Chesapeake Energy (CHK)

ISO Options

3.1 General Terms. With respect to ISO Options granted on or after the effective date of the Plan, the following provisions in this Article III shall apply to the exclusion of any inconsistent provision in any other Article in this Plan since the ISO Options to be granted under the Plan are intended to qualify as “incentive stock options” as defined in Section 422 of the Code.

3.2 Grant and Terms of ISO Options. No ISO Options shall be granted to any person who is not eligible to receive “incentive stock options” as provided in Section 422 of the Code. No ISO Options shall be granted to any Participant if, immediately before the grant of an ISO Option, such employee owns more than 10% of the total combined voting power of all classes of

- 9 -

stock of the Company, its parent or its subsidiaries (as determined in accordance with the stock attribution rules contained in Sections 422 and 424(d) of the Code). Provided, the preceding sentence shall not apply if, at the time the ISO Option is granted, the ISO Price (as defined below) is at least 110% of the “fair market value” of the Stock subject to the ISO Option, and such ISO Option by its terms is exercisable no more than five (5) years from the date such ISO Option is granted.

(a) ISO Option Price. The option price for shares of Stock subject to an ISO Option (“ISO Price”) shall be determined by the Committee, but in no event shall such ISO Price be less than the greater of (a) the “fair market value” of the Stock on the date of grant or (b) the par value of the Stock.

(b) Annual ISO Option Limitation. With respect to ISO Options granted, in no event during any calendar year will the aggregate “fair market value” (determined as of the time the ISO Option is granted) of the Stock for which the Participant may first have the right to exercise under any “incentive stock options” granted under the Plan and all other plans qualified under Section 422 of the Code which are sponsored by the Company, its parent and any subsidiary exceed $100,000. ISO Options which are in excess of the applicable $100,000 limitation will be recharacterized as Stock Options as provided under Article V herein.

(c) Terms of ISO Options. ISO Options shall be granted on the following terms and conditions: No ISO Option shall be exercisable more than ten (10) years from the date of grant. Subject to such limitation, the Committee shall have the discretion to fix the period (the “ISO Period”) during which any ISO Option may be exercised. ISO Options granted shall not be transferable except by will or by laws of descent and distribution. At all times during the period commencing with the date an ISO Option is granted to a Participant and ending on the earlier of the expiration of the ISO Period applicable to such ISO Options or the date which is three (3) months prior to the date the ISO Option is exercised by such Participant, such Participant must be an employee of either (i) the Company, (ii) a parent or a subsidiary of the Company, or (iii) a successor to the Company or a parent or a subsidiary of such successor issuing or assuming an ISO Option in a transaction to which Section 424(a) of the Code applies. Provided, in the case of a Participant who incurs a Disability, the aforesaid three (3) month period shall mean a one (1) year period. Provided further, in the event a Participant’s employment is terminated by reason of death, the Participant’s personal representative may exercise any unexercised ISO Option granted to the Participant under the Plan at any time within three (3) years after the Participant’s death but in any event not after the expiration of the ISO Period applicable to such ISO Option.

- 10 -

(d) Acceleration of Otherwise Unexercisable ISO Options on Retirement, Death, Disability or Other Special Circumstances. The Committee, in its sole discretion, may permit (i) a Participant who terminates employment due to Retirement, (ii) a Participant who terminates employment due to a Disability, (iii) the personal representative of a deceased Participant, or (iv) any other Participant who terminates employment upon the occurrence of special circumstances (as determined by the Committee) to purchase (within three (3) months of such date of termination of employment or one (1) year in the case of a Participant suffering a Disability or three (3) years in the case of a deceased Participant) all or any part of the shares subject to any ISO Option on the date of the Participant’s Retirement, Disability, death, or as the Committee otherwise so determines, notwithstanding that all installments, if any, had not accrued on such date.

(e) Number of ISO Options Granted. Subject to the applicable limitations contained in the Plan with respect to ISO Options, Participants may be granted more than one ISO Option. In making any such determination, the Committee shall obtain the advice and recommendation of the officers of the Company, its parent or a subsidiary of the Company who have supervisory authority over such Participants. Further, the granting of an ISO Option under the Plan shall not affect any outstanding ISO Option previously granted to a Participant under the Plan.