials widen sufficiently to
justify investment, the Company could install the necessary equipment over a
14 to 16 month period at an estimated additional cost of $40 million. The
Company believes there may be potential for improved future economic returns
related to the production of low sulfur diesel fuel, but is still deferring
further construction on this project and also reviewing other options for the
project. The Company believes it would not recover its entire investment in
this project should it not be completed.
 
  In February 1995, the Company acquired the Port Arthur Refinery from Chevron
for approximately $70 million plus inventory and spare parts of approximately
$122 million (a $5 million deposit was paid in 1994) and the assumption of
certain liabilities estimated at $19.4 million. The purchase agreement also
provided for contingent payments to Chevron of up to $125 million over a five
year period from the closing date of the Port Arthur refinery acquisition in
the event that refining industry margin indicators exceed certain escalating
levels. The Company believes that even if such contingent payments would be
required to be made, they would not have a material adverse effect on the
Company's results of operations since the Company would also benefit by
retaining one-half of such increased margins. Such contingent payments were
not payable for the first two measurement periods ended September 30, 1995 and
1996, and based on these industry margin indicators from inception through
December 31, 1996, the Company has a cumulative benefit to be applied to
future periods of approximately $36 million applicable to future calculations.
 
  The Company classifies its capital expenditures into two categories,
mandatory and discretionary. There are mandatory maintenance capital
expenditures and mandatory environmental expenditures to comply with
regulations pertaining to ground, water and air contamination and
occupational, safety and health issues. The Company estimates that total
mandatory expenditures through 2000 will be approximately $70 million per year
in the refining division and $15 million per year in the retail division.
Costs to comply with future regulations cannot be estimated.
 
  Expenditures to comply with reformulated and low sulfur fuels regulations
are primarily discretionary, subject to market conditions and economic
justification. These fuel programs impose restrictions on properties of fuels
to be refined and marketed, including those pertaining to gasoline volatility,
oxygenate content, detergent addition and sulfur content. The regulations
regarding these fuel properties vary in markets in which the
 
                                      29
<PAGE>
 
Company operates, based on attainment of air quality standards and the time of
the year. The Company's Port Arthur, Blue Island and Hartford refineries have
the capability to produce 60%, 60%, and 25%, respectively, of their gasoline
production in RFG. Each refinery's maximum RFG production may be limited based
on the clean fuels attainment of Clark's total refining system. The Port
Arthur refinery has the capability to produce 100% low sulfur diesel fuel.
 
  The Company has a philosophy to link total capital expenditures to cash
generated from operations. The Company has a total capital and refinery
maintenance turnaround expenditure budget of $100-$110 million for 1997. This
amount includes approximately $18 million, net, related to the January 1997
acquisition of 48 retail stores in Michigan and expenditures related to a
major maintenance turnaround at the Port Arthur refinery in the first quarter
of 1997. Total capital expenditures may be under budget if cash flow is less
than expected, and higher than budget if cash flow is better than expected.
 
  The sale of equity by the Company to finance the Port Arthur Refinery
acquisition (the "Port Arthur Financing") triggered a calculation of a
potential contingent payment to AOC L.P. (the "AOC L.P. Contingent Payment"),
related to the December 1992 purchase of their minority interest. Based upon
such calculation, no payment is anticipated. The amounts due under the
contingency payment provisions of the AOC Stock Purchase Agreement, related to
net cash flow and the sales of assets, for 1993 to 1996 were not material. The
AOC L.P. Contingent Payment is an amount which shall not exceed in the
aggregate $24 million plus interest at 9% per annum compounded annually
through December 31, 1996. The AOC L.P. Contingent Payment is payable 89% by
the Company and 11% by TrizecHahn. TrizecHahn has indemnified the Company for
any AOC L.P. Contingent Payment in excess of $7 million. The Company believes
the Oil Transactions did not trigger an obligation on the Company to calculate
or make a payment to AOC L.P. Notwithstanding the Company's calculations of
the amount of the AOC L.P. Contingent Payment related to the Port Arthur
Financing and the Company's belief related to the Oil Transactions, AOC L.P.
has asserted that an amount is payable. There can be no assurance that the
Company's position related to the Port Arthur Financing or the Oil
Transactions will prevail.
 
  Cash flow used in financing activities was $4.7 million in 1996, $298.9
million was provided by financing activities in 1995 compared to a use of $6.5
million in 1994. In 1995, financing activities reflected the partial financing
of the Port Arthur refinery acquisition with the sale of stock (the balance
was financed with cash on hand), the issuance of the 10 7/8% Notes in
connection with the Oil Transactions, fees related to the larger working
capital facility associated with the expanded working capital needs of the
Company following the Port Arthur Refinery acquisition and two capital leases
associated with the sale and leaseback of certain refinery equipment at the
Hartford and Port Arthur refineries. In 1994, expenditures were made related
to the acquisition of a new working capital facility and equity financing for
the Port Arthur Refinery acquisition.
 
  Funds generated from operating activities together with existing cash, cash
equivalents and short-term investments, are expected to be adequate to fund
existing requirements for working capital and capital expenditure programs for
the next year. Due to the commodity nature of its products, the Company's
operating results are subject to rapid and wide fluctuations. While the
Company believes that its maintenance of large cash, cash equivalents and
short-term investment balances and other operating philosophies will be
sufficient to provide the Company with adequate liquidity through the end of
1997, there can be no assurance that refining industry conditions will not be
worse than anticipated. Due to the sale of one of the advance crude oil
purchase receivables the Company had higher cash, cash equivalents and short-
term investments at December 31, 1996 than it has historically maintained.
These balances are available for investment in current operations, debt
reduction or acquisitions. Future working capital, discretionary capital
expenditures, environmentally-mandated spending and acquisitions may require
additional debt or equity capital.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  The information required by this item is incorporated herein by reference to
Part IV Item 14 (a) 1 and 2. Financial Statements and Financial Statement
Schedules.
 
                                      30
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
  Inapplicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The directors, executive officers, Controller, Treasurer and Secretary of the
Company and their respective ages and positions are set forth in the table
below. Each individual, except Mr. Chazen and Mr. Murchie, serves in the same
capacity with Clark.
 
<TABLE>
<CAPTION>
                 NAME            AGE                                       POSITION
                 ----            ---                                       --------
      <S>                        <C> <C>
      Peter Munk                 69  Chairman of the Board and Director
      Paul D. Melnuk             42  President and Chief Executive Officer; Chief Operating Officer (Clark only); Director
      Maura J. Clark             38  Executive Vice President--Corporate Development and Chief Financial Officer
      C. William D. Birchall     54  Director (b)
      Stephen I. Chazen          50  Director (a)(b)
      James J. Murchie           39  Director (a)(b)
      Gregory C. Wilkins         41  Director (a)
      Dennis R. Eichholz         43  Controller and Treasurer
      Katherine D. Knocke        39  Secretary
--------
(a) Member of the Audit Committee
(b) Member of the Compensation Committee
 
  The following persons, who are not executive officers or directors of the
Company, serve as executive officers of Clark.
 
      Bradley D. Aldrich         42  Executive Vice President--Refining
      Brandon K. Barnholt        38  Executive Vice President--Marketing
      Edward J. Stiften          42  Executive Vice President, Chief Administrative Officer
</TABLE>
 
  The Board of Directors of the Company consists of six directors who serve
until the next annual meeting of stockholders or until a successor is duly
elected. Directors do not receive any compensation for their services as such.
Executive officers of the Company serve at the discretion of the Board of
Directors of the Company.
 
  Peter Munk has served as a director and as Chairman of the Board of the
Company since November 1988. Mr. Munk has served as Chairman of the Board of
Clark since July 1992 and as Chairman of the Board and Chief Executive Officer
of Clark from August 1990 through July 1992. Mr. Munk has served as a director
of Clark since November 1988. Mr. Munk has served as Chairman of the Board of
Directors of TrizecHahn since its formation in June 1987 and as Chairman and
Chief Executive Officer and a director of Barrick Gold Corporation ("Barrick")
since July 1984.
 
  Paul D. Melnuk has served as a director and as President of the Company since
September 1992 and as Vice President and Treasurer of the Company from November
1988 through September 1992. Mr. Melnuk has served as a director of Clark since
October 1992, as President and Chief Executive Officer of Clark since July
1992, as Chief Operating Officer of Clark since December 1991, as President of
Clark from February 1992 through July 1992, as Executive Vice President of
Clark from December 1991 through February 1992, and served in various other
capacities since November 1988. Mr. Melnuk served as a director of TrizecHahn
from March 1992 through November 1996. Mr. Melnuk served as President and Chief
Operating Officer of TrizecHahn from March 1992 through April 1994 and as
Executive Vice President and Chief Financial Officer of TrizecHahn from May
1990 through February 1992.
 
                                       31
<PAGE>
 
  Maura J. Clark has served as Executive Vice President--Corporate Development
and Chief Financial Officer of the Company and Clark since August 1995. Ms.
Clark previously served as Vice President--Finance at North American Life
Assurance Company, a financial services company, from September 1993 through
July 1995. From May 1990 to September 1993, Ms. Clark served as Vice President
Corporate Finance and Corporate Development of North American Trust Company
(formerly First City Trust Company), a subsidiary of North American Life
Assurance Company.
 
  C. William D. Birchall has been a director of the Company and Clark since
November 1988. Mr. Birchall has been Chief Financial Officer of Arlington
Investments Limited, a private investment holding company located in Nassau,
Bahamas, for the last five years. Mr. Birchall has been a director of Barrick
since July 1984 and a director of TrizecHahn since 1987.
 
  Stephen I. Chazen has been a director since December, 1995. Mr. Chazen has
been Executive Vice President--Corporate Development of Occidental since May
1994. Prior to May 1994, Mr. Chazen served in various capacities at Merrill
Lynch & Co., most recently as Managing Director. Mr. Chazen is serving as
Occidental's nominee on the Company's Board of Directors. See "Security
Ownership of Certain Owners and Management--The Oxy Stockholders Agreement."
 
  James J. Murchie has been a director of the Company since August 1995. Mr.
Murchie joined Tiger in May 1995 as a Managing Director. Mr. Murchie
previously served as an energy analyst at the investment bank of Sanford C.
Bernstein & Co. from 1990 to May 1995. Prior to 1990, Mr. Murchie held various
positions with British Petroleum in the U.S. between 1982 and 1990. Mr.
Murchie is serving as Tiger's nominee on the Company's Board of Directors. See
"Security Ownership of Certain Owners and Management--Restrictions Under Tiger
Agreements."
 
  Gregory C. Wilkins has been a director of the Company and Clark since August
1994 and has served as President of TrizecHahn since April 1994. Mr. Wilkins
served as President of Trizec Corporation Ltd. from February 1996 through
November 1996 and has served as Executive Director, Office of the Chairman of
TrizecHahn and Barrick since September 1993; Executive Vice-President and
Chief Financial Officer of Barrick from April 1990 through September 1993;
Senior Vice-President, Finance of Barrick prior to April 1990.
 
  Dennis R. Eichholz who joined Clark in November 1988 has served as
Controller and Treasurer of the Company and Vice President-Controller and
Treasurer of Clark since February 1995. Mr. Eichholz has served as Vice
President-Treasurer of Clark since December 1991.
 
  Katherine D. Knocke has served as Secretary of the Company and Clark since
April 1995. Ms. Knocke has served as in-house counsel of Clark since August
1994. Ms. Knocke previously was employed as an associate with the St. Louis
law firm of Armstrong, Teasdale, Schlafly & Davis from September 1989 through
August 1994.
 
  Bradley D. Aldrich has served as Executive Vice President--Refining, since
December 1994. From August 1991 through November 1994, Mr. Aldrich served as
Vice President, Supply & Distribution for CF Industries, Inc., a chemical
fertilizer manufacturer and distributor. Mr. Aldrich previously served as
Manager, Light Oil Supply-North America of Conoco, Inc. from August 1989
through July 1991.
 
  Brandon K. Barnholt has served as Executive Vice President--Marketing of
Clark since February 1995 and served as Executive Vice President--Retail
Marketing from December 1993 through February 1995, as Vice President--Retail
Marketing of Clark from July 1992 through December 1993 and as Managing
Director--Retail Marketing of Clark from May 1992 through July 1992. Mr.
Barnholt previously served as Retail Marketing Manager of Conoco, Inc. from
March 1991 through March 1992.
 
  Edward J. Stiften joined Clark in March 1997 as Executive Vice President,
Chief Administrative Officer. Mr. Stiften was previously in private business
from June 1995 through March 1997. Mr. Stiften served as Subsidiary Executive
Vice President and Acting General Manager of General Dynamics, Inc. from
October 1994
 
                                      32
<PAGE>
 
through May 1995, as Corporate Staff Vice President of Internal Audit from
February 1994 through October 1994 and as Corporate Staff Vice President--
Financial Analysis from December 1991 through January 1994.
 
  Except as described above, there are no arrangements or understandings
between any director or executive officer and any other person pursuant to
which such person was elected or appointed as a director or executive officer.
There are no family relationships between any director or executive officer
and any other director or executive officer.
 
EXECUTIVE COMMITTEE
 
  The Executive Committee is principally responsible for making management
policy for Clark as well as developing and implementing financial and human
resource strategies, and improving Clark's financial position and results of
operations. The five members of the Executive Committee are: Bradley D.
Aldrich, Executive Vice President--Refining; Brandon K. Barnholt, Executive
Vice President--Marketing; Maura J. Clark, Executive Vice President--Corporate
Development and Chief Financial Officer; Paul D. Melnuk, President, Chief
Executive Officer and Chief Operating Officer; and Edward J. Stiften,
Executive Vice President and Chief Administrative Officer.
 
ITEM 11. EXECUTIVE COMPENSATION
 
EXECUTIVE COMPENSATION
 
  The executive officers of the Company are not paid by the Company. The
following table sets forth all cash compensation paid by Clark to its Chief
Executive Officer and its other executive officers whose total annual
compensation exceeded $100,000 for each of the years in the three-year period
ended December 31, 1996.
 
<TABLE>
<CAPTION>
                                        ANNUAL COMPENSATION
                                       ---------------------   LONG TERM
   NAME AND PRINCIPAL                           OTHER ANNUAL  COMPENSATION        ALL OTHER
        POSITION         YEAR  SALARY   BONUS   COMPENSATION AWARDS OPTIONS    COMPENSATION (D)
   ------------------    ---- -------- -------- ------------ --------------    ----------------
<S>                      <C>  <C>      <C>      <C>          <C>               <C>
Paul D. Melnuk.......... 1996 $325,000 $130,000     --              --              $6,816
President and Chief      1995  326,836   75,000     --          100,000(b)           5,479
 Executive Officer
                         1994  325,893  150,000     --              --               7,528
Bradley D. Aldrich (a).. 1996  211,779   47,500     --              --               6,849
Executive Vice           1995  176,224   42,500     --          130,000(b)(c)          --
 President--Refining
                         1994    6,731   60,000     --              --                 --
Brandon K. Barnholt..... 1996  211,799   87,500     --              --               6,802
Executive Vice           1995  176,273   75,000     --           50,000(b)           5,329
 President--Marketing
                         1994  171,846  100,000     --              --               8,330
Maura J. Clark (e)...... 1996   36,779   47,500     --              --                 --
Executive Vice           1995      --       --      --              --                 --
 President--Corporate
 Development and Chief
 Financial Officer
                         1994      --       --      --              --                 --
 
</TABLE>
--------
(a) Mr. Aldrich commenced employment on December 1, 1994. See "--Employment
    Agreement."
(b) Options issued pursuant to the Performance Plan as described below.
(c) Mr. Aldrich and Mr. Barnholt (granted in 1993) hold options to acquire
    TrizecHahn Subordinate Voting Shares ("TrizecHahn Shares") received as
    compensation from TrizecHahn for services performed for Clark under the
    TrizecHahn Amended and Restated 1987 Stock Option Plan (the "TrizecHahn
    Option Plan").
(d) Represents amount accrued for the account of such individuals under the
    Clark Retirement Savings Plan (the "Savings Plan").
(e) In 1995 and 1996, Ms. Clark was an employee of TrizecHahn and served Clark
    under a management consulting arrangement. Ms. Clark earned approximately
    $175,000 in 1996 and $117,000 in 1995 under such arrangement. As of
    January 1, 1997, Ms. Clark became an employee of Clark. The amounts
    reflected in this table are for 1996 compensation paid by Clark in 1997.
 
                                      33
<PAGE>
 
STOCK OPTIONS GRANTED DURING 1996
 
  The were no options granted during 1996 to the named executive officers
under the Performance Plan (defined below) for services performed for Clark.
 
YEAR-END OPTION VALUES
 
  The following table sets forth information with respect to the number and
value of unexercised options to purchase Common Stock of the Company and
TrizecHahn Shares held by the executive officers named in the executive
compensation table at December 31, 1996.
 
<TABLE>
<CAPTION>
                                                               NUMBER OF           VALUE OF UNEXERCISED
                          SHARES ACQUIRED              UNEXERCISED OPTIONS HELD  IN-THE-MONEY OPTIONS HELD
                            ON EXERCISE       VALUE      AT DECEMBER 31, 1996    AT DECEMBER 31, 1996 (A)
                         DURING YEAR ENDED  REALIZED   ------------------------- -------------------------
NAME                     DECEMBER 31, 1996 ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----                     ----------------- ----------- ----------- ------------- ----------- -------------
<S>                      <C>               <C>         <C>         <C>           <C>         <C>
Paul D. Melnuk (b)......         --              --         --        100,000     $    --      $700,000
Bradley D. Aldrich......         --              --      33,333        96,667      289,000      789,000
Brandon K. Barnholt.....      20,000        $184,700     70,000        50,000      742,000      350,000
</TABLE>
--------
(a) For the TrizecHahn Shares the value is based upon the closing price on the
    New York Stock Exchange-Composite Transactions on December 31, 1996. For
    the Common Stock of the Company the value is based on the issuance price
    in the Oil Transactions.
(b) Mr. Melnuk also holds options to acquire TrizecHahn Shares received as
    compensation for services provided to TrizecHahn.
 
SHORT-TERM PERFORMANCE PLAN
 
  Employees of Clark participate in an annual incentive plan which places at
risk an incremental portion of their total compensation based on company,
business unit and/or individual performance. The targeted at risk compensation
increases with the ability of the individual to affect business performance,
ranging from 12% for support personnel to 200% for the Chief Executive
Officer. The other executive officers have the opportunity to earn an annual
incentive equal to 125% of the individual's base salary. The actual award is
determined based on financial performance as measured by return on equity with
individual and executive team performance evaluated against pre-established
operating objectives designed to achieve planned financial results. For
essentially all other employees, annual incentives are based on specific
performance indicators utilized to operate the business, principally
productivity and profitability measures.
 
LONG-TERM PERFORMANCE PLAN
 
  The Company has adopted a Long-Term Performance Plan (the "Performance
Plan"). Under the Performance Plan, designated employees, including executive
officers, of the Company and its subsidiaries and other related entities are
eligible to receive awards in the form of stock options, stock appreciation
rights and stock grants. The Performance Plan is intended to promote the
growth and performance of the Company by encouraging employees to acquire an
ownership interest in the Company and to provide incentives for employee
performance. An aggregate of 1,250,000 shares of Common Stock may be awarded
under the Performance Plan, either from authorized, unissued shares which have
been reserved for such purpose or from shares purchased on the open market,
subject to adjustment in the event of a stock split, stock dividend,
recapitalization or similar change in the outstanding common stock of the
Company. As of December 31, 1996, 549,000 stock options have been issued under
the Performance Plan.
 
  The Performance Plan is administered by the Board of Directors' Compensation
Committee. Subject to the provisions of the Performance Plan, the Compensation
Committee is authorized to determine who may participate in the Performance
Plan and the number and types of awards made to each participant, and the
terms, conditions and limitations applicable to each award. Awards may be
granted singularly, in combination or in tandem. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or
terminate the Performance Plan to meet any changes in legal requirements or
for any other purpose permitted by law.
 
                                      34
<PAGE>
 
  Payment of awards may be made in the form of cash, stock or combinations
thereof and may include such restrictions as the Compensation Committee shall
determine, including, in the case of stock, restrictions on transfer and
forfeiture provisions. The price at which shares of Common Stock may be
purchased under a stock option may not be less than the fair market value of
such shares on the date of grant. If permitted by the Compensation Committee,
such price may be paid by means of tendering Common Stock, or surrendering
another award, including restricted stock, valued at fair market value on the
date of exercise, or any combination thereof. Further, with Compensation
Committee approval, payments may be deferred, either in the form of
installments or as a future lump sum payment. Dividends or dividend equivalent
rights may be extended to and made part of any award denominated in stock,
subject to such terms, conditions and restrictions as the Compensation
Committee may establish. At the discretion of the Compensation Committee, a
participant may be offered an election to substitute an award for another
award or awards of the same or different type. Stock options initially have a
10 year term with a three year vesting schedule and are not exercisable until
the Company's Common Stock is publicly traded. In accordance with the Stock
Purchase Agreement (as defined herein), executive officers are restricted from
exercising options for four years or until Tiger's interest in the Company
falls below 10%.
 
  If the employment of a participant terminates, subject to certain exceptions
for retirement, resignation, death or disability, all unexercised, deferred
and unpaid awards will be canceled immediately, unless the award agreement
provides otherwise. Subject to certain exceptions for death or disability, or
employment by a governmental, charitable or educational institution, no award
or other benefit under the Performance Plan is assignable or transferable, or
payable to or exercisable by anyone other than the participant to whom it was
granted.
 
  In the event of a "Change of Control" of the Company or TrizecHahn (as
defined in the Performance Plan), with respect to awards held by Performance
Plan participants who have been employed by the Company for at least six
months, (a) all stock appreciation rights which have not been granted in
tandem with stock options will become exercisable in full, (b) the
restrictions applicable to all shares of restricted stock will lapse and such
shares will be deemed fully vested, (c) all stock awards will be deemed to be
earned in full, and (d) any participant who has been granted a stock option
which is not exercisable in full will be entitled, in lieu of the exercise of
such stock option, to obtain cash payment in an amount equal to the difference
between the option price of such stock option and the offer price (in the case
of a tender offer or exchange offer) or the value of common stock covered by
such stock option, determined as provided in the Performance Plan.
 
  Under the Performance Plan, a "Change in Control" includes, without
limitation, with respect to the Company or TrizecHahn, (i) the acquisition
(other than by TrizecHahn) of beneficial ownership of 25% or more of the
voting power of its outstanding securities without the prior approval of at
least two-thirds of its directors then in office, (ii) a merger,
consolidation, proxy contest, sale of assets or reorganization which results
in directors previously in office constituting less than a majority of its
directors thereafter, or (iii) any change of at least a majority of its
directors during any period of two years.
 
CLARK SAVINGS PLAN
 
  The Clark Savings Plan, which became effective in 1989, permits employees to
make before-tax and after-tax contributions and provides for employer
incentive matching contributions. Savings Plan assets are held in trust by
Boatmen's Trust Company. Under the Savings Plan, each employee of Clark (and
such other related companies as may adopt the Savings Plan) who has completed
at least six months of service may become a participant. Participants are
permitted to make before-tax contributions to the Savings Plan, effected
through payroll deduction, of from 1% to 15% of their compensation. Clark
makes matching contributions equal to 200% of a participant's before-tax
contributions up to 3% of compensation. Participants are also permitted to
make after-tax contributions through payroll deduction, of from 1% to 5% of
compensation, which are not matched by employer contributions; provided that
before-tax contributions and after-tax contributions, in the aggregate, may
not exceed the lesser of 15% of compensation or $9,500 in 1996. All employer
contributions are vested at a rate of 20% per year of service, becoming fully
vested after five years of service. Amounts in employees' accounts may be
invested in a variety of permitted investments, as directed by the employee,
including in TrizecHahn
 
                                      35
<PAGE>
 
Shares. Participants' vested accounts are distributable upon a participant's
disability, death, retirement or separation from service. Subject to certain
restrictions, employees may make loans or withdrawals of employee contributions
during the term of their employment.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  Compensation of Clark's executive officers has historically been determined
by Clark's Board of Directors. Mr. Melnuk, the Company's and Clark's President
and Chief Executive Officer, is a member of the Company's and Clark's Board of
Directors. Other than reimbursement of their expenses, neither the Company's
nor Clark's directors receive any compensation for their services as directors.
There are no interlocks between the Company and other entities involving the
Company's executive officers and board members who serve as executive officers
or board members of other entities, except with respect to the Company's
parent, TrizecHahn. Mr. Munk (Chairman and Chief Executive Officer of
TrizecHahn) serves as a director of the Company, Mr. Wilkins (President and
Chief Operating Officer of TrizecHahn) serves as a director of the Company and
Mr. Birchall serves as a director of the Company and as a director and Vice
Chairman of TrizecHahn.
 
EMPLOYMENT AGREEMENT
 
  Clark has an employment agreement with Mr. Aldrich which provides for a term
of thirty months commencing December 1, 1994 at a minimum annual salary of
$175,000. In addition, in February 1995 Mr. Aldrich was granted an option to
purchase 100,000 shares of TrizecHahn Shares under the TrizecHahn Option Plan.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
 
  The following table and the accompanying notes set forth certain information
concerning the beneficial ownership of the Common Stock and Class A Common
Stock of the Company, as of the date hereof: (i) each person who is known by
the Company to own beneficially more than 5% of the common stock of the
Company, (ii) each director and each executive officer who is the beneficial
owner of shares of common stock and (iii) all directors and executive officers
as a group.
 
<TABLE>
<CAPTION>
                                                                                PERCENT OF
    NAME AND ADDRESS      TITLE OF CLASS NUMBER OF SHARES PERCENT OF CLASS TOTAL VOTING POWER(A)
    ----------------      -------------- ---------------- ---------------- ---------------------
<S>                       <C>            <C>              <C>              <C>
Peter Munk (b)..........  Common            12,375,000           65%                 46%
TrizecHahn Corporation    Class A Common     1,125,000           11
 BCE Place
 181 Bay Street, Suite
 3900
 P.O. Box 768
 Toronto, Ontario
 M5J 2T3 Canada
Julian H. Robertson, Jr.  Class A Common     9,000,000           89                  31
(c).....................
 Tiger Management
 Corporation
 101 Park Avenue
 New York, New York
 10178
Paul D. Melnuk..........  Class A Common        37,509           (d)                 (d)
Occidental Petroleum      Common             5,454,545           29                  19
 Corporation 10889
 Wilshire Boulevard
 Los Angeles, California
 90024
J. M. Salaam (e)........  Common             1,222,273            6                   4
Gulf Resources
 Corporation
 24-26 Regent's Bridge
 Gardens London SW8 1HB
 England
All directors and
 executive officers as a
 group (b)..............  Common            12,375,000           65                  46
                          Class A Common     1,162,509           11
</TABLE>
 
                                       36
<PAGE>
 
--------
(a) Represents the total voting power of all shares of common stock
    beneficially owned by the named stockholder. See "--Restrictions Under
    Tiger Agreements."
(b)  As of December 31, 1996, Peter Munk, the Chairman of the Board of
     Directors of TrizecHahn, held approximately 53% voting control of
     TrizecHahn and as a result is deemed to own beneficially the shares owned
     by TrizecHahn.
(c)  Tiger has informed the Company that Julian H. Robertson, Jr., Tiger's
     chief executive officer, may be deemed to control Tiger. Mr. Robertson's
     address is 101 Park Avenue, New York, New York 10178.
(d)  Less than 1%.
(e)  Gulf has informed the Company that H. M. Salaam, Gulf's chairman, may be
     deemed to control Gulf. Mr. Salaam's address is 24-26 Regent's Bridge
     Gardens, London SW8 1HB England.
 
RESTRICTIONS UNDER TIGER AGREEMENTS
 
  Pursuant to the Stock Purchase Agreement, dated as of February 27, 1995 (the
"Stock Purchase Agreement") between the Company, a subsidiary of TrizecHahn,
TrizecHahn and Tiger, the Company agreed to the following:
 
 Limitation on Certain Transactions
 
  Pursuant to the Stock Purchase Agreement, the Company agreed that, so long
as Tiger and/or its affiliates collectively own 20% of the issued and
outstanding capital stock of the Company, the affirmative vote of the holders
of a majority of the outstanding shares of Class A Common Stock shall be
required for any of the following actions:
 
    (a) acquisitions by the Company during any calendar year of equity or
  debt securities (other than equity or debt securities purchased in
  connection with the Company's investment of excess cash) or fixed assets
  (other than pursuant to operating leases and other than as part of capital
  expenditure programs (whether or not requiring approval as contemplated by
  (c) below)) or assumptions by the Company of liabilities which, in the
  aggregate, exceed $10,000,000;
 
    (b) other than certain identified financings, financings by the Company
  (other than fully underwritten widely dispersed public offerings of common
  stock or pursuant to working capital arrangements) during any calendar year
  which in the aggregate exceed $10,000,000;
 
    (c) any increase in any calendar year (in excess of the Consumer Price
  Index increase from the previous calendar year) in compensation payable at
  any time to any senior management member, and any termination of employment
  by the Company, or significant reduction by the Company in duties, of Paul
  Melnuk, the President and Chief Executive Officer of the Company;
 
    (d) other than a fully underwritten widely dispersed public offering of
  common stock, any material change in the capital structure of the Company
  (including, without limitation, any issuance of debt securities (except as
  permitted by (b) above)) or equity securities (other than pursuant to the
  Performance Plan);
 
    (e) any transactions between the Company on the one hand and any of its
  affiliates or TrizecHahn or its affiliates on the other hand (other than
  pursuant to the Performance Plan ) which (a) are not on reasonable arm's
  length terms at fair market valuations or (b) during any calendar year
  exceed, in the aggregate, $2,500,000;
 
    (f) a merger or sale of the Company or more than 10% of its assets; and
 
    (g) prior to the second anniversary of the Public Float Target Date (as
  defined in the Stock Purchase Agreement), any acquisition by the Company
  which is funded by the issuance of new equity securities of the Company.
 
  In addition, so long as Tiger and/or its affiliates own collectively 20% of
the issued and outstanding capital stock of the Company, the Company may not,
and shall cause each of its subsidiaries not to, engage in any business other
than its current business.
 
 
                                      37
<PAGE>
 
 Tiger Director
 
  So long as Tiger and/or its affiliates own collectively 10% or more of the
issued and outstanding capital stock of the Company, at each annual election
of the Board of Directors of the Company thereafter, the Company will take all
necessary action to elect to the Board of Directors of the Company one person
nominated by Tiger. James J. Murchie currently serves as the director
nominated by Tiger.
 
 Limitations on Sale of Capital Stock of the Company
 
  With respect to any public offering of common stock, Tiger on the one hand
and the Company on the other hand may participate for the same number of
shares, and TrizecHahn and its affiliates may participate (with respect only
to the Common Stock into which its Class A Common Stock is convertible) for a
percentage of the number of shares being offered by Tiger which is equal to
the percentage that the Common Stock into which TrizecHahn's Class A Common
Stock is convertible represents of the capital stock of the Company owned in
the aggregate by Tiger; provided, however, that the Company shall have
priority to the extent that funding is required in connection with such
offering for mandatory redemption of the Company's Zero Coupon Notes.
 
  Other than as provided in the preceding paragraph or with Tiger's consent
(which Tiger may grant or withhold at Tiger's sole discretion), TrizecHahn
shall not sell any equity securities of the Company owned by it (other than
the Class A Common Stock issued to TrizecHahn under the Stock Purchase
Agreement or the Common Stock into which it is convertible), provided,
however, that TrizecHahn may sell equity securities of the Company after 120
days after Tiger no longer owns at least 10% of the then issued and
outstanding capital stock of the Company unless Tiger shall at such time be
actively attempting to sell any capital stock or shall have taken substantial
steps in such regard.
 
  If any Purchaser (a "Selling Purchaser") proposes to sell all or any portion
of its Class A Common Stock in a private sale to an entity engaged in the
refining industry (a "Proposed Sale"), the Selling Purchaser will provide the
Company with at least 45 days' written notice prior to the closing thereof
(which closing shall be subject to the Company's right here under), and the
Company will have the right, prior to the date of such closing (the "Proposed
Sale Closing Date"), to produce an alternative buyer for the same number of
shares at a higher price than in the Proposed Sale and otherwise on terms
(including the date of closing being no later than the Proposed Sale Closing
Date) equal or superior to the terms of the Proposed Sale. If the transaction
with such alternative buyer does not close for any reason by the Proposed Sale
Closing Date (other than by reason of a breach by the Selling Purchaser of its
obligations), the Selling Purchaser shall be free during the next 90 days to
sell the shares it proposed to sell in the Proposed Sale to any buyer
(including the buyer in the Proposed Sale). Notwithstanding the above, the
Company shall have the right, in its sole discretion, to prohibit any sales of
capital stock of the Company for a period of time not to exceed 90 days from
(i) the date of the initial public offering (the "IPO") of the Company's
common stock if so required by the managing underwriters of the IPO or (ii)
the date of the notice referred to in the first sentence of this paragraph in
the event of a pending material transaction. In the event the Company shall
prohibit any sales of its capital stock of the Company pursuant to the
preceding sentence, the 90 day period during which the Selling Purchaser would
have otherwise been free to sell the shares it proposed to sell in the
Proposed Sale shall be extended to the date following expiration of such
prohibition which is the same number of days thereafter as the number of days
during such 90-day period that such prohibition was in effect.
 
  Any executive officer of the Company exercising options issued pursuant to
the Performance Plan may not sell equity securities of the Company issued upon
exercise of options issued pursuant to the Performance Plan until the earlier
of four years after February 27, 1995 or 120 days after Tiger and its
affiliates own less than 10% of the capital stock of the Company and then only
if Tiger and its affiliates shall not at such time be actively attempting to
sell equity securities of the Company or have taken substantial steps in such
regard.
 
                                      38
<PAGE>
 
 Registration Rights
 
  In connection with the execution of the Stock Purchase Agreement, the
Company entered into a registration rights agreement (the "Tiger Registration
Rights Agreement") with Tiger, a subsidiary of TrizecHahn and Paul D. Melnuk.
In the Tiger Registration Rights Agreement, the Company agreed, among other
things, to provide Tiger with demand and piggyback registration rights with
respect to their shares of Common Stock issuable upon conversion of their
Class A Common Stock. The Company also agreed to file a shelf registration and
to use its best efforts to cause the shelf registration to become effective
not later than 90 days after consummation of an initial public offering and to
remain effective for a period of four years from the date upon which the shelf
registration is declared effective.
 
THE OCCIDENTAL STOCKHOLDERS' AGREEMENT
 
  The Company and Occidental, entered into a Stockholders' Agreement (the "Oxy
Stockholders' Agreement"). The Oxy Stockholders' Agreement provides that
Occidental will be entitled to designate one director to the Board of
Directors of the Company so long as Occidental and its affiliates own at least
10% of the outstanding shares of capital stock of the Company on a fully
diluted basis. Stephen I. Chazen currently serves as the director designated
by Occidental.
 
  The Oxy Stockholders' Agreement generally prohibits the sale of shares of
capital stock of the Company by Occidental and its transferees except (a)
pursuant to a public offering, (b) to the Company or any subsidiary of the
Company, TrizecHahn, Occidental, Tiger or their respective affiliates, (c)
subject to certain restrictions, pursuant to Rule 144 under the Securities
Act, or (d) to third parties, subject to a right of first refusal granted to
the Company. The Oxy Stockholders' Agreement prohibits any sale of shares of
capital stock of the Company without the consent of Tiger whenever Tiger is
actively attempting to sell any capital stock of the Company or has taken
substantial steps in such regard.
 
  Pursuant to the Oxy Stockholders' Agreement, Occidental will be entitled to
receive additional shares of Class D Common Stock if the Company, whether or
not for its own account, effects a public offering of common stock at a price,
net of all fees, commissions and discounts (the "Net Price") below $22 per
share. Subject to appropriate adjustments for stock dividends,
recapitalizations and similar events, the additional shares of Class D Common
Stock to be received by Occidental in this circumstance will be valued at a
minimum of $20 per share and will not exceed 545,455 shares in the aggregate.
See "--Restrictions Under Tiger Agreements".
 
  The Company has granted to Occidental the right, after the Company has made
a public offering of equity securities, to make one demand that the Company
register under the Securities Act shares of the Company's capital stock held
by Occidental. Occidental will also have the right to participate in
registrations effected by the Company for its account or for the account of
another stockholder.
 
THE GULF STOCKHOLDERS' AGREEMENT
 
  The Company and Gulf entered into a Stockholders' Agreement (the "Gulf
Stockholders' Agreement"). The Gulf Stockholders' Agreement generally
prohibits the sale of shares of capital stock of the Company by the Gulf
Stockholders and their transferees except (a) to Gulf or an affiliate of Gulf
or (b) in a transaction in which TrizecHahn sells any shares of capital stock
of the Company. The Oxy Stockholders' Agreement prohibits any sale of shares
of capital stock of the Company without the consent of Tiger whenever Tiger is
actively attempting to sell any capital stock of the Company or has taken
substantial steps in such regard. In any such sale by TrizecHahn, Gulf shall
have the right to elect to include in such sale a number of shares of common
stock of the Company owned by Gulf proportionate to the total number of shares
owned by Gulf relative to TrizecHahn.
 
  Pursuant to the Gulf Stockholders' Agreement, Gulf will be entitled to
receive additional shares of Class D Common Stock if the Company, whether or
not for its own account, effects a public offering of common stock at a Net
Price below $22 per share. Subject to appropriate adjustments for stock,
dividends, recapitalizations and similar events, the additional shares of
Class D Common Stock to be received by the Gulf Stockholders in this
circumstance will be valued at a minimum of $20 per share and will not exceed
122,227 shares in the aggregate.
 
                                      39
<PAGE>
 
  The common shares of the Company held by Gulf secure the obligations of Gulf
in the Oil Transactions. Gulf has not made their required deliveries under the
Oil Transactions since July 1996.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  TrizecHahn and Clark have agreements to provide certain management services
to each other from time to time. Clark established trade credit with various
suppliers of its petroleum requirements, requiring the guarantee of
TrizecHahn. Fees related to trade credit guarantees totaled $0.1 million, $0.2
million and $0.2 million in 1994, 1995 and 1996, respectively. All trade
credit guarantees were terminated in August 1996.
 
  The business relationships described above and any future business
relationships between the Company and TrizecHahn will be on terms no less
favorable in any respect than those which could be obtained through dealings
with third parties.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
 
  (a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
 
  The financial statements and schedule filed as a part of this Report on Form
10-K are listed in the accompanying index to financial statements and
schedule.
 
  3. EXHIBITS
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
     <C>       <S>
      2.2      Agreement and Plan of Merger, dated as of November 3, 1995,
                among Clark USA, Inc., Occidental C.O.B. Partners, Occidental
                C.O.B., Inc. and OXY USA, Inc. (Incorporated by reference to
                Exhibit 2.2 filed with Clark USA, Inc. Form 8-K, dated
                December 1, 1995 (File No. 33-59144))
      3.1      Restated Certificate of Incorporation of Clark USA, Inc.
                (Incorporated by reference to Exhibit 3.1 filed with Clark R &
                M Holdings Registration Statement on Form S-4 (Registration
                No. 33-59144))
      3.2      Certificate of Amendment to Certificate of Incorporation
                (Incorporated by reference to Exhibit 3.3 filed with Clark
                USA, Inc. Registration Statement on Form S-4 (Registration No.
                33-81005))
      3.3      By-laws of Clark USA, Inc. (Incorporated by reference to
                Exhibit 3.2 filed with Clark USA, Inc. Current Report on Form
                8-K dated February 27, 1995 (Registration No. 33-59144))
      4.1      Indenture, dated as of December 1, 1995, between Clark USA,
                Inc. and The Chase Manhattan Bank, N.A., as Trustee, including
                the form of 10 7/8% Series B. Senior Notes due December 1,
                2005 (Incorporated by reference to Exhibit 4.1 filed with
                Clark USA, Inc. Form 8-K, dated December 1, 1995 (File No. 33-
                59144))
      4.2      Indenture, dated as of May 15, 1993, between Clark USA, Inc.
                and Bankers Trust Company, as Trustee, and Bankers Trust
                Company as Collateral Agent, including the form of Senior
                Secured Zero Coupon Notes due February 15, 2000 (Incorporated
                by reference to Exhibit 4.2 filed with Clark R & M Holdings,
                Inc. Registration Statement on Form S-4 (Registration No. 33-
                59144))
</TABLE>
 
                                      40
<PAGE>
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                               DESCRIPTION
     -------                              -----------
     <C>       <S>
      2.1      Agreement and Plan of Merger, dated as of November 3, 1995,
                among Clark USA, Inc., Gulf Resources Corporation and GFR ,
                Inc. (Incorporated by reference to Exhibit 2.1 filed with Clark
                USA, Inc. Form 8-K dated December 1, 1995 (File No. 33-59144))
      4.3      Supplemental Indenture, dated as of February 17, 1995, among
                Clark USA, Inc., Bankers Trust Company, as Trustee, and Bankers
                Trust Company, as Collateral Agent (Incorporated by reference
                to Exhibit 4.2 filed with Clark USA, Inc. Annual Report on Form
                10-K for the year ended December 31, 1994) (File No. 33-59144))
      4.4      Supplemental Indenture, dated as of November 21, 1995, among
                Clark USA, Inc., Bankers Trust Company, as Trustee, and Bankers
                Trust Company, as Collateral Agent (Incorporated by reference
                to Exhibit 4.2 filed with Clark USA, Inc. Form 8-K , dated
                December 1, 1995 (File No. 33-59144))
     10.10     Amended and Restated Credit Agreement, dated as of April 19,
                1995 (the "Amended and Restated Credit Agreement"), among Clark
                Refining & Marketing, Inc., as Borrower, Bank of America
                National Trust and Savings Association, as Administrative
                Agent, Bankers Trust Company, as Documentation Agent, The
                Toronto-Dominion Bank, as Syndication Agent, BA Securities,
                Inc., as Technical Agent, and the other financial institutions
                party thereto (Incorporated by reference to Exhibit 10.1 filed
                with Clark USA, Inc. Form 8-K, dated December 1, 1995 (File No.
                33-59144))
     10.12     First Amendment to Amended and Restated Credit Agreement, dated
                as of June 14, 1995 (Incorporated by reference to Exhibit 10.2
                filed with Clark USA, Inc. Form 8-K, dated December 1, 1995
                (File No. 99-59144))
     10.13     Second Amendment to Amended and Restated Credit Agreement, dated
                as of November 27, 1995 (Incorporated by reference to Exhibit
                10.3 filed with Clark USA, Inc. Form 8-K, dated December 1,
                1995 (File No. 33-59144))
     10.14     Third Amendment to Amended and Restated Credit Agreement, dated
                as of January 31, 1996 (Incorporated by reference to Exhibit
                10.14 filed with Clark Refining & Marketing, Inc. Form 10-K,
                for the year ended December 31, 1996 (File No. 1-11392))
     10.15     Fourth Amendment to Amended and Restated Credit Agreement, dated
                as of July 12, 1996 (Incorporated by reference to Exhibit 10.2
                filed with Clark Refining & Marketing, Inc. Form 8-K, dated
                October 4, 1996 (File No. 1-11392))
     10.16     Fifth Amendment to Amended and Restated Credit Agreement, dated
                as of October 4, 1996 (Incorporated by reference to Exhibit
                10.1 filed with Clark Refining & Marketing, Inc. Form 10-Q, for
                the period ending September 30, 1996 (File No. 1-11392))
     10.17     Sixth Amendment to Amended and Restated Credit Agreement, dated
                as of December 13, 1996 (Incorporated by reference to Exhibit
                10.17 filed with Clark Refining & Marketing, Inc. Form 10-K,
                for the year ended December 31, 1996 (File No. 1-11392))
     10.18     Agreement Regarding Limited Consent and Waiver to the Amended
                and Restated Credit Agreement, dated as of September 30, 1996
                (Incorporated by reference to Exhibit 10.1 filed with Clark
                Refining & Marketing, Inc. Form 8-K dated October 4, 1996 (File
                No. 1-11392))
     10.20     Pledge Agreement, dated as of December 1, 1995, from Gulf
                Resources Corporation and Gulf Resources Holdings, Inc. to
                Clark USA, Inc. (Incorporated by reference to Exhibit 10.4
                filed with Clark USA, Inc. Form 8-K , dated December 1, 1995
                (File No. 33-59144))
</TABLE>
 
 
                                       41
<PAGE>
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
     <C>       <S>
     10.21     Stockholders' Agreement, dated as of December 1, 1995, among
                Clark USA, Inc., Gulf Resources Corporation, Gulf Resources
                Holdings, Inc., TrizecHahn Corporation, 1096153 Ontario
                Limited, Clark Holdings Limited, The Jaguar Fund, N.V., Puma
                (a Limited Partnership), Tiger (a Limited Partnership) and
                Occidental C.O.B. Partners (Incorporated by reference to
                Exhibit 10.5 filed with Clark USA, Inc. Form 8-K, dated
                December 1, 1995 (File No. 33-59144))
     10.22     Crude Oil Purchase Contract, dated as of December 1, 1995,
                between Gulf Resources Corporation and GFR, Inc. (Incorporated
                by reference to Exhibit 10.6 filed with Clark USA, Inc. Form
                8-K, dated December 1, 1995 (File No. 33-59144))
     10.23     Consulting Agreement, dated as of February 11, 1995, between
                Clark USA, Inc. and Universal Exchange Corporation
                (Incorporated by reference to Exhibit 10.7 filed with Clark
                USA, Inc. Form 8-K, dated December 1, 1995 (File No. 33-
                59144))
     10.24     Crude Oil Marketing Contract, dated as of December 1, 1995,
                between Clark USA, Inc. and Occidental Crude Sales, Inc.
                (International) (Incorporated by reference to Exhibit 10.8
                filed with Clark USA, Inc. Form 8-K, dated December 1, 1995
                (File No. 33-59144))
     10.25     Crude Oil Purchase Contract, dated as of December 1, 1995,
                between Clark USA, Inc. and Occidental C.O.B. Partners
                (Incorporated by reference to Exhibit 10.9 filed with Clark
                USA, Inc. Form 8-K, dated December 1, 1995 (File No. 33-
                59144))
     10.26     Guaranty, dated as of December 1, 1995, from Occidental
                Petroleum Corporation in favor of Clark USA, Inc.
                (Incorporated by reference to Exhibit 10.10 filed with Clark
                USA, Inc. Form 8-K, dated December 1, 1995 (File No. 33-
                59144))
     10.27     Letter of Credit Agreement, dated as of December 1, 1995
                between Clark USA, Inc. and Occidental Petroleum Corporation
                (Incorporated by reference to Exhibit 10.11 filed with Clark
                USA, Inc. Form 8-K, dated December 1, 1995 (File No. 33-
                59144))
     10.28     Irrevocable Letter of Credit, dated December 1, 1995, from Bank
                of America National Trust & Savings Association to Clark USA,
                Inc. (Incorporated by reference to Exhibit 10.12 filed with
                Clark USA, Inc. Form 8-K, dated December 1, 1995 (File No. 33-
                59144))
     10.29     Stockholders' Agreement, dated as of December 1, 1995, among
                Clark USA, Inc., Occidental C.O.B. Partners, TrizecHahn
                Corporation, 1096153 Ontario Limited, Clark Holdings Limited,
                The Jaguar Fund, N.V., Puma (a Limited Partnership), Tiger (a
                Limited Partnership), Gulf Resources Corporation and Gulf
                Resources Holdings, Inc. (Incorporated by reference to Exhibit
                10.13 filed with Clark USA, Inc. Form 8-K, dated December 1,
                1995 (File No. 33-59144))
     10.30     Registration Rights Agreement, dated December 1, 1995
                (Incorporated by reference to Exhibit 10.14 filed with Clark
                USA, Inc. Registration Statement on Form S-4 (File No. 33-
                81005))
     10.40     Agreement, dated as of November 3, 1995, among Clark USA, Inc.,
                TrizecHahn Corporation, 1096153 Ontario Limited, Clark
                Holdings Limited, Tiger Management Corporation, The Jaguar
                Fund N.V., Puma (a Limited Partnership) and Tiger (a Limited
                Partnership) (Incorporated by reference to Exhibit 10.14 filed
                with Clark USA, Inc. Form 8-K, dated December 1, 1995 (File
                No. 33-59144))
     10.41     Stock Purchase Agreement, dated February 27, 1995, between
                TrizecHahn Corporation, 1096153 Ontario Limited, Clark USA,
                Inc. and Tiger Management Corporation (Incorporated by
                reference to Exhibit 10.1 filed with Clark USA, Inc. Form 8-K,
                dated February 27, 1995 (File No. 33-59144))
</TABLE>
 
 
                                       42
<PAGE>
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
     <C>       <S>
     10.42     Registration Rights Agreement, dated February 27, 1995, between
                1096153 Ontario Limited, Clark USA, Inc., Tiger Management
                Corporation and Paul D. Melnuk (Incorporated by reference to
                Exhibit 10.2 filed with Clark USA, Inc. Form 8-K, dated
                February 27, 1995 (File No. 33-59144))
     10.50     Indenture between Clark Refining & Marketing, Inc. (formerly
                Clark Oil & Refining Corporation) and NationsBank of Virginia,
                N.A. (formerly Sovran Bank, N.A.) including the form of 10
                1/2% Senior Notes due 2001 (Incorporated by reference to
                Exhibit 4.1 filed with Clark Oil & Refining Corporation
                Registration Statement on Form S-1 (File No. 33-43358))
     10.51     Supplemental Indenture between Clark Refining & Marketing, Inc.
                and NationsBank of Virginia, N.A., dated February 17, 1995
                (Incorporated by reference to Exhibit 4.4 filed with Clark
                USA, Inc. Annual Report on Form 10-K for the year ended
                December 31, 1994) (File No. 33-59144))
     10.52     Indenture between Clark Refining & Marketing, Inc. (formerly
                Clark Oil & Refining Corporation) and NationsBank of Virginia,
                N.A. including the form of 9 1/2% Senior Notes due 2004
                (Incorporated by reference to Exhibit 4.1 filed with Clark Oil
                & Refining Corporation Registration Statement on Form S-1
                (File No. 33-50748))
     10.53     Supplemental Indenture between Clark Refining & Marketing, Inc.
                and NationsBank of Virginia, N.A., dated February 17, 1995
                (Incorporated by reference to Exhibit 4.6 filed with Clark
                USA, Inc. Annual Report on Form 10-K for the year ended
                December 31, 1994) (File No. 33-59144))
     10.60*    Clark Refining & Marketing, Inc. Stock Option Plan
                (Incorporated by reference to Exhibit 10.5 filed with Clark
                Registration Statement on Form S-1 (Registration No. 33-
                43358))
     10.61*    Clark Refining & Marketing, Inc. Savings Plan, as amended and
                restated effective as of October 1, 1989 (Incorporated by
                reference to Exhibit 10.6 filed with Clark Oil & Refining
                Corporation Annual Report on Form 10-K for the year ended
                December 31, 1989 (Commission File No. 1-11392))
     10.62     Employment Agreement of Bradley D. Aldrich (Incorporated by
                reference to Exhibit 10.4 filed with Clark USA, Inc. Annual
                Report on Form 10-K for the year ended December 31, 1994 (File
                No. 33-59144))
     10.70     Amended and Restated Asset Sale Agreement, dated as of August
                16, 1994 between Chevron U.S.A. Inc. and Clark Refining &
                Marketing, Inc. (Incorporated by reference to Exhibit 10.3
                filed with Clark USA, Inc. Current Report on Form 8-K, dated
                February 27, 1995 (Registration No. 33-59144))
     10.71     Chemical Facility Lease with Option to Purchase, dated as of
                August 16, 1994 between Chevron U.S.A. Inc. and Clark Refining
                & Marketing, Inc. (Incorporated by reference to Exhibit 10.9.2
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
     10.72     Sublease of Chemical Facility Lease, dated as of August 16,
                1994 between Chevron U.S.A. Inc. and Clark Refining &
                Marketing, Inc. (Incorporated by reference to Exhibit 10.9.3
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
     10.73     PADC Facility Lease with Option to Purchase, dated as of August
                16, 1994 between Chevron U.S.A. Inc. and Clark Refining &
                Marketing, Inc. (Incorporated by reference to Exhibit 10.9.4
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
</TABLE>
 
 
                                       43
<PAGE>
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
     <C>       <S>
     10.74     Supply Agreement for the Chemical Facility, dated as of August
                16, 1994 between Chevron U.S.A. Inc. and Clark Refining &
                Marketing, Inc. (Incorporated by reference to Exhibit 10.9.5
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
     10.75     Services Agreement for the Chemical Facility, dated as of
                August 16, 1994 between Chevron U.S.A. Inc. and Clark Refining
                & Marketing, Inc. (Incorporated by reference to Exhibit 10.9.6
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
     10.76     Supply Agreement for the PADC Facility, dated as of August 16,
                1994 between Chevron U.S.A. Inc. and Clark Refining &
                Marketing, Inc. (Incorporated by reference to Exhibit 10.9.7
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
     10.77     Services Agreement for the PADC Facility, dated as of August
                16, 1994 between Chevron U.S.A. Inc. and Clark Refining &
                Marketing, Inc. (Incorporated by reference to Exhibit 10.9.8
                filed with Clark USA, Inc. Registration Statement on Form S-1
                (Registration No. 33-84192))
     10.78     Stock Purchase and Redemption Agreement, dated as of December
                30, 1992, among AOC Limited Partnership, P. Anthony Novelly,
                Samuel R, Goldstein, G & N Investments, Inc., TrizecHahn
                Corporation, AOC Holdings, Inc. and Clark Oil & Refining
                Corporation (Incorporated by reference to Exhibit 10.11 filed
                with Clark R & M Holdings, Inc. Registration Statement on Form
                S-4 (file No. 33-59144))
     27.0      Financial Data Schedule
</TABLE>
 
*  Employee Benefit Plan.
 
  (b) REPORTS ON FORM 8-K
 
  None
 
                                       44
<PAGE>
 
                               GLOSSARY OF TERMS
 
 Refining
 
Alkylation Unit--      Also known as the alky unit; a refinery unit that uses
                       hydrofluoric acid as a catalyst to combine lower value
                       products from the FCC unit and purchased gases
                       (isobutane) to produce gasoline.
 
BPD--                  Barrels per day.
 
Barrel (Bbl)--         A common unit of measure in the oil industry which
                       equates to 42 gallons.
 
Blendstocks--          Various compounds that are combined with product from
                       the crude separator process to make finished gasoline
                       and diesel fuel; these may include natural gasoline,
                       FCC gasoline, ethanol, reformate or butane, among
                       others.
 
CP--                   Convenience products such as beverages, cigarettes and
                       snacks.
 
Catalyst--             A substance that alters, accelerates or instigates
                       chemical changes, but is neither produced nor consumed
                       in the process.
 
Coker Unit--           A refinery unit which takes the lowest value component
                       of crude oil after higher value products are removed,
                       further extracts more valuable products and converts
                       the rest into petroleum coke.
 
Crack Spread--         A simplified model that measures the difference between
                       the price for finished products and crude oil. A 3/2/1
                       crack spread is often referenced and represents the
                       approximate revenue and cost breakdown of a barrel of
                       crude being, three barrels of crude produce two barrels
                       of gasoline and one barrel of diesel fuel.
 
Crude Unit--           The initial refinery unit that the crude oil runs
                       through where it is heated and various products
                       separated. As crude oil is heated to certain
                       temperatures it vaporizes and different products are
                       separated. This is the distillation process. Listed
                       below are the products that typically come from crude
                       oil and the approximate temperatures at which they are
                       separated from it:
 
                                 butanes/lighter gasoline naphtha kerosene
                                 diesel gas oil residue
                                                    less than 90(degrees) F
                                                     90(degrees) F-
                                                    220(degrees) F
                                                    220(degrees) F-
                                                    315(degrees) F
                                                    315(degrees) F-
                                                    450(degrees) F
                                                    450(degrees) F-
                                                    650(degrees) F
                                                    650(degrees) F-
                                                    800(degrees) F
                                                    800(degrees) F and higher
 
DHDS Unit--            Also known as distillate hydrotreater desulfurizer;
                       removes sulfur and other impurities from distillates,
                       primarily diesel and jet fuel.
 
Distillates--          Primarily diesel, jet fuel and kerosene.
 
Djeno Crude Oil--      Also known as Djeno Melange crude oil. A heavy sweet
                       crude oil from the Republic of the Congo.
 
Djeno Melange--
                       See Djeno crude oil.
 
Ethanol--
                       An alcohol, primarily derived from corn and other feed
                       grains, sometimes used in gasoline blending.
 
                                      45
<PAGE>
 
FCC Unit--             Also known as the fluid catalytic cracker; the unit
                       takes low grade products from the crude unit and
                       converts them to gasoline through a chemical process
                       using catalysts.
 
Feedstock--            Hydrocarbon compounds, such as crude oil and natural
                       gas liquids, that are processed and blended into
                       refined products.
 
Gal.--                 Gallon.
 
Heavy Crude Oil--      A crude oil that is relatively viscous in texture which
                       is harder to process yields less high value products
                       such as gasoline and diesel fuel, but is cheaper.
 
Isomax Unit--          Similar to FCC unit.
 
LPG--                  Also known as Liquefied Petroleum Gases. Liquefied
                       light ends gases used for home heating and cooking.
 
Light Crude Oil--      A crude oil that is relatively thin in texture which is
                       easier to process and yields more high value products
                       such as gasoline and diesel fuel, but is more
                       expensive.
 
M--                    Thousands.
 
MM--                   Millions.
 
Maya--                 A heavy, sour crude oil from Mexico.
 
Naphtha--              Natural or unrefined gasoline with a low octane rating
                       that is separated out of the crude oil during the
                       refining process.
 
Oxygenates--           Compounds containing oxygen which, when added to
                       conventional gasoline, reduce the carbon monoxide
                       emissions of the gasoline.
 
PMPS--                 Per month per store.
 
Petroleum Coke--       Also known as coke; a coal like substance that can be
                       burned to generate electricity or used as a hardener in
                       concrete.
 
Production--           The finished products such as gasoline and diesel fuel
                       which are converted from crude oil by a refinery.
 
Rated Crude Oil
Capacity--
                       The crude oil processing capacity of a refinery that is
                       established by engineering design.
 
Refined products--     The hydrocarbon compounds, such as gasoline, diesel
                       fuel, jet fuel and residual fuel, that are produced by
                       a refinery.
 
Refining margin--      The difference between crude oil and other feedstock,
                       intermediate stock and blendstock component costs and
                       the cost of refined products sold, expressed in dollars
                       per barrel of refined product.
 
Reformulated
Gasoline--
                       Gasoline blended in accordance with certain
                       specifications, that is designed to reduce ozone-
                       forming and toxic pollutants.
 
                                       46
<PAGE>
 
Residual Oil--         Resids or residue. A derivative of crude oil obtained
                       from the basic stages of refining operations. Also
                       known as atmospheric or vacuum tower bottoms.
 
Sour Crude Oil--       A crude oil that is relatively high in sulfur content,
                       requiring additional processing to remove the sulfur,
                       but is typically less expensive.
 
Sweet Crude Oil--      A crude oil that is relatively low in sulfur content,
                       requiring less processing to remove the sulfur, but is
                       typically more expensive.
 
Throughput--           The amount of a substance processed through a unit.
 
Turnaround--           Shutting down various units of a refinery to service,
                       clean and refurbish the components; maintenance
                       turnaround occurs every three to four years or as
                       needed.
 
Unusual Items--        Those charges or credits not occurring in the normal
                       course of business.
 
Utilization--          Ratio of total refinery production to the rated crude
                       oil capacity of the refinery.
 
WTI--                  West Texas Intermediate crude oil, a light, sweet crude
                       oil that is used as a benchmark for other crude oil
                       types.
 
Yield--                The percentage of higher value refined products that
                       are produced from feedstocks.
 
                                      47
<PAGE>
 
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Clark USA, Inc. and Subsidiaries:
  Annual Financial Statements
    Report of Independent Accountants.....................................  49
    Consolidated Balance Sheets as of December 31, 1995 and 1996..........  50
    Consolidated Statements of Earnings for the years ended December 31,
     1994, 1995 and 1996..................................................  51
    Consolidated Statements of Cash Flows for the years ended December 31,
     1994, 1995 and 1996..................................................  52
    Consolidated Statement of Stockholders' Equity for the years ended
     December 31, 1994, 1995 and 1996.....................................  53
    Notes to Consolidated Financial Statements............................  54
  Financial Statement Schedule:
    Report of Independent Accountants.....................................  66
    I--Condensed Information of the Registrant............................  67
</TABLE>
 
                                       48
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors of
Clark USA, Inc.:
 
  We have audited the accompanying consolidated balance sheets of Clark USA,
Inc. and Subsidiaries (a Delaware corporation), as of December 31, 1995 and
1996 and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Clark USA,
Inc. and Subsidiaries as of December 31, 1995 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, 1996 in conformity with generally accepted
accounting principles.
 
                                          Coopers & Lybrand L.L.P.
 
St. Louis, Missouri
February 4, 1997
 
                                      49
<PAGE>
 
                        CLARK USA, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                 REFERENCE DECEMBER 31, DECEMBER 31,
                     ASSETS                        NOTE        1995         1996
                     ------                      --------- ------------ ------------
<S>                                              <C>       <C>          <C>
CURRENT ASSETS:
  Cash and cash equivalents.....................     2      $  103,729   $  339,963
  Short-term investments........................    2,3         46,116       14,881
  Accounts receivable...........................     2         179,763      171,714
  Inventories...................................    2,4        290,444      277,095
  Prepaid expenses and other....................                22,228       17,353
  Advance crude oil purchase receivable.........   2,14          6,565          --
                                                            ----------   ----------
      Total current assets......................               648,845      821,006
PROPERTY, PLANT AND EQUIPMENT...................    2,5        550,872      557,256
ADVANCE CRUDE OIL PURCHASE RECEIVABLE...........   2,14         99,345          --
OTHER ASSETS....................................    2,6         65,860       54,541
                                                            ----------   ----------
                                                            $1,364,922   $1,432,803
                                                            ==========   ==========
<CAPTION>
      LIABILITIES AND STOCKHOLDERS' EQUITY
      ------------------------------------
<S>                                              <C>       <C>          <C>
CURRENT LIABILITIES:
  Accounts payable..............................     7      $  307,528   $  294,736
  Accrued expenses and other....................    8,9         46,301       49,691
  Accrued taxes other than income...............                45,242       46,485
                                                            ----------   ----------
      Total current liabilities.................               399,071      390,912
LONG-TERM DEBT..................................    8,9        765,030      781,362
DEFERRED INCOME TAXES...........................   2,12          7,677          --
OTHER LONG-TERM LIABILITIES.....................    11          38,937       46,141
CONTINGENCIES...................................    16             --           --
STOCKHOLDERS' EQUITY:
  Common stock..................................
    Common, $.01 par value, 19,051,818 issued... 13,14,15          190          190
    Class A Common, $.01 par value, 10,162,509
     issued.....................................   13,15            90          102
    Class B Common..............................   13,15             6          --
    Class C Common.............................. 13,14,15            6          --
  Paid-in capital...............................   13,14       300,057      296,094
  Advance crude oil purchase receivable from
   stockholders.................................   2,14       (146,890)     (26,520)
  Retained earnings (deficit)...................    3,7            748      (55,478)
                                                            ----------   ----------
      Total stockholders' equity................               154,207      214,388
                                                            ----------   ----------
                                                            $1,364,922   $1,432,803
                                                            ==========   ==========
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                       50
<PAGE>
 
                        CLARK USA, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
 
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                             FOR THE YEAR ENDED DECEMBER 31,
                                   REFERENCE ----------------------------------
                                     NOTE       1994        1995        1996
                                   --------- ----------  ----------  ----------
<S>                                <C>       <C>         <C>         <C>
NET SALES AND OPERATING REVENUES.            $2,441,211  $4,486,859  $5,073,062
EXPENSES:
  Cost of sales..................            (2,086,639) (4,015,215) (4,557,011)
  Operating expenses.............              (225,616)   (375,545)   (419,868)
  General and administrative
   expenses......................               (51,445)    (52,353)    (59,502)
  Depreciation...................      2        (26,592)    (31,490)    (37,348)
  Amortization...................     2,6       (10,797)    (12,001)    (11,127)
  Recovery of inventory market
   value write-down..............      4         26,500         --          --
                                             ----------  ----------  ----------
                                             (2,374,589) (4,486,604) (5,084,856)
                                             ----------  ----------  ----------
OPERATING INCOME (LOSS)..........                66,622         255     (11,794)
  Interest and finance costs,
   net...........................      8        (54,829)    (59,232)    (47,500)
                                             ----------  ----------  ----------
EARNINGS (LOSS) BEFORE INCOME
 TAXES...........................                11,793     (58,977)    (59,294)
  Income tax (provision) benefit.    2,12        (3,980)     21,874       3,130
                                             ----------  ----------  ----------
NET EARNINGS (LOSS)..............            $    7,813  $  (37,103) $  (56,164)
                                             ==========  ==========  ==========
</TABLE>
 
 
 
        The accompanying notes are an integral part of these statements.
 
                                       51
<PAGE>
 
                        CLARK USA, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                 FOR THE YEAR ENDED DECEMBER
                                                             31,
                                                 ------------------------------
                                                   1994       1995       1996
                                                 ---------  ---------  --------
<S>                                              <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)........................... $   7,813  $ (37,103) $(56,164)
  Adjustments:
    Depreciation................................    26,592     31,490    37,348
    Amortization................................    12,627     18,603    21,465
    Accretion of Zero Coupon Notes..............    15,490     17,048    19,167
    Realized loss on sales of investments.......     6,625        --        --
    Shares of earnings of affiliates, net of
     dividends..................................      (468)    (1,413)     (136)
    Deferred income taxes.......................     3,721    (22,450)   (7,678)
    Recovery of inventory market value write-
     down.......................................   (26,500)       --        --
    Sale of advanced crude oil purchase
     receivable.................................       --         --    (10,869)
    Other.......................................     1,271      1,385     1,062
  Cash provided by (reinvested in) working
   capital--
    Accounts receivable, prepaid expenses and
     other......................................   (12,650)  (109,083)   12,519
    Inventories.................................    22,995   (138,978)   13,266
    Accounts payable, accrued expenses, taxes
     other than income and other................    (1,185)   159,010    (7,598)
                                                 ---------  ---------  --------
      Net cash provided by (used in) operating
       activities...............................    56,331    (81,491)   22,382
                                                 ---------  ---------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of short-term investments...........  (120,426)   (41,500)      --
  Sales of short-term investments...............   237,345     25,942    31,135
  Expenditures for property, plant and
   equipment....................................  (100,372)   (42,164)  (45,039)
  Expenditures for turnaround...................   (11,191)    (6,525)  (13,862)
  Refinery acquisition expenditures.............   (13,514)   (71,776)      --
  Proceeds from disposals of property, plant and
   equipment....................................     5,941      1,866     4,359
  Advance crude oil purchase receivable.........       --    (105,910)  241,916
                                                 ---------  ---------  --------
      Net cash provided by (used in) investing
       activities...............................    (2,217)  (240,067)  218,509
                                                 ---------  ---------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Long-term debt payments.......................      (585)    (1,620)   (2,835)
  Proceeds from issuance of long-term debt......       --     175,000       --
  Proceeds from capital lease transactions......       --      24,301       --
  Proceeds from sale of common stock............       --     135,500       --
  Stock issuance costs..........................       --      (1,541)      --
  Deferred financing costs......................    (5,904)   (32,737)   (1,822)
                                                 ---------  ---------  --------
      Net cash provided by (used in) financing
       activities...............................    (6,489)   298,903    (4,657)
                                                 ---------  ---------  --------
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS....................................    47,625    (22,655)  236,234
CASH AND CASH EQUIVALENTS, beginning of period..    78,759    126,384   103,729
                                                 ---------  ---------  --------
CASH AND CASH EQUIVALENTS, end of period........ $ 126,384  $ 103,729  $339,963
                                                 =========  =========  ========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       52
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
                       (DOLLARS AND SHARES IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                    FOR THE YEAR ENDED DECEMBER 31,
                            ---------------------------------------------------
                                 1994             1995              1996
                            ---------------  ----------------  ----------------
                            SHARES  AMOUNT   SHARES   AMOUNT   SHARES   AMOUNT
                            ------- -------  ------  --------  ------  --------
<S>                         <C>     <C>      <C>     <C>       <C>     <C>
COMMON STOCK
  COMMON, $.01 par,
   Authorized shares--
   39,875
  Balance January 1.......       -- $    --      --  $     --  19,051  $    190
    Stock issuance........       --      --  16,329       163      --        --
    Converted shares......       --      --   2,722        27      --        --
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....       --      --  19,051       190  19,051       190
                            ------- -------  ------  --------  ------  --------
  CLASS A COMMON, $.01
   par, Authorized
   shares--10,163
  Balance January 1.......       --      --      --        --   9,033        90
    Stock issuance........       --      --   9,033        90      --        --
    Converted shares......       --      --      --        --   1,130        12
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....       --      --   9,033        90  10,163       102
                            ------- -------  ------  --------  ------  --------
  CLASS B COMMON, $.01
   par, Authorized
   shares--563
  Balance January 1.......       --      --      --        --     563         6
    Stock issuance........       --      --     563         6      --        --
    Converted shares......       --      --      --        --    (563)       (6)
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....       --      --     563         6      --        --
                            ------- -------  ------  --------  ------  --------
  CLASS C COMMON, $.01
   par, Authorized
   shares--565
  Balance January 1.......       --      --      --        --     565         6
    Stock issuance........       --      --     565         6      --        --
    Converted shares......       --      --      --        --    (565)       (6)
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....       --      --     565         6      --        --
                            ------- -------  ------  --------  ------  --------
  CLASS D COMMON, $.01
   par, Authorized
   shares--3,390
  Balance January 1.......       --      --      --        --      --        --
    Stock issuance........       --      --   2,722        27      --        --
    Converted shares......       --      --  (2,722)      (27)     --        --
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....       --      --      --        --      --        --
                            ------- -------  ------  --------  ------  --------
PAID-IN CAPITAL
  Balance January 1.......           19,500            19,500           300,057
    Stock issuance........               --           280,557            (3,963)
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....           19,500           300,057           296,094
                            ------- -------  ------  --------  ------  --------
ADVANCE CRUDE OIL PURCHASE
 RECEIVABLE FROM
 STOCKHOLDERS
  Balance January 1.......               --                --          (146,890)
    Advance crude oil
     purchase receivable
     from stockholders....               --          (146,890)          120,370
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....               --          (146,890)          (26,520)
                            ------- -------  ------  --------  ------  --------
RETAINED EARNINGS
  Balance January 1.......           30,038            36,651               748
    Net earnings (loss)...            7,813           (37,103)          (56,164)
    Change in unrealized
     short-term investment
     gains and losses.....           (1,200)            1,200               (62)
                            ------- -------  ------  --------  ------  --------
  Balance December 31.....           36,651               748           (55,478)
                            ------- -------  ------  --------  ------  --------
TOTAL STOCKHOLDERS'
 EQUITY...................       -- $56,151  29,212  $154,207  29,212  $214,388
                            ======= =======  ======  ========  ======  ========
</TABLE>
 
       The accompanying notes are an integral part of these statements.
 
                                      53
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
 
              (TABULAR DOLLAR AMOUNTS IN THOUSANDS OF US DOLLARS)
 
1. GENERAL
 
  Clark USA, Inc., a Delaware corporation ("Clark USA" or the "Company"), is a
holding company. The subsidiaries of Clark USA are Clark Refining & Marketing,
Inc. ("Clark") and Clark Pipe Line Company, both Delaware corporations.
Clark's principal operations include crude oil refining, wholesale and retail
marketing of refined petroleum products and retail marketing of convenience
store items in the Central United States.
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
 
  The Company's earnings and cash flow from operations are primarily dependent
upon processing crude oil and selling quantities of refined petroleum products
at margins sufficient to cover operating expenses. Crude oil and refined
petroleum products are commodities, and factors largely out of the Company's
control can cause prices to vary, in a wide range, over a short period of
time. This potential margin volatility can have a material effect on financial
position, current period earnings and cash flow.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Cash and Cash Equivalents; Short-term Investments
 
  The Company considers all highly liquid investments, such as time deposits,
money market instruments, commercial paper and United States and foreign
government securities, purchased with an original maturity of three months or
less, to be cash equivalents. Short-term investments consist of similar
investments, as well as United States government security funds, maturing more
than three months from date of purchase and are carried at fair value (see
Note 3 "Short-term Investments"). The Company invests only in AA rated or
better fixed income marketable securities or the short-term rated equivalent.
 
  The Company classifies checks issued which have not yet cleared the bank
account as accounts payable. Such balances included in "Accounts payable" were
$12.1 million and $12.9 million at December 31, 1995 and 1996, respectively.
 
 Concentration of Credit Risk
 
  Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade receivables and the advance crude
oil purchase receivable (see Note 14 "Occidental/Gulf Transactions"). Credit
risk on trade receivables is minimized as a result of the credit quality of
the Company's customer base and industry collateralization practices. As of
December 31, 1996, the Company had $36.4 million (1995--$17.0 million) due
from Chevron USA Products Co. ("Chevron"). Sales to Chevron in 1996 totaled
$455.8 million (1995--$448.8 million).
 
 Inventories
 
  Inventories are stated at the lower of cost, predominantly using the last-
in, first-out "LIFO" method, or market on an aggregate basis. During the year
ended December 31, 1996, total petroleum inventory quantities were reduced,
resulting in a LIFO liquidation, the effect of which increased pretax earnings
by $2.4 million. There was no such effect in the year ended December 31, 1995.
 
  To limit risk related to price fluctuations, Clark employs risk strategies
using crude oil and refined products futures and options contracts to manage
potentially volatile market movements on aggregate physical and contracted
inventory positions. At December 31, 1996, Clark's open contracts represented
0.7 million barrels of crude oil and refined products, and had terms extending
into February, 1997. At December 31, 1995, Clark's open contracts represented
1.7 million barrels of crude oil and refined products, and had terms extending
into December, 1996.
 
                                      54
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company considers all futures and options contracts to be part of its
risk management strategy. Unrealized gains and losses on open contracts are
recognized as a product cost component unless the contract can be identified
as a price risk hedge of specific inventory positions or open commitments, in
which case the unrealized gain or loss is deferred and recognized as an
adjustment to the carrying amount of petroleum inventories or accounts payable
if related to open commitments. Deferred gains and losses on these contracts
are recognized as an adjustment to product cost when such inventories are sold
or consumed. At December 31, 1996, the Company had net unrealized gains on
open futures and options contracts of $1.2 million (1995--unrealized loss of
$0.4 million) all of which have been recognized in operations.
 
 Property, Plant and Equipment
 
  Property, plant and equipment additions are recorded at cost. Depreciation
of property, plant and equipment is computed using the straight-line method
over the estimated useful lives of the assets or group of assets. The cost of
buildings and marketing facilities on leased land and leasehold improvements
are amortized on a straight-line basis over the shorter of the estimated
useful life or the lease term. The Company capitalizes the interest cost
associated with major construction projects based on the effective interest
rate on aggregate borrowings.
 
  Expenditures for maintenance and repairs are expensed. Major replacements
and additions are capitalized. Gains and losses on assets depreciated on an
individual basis are included in current income. Upon disposal of assets
depreciated on a group basis, unless unusual in nature or amount, residual
cost less salvage is charged against accumulated depreciation.
 
  The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121 concerning "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The standard requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable with future cash flows. The Company adopted this standard
beginning January 1, 1996 which did not have any effect on the financial
statements. The Company believes that if a project initiated to produce low
sulfur diesel fuel at the Hartford refinery ("DHDS Project"), which was
delayed in 1992 due to an expectation of narrow differentials between low and
high sulfur diesel fuel, does not proceed due to continued relatively narrow
price differentials between low and high sulfur diesel fuel, future cash flows
from the asset would not likely support the carrying value which was
approximately $24.1 million as of December 31, 1996. Effective January 1,
1996, the Company began to depreciate the DHDS Project over 30 years.
 
 Environmental Costs
 
  Environmental expenditures are expensed or capitalized depending upon their
future economic benefit. Costs which improve a property as compared with the
condition of the property when originally constructed or acquired and costs
which prevent future environmental contamination are capitalized. Costs which
return a property to its condition at the time of acquisition or original
construction are expensed.
 
 Deferred Turnaround and Financing Costs
 
  A turnaround is a periodically required standard procedure for maintenance
of a refinery that involves the shutdown and inspection of major processing
units and generally occurs approximately every three years. Turnaround costs,
which are included in "Other assets", are amortized over the period to the
next scheduled turnaround, beginning the month following completion.
 
  Financing costs related to obtaining or refinancing of debt are deferred and
amortized over the expected life of the debt.
 
                                      55
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Advance Crude Oil Purchase Receivable
 
  The Company has an advance crude oil purchase receivable from Gulf Resources
Corporation ("Gulf") and had an advance crude oil purchase receivable from
Occidental Petroleum Corporation ("Occidental") prior to its sale on October
4, 1996 (see Note 14 "Occidental/Gulf Transactions"). These advance crude oil
purchase receivables were accounted for as financial instruments and were
recorded at cost at December 31, 1996. To the extent the advance crude oil
purchase receivables were acquired by the issuance of stock, they were
presented as a reduction to Stockholders' Equity. The proceeds from the
issuance of stock were recognized as the principal portion of the receivable
was amortized. Income and the reduction of principal related to the notes were
recognized according to the interest method of amortization with gross
proceeds allocated between principal recovery and financing income.
 
 Income Taxes
 
  Clark USA and its subsidiaries file a consolidated U.S. federal income tax
return. The Company provides for deferred taxes under the asset and liability
method in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") (see Note 12 "Income Taxes").
Deferred taxes are classified as current, included in prepaid or accrued
expenses, or noncurrent depending on the classification of the assets and
liabilities to which the temporary differences relate. Deferred taxes arising
from temporary differences that are not related to a specific asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse. In accordance with
the provisions of SFAS 109, the Company records a valuation allowance when
necessary to reduce the net deferred tax asset to an amount expected to be
realized.
 
 Employee Benefit Plans
 
  The Clark Refining & Marketing, Inc. Savings Plan and separate Trust (the
"Plan"), a defined contribution plan, covers substantially all employees of
Clark. Under terms of the Plan, Clark matches the amount of employee
contributions, subject to specified limits. Contributions to the Plan during
1996 were $6.4 million (1995--$5.5 million; 1994--$3.4 million).
 
  Clark provides certain benefits for most retirees once they have reached a
specified age and specified years of service. These benefits include health
insurance in excess of social security and an employee paid deductible amount,
and life insurance equal to the employee's annual salary.
 
3. SHORT-TERM INVESTMENTS
 
  The Company's short-term investments are all considered Available-for-Sale
and are carried at fair value with the resulting unrealized gain or loss (net
of applicable taxes) shown as a component of retained earnings.
 
  Short-term investments consisted of the following:
 
<TABLE>
<CAPTION>
                                      1995                            1996
                         ------------------------------- -------------------------------
                                               AGGREGATE                       AGGREGATE
                         AMORTIZED UNREALIZED    FAIR    AMORTIZED UNREALIZED    FAIR
  MAJOR SECURITY TYPE      COST    GAIN/(LOSS)   VALUE     COST    GAIN/(LOSS)   VALUE
  -------------------    --------- ----------- --------- --------- ----------- ---------
<S>                      <C>       <C>         <C>       <C>       <C>         <C>
U.S. Debt Securities....  $46,116    $   --     $46,116   $14,981     $(100)    $14,881
</TABLE>
 
  The net unrealized position at December 31, 1996 included gains of $0.0
million and losses of $0.1 million (1995--gains of $0.1 million and losses of
$0.1 million).
 
  The contractual maturities of the short-term investments at December 31,
1996 were:
 
<TABLE>
<CAPTION>
                                                            AMORTIZED AGGREGATE
                                                              COST    FAIR VALUE
                                                            --------- ----------
      <S>                                                   <C>       <C>
      Due in one year or less..............................  $ 3,019   $ 3,002
      Due after one year through five years................   11,962    11,879
                                                             -------   -------
                                                             $14,981   $14,881
                                                             =======   =======
</TABLE>
 
                                      56
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Although some of the contractual maturities of these short-term investments
are over one year, management's intent is to use the funds for current
operations and not hold the investments to maturity.
 
  For the year ended December 31, 1996, the proceeds from sales of short-term
investments were $31.1 million with no realized gains or losses recorded for
the period. For the same period in 1995 and 1994, the proceeds from the sale
of short-term investments were $25.9 million and $237.3 million, respectively,
with no realized gains or losses in 1995 and $6.6 million realized losses in
1994. Realized gains and losses are presented in "Interest and financing
costs, net" and are computed using the specific identification method.
 
  The change in the net unrealized holding gains or losses on Available-for-
Sale securities for the year ended December 31, 1996, was a loss of $0.1
million ($0.1 million after taxes). For the same period in 1995, there was a
net unrealized holding gain of $1.9 million ($1.2 million after taxes), and in
1994, there was a net unrealized holding loss of $1.9 million ($1.2 million
after taxes).
 
  Cash and cash equivalents included $30.0 million of debt securities whose
cost approximated market value at December 31, 1996 (1995--$55.5 million) and
for which there were no realized gains or losses recorded in the period.
 
4. INVENTORIES
 
  The carrying value of inventories consisted of the following:
 
<TABLE>
<CAPTION>
                                                                 1995     1996
                                                               -------- --------
      <S>                                                      <C>      <C>
      Crude oil............................................... $ 90,635 $105,786
      Refined products and blendstocks........................  163,915  136,747
      Convenience products....................................   20,532   17,643
      Warehouse stock and other...............................   15,362   16,919
                                                               -------- --------
                                                               $290,444 $277,095
                                                               ======== ========
</TABLE>
 
  The market value of the crude and refined product inventories at December
31, 1996 was approximately $81.7 million above the carrying value (1995--$5.4
million above the carrying value). In the first half of 1994, crude oil and
related refined product prices rose substantially, allowing the reversal of
the inventory write-down to market which was recorded in 1993 due to falling
crude oil and product prices.
 
5. PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment consisted of the following :
 
<TABLE>
<CAPTION>
                                                               1995      1996
                                                             --------  --------
      <S>                                                    <C>       <C>
      Land.................................................. $ 20,015  $ 19,659
      Refineries............................................  418,675   434,623
      Retail stores.........................................  187,921   210,033
      Product terminals and pipelines.......................   60,965    64,388
      Other.................................................   11,346    12,051
                                                             --------  --------
                                                              698,922   740,754
      Accumulated depreciation and amortization............. (148,050) (183,498)
                                                             --------  --------
                                                             $550,872  $557,256
                                                             ========  ========
</TABLE>
 
 
                                      57
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  At December 31, 1996, property, plant and equipment included $43.8 million
(1995--$52.2 million) of construction in progress. Capital lease assets of
$22.7 million (1995--$23.9 million) are included in property, plant and
equipment at December 31, 1996.
 
6. OTHER ASSETS
 
  Other assets consisted of the following:
 
<TABLE>
<CAPTION>
                                                                  1995    1996
                                                                 ------- -------
      <S>                                                        <C>     <C>
      Deferred financing costs.................................. $42,187 $29,849
      Deferred turnaround costs.................................  14,243  16,978
      Investment in non-consolidated affiliates.................   6,291   6,427
      Other.....................................................   3,139   1,287
                                                                 ------- -------
                                                                 $65,860 $54,541
                                                                 ======= =======
</TABLE>
 
  Amortization of deferred financing costs for the year ended December 31,
1996 was $10.2 million (1995--$6.5 million; 1994--$1.8 million). Amortization
of turnaround costs for the year ended December 31, 1996 was $11.1 million
(1995--$12.0 million; 1994--$10.8 million).
 
7. WORKING CAPITAL FACILITY
 
  At all times during 1996 Clark had in place a working capital facility which
provided a revolving line of credit principally for the issuance of letters of
credit which are used primarily for securing purchases of crude oil, other
feedstocks and refined products, and for limited cash borrowings. This
facility is collateralized by substantially all of Clark's current assets and
certain intangibles. The amount of the facility is the lesser of $400 million
or the amount available under a defined borrowing base, representing specified
percentages of cash, investments, accounts receivable, inventory and other
working capital items ($489.5 million at December 31, 1996). Clark is required
to comply with certain financial covenants including maintaining defined
levels of working capital, cash, tangible net worth, maximum indebtedness to
tangible net worth and a minimum ratio of adjusted cash flow to debt service.
At December 31, 1996, $298.5 million (1995--$221.0 million) of the line of
credit was utilized for letters of credit, of which $78.4 million (1995--$91.4
million) supported commitments for future deliveries of petroleum products.
There were no direct cash borrowings under the facility at December 31, 1996
and 1995.
 
8. LONG-TERM DEBT
 
<TABLE>
<CAPTION>
                                                                1995     1996
                                                              -------- --------
<S>                                                           <C>      <C>
10 1/2% Senior Notes due December 1, 2001 ("10 1/2% Senior
 Notes")..................................................... $225,000 $225,000
9 1/2% Senior Notes due September 15, 2004 ("9 1/2% Senior
 Notes").....................................................  175,000  175,000
10 7/8% Senior Notes due December 1, 2005 ("10 7/8% Senior
 Notes").....................................................  175,000  175,000
Senior Secured Zero Coupon Notes, due February 15, 2000
 ("Zero Coupon Notes").......................................  169,589  188,756
Obligations under capital leases and other notes.............   23,498   20,673
                                                              -------- --------
                                                               768,087  784,429
  Less current portion.......................................    3,057    3,067
                                                              -------- --------
                                                              $765,030 $781,362
                                                              ======== ========
</TABLE>
 
  The estimated fair value of the Senior Note long-term debt at December 31,
1996 was $803.6 million,
(1995--$799.1 million), determined using quoted market prices for these
issues. The capital leases and other notes have a market value which
approximates cost.
 
                                      58
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The 9 1/2% Senior Notes and 10 1/2% Senior Notes were issued by Clark in
September 1992 and December 1991, respectively, and are unsecured. The 9 1/2%
Senior Notes and 10 1/2% Senior Notes are redeemable at the Companys option
beginning September 1997 and December 1996, respectively, at a redemption
price which starts at 105.25% and decreases to 100% of principal two years
later.
 
  In December 1995, Clark USA issued the 10 7/8% Senior Notes in connection
with the Occidental and Gulf transactions (see Note 14 "Occidental/Gulf
Transactions"). These notes are redeemable at the Company's option beginning
December 1, 2000 at a redemption price of 105% which decreases to 100% of
principal in 2003. Thirty-five percent of the notes are redeemable at 111% of
principal at the Company's option from the net proceeds of a public offering
made prior to December 1, 1998.
 
  In February 1993, Clark USA issued Zero Coupon Notes with a value at
maturity of $264 million. The notes are collateralized by the capital stock
owned by Clark USA of each of its subsidiaries (of which Clark is the
principal subsidiary) and have a yield to maturity of 11% per annum. The Zero
Coupon Notes are redeemable at the Company's option at any time on or after
February 15, 1998 at a price equal to their accreted value to the redemption
date. Non-cash interest expense of $19.2 million was recorded in 1996 (1995--
$17.2 million, 1994--$15.5 million) for the Zero Coupon Notes.
 
  The Clark and Clark USA note indentures contain certain restrictive
covenants including limitations on the payment of dividends, limitations on
the payment of amounts to related parties, limitations on the level of debt,
provisions related to change of control and incurrence of liens. Clark USA
must have a net worth of $220 million before any dividends could be paid. In
addition, Clark must maintain a minimum net worth of $100 million and Clark
USA must maintain a minimum net worth of $25 million.
 
  During 1995, Clark entered into two sale/leaseback lease transactions for a
total of $24.3 million. Each capital lease has a term of five years. One lease
has a fixed rate of 8.36% and the other lease rate floats at a spread of 2.25%
over the London Interbank Offer Rate (LIBOR).
 
  The scheduled maturities of long-term debt during the next five years are
(in thousands): 1997--$3,067 (included in "Accrued expenses and other");
1998--$3,828; 1999--$3,737; 2000--$270,375; 2001--$225,012; 2002 and
thereafter--$350,057.
 
 Interest and financing costs
 
  Interest and financing costs, net, included in the statements of earnings,
consisted of the following:
 
<TABLE>
<CAPTION>
                                                       1994     1995     1996
                                                      -------  -------  -------
      <S>                                             <C>      <C>      <C>
      Interest expense............................... $56,537  $60,985  $81,159
      Financing costs................................   1,832    6,476   10,150
      Interest and finance income....................  (2,231)  (6,825) (42,776)
                                                      -------  -------  -------
                                                       56,138   60,636   48,533
      Capitalized interest...........................  (2,409)  (1,404)  (1,033)
                                                      -------  -------  -------
      Interest and financing costs, net.............. $53,729  $59,232  $47,500
                                                      =======  =======  =======
</TABLE>
 
  Cash paid for interest expense in 1996 was $62.0 million (1995--$42.2
million; 1994--$40.3 million). Accrued interest payable at December 31, 1996
of $8.4 million (December 31, 1995--$8.4 million) is included in "Accrued
expenses and other." Included in interest and finance income for 1996 is $31.8
million of finance income, inclusive of the $10.9 million gain on sale,
related to the advance crude oil purchase receivables.
 
9. LEASE COMMITMENTS
 
  The Company leases premises and equipment under lease arrangements, many of
which are non-cancelable. The Company leases store property and equipment with
lease terms extending to 2015, some of which have
 
                                      59
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
escalation clauses based on a set amount or increases in the Consumer Price
Index. The Company also has operating lease agreements for certain equipment
at the refineries, retail stores, and the general office. These lease terms
range from 1 to 8 years with the option to purchase some of the equipment at
the end of the lease term at fair market value. The leases generally provide
that the Company pay taxes, insurance, and maintenance expenses related to the
leased assets. At December 31, 1996 future minimum lease payments under
capital leases and non-cancelable operating leases were as follows (in
millions): 1997--$17.2; 1998--$16.8; 1999--$15.8; 2000--$17.8; 2001--$9.8; and
$122.0 in the aggregate thereafter. Rental expense during 1996 was $16.5
million (1995--$10.3 million; 1994--$12.3 million).
 
10. RELATED PARTY TRANSACTIONS
 
  Transactions of significance with related parties not disclosed elsewhere in
the footnotes are detailed below:
 
 HSM Insurance Inc.
 
  The Company paid premiums of $2.0 million in 1994 to HSM Insurance, Inc., an
affiliate of TrizecHahn Corporation (formerly the Horsham Corporation)
("TrizecHahn"), the Company's 46% shareholder, for providing environmental
impairment liability insurance. No loss claims have been made under the
policy. The policy was terminated on December 31, 1994.
 
 Management Services and Trade Credit Guarantees
 
  TrizecHahn and Clark have agreements to provide certain management services
to each other from time to time. Clark established trade credit with various
suppliers of its petroleum requirements, occasionally requiring the guarantee
of TrizecHahn. Fees related to trade credit guarantees totaled $0.1 million,
$0.2 million and $0.2 million in 1994, 1995 and 1996, respectively. The last
trade credit guarantee was terminated in August, 1996.
 
 AOC L.P.--Contingent Consideration
 
  In 1992, the Company and TrizecHahn purchased the outstanding shares held by
the minority shareholders, AOC L.P. for consideration including "Contingent
Consideration" of up to an aggregate of $24 million (increasing at 9% per
annum through 1996--$33.9 million as of December 31, 1996) based on exceeding
certain cash flow levels, the sale of certain assets or the sale of equity
above certain escalating valuation levels during the years 1993 through 1996.
 
  The sale of equity by the Company to finance the Port Arthur refinery
acquisition triggered a calculation of a potential contingent payment to AOC
L.P. The Company believes that no payment is due based, in part, upon the
value of shares sold. The Company believes the Occidental and Gulf mergers do
not trigger an obligation on the Company to calculate or make a payment to AOC
L.P. Despite the Company's calculations of the amount of the AOC L.P.
contingent payment related to the Port Arthur financing and the Company's
belief related to the Occidental and Gulf transactions, AOC L.P. has asserted
that an amount is payable. There can be no assurance that the Company's
position related to the Port Arthur financing or Occidental and Gulf mergers
will prevail. TrizecHahn has agreed to indemnify the Company for any
contingent payment payable to AOC L.P. in excess of $7 million.
 
                                      60
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
 
  The following table sets forth the unfunded status for the post retirement
health and life insurance plans:
 
<TABLE>
<CAPTION>
                                                                1995     1996
                                                               -------  -------
      <S>                                                      <C>      <C>
      Accumulated postretirement benefit obligation:
        Retirees.............................................. $12,045  $11,889
        Fully eligible plan participants......................   1,288      873
        Other plan participants...............................  20,025   16,687
                                                               -------  -------
          Total...............................................  33,358   29,449
      Accrued postretirement benefit cost.....................     --       --
      Plan assets at fair value...............................     --       --
      Unrecognized net (gain)/loss............................  (1,921)    (216)
      Unrecognized prior service cost.........................     --       635
                                                               -------  -------
      Accrued postretirement benefit liability................ $31,437  $29,868
                                                               =======  =======
</TABLE>
 
  The components of net periodic postretirement benefit costs are as follows:
 
<TABLE>
<CAPTION>
                                                             1994   1995   1996
                                                            ------ ------ ------
      <S>                                                   <C>    <C>    <C>
      Service Costs........................................ $  415 $  999 $1,074
      Interest Costs.......................................  1,271  2,174  2,095
                                                            ------ ------ ------
      Net periodic postretirement benefit cost............. $1,686 $3,173 $3,169
                                                            ====== ====== ======
</TABLE>
 
  A discount rate of 7.50% (1995--7.25%) was assumed as well as a 4.25%
(1995--4.25%) rate of increase in the compensation level. For measuring the
expected postretirement benefit obligation, the health care cost trend rate
ranged from 7.25% to 10.25% in 1996, grading down to an ultimate rate in 2003
of 5.25%. The effect of increasing the average health care cost trend rates by
one percentage point would increase the accumulated postretirement benefit
obligation, as of December 31, 1996 by $4.3 million and increase the annual
aggregate service and interest costs by $0.6 million.
 
12. INCOME TAXES
 
  The Company provides for deferred taxes under the asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
 
  The income tax provision (benefit) is summarized as follows:
 
<TABLE>
<CAPTION>
                                                      1994     1995      1996
                                                     ------- --------  --------
<S>                                                  <C>     <C>       <C>
Earnings (loss) before provision for income taxes... $11,793 $(58,977) $(59,294)
                                                     ======= ========  ========
Current provision (benefit)--Federal................ $   --  $    --   $   (291)
--State.............................................     --       --      4,801
                                                     ------- --------  --------
                                                         --       --      4,510
                                                     ------- --------  --------
Deferred provision (benefit)--Federal...............   2,147  (21,892)     (843)
--State.............................................   1,833       18    (6,797)
                                                     ------- --------  --------
                                                       3,980  (21,874)   (7,640)
                                                     ------- --------  --------
Income tax provision (benefit)...................... $ 3,980 $(21,874) $ (3,130)
                                                     ======= ========  ========
</TABLE>
 
 
                                      61
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  A reconciliation between the income tax provision computed on pretax income
at the statutory federal rate and the actual provision for income taxes is as
follows:
 
<TABLE>
<CAPTION>
                                                     1994      1995      1996
                                                    -------  --------  --------
      <S>                                           <C>      <C>       <C>
      Federal taxes computed at 35%................ $ 4,128  $(20,642) $(20,753)
      State taxes, net of federal effect...........   1,192    (3,622)   (1,297)
      Nontaxable dividend income...................  (1,453)   (2,172)   (2,416)
      Valuation allowance..........................     --        --     18,834
      Other items, net.............................     113     4,562     2,502
                                                    -------  --------  --------
      Income tax provision (benefit)............... $ 3,980  $(21,874) $ (3,130)
                                                    =======  ========  ========
</TABLE>
 
  The following represents the approximate tax effect of each significant
temporary difference giving rise to deferred tax liabilities and assets as of
December 31, 1995 and 1996.
 
<TABLE>
<CAPTION>
                                                                1995     1996
                                                              -------- --------
      <S>                                                     <C>      <C>
      Deferred tax liabilities:
        Property, plant and equipment........................ $ 79,373 $ 85,625
        Turnaround costs.....................................    5,559    4,939
        Inventory............................................   19,204   18,008
        Other................................................    4,852       28
                                                              -------- --------
                                                               108,988  108,600
                                                              -------- --------
      Deferred tax assets:
        Alternative minimum tax credit.......................   19,376   17,514
        Trademarks...........................................    4,491    4,376
        Environmental and other future costs.................   22,958   18,992
        Tax loss carryforwards...............................   52,359   80,606
        Other................................................    2,127    5,946
                                                              -------- --------
                                                               101,311  127,434
                                                              -------- --------
      Valuation allowance....................................      --   (18,834)
                                                              -------- --------
      Net deferred tax liability............................. $  7,677 $    --
                                                              ======== ========
</TABLE>
 
  As of December 31, 1996, the Company has made payments of $17.5 million
under the Federal alternative minimum tax system which are available to reduce
future regular income tax payments. As of December 31, 1996, the Company had a
Federal net operating loss carryforward of $216.3 million and Federal tax
credit carryforwards in the amount of $1.5 million. Such operating loss and
tax credit carryforwards have carryover periods of 15 years and are available
to reduce future tax liabilities through the years ending December 31, 2011
and 2010, respectively.
 
  The Company recorded a valuation allowance of $18.8 million at December 31,
1996 (1995-None). In calculating the increase in the valuation allowance, the
Company assumed as future taxable income only future reversals of existing
taxable temporary differences.
 
  During 1996 the Company made a Federal tax payment of $2.7 million in
settlement of an Internal Revenue Service examination for tax years ended
December 31, 1991 and December 31, 1992 and made net cash state tax payments
of $0.7 million. (1995--net cash tax payments of $0.6 million; 1994--net cash
tax refunds of $2.9 million).
 
                                      62
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Section 382 of the Internal Revenue Code restricts the utilization of net
operating losses upon the occurrence of an ownership change, as defined. An
ownership change that restricts future operating loss utilization occurred
during 1995, but based upon and to the extent of future taxable income from
reversals of existing taxable temporary differences management believes such
limitation will not restrict the Company's ability to significantly utilize
the net operating losses over the 15 year carryforward period.
 
13. ACQUISITION OF PORT ARTHUR REFINERY
 
  On February 27, 1995, Clark purchased Chevron U.S.A. Inc.'s ("Chevron") Port
Arthur, Texas refinery, acquiring the refinery assets and certain related
terminals, pipelines, and other assets for a purchase price of approximately
$70 million (excluding acquired hydrocarbon and non-hydrocarbon inventories of
$121.7 million and assumed liabilities of $19.4 million) plus related
acquisition costs of $14.9 million and accrued liabilities of $5.7 million.
The total assumed and accrued liabilities of $25.1 million were considered
non-cash activity for purposes of the Statement of Cash Flows. The total cost
of the acquisition was accounted for using the purchase method of accounting
with $110.0 million allocated to the refinery long-term assets and $121.7
million charged to current assets for hydrocarbon and non-hydrocarbon
inventories.
 
  The purchase agreement also provides for contingent payments to Chevron of
up to $125 million over a five year period from the closing date of the
acquisition in the event refining industry margin indicators exceed certain
escalating levels. These contingent payments are calculated annually and the
appropriate liability, if any, will be recorded at that time. At December 31,
1996 and 1995, Clark had no obligation to Chevron relating to the contingent
payment agreement. While Chevron retained primary responsibility for required
remediation of most pre-closing environmental contamination, Clark assumed
responsibility for environmental contamination beneath and within 25 to 100
feet of the facility's active processing units. Clark accrued $7.5 million as
part of the acquisition for the expected cost of remediating pipe trenches and
the recovery of free phase hydrocarbons in its responsibility area of the Port
Arthur refinery.
 
  On February 27, 1995, the Company obtained a portion of the funds necessary
to finance the Port Arthur acquisition from a subsidiary of its major
shareholder, TrizecHahn. The Company sold 9,000,000 shares of Class A Common
Stock, 562,500 shares of Class B Common Stock and 562,500 shares of Class C
Common stock for an aggregate consideration of $135 million. Subsequently, the
TrizecHahn subsidiary sold 8,000,000 shares of Class A Common Stock and
500,000 shares of Class C Common Stock to Tiger Management Corporation for
$120 million. The Company subsequently contributed $150 million to Clark for
the purchase of the Port Arthur refinery.
 
14. OCCIDENTAL/GULF TRANSACTIONS
 
  In late 1995, the Company completed merger agreements and a series of
related agreements with subsidiaries of Occidental and Gulf pursuant to which
it acquired the right to receive the equivalent of 17.661 million barrels and
3.164 million barrels of crude oil, respectively, over a six year period (the
"Oil Transactions"). In connection with the Oil Transactions, the Company
issued common stock (considered a non-cash activity for the purposes of the
Statement of Cash Flows), valued at approximately $120 million, or $22 per
share (5,454,545 shares), and $26.9 million, or $22 per share (1,222,273
shares) to Occidental and Gulf, respectively and paid $100 million in cash to
Occidental. In addition, the Company paid upfront fees of $9.4 million and
will pay commissions over the future delivery periods of up to approximately
$7 million to an affiliate of Gulf.
 
  On October 4, 1996, Clark sold the Occidental advance crude oil purchase
receivable after receiving value for approximately 1.5 million barrels during
1996. The advance crude oil purchase receivable was sold for net
 
                                      63
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
cash proceeds of $235.4 million. The effect of the sale increased net
Stockholders' Equity by approximately $110.6 million. The Company realized a
gain on the sale of $10.9 million. For the year ended December 31, 1996, the
Company recorded finance income of $31.8 million, inclusive of the gain on
sale, which was reflected in "Interest and financing costs, net". The advance
crude oil purchase receivable from Gulf continues to be held by the Company.
However, Gulf has not made their required deliveries since July, 1996 and the
Company has not recorded any finance income subsequent to their last delivery.
 
  The Company entered into certain futures contracts as hedges of the oil
price risk associated with the advance crude oil purchase receivables. Gains
or losses on these contracts were recognized in earnings as a component of
financing income as realized. Unrealized gains or losses were carried as an
adjustment of the carrying amount of the advance crude oil purchase
receivables. As of December 31, 1995, approximately 7.4 million barrels of the
advance crude oil purchase receivables were hedged for the period from 1996 to
1998 at prices ranging from $16.95 per barrel to $18.00 per barrel. All open
contracts were sold as part of the Occidental advance crude oil purchase
receivable sale in October, 1996.
 
15. STOCK OPTION PLANS
 
  The Company has adopted a compensatory Long-Term Performance Plan (the
"Performance Plan"). Under the Performance Plan, designated employees,
including executive officers, of the Company and its subsidiaries and other
related entities are eligible to receive awards in the form of stock options,
stock appreciation rights and stock grants. An aggregate of 1,250,000 shares
of Clark USA Inc., Common Stock may be awarded under the Performance Plan,
either from authorized, unissued shares which have been reserved for such
purpose or from shares purchased on the open market, subject to adjustment in
the event of a stock split, stock dividend, recapitalization or similar change
in the outstanding Common Stock of the Company. The options normally extend
for 10 years and become exercisable within 3 years of the grant date.
Additionally, under this plan the stock options granted may not be sold or
otherwise transferred, and are not exercisable until after a public offering
of stock is completed by the Company or change of control (as defined in the
Plan). Stock granted under this plan is priced at the fair market value at the
date of grant.
 
  During 1996 no additional shares were granted under this Plan. In 1995,
549,000 shares were granted under this Plan and priced at the fair market
value at the date of grant. As of December 31, 1996, 549,000 stock options
were outstanding (1995--549,000) at an exercise price of $15 per share.
 
16. CONTINGENCIES
 
  Clark and the Company are subject to various legal proceedings related to
governmental regulations and other actions arising out of the normal course of
business, including legal proceedings related to environmental matters. Among
those actions and proceedings are the following:
 
  The Equal Employment Opportunity Commission ("EEOC") has alleged that Clark
had engaged in age discrimination in violation of the Age Discrimination in
Employment Act. The Action involves 38 former managers it believes have been
affected by an alleged pattern and practice. The relief sought by the EEOC
includes reinstatement or reassignment of the individuals allegedly affected,
payment of back wages and benefits, an injunction prohibiting employment
practices which discriminate on the basis of age, and institution of practices
to eradicate the effects of any past discriminatory practices.
 
  A Petition entitled Anderson, et al vs. Chevron and Clark, was filed in
Jefferson County, Texas by forty individual plaintiffs who were Chevron
employees who did not receive offers of employment by Clark at the
 
                                      64
<PAGE>
 
                       CLARK USA, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
time of purchase of the Port Arthur Refinery. Chevron and the outplacement
service retained by Chevron are also named as defendants. Subsequent to the
filing of the lawsuit, the plaintiffs have each filed individual charges with
the EEOC and the Texas Commission of Human Rights.
 
  Clark is the subject of a purported class action lawsuit related to an on-
site electrical malfunction at Clark's Blue Island refinery on October 7,
1994, which resulted in the release to the atmosphere of used catalyst
containing low levels of heavy metals, including antimony, nickel and
vanadium. This release resulted in the temporary evacuation of certain areas
near the refinery, including a high school, and approximately fifty people
were taken to area hospitals. Clark offered to reimburse the medical expenses
incurred by persons receiving treatment. The purported class action lawsuit
was filed on behalf of various named individuals and purported plaintiff
classes, including residents of Blue Island, Illinois and Eisenhower High
School students, alleging claims based on common law nuisance, negligence,
willful and wanton negligence and the Illinois Family Expense Act as a result
of this incident. Plaintiffs seek to recover damages in an unspecified amount
for alleged medical expenses, diminished property values, pain and suffering
and other damages. Plaintiffs also seek punitive damages in an unspecified
amount.
 
  While it is not possible at this time to establish the ultimate amount of
liability with respect to the Company's contingent liabilities, Clark and the
Company are of the opinion that the aggregate amount of any such liabilities,
for which provision has not been made, will not have a material adverse effect
on their financial position, however, an adverse outcome of any one or more of
these matters could have a material effect on quarterly or annual operating
results or cash flows when resolved in a future period.
 
 
                                      65
<PAGE>
 
       REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
 
To the Board of Directors of
Clark USA, Inc.:
 
  Our report on the financial statements of Clark USA, Inc., and Subsidiaries
is included on page number 49 in this Form 10-K. In connection with our audits
of such consolidated financial statements, we have also audited the financial
statement schedule as of December 31, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996 listed in Part IV, Item 14(a)(2) of this Form
10-K.
 
  In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
 
                                          Coopers & Lybrand L. L. P.
 
St. Louis, Missouri
February 4, 1997
 
                                      66
<PAGE>
 
                                CLARK USA, INC.
 
              SCHEDULE I--CONDENSED INFORMATION OF THE REGISTRANT
                        NON-CONSOLIDATED BALANCE SHEETS
 
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                  ------------------
                                                                    1995      1996
                                                                  --------  --------
                             ASSETS
                             ------
<S>                                                               <C>       <C>
Current Assets:
  Cash and cash equivalents...................................... $ 43,162  $ 18,272
  Accounts receivable............................................      106       151
  Income taxes receivable........................................      397     3,339
  Prepaid expenses and other.....................................      --        --
  Receivables from affiliates....................................    8,656    10,215
  Advance crude oil purchase receivable..........................    6,565       --
                                                                  --------  --------
    Total current assets.........................................   58,886    31,977
Investments in affiliated companies..............................  305,236   536,718
Advance crude oil purchase receivable............................   99,345       --
Deferred income taxes............................................   15,362       989
Other............................................................   21,931    15,414
                                                                  --------  --------
                                                                  $500,760  $585,098
                                                                  ========  ========
<CAPTION>
              LIABILITIES AND STOCKHOLDERS' EQUITY
              ------------------------------------
<S>                                                               <C>       <C>
Current liabilities:
  Accrued expenses and other..................................... $  1,859  $  1,875
  Payables to affiliates.........................................      105       650
                                                                  --------  --------
      Total current liabilities..................................    1,964     2,525
Long-term debt...................................................  344,589   363,756
Other Long-term liabilities......................................      --      4,367
Stockholders' equity:
  Common stock
    Common, $.01 par value, 19,051,818 issued....................      190       190
    Class A Common, $.01 par value, 10,162,509 issued............       90       102
    Class B Common, convertible, $.01 par value..................        6       --
    Class C Common, convertible, $.01 par value..................        6       --
  Paid-in capital................................................  300,057   296,094
  Advance crude oil purchase receivable from stockholders........ (146,890)  (26,520)
  Retained earnings..............................................      748   (55,416)
                                                                  --------  --------
      Total stockholders' equity.................................  154,207   214,450
                                                                  --------  --------
                                                                  $500,760  $585,098
                                                                  ========  ========
</TABLE>
 
 
         See accompanying note to non-consolidated financial statements
 
                                       67
<PAGE>
 
                                CLARK USA, INC.
 
              SCHEDULE I--CONDENSED INFORMATION OF THE REGISTRANT
                    NON-CONSOLIDATED STATEMENTS OF EARNINGS
 
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                        FOR THE YEAR ENDED
                                                           DECEMBER 31,
                                                     --------------------------
                                                      1994     1995      1996
                                                     ------- --------  --------
<S>                                                  <C>     <C>       <C>
Revenues:
  Equity in net earnings (loss) of affiliates....... $19,022 $(24,443) $(37,117)
Expenses:
  General and administrative expenses...............       6       72       333
  Interest and financing costs, net.................  17,239   19,404     8,843
                                                     ------- --------  --------
Earnings (loss) before provision for taxes..........   1,777  (43,919)  (46,293)
  Income tax (provision) benefit....................   6,036    6,816    (9,871)
                                                     ------- --------  --------
Net earnings (loss)................................. $ 7,813 $(37,103) $(56,164)
                                                     ======= ========  ========
</TABLE>
 
 
 
 
         See accompanying note to non-consolidated financial statements
 
                                       68
<PAGE>
 
                                CLARK USA, INC.
 
              SCHEDULE I--CONDENSED INFORMATION OF THE REGISTRANT
                   NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED
                                                          DECEMBER 31,
                                                    ---------------------------
                                                     1994      1995      1996
                                                    -------  --------  --------
<S>                                                 <C>      <C>       <C>
Cash flows from operating activities:
  Net earnings (loss).............................  $ 7,813  $(37,103) $(56,164)
  Non-cash items:
    Equity in net (earnings) loss of affiliates...  (19,022)   24,443    37,117
    Amortization..................................   16,144    18,281    22,790
    Deferred income taxes.........................   (6,037)   (6,816)   14,372
    Sale of advanced crude oil purchase
     receivable...................................      --        --    (10,869)
  Cash provided by (reinvested in) working capital
    Accounts receivable, prepaid expenses and
     other........................................      291     1,465       (45)
    Receivables from and payables to affiliates...   (1,301)   (2,943)   (1,076)
    Accounts payable, accrued liabilities and
     other........................................      (66)    1,683        16
    Income taxes payable..........................    3,641       561    (2,881)
                                                    -------  --------  --------
      Net cash provided by (used in) operating
       activities.................................    1,463      (429)    3,260
                                                    -------  --------  --------
Cash flows from investing activities:
  Contribution to subsidiary......................      --   (165,610)  (33,600)
  Dividend from subsidiary........................      --      4,515       --
  Advance crude oil purchase receivable...........      --   (105,910)    6,516
                                                    -------  --------  --------
      Net cash used in investing activities.......      --   (267,005)  (27,084)
                                                    -------  --------  --------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt........      --    175,000       --
  Deferred financing costs........................   (1,100)  (19,112)   (1,066)
  Proceeds from sale of stock.....................      --    135,500       --
  Stock issuance costs............................      --     (1,541)      --
                                                    -------  --------  --------
      Net cash provided by (used in) investing
       activities.................................   (1,100)  289,847    (1,066)
                                                    -------  --------  --------
Increase (decrease) in cash, cash equivalents and
 short-term investments...........................      363    22,413   (24,890)
Cash, cash equivalents and short-term investments,
 beginning of period..............................   20,386    20,749    43,162
                                                    -------  --------  --------
Cash, cash equivalents and short-term investments,
 end of period....................................  $20,749  $ 43,162  $ 18,272
                                                    =======  ========  ========
</TABLE>
 
 
         See accompanying note to non-consolidated financial statements
 
                                       69
<PAGE>
 
              SCHEDULE I--CONDENSED INFORMATION OF THE REGISTRANT
                 NOTE TO NON-CONSOLIDATED FINANCIAL STATEMENTS
 
             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
 
1. BASIS OF PRESENTATION
 
  These unaudited non-consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, except that they are
prepared on a non-consolidated basis for the purpose of complying with Article
12 of regulation S-X. Accordingly, they do not include all of the information
and disclosures required by generally accepted accounting principles for
complete financial statements. Clark USA's non-consolidated operations include
100% equity interest in Clark Refining & Marketing, Inc. and Clark Pipe Line
Company.
 
  For further information, refer to the consolidated financial statements,
including the notes thereto, included in this Form 10-K.
 
                                      70
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                          Clark USA, Inc.
 
                                                  /s/ Paul D. Melnuk
                                          By: _________________________________
                                                      Paul D. Melnuk
                                               President and Chief Executive
                                                          Officer
 
March 20, 1997
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
 
<TABLE>
<CAPTION>
                 SIGNATURE                                     TITLE
                 ---------                                     -----
 
 
<S>                                         <C>
            /s/ Peter Munk                  Director and Chairman of the Board
___________________________________________
                Peter Munk
 
          /s/ Paul D. Melnuk                Director, Chief Executive Officer and
___________________________________________   President
              Paul D. Melnuk
 
      /s/ C. William D. Birchall            Director
___________________________________________
          C. William D. Birchall
 
         /s/ Stephen I. Chazen              Director
___________________________________________
             Stephen I. Chazen
 
         /s/ James J. Murchie               Director
___________________________________________
             James J. Murchie
 
        /s/ Gregory C. Wilkins              Director
___________________________________________
            Gregory C. Wilkins
 
          /s/ Maura J. Clark                Executive Vice President, Corporate
___________________________________________   Development and Chief Financial Officer
              Maura J. Clark                  (Principal Financial Officer)
 
        /s/ Dennis R. Eichholz              Controller and Treasurer (Principal
___________________________________________   Accounting Officer)
            Dennis R. Eichholz
</TABLE>
 
March 20, 1997
 
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