<PAGE>   1
                                                                    EXHIBIT 4(g)


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                                PENNZOIL COMPANY

                                       AND

                    CHASE BANK OF TEXAS, NATIONAL ASSOCIATION

                                   As Trustee


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



                          Third Supplemental Indenture



                                  Providing for
            4.90% Exchangeable Senior Debentures Due August 15, 2008


                           Dated as of August 3, 1998



              Supplementing Indenture dated as of December 15, 1992

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<PAGE>   2



                  THIRD SUPPLEMENTAL INDENTURE, dated as of August 3, 1998
("Third Supplemental Indenture") between PENNZOIL COMPANY, a corporation
organized and existing under the laws of the State of Delaware (hereinafter
called the "Company"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national
banking association, incorporated and existing under the laws of the United
States of America (formerly known as Texas Commerce Bank National Association),
having its principal corporate trust office in the City of Houston, Texas
(hereinafter called the "Trustee").

                  WHEREAS, the Company has executed and delivered its Indenture
dated as of December 15, 1992 (hereinafter called the "Indenture"), to provide
for the issue of one or more series of debt securities of the Company; and

                  WHEREAS, Section 901 of the Indenture authorizes the Company
and the Trustee to enter into supplemental indentures to establish the form or
terms of securities of any series as permitted by sections 201 and 301 of the
Indenture; and

                  WHEREAS, to so provide for the establishment of such a series,
the Company has authorized the execution of this Third Supplemental Indenture to
the Indenture and has requested the Trustee to execute the Third Supplemental
Indenture; and

                  WHEREAS, all conditions and requirements necessary to make
this Third Supplemental Indenture a valid, binding and legal instrument have
been done and performed and the execution and delivery hereof have been in all
respects duly authorized, including the delivery to the Trustee of the Opinion
of Counsel referenced in Section 903 of the Indenture;

                  NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH
that the Company and the Trustee hereby covenant, declare and agree as follows:

                                   ARTICLE ONE

                  101. Third Series of Debentures.

                  There shall be a series of Securities (capitalized terms used
herein and not otherwise defined have the meanings given to such terms in the
Indenture) designated "4.90% Exchangeable Senior Debentures Due August 15, 2008"
(herein sometimes referred to as "Debentures"), and the form thereof, which
shall be established by Board Resolution, shall contain suitable provisions with
respect to the matters hereinafter in this Section 101 specified. Debentures
shall mature on and bear interest and be limited in aggregate principal amount
as to each maturity as set forth below:


<TABLE>
<CAPTION>
            Aggregate                                          Interest
            Principal                                            Rate
             Amount                Maturity                    Per Annum
             ------                --------                    ---------
<S>                            <C>                              <C>  
          $443,819,000          August 15, 2008                  4.90%
</TABLE>



                                      -2-
<PAGE>   3

Debentures shall be issued as Registered Debentures in denominations of U.S.
$1,000 or integral multiples thereof; interest on Debentures shall be payable
semiannually on February 15 and August 15 of each year, commencing February 15,
1999. The Place of Payment with respect to the Debentures is Chase Bank of
Texas, National Association, Corporate Trust Services, 1201 Main, 18th Floor,
Dallas, Texas 75202.

                  102. Exchange or Transfer.

                  Upon any exchange or transfer of Debentures, the Company may
make a charge therefor sufficient to reimburse it for any tax or taxes or other
governmental charge, as provided in Section 305 of the Indenture, but the
Company hereby waives any right to make a charge in addition thereto for any
exchange or transfer of Debentures.

                  103. Redemption.

                  (a) The Debentures shall be subject to redemption upon not
less than 30 nor more than 60 days' prior notice as provided in Sections 107 and
1104 of the Indenture at any time on or after August 15, 2000, in whole or from
time to time in part, at the option of the Company, at the following redemption
prices (expressed as a percentage of the principal amount at maturity) if
redeemed during the 12-month period beginning August 15 of the following years:


<TABLE>
<CAPTION>
                                                          Redemption
             Year                                            Price
             ----                                            -----
<S>                                                       <C>    
             2000.......................................  104.00%
             2001.......................................  103.50%
             2002.......................................  103.00%
             2003.......................................  102.50%
             2004.......................................  102.00%
             2005.......................................  101.50%
             2006.......................................  101.00%
             2007.......................................  100.50%
</TABLE>

in each case together with accrued interest to the redemption date, provided,
however, that, if any interest payment date on the Debentures is on or prior to
the Redemption Date, such interest shall be payable to the Holders of such
Debentures, registered as such, at the close of business on the relevant Regular
Record Dates according to their terms and the provisions of Section 307 of the
Indenture.

                  (b) Notice of intention to redeem the Debentures in whole or
in part shall be given in accordance with Section 1104 of the Indenture.



                                       -3-

<PAGE>   4

                  104. Sinking Fund.

                  The Debentures shall not be entitled to the benefits of any
sinking fund provisions.

                  105. Tax Matters.

                  (a) Subject to Section 105(c) hereof, in addition to the
conditions set forth in Section 401 of the Indenture, the right of the Company
to satisfy the Indenture to the extent set forth in Section 401 of the Indenture
shall be subject to the condition that the Company has delivered to the Trustee
an Opinion of Counsel (as defined in the Indenture) that the satisfaction and
discharge pursuant to Section 401 of the Indenture will not cause the Holders of
the Debentures to recognize income, gain or loss for United States federal
income tax purposes.

                  (b) Subject to Section 105(c) hereof, in addition to the
conditions set forth in Section 403 of the Indenture, the right of the Company
to satisfy the Indenture with respect to the Debentures to the extent set forth
in Section 403 of the Indenture shall be subject to the conditions that the
Company shall have received from, or there shall have been published by, the
United States Internal Revenue Service a ruling to the effect that the
satisfaction and discharge to the extent set forth in Section 403 of the
Indenture will not cause the Holders of the Debentures to recognize income, gain
or loss for United States federal income tax purposes.

                  (c) Notwithstanding the satisfaction and discharge of the
Indenture or with respect to the Debentures pursuant to Sections 105(a) and (b)
hereof, the obligations of the Company under Article Two hereof shall survive
until the Debentures are no longer Outstanding.

                  106. Issuance of Debentures.

                  Upon the delivery of this Third Supplemental Indenture,
Debentures in the aggregate principal amount of $443,819,000 shall be issued and
be Outstanding as provided in the Indenture.

                  107. Global Debentures.

                  The provisions of paragraphs (a), (b), (c) and (d) below shall
apply only to Global Debentures:

                  (a) Each Global Debenture authenticated under the Indenture
and this Third Supplemental Indenture shall be registered in the name of the
Depository designated for such Global Debenture or a nominee thereof and
delivered to such Depository or a nominee thereof or custodian therefor, and
each such Global Debenture shall constitute a single Debenture for all purposes
of this Third Supplemental Indenture.

                  (b) Notwithstanding any other provision in the Indenture or
this Third Supplemental Indenture, no Global Debenture may be exchanged in whole
or in part for Debentures registered, and no transfer of a Global Debenture in
whole or in part may be registered, in the name of any Person other than the
Depositary for such Global Debenture or a nominee thereof unless (A) such
Depositary (i) has notified the Company that it is unwilling or unable to
continue as



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<PAGE>   5



Depositary for such Global Debenture and the Company thereupon fails to appoint
a successor depositary or (ii) has ceased to be a clearing agency registered
under the Exchange Act, (B) there shall have occurred and be continuing an Event
of Default or any event which after notice or lapse of time or both would be an
Event of Default with respect to the Debentures or (C) the Company in its sole
discretion determines that such Global Debenture shall be so exchangeable or
transferable.

                  (c) Subject to Section 107(b), upon issuance of Debentures in
definitive registered certificated form, the Trustee shall register the
Debentures in the name of, and cause the Debentures to be delivered to, the
Person or Persons (or the nominee thereof) identified as the beneficial owners
as the Depositary shall direct.

                  (d) Every Debenture authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global
Debenture or any portion thereof, whether pursuant to this Section, Section 304
or 306 of the Indenture or otherwise, shall be authenticated and delivered in
the form of, and shall be, a Global Debenture, unless such Debenture is
registered in the name of a Person other than the Depositary for such Global
Debenture or a nominee thereof.

                  108. Form of Legend for Global Debentures.

                  Every Global Debenture authenticated and delivered hereunder
shall bear a legend in substantially the following form:

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO PENNZOIL COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN EXCHANGE FOR
THIS CERTIFICATE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME OF CEDE & CO.
(OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR A
NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.

         THIS DEBENTURE IS A GLOBAL DEBENTURE WITHIN THE MEANING OF THE THIRD
SUPPLEMENTAL INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
A DEPOSITARY OR A NOMINEE THEREOF. THIS DEBENTURE MAY NOT BE EXCHANGED IN WHOLE
OR IN PART FOR A DEBENTURE REGISTERED, AND NO TRANSFER OF THIS DEBENTURE IN
WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE THIRD SUPPLEMENTAL INDENTURE.




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<PAGE>   6




                  109. Depositary. The Depositary with respect to any Global
Debenture authenticated under the Indenture and this Third Supplemental
Indenture shall be The Depository Trust Company or such other clearing agency
registered under the Exchange Act that is designated by the Company to act as
Depositary with respect to Debentures issued in the form of one or more Global
Debentures.

                                   ARTICLE TWO

                  201. Right of Exchange.

                  Subject to and upon compliance with the provisions of this
Section 201, at the option of the Holder thereof, beginning August 3, 1998, any
Debenture or any portion of the principal amount thereof which is $1,000 or an
integral multiple of $1,000, may (unless the Company shall have elected,
pursuant to Section 216 hereof, to pay to the Holder an amount in cash equal to
the value of the Exchange Property, in which case the provisions of Section 216
hereof shall be followed), at any time on or before the close of business on
August 15, 2008, or in the case of Debentures or portions thereof called for
redemption in accordance with Section 1101 of the Indenture, on or before the
close of business on the Business Day next preceding the Redemption Date, be
exchanged for fully paid and nonassessable shares (calculated as to each
exchange to the nearest 1/10,000 of a share) of Chevron Common Stock (as defined
in Section 219 hereof) (or such other securities, property or cash as shall be
added to such Chevron Common Stock or as such Chevron Common Stock shall have
been changed into pursuant to this Article Two) at the Exchange Rate (as defined
below) hereinafter provided.

                  The rate at which shares of Chevron Common Stock shall be
deliverable upon exchange (herein called the "Exchange Rate") shall be initially
9.3283 shares of Chevron Common Stock for each $1,000 principal amount of
Debentures exchanged. The Exchange Rate shall be subject to adjustment as
provided in Sections 204, 205, 211 and 215 hereof.

                  202. Method of Exchange.

                  In order to exercise the right of exchange, the Holder shall
surrender such Debenture to the Exchange Agent (as defined in Section 219
hereof) for exchange by delivering such Debenture to, or mailing such Debenture
by registered mail, postage prepaid, addressed to the Exchange Agent at the
office or agency of the Company, maintained for that purpose pursuant to Section
1002 of the Indenture, accompanied in each case by written notice to the Company
and the Exchange Agent that the Holder elects to exchange such Debenture, or, if
less than the entire principal amount of such Debenture is to be exchanged, the
portion thereof to be exchanged.

                  The notices in the above paragraph shall also state the name
or names (with address) in which the certificate or certificates for shares of
Chevron Common Stock or, to the extent applicable, other Exchange Property which
shall be issuable on such exchange shall be issued.



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<PAGE>   7



Debentures surrendered for exchange shall be accompanied (if so required by the
Company or the Exchange Agent) by proper assignments thereof to the Company.

                  If the Company does not elect to deliver cash in lieu of
Chevron Common Stock or other Exchange Property pursuant to Section 216 hereof,
as promptly as practicable after the proper surrender of such Debenture for
exchange as aforesaid (subject however to the following paragraph of this
Section 202 and Section 216 hereof) and in accordance with the procedures set
forth in the Exchange Agreement (as defined in Section 219 hereof), the Company
shall or shall cause the Exchange Agent to deliver to such Holder, or on his
written order a certificate or certificates for the number of whole shares of
Chevron Common Stock and/or any other Exchange Property deliverable upon
exchange of such Debenture (or specified portion thereof). In addition,
provision shall be made for any fraction of a share as provided in Section 203
hereof and any payment of interest as provided by the following paragraph. Such
exchange shall be deemed to have been effected immediately prior to the close of
business on the date on which such Debenture shall have been properly
surrendered for exchange as aforesaid, which shall be the date on which such
Debenture and notice and any such required payment and assignment shall be
received by the Exchange Agent, and at such time the rights of the Holder of
such Debenture as a Debenture holder shall cease and the Person or Persons in
whose name or names any certificate or certificates for shares of Chevron Common
Stock or other Exchange Property shall be deliverable upon such exchange shall,
as between such Person or Persons and the Company, be deemed to have become the
Holder or Holders of record of the shares or other property represented thereby.

                  Upon any exchange of a Debenture pursuant to this Article Two
(i) if the Debenture to be exchanged has been called for redemption by the
Company, the Holder shall receive accrued interest thereon through the date an
exchange under this Section 202 is deemed effective and (ii) if the Debenture to
be exchanged has not been called for redemption by the Company, the Holder shall
not receive any payment of accrued and unpaid interest.

                  Delivery of such certificate or certificates and of any check
for any cash or other Exchange Property may be delayed for a reasonable period
of time at the request of the Company in order to effectuate the calculations of
the adjustments pursuant to this Article Two, to obtain any certificate
representing securities to be delivered, to complete any reapportionment of the
shares of Chevron Common Stock or other Exchange Property apportioned thereto
which is required by this Article Two or to comply with any applicable law. If,
between the date an exchange under this Section 202 is deemed effected and the
date of delivery of the applicable security or securities, such security or
securities shall cease to have any or certain rights, or a record date or
effective date of a transaction to which Section 204, 205 or 211 hereof applies
shall occur, the Person entitled to receive such security or securities shall be
entitled only to receive such security or securities as so modified and any
dividends or proceeds received thereon on or after the date such exchange is
deemed effected and none of the Company, the Trustee and the Exchange Agent
shall be otherwise liable with respect to the modification of such security or
securities, from the date such exchange is deemed effected and the date of such
delivery.



                                      -7-
<PAGE>   8



                  Except as otherwise expressly provided in this Article Two, no
payment or adjustment shall be made upon any exchange on account of any interest
accrued on the Debentures surrendered for exchange or on account of any
dividends on the Chevron Common Stock or other Exchange Property delivered upon
such exchange; provided, however that interest accrued on any Debentures
surrendered for exchange on or after any Regular Record Date and before any
Interest Payment Date relating thereto shall be paid to, as applicable, the
Holder of record as of such record date.

                  In the case of any Debenture which is exchanged in part only,
upon such exchange the Company shall execute and the Trustee shall authenticate
and deliver to the Holder thereof, at the expense of the Company, a Debenture or
Debentures of authorized denominations in principal amount equal to the
unexchanged portion of such Debenture.

                  203. Fractional Interests.

                  No fractional shares of Chevron Common Stock (or any form of
fractional interest in any other security or property which is part of the
Exchange Property) shall be delivered upon exchanges of Debentures. If more than
one Debenture shall be surrendered for exchange at one time by the same Holder,
the number of whole shares (or other integral units of such other securities or
property), which shall be delivered upon exchange shall be computed by the
Company on the basis of the aggregate principal amount of the Debentures (or
specified portions thereof to the extent permitted hereby) so surrendered.
Instead of any fractional share (or other fractional unit) which would otherwise
be deliverable upon exchange of any Debenture or Debentures (or specified
portions thereof), the Exchange Agent on behalf of the Company shall pay, on the
date the exchange is deemed to be effected, a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the Market Price
(as defined in Section 219 hereof) per share of the Chevron Common Stock (or per
unit of such other security or property) on the Business Day next preceding the
date the exchange is deemed to be effected. The Company shall authorize the
Exchange Agent to obtain the funds necessary or anticipated by the Exchange
Agent to be necessary, for payment of such fractional interests by the sale of
shares of Chevron Common Stock (or other securities or property which are part
of the Exchange Property) held by the Exchange Agent, provided that after such
sale the number of shares of Chevron Common Stock (and of such other securities
or property) held by the Exchange Agent shall be sufficient to permit the
exchange of all Outstanding Debentures for Chevron Common Stock (and any other
Exchange Property), on the basis of the Exchange Rate then in effect, in
accordance with the provisions of this Article Two. The Company agrees to
furnish or cause to be furnished to the Exchange Agent any additional funds
required to permit such cash payments with respect to fractional interests.

                  204. Adjustment of Exchange Rate.

                  (a) In the event Chevron (as defined in Section 219 hereof)
shall (i) pay a dividend on Chevron Common Stock in shares of Chevron Common
Stock, (ii) subdivide the outstanding shares of Chevron Common Stock into a
greater number of shares of Chevron Common Stock, (iii) combine outstanding
shares of Chevron Common Stock into a smaller number of shares



                                      -8-
<PAGE>   9



of Chevron Common Stock, or (iv) issue, by reclassification of shares of Chevron
Common Stock, any shares of its common stock (which in any such case shall apply
to the shares of Chevron Common Stock held by the Exchange Agent under the
Exchange Agreement), the Exchange Rate in effect immediately prior thereto shall
be proportionately adjusted so that the Holder of any Debentures thereafter
surrendered for exchange shall be entitled (subject to Sections 215 and 216
hereof) to receive the number and kind of shares of Chevron Common Stock which
such Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such Debentures been
exchanged immediately prior to the record date (or if there is no record date,
the effective date) of such event. Such adjustments shall be made whenever any
of the events listed above shall occur and shall become effective as of
immediately after the close of business on the record date in the case of a
stock dividend and shall become effective as of immediately after the close of
business on the effective date in the case of a subdivision or combination or
reclassification. Any Holder surrendering any Debentures for exchange after such
record date or such effective date, as the case may be, shall be entitled to
receive shares of Chevron Common Stock at the Exchange Rate as so adjusted
pursuant to this Section 204(a) (subject to Sections 215 and 216 hereof) and any
other Exchange Property apportioned thereto.

                  (b) Notwithstanding the foregoing provisions, no adjustment in
the Exchange Rate shall be required unless such adjustment would require an
increase or decrease in such Exchange Rate of more than 1%, provided, however,
that any adjustments which by reason of this paragraph (b) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment.

                  (c) All calculations under this Section 204 shall be made to
the nearest 1/10,000 of a share.

                  (d) Whenever the Exchange Rate is adjusted as herein provided,
the Company shall determine the adjusted Exchange Rate in accordance with this
Section 204 and shall prepare an Officer's Certificate setting forth such
adjusted Exchange Rate and any cash or other property apportioned to the Chevron
Common Stock and showing in detail the facts upon which such adjustment is
based. Such certificate shall be conclusive evidence of the correctness of such
adjustment. Such certificate shall forthwith be filed with the Exchange Agent
and the Trustee, who may rely on such Officer's Certificate as conclusive
evidence of the correctness of the adjustment. A notice stating that the
Exchange Rate has been adjusted and setting forth the adjusted Exchange Rate and
any cash or other property apportioned to the Chevron Common Stock shall, as
soon as practicable, be mailed by or on behalf of the Company to the Holders of
Debentures at their last addresses as they shall appear upon the Security
Register.

                  205. Exchange Agreement.

                  (a) Simultaneously with the execution and delivery of this
Indenture Supplement, the Company is entering into the Exchange Agreement with
Chase Bank of Texas, National Association, a national banking association,
incorporated and existing under the laws of the United States of America, as
Exchange Agent, pursuant to which the Company is depositing with the



                                      -9-
<PAGE>   10



Exchange Agent 4,140,077 shares of Chevron Common Stock, which in the aggregate
shall initially constitute the Exchange Property. The Exchange Agent shall be
the exchange agent for the exchange of Debentures for Chevron Common Stock and
other Exchange Property, if any, hereunder. The Company shall deposit with the
Exchange Agent from time to time such additional number of shares of Chevron
Common Stock not already held by the Exchange Agent as the Holders of all
Outstanding Debentures shall from time to time be entitled to receive from the
Exchange Agent pursuant to this Article Two upon exchange thereof.

                  (b) All cash received by the Exchange Agent as herein provided
will be invested upon written request of the Company by the Exchange Agent from
time to time as so requested by the Company pursuant to the Exchange Agreement.
The Company shall be entitled to all cash dividends paid on the Exchange
Property held by the Exchange Agent except to the extent that such dividends are
paid pursuant to a plan of liquidation or partial liquidation or a
recapitalization or restructuring or other extraordinary cash dividends, and to
all interest payments on any debt securities included in the Exchange Property
which Holders of Debentures may be entitled to receive on exchange hereunder;
provided, that if the Exchange Agent shall receive any such cash dividends or
interest to which the Company is entitled pursuant hereto, the Exchange Agent
shall not be required to transfer to the Company any such dividends or interest
to which the Company is entitled pursuant hereto until receipt of an Officers'
Certificate to the effect that the Company is entitled to such dividends or
interest pursuant hereto. The Company shall also be entitled to any interest or
gain on investments made by the Exchange Agent pursuant to Section 11 of the
Exchange Agreement, which shall be paid to the Company on demand as provided in
the Exchange Agreement. Any loss on such investments shall be for the account of
the Company and the amount thereof shall be reimbursed to the Exchange Agent by
the Company. The Exchange Agent shall hold and apply as hereinafter provided all
other dividends paid on the Exchange Property held by the Exchange Agent under
the Exchange Agreement.

                  (c) In case there shall be, at any time while any Debentures
are Outstanding, any distribution of cash, securities or other property on
Exchange Property (other than (i) cash dividends to which the Company is
entitled and interest paid on debt securities, as specified in paragraph (b) of
this Section 205, (ii) dividends, subdivisions, combinations and
reclassifications for which an adjustment in the Exchange Rate is made pursuant
to Section 204 hereof and (iii) securities or other property received in a
transaction to which Section 211 hereof applies) or in case there shall be
granted with respect to any Exchange Property, any transferable subscription
rights, options, warrants or other similar transferable rights, the Company
shall, as soon as reasonably practicable after its receipt thereof, notify the
Exchange Agent of such receipt and promptly, and in any event within five
business days of the receipt thereof, deposit with the Exchange Agent all such
securities and other property, including any transferable rights, pursuant to
the Exchange Agreement, and concurrently with such deposit, shall (except as
provided in the succeeding paragraph) instruct the Exchange Agent to sell all
securities and other property so received by way of distribution and all rights
for cash so distributed in such manner as the Company shall instruct in writing
and shall apply the proceeds from the sale thereof as hereinafter provided. To
the extent that the Company shall, within 10 days of its notification to the
Exchange Agent of the Company's receipt of such cash, securities or other
property, including any transferrable rights, furnish the Exchange Agent with an



                                      -10-
<PAGE>   11



Opinion of Counsel to the effect that such distribution or grant or the sale of
the securities or other property received on such distribution or the rights
received by such grant is taxable to the Company or the Exchange Agent and an
Officers' Certificate as to the amount of federal, state and local tax payable
by the Company and the Exchange Agent as a result of such distribution or grant
and estimated to be payable as a result of such sale (computed by the Company at
the highest marginal tax rates applicable to such transaction or transactions),
the Exchange Agent shall pay to, or to the order of the Company, in the case of
taxes payable by the Company, or itself, in the case of taxes payable by it,
from the cash received in such distribution, if any, or cash apportioned to
Chevron Common Stock hereunder or from the net cash proceeds received from such
sale, the amount of such tax as so computed by the Company. In the case of taxes
estimated to be payable as a result of such sale, the Company shall deliver an
Officers' Certificate within 10 days after completion of such sale stating the
actual taxes payable as so computed and appropriate adjustment of such payments
shall thereupon be made. The remaining portion of such cash received, if any,
and net cash proceeds shall be apportioned equally among the Exchange Property
for which outstanding Debentures are exchangeable as of immediately after the
close of business on the record date for. the distribution or grant to which
this paragraph (c) applies, or, if there is no such record date, the effective
date of such distribution or grant. Any Holder surrendering any Debentures after
such record date, or such effective date, as the case may be, shall be entitled
to receive, in addition to the Exchange Property for which such Debentures are
exchangeable and any cash theretofore apportioned hereunder, the amount of cash
so apportioned to such shares of Chevron Common Stock.

                  Notwithstanding the foregoing, however, in the event of any
such distribution of securities or other property, including transferable
rights, which is convertible, without payment of consideration, into Exchange
Property, and which right of conversion does not expire before the retirement of
such securities or other property, the Company shall, after any sale required
for payment of any taxes owed by the Company, or the Exchange Agent, as provided
in the preceding paragraph, instruct the Exchange Agent to retain and hold all
such securities and other property as additional Exchange Property for
apportionment equally among other Exchange Property for which Debentures are
exchangeable as of immediately after the close of business on the record date
for the distribution or grant to which this Section 205 applies, or, if there is
no such record date, the effective date of such distribution or grant; provided,
however, that if the amount of cash deliverable to the holders of such
securities or other property, including transferable rights, for each unit of
such securities or other property upon the retirement thereof is less than the
average of the high and low reported public sales prices for each such unit for
the seven Business Days preceding the date 15 Business Days prior to the date of
their retirement the Exchange Agent shall sell all such securities and other
property prior to the third Business Day prior to the date of their retirement
and, after the payment, from the net proceeds received from such sale by the
Exchange Agent, of any taxes incurred by the Exchange Agent or the Company in
connection with such sale, the remaining cash proceeds of such sale shall be
apportioned equally among the Exchange Property for which Outstanding Debentures
are exchangeable as of the Business Day following the day such sale is
concluded.




                                      -11-
<PAGE>   12



                  In the event that a distribution or grant of cash, securities
or other property on Exchange Property shall be effected as contemplated by the
two immediately preceding paragraphs, a notice stating that such distribution or
grant has occurred and setting forth the additional cash, securities or other
property on the Exchange Property shall as soon as practicable be mailed by or
on behalf of the Company to the Holders of Debentures at their last addresses as
they appear upon the Security Register.

                  In case there shall be, at any time while any Debentures are
outstanding, any distribution or grant to holders of Chevron Common Stock (or
other Exchange Property), including the Company (with respect to any Exchange
Property held by the Exchange Agent), of any nontransferable subscription
rights, options, warrants or other similar nontransferable rights that shall, by
the terms of such rights, permit the Company to distribute such rights to the
Holders of Debentures, then the Company and the Exchange Agent shall cause such
rights to be distributed to the Holders of record of Debentures shown on the
Security Register as of immediately after the close of business on the record
date (and if there is no record date, the close of business on the effective
date) for such distribution or grant; provided, however, that if the Company
shall furnish the Exchange Agent with an Opinion of Counsel to the effect that
such distribution or grant, or such distribution by the Company or the Exchange
Agent to Holders of Debentures, is taxable to the Company or the Exchange Agent
and an Officer's Certificate as to the amount of federal, state and local tax
payable by the Company and the Exchange Agent as a result of such distribution
or grant, the Exchange Agent shall to the extent legally permissible sell for
cash in such manner as the Company shall instruct in writing such of the rights
as shall be sufficient to provide to the Company and the Exchange Agent a cash
payment equal to the amount of taxes payable by the Company and the Exchange
Agent, respectively, arising from such distribution or grant (as computed by the
Company at the highest marginal tax rates applicable to such transaction or
transactions and any sale of such rights or, if such sale is not permissible or
the proceeds thereof are not sufficient, the Exchange Agent shall cause an
amount of cash held for exchange by the Exchange Agent (if any) and, if such
cash is not sufficient for the applicable tax payments, an amount of Exchange
Property, to be segregated for the benefit of or delivered to the Company. The
remaining Exchange Property held by the Exchange Agent shall be proportionately
adjusted so as to be apportioned equally to the Debentures outstanding as of
immediately after the close of business on the record date for the distribution
or grant to which this paragraph applies, or, if there is no such record date,
immediately after the close of business on the effective date of such
distribution or grant. Any Holder surrendering any Debentures after such record
date, or such effective date, as the case may be, shall be entitled to receive
any Exchange Property apportioned thereto as so adjusted pursuant to this
paragraph.

                  (d) In the event of any reduction of the principal amount of
Debentures Outstanding (other than as a result of surrender for exchange for
Exchange Property pursuant to this Article Two), as evidenced by the delivery to
the Trustee by the Company of Debentures for cancellation, the Company shall be
entitled to the kind and amount of Exchange Property as shall at the time be in
excess of the kind and amount of Exchange Property which would be required for
the exchange of all Debentures then Outstanding for the Exchange Property on the
basis of the then Exchange Rate and the other terms and provisions of this
Article Two and the Exchange Agreement.



                                      -12-
<PAGE>   13



Upon expiration of the right to surrender Debentures for exchange pursuant to
this Article Two and the Exchange Agreement and when all other obligations of
the Company shall have been satisfied under this Article Two and the Exchange
Agreement, the Company's obligation to exchange Debentures for Exchange Property
shall be terminated.

                  (e) The Exchange Agent shall not make any distribution of
Exchange Property to the Company prior to the receipt by the Exchange Agent from
the Company of an Officers' Certificate to the effect that no Event of Default
exists hereunder and no event or condition which with notice or lapse of time or
both would become such an Event of Default and which states in detail the basis
asserted by the Company for such distribution.

                  (f) The Company shall be entitled to any net income or gain
resulting from investments of cash made by the Exchange Agent pursuant to the
Exchange Agreement and shall reimburse the Exchange Agent for any losses
realized in respect of such investments.

                  (g) The Company shall have the full and unqualified right and
power to exercise any rights to vote, or to give consents or take any other
action in respect of, the Chevron Common Stock or any other securities included
in the Exchange Property at any time held by the Exchange Agent, and the
Exchange Agent shall have no duty to exercise any such rights. The Company shall
not be liable to any Holder as a result of any vote, or failure to vote, consent
or failure to consent, or any other act or failure to act taken by the Company
in respect of the Chevron Common Stock or any other securities included in the
Exchange Property.

                  (h) The obligations, covenants and agreements contained in the
Exchange Agreement shall not constitute obligations, covenants or agreements
contained in the Indenture, this Third Supplemental Indenture or any of the
Debentures and neither the failure by the Company to observe any obligation,
covenant or agreement contained in the Exchange Agreement (unless such
obligation, covenant or agreement shall also be contained in this Third
Supplemental Indenture) nor the failure of the Exchange Agent to fulfill any
obligations, agreements or covenants set forth therein shall constitute (with or
without the giving of notice, the passage of time or both) an Event of Default;
provided, however, that nothing in this paragraph shall impair the right of a
Holder to receive the Exchange Property apportioned to such Holder's Debentures
in exchange for such Debentures in accordance with the terms and conditions of
this Article Two, and nothing in this paragraph shall impair the rights and
remedies of the Trustee and the Holders under Article Five of the Indenture with
respect to a failure by the Company to observe its express agreements and
covenants to cause the exchange of Debentures actually surrendered for exchange
pursuant to this Article Two for Exchange Property apportioned thereto in
accordance with the terms and conditions of this Article Two.




                                      -13-
<PAGE>   14



                  206. Company to Give Notice of Certain Events.

                  If at any time:

                  (a) Chevron shall declare a dividend (or any other
distribution) on the Chevron Common Stock which the Exchange Agent would be
required to apply for the benefit of the Holders of the Debentures in accordance
with Section 205 hereof; or

                  (b) Chevron shall authorize the granting of subscription
rights, options, warrants or other similar rights to holders of Chevron Common
Stock; or

                  (c) there shall occur any reclassification of Chevron Common
Stock (other than a subdivision or combination of outstanding shares of Chevron
Common Stock) or any consolidation or merger to which Chevron is a party and for
which approval of any stockholders of Chevron is required, or the sale or
transfer of all or substantially all of the assets of Chevron; or

                  (d) there shall occur the voluntary or involuntary
dissolution, liquidation or winding up of Chevron;

then the Company shall as promptly as practicable cause to be filed at the
office or agency maintained pursuant to Section 1002 of the Indenture and cause
to be mailed to the Holders of Debentures at their last addresses as they shall
appear upon the Security Register a notice stating (x) the date, if known by the
Company, on which a record is to be taken for the purpose of such dividend,
distribution or grant of rights, or, if a record is not to be taken, the date as
of which the holders of Chevron Common Stock of record to be entitled to such
dividend or distribution or grant of rights are to be determined, or (y) the
date, if known by the Company, on which such reclassification, merger,
consolidation, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Chevron Common Stock of record shall be entitled to exchange their
shares of Chevron Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.

                  207. Covenants by the Company.

                  So long as any Debentures shall be Outstanding and
exchangeable for Chevron Common Stock or other Exchange Property pursuant to
this Article Two, the Company shall (i) preserve unimpaired the right of each
Holder of Debentures, upon exchange thereof, to receive shares of Chevron Common
Stock or other Exchange Property as such Holder shall from time to time be
entitled to receive in accordance with the provisions of this Article Two, and
(ii) not pledge, mortgage, hypothecate or grant a security interest in, or
permit any mortgage, pledge, security interest or other lien upon, the Exchange
Property.


                                      -14-
<PAGE>   15



                  208. Transfer Taxes.

                  The Company will pay any and all taxes that may be payable in
respect of the transfer and delivery of shares of Chevron Common Stock (or other
securities included in the Exchange Property) pursuant hereto, other than
income, capital gains and similar taxes imposed on any Holder by reason of
exchange of Debentures for Exchange Property; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the delivery, upon an exchange of Debentures, of shares
of Chevron Common Stock (or other securities included in the Exchange Property)
in a name other than that in which the Debentures so exchanged were registered,
and no such transfer shall be made unless and until the Person requesting such
transfer has paid to the Company or the Exchange Agent the amount of any such
tax, or has established to the satisfaction of the Company and the Exchange
Agent that such tax has been paid.

                  209. Fully Paid Shares.

                  The Company warrants and covenants that all shares of Chevron
Common Stock delivered upon the exchange of Debentures will be fully paid and
nonassessable and that each Holder of Debentures who receives shares of Chevron
Common Stock or other Exchange Property in exchange for his Debentures pursuant
to this Article Two will receive valid and marketable title to such Exchange
Property, free and clear of all claims, liens and encumbrances (other than those
that may be created or suffered to exist by such Holder). Except as provided in
Section 208 hereof, the Company will pay all taxes, liens and charges with
respect to the delivery of Exchange Property in exchange for Debentures
hereunder.

                  210. Cancellation of Debentures.

                  All Debentures delivered for exchange shall be delivered by
the Exchange Agent to the Trustee and be canceled by the Trustee, and the
Trustee shall dispose of the same as provided in Section 309 of the Indenture.

                  211. Merger of Chevron

                  In case of any consolidation or merger of Chevron with or into
any other Person that results in shares of Chevron Common Stock, as constituted
prior to the consummation of such transaction, being converted into other
securities and/or property (including cash), or in case of any sale or transfer
of all or substantially all of the assets of Chevron (if in connection with such
sale or transfer holders of Chevron Common Stock receive other securities and/or
property including cash, in exchange for their shares of Chevron Common Stock),
or of any voluntary or involuntary dissolution, liquidation or winding-up of
Chevron, the Company shall execute and deliver to the Trustee a supplemental
indenture, and to the Exchange Agent a supplement to the Exchange Agreement,
each providing that the Holder of each Debenture then Outstanding shall have the
right thereafter (subject to Sections 215 and 216 hereof) to exchange such
Debenture (i) for the kind and amount of securities and other property
receivable upon such consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up by a holder of the number of shares of Chevron Common



                                      -15-
<PAGE>   16



Stock for which such Debenture was exchangeable immediately prior to such
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
and (ii) the kind and amount of securities (other than Chevron Common Stock) and
other Exchange Property for which such Debenture was exchangeable immediately
prior to such consolidation, merger, sale, transfer, dissolution, liquidation or
winding up. Such supplemental indenture shall provide for adjustments and rights
to receive and retain dividends or their equivalents, which shall be as nearly
equivalent as may be practicable to the adjustments and rights to receive and
retain dividends or their equivalents provided for in this Article Two. The
above provisions of this Section 211 shall similarly apply to any successive
consolidation, merger, sale, transfers, dissolution, liquidation or winding-up.

                  Notice of such supplemental indenture shall as soon as
practicable be filed with the Exchange Agent and mailed by or on behalf of the
Company to the Holders of Debentures at their last addresses as they shall
appear on the Security Register.

                  The Trustee shall not be under any responsibility to determine
the correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property or cash receivable by the Debenture holders upon the exchange of their
Debentures as herein provided after any such consolidation, merger, sale,
transfer, dissolution, liquidation or winding up or to any adjustment to be made
with respect thereto.

                  212. Certain Tender or Exchange Offers for Exchange Property.

                  In the event of a tender offer or exchange offer for any class
of securities included within the Exchange Property (i) if the Company owns
shares of such class which are not subject to the Exchange Agreement, the
Company will cause the Exchange Agent to tender such shares of such class in the
same proportion that the Company tenders its securities in such class which are
not subject to the Exchange Agreement, and (ii) if the Company does not own
securities of a class which are subject to the Exchange Agreement, the Company
may, at its option and in its sole discretion, elect to cause the Exchange Agent
to tender all or any portion or none of such class of security included within
the Exchange Property held by the Exchange Agent. The proceeds of the sale of
any such Exchange Property pursuant to any such tender or exchange offer will be
held by the Exchange Agent for the benefit of Holders as provided in this Third
Supplemental Indenture.

                  213. Obligations of Trustee and Exchange Agent.

                  Subject to the provisions of Section 601 of the Indenture,
neither the Trustee nor the Exchange Agent shall at any time be under any duty
or responsibility to any Holder of Debentures to determine whether any facts
exist which may require any adjustment of the Exchange Rate, or with respect to
the nature or extent of any such adjustment when made, or with respect to the
method employed, or herein or in any supplemental indenture provided to be
employed, in making the same. Neither the Trustee nor the Exchange Agent shall
be accountable with respect to the validity or value (or the kind or amount) of
any Exchange Property which may at any time be issued or delivered upon the
exchange of any Debenture or the market conditions existing at the time of sale
of any Exchange Property; and neither the Trustee nor the Exchange Agent makes
any representation with



                                      -16-
<PAGE>   17



respect thereto. Neither the Trustee nor the Exchange Agent shall be
responsible, for any failure of the Company to transfer or deliver any Exchange
Property or certificates or other evidence thereof to the Exchange Agent as
provided herein, or subject to the provisions of Section 601 of the Indenture
and the obligations assumed under the Exchange Agreement, to comply with any of
the covenants of the Company contained in this Article Two.

                  214. Exchange Arrangements in Case of Redemption.

                  In connection with any redemption of Debentures, the Company
may arrange for the purchase and exchange of Exchange Property of all or any
part of such Debentures by an arrangement with one or more investment bankers or
other purchasers to purchase such Debentures by paying to the Holders thereof,
or to the Trustee in trust for such Holders, on or before the close of business
on the Business Day next preceding the Redemption Date, an amount not less than
the applicable Redemption Price of the Debentures to be purchased, plus interest
accrued to the Redemption Date. Notwithstanding anything to the contrary
contained in Article Eleven of the Indenture, the obligation of the Company to
pay the Redemption Price of such Debentures, plus interest accrued to the
Redemption Date, shall be satisfied and discharged to the extent such amount is
so paid by such purchasers. Any Debentures to be purchased pursuant to such
agreement which are not presented for redemption or not duly surrendered for
exchange by the Holders thereof shall be deemed acquired by such purchasers from
the Holders and surrendered by such purchasers for exchange, all as of
immediately prior to the close of business on the Business Day next preceding
the Redemption Date, subject to payment of the above amount as aforesaid.
Notwithstanding anything to the contrary contained in this Article Two, in the
event that any Debentures subject to such agreement are surrendered for exchange
(other than by the purchasers) by the close of business on the Business Day next
preceding the Redemption Date, the amounts so paid to the Trustee in trust for
the Holders of the Debentures so surrendered for exchange shall be returned to
such purchasers.

                  215. Tax Adjustments in Exchange Rate.

                  If an event shall occur which causes the Exchange Rate to be
subject to adjustment pursuant to Section 204 hereof, or a merger, consolidation
or sale or transfer of assets or of any voluntary or involuntary dissolution,
liquidation or winding up of Chevron shall occur requiring a supplemental
indenture under Section 211 hereof, and if, within ten days after the effective
date of such transaction, the Company shall furnish the Exchange Agent with an
Opinion of Counsel to the effect that such transaction is taxable to the Company
or the Exchange Agent and an Officers' Certificate as to the amount of federal,
state and local tax payable by the Company or the Exchange Agent as a result of
such transaction (computed by the Company at the marginal tax rate applicable to
such transaction), the Exchange Agent shall pay to, or to the order of, the
Company, in the case of taxes payable by the Company, or itself, in the case of
taxes payable by it, the cash held by it and apportioned or to be apportioned to
the Exchange Property for which Outstanding Debentures are exchangeable, up to
the amount of such taxes. In the event that the cash held by the Exchange Agent
and so apportioned or to be apportioned is insufficient to pay to the Company or
the Exchange Agent the amount of such taxes, the Exchange Agent shall, as soon
as reasonably practicable and to the extent legally permissible, sell in
accordance with written instructions received by the Company, or



                                      -17-
<PAGE>   18



if no such instructions are received, as determined by the Exchange Agent, such
Exchange Property (including any securities or other property included therein)
as may be necessary to pay, from the proceeds thereof after payment of any taxes
by the Company or the Exchange Agent on such sale, the amount of any such
insufficiency. The Exchange Agent shall notify the Company and the Trustee of
any such sale and the Exchange Property sold. Following payment of all necessary
amounts to the Company or the Exchange Agent, such Exchange Property held by the
Exchange Agent and any cash apportioned thereto shall be proportionately
adjusted so as to be apportioned equally to the Debentures Outstanding as of
immediately after the close of business on the record date or the effective date
for the transaction to which this Section 215 applies (as shall be specified in
Section 204 or 211 hereof, whichever is applicable). Any Holder surrendering any
Debentures after such record date, or such effective date, as the case may be,
shall be, entitled to receive the Exchange Property and any cash apportioned
thereto as so adjusted pursuant to this paragraph. If this Section 215 shall
apply to a transaction and the sale by the Company of the consideration
receivable therein shall not be legally permissible and the amount of cash
apportioned to the Exchange Property shall not be sufficient to pay all taxes
payable by the Company or the Exchange Agent which arise from such transaction,
the Company may direct the Exchange Agent to segregate for the benefit of the
Company or the Exchange Agent (as the case may be) or deliver to the Company or
the Exchange Agent (as the case may be) an amount of Exchange Property
theretofore held by the Exchange Agent for exchange of Debentures having a
Market Value equal to the unsatisfied portion of the tax payable by the Company
or the Exchange Agent (as the case may be) with respect to such transaction
including any tax payable upon the delivery or sale thereof in order to satisfy
the aforementioned tax, and the Exchange Property shall thereafter be solely for
the account of the Company or the Exchange Agent (as the case may be) and
Holders of Debentures shall have no rights thereto.

                  In the event that an Opinion of Counsel given pursuant to this
Third Supplemental Indenture concludes that whether taxes are payable by the
Company or the Exchange Agent is uncertain under the then state of the law or
facts or both, the Company shall have the option of requesting the Exchange
Agent to segregate the amount of funds that would be payable (or securities or
other property in lieu thereof), if such taxes were deemed payable, together
with the amount estimated in good faith to be the reasonable costs and expenses
(including attorneys' fees) of obtaining a determination as set forth below. The
Holders shall have no rights to such funds or securities or other property,
which shall be held by the Exchange Agent for the Company (or itself, as the
case may be), the Exchange Property and any cash apportioned thereto deliverable
upon exchange of Debentures pursuant to this Article Two shall be reapportioned
as though such segregated amounts had been paid to the Company or the Exchange
Agent for such taxes, and any Holder surrendering any Debenture after the record
or effective date of the applicable transaction giving rise to an adjustment
pursuant to this Section 215 shall be entitled to receive only such Exchange
Property and any cash apportioned thereto upon exchange of Debentures pursuant
to this Article Two as so reapportioned. The Company shall thereupon in good
faith seek an appropriate determination from the appropriate agencies and, if
judged necessary by the Company in good faith, from appropriate courts, as to
whether taxes are so payable. If an appropriate determination is made that such
taxes are so payable, then the Exchange Agent shall immediately pay the funds or
deliver the securities or other property so segregated to the Company (or, if
taxes are payable by the



                                      -18-
<PAGE>   19



Exchange Agent, retain such funds or securities or other property for itself),
and if an appropriate determination is made that such taxes are not payable or
an amount of tax is payable which is less than the amount of funds or property
so segregated, then the Exchange Agent, after paying to the Company (or itself,
as the case may be) out of such funds or securities or other property the
reasonable expenses and costs (including attorneys' fees) of obtaining such
determination (and any taxes so payable), shall apportion such remaining funds
or securities or other property which had been so segregated among the Exchange
Property and cash apportioned thereto as of immediately after the close of
business on the record date or the effective date of such transaction giving
rise to an adjustment pursuant to Section 204 or 211 hereof, whichever is
applicable. If any Debenture has been exchanged on or after such record date or
such effective date, as the case may be, and before a determination is made that
no taxes are payable or an amount of tax is payable which is less than the
amount of funds or securities or other property so segregated, the Company to
the extent not previously delivered, shall deliver such Exchange Property and
any cash apportioned thereto as reapportioned following such determination, to
the person to which and in the manner in which the other proceeds of the
exchange of such Debenture were delivered.

                  216. Cash Equivalent.

                  Notwithstanding any other provisions in this Article Two, in
lieu of delivering certificates representing shares of Chevron Common Stock or
other Exchange Property in exchange for Debentures surrendered in accordance
with Section 202 hereof, the Company may, at the Company's option, pay to the
Holder surrendering such Debentures an amount in cash equal to the value of the
Exchange Property for which such Debentures are exchangeable (based on the
Market Price on the date of receipt by the Company of the notice of exchange
delivered by such Holder pursuant to Section 202 hereof). Prior to so directing
the Exchange Agent to make any such cash payment, the Company shall deposit with
the Exchange Agent the cash so payable.

                  217. Repurchase Rights.

                  In the event that the Company obtains or otherwise releases
any Chevron Common Stock or other Exchange Property in any manner otherwise than
as contemplated by Section 218 hereof, each Holder will have the right
("Repurchase Right"), at such Holder's option, to require the Company to
repurchase all of such Holder's Debentures, or a portion thereof which is $1,000
or any integral multiple thereof, in the manner and at the price described
below.

                  Promptly (and in any event within 10 days) after the Company
has obtained or released any Chevron Common Stock or any other Exchange Property
in any manner otherwise than as contemplated by Section 218 hereof, the Exchange
Agent will mail to all Holders of record of the Debentures a notice thereof and
the Repurchase Right arising as a result thereof (a "Repurchase Notice"). To
exercise the Repurchase Right, a Holder of Debentures must deliver on or before
the fifteenth day after the date of the Repurchase Notice irrevocable written
notice to the Exchange Agent of the Holder's exercise of such right, together
with the Debentures with respect to which the right is being exercised, duly
endorsed for transfer.



                                      -19-
<PAGE>   20



                  On the date ("Repurchase Date") that is 30 days after the date
of the Repurchase Notice, the Company will be required to repurchase all
Debentures in respect of which the Repurchase Right has been exercised at the
following price: (i) if the date on which the Company's obtaining or release of
Exchange Property in a manner not contemplated by Section 218 hereof first
occurs (the "Triggering Date") is before August 15, 2000, the product of (a)
120% and (b) the greater of the principal amount of such Debentures (plus
accrued and unpaid interest, if any, to the Repurchase Date) and the Market
Price of the Exchange Property deliverable in exchange for such Debentures on
the Triggering Date (or if such date is not a Business Day, on the next
succeeding Business Day); and (h) if the Triggering Date occurs on or after
August 15, 2000, the greater of (a) the redemption price specified in Section
103 hereof on the Triggering Date and (b) the Market Price of the Exchange
Property deliverable in exchange for such Debentures on the Triggering Date (or
if such date is not a Business Day, on the next succeeding Business Day).

                  The obligation of the Company to deliver Exchange Property (or
cash in lieu thereof) in exchange for Debentures shall survive and continue to
apply in full force and effect following and notwithstanding the occurrence of
any event triggering a Repurchase Right. Failure by the Company to exchange
Debentures in accordance with this Third Supplemental Indenture or to repurchase
Debentures upon valid exercise of a Repurchase Right will constitute an Event of
Default with respect to the Debentures pursuant to Section 501(7) of the
Indenture, and Holders of Debentures will have the remedies provided for in the
Indenture, including acceleration of the indebtedness evidenced by the
Debentures, in the event of any such failure.

                  If an offer is made to repurchase Debentures in connection
with a Repurchase Right, the Company will comply with all tender offer rules,
including but not limited to Sections 13(e) and 14(e) under the Exchange Act and
Rules 13e-1 and 14e-1 thereunder, to the extent applicable to such offer.

                  218. Withdrawals of Exchange Property. The Company shall be
entitled, out of the Exchange Property held by the Exchange Agent, to such kind
and quantity of Exchange Property and such amount of any cash (the investments
contemplated by Section 205 hereof being deemed for these purposes to be cash
and to be valued at their outstanding principal balance) and other Exchange
Property as shall be in excess of the quantity of Exchange Property held by the
Exchange Agent that would be deliverable by the Exchange Agent upon the exchange
of all Debentures then outstanding, and such excess shall be held by the
Exchange Agent for the account of the Company and, upon delivery of the
Officers' Certificate provided for in the following sentence, released to the
Company upon demand. Upon demand of any withdrawal of Exchange Property from the
Exchange Agent, the Company shall deliver to the Trustee an Officers'
Certificate (and a copy thereof to the Exchange Agent) which shall state (i) the
principal amount of Debentures then outstanding and the kind and amount of
Exchange Property required for delivery to the Holders thereof upon exchange,
(ii) that the withdrawal of the kind and amount of Exchange Property referred to
in such demand is permitted by the provisions of this Third Supplemental
Indenture and (iii) that the Exchange Property so to be withdrawn would not be
deliverable upon exchange of all Debentures then



                                      -20-
<PAGE>   21



outstanding. In delivering such certificate, the Company may rely on information
furnished to it by the Exchange Agent as to the kind and amount of Exchange
Property held by it and the kind and amount thereof previously delivered to
Holders of Debentures.

                  219. Certain Definitions. All terms used but not defined in
this Third Supplemental Indenture that are defined in the Indenture shall have
the meanings specified in the Indenture unless the context otherwise requires.
As used in this Third Supplemental Indenture, the following terms shall have the
following meanings:

                  "Chevron" means Chevron Corporation, a Delaware corporation.

                  "Chevron Common Stock" means the common stock of Chevron of
the class authorized and designated as common stock, par value $3.00 per share,
as such common stock may be changed or reclassified from time to time.

                  "Exchange Act" means the Securities Exchange Act of 1934 and
any successor statute thereto, in each case as amended from time to time.

                  "Exchange Agent" means Chase Bank of Texas, National
Association, Exchange Agent under the Exchange Agreement, until a successor
Exchange Agent shall have become such pursuant to the provisions of Section 16
of the Exchange Agreement, and thereafter "Exchange Agent" shall mean such
successor Exchange Agent thereunder and from time to time any subsequent
successor pursuant to such provisions.

                  "Exchange Agreement" means the Exchange Agent Agreement
entered into pursuant to the provisions of Section 205 hereof, as the same may
be supplemented and amended from time to time.

                  "Exchange Property" means initially the aggregate of the
4,140,077 shares of Chevron Common Stock delivered to the Exchange Agent by the
Company pursuant to the Exchange Agreement simultaneously with the execution and
delivery of this Third Supplemental Indenture, and thereafter means the
securities, cash and other property, if any, which at the time are deliverable
upon surrender of the Debentures for exchange in accordance with Article Two of
this Third Supplemental Indenture.

                  "Global Debenture" means a Debenture that evidences all or
part of the Debentures and bears the legend set forth in Section 108 hereof.

                  "Market Price" means, when used with respect to any security
as of any date, (i) if such security is not then listed or admitted to trading
on any national securities exchange registered under the Exchange Act, the
average of the high bid and low asked prices in the over-the-counter market on
such date as reported by the National Association of Securities Dealers
Automated Quotation System or (ii) if such security is then listed or admitted
to trading on any such national securities exchange, the last reported sales
price regular way on such date or, in case no such



                                      -21-
<PAGE>   22


reported sale takes place on such date, the average of the reported closing bid
and asked prices regular way on such date, in each case on the principal
national securities exchange on which such security is then listed or admitted
to trading, or (iii) if such prices are not available on such date, the market
value of such security on such date determined in such manner as shall be
satisfactory to the Exchange Agent, which shall be entitled to rely for such
purposes on the advice of any firm of investment bankers or security dealers
having familiarity with such security. "Market Price" means, when used with
respect to any property (other than any security) as of any date, the market
value of such property on such date determined in such manner as shall be
satisfactory to the Exchange Agent, which shall be entitled to rely for such
purposes on the advice of any firm of investment bankers having familiarity with
such property.

                                  ARTICLE THREE

                  301. Acceptance of Trust.

                  The Trustee accepts the trust hereby created and agrees to
perform the same upon the terms and conditions herein and in the Indenture set
forth.

                  302. Trustee Not Responsible for Validity, Due Execution or
Recitals.

                  The Trustee shall not be responsible in any manner whatsoever
for or in respect of the validity or sufficiency of this Third Supplemental
Indenture or the due execution thereof by the Company or for or in respect of
the recitals herein contained, all such recitals being made by the Company
solely.

                  303. Counterparts.

                  This Third Supplemental Indenture may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute but one and the same instrument.




                                      -22-
<PAGE>   23



                  IN WITNESS WHEREOF, PENNZOIL COMPANY, party hereto of the
first part, has caused its corporate name to be hereunto affixed, and this
instrument to be signed and sealed by a Group Vice President, for and on its
behalf, in the City of Houston, Texas and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, party hereto of the second part, has caused its corporate name to
be hereunto affixed, and this instrument to be signed and sealed by a Vice
President, for and on its behalf, in the City of Houston, Texas, all as of the
_____ day of August, 1998.

                                       PENNZOIL COMPANY



                                       By:
                                          --------------------------------------
                                            Bruce K. Misamore
                                            Vice President and Treasurer


                                       CHASE BANK OF TEXAS,
                                       NATIONAL ASSOCIATION,
                                       As Trustee



                                       By:  
                                          --------------------------------------
                                       Name:
                                            ------------------------------------
                                            Authorized Officer

STATE OF TEXAS                  )
                                )
COUNTY OF HARRIS                )

                  BEFORE ME, the undersigned authority, a Notary Public, on this
day personally appeared Bruce K. Misamore, Vice President and Treasurer of
Pennzoil Company, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes therein expressed, in the capacity therein set forth and as the act and
deed of said association.

                  GIVEN UNDER MY HAND AND SEAL of office, this the _____ day of
August, 1998.



                                       -----------------------------------------
                                       Notary Public




                                      -23-
<PAGE>   24





STATE OF TEXAS                  )
                                )
COUNTY OF HARRIS                )

                  BEFORE ME, the undersigned authority, a Notary Public, on this
day personally appeared __________________ of Chase Bank of Texas, National
Association, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes therein expressed, in the capacity therein set forth and as the act and
deed of said association.

                  GIVEN UNDER MY HAND AND SEAL of office, this the _____ day of
August, 1998.



                                       -----------------------------------------
                                       Notary Public




                                      -24-