<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
QUAKER STATE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
QUAKER STATE CORPORATION
225 East John Carpenter Freeway
Irving, Texas 75062
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS--MAY 15, 1998
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders of Quaker State Corporation ("Quaker
State" or the "Company") will be held at the Corporate Headquarters, 225 East
John Carpenter Freeway, 15th Floor, Irving, Texas 75062, on Friday, May 15,
1998 at 1:00 P.M., Central Daylight Time, for the following purposes:
1. To elect thirteen Directors;
2. To approve an award of restricted stock to certain non-employee
directors in lieu of retirement benefits previously provided.
3. To approve an amendment to the Company's 1994 Stock Incentive Plan (the
"1994 Plan") to authorize the issuance under the 1994 Plan of 2,500,000
additional shares of the Company's capital stock;
4. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
accountants to audit the financial statements of the Company and its
subsidiaries for the year 1998; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
This notice is being sent to stockholders of record at the close of business
on March 17, 1998, who will be entitled to vote at the Annual Meeting. The
Company's Annual Report to Stockholders for 1997 is enclosed.
A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection by any stockholder for any purpose germane to the
Annual Meeting during ordinary business hours for ten days preceding the Annual
Meeting at the Company's office at the address provided above.
It is important for your shares to be represented at the Annual Meeting.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST
CONVENIENCE in the envelope provided.
By Order of the Board of Directors,
Paul E. Konney,
Senior Vice President, General
Counsel and Secretary
Irving, Texas
March 27, 1998
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD AS SOON AS POSSIBLE.
<PAGE> 3
QUAKER STATE CORPORATION
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Voting Rights and Proxy Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1 -- ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
- Nominees for Election as Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
- Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
- Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Security Ownership of Directors and Executive Officers . . . . . . . . . . . . . . . . . . 6
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
- Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
- Option Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
- Option/SAR Exercises and Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
- Long-Term Incentive Awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
- Employment, Benefits, and Change-of-Control
Arrangements at December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 11
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . 16
Organization and Compensation Committee Interlocks and Insider Participation . . . . . . . 17
Organization and Compensation Committee Report on Executive Compensation . . . . . . . . . 17
Stockholder Return Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 2 -- APPROVAL OF NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AWARD . . . . . . . . . . . . 21
ITEM 3 -- APPROVAL OF AN AMENDMENT TO THE 1994 PLAN . . . . . . . . . . . . . . . . . . . . 23
ITEM 4 - RATIFICATION OF APPOINTMENT OF COOPERS & LYBRAND AS AUDITORS . . . . . . . . . . . 30
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Expenses of Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1999 Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
- ----------
Items in boldface are to be voted on at the meeting.
i
<PAGE> 4
QUAKER STATE CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1998
This Proxy Statement is provided to stockholders on or about March 27, 1998
in connection with the solicitation by the Board of Directors of Quaker State,
a Delaware corporation, of proxies in the accompanying form for use at the
Annual Meeting of Stockholders to be held on May 15, 1998 and at any
adjournment thereof (the "Annual Meeting"). If a proxy in the accompanying form
is duly executed and returned, the shares represented will be voted at the
Annual Meeting and, where a choice is specified, will be voted in accordance
with the specification made. Any stockholder who gives a proxy has the power
to revoke it by notice to the Secretary at any time before the proxy is
exercised. A later dated proxy will revoke an earlier proxy, and stockholders
who attend the Annual Meeting may, if they wish, vote in person even though
they have submitted a proxy, in which event the proxy will be deemed to have
been revoked.
The Board unanimously recommends a vote FOR the election of the Board's
nominees as directors of the Company, FOR approval of the Non-Employee Director
Restricted Stock Award, FOR approval of an amendment to the 1994 Plan and FOR
ratification of the appointment of independent accountants.
VOTING RIGHTS AND PROXY INFORMATION
The Company has only one class of capital stock (the "Stock"), of which
36,302,879 shares were issued and outstanding as of the close of business on
March 17, 1998. Stockholders of record as of the close of business on March 17,
1998 have the right to receive notice of and to vote at the Annual Meeting.
Stockholders are entitled to one vote for each share held on all matters to be
considered and acted upon at the Annual Meeting and do not have cumulative
voting rights in the election of directors.
The presence, either in person or by properly executed proxy, of the holders
of a majority of the shares of Stock eligible to vote on March 17, 1998 is
necessary to constitute a quorum at the Annual Meeting. If a quorum is not
present at any meeting of the stockholders, the stockholders present in person
or by proxy have the power to adjourn any such meeting from time to time until
a quorum is present. Notice of any adjourned meeting of the stockholders of
the Company need not be given if the place, date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if
the adjournment is for more than 30 days, or if after the adjournment a new
record date for the adjourned meeting is fixed, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at such
meeting. At any adjourned meeting at which a quorum is present, any business
may be transacted that might have been transacted on the original date of the
meeting. Proxies solicited by this Proxy Statement may be used to vote in
favor of any motion to adjourn the Annual Meeting.
In determining whether a proposal has received a majority vote, abstentions
will be included in the vote total, with the result that an abstention will
have the same effect as a negative vote. With respect to the election of
directors, shares that are withheld from voting will not be included in the
vote totals because directors are elected by a plurality of votes where only
affirmative votes are counted. Shares of Stock held by holders who are either
present in person or represented by proxy who abstain or for whom the authority
to vote is withheld on certain matters will, however, be treated as present for
purposes of determining if a quorum is present on all matters. Brokers who
hold shares in street name for customers ("beneficial owners") are required to
vote shares in accordance with the instructions received from beneficial
owners. In addition, brokers are entitled to vote on certain "discretionary"
items even when they have not received instructions from the beneficial owner.
Brokers are not permitted to vote (a "broker non-vote") on "non-discretionary"
items absent instructions from the beneficial owner. Broker
1
<PAGE> 5
non-votes will be treated as votes withheld by the beneficial owner, and
therefore, as shares not entitled to be voted on the items with respect to
which broker non-votes apply.
Under the terms and conditions of the Company's Automatic Dividend
Reinvestment Plan, Mellon Securities Trust Company, the administrator, will
vote the full shares of Stock that it holds for a participant's account at the
Annual Meeting in accordance with (i) the proxy returned by the participant to
the Company with respect to the shares which the participant holds of record,
(ii) the participant's vote in person at the Annual Meeting with respect to
such shares or (iii) written instructions received directly by the
administrator from the participant. The administrator will vote fractional
shares credited to all of the accounts of the participant by aggregating all
the fractional shares to be voted and voting them in the same proportions as
the full shares credited to the participant's accounts are voted.
ITEM 1
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES
NOMINEES FOR ELECTION AS DIRECTORS
The Bylaws provide for fourteen directors. However, on the Annual Meeting
date, the size of the Board of Directors will be reduced to thirteen directors,
and the Board of Directors has nominated thirteen persons who are named below
for election as directors at the Annual Meeting. Unless authority to vote for
one or more of the nominees is withheld, the proxies solicited hereby will be
voted FOR the election of the thirteen nominees and cannot be voted for more
than the number of nominees named herein. All the nominees are currently
directors of Quaker State. Directors who served in 1997, but who are not
nominees for election in 1998 include Delbert J. McQuaide, who retired from the
Board of Directors on January 26, 1997, and Thomas A. Gardner, who will retire
from the Board on May 15, 1998.
Only affirmative votes are counted in the election of directors. The
thirteen nominees who receive the greatest number of votes cast for the
election of directors by the holders of the stock present in person or
represented by proxy and entitled to vote at the Annual Meeting, a quorum being
present, will be elected as directors.
In the event that any of the nominees should for any reason not be available
for election at the date of the Annual Meeting, the proxies received will be
voted for the election of the other nominees and such substitute nominees as
shall be designated by the Board of Directors; however, management knows of no
reason why any nominee should be unavailable for election. Directors who are
elected will serve until the next Annual Meeting of Stockholders and until
their successors are elected and qualified, or until their earlier death,
resignation, retirement or removal.
<TABLE>
<CAPTION>
Director
Nominee Since Age; Principal Occupation or Employment; Directorships
- ------- ----- ------------------------------------------------------
<S> <C> <C>
John D. Barr 1995 Mr. Barr, 50, is President and Chief Operating Officer of Quaker
State. Prior to joining the Company in 1995, he was Senior Vice
President of Ashland, Inc. and President of its subsidiary The
Valvoline Company ("Valvoline") since 1987. Valvoline manufactures
and sells motor oil and lubricants. Mr. Barr is a director of
HomeBase, Inc.
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C> <C>
Herbert M. Baum 1993 Mr. Baum, 61, has been Chairman and Chief Executive Officer of Quaker
State since 1993. Prior to joining Quaker State, he was Executive
Vice President of Campbell Soup Company and President, Campbell
North/South America. Mr. Baum is a director of Dial Corporation,
Meredith Corporation, Midas, Inc. and Whitman Corporation.
Leonard M. Carroll 1993 Mr. Carroll, 55, is Managing Director of Seneca Capital Management,
Inc., an investment management company. Prior to founding Seneca
Capital in 1996, he was, since 1991, President and Chief Operating
Officer of Integra Financial Corporation, a bank holding company. He
is a director of Ampco-Pittsburgh Corporation.
Conrad A. Conrad 1988 Mr. Conrad, 52, is Vice Chairman and Chief Financial Officer of
Quaker State. He has been Chief Financial Officer of the Company
since 1994, and he also served as Chief Administrative Officer from
1994 to 1995. He was President and Chief Operating Officer of Quaker
State from 1990 to 1994.
J. Taylor Crandall 1997 Mr. Crandall, 44, is Chief Financial Officer and a Vice President of
Keystone Inc., an investment management company. He joined Keystone
in 1986. He is a director of Bell & Howell Company, Signature
Resorts, Inc., Specialty Foods Corporation and Washington Mutual
Fund, Inc.
Laurel Cutler 1993 Ms. Cutler, 71, is the former Vice Chairman of FCB Advertising, Inc.,
an advertising agency. She held that position from 1982 to 1997.
C. Frederick Fetterolf 1993 Mr. Fetterolf, 69, retired in 1991 as President and Chief Operating
Officer of Aluminum Company of America. He is a director of
Allegheny Teledyne Inc., Commonwealth Industries, Inc., Dentsply
International, Mellon Bank Corporation, Praxair, Inc. and Union
Carbide Corporation.
F. William Grube 1994 Mr. Grube, 50, is President of Calumet Lubricants Co., a producer of
specialty oils. He has held this position since 1990.
Forrest R. Haselton 1995 Mr. Haselton, 59, retired in 1993 as President-Retail of the Sears
Merchandise Group, a division of Sears Roebuck and Company.
Kenneth Lee 1998 Mr. Lee, 60, is the Chief Technology Officer of Quantum Corporation.
He has held this position since 1997. From 1995 to 1997, he was also
President, Work Station Storage Group, of Quantum. From 1993 to 1995
he was the Executive Vice President-Engineering and Chief Technology
Officer of Quantum and from 1990 to 1993, he was its Vice President-
Product Development.
L. David Myatt 1994 Mr. Myatt, 52, is the Managing Member of LDM Investments, L.L.C., an
investment management company that he formed in 1995. He was Vice
Chairman of Quaker State from 1994 to 1997 and has been employed by
Quaker State from 1994 to date. From 1994 to 1995, he was Chief
Executive Officer of Quaker State's Motor Oil Division. Prior to
joining Quaker State in 1994, Mr. Myatt was President of two
lubricant companies, Specialty Oil Company and Westland Oil Company,
since 1977. These companies were acquired by Quaker State in 1994.
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C> <C>
Raymond A. Ross, Jr. 1991 Mr. Ross, 62, retired at the end of 1995 as President and sole owner
of Ross Management, a real estate investment and development firm
that he formed in 1984.
Lorne R. Waxlax 1995 Mr. Waxlax, 64, retired in 1993 as Executive Vice President of the
Gillette Company. Mr. Waxlax is a director of BJ's Wholesale Club,
Inc., Clean Harbors, Inc., HomeBase, Inc., Hon Industries, Inc. and
The Iams Company.
</TABLE>
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES FOR ELECTION
AS A DIRECTOR. Unless otherwise directed in your proxy, your shares of Stock
will be voted FOR the nominees.
BOARD OF DIRECTORS
During 1997, there were seven (7) meetings of the Board of Directors. All
incumbent directors attended at least 75% of the Board meetings and meetings of
the Board Committees of which they were members.
BOARD COMMITTEES
The committees of the Board of Directors are the Audit Committee, the
Environmental and Ethics Committee, the Executive Committee and the
Organization and Compensation Committee.
Audit Committee. The members of the Audit Committee are Messrs. Carroll
(Chairman), Crandall, Grube, Lee and Waxlax and Dr. Gardner. The Audit
Committee held five (5) meetings in 1997. The Audit Committee reviews the
annual financial statements of the Company and its subsidiaries with the
independent accountants and Company management, and the scope of the internal
and external audit programs and processes to assure that audit coverage and
internal controls are satisfactory. The Audit Committee also verifies the
independence of the Company's independent accountants and makes recommendations
to the Board for the retention or selection of independent accountants.
Environmental and Ethics Committee. The members of the Environmental and
Ethics Committee are Ms. Cutler and Messrs. Ross (Chairman), Grube and Myatt.
This committee met four (4) times during 1997. The committee oversees the
implementation of the Company's policy of commitment to the protection of the
environment and the health and safety of employees and others. The committee
also reviews the Company's compliance with applicable laws and regulations, and
the Company's Statement of Ethical Values and Code of Business Conduct.
Executive Committee. The members of the Executive Committee are Messrs.
Baum, Fetterolf (Chairman), Haselton, Myatt and Ross. Delbert J. McQuaide
served as Chairman of the Executive Committee until he retired from the Board
of Directors on January 26, 1997. The committee met seven (7) times during
1997. The Executive Committee is authorized to exercise all the powers of the
Board of Directors in the management of the business and affairs of the
Company, except as limited by Delaware law. The committee also acts as a
nominating committee, develops criteria for the selection of candidates for
election to the Board, evaluates the qualifications of candidates, recommends
candidates for Board membership to the Board and reviews the performance of
individual directors and the Board as a whole. The committee will consider for
Board membership nominees recommended by stockholders. Nominations may be
addressed to the Company Secretary at the address set forth on the first page
of this Proxy Statement. In accordance with the Bylaws, no person may be
nominated as a director by a stockholder at any Annual Meeting unless written
notice of such proposed nomination, containing certain information required by
the Bylaws, is delivered to the Secretary not less than 60 days nor more than
90 days before the anniversary of the prior year's Annual Meeting, subject to
an exception set forth in the Bylaws.
Organization and Compensation Committee. Ms. Cutler, Messrs. Haselton
(Chairman), Fetterolf and Waxlax and Dr. Gardner serve on the Organization and
Compensation Committee. Mr. McQuaide was a
4
<PAGE> 8
member of the Organization and Compensation Committee until he retired from the
Board of Directors on January 26, 1997. The committee held four (4) meetings
in 1997. The committee sets policy with respect to executive compensation and
reviews and approves salaries, benefits and incentive compensation programs for
the Company's executive officers and other senior executives. The committee
also supervises the administration of the Company's employee benefit plans and
administers the Company's Annual Incentive Bonus Plan, Long-term Incentive
Plan, Supplemental Executive Retirement Plan and incentive stock plans. The
committee grants stock options and awards under the 1994 Plan and reviews major
organizational changes recommended by management.
COMPENSATION OF DIRECTORS
Fees. Directors who are not Quaker State employees receive an annual fee of
$24,000 and a meeting fee of $1,000 for each Board and Committee meeting they
attend. Each Chairman of a Board Committee receives an additional $3,000 per
year.
1996 Directors' Fee Plan. In 1996 the Company established the 1996
Directors' Fee Plan (the "Directors' Plan"). Any director who is separately
compensated for services on the Board or a Board Committee is eligible to
participate in the Directors' Plan. Directors who are employees of Quaker
State are not separately compensated for services as a director. Under the
Directors' Plan, a Director can elect to receive current payment of directors'
fees in cash or shares of Stock, or deferred payment in cash or shares of
Stock. If a director elects payment of fees in Stock, the director receives
Stock with a market value equal to 105% of the cash amount of the fees. The
aggregate number of shares of Stock which may be issued or credited to
directors' Deferred Stock Compensation Accounts under the Directors' Plan is
limited to 50,000 shares per year, subject to proportionate adjustment in the
event of stock splits and similar events.
Payment of cash credited to a director's Deferred Cash Compensation Account
or shares of Stock credited to a director's Deferred Stock Compensation Account
for any year is required to be made either in a lump sum or in up to ten annual
installments, as elected by the director prior to the commencement of the year
of deferral, commencing on March 30 of the year following the year during which
the director ceases to be a director for any reason. A director may designate a
beneficiary or beneficiaries to receive payment of deferred amounts following
his death. Advance payment of deferred amounts may be permitted by the Board
only to the extent necessary to avoid severe financial hardship resulting from
an unanticipated financial emergency beyond the control of the director or his
or her beneficiary.
Deferred Cash Compensation Accounts and Deferred Stock Compensation Accounts
are maintained only on the books of the Company, and no cash, shares of Stock
or other assets will be set aside until cash or shares of Stock actually become
payable to a director or his or her beneficiary. No person has voting rights
with respect to shares of Stock credited to a Deferred Stock Compensation
Account and not yet payable to the director or his or her beneficiary.
Retirement Benefit. Prior to March 27, 1997, Quaker State provided a
retirement benefit for non-employee directors whose service on the Board began
prior to April 1, 1996. On March 27, 1997, the Board approved, subject to
preparation of an award formula and shareholder approval at the next Annual
Meeting, an award of restricted stock to each qualifying non-employee director
in lieu of this annual retirement benefit. See "Approval of Non-Employee
Director Restricted Stock Award" elsewhere in this proxy statement. Any
non-employee director who joined the board prior to April 1, 1996 and served on
the Board of Directors for ten years or longer, or who began serving as a
director at age 60 or older and served for at least five years, was entitled to
an annual retirement benefit payable until his or her death. The annual
retirement benefit was $21,000 per year. Any such non-employee director who
was under age 60 when he or she began serving as a director and who served for
at least five but fewer than ten years when Board service terminated was
entitled to a pro-rata share of the retirement benefit based upon the
relationship of years served to ten. In the event of termination of service as
a director after a change of control (as defined), a non-employee director was
entitled to a full retirement benefit if at the time of termination of service
the director had served at least five years.
5
<PAGE> 9
Life Insurance. Under a group term life insurance plan, all non-employee
directors are provided a life insurance benefit of $25,000. The benefit is
reduced by 50% when a director ceases to serve on the Board if the director has
served for at least five consecutive years, and the benefit terminates when a
director ceases to serve if the director has not served for at least five
consecutive years.
Stock Options. All non-employee directors participate in the 1994
Non-Employee Directors' Stock Option Plan (the "Option Plan"). The Option Plan
automatically provides yearly grants of options to purchase 1,000 shares of the
Stock at an option price equal to 100% of the fair market value of the Stock on
the date of grant. The stock options are not exercisable during the first six
months after grant except in the case of death or certain change-of-control
events (as defined in the Option Plan). The stock options expire ten years from
the date of grant or earlier in the event of termination of service as a
director as provided in the Option Plan. After each Annual Meeting since 1994,
each non- employee director was granted an option to purchase 1,000 shares of
Stock.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the number of shares of
Stock beneficially owned, directly or indirectly, by all executive officers and
by the directors of the Company, and by the directors and all executive
officers as a group. The table also sets forth information concerning the
number of shares beneficially owned (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) (the "1934 Act") by each person who owns more
than five percent (5%) of the Company's Stock. Except as described in the
notes below, all information in the table and the accompanying footnotes is
stated as of March 17, 1998.
<TABLE>
<CAPTION>
Percent of
Beneficial Owner Number (1) Class
- ---------------- ---------- ----------
<S> <C> <C>
John D. Barr 310,842(2)(3)(4) *
Herbert M. Baum 801,274(2)(3)(4) 2.208
Charles F. Bechtel 56,241(2)(4)(5) *
Leonard M. Carroll 8,937(2) *
Conrad A. Conrad 120,067(2)(4)(5) *
J. Taylor Crandall 1,000(2)(6) *
Laurel Cutler 5,000(2) *
C. Frederick Fetterolf 7,000(2)(6) *
F. William Grube 23,000(2)(5) *
Forrest R. Haselton 7,923(2) *
Paul E. Konney 47,573(2)(4) *
Kenneth Lee 0 *
L. David Myatt 1,544,453(2)(4) 4.254
Raymond A. Ross, Jr. 8,100(2) *
Lorne R. Waxlax 26,087(2) *
--------- -----
All directors and executive
officers as a group (16 persons) 2,967,497(2)(3)(4)(5) 8.174
The Prudential Insurance Company
Of America(7) 2,023,320(7) 5.573
</TABLE>
* Less than one percent (1%) of the outstanding Stock is
beneficially owned. In determining the percentage of the
outstanding Stock owned by each person and by all directors
and executive officers as a group, the shares in the table
include shares that may be acquired upon the exercise of stock
options within 60 days after March 17, 1998; such shares are
deemed to be outstanding for purposes of the relevant
percentage calculation.
6
<PAGE> 10
(1) The directors and executive officers have sole voting power
and sole investment power with respect to all shares set forth
in the table except as indicated in the footnotes which
follow.
(2) Includes shares which may be acquired by the following persons
upon the exercise of stock options which are presently
exercisable or become exercisable within 60 days after March
17, 1998: Mr. Barr, 272,000 shares; Mr. Baum, 524,500 shares;
Mr. Bechtel, 45,000 shares; Mr. Carroll, 4,000 shares; Mr.
Conrad, 88,000 shares; Mr. Crandall, 1,000 shares; Ms. Cutler,
4,000 shares; Mr. Fetterolf, 4,000 shares; Mr. Grube, 3,000
shares; Mr. Haselton, 3,000 shares; Mr. Konney, 45,500 shares;
Mr. Myatt, 150,000 shares; Mr. Ross, 4,000 shares; Mr. Waxlax,
3,000 shares; and all directors and executive officers as a
group, 1,151,500 shares.
(3) Includes restricted shares as to which the following persons
have sole voting power but do not have investment power: Mr.
Barr, 21,000 shares; Mr. Baum, 128,000 shares; and all
directors and executive officers as a group, 149,000 shares.
(4) Includes, as of March 17, 1998, full shares represented by
units credited to the accounts of the following persons under
the Quaker State Thrift and Stock Purchase Plan: Mr. Barr,
3,842 shares; Mr. Baum, 2,496 shares; Mr. Bechtel, 3,155
shares; Mr. Conrad, 16,733 shares; Mr. Konney, 2,073 shares;
Mr. Myatt, 11,378 shares; and all directors and executive
officers as a group, 39,677 shares. The plan's trustee votes
these shares in accordance with directions received from the
plan's participants. Shares for which directions are not
provided by the plan's participants are voted in the same
proportions as shares for which votes have been received from
other participants.
(5) Includes shares held jointly by the following persons with
their spouses: Mr. Bechtel, 7,872 shares; Mr. Conrad, 15,334
shares; Mr. Grube, 20,000 shares; and all directors and
executive officers as a group, 43,206 shares.
(6) Does not include shares of deferred Stock held for the
following persons under the Directors' Plan, as of March 17,
1998: Mr. Fetterolf, 3,933 shares and Mr. Crandall, 2,218
shares.
(7) The Prudential Insurance Company of America ("Prudential") has
offices at 751 Broad Street, Newark, New Jersey 07102-3777.
According to the Schedule 13G dated February 10, 1998 received
by the Company, Prudential holds as of December 31, 1997 sole
voting and dispositive power over 5,600 shares, and shared
voting and dispositive power over 2,017,720 shares.
Prudential has indirect voting and investment discretion over
2,017,720 shares that are held for the benefit of its clients
by its separate accounts, externally managed accounts,
registered investment companies, subsidiaries and/or other
affiliates. All 2,023,320 shares were acquired in the
ordinary course of business and not with the purpose or effect
of changing or influencing control of Quaker State.
EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered in all capacities to
Quaker State and its subsidiaries for the last three calendar years to the
following persons: (i) Mr. Baum and (ii) the Company's four most highly
7
<PAGE> 11
compensated executive officers (other than Mr. Baum) who were serving as
executive officers on December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
------------------------------------ -------------------------
(a) (b) (c) (d) (e) (f) (g) (i)
OTHER
ANNUAL UNDERLYING
COMPEN- RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL SATION STOCK SARS COMPEN-
POSITIONS YEAR SALARY ($) BONUS ($) ($) AWARDS ($) (#) SATION ($)
(1) (2) (3) (6)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HERBERT M. BAUM 1997 700,008 243,600 -0- -0- 332,000 4,750
Chairman of the Board 1996 641,671 204,751 -0- 343,750(4) -0- 4,620
and Chief Executive Officer 1995 550,008 48,811 -0- -0- -0- 51,716
- -------------------------------------------------------------------------------------------------------------------------
JOHN D. BARR 1997 460,008 133,402 -0- -0- 159,000 61,852
President and Chief 1996 395,840 120,492 -0- -0- -0- 81,762
Operating Officer 1995 208,806 250,000 -0- 555,625(5) 167,500 243,647
- -------------------------------------------------------------------------------------------------------------------------
CONRAD A. CONRAD 1997 238,500 69,165 -0- -0- 50,000 11,895
Vice Chairman and Chief 1996 225,000 78,788 -0- -0- -0- 15,382
Financial Officer 1995 225,000 17,971 -0- -0- 12,000 26,207
- -------------------------------------------------------------------------------------------------------------------------
CHARLES F. BECHTEL 1997 225,000 53,663 -0- -0- 27,000 14,477
Vice President, Quaker State 1996 205,863 56,700 -0- -0- -0- 17,203
and President, Quaker State 1995 190,008 13,823 -0- -0- 7,500 67,793
Lubricants
- -------------------------------------------------------------------------------------------------------------------------
PAUL E. KONNEY 1997 225,000 58,725 -0- -0- 27,000 17,086
Senior Vice President, General 1996 200,004 71,701 -0- -0- -0- 37,106
Counsel and Secretary 1995 175,008 12,425 -0- -0- 12,000 52,071
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) This column represents base salary and includes any tax-deferred Section
401(k) contributions under the Company's Thrift and Stock Purchase Plan.
Mr. Barr's salary for 1995 is for the period from July 1, 1995, the date he
was employed by the Company, through the end of the year. This column does
not include performance units awarded as part of the 1997 Long-Term
Incentive Program awards. See "Long-Term Incentive Awards," below.
(2) The bonuses earned for 1997 were awarded under the Annual Incentive Bonus
Plan. The bonuses earned for 1996 were generally awarded under the Annual
Incentive Bonus Plan, except that Messrs. Conrad and Konney each also
received a discretionary Chairman's Award of $15,000. The bonuses earned
for 1995, except the bonus paid to Mr. Barr, were awarded under the Annual
Incentive Bonus Plan. For 1995, Mr. Barr received an incentive payment in
the amount of $150,000 in lieu of a bonus under the Annual Incentive Bonus
Plan and $100,000 to offset the loss of incentives from his prior employer,
as part of the terms of his employment.
(3) The dollar value of perquisites and other personal benefits did not exceed
the lesser of $50,000 or 10% of the total of salary and bonus for any of
the persons named for any of the years covered in the table.
(4) Mr. Baum received a performance-based award of 25,000 shares of restricted
stock under the 1994 Plan during 1996. The shares are valued at the
closing price ($13.75) of the Stock on the date of award, January 30, 1996.
The transferability and forfeiture restrictions on the shares lapse when
the price of the Stock is $18.00 or more per share for ten consecutive
trading days. The shares are forfeited if the restrictions have not lapsed
on or before January 30, 2001. Dividends have been and will be paid on the
restricted shares to the same extent paid on other shares of Stock. These
8
<PAGE> 12
dividends are held in an escrow account and will be forfeited if the
restrictions on the shares have not lapsed on or before January 30, 2001.
The shares awarded are valued in the table at the closing market price of
the Stock on the effective date of the award. Mr. Baum received
non-performance-based awards of 60,000 and 55,000 shares of restricted
stock during 1994 and 1993, respectively, pursuant to his Employment
Agreement. As of December 31, 1997, the transferability and forfeiture
restrictions with respect to 112,000 shares had lapsed. As to the
remaining 3,000 shares granted in 1993, the restrictions lapse on August
13, 1998. Mr. Baum received a performance-based award of 100,000 shares of
restricted stock under the 1994 Plan pursuant to his 1994 employment
agreement. The transferability and forfeiture restrictions on 33,333
shares will lapse if prior to August 1, 1999 the average closing price of
the Stock for any ten consecutive trading days (the "Threshold Price")
equals or exceeds $20 per share. The transferability and forfeiture
restrictions applicable to another 33,333 shares will lapse if prior to
August 1, 2000 the Threshold Price equals or exceeds $25 per share. The
transferability and forfeiture restrictions applicable to the remaining
33,334 shares will lapse if prior to August 1, 2002 the Threshold Price
equals or exceeds $30 per share. As of December 31, 1997, none of the
transferability and forfeiture restrictions had lapsed. The shares will be
forfeited if the average closing price is not reached on or before the date
specified for the restrictions to lapse. The restrictions on these awards
also lapse (i) upon the death of Mr. Baum, (ii) in the event he is
discharged without cause, (iii) in the event he resigns after being
notified that the term of his employment will not be extended or under
certain other circumstances or (iv) upon the occurrence of a change-of-
control event (as defined in Mr. Baum's Employment Agreement). All rights
to the shares also will terminate and be forfeited if Mr. Baum is
discharged for cause, resigns from employment without good reason or
violates a non- competition provision. Dividends have been and will be
paid on the restricted stock during the restriction periods to the same
extent paid on other shares of Stock. Dividends on restricted stock are
held in escrow and will be paid to Mr. Baum when the respective restriction
periods lapse. If the restricted shares are forfeited, the dividends held
in escrow also will be forfeited. As of December 31, 1997, the 128,000
shares on which the restrictions have not lapsed had an aggregate value of
$1,808,000. Mr. Baum has sole voting power with respect to the restricted
stock.
(5) Mr. Barr received a non-performance-based award of 35,000 shares of
restricted stock during 1995 under the 1994 Plan. The shares are valued in
the table at the closing market price ($15.875) of the Stock on July 26,
1995, the effective date of the award. The transferability and forfeiture
restrictions lapse with respect to 7,000 shares on July 26 in each of the
years 1996 through 2000. The restrictions also lapse (i) upon the death of
Mr. Barr, (ii) in the event he is discharged without cause or (iii) upon
the occurrence of a change-of-control event (as defined in the 1994 Plan).
All rights to the shares will terminate and be forfeited if Mr. Barr is
discharged for cause, resigns from employment without the Company's consent
or violates a non-competition provision. As of December 31, 1997, the
transferability and forfeiture restrictions with respect to 14,000 shares
had lapsed and there were 21,000 restricted shares remaining that had a
value of $296,625. Dividends have been and will be paid on the restricted
stock during the restriction period. Mr. Barr has sole voting power with
respect to the restricted shares.
(6) For 1997, this column includes: (i) $47,259, $7,145, $5,496 and $7,858 paid
to Messrs. Barr, Conrad, Bechtel and Konney, respectively, in connection
with their relocation to Texas; (ii) the following employer contributions,
allocations or credits for the accounts of the persons named in the table
under the Thrift and Stock Purchase Plan: Mr. Baum, $4,750; Mr. Barr,
$6,475; Mr. Conrad, $4,750; Mr. Bechtel, $4,750; and Mr. Konney, $4,750;
and (iii) the following premiums paid by the Company under split dollar
life insurance agreements: Mr. Barr, $8,118; Mr. Bechtel, $4,231; and Mr.
Konney, $4,478.
OPTION GRANTS
The following table sets forth as to the persons named in the Summary
Compensation Table additional information with respect to the stock options
granted during 1997, including the potential
9
<PAGE> 13
realizable value of the stock options assuming they are exercised at the end of
the option term and assuming 5% and 10% annual rates of stock price
appreciation (compounded annually) during the option term.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN 1997
- ----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM ($) (3)
GRANTED EMPLOYEES BASE PRICE EXPIRATION ----------- ------------
NAME (#) IN 1997 ($/SH) DATE 5% 10%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Herbert M. Baum 232,000 (1) 14.25 1/28/07 5,385,126.87 8,574,911.05
100,000 (2) 24.16 14.00 1/2/07 2,280,453.00 3,631,238.80
- ----------------------------------------------------------------------------------------------------------------------
John D. Barr 109,000 (1) 14.25 1/28/07 2,530,081.16 4,028,729.76
50,000 (2) 11.57 14.00 1/2/07 1,140,226.50 1,815,619.40
- ----------------------------------------------------------------------------------------------------------------------
Conrad A. Conrad 50,000 (1) 3.64 14.25 1/28/07 1,160,587.69 1,848,041.18
- ----------------------------------------------------------------------------------------------------------------------
Charles F. Bechtel 27,000 (1) 1.96 14.25 1/28/07 626,717.35 997,942.23
- ----------------------------------------------------------------------------------------------------------------------
Paul E. Konney 27,000 (1) 1.96 14.25 1/28/07 626,717.35 997,942.23
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Stock options granted under the 1994 Plan, as part of the 1997 Long-Term
Incentive Program, are non-statutory stock options, expire ten years from
the date of grant and became or will become exercisable as to 50% of the
shares awarded on December 31, 1997 and as to the remaining 50% of the
shares awarded on December 31, 1998. These stock options were granted at
100% of the fair market value of the Stock on the date of grant.
(2) Stock options were granted under the 1994 Plan, are non-statutory stock
options, expire ten years from the date of grant and became exercisable on
the date of grant. These stock options were granted at 100% of the fair
market value of the Stock on the date of grant.
(3) The assumed 5% and 10% annual rates of stock price appreciation do not
reflect recent annual rates of appreciation of the Stock and are not
intended to forecast possible future stock price appreciation.
OPTION/SAR EXERCISES AND VALUES
The following table sets forth as to the persons named in the Summary
Compensation Table the number of shares of Stock acquired upon the exercise of
stock options during 1997, the value realized from such exercises, the number
of shares covered by unexercised stock options held at December 31, 1997 and
the value of unexercised in-the-money stock options at December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND 1997 YEAR-END OPTION/SAR VALUES
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT 1997 YEAR END (#) (1) AT 1997 YEAR END ($) (2)
ON EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Herbert M. Baum -0- -0- 424,500 177,500 283,340 34,798
- -------------------------------------------------------------------------------------------------------------------
John D. Barr -0- -0- 272,000 54,500 10,940 0
- -------------------------------------------------------------------------------------------------------------------
Conrad A. Conrad -0- -0- 88,000 25,000 94,940 0
- -------------------------------------------------------------------------------------------------------------------
Charles F. Bechtel -0- -0- 45,000 13,500 14,626 0
- -------------------------------------------------------------------------------------------------------------------
Paul E. Konney -0- -0- 45,500 13,500 14,626 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Alternative stock appreciation rights were granted in conjunction with
all stock options granted prior to 1992. Alternative stock
appreciation rights, all of which are presently exercisable, have been
granted to Mr. Conrad in conjunction with stock options for 38,500
shares.
(2) The value is the aggregate amount by which the fair market value of
the shares covered by in-the-money stock options at December 31, 1997
($14.2188 per share) exceeded the exercise price of such stock
options.
10
<PAGE> 14
LONG-TERM INCENTIVE AWARDS
The following table sets forth as to the persons named in the Summary
Compensation Table information with respect to the long-term incentive awards
made during 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLAN AWARDS IN 1997
- -----------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE
PERFORMANCE OR OTHER PAYOUTS UNDER NON-
NUMBER OF PERIOD UNTIL STOCK-PRICE-BASED PLANS
SHARES, UNITS OR MATURATION OR --------------------------------------------
NAME OTHER RIGHTS (#) PAYMENT THRESHOLD ($) TARGET ($) MAXIMUM ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Herbert M. Baum 805,921 12/31/98 and/or 99 402,960.50 805,921 1,208,881.50
- -----------------------------------------------------------------------------------------------------------------------
John D. Barr 378,947 12/31/98 and/or 99 189,473.50 378,947 568,420.50
- -----------------------------------------------------------------------------------------------------------------------
Conrad A. Conrad 174,342 12/31/98 and/or 99 87,171.00 174,342 261,513.00
- -----------------------------------------------------------------------------------------------------------------------
Charles F. Bechtel 94,737 12/31/98 and/or 99 47,368.50 94,737 142,105.50
- -----------------------------------------------------------------------------------------------------------------------
Paul E. Konney 94,737 12/31/98 and/or 99 47,368.50 94,737 142,105.50
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Performance units were awarded to each of the persons listed in the Summary
Compensation Table on January 28, 1997. Performance units represent 40% of the
1997 Long-Term Incentive Program awards, and the options described in the
option grant table on page 10 constitute the other 60% of the program awards.
Performance units are based on improvement in the Company's total shareholder
return ("TSR") over a three-year period compared to the average TSR of the "Old
Peer Group," as defined in the Stockholder Return Performance Graph. Each year
a new three-year performance cycle begins. The first cycle began on January 1,
1997 and ends on December 31, 1999. The award payout ranges from 0% to 150% of
the unit value based on achievement of specified levels of improvement of the
Company's TSR compared to the Old Peer Group's average TSR. The target for
improvement of the Company's TSR compared to the Old Peer Group's average TSR
is a range of 0% to 1%. If the target for improvement is achieved, the payout
equals 100% of the performance units awarded. If the target for improvement is
achieved at December 31, 1999, each performance unit will be worth $1.00. To
receive the minimum payment under the performance unit award, the threshold for
improvement of the Company's TSR compared to the Old Peer Group's average TSR
is a range of -2% to 0%. If the threshold is achieved at December 31, 1999,
each performance unit will be worth $.50. To receive the maximum payment under
the performance unit award, the improvement of the Company's TSR compared to
the Old Peer Group's average TSR must be greater than 5%. If the maximum is
achieved at December 31, 1999, each performance unit will be worth $1.50. In
addition, 50% of the value of the performance units may be earned if the target
for improvement is achieved at December 31, 1998, and any amount paid for
performance through December 31, 1998 will be offset against any amount to be
paid out at December 31, 1999.
EMPLOYMENT, BENEFITS, AND CHANGE-OF-CONTROL ARRANGEMENTS AT DECEMBER 31, 1997
Baum Employment Agreement. Mr. Baum is employed under an Employment
Agreement, which was amended and restated during 1994 and further amended in
1996. The Employment Agreement also was amended in 1997 to (a) reflect Mr.
Baum's new salary, (b) provide for a 60% bonus opportunity for services
performed during 1997 and 1998, (c) add the 1996 restricted stock award, (d)
extend the expiration date by one year for each restricted stock award with
restrictions based on the price of the Stock, (e) provide for two additional
stock option grants of 100,000 shares each on January 2, 1997 and January 2,
1998 and (f) provide certain terms and benefits in the event of a change of
control of Quaker State to be consistent with the Employment Continuation
Agreements, described hereafter. Effective January 1, 1998, Mr. Baum's
Employment Agreement was amended to (a) extend the agreement's term from July
31, 1998 to December 31, 1998, (b) change the three one-year renewal period
dates from August 1, 1998, August 1, 1999 and August 1, 2000 to January 1,
1999, January 1, 2000 and January 1, 2001, (c) increase his annual
Severance/Retirement Amount from $200,000 to $300,000, (d) provide for the
gross-up of payments to cover taxes on excess parachute payments associated
with the benefits paid under the agreement in the event of a change of control,
consistent with changes made to the Employment Continuation Agreements
described hereafter, and (e) change the governing law under the agreement from
the law of the Commonwealth of Pennsylvania to the law of the State of
Delaware. The
11
<PAGE> 15
Employment Agreement provides for Mr. Baum's employment as Chief Executive
Officer for calendar year 1998 at a base salary of $750,000. The term of the
agreement is extended automatically for one additional year as of January 1,
1999 and on each anniversary date thereafter through January 1, 2001 unless, no
later than 90 days prior to any renewal date, either the Board of Directors or
Mr. Baum gives written notice to the other that the agreement is not to be
extended.
The Employment Agreement provides that Mr. Baum is entitled to participate in
the same cash bonus and incentive plans and arrangements that are applicable to
other executive officers of Quaker State unless the Organization and
Compensation Committee approves a different arrangement no less favorable to
Mr. Baum. The agreement also provides that Mr. Baum is entitled to participate
in the Company's various retirement, welfare, fringe benefit and executive
perquisite plans, programs and arrangements to the extent he is eligible for
participation and to receive certain other personal benefits.
The Employment Agreement provides that Mr. Baum's employment will terminate
in the event of (i) death or disability, (ii) discharge for cause, (iii)
discharge without cause or (iv) resignation. In the event the agreement
terminates by reason of death or discharge for cause, Mr. Baum will only be
entitled to receive accrued compensation and benefits. In the event the
agreement terminates by reason of disability, discharge without cause or
resignation, Mr. Baum, in addition to accrued compensation and benefits, will
be entitled to receive until his death a monthly severance/retirement payment,
calculated as of the date of termination, which is the monthly equivalent of a
$300,000 annual benefit reduced by the actuarial equivalent of (i) Mr. Baum's
projected primary social security amount and (ii) the benefits payable to Mr.
Baum under all tax qualified retirement plans maintained by the Company. The
severance/retirement payments will be suspended during any period in which Mr.
Baum is an employee or independent contractor of another company with a rate of
compensation equal to or in excess of $16,667 per month and, in the event of
Mr. Baum's disability, the payment will be reduced dollar for dollar by the
amount of disability benefits, if any, paid to Mr. Baum in accordance with any
disability policy or program of Quaker State.
In the event Mr. Baum is discharged without cause or resigns with good reason
at any time within two years following the date that a change of control as
defined in the Employment Agreement occurs, the agreement provides that in
addition to the other amounts payable under the agreement, Mr. Baum will be
entitled to receive for a period of three years from the date of termination
his base salary and an annual bonus equal to his target bonus for the calendar
year in which the date of termination occurs.
The Employment Agreement contains a non-competition and non-solicitation
agreement by Mr. Baum, which covers the period of his employment under the
agreement and the three years after any termination of employment.
Barr Employment Arrangement. In July 1995, Mr. Barr was employed as
President and Chief Operating Officer of Quaker State at a base salary of
$375,000 per year, to be reviewed annually, with a 1995 bonus of $150,000 and
participation in the Company's Annual Incentive Bonus Plan at a target bonus of
45% of base salary commencing in 1996. Quaker State agreed that in the event
Mr. Barr's employment was terminated without cause or as a result of mutual
agreement between the Company and Mr. Barr, Mr. Barr would be paid a severance
benefit equal to his base salary for two years, conditioned upon his agreement
to protect the confidentiality of corporate information and not to be employed
by any organization in competition with Quaker State for two years. At any
time after December 1, 1998, Mr. Barr has the right to terminate his employment
unilaterally and receive the severance benefit subject to the same
confidentiality and non-competition requirements. Mr. Barr also is entitled to
certain supplemental retirement benefits (see "Supplemental Retirement
Benefits" below).
Employment Continuation Agreements. During 1995, Quaker State entered into
Employment Continuation Agreements with a number of key executives, including
Messrs. Barr, Conrad, Bechtel and Konney but not including Mr. Baum. The
agreements provide for the continued employment of the executives for a period
of two years following a change of control as defined in the agreements. Under
the agreements, during this two-year period, the executive's position,
authority and responsibilities shall be at least commensurate with those held,
exercised and assigned immediately prior to the change of
12
<PAGE> 16
control, and the executive shall receive a base salary at a monthly rate at
least equal to the monthly salary paid to the executive immediately prior to
the change of control. The executive also shall be afforded the opportunity to
receive an annual bonus on terms no less favorable to the executive than the
annual bonus opportunity that had been available to the executive for the
calendar year ended immediately prior to the change of control. During the
employment period, the executive also shall be entitled to participate in all
long-term incentive compensation programs and employee benefit plans at
essentially the same levels as prior to the change of control.
The Employment Continuation Agreements provide that if the executive's
employment terminates during the employment period by reason of death or
disability, the executive or his beneficiary or estate shall be entitled to
accrued compensation and benefits as well as any additional benefits payable
due to death or disability under Quaker State's plans, policies or programs.
The executive also is entitled to accrued compensation and benefits if the
executive's employment is terminated during the employment period for cause or
the executive voluntarily terminates his employment during such period other
than for good reason (as defined in the Employment Continuation Agreement).
However, if during the employment period the Company terminates the executive's
employment other than for cause, or if, following a change of control, the
executive terminates his employment for good reason, the agreements provide
that the Company will pay the executive, in addition to accrued compensation
and benefits, cash amounts equal to (i) three times the sum of (a) the
executive's annual base salary and (b) the average of the bonuses payable to
the executive for the three calendar years ending immediately prior to the
change of control and (ii) the present value of the additional retirement
benefits that would have been payable to the executive under Quaker State's
Pension Plan or any supplemental retirement arrangements had the executive
remained in employment until the expiration of the employment period.
In the event any amount paid to an executive under an Employment Continuation
Agreement would be an "excess parachute payment" as defined in the Internal
Revenue Code (the "Code"), the amount payable under the agreement may be
subject to a special excise tax. During 1997, the Employment Continuation
Agreements were amended and restated to provide for the gross-up of any amount
subject to taxes on excess parachute payments so that the benefits of the
agreement to the named Executive Officers will not be reduced. In addition,
Mr. Conrad's agreement was further amended in 1998 to provide that his
incremental retirement benefit following a change of control would be
determined as of the later of his having attained age 55 or the expiration of
the employment period, instead of the expiration of the employment period as
provided in the other Employment Continuation Agreements.
Rabbi Trust. In July 1996 the Company established a "Rabbi Trust", which is
intended to be a grantor trust under Section 671 of the Code. The Rabbi Trust
may be funded by the Company at any time but is required to be funded upon a
"Threatened Change in Control" or upon a "Change in Control" (as such terms are
defined in the related Trust Agreement) in an amount sufficient to provide for
the payment of non-employee directors' retirement benefits; all benefits
provided under the 1996 Directors' Fee Plan, the Employment Continuation
Agreements and Mr. Baum's employment agreement, as amended; and severance
benefits under Mr. Barr's letter agreement and the Supplemental Executive
Retirement Plan Agreements (see "Supplemental Retirement Benefits" elsewhere in
this Proxy Statement). The Rabbi Trust also will provide funds for the cost of
litigation on behalf of the participants in such plans or agreements to the
extent necessary to ensure their rights thereunder. The Rabbi Trust is a trust
of which the Company, for tax purposes, is the beneficiary and the trust
assets, as assets of the Company, will be subject to the claims of the
Company's creditors in the event of the Company's bankruptcy or insolvency.
Other Severance Benefits. Since 1988, Quaker State has had a severance plan
(the "Severance Plan") under which eligible employees are entitled to a
severance allowance in the event of termination of employment following a
change of control (as defined in the Severance Plan). All non-union, full-time
salaried employees and all non-union, full-time hourly employees of Quaker
State and its domestic subsidiaries are entitled to participate. Under the
Severance Plan, an eligible employee whose employment is terminated by employer
action other than for cause following a change of control or who resigns under
certain circumstances following a change of control is entitled to a severance
allowance equal to two weeks' earnings for each full year the employee has been
employed plus earned but unused vacation pay, to a maximum of two years of
earnings. For purposes of determining the severance
13
<PAGE> 17
allowance, an employee's earnings include his or her regular rate of salary for
the calendar year in which the change of control occurs plus bonuses earned for
the preceding calendar year, reduced to a weekly average; provided, however,
that if such earnings for the calendar year in which the termination occurs are
higher, the higher earnings are used. Participation in any pension or medical
plan in which the employee participated at the time of termination of
employment continues during the severance allowance payment period. The
Severance Plan may not be amended or terminated for three years following a
change of control. All of the executives named in the Summary Compensation
Table are entitled to participate in the Severance Plan, and the benefits
provided under the Severance Plan would be in addition to their severance and
similar benefits described elsewhere in this Proxy Statement.
Quaker State also has a Severance Pay Plan for Salaried and Hourly Non-Union
Employees which covers substantially all its salaried employees and which
provides for severance benefits in the event the Company reduces the work
force, eliminates the covered employee's position or closes or sells the
facility at which the covered employee is employed and the covered employee is
not offered employment by the purchaser of the facility. The payments under
this plan are equal to one week of base salary multiplied by years of service.
None of the persons named in the Summary Compensation Table above could receive
severance payments in excess of $100,000 under this plan, and payments under
this plan are not made if payments are made under the Severance Plan.
Pension Benefits. The Quaker State Pension Plan (the "Pension Plan") covers
substantially all the Company's salaried employees whose employment commenced
prior to March 1, 1998. The Pension Plan is a non-contributory, defined benefit
plan providing for pensions based upon years of service and average annual base
salary for the thirty-six consecutive months of highest earnings in the last
ten years of service. Pension benefits become vested after five years of
service.
There are separate benefit formulas for employees with five or more years of
service as of March 1, 1993 ("Class I Participants") and for employees who did
not have five years of service as of March 1, 1993 ("Class II Participants").
Pension Plan Tables I and II below present the estimated annual retirement
benefits under the Pension Plan under both formulas for the average annual base
salary and years of service indicated, on the assumptions that full retirement
benefits will be payable and that the benefits will be paid in the form of a
single life annuity.
Pension Plan Table I provides information for Class I Participants who
receive credit for up to 30 years of service. The pension for these
participants is reduced by up to 66% of the employee's primary social security
benefit, but the retirement benefits shown do not reflect the deduction. Mr.
Conrad is a Class I Participant.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PENSION PLAN TABLE I
- ---------------------------------------------------------------------------------------------------------
AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE INDICATED ($)
ANNUAL -----------------------------------------------------------------------------
BASE SALARY ($) 10 YR. 15 YR. 20 YR. 25 YR. 30 YR.
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100,000 27,500 41,250 55,000 60,000 65,000
- ---------------------------------------------------------------------------------------------------------
150,000 41,250 61,875 82,500 90,000 97,500
- ---------------------------------------------------------------------------------------------------------
200,000 55,000 82,500 110,000 120,000 130,000
- ---------------------------------------------------------------------------------------------------------
250,000 68,750 103,125 137,500 150,000 162,500
- ---------------------------------------------------------------------------------------------------------
300,000 82,500 123,750 165,000 180,000 195,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Pension Plan Table II provides information for Class II Participants who
receive credit for up to 35 years of service. The retirement benefit for these
participants is equal to a percentage of average annual base salary plus an
additional percentage of the amount by which average annual base salary exceeds
average annual social-security-covered compensation for the year of the
employee's termination of employment or retirement, whichever is earlier, and
the preceding 34 years. The retirement benefits
14
<PAGE> 18
shown in Table II are rounded to the nearest hundred, and are based on average
annual social-security-covered compensation for the 35-year period through and
including 1997. Messrs. Baum, Barr, Bechtel, and Konney are Class II
Participants.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PENSION PLAN TABLE II
- ---------------------------------------------------------------------------------------------------------
AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE INDICATED ($)
ANNUAL ----------------------------------------------------------------------------------
BASE SALARY ($) 5 YR. 10 YR. 15 YR. 20 YR. 25 YR. 30 YR.
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
200,000 14,700 29,400 44,200 58,900 73,600 88,300
- ---------------------------------------------------------------------------------------------------------
250,000 18,600 37,200 55,800 74,400 93,000 111,600
- ---------------------------------------------------------------------------------------------------------
300,000 22,500 44,900 67,400 89,900 112,400 134,800
- ---------------------------------------------------------------------------------------------------------
350,000 26,300 52,700 79,000 105,400 131,700 158,100
- ---------------------------------------------------------------------------------------------------------
400,000 30,200 60,400 90,700 120,900 151,100 181,300
- ---------------------------------------------------------------------------------------------------------
450,000 34,100 68,200 102,300 136,400 170,500 204,600
- ---------------------------------------------------------------------------------------------------------
500,000 38,000 75,900 113,900 151,900 189,900 227,800
- ---------------------------------------------------------------------------------------------------------
550,000 41,800 83,700 125,500 167,400 209,200 251,100
- ---------------------------------------------------------------------------------------------------------
600,000 45,700 91,400 137,200 182,900 228,600 274,300
- ---------------------------------------------------------------------------------------------------------
650,000 49,600 99,200 148,800 198,400 248,000 297,600
- ---------------------------------------------------------------------------------------------------------
700,000 53,500 106,900 160,400 213,900 267,400 320,800
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Base salary is the only compensation taken into account for the purpose of
determining the benefits under the Pension Plan. The salary reflected in the
Summary Compensation Table for Mr. Conrad for the last three years is the
salary which would have been taken into account had his service terminated on
December 31, 1997 with 23 years of service. As of that date, Messrs. Baum,
Barr, Bechtel and Konney had fifty-four months, thirty months, forty nine
months and forty months of service, respectively.
Sections 401(a)(17) and 415 of the Code limit, respectively, the amount of
compensation which may be used in calculating pension benefits and the maximum
amount of annual benefits which may be paid under tax-qualified retirement
plans such as the Pension Plan. Quaker State has a Supplemental Excess
Retirement Plan which authorizes the payment from general funds of the Company
of any benefits calculated under the provisions of the Pension Plan that may be
above the limits under these sections.
The Pension Plan provides that if it is terminated within three years
following a change of control (as defined in the Pension Plan) and if upon such
termination there exist excess Pension Plan assets, then all active
participants in the Pension Plan who are not otherwise vested will become fully
vested, and any excess assets will be allocated among all (i) active
participants, (ii) retirees who began receiving benefits under the Pension Plan
at the time of termination of their employment and (iii) beneficiaries of the
foregoing proportionately on the basis of their respective benefits payable
under the Pension Plan as of its termination date. This provision of the
Pension Plan may not be amended for three years following a change of control.
Supplemental Retirement Benefits. Mr. Baum will be entitled to monthly
severance/retirement payments under certain circumstances as described under
"Baum Employment Agreement" above. Any such payments will be subject to
reduction in the event Mr. Baum becomes entitled to pension benefits under the
Pension Plan.
At the time of the employment of Mr. Barr, the Company agreed to provide Mr.
Barr with monthly supplemental retirement benefits in the event of his
retirement at or after age 50 at the request of the Company for reasons other
than cause or as a result of mutual agreement between Mr. Barr and the Company.
Under the Supplemental Executive Retirement Plan arrangement with Mr. Barr, he
will be entitled to receive a supplemental retirement benefit, payable in the
form of a single life annuity, which when combined with any pension to which he
may be entitled under the Pension Plan, will result in an annual pension
benefit of $150,000 should he retire at ages 50 through 54, $200,000 should he
retire at age 55 and 50% of base salary (but not less than $200,000) should he
retire at or after age 56. Other payment options are available. The
supplemental retirement benefits will terminate on the earlier of Mr. Barr's
death, his failure during the first three years of his retirement to protect
the confidentiality of corporate information or his commencement of employment
with a competing organization; provided, however, that the supplemental
retirement payments will continue after Mr. Barr's death if the form of
15
<PAGE> 19
payment which Mr. Barr elects so provides. The monthly payments will be
actuarially reduced if the form of payment is other than a single life annuity.
Under the arrangement, surviving spouse benefits also are available should Mr.
Barr die before retirement while employed by the Company. The supplemental
retirement benefits payable to Mr. Barr are not subject to reduction during any
period when he is receiving severance payments as described under "Barr
Employment Arrangement" above.
Quaker State also has agreed to provide Mr. Bechtel with monthly supplemental
retirement benefits in the event of his retirement at or after age 60 at the
request of the Company for reasons other than cause or as a result of mutual
agreement between Mr. Bechtel and the Company. Under the Supplemental Executive
Retirement Plan arrangement with Mr. Bechtel, he will be entitled to receive a
supplemental pension, payable in the form of a single life annuity, which, when
combined with any pension to which he may be entitled under the Pension Plan
and the pension plan of a previous employer, will result in an annual pension
benefit of $100,000 prior to age 65, and which, when combined with such
pensions and the annual amount of his social security benefits, will result in
an annual pension benefit of $100,000 after age 65. The supplemental pension
benefits will terminate at his death.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, Quaker State retained FCB Advertising, Inc. to provide
advertising agency services. FCB Advertising, Inc. is owned by True North
Communications, Inc. Ms. Cutler was the Vice Chairman of FCB Advertising, Inc.
and a Director of True North Communications, Inc. until December 1997. Quaker
State paid FCB Advertising, Inc. $14.85 million for advertising and services in
1997. The Company believes that the rates negotiated for these services are
comparable to rates that would be paid for similar services from unrelated
third parties.
Northern Trust Bank of Florida, as trustee under a trust for the benefit of
Mr. Ross's three children, leases warehouse and office space in Miami, Florida
to the Company. The annual rental for such space is $104,016 plus a portion of
the taxes and insurance expense. The lease expires on August 31, 1999 but
includes an option to renew through August 31, 2002. Total rent paid in 1997
was $121,504. The Company believes that the rates negotiated under this lease
are comparable to rates for similar transactions with unrelated third parties.
M&O Properties, LP, a limited partnership of which Mr. Myatt owns 70%, leases
warehouse space located in Wichita Falls, Texas to the Company. The lease runs
until May 31, 2006 with the Company paying the insurance and property taxes on
the property. The rent paid during 1997 amounted to $119,482. The Company
believes that the rates negotiated under this lease are comparable to rates for
similar transactions with unrelated third parties.
Double M Properties, a limited liability company of which Mr. Myatt owns 50%,
also leases warehouse and office space to the Company at various locations in
Louisiana, Mississippi, and Arkansas. The rent paid during 1997 amounted to
$319,645 plus taxes. The Double M Properties leases were entered into before
Quaker State acquired Specialty Oil Company and Westland Oil Company and expire
in 2004. The Company believes that the rates negotiated under these leases are
comparable to rates for similar transactions with unrelated third parties.
Westland Oil Company purchases special quality naphthenic lubricant base
stocks from Calumet Lubricants Co., of which Mr. Grube is president. The
amount of such purchases in 1997 was $709,177. The purchases were made at
prices comparable to those paid for naphthenic lubricant base stocks purchased
from unrelated parties. During 1997, naphthenic lubricant base stocks were not
available at competitive prices under Quaker State's main supply agreement for
paraffinic lubricant base stocks.
16
<PAGE> 20
ORGANIZATION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Mr. Haselton (Chairman), Ms. Cutler, Dr. Gardner and Messrs. Fetterolf and
Waxlax were members of the Organization and Compensation Committee during 1997.
All members of this Committee are and have been non-employee directors.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Organization and Compensation Committee. During 1997, Quaker State retained
FCB Advertising, Inc. to provide advertising agency services. FCB Advertising,
Inc. is owned by True North Communications, Inc. Ms. Cutler was the Vice
Chairman of FCB Advertising, Inc. and a Director of True North Communications,
Inc. until December 1997. Quaker State paid FCB Advertising, Inc. $14.85
million for advertising and services in 1997. The Company believes that the
rates negotiated for these services are comparable to rates that would be paid
for similar services from unrelated third parties.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Organization and Compensation Committee (the "Committee") has
responsibility for setting the Company's policy with respect to executive
compensation. The Committee reviews and approves the base salaries, bonuses,
long-term incentive compensation and employee benefits of the Company's
executive officers and other key executives.
Compensation Philosophy. Quaker State's executive compensation program is
designed to (a) recognize individual performance through base pay competitive
with base pay at other comparably sized companies, (b) reward the collective
efforts of the executive management team through highly leveraged variable
incentive compensation, (c) provide each executive with an equity stake in the
Company, (d) align the efforts of key employees with the goals of the Company's
stockholders, (e) link long-term financial security for executives with total
stockholder return and outstanding business performance relative to the
Company's peers, (f) encourage actions and decisions that add value to the
Company and support the Company's business strategy and (g) promote creativity
and appropriate risk-taking. Awards under the 1994 Plan and 1997 Long-Term
Incentive Program are designed to promote retention and provide significant
compensation and incentives for executive officers and other key executives
based on the performance of the Company's Stock.
An independent compensation consultant provides the Committee and Company
management with data on compensation at companies of similar size in general
industry. The Company generally sets each element of compensation at the median
of competitive practice. Typically, the Company does not use competitive
compensation data from all of the companies comprising the peer group for the
Stockholder Return Performance Graph included in this Proxy Statement.
1997 CEO Compensation Package. Mr. Baum's Employment Agreement, as amended in
1997, provides for the basic elements of his compensation. For calendar year
1997, Mr. Baum's base salary was increased from $650,000 to $700,000 to make it
more consistent with competitive practice, as recommended by the independent
compensation consultant. For 1997, Mr. Baum participated in the Company's
Annual Incentive Bonus Plan with a target bonus of 60% of his base salary
payable upon the achievement of certain performance goals established by the
Committee. Mr. Baum's bonus of $243,600 reflected 50% attainment of the goal
of improving corporate economic value added ("EVA") by a specified amount,
which accounted for 40% of the bonus formula, and 63% attainment of the
Earnings Per Share ("EPS") goal, which accounted for the other 60% of the bonus
formula (see "Annual Incentive Bonus Plan," below). As a separate element of
his incentive compensation, Mr. Baum received a grant, on January 2, 1997, of a
non-qualified stock option for the purchase of 100,000 shares of the Company's
Stock. This option was granted under the 1994 Plan at the fair market value of
$14.00 per share on the date of grant. The option vested immediately and
expires ten years from the date of grant. In addition,
17
<PAGE> 21
on January 28, 1997, the Committee awarded Mr. Baum a non-qualified stock
option for the purchase of 232,000 shares of the Company's Stock and 805,921
performance units under the 1997 Long-Term Incentive Program. The option was
granted at the fair market value of $14.25 per share on the date of grant and
vested or will vest, as to one-half the shares granted, on each of December 31,
1997 and December 31, 1998. The option will expire if it has not been
exercised before January 29, 2007. The option comprises 60% of Mr. Baum's
award under the 1997 Long-Term Incentive Program, and the Performance Units
comprise the remaining 40% of the award. The Performance Units will vest if
the Company's TSR meets a threshold amount when measured against the average
TSR of the Company's Old Peer Group (as defined in the "Stockholder Return
Performance Graph" on page 19) for the three-year period ending December 31,
1999 (see "Long-Term Incentive Compensation," below). In accordance with the
Committee's policy, Mr. Baum's compensation depends in large measure on
improvements in corporate performance and increased stockholder value.
Annual Incentive Bonus Plan. In 1997, the performance goals established by
the Committee for all executive officers were specified increases in EVA and
EPS. The maximum bonus as a percent of base salary for each executive was 50%
for Messrs. Barr and Conrad, and 45% for Messrs. Bechtel and Konney. For
Messrs. Barr, Conrad and Konney, 60% of the bonus formula was based on the EPS
goal, and the other 40% was based on the EVA goal. For Mr. Bechtel, 20% of the
bonus formula was based on the EPS goal, 50% was based on operating profits in
the Lubricants and Lubricant Services segment only and 30% was based on an EVA
goal for the Lubricants and Lubricant Services segment only. The performance
goals were designed by the Committee to provide cash incentives for improved
corporate performance.
Long-Term Incentive Compensation. Long-term incentive compensation may be
granted under Quaker State's 1997 Long-Term Incentive Program. The program was
designed to attract and retain outstanding management talent and to help focus
management's attention on long-term goals that will lead to the financial
success of the Company, while linking rewards to total shareholder return. As
part of the program, non-qualified stock options and performance units were
granted to each of the named executive officers and other key officers on
January 28, 1997. The options were granted under the 1994 Plan at the fair
market value of $14.25 per share on the date of grant. The options vest as to
one-half of the shares granted on each of December 31, 1997 and December 31,
1998. The options will expire if they have not been exercised on or before
January 29, 2007. Options for 109,000, 50,000, 27,000, and 27,000 shares were
granted to Messrs. Barr, Conrad, Bechtel and Konney, respectively. These
options represent 60% of the awards under the 1997 Long-Term Incentive Program.
The other 40% of the awards consists of performance units. Performance units
are based on improvement in the Company's TSR over a three-year period compared
to the average TSR of the Old Peer Group. Each year a new three-year
performance cycle begins. The first cycle began January 1, 1997 and ends
December 31, 1999. The number of performance units awarded were 378,947,
174,342, 94,737 and 94,737 to Messrs. Barr, Conrad, Bechtel and Konney,
respectively. The award payout ranges from 0% to 150% of the unit value based
on achievement of specified levels of improvement of the Company's TSR compared
to the Old Peer Group's average TSR. The target for improvement of the
Company's TSR over the Old Peer Group's average TSR is a range of 0% to 1%. If
the target for improvement is achieved at December 31, 1999, the payout will
equal 100% of the performance units awarded, each performance unit will be
worth $1.00 and the payout will be $378,947, $174,342, $94,737 and $94,737 to
Messrs. Barr, Conrad, Bechtel and Konney, respectively. In addition, if the
target for improvement is achieved at December 31, 1998, the payout will equal
50% of the performance units awarded, and any amount paid at December 31, 1998
will be offset against any amount to be paid at December 31, 1999. See
"Long-Term Incentive Awards," above, for further information.
Share Ownership Requirement. During 1993, the Committee established minimum
share ownership goals for Quaker State's executive officers. The goals were
revised during 1996. By June 30, 1999, the Chief Executive Officer, the Chief
Operating Officer and the Vice Chairman are expected to achieve beneficial
ownership of shares of the Company's Stock having a fair market value
equivalent to at least two times their annual base salaries ("beneficial
ownership" for purposes of these requirements excludes exercisable options and
shares purchased in the Company's benefit plans with Company contributions).
18
<PAGE> 22
The other executive officers are expected to achieve beneficial ownership of
shares having a value equal to or greater than their annual base salaries.
Code Section 162(m). In general, the Committee will set executive
compensation with due consideration of the requirements for deductibility under
Section 162(m) of the Code, which may limit the deductibility of annual
compensation in excess of $1 million for certain executives. However, under
appropriate circumstances and when merited by individual performance, the
Committee may authorize compensation that may not be fully deductible by the
Company. In recognition of Mr. Baum's contribution to the Company, the
Committee has established his compensation at a level at which a portion of his
annual compensation may not be deductible under Section 162(m).
General. The Committee intends to continue to structure the Company's
executive compensation so that a significant portion of compensation will be
tied to objective standards of corporate performance and increased stockholder
value.
Forrest R. Haselton, Chairman Thomas A. Gardner
Laurel Cutler Lorne Waxlax
C. Frederick Fetterolf
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder returns over
the years 1993 through 1997 of (i) the Stock, (ii) the Standard and Poor's 500
Stock Index, (iii) a peer group of companies selected by Quaker State ("Old
Peer Group") and (iv) a new peer group of companies selected by Quaker State
("Peer Group"). The performance graph assumes that $100 was invested on
January 1, 1993 in the Stock, the index group, the Old Peer Group and the Peer
Group, and that all dividends were reinvested.
The Old Peer Group is composed of certain petroleum refiners and marketers,
and certain companies specializing in the marketing of branded consumer
products: Ashland Inc., First Brands Corporation, Monro Muffler Brake, Inc.,
Pennzoil Company, Quaker State, Sun Company, Inc., WD-40 Company, Witco
Corporation and Wynn's International, Inc. The Old Peer Group was selected
from a group of oil-related and marketing companies. The companies were
included in a research report prepared for Quaker State.
The Peer Group is composed of: Ashland Inc., Ethyl Corporation, First Brands
Corporation, Lubrizol Corporation, Monro Muffler Brake, Inc., Pennzoil Company,
Quaker State and WD-40 Company. The Peer Group was selected from a group of
automotive after-market consumer product companies toward which Quaker State is
positioning itself. Wynn's International, Inc. was removed because its market
capitalization is smaller than Quaker State's. Sun Company, Inc. was omitted
because it had significant refinery interests and Quaker State sold its last
remaining oil refinery during 1997. Witco Corporation was deleted because it
sold its motor oil business interests in 1997. Lubrizol Corporation and Ethyl
Corporation were added to the Peer Group since they have comparable market
capitalization and are oil additive companies to which Quaker State is compared
by financial analysts.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE S&P 500 STOCK INDEX AND THE PEER GROUP
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR 1 - 1993 YEAR 2 - 1994 YEAR 3 - 1995 YEAR 4 - 1996 YEAR 5 - 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 $110.08 $111.53 $153.45 $188.68 $251.63
- ----------------------------------------------------------------------------------------------------------------------
OLD PEER GROUP $118.90 $115.16 $123.06 $145.68 $189.99
- ----------------------------------------------------------------------------------------------------------------------
PEER GROUP $103.52 $ 94.10 $ 97.78 $115.72 $131.83
- ----------------------------------------------------------------------------------------------------------------------
QUAKER STATE CORPORATION $122.08 $131.39 $123.08 $138.67 $143.65
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 23
(PROXY GRAPH)
20
<PAGE> 24
ITEM 2
APPROVAL OF
NON-EMPLOYEE DIRECTOR
RESTRICTED STOCK AWARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
In May 1997, the Board of Directors of Quaker State approved, subject to
stockholder approval and determination of an appropriate formula, an award of
restricted stock to the eligible non-employee directors in lieu of the
Retirement Benefit previously provided. See "Retirement Benefit," above. In
February 1998, the Board of Directors approved a formula devised by an
independent consulting actuary. The following eight non-employee directors are
eligible for this award: Ms. Cutler, Dr. Gardner and Messrs. Carroll,
Fetterolf, Grube, Haselton, Ross and Waxlax (the "Eligible Directors").
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE NON-EMPLOYEE DIRECTOR RESTRICTED
STOCK AWARD. Unless otherwise directed in your proxy, your shares of Stock
will be voted FOR approval of the Non-Employee Director Restricted Stock Award.
The principal features of the Non-Employee Director Restricted Stock Award
are summarized below. A copy of the proposed agreement is attached as Appendix
A (the "Agreement").
GENERAL
Among the purposes of the restricted stock award are to retain highly
qualified non-employee directors and to provide equity ownership in lieu of a
cash retirement benefit, in order to align the interests of directors more
closely with those of the Company's stockholders. See the description of the
directors' prior retirement benefit under "Retirement Benefit," above.
The aggregate number of shares which may be issued under the Non-Employee
Director Restricted Stock Awards is 67,020 shares, assuming each Eligible
Director reaches the Earliest Retirement Date set forth opposite his or her
name in the table below, and assuming the Fair Market Value of the Stock on
March 17, 1998 was $16.28125.
If any award is canceled by mutual consent or terminates or expires for any
reason without the restrictions having lapsed or if shares of Stock are
forfeited pursuant to the restrictions applicable to restricted shares awarded,
the shares forfeited will become treasury shares of the Company. The shares of
Stock issued under the awards may be either authorized and unissued shares or
treasury shares or both.
RESTRICTED SHARES
Each Eligible Director will receive an award of restricted stock for the
number of shares of Stock determined by dividing the amount listed opposite
each Eligible Director's name below by 100% of the fair market value of one
share of such stock as of the date of grant (i.e., the date the Company's
stockholders approve the award). Fair market value is the mean between the
highest and lowest sales prices per share of the Stock as quoted in the
NYSE-Composite Transactions listing in The Wall Street Journal for the date the
award is approved by the Company's stockholders. Restrictions lapse as to all
shares upon the Eligible Director's retirement from the Board at or after the
date specified opposite each Eligible Director's name below, except that all
shares immediately vest upon a change of control of the Company. Restricted
shares will be forfeited if the Eligible Director terminates service as a
member of the Board of Directors for any reason prior to the date specified
opposite the Eligible Director's name
21
<PAGE> 25
below ("Earliest Retirement Date"). The restricted shares are subject to
additional restrictions on the right to transfer or encumber the shares while
subject to restrictions.
<TABLE>
<CAPTION>
NAME OF EARLIEST
ELIGIBLE RETIREMENT
DIRECTOR AMOUNT DATE
-------- ------- ----------
<S> <C> <C>
Leonard M. Carroll $122,821 5/1/2004
Laurel Cutler $143,898 5/1/1999
C. Frederick Fetterolf $163,529 5/1/1999
Thomas A. Gardner $164,304 5/1/1998
F. William Grube $121,714 5/1/2005
Forrest R. Haselton $100,192 5/1/2006
Raymond A. Ross, Jr. $128,707 5/1/2002
Lorne R. Waxlax $145,930 5/1/2001
</TABLE>
From the date a restricted stock award is effective, the recipient is a
stockholder with respect to the restricted shares and will have all the rights
of a stockholder with respect thereto, including the right to vote the shares
and to receive all dividends and other distributions paid with respect to the
shares.
ADDITIONAL RIGHTS IN CERTAIN EVENTS
Upon the occurrence of a change of control of the Company, as defined in the
Agreement, all restrictions applicable to restricted shares awarded will lapse.
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the restricted stock awards providing for the lapse of
restrictions applicable to restricted shares upon the occurrence of a change of
control could discourage or frustrate an attempt to effect a change of control
of the Company.
AWARDS
As of March 17, 1998, the proposed awards would include the number of shares
of Stock set forth opposite each Eligible Directors name below, assuming a fair
market value for the Stock at such date of $16.28125.
<TABLE>
<CAPTION>
Name of Eligible Director Number of Shares
------------------------- ----------------
<S> <C>
Leonard M. Carroll 7,544
Laurel Cutler 8,839
C. Frederick Fetterolf 10,045
Thomas A. Gardner 10,092
F. William Grube 7,476
Forrest R. Haselton 6,154
Raymond A. Ross, Jr. 7,906
Lorne R. Waxlax 8,964
All Executive Officers as a Group 0
All Other Employees as a Group 0
</TABLE>
The actual restricted stock awards will be calculated based on the Fair
Market Value for the Stock on May 15, 1998, assuming shareholder approval of
these awards.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the award of restricted stock under present law.
A grantee of restricted shares does not recognize any taxable income for
Federal income tax purposes in the year of the award, provided the shares are
subject to restrictions (that is, they are nontransferable and subject to a
substantial risk of forfeiture). However, a grantee may elect under
22
<PAGE> 26
Section 83(b) of the Code to recognize compensation income in the year of the
award in an amount equal to the fair market value of the shares on the date of
the award, determined without regard to the restrictions. If the grantee does
not make a Section 83(b) election, the fair market value of the shares on the
date the restrictions lapse is treated as compensation income to the grantee
and is taxable in the year the restrictions lapse.
Other Tax Matters. The lapse of restrictions on restricted shares following
the occurrence of a change of control, in certain circumstances, may result in
(i) a 20% Federal excise tax (in addition to Federal income tax) to the
recipient on certain payments of the Company's Stock resulting from the lapse
of restrictions on restricted shares and (ii) the loss of a compensation
deduction which would otherwise be allowable to Quaker State or one of its
subsidiaries.
Except as discussed above, in each instance that an amount is treated as
compensation received from restricted shares, Quaker State is entitled to a
corresponding deduction in the same amount for compensation paid.
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of the
shares of the Stock present in person or represented by proxy and entitled to
vote at the Annual Meeting, a quorum being present, is necessary for the
approval of the Non-Employee Director Restricted Stock Award. The aggregate
number of shares voted "For", "Against" or "Abstain" is counted for the purpose
of determining the minimum number of affirmative votes required, and the total
number of shares voted "For" is counted for the purpose of determining whether
sufficient votes are received. An abstention from voting on a matter by a
stockholder present in person or represented by proxy and entitled to vote has
the same legal effect as a vote "Against" the matter.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE NON-EMPLOYEE DIRECTOR RESTRICTED
STOCK AWARD. Unless otherwise directed therein, the proxies solicited hereby
will be voted FOR the proposed Non-Employee Director Restricted Stock Award.
ITEM 3
APPROVAL OF AN
AMENDMENT TO
THE 1994 PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
The Board of Directors adopted Quaker State's 1994 Plan on December 16, 1993,
subject to stockholder approval that was obtained on May 12, 1994. The
aggregate number of shares of Stock which could be issued under the 1994 Plan
was increased to 1,362,978 by an amendment adopted by the stockholders on May
16, 1996, in order to carry over shares that were authorized for issuance, but
not issued, under the 1986 Stock Option Plan, which expired in 1996. On May 16,
1997, the stockholders approved an amendment to the 1994 Plan to increase the
total number of shares of Stock which may be issued thereunder by 3,500,000
shares, to eliminate all provisions which permit the repricing of outstanding
stock options and to include maximum limits on various types of awards
available under the 1994 Plan to comply with Section 162(m) of the Code.
As of March 17, 1998, 3,398,000 shares are subject to outstanding stock
options, 171,297 shares of restricted stock have been issued and are
outstanding, 103,645 shares of restricted performance stock have been forfeited
due to the non- attainment of performance measures pursuant to the 1994 Long
Term Incentive Plan, 16,500 shares have been issued pursuant to stock option
exercises and 80,324 shares have been issued upon the lapse of restrictions on
restricted stock awarded under the 1994 Plan.
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<PAGE> 27
On February 4, 1998, the Board of Directors, acting on the recommendation of
the Committee, approved an amendment to the 1994 Plan to increase the number of
shares authorized for issuance thereunder by 2,500,000 shares. With this
amendment the total shares authorized for issuance under the 1994 Plan will be
7,362,978 shares. This amendment is subject to approval by the stockholders at
the Annual Meeting. The amendment is included as Appendix B.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED AMENDMENT TO THE 1994
PLAN. Unless otherwise directed in your proxy, your shares of Stock will be
voted FOR approval of the amendments to the 1994 Plan.
The principal features of the 1994 Plan, as approved by the stockholders on
May 12, 1994 and as amended on October 25, 1996 and May 16, 1997, are
summarized below. A copy of the proposed amendment is attached as Appendix B.
GENERAL
Among the purposes of the 1994 Plan are to encourage eligible employees of
Quaker State and its subsidiaries to increase their efforts to make Quaker
State and its subsidiaries more successful, to provide an additional inducement
for such employees to remain in the employ of Quaker State and to attract able
persons to the Company. Those key employees who share responsibility for the
management, growth or protection of the business of the Company or any
subsidiary are eligible to be granted stock options and other awards under the
1994 Plan. As of March 17, 1998 there are approximately 224 employees who are
eligible to participate in the 1994 Plan.
The maximum award under the 1994 Plan to any one employee during any calendar
year is 350,000 shares and/or $400,000 as a cash payment right. The aggregate
number of shares which may be issued under the 1994 Plan and the number that
may be granted to any one employee during any calendar year are subject to
anti-dilution provisions set forth in the 1994 Plan. No stock options or other
awards may be granted under the 1994 Plan after December 15, 2003.
If any stock option granted under the 1994 Plan is canceled by mutual consent
or terminates or expires for any reason without having been exercised in full,
the number of shares subject to the stock option will again be available for
purposes of the 1994 Plan, except that to the extent that alternative stock
appreciation rights granted in conjunction with a stock option under the 1994
Plan are exercised and the related stock option is surrendered, the number of
shares available for purposes of the 1994 Plan will be reduced by the number of
shares of Stock issued upon exercise of the alternative stock appreciation
rights. If shares of Stock are forfeited pursuant to the restrictions
applicable to restricted shares awarded under the 1994 Plan, the shares
forfeited will not again be available for purposes of the 1994 Plan unless
during the period the shares were outstanding the holder received no dividends
or other benefits of ownership from the shares. To the extent performance
shares are not earned, the shares not earned are again available for purposes
of the 1994 Plan.
The shares of Stock that may be issued under the 1994 Plan may be either
authorized and unissued shares or treasury shares or both.
ADMINISTRATION
The 1994 Plan must be administered by a committee appointed by the Board of
Directors and consisting of not fewer than two "non-employee directors," as
defined under Rule 16(b)-(3)(b)(3) under the 1934 Act, and the members of the
Committee are not eligible to participate in the 1994 Plan. The Committee has
been appointed to administer the 1994 Plan.
The Committee has the power to interpret the 1994 Plan and full authority, in
its discretion, to grant awards under the 1994 Plan and to determine the
employees to whom awards will be granted and the number of shares to be covered
by each award.
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<PAGE> 28
STOCK OPTIONS
The Committee has authority, in its discretion, to grant incentive stock
options (stock options qualifying under Section 422 of the Code), nonstatutory
stock options (stock options not qualifying under Section 422 or 423 of the
Code) or both types of stock options (but not in tandem). The Committee may
grant alternative stock appreciation rights in conjunction with incentive stock
options or nonstatutory stock options and may grant cash payment rights in
conjunction with nonstatutory stock options.
The exercise price for each stock option is such price as the Committee, in
its discretion, determines, but shall not be less than 100% of the fair market
value of the Stock on the date of grant of the stock option. Fair market value
for all purposes under the 1994 Plan is the mean between the highest and lowest
sales prices per share of the Stock as quoted in the NYSE-Composite
Transactions listing in The Wall Street Journal for the date on which fair
market value is determined. On March 17, 1998, the fair market value of a share
of the Stock, as so computed, was $16.28125.
Each stock option is exercisable at such time or times as the Committee, in
its discretion, determines, except that no stock option will be exercisable
after the expiration of ten years from the date of grant. A stock option to
the extent exercisable at any time may be exercised in whole or in part.
Unless the Committee, in its discretion, otherwise determines, the option
price for each stock option will be payable in full in cash at the time of
exercise; however, in lieu of cash, the person exercising the stock option may
pay the option price in whole or in part with Stock.
For incentive stock options, the aggregate fair market value (determined on
the date of grant) of the shares with respect to which incentive stock options
are exercisable for the first time by an employee during any calendar year may
not exceed $100,000.
No outstanding stock option granted under the 1994 Plan may be amended to
change the exercise price of such option from the exercise price provided for
the stock option on the date of grant, and no stock option may be surrendered
in exchange for the grant of a new stock option at a different exercise price.
Unless the Committee, in its discretion, otherwise determines: (i) no stock
option granted under the 1994 Plan will be transferable other than by will or
by the laws of descent and distribution and (ii) a stock option may be
exercised during an optionee's lifetime only by the optionee.
Alternative stock appreciation rights. Alternative stock appreciation rights
granted in conjunction with an incentive stock option may only be granted at
the time of the stock option grant. Alternative stock appreciation rights
granted in conjunction with a nonstatutory stock option may be granted either
at the time the stock option is granted or at any time during the term of the
stock option.
Alternative stock appreciation rights are exercisable to the extent that the
related stock option is exercisable. An alternative stock appreciation right
entitles the optionee to surrender the related stock option or any portion
thereof without exercising the stock option and to receive that number of
shares of Stock having an aggregate fair market value on the date of exercise
of the alternative stock appreciation right equal to the excess of the fair
market value of one share of Stock on such date over the exercise price per
share times the number of shares covered by the stock option or portion thereof
which is surrendered. Alternative stock appreciation rights granted under the
1994 Plan may not be settled in cash.
Cash payment rights. Cash payment rights granted in conjunction with a
nonstatutory stock option entitle the person who is entitled to exercise the
stock option, upon exercise of the stock option or any portion thereof, to
receive cash (in addition to the shares of Stock to be received upon exercise
of the stock option) equal to a percentage (not greater than 100% as determined
by the Committee) of the excess of the fair market value of a share of Stock on
the date of exercise over the exercise price per share, multiplied by the
number of shares covered by the stock option, or portion thereof, which is
exercised. Cash payment rights may be used by the Committee to provide funds
to the option holder to
25
<PAGE> 29
pay the income taxes payable upon exercise of a nonstatutory stock option (See
"Federal Income Taxes -- Nonstatutory Stock Options," below).
General -- Subject to the foregoing and the other provisions of the 1994
Plan, stock options granted under the 1994 Plan may be exercised at such times
and in such amounts and be subject to such restrictions and other terms and
conditions, if any, as are determined by the Committee, in its discretion.
RESTRICTED SHARES
The Committee may award shares of Stock which are subject to such
restrictions (including restrictions on the right to transfer or encumber the
shares while subject to restrictions) as the Committee may impose thereon and
be subject to forfeiture if certain events (which may, in the discretion of the
Committee, include termination of employment and/or performance-based events)
specified by the Committee occur prior to the lapse of the restrictions.
The Committee, in its discretion, may determine that dividends and other
distributions on restricted shares will not be paid to the holder until the
lapse or termination of the applicable restrictions. From the date a restricted
share award is effective, however, the holder is a stockholder with respect to
the restricted shares and will have all the rights of a stockholder with
respect to the shares, including the right to vote the shares and to receive
all dividends and other distributions paid with respect to the shares, subject
only to the preceding sentence and the other restrictions imposed by the
Committee.
PERFORMANCE SHARES
The Committee may award performance shares which will entitle the recipient
to receive up to the number of shares of Stock covered by the award at the end
of, or at a specified time or times during, a specified award period contingent
upon the extent to which one or more predetermined performance targets are
satisfied during the award period. The performance target or targets may vary
for different award periods and need not be the same for each recipient of an
award for an award period. At any time prior to the end of an award period, the
Committee may adjust downward (but not upward) the performance target or
targets as a result of major events unforeseen at the time of the award. The
Committee, in its discretion, may determine that recipients are entitled to any
dividends or other distributions that would have been paid on earned
performance shares had the shares been outstanding during the period from the
award to the delivery of the performance shares.
OTHER SHARES.
The Committee, in its discretion, may from time to time make other awards of
shares of Stock under the 1994 Plan as an inducement to the recipient to enter
into employment with the Company, in recognition of the contribution of the
recipient to the performance of the Company, in recognition of the recipient's
individual performance or on the basis of such other factors as the Committee
may deem relevant.
ADDITIONAL RIGHTS IN CERTAIN EVENTS
The 1994 Plan provides for certain additional rights upon the occurrence of
one or more events related to the ownership or continued existence of the
Company ("Change-of-Control Events"), as defined in the 1994 Plan.
If any Change-of-Control Event occurs, unless the Committee in its discretion
otherwise determines (i) all outstanding stock options will become immediately
and fully exercisable, (ii) all stock options held by an optionee whose
employment terminates within one year of any Change-of-Control Event for any
reason other than voluntary termination with the consent of the Company or any
subsidiary, severance under the Company's Severance Pay Plan for Salaried and
Hourly Non- Union Employees, retirement under any retirement plan of the
Company or any subsidiary, or death will be exercisable for a period of three
years from the date of such termination of employment, but in no event after
the expiration date of the stock option, (iii) all restrictions applicable to
restricted shares awarded under the 1994 Plan will lapse and (iv) all
performance shares awarded under the 1994 Plan will be deemed to have been
fully earned as of the date of the Change-of-Control Event, regardless of the
attainment or non-attainment of any performance target.
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<PAGE> 30
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the 1994 Plan providing for the acceleration of the
exercise date of stock options, the lapse of restrictions applicable to
restricted shares and the deemed earn-out of performance shares upon the
occurrence of a Change-of-Control Event, and for the extension of the period
during which stock options may be exercised upon termination of employment
following a Change-of-Control Event, could discourage or frustrate an attempt
to effect a change of control of the Company.
MISCELLANEOUS
The Board of Directors may amend or terminate the 1994 Plan at any time,
provided that, without stockholder approval, no amendment of the 1994 Plan may
(i) increase the total number of shares which may be issued under the 1994
Plan, (ii) increase the maximum number of shares as to which stock options may
be granted and as to which shares may be awarded under the 1994 Plan to any one
employee during any calendar year, (iii) materially increase the benefits
accruing under the 1994 Plan to persons subject to the provisions of Section
16(b) of the 1934 Act, (iv) materially modify the requirements as to
eligibility for participation in the 1994 Plan by persons subject to the
provisions of Section 16(b), (v) make any changes in the class of employees
eligible to receive incentive stock options or (vi) extend the duration of the
1994 Plan. No amendment or termination of the 1994 Plan may, without the
written consent of the holder of an outstanding grant or award under the 1994
Plan, adversely affect the rights of such holder with respect thereto.
The Committee may accept the cancellation of outstanding stock options in
return for the grant of new stock options for the same or a different number of
shares at the same exercise price or the contribution or surrender of
restricted shares for restricted shares with different restrictions.
POTENTIAL GRANTS UNDER THE 1994 PLAN
Assuming the 1997 Long Term Incentive Program is continued, no grants, other
than grants under the 1997 Long Term Incentive Program are made to the named
executive officers, and only stock options are granted to employees, then the
following grants of stock options may be made by the Committee from the
2,500,000 shares over the life of the 1994 Plan subject to stockholder approval
of this amendment:
<TABLE>
<CAPTION>
Name and Position Number of Shares
- ----------------- ----------------
<S> <C>
Herbert M. Baum, Chairman and CEO 473,759
John D. Barr, President and COO 222,585
Charles F. Bechtel, Vice President 55,135
and President, Quaker State Lubricants
Conrad A. Conrad, Vice Chairman & CFO 102,103
Paul E. Konney, Senior Vice President, 55,135
General Counsel and Secretary
All Executive Officers as a Group 908,717
All Non-Executive Directors as a
Group 0
All Other Employees as a Group 1,591,283
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of stock options and other awards under
present law.
Incentive Stock Options. An optionee does not recognize any taxable income
for Federal income tax purposes upon receipt of an incentive stock option or,
generally, upon the exercise of an incentive stock option. The exercise of an
incentive stock option generally will result in an increase in an optionee's
taxable income for alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not dispose of
the shares received in a subsequent "disqualifying disposition" (generally, a
sale, gift or other disposition within two years after the
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<PAGE> 31
date of grant of the incentive stock option or within one year after the option
is exercised and the shares are issued to the optionee), upon disposition of
the shares any amount realized in excess of the optionee's tax basis in the
shares disposed of is treated as a long-term capital gain, and any loss is
treated as a long-term capital loss. In the event of a "disqualifying
disposition," the difference between the fair market value of the shares
received on the date of exercise and the exercise price (limited, in the case
of a taxable sale or exchange, to the excess of the amount realized upon
disposition over the optionee's tax basis in the shares) is treated as
compensation received by the optionee and is taxable in the year of
disposition. Any additional gain is taxable as a capital gain and any loss as a
capital loss, which is long-term or short-term depending on whether the shares
were held for more than one year. Under proposed regulations, special rules
apply in determining the compensation income recognized upon a "disqualifying
disposition" if the option price of the incentive stock option is paid in
shares of the Company's Stock or, in certain limited circumstances, if the
optionee is subject to Section 16(b) of the 1934 Act. If shares of Stock
received upon the prior exercise of an incentive stock option are transferred
to the Company in payment of the option price of an incentive stock option
within either of the periods referred to above, the transfer is considered a
"disqualifying disposition" of the shares transferred, but, under proposed
regulations, only compensation income determined as described above, and no
capital gain or loss, is recognized.
If the employment of an optionee terminates, any incentive stock option held
by the optionee that is not terminated will be converted into a nonstatutory
stock option, with the tax consequences described below, if it is not exercised
within three months from the date of termination (or one year from the date of
termination if the optionee is disabled).
Neither Quaker State nor any of its subsidiaries is entitled to a deduction
for compensation paid with respect to shares received by an optionee upon
exercise of an incentive stock option and not disposed of in a "disqualifying
disposition." If an amount is treated as compensation received by an optionee
because of a "disqualifying disposition," Quaker State or one of its
subsidiaries generally is entitled to a corresponding deduction in the same
amount for compensation paid.
Nonstatutory Stock Options. An optionee does not recognize any taxable income
for Federal income tax purposes upon receipt of a nonstatutory stock option.
Upon the exercise of a nonstatutory stock option with cash, the amount by
which the fair market value of the shares received, determined as of the date
of exercise, exceeds the exercise price is generally treated as compensation
received in the year of exercise.
If the exercise price of a nonstatutory stock option is paid in whole or in
part in shares of the Company's Stock, no income, gain or loss is recognized on
the receipt of shares equal in value on the date of exercise to the shares
delivered in payment of the option price. The fair market value of the
remainder of the shares received upon exercise of the nonstatutory stock
option, determined as of the date of exercise, less the amount of cash, if any,
paid upon exercise is generally treated as compensation income received on the
date of exercise.
Optionees who are subject to Section 16(b) of the 1934 Act are subject to a
special Federal income tax rule upon the exercise of a nonstatutory stock
option (i) if the exercise is within six months of the date of grant or (ii) in
the event the fair market value of the shares acquired is less than the
exercise price on the date of exercise. In these situations, unless an election
provided for in Section 83(b) of the Code is made to be taxed as of the date of
exercise, the amount taxable as provided above is determined instead as of the
date of expiration of the period following exercise during which the sale of
the shares received could subject the optionee to liability under Section 16(b)
(the "Section 16(b) Restriction Period"). The "fair market value" of shares, as
used in this discussion of Federal income tax consequences, is determined
without regard to the fact that the optionee is a person subject to Section
16(b).
Alternative stock appreciation rights. An optionee does not recognize any
taxable income for Federal income tax purposes upon receipt of alternative
stock appreciation rights. Upon the exercise of
28
<PAGE> 32
alternative stock appreciation rights, the fair market value of the shares
received, determined as of the date of exercise, and any cash received in lieu
of a fraction of a share, is generally treated as compensation received in the
year of exercise. For optionees who are subject to Section 16(b) of the 1934
Act, the amount taxable as provided above is determined instead as of the date
of expiration of the Section 16(b) Restriction Period if the exercise of
alternative stock appreciation rights is within six months of the date of grant
unless an election provided for in Section 83(b) of the Code is made to be
taxed as of the date of exercise.
Cash Payment Rights. An optionee does not recognize any taxable income for
Federal income tax purposes upon receipt of cash payment rights. Any cash
received in payment of cash payment rights is treated as compensation received
in the year in which the related stock option is exercised.
Restricted Shares. A recipient of restricted shares, including restricted
performance shares, does not recognize any taxable income for Federal income
tax purposes in the year of the award, provided the shares are subject to
restrictions (that is, they are nontransferable and subject to a substantial
risk of forfeiture). If a recipient is subject to Section 16(b) of the 1934 Act
on the date of the award, the shares generally are deemed to be subject to
restrictions (in addition to the restrictions imposed by the award) for at
least six months following the date of the award. However, a recipient may
elect under Section 83(b) of the Code to recognize compensation income in the
year of the award in an amount equal to the fair market value of the shares on
the date of the award, determined without regard to the restrictions. If the
recipient does not make a Section 83(b) election, the fair market value of the
shares on the date the restrictions lapse is treated as compensation income to
the recipient and is taxable in the year the restrictions lapse.
Performance and Other Shares. A recipient of performance shares does not
recognize any taxable income for Federal income tax purposes upon receipt of
the award. Any shares of the Company's Stock or cash received pursuant to the
award of performance shares or award of other shares are treated as
compensation income received generally in the year in which the shares are
received. If the grantee is subject to Section 16(b) of the 1934 Act on the
date of receipt, the recipient generally will not recognize compensation income
until the expiration of six months from the date of receipt, unless the
recipient makes an election under Section 83(b) of the Code to recognize
compensation income on the date of receipt. In each case, the amount of
compensation income is the fair market value of the shares on the date
compensation income is recognized.
Other Tax Matters. The acceleration of the exercise date of a stock option or
the exercise of a stock option, the lapse of restrictions on restricted shares
or the deemed earn-out of performance shares following the occurrence of a
Change-of-Control Event, in certain circumstances, may result in (i) a 20%
Federal excise tax (in addition to Federal income tax) to the optionee or
recipient on certain amounts associated with the stock option and certain
payments of the Company's Stock resulting from such lapse of restrictions on
restricted shares or deemed earn-out of performance shares and (ii) the loss of
a compensation deduction which would otherwise be allowable to Quaker State or
one of its subsidiaries.
In each instance that an amount is treated as compensation received from
nonstatutory stock options, alternative stock appreciation rights, cash payment
rights, restricted shares, performance shares and other share awards, Quaker
State or one of its subsidiaries generally is entitled to a corresponding
deduction in the same amount for compensation paid. However, under Section
162(m) of the Code, Quaker State or one of its subsidiaries may lose a
compensation deduction, which would otherwise be allowable, for all or a part
of the compensation paid in the form of (i) restricted shares other than
restricted performance shares, (ii) performance shares or (iii) other share
awards, to any employee if, as of the close of the tax year, the employee is
the Chief Executive Officer of the Company or is among the four most highly
compensated officers for that tax year (other than the Chief Executive Officer)
for whom total compensation is required to be reported to stockholders under
the 1934 Act, if the total compensation paid to such employee exceeds
$1,000,000.
29
<PAGE> 33
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of the
shares of the Stock present in person or represented by proxy and entitled to
vote at the Annual Meeting, a quorum being present, is necessary for the
approval of the adoption of the amendment to the 1994 Plan. The aggregate
number of shares voted "For", "Against" or "Abstain" is counted for the purpose
of determining the minimum number of affirmative votes required, and the total
number of shares voted "For" is counted for the purpose of determining whether
sufficient votes are received. An abstention from voting on a matter by a
stockholder present in person or represented by proxy and entitled to vote has
the same legal effect as a vote "Against" the matter.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED AMENDMENT TO THE 1994
PLAN. Unless otherwise directed therein, the proxies solicited hereby will be
voted FOR the proposed amendment to the 1994 Plan.
ITEM 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
The Board of Directors has appointed Coopers & Lybrand L.L.P. as independent
accountants to audit the financial statements of Quaker State and its
subsidiaries for the year 1998. Coopers & Lybrand L.L.P. has audited the
financial statements of the Company and its subsidiaries since the Company was
organized in 1931. Representatives of Coopers & Lybrand L.L.P. will be present
at the Annual Meeting, will have the opportunity to make a statement if they
choose to do so and will be available to respond to appropriate questions.
Coopers & Lybrand L.L.P. has advised Quaker State that no member of its firm
has any direct or material indirect financial interest in Quaker State or any
of its subsidiaries.
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of the
shares of the Stock present in person or represented by proxy and entitled to
vote at the Annual Meeting, a quorum being present, is required for the
ratification of the appointment of Coopers & Lybrand L.L.P. The aggregate
number of shares voted "For", "Against" or "Abstain" is counted for the purpose
of determining the minimum number of affirmative votes required, and the total
number of shares voted "For" is counted for the purpose of determining whether
sufficient votes are received. An abstention from voting on this matter by a
stockholder present in person or represented by proxy and entitled to vote has
the same legal effect as a vote "Against" the matter.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF COOPERS & LYBRAND L.L.P. Unless otherwise directed in your proxy, your
shares of Stock will be voted FOR the ratification of the appointment of
Coopers & Lybrand L.L.P. as the Company's independent accountants for the year
1998. In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection of independent accountants.
OTHER MATTERS
The Board of Directors knows of no other matter to be voted upon at the
Annual Meeting. Should other matters properly come before the meeting or any
adjournment thereof, the proxy holders will vote upon such matters in
accordance with their best judgment.
30
<PAGE> 34
EXPENSES OF SOLICITATION
The Company will bear the cost of this solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of Stock and will reimburse them for their expenses in so doing.
Certain directors, officers and other employees of the Company, not
specifically employed for this purpose, may solicit proxies, without additional
remuneration therefor, by personal interview, mail, telephone, facsimile or
other electronic means. Quaker State has engaged ChaseMellon Shareholder
Services, L.L.C. ("Chase") to assist in the solicitation of proxies. Chase has
advised Quaker State that Chase's services will include contacting brokers,
banks, nominees and individual holders of record owning large numbers of
shares. Chase's fees (estimated at $4,500) and expenses will be paid by Quaker
State.
1999 STOCKHOLDER PROPOSALS
A proposal submitted by a stockholder for the regular Annual Meeting to be
held in 1999 must be received by the Secretary, Quaker State Corporation, 225
East John Carpenter Freeway, Irving, Texas 75062 on or prior to November 26,
1998 in order to be eligible to be included in the Company's Proxy Statement
for that meeting. Under the Company's Bylaws, proposals by stockholders of
director nominees or business to be considered at the 1999 Annual Meeting that
are not submitted for possible inclusion in the Proxy Statement for that
meeting must be received by the Secretary at the above address between February
14 and March 16, 1999.
By Order of the Board of Directors,
Paul E. Konney,
Senior Vice President, General
Counsel and Secretary
Irving, Texas
March 27, 1998
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<PAGE> 35
APPENDIX A
NON-EMPLOYEE DIRECTOR RESTRICTED SHARE AGREEMENT FORM
QUAKER STATE CORPORATION, a Delaware corporation (the "Corporation")
and _________________ (the "Grantee"), a non-employee director of the
Corporation, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound hereby, agree
as follows:
1. RESTRICTED SHARE AWARD.
The Corporation hereby confirms the award to the Grantee on May 17,
1998 (the "Award Date") of ________________ (_______) shares of the
Corporation's Capital Stock, par value $1.00 per share (the "Restricted
Shares"), under and subject to the terms and conditions of this Agreement.
This Award is specifically made subject to the filing and declaration of
effectiveness of a valid registration statement for such shares with the
Securities Exchange Commission and the approval of a listing application for
such shares on the New York Stock Exchange, Inc. and Pacific Exchange, Inc.
As of the Award Date and until the date of forfeiture, if any, the
Grantee shall have all the rights of a stockholder with respect to the
Restricted Shares, including the right to vote the Restricted Shares and to
receive all dividends and other distributions paid with respect to the
Restricted Shares.
As of the Award Date, certificates representing the Restricted Shares
will be issued in the name of the Grantee and held by the Corporation in escrow
until the earlier of the forfeiture of the Restricted Shares to the Corporation
or the lapse of the restrictions set forth in Section 3(A), below, with respect
to the Restricted Shares. The Grantee shall execute and deliver to the
Corporation a blank stock power in form acceptable to the Corporation with
respect to each certificate representing the Restricted Shares. Upon the lapse
of the restrictions applicable to the Restricted Shares, the Corporation shall
deliver to the Grantee a certificate representing unrestricted shares. Upon
the forfeiture of the Restricted Shares, the certificate representing the
Restricted Shares shall be canceled and such shares shall thereupon be
forfeited by the Grantee.
2. ACCEPTANCE OF RESTRICTED SHARE AWARD.
The Grantee accepts the Restricted Share Award confirmed by this
Agreement, as said agreement may be amended from time to time; provided,
however, that no alteration or amendment of the Restricted Share Award will,
without the written consent of the Grantee, adversely affect the rights of the
Grantee with respect to the Restricted Shares.
Grantee acknowledges, by acceptance of this Award, that any benefits
granted under that certain Retirement Letter Agreement dated ________ (the
"Retirement Letter Agreement") have been relinquished and that the Retirement
Letter Agreement itself has been cancelled and is of no further effect.
3. RESTRICTIONS.
(A) The following restrictions shall apply to the Restricted
Shares:
(i) none of the Restricted Shares may be sold, assigned,
transferred, pledged or otherwise encumbered or
disposed of during the Restricted Period (as
hereinafter defined in Section 4); and
(ii) the Restricted Shares shall be forfeited during the
Restricted Period on the date of termination of the
Grantee's service on the Board of Directors of the
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Corporation for any reason prior to the date
specified in Section 4(A) below, except as provided
in Section 4(B);
(B) Any attempt to dispose of Restricted Shares in a manner
contrary to the restrictions set forth in this Agreement shall
be null, void, and ineffective. Upon the lapse of the
restrictions set forth in this Section 3, or as provided in
Section 4 of this Agreement, the Restricted Shares shall no
longer be considered Restricted Shares for purposes of this
Agreement.
4. RESTRICTED PERIOD.
(A) The restrictions set forth in Section 3 shall apply
for a period (the "Restricted Period") from the Award
Date through any date on or after _______________ at
which the Grantee ceases to serve as a member of the
Board of Directors of the Corporation.
(B) Notwithstanding the foregoing, the restrictions set
forth in Section 3 shall lapse as to all Restricted
Shares in the event that the Grantee's service as a
member of the Board of Directors of the Corporation
is terminated during the Restricted Period on account
of a Change of Control of the Corporation, as defined
in Section 12.
5. TAXES.
The Grantee may elect to have any tax obligation at the time of the
award of or the lapse of restrictions on the Restricted Shares satisfied by the
Corporation purchasing shares of Capital Stock the Grantee would otherwise
receive or by tendering already-owned shares of Capital Stock to the
Corporation, such shares shall be valued on the date of receipt by the
Corporate Secretary of the Corporation at the average of the high and low
prices of the Corporation's Capital Stock as reported under "New York Stock
Exchange Composite Transactions" on said date by The Wall Street Journal. In
the event the date of receipt is not a trading day on the New York Stock
Exchange, then the shares shall be valued as of the next trading day.
6. INTERPRETATION OF AGREEMENT.
Any dispute or disagreement which arises under or in any way relates
to the interpretation or construction of this Agreement will be resolved by the
Corporation's Organization and Compensation Committee (the "Committee") without
participation by the Grantee if a member of the Committee, and the decision of
the Committee will be final, binding, and conclusive for all purposes.
7. EFFECT OF AGREEMENT ON RIGHTS OF COMPANY AND GRANTEE.
This Agreement does not confer any right on the Grantee to continue as
a member of the Corporation's Board of Directors ("Board").
8. BINDING EFFECT.
This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Corporation, and the legal representatives,
heirs, beneficiaries and legatees of the Grantee.
9. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
Corporation and the Grantee with respect to the subject matter herein and
supersedes all prior agreements and understandings, oral or written, between
the Corporation and the Grantee with respect to the subject matter hereof.
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<PAGE> 37
10. AMENDMENT.
This Agreement may be amended only by a written instrument signed by
the Corporation and the Grantee.
11. SECTION HEADINGS.
The Section Headings contained in this Agreement are for reference
purposes only and will not affect in any way the meaning or interpretation of
any of the provisions of this Agreement.
12. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
following meanings:
(1) The term "Person" shall have the meaning set forth in
Sections 13(d) and 14(d) of the 1934 Act as in effect on the effective
date of this Agreement.
(2) "Beneficial Ownership" shall be determined as
provided in Rule 13d-3 under the 1934 Act as in effect on the
effective date of this Agreement.
(3) A specified percentage of "Voting Power" of a company
shall mean such number of the Voting Shares as shall enable the
holders thereof to cast such percentage of all the votes which could
be cast in an annual election of directors (without consideration of
the rights of any class of stock other than the common stock of the
company to elect directors by a separate class vote); and "Voting
Shares" shall mean all securities of a company entitling the holders
thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than the
common stock of the company to elect directors by a separate class
vote).
(4) "Tender Offer" shall mean a tender offer or exchange
offer to acquire securities of the Corporation (other than such an
offer made by the Corporation or any subsidiary), whether or not such
offer is approved or opposed by the Board.
(5) "Continuing Directors" shall mean a director of the
Corporation who either (a) was a director of the Corporation on the
effective date of this Agreement or (b) is an individual whose
election, or nomination for election, as a director of the Corporation
was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of
directors of the Corporation which would be subject to Rule 14a-11
under the 1934 Act, or any successor rule).
(6) "Change of Control" shall mean the date upon which
any of the following events occurs:
(a) The Corporation acquires actual knowledge
that any Person other than the Corporation, a subsidiary or
any employee benefit plan(s) sponsored by the Corporation or a
subsidiary has acquired the Beneficial Ownership, directly or
indirectly, of securities of the Corporation entitling such
Person to 30% or more of the Voting Power of the Corporation;
or
(b) A Tender Offer is made to acquire securities
of the Corporation entitling the holders thereof to 30% or
more of the Voting Power of the Corporation; or
(c) A solicitation subject to Rule 14a-11 under
the 1934 Act (or any successor rule) relating to the election
or removal of 50% or more of the members of the
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<PAGE> 38
Board or any class of the Board shall be made by any person
other than the Corporation, or less than 51% of the members of
the Board shall be Continuing Directors; or
(d) The stockholders of the Corporation shall
approve a merger, consolidation, share exchange, division or
sale or other disposition of assets of the Corporation as a
result of which the stockholders of the Corporation
immediately prior to such transaction shall not hold, directly
or indirectly, immediately following such transaction a
majority of the Voting Power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in
the case of a share exchange, the acquiring corporation or
(iii) in the case of a division or a sale or other disposition
of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than
10% of the consolidated assets of the Corporation immediately
prior to the transaction;
provided, however, that if (i) securities beneficially owned by the
Grantee are included in determining the Beneficial Ownership of a
Person referred to in paragraph 6(a) of this Section 12, (ii) the
Grantee is required to be named pursuant to Item 2 of the Schedule
14D-1 (or any similar successor filing requirement) required to be
filed by the bidder making a Tender Offer referred to in paragraph
6(b) of this Section 12 or (iii) the Grantee is a "144 participant" as
defined in Instruction 3 to Item 4 of Schedule 14A under the 1934 Act
(or any successor rule) in a solicitation (other than a solicitation
by the Corporation) referred to in paragraph 6(c) of this Section 12,
then no Change of Control with respect to the Grantee shall be deemed
to have occurred by reason of such event.
13. GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
ITS PRINCIPLES OF CONFLICT OF LAWS.
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APPENDIX B
THIRD AMENDMENT TO THE
QUAKER STATE CORPORATION
1994 STOCK INCENTIVE PLAN
This Third Amendment made by Quaker State Corporation (the
"Corporation") is effective as of May 15, 1998.
WITNESSETH:
WHEREAS, the Corporation established the Quaker State Corporation 1994
Stock Incentive Plan on May 12, 1994 (the "Plan"); and
WHEREAS, the Plan may be amended in accordance with SECTION 11 thereof;
and
WHEREAS, the Corporation wishes to amend the Plan to increase the
number of shares available for grant under the Plan;
NOW, THEREFORE, under the powers retained by the Corporation's Board
of Directors under SECTION 11 of the Plan and pursuant to the authorization of
the Board of Directors granted on February 4, 1998, the Corporation hereby
amends, subject to shareholder approval of this amendment, the Plan as follows:
1. Section 3, SHARES AVAILABLE UNDER THE PLAN, is hereby amended by
deleting "4,862,978 shares" from the second line thereof and substituting the
following in lieu thereof: "7,362,978 shares".
2. In all other respects, the provisions of the Plan are hereby ratified
and confirmed and shall continue in full force and effect. In order to
continue to set forth all provisions of the Plan in a single document, the
changes made by this Third Amendment may be incorporated into a restatement of
the Plan.
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<PAGE> 40
QUAKER STATE CORPORATION
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
QUAKER STATE HEADQUARTERS
225 EAST JOHN CARPENTER FREEWAY
IRVING, TEXAS 75062
FRIDAY, MAY 15, 1998 - 1:00 P.M., C.D.T.
The undersigned stockholder of Quaker State Corporation (the
"Corporation") does hereby appoint Herbert M. Baum and Leonard M. Carroll,
P or each of them acting individually, as proxies of the undersigned to vote
R at the Annual Meeting of Stockholders of the Corporation to be held May 15,
O 1998 (the "Annual Meeting"), and at all adjournments thereof, all the
X shares of Capital Stock of the Corporation which the undersigned may be
Y entitled to vote, on the matters set out on the reverse side of this card
as described in the Proxy Statement and, at their discretion, on any other
business which may properly come before the Annual Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" ITEMS 1,
2, 3 AND 4.
(Continued and to be signed, on the other side)
* FOLD AND DETACH HERE *
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
Please mark
your votes as
indicated in
this example
X
Item 1- The election of the following thirteen individuals as Directors:
John D. Barr, Herbert M. Baum, Leonard M. Carroll, Conrad A. Conrad, J. Taylor
Crandall, Laurel Cutler, C. Frederick Fetterolf, F. William Grube, Forrest R.
Haselton, Kenneth Lee, L. David Myatt, Raymond A. Ross, Jr., and Lorne R.
Waxlax. A vote FOR includes discretionary authority to vote for a substitute
nominee if any of the nominees listed becomes unable to serve or for good cause
will not serve.
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to the to vote for all nominees
contrary listed to the right
[ ] [ ]
(To withhold authority to vote for any individual nominee, print that nominee's
name on the line below.)
- --------------------------------------------------------------------------------
Item 2- To approve an award of restricted stock to certain non-employee
directors in lieu of retirement benefits previously provided.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 3- To approve an amendment to the 1994 Stock Incentive Plan to authorize
an additional 2,500,000 shares of the Corporation's Capital Stock for
issuance under the Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 4- The ratification of the appointment of Coopers & Lybrand L.L.P. as
independent accountants for 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The signer hereby revokes all previous proxies for the Annual Meeting;
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, both dated March 27, 1998, the Annual Report to Stockholders for 1997
and the 1997 Form 10-K; and hereby ratifies all that the said proxies may do by
virtue hereof.
SIGNATURE
---------------------------------------------------------------------
SIGNATURE
---------------------------------------------------------------------
DATE
--------------------------------------------------------------------------
Please date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as attorney, executor, administrator, guardian or
trustee, please so indicate with your full title when signing. If a corporation,
please sign in full corporate name, by duly authorized officer. If shares are
held jointly, each stockholder named should sign.
* FOLD AND DETACH HERE *
