Document:

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                                                                    EXHIBIT 10.9

                            CAPELLA EDUCATION COMPANY

                          EMPLOYEE STOCK OWNERSHIP PLAN

                            (SECOND 2005 RESTATEMENT)

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                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN

                            (SECOND 2005 RESTATEMENT)

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                        <C>
ARTICLE I    INTRODUCTION...........................................................................................        1
   1.1       PLAN DESIGN............................................................................................        1
   1.2       PLAN DOCUMENT..........................................................................................        1
   1.3       EFFECTIVE DATE OF DOCUMENT.............................................................................        1

ARTICLE II   DEFINITIONS AND CONSTRUCTION...........................................................................        1
   2.1       DEFINITIONS............................................................................................        1
   2.2       CHOICE OF LAW..........................................................................................        6
   2.3       USE OF COMPOUNDS OF WORD "HERE"........................................................................        6
   2.4       CONSTRUED AS A WHOLE...................................................................................        6
   2.5       HEADINGS...............................................................................................        6

ARTICLE III  PARTICIPATION..........................................................................................        7
   3.1       START OF PARTICIPATION.................................................................................        7
   3.2       END OF PARTICIPATION...................................................................................        7

ARTICLE IV   NO EMPLOYEE CONTRIBUTIONS..............................................................................        7

ARTICLE V    EMPLOYER CONTRIBUTIONS.................................................................................        7
   5.1       ESOP CONTRIBUTIONS.....................................................................................        7
   5.2       ALLOCATION OF CONTRIBUTIONS............................................................................        8

ARTICLE VI   CONTRIBUTION LIMITS....................................................................................        8
   6.1       MAXIMUM ANNUAL ADDITIONS...............................................................................        8
   6.2       DEDUCTION LIMIT........................................................................................       11

ARTICLE VII  ACCOUNTS...............................................................................................       11
   7.1       ACCOUNTS...............................................................................................       11
   7.2       VALUATION OF ACCOUNTS..................................................................................       11
   7.3       VOTING RIGHTS ON COMPANY STOCK - PUBLIC COMPANY........................................................       13
   7.4       VOTING RIGHTS ON COMPANY STOCK - PRIVATE COMPANY.......................................................       13

ARTICLE VIII INVESTMENT OF ACCOUNTS.................................................................................       14
   8.1       INVESTMENT IN COMPANY STOCK............................................................................       14
   8.2       REPAYMENT OF EXEMPT LOAN...............................................................................       14

ARTICLE IX   VESTING ...............................................................................................       15
   9.1       VESTING AT NORMAL RETIREMENT AGE.......................................................................       15
   9.2       VESTING IN EVENT OF DISABILITY OR DEATH................................................................       15
   9.3       VESTING BASED ON SERVICE...............................................................................       15
   9.4       FORFEITURE OF NONVESTED BALANCE........................................................................       15
   9.5       FORFEITURE ACCOUNT.....................................................................................       15
   9.6       REINSTATEMENT UPON RETURN TO SERVICE...................................................................       15
   9.7       FORFEITURE IN EVENT OF MISSING PARTICIPANT OR BENEFICIARY..............................................       15

ARTICLE X    DIVERSIFICATION WHILE EMPLOYED.........................................................................       16
   10.1      ELIGIBILITY FOR DIVERSIFICATION........................................................................       16
   10.2      MAXIMUM PERCENTAGE LIMIT...............................................................................       16
   10.3      MAXIMUM NUMBER OF SHARES...............................................................................       16
   10.4      DIVERSIFICATION DISTRIBUTION PROCEDURES - PUBLIC COMPANY...............................................       16
   10.5      DIVERSIFICATION PROCEDURES - PRIVATE COMPANY...........................................................       17

ARTICLE XI   DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT...........................................................       18
   11.1      DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT...........................................................       18
   11.2      DISTRIBUTION PROCEDURES................................................................................       18
   11.3      CASH-OUT OF SMALL ACCOUNTS.............................................................................       19
   11.4      MINIMUM DISTRIBUTION RULES.............................................................................       20

ARTICLE XII  DISTRIBUTION AFTER DEATH...............................................................................       20
   12.1      DISTRIBUTION AFTER DEATH...............................................................................       20
   12.2      DISTRIBUTION PROCEDURES................................................................................       20
   12.3      BENEFICIARY DESIGNATION................................................................................       22
   12.4      MULTIPLE BENEFICIARIES.................................................................................       23
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<TABLE>
<S>                                                                                                                        <C>
   12.5      CASH-OUT OF SMALL ACCOUNTS.............................................................................       23
   12.6      MINIMUM DISTRIBUTION RULES.............................................................................       24

ARTICLE XIII MISCELLANEOUS BENEFIT PROVISIONS.......................................................................       24
   13.1      VALUATION OF ACCOUNTS FOLLOWING TERMINATION OF EMPLOYMENT..............................................       24
   13.2      DIRECT ROLLOVER OPTION.................................................................................       24
   13.3      BENEFIT STATEMENTS.....................................................................................       24
   13.4      MISSING PARTICIPANTS OR BENEFICIARIES..................................................................       25
   13.5      DISTRIBUTION TO ALTERNATE PAYEE........................................................................       25
   13.6      PUT OPTION; RIGHT OF FIRST REFUSAL; OTHER RESTRICTIONS ON COMPANY STOCK................................       26
   13.7      NO OTHER BENEFITS......................................................................................       27
   13.8      SOURCE OF BENEFITS.....................................................................................       27
   13.9      INCOMPETENT PAYEE......................................................................................       27
   13.10     NO ASSIGNMENT OR ALIENATION OF BENEFITS................................................................       27
   13.11     PAYMENT OF TAXES.......................................................................................       28
   13.12     CONDITIONS PRECEDENT...................................................................................       28
   13.13     DELAY OF DISTRIBUTION IN EVENT OF STOCK DIVIDEND OR SPLIT..............................................       28
   13.14     EFFECT OF REEMPLOYMENT.................................................................................       28

ARTICLE XIV  TRUST FUND.............................................................................................       28
   14.1      COMPOSITION............................................................................................       28
   14.2      NO DIVERSION...........................................................................................       28
   14.3      BORROWING TO PURCHASE COMPANY STOCK....................................................................       28
   14.4      FUNDING POLICY.........................................................................................       30
   14.5      SHARE REGISTRATION.....................................................................................       30
   14.6      PURCHASE/SALE OF COMPANY STOCK.........................................................................       30

ARTICLE XV   ADMINISTRATION.........................................................................................       31
   15.1      ADMINISTRATION.........................................................................................       31
   15.2      CERTAIN FIDUCIARY PROVISIONS...........................................................................       31
   15.3      PAYMENT OF EXPENSES....................................................................................       31
   15.4      EVIDENCE...............................................................................................       32
   15.5      CORRECTION OF ERRORS AND DUTY TO REVIEW INFORMATION....................................................       32
   15.6      CLAIMS AND LIMITATIONS ON ACTIONS......................................................................       32
   15.7      WAIVER OF NOTICE.......................................................................................       32
   15.8      AGENT FOR LEGAL PROCESS................................................................................       32
   15.9      INDEMNIFICATION........................................................................................       32
   15.10     EXERCISE OF AUTHORITY..................................................................................       33
   15.11     TELEPHONIC OR ELECTRONIC NOTICES AND TRANSACTIONS......................................................       33

ARTICLE XVI  AMENDMENT, TERMINATION, MERGER.........................................................................       33
   16.1      AMENDMENT..............................................................................................       33
   16.2      PERMANENT DISCONTINUANCE OF CONTRIBUTIONS..............................................................       34
   16.3      TERMINATION............................................................................................       34
   16.4      PARTIAL TERMINATION....................................................................................       34
   16.5      MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS......................................................       34
   16.6      DEFERRAL OF DISTRIBUTIONS..............................................................................       34

ARTICLE XVII MISCELLANEOUS PROVISIONS...............................................................................       34
   17.1      SPECIAL TOP-HEAVY RULES................................................................................       34
   17.2      QUALIFIED MILITARY SERVICE.............................................................................       36
   17.3      INSURANCE COMPANY NOT RESPONSIBLE FOR VALIDITY OF PLAN.................................................       36
   17.4      NO GUARANTEE OF EMPLOYMENT.............................................................................       36
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                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN

                            (SECOND 2005 RESTATEMENT)

                                    ARTICLE I

                                  INTRODUCTION

1.1   PLAN DESIGN. The Capella Education Company Employee Stock Ownership Plan
      is a stock bonus and employee stock ownership plan (within the meaning of
      Code Section 4975(3)(7)) that is intended to qualify under Code Section
      401(a). Thus, the Plan is designed to invest primarily in Company Stock.

1.2   PLAN DOCUMENT. The Plan document consists of this document, any amendments
      to this document, the List of Participating Employers maintained for the
      Plan, the List of Predecessor Employers maintained for the Plan, and any
      other document that is expressly incorporated by reference into the Plan.

1.3   EFFECTIVE DATE OF DOCUMENT. The Plan (as amended and restated in this
      document) is effective June 1, 2005, unless a different date is specified
      for some purpose in this document.

                                   ARTICLE II

                          DEFINITIONS AND CONSTRUCTION

2.1   DEFINITIONS.

2.1.1 "Account" means either of the following:

      (a)   A bookkeeping account maintained to reflect the Participant's
            interest in the Trust Fund.

      (b)   A Forfeiture Account.

2.1.2 "Affiliate" means any corporation that is a member of the same controlled
      group as the Company as defined in Code Section 414(b), any business
      entity that is under common control with the Company as defined in Code
      Section 414(c), any business entity that is a member of an affiliated
      service group with the Company as defined in Code Section 414(m), or any
      other business entity that is required to be aggregated and treated as one
      employer with the Company under Code Section 414(o). For purposes of
      applying the limits of Code Section 415, Code Sections 414(b) and 414(c)
      will be applied as modified by Code Section 415(h).

2.1.3 "Beneficiary" means a person (or persons) designated as such pursuant to
      Sec. 12.3.

2.1.4 "Code" means the Internal Revenue Code of 1986, as amended.

2.1.5 "Company" means Capella Education Company, a Minnesota corporation, and
      any successor.

2.1.6 "Company Stock" means the following, as applicable:

      (a)   Private. If the Company is Private, that class of common stock of
            the Company having a combination of voting power and dividend rights
            equal to or in excess of: (i) that class of common stock having the
            greatest voting power, and (ii) that class of common stock having
            the greatest dividend rights.

      (b)   Public. If the Company is Public, the common stock (including
            associated rights, if any) of the Company which is readily tradable
            on an established securities market.

2.1.7 "Covered Compensation" means the wages and other compensation reported on
      Form W-2 (as defined in paragraph (a) below) by a Participating Employer
      for an individual's employment as an Eligible Employee, but adjusted as
      described in paragraphs (b), (c) and (d) below.

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      (a)   Form W-2 Definition. Form W-2 includes wages within the meaning of
            Code Section 3401(a) and all other payments of compensation to an
            Eligible Employee by a Participating Employer (in the course of the
            Participating Employer's trade or business) for which the
            Participating Employer is required to furnish the Eligible Employee
            a written statement under Code Sections 6041(d), 6051(a)(3) and
            6052. This compensation must be determined without regard to any
            rules under Code Section 3401(a) that limit the remuneration
            included in wages based on the nature or location of the employment
            or the services performed (such as the exception for agricultural
            labor in Code Section 3401(a)(2)).

      (b)   Specific Inclusions. Covered Compensation also will include
            contributions made by pay reduction to:

            (1)   Any qualified cash or deferred arrangement (as defined in Code
                  Section 401(k)) that forms part of a plan maintained by the
                  Participating Employer, which contributions are excludable
                  from gross income under Code Section 402(e)(3).

            (2)   Any cafeteria plan (as defined in Code Section 125) maintained
                  by the Participating Employer, which contributions are
                  excludable from gross income under Code Section 125.

            (3)   Receive qualified transportation fringe benefits provided by
                  the Participating Employer, which contributions are excludable
                  from gross income under Code Section 132(f).

      (c)   Specific Exclusions. However, Covered Compensation does not include:

            (1)   Amounts earned while the individual is not an Eligible
                  Employee.

            (2)   Expense allowances or reimbursements (including but not
                  limited to moving expenses).

            (3)   Severance pay and any other amounts the payment of which, or
                  entitlement to which, is triggered or accelerated by reason of
                  Termination of Employment (including but not limited to
                  accumulated vacation pay paid at Termination of Employment).

            (4)   Contributions to, allocations under or distributions from any
                  nonqualified plan of deferred compensation under Code Section
                  409A (including but not limited to deferred bonuses).

            (5)   Grants of any stock option, restricted stock, deferred stock
                  unit, stock appreciation right or similar equity compensation
                  (or cash payments in lieu thereof).

            (6)   Amounts reported as taxable income on Form W-2 as a result of
                  the exercise of a non-qualified stock option or as a result of
                  vesting in restricted stock granted under any stock
                  compensation plan.

            (7)   Amounts reported as taxable income on Form W-2 as a result of
                  receiving group-term life insurance.

            (8)   Merchandise or service discounts, non-cash employee awards,
                  earnings payable in a form other than cash, any amounts paid
                  to or for an individual that receive special tax benefits, or
                  any other fringe benefits.

      (d)   Code Section 401(a)(17) Limit. Covered Compensation does not include
            any amounts in excess of the limit in effect under Code Section
            401(a)(17) for any Plan Year.

2.1.9 "Eligible Employee" means the following:

      (a)   General Rule. An Eligible Employee is an Employee of a Participating
            Employer, other than the following (that is, the following are
            excluded):

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              (1)    Any individual who is a Leased Employee with respect to the
                     Participating Employer, or any other individual who
                     performs services through, or is paid by, a third-party
                     (including, for example, an employee leasing or staffing
                     agency).

              (2)    Any individual who is classified as a consultant,
                     independent contractor, or as having any status other than
                     a common-law employee by the Participating Employer
                     (regardless of whether such individual is subsequently
                     determined to be a common-law employee or an employee for
                     any other purpose).

              (3)    Any individual who is a nonresident alien with respect to
                     the United States and who either:

                     (A)    Receives no earned income (within the meaning of
                            Code Section 911(d)(2)) from the Participating
                            Employer that constitutes income from sources within
                            the United States (within the meaning of Code
                            Section 861(a)(3)), or who receives such earned
                            income but it all is exempt from income tax in the
                            United States under the terms of an income tax
                            treaty; or

                     (B)    Is on temporary assignment in the United States.

       (b)    Collective Bargaining Employees. An Employee is not an Eligible
              Employee during any period he/she is a member of a unit of
              Employees covered by a collective bargaining agreement unless the
              agreement expressly provides that he/she is eligible to
              participate in this Plan. For this purpose, a collective
              bargaining agreement will be deemed to continue in effect after it
              expires during the pendency of collective bargaining negotiations
              until the parties have negotiated to "impasse" as determined by
              the Company, and an Employee thereafter will be an Eligible
              Employee if and only if participation is part of the impasse
              proposal of the Company or the Employee was an Eligible Employee
              before the collective bargaining agreement expired and the Company
              elects to continue such status with respect to the Plan.

       (c)    Authorized Leaves of Absence. An Employee will continue as an
              Eligible Employee during any authorized leave of absence if he/she
              was an Eligible Employee prior to the start of such leave until
              Termination of Employment or the happening of any event that would
              have caused the Employee to cease to be an Eligible Employee if
              he/she had not been on a leave of absence (e.g., if his/her
              employer ceases to be a Participating Employer).

              An "authorized leave of absence" for this purpose means any
              absence authorized by the Participating Employer under its
              standard personnel practices, and also includes any absence due to
              service in the Armed Forces of the United States provided the
              Employee returns to employment with the Participating Employer
              with reemployment rights provided by law.

       (d)    Termination of Plan. No Employee will become or remain an Eligible
              Employee after termination of the Plan.

2.1.10 "Employee" means any common-law employee of the Company or an Affiliate
       (while it is an Affiliate) and any Leased Employee with respect to the
       Company or an Affiliate (while it is an Affiliate). However, a Leased
       Employee will not be an Employee if Leased Employees do not constitute
       more than twenty percent (20%) of the combined workforce of the Company
       and Affiliates and the Leased Employee is covered by a plan of the
       leasing organization that is described in Code Section 414(n)(5).

2.1.11 "ERISA" means the Employee Retirement Income Security Act of 1974, as
       amended.

2.1.12 "Exempt Loan" means a loan or other extension of credit to the Plan to
       enable the Plan to acquire shares of Company Stock, or to refinance a
       prior Exempt Loan.

2.1.13 "Forfeiture" means the nonvested balance of a Participant's Account that
       is forfeited by the Participant upon Termination of Employment, or any
       other amount treated as a Forfeiture under the terms of the Plan.

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2.1.14 "Forfeiture Account" means an Account maintained to reflect Forfeitures
       (and investment income, gains and losses).

2.1.15 "Highly Compensated Employee" means an Employee who was a five-percent
       owner (as defined in Code Section 414(q)(2)) at any time during the
       current Plan Year or the look-back period, or an Employee who received
       compensation (as defined in Sec. 6.2.2) in excess of the amount in effect
       under Code Section 414(q)(1)(A) for the look-back period.

       The "look-back period" for this purpose is the twelve-month period
       immediately preceding the current Plan Year.

2.1.16 "Hour of Service" means each of the following (but in no event will
       duplicate credit be given for the same hour under more than one
       subsection):

       (a)    Work Periods. Each hour for which the individual is paid or
              entitled to payment by the Company or an Affiliate for the
              performance of services for the Company or Affiliate (while it is
              an Affiliate), with overtime hours credited on a straight-time
              basis.

       (b)    Non-Work Periods. Each hour for which the individual is paid or
              entitled to payment by the Company or an Affiliate (while it is an
              Affiliate) on account of a period of time during which no services
              are performed for the Company or Affiliate (irrespective of
              whether the employment relationship has terminated) due to
              vacation (but excluding hours attributable to accrued vacation for
              which payment is made in lieu of actual time off from work),
              holiday, illness, incapacity (including disability), layoff, jury
              duty, military duty, or leave of absence. However, no more than
              five hundred and one (501) hours will be credited under this
              paragraph for any single continuous period during which the
              individual performs no services. Hours will not be credited under
              this paragraph with respect to a payment under a plan maintained
              to comply with applicable workers' compensation, unemployment
              compensation, or disability insurance laws, or with respect to a
              payment which reimburses the individual for medical or
              medically-related expenses.

       (c)    Back Pay Awards. Each hour for which back pay, irrespective of
              mitigation of damages, is either awarded or agreed to by the
              Company or an Affiliate (while it is an Affiliate), with such
              hours to be credited to the computation period or periods to which
              the award or agreement pertains, rather than to the computation
              period in which the award, agreement, or payment is made.

       (d)    Credit if No Hour Records Maintained. If an individual is within a
              classification for which a record of hours for the performance of
              services is not maintained, or if he/she is on an authorized leave
              of absence or military leave, the individual will be credited with
              ten (10) hours of service for each day for which he/she would
              otherwise be credited under (a), (b) or (c) with at least one Hour
              of Service.

       To determine the Hours of Service of a Leased Employee, a payment to the
       Leased Employee by the leasing organization for services rendered to the
       Company or an Affiliate will be deemed to be a payment by the Company or
       Affiliate.

       The Company may use any records to determine hours of service which it
       considers an accurate reflection of the actual facts.

2.1.17 "Leased Employee" means an individual defined as such under Code Section
       414(n); generally, any individual who is not a common-law employee of the
       Company or an Affiliate, but who performs services for the Company or
       Affiliate (while it is an Affiliate) pursuant to an agreement with any
       other person, provided such individual has performed such services for
       the Company or Affiliate on a substantially full-time basis for a period
       of at least one year and such services are performed under the primary
       direction and control of the Company or Affiliate.

2.1.18 "Normal Retirement Age" means the later of: (i) the individual's
       sixty-fifth (65th) birthday, or (ii) the third (3rd) anniversary of the
       date the individual became a Participant.

2.1.19 "Participant" means either of the following:

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       (a)    an Eligible Employee, or

       (b)    an Employee or former Employee who is no longer an Eligible
              Employee but who still has a vested Account balance under the
              Plan.

2.1.20 "Participating Employer" means the Company and each Affiliate that is
       identified as a Participating Employer, in the List of Participating
       Employers maintained for the Plan.

2.1.21 "Plan" means the Capella Education Company Employee Stock Ownership Plan,
       as amended.

2.1.22 "Plan Year" means the calendar year.

2.1.23 "Predecessor Employer" means any business entity from whose employment a
       group of Employees has been transferred to employment with the Company or
       an Affiliate, or any member of a controlled group of corporations of
       which an Affiliate used to be a member prior to becoming a member of the
       controlled group of the Company. Each such Predecessor Employer will be
       identified in the List of Predecessor Employers maintained for the Plan.

2.1.24 "Private" means that the Company's common stock is not readily tradable
       on an established securities market.

2.1.25 "Public" means that the Company's common stock is readily tradable on an
       established securities market.

2.1.26 "Spouse" means a person of the opposite sex to whom the Participant is
       legally married (including a common-law spouse in any state that
       recognizes common-law marriage), except that a former spouse will be
       treated as the Spouse to the extent provided under a qualified domestic
       relations order (as defined in Code Section 414(p)).

2.1.27 "Termination of Employment" means either of the following:

       (a)    Common Law Employee. In the case of a common-law employee, his/her
              resignation, discharge, failure to return to work at the end of an
              authorized leave of absence, death or the happening of any other
              event or circumstances that results in the severance of the
              common-law employee relationship between that individual and
              his/her employer (as determined under the employment policies and
              practices of the Company). However, a Termination of Employment
              will not occur with respect to an individual even though there has
              been a severance of the common-law employee relationship between
              that individual and his/her employer if he/she remains an Employee
              (for example, he/she leaves one Affiliate and becomes a common-law
              employee of another Affiliate, or if he/she continues work as a
              Leased Employee).

       (b)    Leased Employee. In the case of a Leased Employee, the end of
              his/her status as a Leased Employee, unless he/she then becomes a
              common-law employee of the Company or an Affiliate (while it is an
              Affiliate).

2.1.28 "Trust Fund" means the trust fund (or funds) that serve as a funding
       vehicle for the Plan.

2.1.29 "Trustee" means a trustee (or trustees) appointed and acting as such with
       respect to all or any portion of the Trust Fund.

2.1.30 "Unallocated Reserve" means the portion of the Trust Fund that consists
       of:

       (a)    The proceeds of an Exempt Loan,

       (b)    The shares of Company Stock that were acquired with the proceeds
              of an Exempt Loan and that have not yet been allocated to
              Accounts,

       (c)    The dividends and other investment earnings on the shares of
              Company Stock or other assets held in the Unallocated Reserve, and

       (d)    The proceeds from any sale of shares of Company Stock (or other
              assets) held in the Unallocated Reserve.

                                      -5-
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2.1.31 "Valuation Date" means the following, as applicable:

       (a)    Private. If the Company is Private, December 31 of each Plan Year,
              and any other date, as designated by the Company in written notice
              to the Trustee, as the Company may consider necessary or advisable
              to satisfy the requirements of the Code or to provide for the
              orderly and equitable administration of the Plan.

       (b)    Public. If the Company is Public, each day on which trading occurs
              on the principal United States Securities Exchanges registered
              under the Securities Exchange Act of 1934, as amended.

2.1.32 "Vesting Service" means the following measure of an Employee's service
       with the Company and Affiliates (while they are Affiliates):

       (a)    Computation. One year of Vesting Service will be credited to the
              Employee for each Plan Year in which the Employee has one thousand
              (1,000) or more Hours of Service.

       (b)    Completion. A year of Vesting Service will be deemed completed as
              of the date in the Plan Year that the Employee completes one
              thousand (1,000) Hours of Service.

       (c)    No Fractional Years. Fractional years of Vesting Service will not
              be credited.

       (d)    Predecessor Employers. Vesting Service also will include service
              with a Predecessor Employer (such service will be treated as
              service with an Affiliate) as required under Code Section 414(a)
              or as provided under the List of Predecessor Employers maintained
              for the Plan.

2.2    CHOICE OF LAW. The Plan will be governed by the substantive laws of the
       State of Minnesota (without giving effect to the choice or conflict of
       law principles of that state), to the extent that such laws are not
       preempted by the laws of the United States. All controversies, disputes,
       and claims arising under the Plan and not otherwise resolved must be
       submitted to the United States District Court for the District of
       Minnesota, except as otherwise provided in any trust agreement governing
       all or a portion of the Trust Fund.

2.3    USE OF COMPOUNDS OF WORD "HERE". Use of the words "hereof," "herein,"
       "hereunder," or similar compounds of the word "here" will mean and refer
       to the entire Plan unless the context clearly indicates to the contrary.

2.4    CONSTRUED AS A WHOLE. The Plan is to be construed as a whole in such
       manner as to carry out its purpose and a given provision is not to be
       construed separately without relation to the context.

2.5    HEADINGS. Headings at the beginning of Articles and Sections are for
       convenience of reference, are not considered a part of the text of the
       Plan, and will not influence its construction.

                                   ARTICLE III

                                  PARTICIPATION

3.1    START OF PARTICIPATION. An Employee will become a Participant on the date
       that he/she becomes (or again becomes) an Eligible Employee.

3.2    END OF PARTICIPATION. A Participant will continue as such until:

       (a)    Nonvested Participant. Termination of Employment without a vested
              Account balance.

       (b)    Vested Participant. Full distribution of his/her vested Account
              balance.

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                                   ARTICLE IV

                            NO EMPLOYEE CONTRIBUTIONS

       Employee contributions (including before-tax or after-tax contributions,
       or rollover contributions) are not required or permitted under the Plan.

                                    ARTICLE V

                             EMPLOYER CONTRIBUTIONS

5.1    ESOP CONTRIBUTIONS. An ESOP Contribution will be made for any Plan Year
       for which a payment is due on an Exempt Loan or for any other Plan Year
       for which the Company in its sole discretion determines that such a
       contribution will be made.

5.1.1  Amount of Contribution. The amount of the ESOP Contribution for a Plan
       Year will be determined at the sole discretion of the Company, but will
       not be less than the minimum amount sufficient to enable the Trustee to
       make the payment due on any Exempt Loan for the Plan Year to the extent
       that such payment is not satisfied from (i) cash dividends and other
       investment earnings on the shares of Company Stock or other assets held
       in the Unallocated Reserve, (ii) the proceeds from any refinancing of the
       Exempt Loan, or (iii) the proceeds from any sale of shares of Company
       Stock or other assets held in the Unallocated Reserve.

5.1.2  Form of Contribution. ESOP Contributions will be made in cash or shares
       of Company Stock as determined at the sole discretion of the Company. If
       a contribution is made in shares of Company Stock, each share so
       contributed will be valued as follows:

       (a)    Private. If the Company is Private, each share will be valued
              using the value as of the last Valuation Date of the Plan Year to
              which the contribution relates.

       (b)    Public. If the Company is Public, each share will be valued at the
              closing price of a share of Company Stock for the Valuation Date
              immediately preceding the date the Company directs its transfer
              agent to issue such share to the Trust Fund (as such price is
              reported in any financial newspaper or on any electronic stock
              reporting service deemed accurate by the Company).

5.1.3  Time of Contribution. ESOP Contributions will be made to the Trust Fund
       at such time or times as the Company in its sole discretion deems
       appropriate. However, the ESOP contribution (if any) for a given Plan
       Year will be delivered to the Trustee for deposit in the Trust Fund not
       later than the time prescribed by federal law (including extensions) for
       filing the federal income tax return of the Company for the taxable year
       in which the Plan Year ends.

5.1.4  Limits. ESOP Contributions will be subject to the applicable limits set
       forth in Article VI.

5.2    ALLOCATION OF CONTRIBUTIONS.

5.2.1  Contributions Used for Loan Repayment. The ESOP Contribution for a Plan
       Year first will be applied to make the payment due on any outstanding
       Exempt Loan. The shares of Company Stock released from the Unallocated
       Reserve as a result of such payment will be allocated as provided in Sec.
       7.2.2.

5.2.2  Contributions Not Used for Loan Repayment. The ESOP Contribution (or the
       portion thereof) for a Plan Year that is not applied to an Exempt Loan
       will be allocated among the Accounts of the allocation eligible
       Participants for the Plan Year, and the portion allocated to each such
       Account will be credited to the Account as of the last Valuation Date in
       the Plan Year. The portion of the ESOP Contribution allocated to the
       Account of each allocation eligible Participant will equal the total
       amount of the ESOP Contribution to be so allocated multiplied by a
       fraction, the numerator of which is the Covered Compensation of the
       Participant for the Plan Year, and the denominator of which is the
       aggregate Covered Compensation of all allocation eligible Participants
       for the Plan Year.

5.2.3  Eligible Participants. An "allocation eligible" Participant for a Plan
       Year is:

                                      -7-
<PAGE>

       (a)    A Participant who both:

              (1)    Has one thousand (1,000) or more Hours of Service during
                     the Plan Year, and

              (2)    Is an Employee on the last day of the Plan Year.

       (b)    A Participant whose Termination of Employment occurred during the
              Plan Year as a result of his/her:

              (1)    Retirement at or after Normal Retirement Age,

              (2)    Total and permanent disability (as evidenced by a
                     determination from the Social Security Administration), or

              (3)    Death.

5.2.4  S Corporation Limitation. Notwithstanding the foregoing, no portion of
       Plan assets attributable to Company Stock in an S corporation may, during
       a nonallocation year (as defined in Code Section 409(p)(3)), accrue to
       the benefit of a disqualified person (as defined in Code Section
       409(p)(4)).

                                   ARTICLE VI

                               CONTRIBUTION LIMITS

6.1    MAXIMUM ANNUAL ADDITIONS.

6.1.1  Defined Contribution Plan Limit. The annual additions for a Participant
       for a limitation year will not exceed the lesser of:

       (a)    The dollar amount in effect for such limitation year under Code
              Section 415(c)(1)(A)), or

       (b)    One-hundred percent (100%) of the Participant's compensation for
              the limitation year.

       If a Participant has annual additions under more than one defined
       contribution plan maintained by the Company or an Affiliate (while it is
       an Affiliate), the Annual Additions under all such plans will not exceed
       the limit specified above.

6.1.2  Special Definitions. For purposes of Article VI, the following
       definitions apply:

       (a)    "Annual Addition" means any of the following amounts credited to
              the individual as of any date within the limitation year:

              (1)    Employee after-tax contributions credited under any defined
                     contribution plan maintained by the Company or an
                     Affiliate, but not including rollover contributions
                     (whether after-tax or before-tax).

              (2)    Employer contributions and elective deferrals credited
                     under any defined contribution plan or simplified employee
                     pension plan maintained by the Company or an Affiliate, but
                     not including: (i) any excess deferrals under Code Section
                     402(g) that are timely distributed, (ii) any catch-up
                     contributions under Code Section 414(v), or (iii) any
                     buy-back contributions made to restore a prior forfeiture.

              (3)    Forfeitures credited under this Plan any other defined
                     contribution plan maintained by the Company or an
                     Affiliate.

              (4)    Amounts credited to any individual medical benefit account
                     (as described in Code Section 415(l)(2)) under any defined
                     benefit plan maintained by the Company or an Affiliate.
                     However, such amounts will be disregarded in applying the
                     one hundred percent (100%) of compensation limit under Code
                     Section 415(c)(1)(B).

                                      -8-
<PAGE>

              (5)    Amounts credited to any separate account for retiree
                     medical benefits (as described in Code Section 419A(d)(2))
                     on behalf of any Key Employee under any welfare benefit
                     fund maintained by the Company or an Affiliate.

              Any contrary provision notwithstanding, employer contributions
              under this Plan that are applied to pay interest on an Exempt Loan
              will not be an annual addition if no more than one-third (1/3rd)
              of such employer contributions that are applied to pay principal
              or interest on an Exempt Loan for the Plan Year are allocated to
              Participants who are Highly Compensated Employees.

       (b)    "Compensation" means the wages and other compensation reported on
              Form W-2 by the Company and all Affiliates for the individual's
              employment during the limitation year, subject to the following:

              (1)    Form W-2 Definition. Form W-2 includes wages within the
                     meaning of Code Section 3401(a) and all other payments of
                     compensation to the individual by his/her employer (in the
                     course of the employer's trade or business) for which the
                     employer is required to furnish the individual a written
                     statement under Code Sections 6041(d), 6051(a)(3) and 6052.
                     This compensation must be determined without regard to any
                     rules under Code Section 3401(a) that limit the
                     remuneration included in wages based on the nature or
                     location of the employment or the services performed (such
                     as the exception for agricultural labor in Code Section
                     3401(a)(2)).

              (2)    Specific Inclusions. Compensation also will include
                     contributions made by pay reduction to

                     (A)    Any qualified cash or deferred arrangement (as
                            defined in Code Section 401(k)) that forms part of a
                            plan maintained by the Company or an Affiliate,
                            which contributions are excludable from gross income
                            under Code Section 402(e)(3).

                     (B)    Any cafeteria plan (as defined in Code Section 125)
                            maintained by the Company or an Affiliate which
                            contributions are excludable from gross income under
                            Code Section 402(e)(3).

                     (C)    Receive qualified transportation fringe benefits
                            provided by the Company or an Affiliate, which
                            contributions are excludable from gross income under
                            Code Section 132(f).

       (c)    "Limitation Year" means the Plan Year.

6.1.3  Correction if Limit Is Exceeded. If the limit specified in Sec. 6.1.1
       would be exceeded for a Participant for a limitation year, the following
       actions will be taken in the following sequence, to the extent necessary
       to eliminate the excess:

       (a)    Employee After-Tax Contributions and Elective Deferrals. The
              defined contribution plan will:

              (1)    Return any unmatched employee contributions made by the
                     individual for the limitation year to the Participant
                     (adjusted for their proportionate share of gains but not
                     losses while held in the defined contribution plan).

              (2)    Distribute unmatched elective deferrals (within the meaning
                     of Code Section 402(g)(3)) made for the limitation year to
                     the individual (adjusted for their proportionate share of
                     gains but not losses while held in the defined contribution
                     plan).

              (3)    Return any matched employee contributions made by the
                     individual for the limitation year to the individual
                     (adjusted for their proportionate share of gains but not
                     losses while held in the defined contribution plan).

              (4)    Distribute matched elective deferrals (within the meaning
                     of Code Section 402(g)(3)) made for the limitation year to
                     the individual (adjusted for their proportionate share of
                     gains but not losses while held in the defined contribution
                     plan).

                                      -9-
<PAGE>

              To the extent matched employee contributions are returned or any
              matched elective deferrals are distributed, any matching
              contribution made with respect thereto shall be forfeited and
              applied as provided in the defined contribution plan.

       (b)    Employer Contributions. If, after taking all the actions described
              in paragraph (a), an excess still exists, the defined contribution
              plan will dispose of the excess as follows:

              (1)    Covered. If the individual is covered by the defined
                     contribution plan at the end of the limitation year, the
                     employer shall cause such excess to be used to reduce
                     employer contributions for the next limitation year
                     ("second limitation year") and succeeding limitation years,
                     as necessary, for that individual.

              (2)    Not Covered. If the individual is not covered by the
                     defined contribution plan at the end of the limitation
                     year, however, then the excess amounts must be held
                     unallocated in an "excess account" for the second
                     limitation year (or succeeding limitation years) and
                     allocated and reallocated in the second limitation year (or
                     succeeding limitation years) to all the remaining
                     participants in the defined contribution plan as if an
                     employer contribution for the second limitation year (or
                     succeeding limitation year). However, if the allocation or
                     reallocation of the excess amounts pursuant to the
                     provisions of the defined contribution plan causes the
                     limitations of Sec. 6.1.1 to be exceeded with respect to
                     each participant for the second limitation year (or
                     succeeding limitation years), then these amounts must be
                     held unallocated in an excess account. If an excess account
                     is in existence at any time during the second limitation
                     year (or any succeeding limitation year), all amounts in
                     the excess account must be allocated and reallocated to
                     participants' accounts (subject to the limitations of Sec.
                     6.1.1) as if they were additional employer contributions
                     before any employer contribution and any participant
                     contributions which would constitute annual additions may
                     be made to the defined contribution plan for that
                     limitation year. Furthermore, the excess amounts must be
                     used to reduce employer contributions for the second
                     limitation year (and succeeding limitation years, as
                     necessary) for all of the remaining participants.

              (3)    No Distributions. Excess amounts may not be distributed
                     from the defined contribution plan to participants or
                     former participants.

              If an excess account is in existence at any time during a
              limitation year, the investment income, gains and losses
              attributable to the excess account will be allocated to such
              excess account. To the extent that investment income, gains and
              losses are allocated to the excess account, the entire amount
              allocated to participants from the excess account, including any
              such investment income and gains or less any investment losses,
              will be considered as an annual addition. If the defined
              contribution plan should be terminated prior to the date any such
              temporarily held, unallocated excess can be allocated to the
              accounts of participants, the date of termination will be deemed
              to be a valuation date for the purpose of allocating such excess
              and, if any portion of such excess cannot be allocated as of such
              deemed valuation date by reason of the limitations of Sec. 6.1.1,
              such remaining excess will be returned to the Company or Affiliate
              that maintained the plan.

       (c)    Sequence of Plans. Each step of remedial action under paragraphs
              (a) and (b) as may be necessary to correct an excess allocation
              will be made in all defined contribution plans before the next
              step of remedial action is made. Each such step will be made in
              the defined contribution plans in the following sequence:

              (1)    All profit sharing and stock bonus plans containing cash or
                     deferred arrangements.

              (2)    All money purchase pension plans, other than money purchase
                     pension plans that are part of employee stock ownership
                     plans.

              (3)    All profit sharing and stock bonus plans, other than profit
                     sharing and stock bonus plans containing cash or deferred
                     arrangements and employee stock ownership plans.

                                      -10-
<PAGE>

              (4)    All employee stock ownership plans.

              If an excess allocation occurs in two (2) or more plans in the
              same category, correction of the excess allocation will be made in
              chronological order as determined by the original effective date
              of each plan beginning with the most recently established plan.

6.2    DEDUCTION LIMIT. The contributions made for any Plan Year will not exceed
       the maximum amount allowable as a deduction in computing the taxable
       income for federal income tax purposes of the Company and Affiliates for
       the taxable year of the Company that ends with or within the Plan Year.
       Each contribution is expressly conditioned upon its being deductible
       under Code Section 404.

                                   ARTICLE VII

                                    ACCOUNTS

7.1    ACCOUNTS.

7.1.1  Balance of Accounts. Each Account will have a stock balance expressed in
       full and fractional shares of Company Stock, and may have a cash balance
       expressed in United States dollars to reflect (i) cash contributions,
       cash dividends, and other cash amounts received by the Trust Fund that
       are held in cash temporarily pending investment in shares of Company
       Stock, and (ii) such minor amounts (if any) as the Trustee determines are
       appropriate to hold in cash for purposes of honoring anticipated
       distribution and transfer requests from Participants and Beneficiaries.

7.1.2  Accounts for Bookkeeping Only. Accounts are for bookkeeping purposes
       only. The maintenance of Accounts will not require any segregation of
       assets of the Trust Fund.

7.2    VALUATION OF ACCOUNTS.

7.2.1  Valuation Date Adjustments. Accounts will be adjusted as of each
       Valuation Date as follows:

       (a)    Contributions. Contributions made with respect to a Participant
              will be added to the balance of his/her Account as soon as
              administratively practicable after such contributions are paid
              into the Trust Fund. However, for purposes of applying the
              nondiscrimination tests under Code Section 401(a)(4), for purposes
              of determining the maximum allocations under Code Section 415, for
              purposes of calculating the deductions under Code Section 404 and
              for any other qualification provision of the Code, a contribution
              will be treated as having been made for the Plan Year designated
              by the Company, provided that the contribution is made to the
              Trust Fund by such deadline as may be prescribed for the
              applicable provision of the Code.

       (b)    Cash Dividends. The cash dividends paid on shares of Company Stock
              held by the Trust Fund as of the record date of such dividend
              (other than cash dividends paid on shares held in the Unallocated
              Reserve) will be allocated among the Accounts. The portion
              allocated to each Account will be added to balance of the Account
              as soon as administratively practicable after such dividends are
              paid into the Trust Fund.

              The portion of such cash dividends allocated to each Participant's
              Account will be determined by multiplying the total cash dividends
              (other than cash dividends paid on shares held in the Unallocated
              Reserve) by a fraction, the numerator of which is the number of
              shares of Company Stock credited to the Participant's Account as
              of the date the dividends are paid into the Trust Fund (or as of
              such other date as may be established by the Company), and the
              denominator of which is the total number of shares of Company
              Stock held in all Participants' Accounts as of the date the
              dividends are paid into the Trust Fund (or as of such other date
              as may be established by the Company).

              The cash dividends paid on shares of Company Stock held in the
              Unallocated Reserve as of the record date of such dividend will be
              credited to the Unallocated Reserve and will thereafter be applied
              to any payment due for the Plan Year on the Exempt Loan.

                                      -11-
<PAGE>

       (c)    Stock Dividends and Splits. The stock dividends paid on shares of
              Company Stock credited to the Participant's Account as of the
              record date of such dividend, and stock splits or reverse stock
              splits with respect to shares of Company Stock credited to the
              Participant's Account as of the record date of such split, will be
              added to the balance of the Account as soon as administratively
              practicable after the additional shares resulting from such stock
              dividend, stock split or reverse stock split are paid into the
              Trust Fund.

              The stock dividends paid on shares of Company Stock held in the
              Unallocated Reserve as of the record date of such dividend, and
              stock splits or reverse stock splits with respect to shares of
              Company Stock held in the Unallocated Reserve as of the record
              date of such split, will be credited to the Unallocated Reserve.

       (d)    Distributions and Transfers. The distributions and transfers made
              from an Account will be subtracted from the balance of the Account
              as of the date the distribution or transfer is made from the Trust
              Fund.

       Any items of investment income and gain not provided for under the above
       provisions and not applied to pay expenses of the Plan will be allocated
       among the Accounts in accordance with rules prescribed for this purpose
       by the Company. Any items of investment loss and any expenses not
       provided for under the above provisions will be allocated among the
       Accounts in accordance with rules prescribed for this purpose by the
       Company. The portion allocated to each Account will be added to or
       subtracted from the Account as of the date established by the Company.

7.2.2  Annual Adjustments for ESOP Contributions/Shares Released from
       Unallocated Reserve.

       (a)    Contributions Used for Loan Repayment. The shares of Company Stock
              released from the Unallocated Reserve for a Plan Year will be
              allocated among the Accounts of the allocation eligible
              Participants (as defined in Sec. 5.2.3) for the Plan Year. The
              shares allocated to each such Account will be added to the balance
              of the Account as of the last Valuation Date in the Plan Year. The
              number of shares of Company Stock allocated to the Account of each
              allocation eligible Participant will be determined by multiplying
              the number of shares of Company Stock released from the
              Unallocated Reserve by a fraction, the numerator of which is the
              Covered Compensation of the allocation eligible Participant for
              the Plan Year, and the denominator of which is the aggregate
              Covered Compensation of all allocation eligible Participants for
              the Plan Year.

       (b)    Contributions Not Used for Loan Repayment. Any ESOP Contribution
              for a Plan Year that is allocated to a Participant under Sec.
              5.2.2 (and not applied to an Exempt Loan) will be added to the
              balance of the Participant's Account as of the last Valuation Date
              in the Plan Year.

7.2.3  Processing Transactions Involving Accounts. Accounts will be adjusted to
       reflect contributions, dividends, distributions and transfers, and other
       transactions as provided above. However, all information necessary to
       properly reflect a given transaction in the Accounts may not be
       immediately available, in which case the transaction will be reflected in
       the Accounts when such information is received and processed. Further,
       subject to express limits that may be imposed under the Code or ERISA,
       the Company reserves the right to delay the processing of any
       contribution, dividend, distribution or transfer, or other transaction
       for any legitimate business reason (including, but not limited to,
       failure of systems or computer programs, failure of the means of the
       transmission of data, force majeure, the failure of a service provider to
       timely receive asset values or prices, or to correct for its errors or
       omissions or the errors or omissions of any service provider).

7.2.4  Valuation of Company Stock - Private Company. If the Company is Private,
       all valuations of Company Stock for purposes of the Plan will be
       performed by an independent appraiser as provided in Code Section
       401(a)(28)(C).

7.3    VOTING RIGHTS ON COMPANY STOCK - PUBLIC COMPANY.

7.3.1  Voting of Allocated Shares. A Participant (or Beneficiary of a deceased
       Participant) may instruct the Trustee as to how to vote shares of Company
       Stock credited to his/her Account on any matter submitted for a vote to
       shareholders of the Company. The number of shares with respect to

                                      -12-
<PAGE>

       which a Participant (or Beneficiary) may provide voting instructions will
       equal the number of full and fractional shares credited to his/her
       Account as of the record date for determining the shareholders entitled
       to vote at the shareholders meeting. The Company will cause the proxy
       materials that are sent to shareholders to be sent to Participants (and
       Beneficiaries of deceased Participants) prior to the shareholders meeting
       at which the vote is to be cast. The Company or Trustee will establish a
       deadline by which instructions must be received from Participants (and
       Beneficiaries). The Trustee will tabulate the instructions received by
       that deadline, will determine the number of votes for and against each
       proposal, and will vote the allocated shares in accordance with the
       directions received. The Trustee will vote all shares of Company Stock
       credited to Accounts for which instructions from the Participants (or
       Beneficiaries) have not been received by the established deadline in the
       same proportion as the votes cast by Participants (or Beneficiaries).

7.3.2  Voting of Unallocated Shares. The Trustee will vote in its discretion all
       shares of Company Stock held in the Unallocated Reserve (if any).

7.3.3  Named Fiduciary. A Participant (or Beneficiary) will be a "named
       fiduciary" to the extent of the voting control granted under this
       Section.

7.4    VOTING RIGHTS ON COMPANY STOCK - PRIVATE COMPANY.

7.4.1  Trustee Voting of Shares. Shares of Company Stock will be voted by the
       Trustee as follows:

       (a)    Unallocated Shares. The Trustee will vote in its discretion all
              shares of Company Stock held in the Unallocated Reserve (if any).

       (b)    Allocated Shares. The Trustee will vote in its discretion all
              shares of Company Stock credited to Accounts. However, with
              respect to a transaction for which Participants (or Beneficiaries
              of deceased Participants) have been granted voting control under
              Sec. 7.4.2, all shares of Company Stock credited to Accounts will
              be voted as follows:

              (1)    Shares for which instructions from the Participants (or
                     Beneficiaries) have been received by the established
                     deadline will be voted in accordance with those
                     instructions; and

              (2)    Shares for which instructions from the Participants (or
                     Beneficiaries) have not been received by the established
                     deadline will be voted in the same proportion as the votes
                     cast by Participants (or Beneficiaries) pursuant to Sec.
                     7.4.2.

7.4.2  Pass-Through Voting for Certain Transactions. A Participant (or
       Beneficiary of a deceased Participant) may instruct the Trustee as to how
       to vote shares of Company Stock credited to his/her Account with respect
       to any vote required for the approval or disapproval of any corporate
       merger or consolidation, recapitalization, liquidation, dissolution, or
       sale of substantially all of the assets of the Company, or such similar
       transaction as the Secretary of the Treasury may prescribe in
       regulations. The number of shares with respect to which a Participant (or
       Beneficiary) may provide voting instructions will equal the number of
       full and fractional shares credited to his/her Account as of the record
       date for determining the shareholders entitled to vote at the
       shareholders meeting. The Company will cause the proxy materials that are
       sent to shareholders to be sent to Participants (and Beneficiaries of
       deceased Participants) prior to the shareholders meeting at which the
       vote is to be cast. The Company or Trustee will establish a deadline by
       which instructions must be received from Participants (and
       Beneficiaries). The Trustee will tabulate the instructions received by
       that deadline, will determine the number of votes for and against each
       proposal, and will vote the allocated shares in accordance with the
       directions received.

7.4.3  Named Fiduciary. A Participant (or Beneficiary) will be a "named
       fiduciary" to the extent of the voting control granted under this
       Section.

                                      -13-
<PAGE>

                                  ARTICLE VIII

                             INVESTMENT OF ACCOUNTS

8.1    INVESTMENT IN COMPANY STOCK. All Accounts will be invested exclusively in
       shares of Company Stock, except for such minor amounts (if any) as the
       Trustee determines are appropriate to hold in cash for purposes of
       honoring anticipated distribution and transfer requests from Participants
       and Beneficiaries. All shares of Company Stock held under the Plan will
       be held in the name of the Trustee or the nominee of the Trustee.

8.2    REPAYMENT OF EXEMPT LOAN.

8.2.1  Contribution Requirement. If an Exempt Loan is outstanding, an ESOP
       Contribution will be made for the Plan Year in an amount at least
       sufficient to make the payment due on the Exempt Loan to the extent that
       such payment is not made from (i) cash dividends and other investment
       earnings on the shares of Company Stock or other assets held in the
       Unallocated Reserve, (ii) the proceeds from any refinancing of the Exempt
       Loan, or (iii) the proceeds from any sale of shares of Company Stock or
       other assets held in the Unallocated Reserve.

8.2.2  Dividend Limitation. Dividends paid on shares of Company Stock allocated
       to Participants' Accounts will not be used to make payments on an Exempt
       Loan.

                                   ARTICLE IX

                                     VESTING

9.1    VESTING AT NORMAL RETIREMENT AGE. A Participant will have a vested and
       non-forfeitable interest in the full balance of his/her Account upon
       reaching Normal Retirement Age while employed with the Company or an
       Affiliate (while it is an Affiliate).

9.2    VESTING IN EVENT OF DISABILITY OR DEATH. A Participant will have a vested
       and non-forfeitable interest in the full balance of his/her Account upon:

       (a)    The occurrence of a total and permanent disability (as evidenced
              by a determination of the Social Security Administration) prior to
              Termination of Employment; or

       (b)    Termination of Employment as a result of death.

9.3    VESTING BASED ON SERVICE. As of any date prior to an event specified in
       Sec. 9.1 or 9.2, the vested balance of a Participant's Account will equal
       the balance of that Account as of such date multiplied by the vested
       percentage determined under the following table:

<TABLE>
<CAPTION>
    Years of                         Vested
Vesting Service                    Percentage
---------------                    ----------
<S>                                <C>
  Less than 3                           0%
   3 or more                          100%
</TABLE>

9.4    FORFEITURE OF NONVESTED BALANCE. The nonvested balance of a Participant's
       Account will become a Forfeiture immediately upon the Participant's
       Termination of Employment. The Participant will lose all claim to the
       nonvested balance of an Account upon Forfeiture, subject to possible
       restoration under Sec. 9.6.

9.5    FORFEITURE ACCOUNT. A Forfeiture Account will be maintained within the
       Plan. Upon the Forfeiture of the nonvested balance of a Participant's
       Account, the Forfeiture will be transferred to the Forfeiture Account. As
       of the last Valuation Date in each Plan Year, the balance of the
       Forfeiture Account will be used first to restore prior Forfeitures
       pursuant to Sec. 9.6 and any remaining balance of the Forfeiture Account
       will be applied under Sec. 5.2 as if it were an ESOP Contribution for the
       Plan Year.

9.6    REINSTATEMENT UPON RETURN TO SERVICE.

                                      -14-
<PAGE>

9.6.1  Return Before Recognized Break in Service. If a Participant resumes
       employment with the Company or an Affiliate (while it is an Affiliate)
       after a Forfeiture but before he/she has a recognized break in service,
       an amount will be restored to the Participant's Account equal to the
       value of such Account as of the date of the Forfeiture. A "recognized
       break in service" for this purpose means a period of five (5) or more
       consecutive Plan Years during each of which the individual has five
       hundred (500) or less Hours of Service.

9.6.2  Restoration of Account. The restoration will be made as of the last
       Valuation Date of the Plan Year in which the Participant resumes
       employment with the Company or an Affiliate. Only the actual Forfeiture
       amount (as a dollar value, not as a number of shares of Company Stock)
       will be restored. The Participant will not be credited with interest or
       with any investment income, gain or loss during the period between the
       Forfeiture date and the restoration date.

9.6.3  Employer Contribution. If the Forfeiture Account is not sufficient to
       make the restorations due as of the last Valuation Date of the Plan Year,
       the Participating Employers will made an additional contribution equal to
       the amount remaining to be restored. This contribution will be made
       without regard to the limitations of Code Section 415.

9.7    FORFEITURE IN EVENT OF MISSING PARTICIPANT OR BENEFICIARY. If a
       Participant or Beneficiary cannot be found after reasonable effort, the
       Participant's Account (or the portion thereof assigned to the
       Beneficiary) will be treated as a Forfeiture or will be applied in such
       other manner as may be directed by the Company in accordance with any
       regulations or other guidance issued by the Internal Revenue Service or
       the Department of Labor (including payment to any account authorized by
       law). In the event of such a Forfeiture, if the individual is
       subsequently located, the Participant's Account (or the portion thereof
       assigned to the Beneficiary) will be restored either under Sec. 9.6 of
       the Plan (prior to its termination) or under another qualified defined
       contribution plan then maintained by the Company or an Affiliate. If no
       plan is then being maintained by the Company or an Affiliate, restoration
       will be made by means of a payment from the business assets of the
       Participating Employers or other method deemed appropriate by the
       Company.

                                    ARTICLE X

                         DIVERSIFICATION WHILE EMPLOYED

10.1   ELIGIBILITY FOR DIVERSIFICATION. Diversification options are available to
       a Participant while employed with the Company or an Affiliate, starting
       on the January 1st after he/she:

       (a)    Attains age fifty-five (55), and

       (b)    Completes ten (10) or more years of participation in the Plan.

10.2   MAXIMUM PERCENTAGE LIMIT. The maximum percentage of shares of Company
       Stock available to a Participant for diversification during a given Plan
       Year will be determined as follows:

       (a)    First Five Years. During the first five (5) Plan Years that the
              Participant is eligible for diversification, the maximum is
              twenty-five percent (25%) of the shares of Company Stock that have
              been credited to his/her Account.

       (b)    Subsequent Years. During the sixth (6th) and subsequent Plan Years
              that the Participant is eligible for diversification, the maximum
              is fifty percent (50%) of the shares of Company Stock that have
              been credited to his/her Account.

10.3   MAXIMUM NUMBER OF SHARES. The maximum number of shares of Company Stock
       available to the Participant for diversification during a given Plan Year
       will be determined as follows:

       (a)    Start with the number of shares credited to the Participant's
              Account as of the December 31st preceding the Plan Year.

       (b)    Add the number of shares (if any) the Participant previously has
              diversified.

       (c)    Multiply that sum by the maximum percentage specified in Sec. 10.2
              for the Plan Year.

                                      -15-
<PAGE>

       (d)    Round that product down to the next lower whole number of shares.

       (e)    Subtract the number of shares (if any) that the Participant
              previously has diversified.

       (f)    The result is the number of shares available to the Participant
              for diversification during the Plan Year.

10.4   DIVERSIFICATION DISTRIBUTION PROCEDURES - PUBLIC COMPANY.

10.4.1 Election to Diversify. To diversify while the Company is Public, the
       Participant must elect to diversify in such manner and in accordance with
       such rules as may be prescribed for this purpose by the Company. The
       election may be made any time after the Participant becomes eligible to
       diversify.

10.4.2 Time of Diversification. The diversification will be made as soon as
       administratively practicable after (i) the Participant is eligible for
       diversification, (ii) the Participant makes proper application for
       diversification, and (iii) the Company determines the entitlement of the
       Participant.

10.4.3 Amount of Diversification. The Participant may elect to diversify any
       percentage or number of the shares of Company Stock that have been
       credited to his/her Account, up to the maximum specified in Sec. 10.2 and
       10.3.

10.4.4 Method of Diversification. The diversification will be made in either one
       or a combination of the following methods at the election of the
       Participant:

       (a)    Single-Sum Distribution. A single-sum distribution to the
              Participant.

       (b)    Direct Rollover. A direct rollover to an eligible retirement plan
              (as described in Sec. 13.2). However, the rollover cannot be less
              than $200.

10.4.5 Medium of Diversification. The diversification distribution or rollover
       will be made in whole shares of Company Stock (any fractional share will
       be disregarded).

10.4.6 Annual Limit. Only one diversification election is permitted during each
       Plan Year.

10.5   DIVERSIFICATION PROCEDURES - PRIVATE COMPANY.

10.5.1 Election to Diversify. To diversify while the Company is Private, the
       Participant must elect to diversify in such manner and in accordance with
       such rules as may be prescribed for this purpose by the Company. Unless
       the Company prescribes a longer election period for a given Plan Year,
       the election may be made only during the first ninety (90) days each Plan
       Year starting on or after the date the Participant becomes eligible to
       diversify.

10.5.2 Time of Diversification. The diversification will be made as soon as
       administratively practicable after (i) the Participant is eligible for
       diversification, (ii) the Participant makes proper application for
       diversification, (iii) the Company determines the entitlement of the
       Participant, and (iv) the valuation required under Sec. 7.2.4 has been
       completed.

10.5.3 Amount of Diversification. The Participant may elect to diversify any
       percentage or number of the shares of Company Stock that have been
       credited to his/her Account, up to the maximum specified in Sec. 10.2 and
       10.3. The diversification amount will be based on the per share value of
       Company Stock as of the last Valuation Date in the Plan Year prior to the
       Plan Year in which the diversification occurs.

10.5.4 Method of Diversification. The diversification will be made in any one or
       a combination of the following methods at the election of the
       Participant:

       (a)    Single-Sum Distribution. A single-sum distribution to the
              Participant.

       (b)    Direct Rollover. A direct rollover to an eligible retirement plan
              (as described in Sec. 13.2). However, the rollover cannot be less
              than $200.

                                      -16-
<PAGE>

       (c)    Transfer to Capella Savings Plan. A transfer to the Capella
              Education Company Retirement Savings Plan ("Savings Plan") for
              investment in investments other than Company Stock, provided that
              the Company offers three or more investment options in the Savings
              Plan.

10.5.5 Medium of Diversification. The diversification distribution, rollover or
       transfer will be made in cash.

10.5.6 Annual Limit. Only one diversification election is permitted during each
       Plan Year.

                                   ARTICLE XI

                  DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT

11.1   DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT. A Participant will be
       eligible to receive a distribution of the vested balance of his/her
       Account following his/her Termination of Employment in accordance with
       the terms of this Article.

11.2   DISTRIBUTION PROCEDURES.

11.2.1 Application for Distribution. To receive the distribution, the
       Participant must apply in such manner and in accordance with such rules
       as may be prescribed for this purpose by the Company.

11.2.2 Valuation of Distribution.

       (a)    Private. If the Company is Private, the Participant becomes
              eligible for distribution on the January 1st following his/her
              Termination of Employment. The Valuation Date for the distribution
              will be determined as follows:

              (1)    If the Participant is eligible for distribution and the
                     Company receives his/her proper application for
                     distribution between January 1st and June 30th (inclusive)
                     or such later date as the Company may prescribe for a given
                     Plan Year, the distribution value will be determined as of
                     the last Valuation Date of the Plan Year preceding the
                     application date.

              (2)    If the Participant is eligible for distribution and the
                     Company receives his/her proper application after the date
                     established in (1) above, but on or before December 31st,
                     the distribution value will be determined as of the
                     Valuation Date coincident with or next following the
                     application date.

       (b)    Public. If the Company is Public, the Participant becomes eligible
              for distribution on the day after his/her Termination of
              Employment. The distribution value will be determined as of the
              Valuation Date coincident with or immediately preceding the
              distribution date, as determined by the Company.

11.2.3 Time of Distribution.

       (a)    General Rule. The distribution will be made as follows:

              (1)    Private. If the Company is Private, the distribution will
                     be made as soon as administratively practical after (i) the
                     Participant is eligible for distribution, (ii) the
                     Participant makes proper application for distribution,
                     (iii) the Company determines the entitlement of the
                     Participant, and (iv) the valuation required under Sec.
                     7.2.4 has been completed

              (2)    Public. If the Company is Public, the distribution will be
                     made as soon as administratively practicable after (i) the
                     Participant is eligible for distribution, (ii) the
                     Participant makes proper application for distribution, and
                     (iii) the Company determines the entitlement of the
                     Participant.

                                      -17-
<PAGE>

       (b)    Normal Retirement Age. While a distribution generally will be made
              not later than sixty (60) days after the close of the Plan Year in
              which a Participant attains Normal Retirement Age (or in which
              his/her Termination of Employment occurs, if later), a failure to
              apply for the distribution will serve as a waiver of this
              requirement.

       (c)    Required Beginning Date. The deadline for distribution to the
              Participant, however, is his/her required beginning date. For this
              purpose, "required beginning date' means the April 1 of the
              calendar year after the later of (i) the calendar year in which
              the Participant attains age seventy and one-half (70-1/2), or (ii)
              the calendar year of Termination of Employment. However, clause
              (ii) will not apply to any Participant who is more than a
              five-percent (5%) owner (as defined in Code Section 416) with
              respect to the Plan Year in which he/she attains age seventy and
              one-half (70-1/2).

11.2.4 Method of Distribution. The distribution will be made in either one or a
       combination of the following methods at the election of the Participant:

       (a)    Single-Sum Distribution. A single-sum distribution to the
              Participant.

       (b)    Direct Rollover. A direct rollover to an eligible retirement plan
              (as described in Sec. 13.2). However, the rollover cannot be less
              than $200.

       (c)    Transition Rules.

              (1)    Special Installment Option. Notwithstanding the above, a
                     Participant whose Termination of Employment occurred prior
                     to June 1, 2005, may also elect to receive distribution in
                     five (5) (or more) annual installment distributions,
                     pursuant to the terms of the Plan as in effect prior to
                     June 1, 2005.

              (2)    Special Single-Sum Option. Notwithstanding anything in the
                     Plan to the contrary, a Participant who as of June 1, 2005
                     is receiving installment distributions under the terms of
                     the Plan as in effect prior to June 1, 2005, may elect to
                     receive his/her remaining vested Account balance in a
                     single-sum distribution.

11.2.5 Medium of Distribution. The distribution (including any direct rollover)
       will be made in the following medium, as applicable:

       (a)    Private. If the Company is Private, the Participant may elect
              either one or a combination of the following:

              (1)    Cash, or

              (2)    Whole shares of Company Stock (with any fractional share in
                     cash).

              If the Participant does not elect a medium of distribution, the
              distribution will be made in cash.

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

11.2.6 Default upon Failure to Request Distribution. If the Participant fails to
       apply for a distribution in advance of his/her required beginning date
       under Sec. 11.2.3, a single-sum distribution will be made to the
       Participant immediately before his/her required beginning date in the
       following medium, as applicable:

       (a)    Private. If the Company is Private, the distribution will be made
              in cash.

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

11.3   CASH-OUT OF SMALL ACCOUNTS.

                                      -18-
<PAGE>

11.3.1 Cash-Out Amount. If the vested balance of a Participant's Account does
       not exceed one thousand dollars ($1,000) when the Participant becomes
       eligible for distribution, a single-sum distribution of the full vested
       balance of the Account will be made to the Participant, as follows:

       (a)    Private. If the Company is Private, the distribution will be made
              as soon as administratively practicable after (i) the Participant
              becomes eligible for distribution, (ii) the Company determines the
              entitlement of the Participant and (iii) the valuation required
              under Sec. 7.2.4 has been completed.

       (b)    Public. If the Company is Public, the distribution will be made as
              soon as administratively practicable after (i) the Participant's
              Termination of Employment occurs and (ii) the Company determines
              the entitlement of the Participant.

11.3.2 Subsequent Changes. If the vested balance of a Participant's Account
       exceeds one thousand dollars ($1,000) when the Participant becomes
       eligible for distribution, but subsequently falls below such amount (for
       example, because of investment losses), the Company may then direct that
       a single-sum distribution of the full vested balance of the Account be
       made to the Participant.

11.3.3 Medium of Distribution. The distribution (including any direct rollover)
       will be made in the following medium, as applicable:

       (a)    Private. If the Company is Private, the Participant may elect
              either one or a combination of the following:

              (1)    Cash, or

              (2)    Whole shares of Company Stock (with any fractional share in
                     cash).

              If the Participant does not elect a medium of distribution, the
              distribution will be made in cash.

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

11.4   MINIMUM DISTRIBUTION RULES. Any contrary provision notwithstanding,
       distribution will be made as necessary to comply with the minimum
       distribution rules of Code Section 401(a)(9) (including the incidental
       death benefit rules of Code Section 401(a)(9)(G)).

                                   ARTICLE XII

                            DISTRIBUTION AFTER DEATH

12.1   DISTRIBUTION AFTER DEATH. The Beneficiary of a Participant will be
       eligible to receive a distribution of that portion of the vested balance
       of the Participant's Account allocated to such Beneficiary following the
       Participant's death in accordance with the terms of this Article.

12.2   DISTRIBUTION PROCEDURES.

12.2.1 Application for Distribution. To receive the distribution, the
       Beneficiary must apply in such manner and in accordance with such rules
       as may be prescribed for this purpose by the Company.

12.2.2 Valuation of Distribution.

       (a)    Private. If the Company is Private, the Beneficiary becomes
              eligible for distribution on the January 1st following the
              Participant's death. The Valuation Date for the distribution will
              be determined as follows:

              (1)    If the Beneficiary is eligible for distribution and the
                     Company receives his/her proper application for
                     distribution between January 1st and June 30th (inclusive)
                     or such later date as the Company may prescribe for a given
                     Plan Year, the

                                      -19-
<PAGE>

                     distribution value will be determined as of the last
                     Valuation Date of the Plan Year preceding the application
                     date.

              (2)    If the Beneficiary is eligible for distribution and the
                     Company receives his/her proper application after the date
                     established in (1) above, but on or before December 31st,
                     the distribution value will be determined as of the
                     Valuation Date coincident with or next following the
                     application date.

       (b)    Public. If the Company is Public, the Beneficiary becomes eligible
              for distribution on the day after the Participant's death. The
              distribution value will be determined as of the Valuation Date
              coincident with or immediately preceding the distribution date, as
              determined by the Company.

12.2.3 Time of Distribution.

       (a)    General Rule. The distribution will be made as follows:

              (1)    Private. If the Company is Private, the distribution will
                     be made as soon as administratively practical after (i) the
                     Beneficiary is eligible for distribution, (ii) the
                     Beneficiary makes proper application for distribution,
                     (iii) the Company determines the entitlement of the
                     Beneficiary, and (iv) the valuation required under Sec.
                     7.2.4 has been completed.

              (2)    Public. If the Company is Public, the distribution will be
                     made as soon as administratively practicable after (i) the
                     Beneficiary is eligible for distribution, (ii) the
                     Beneficiary makes proper application for distribution, and
                     (iii) the Company determines the entitlement of the
                     Beneficiary.

       (b)    Distribution Deadline. The deadline for distribution to the
              Beneficiary is December 31st of the calendar year in which falls
              the fifth (5th) anniversary of the Participant's death.

12.2.4 Method of Distribution.

       (a)    General Rule. The distribution will be made in the form of a
              single-sum distribution to the Beneficiary.

       (b)    Spouse's Rollover Option. A Beneficiary who is the Participant's
              surviving Spouse may elect a direct rollover to an eligible
              retirement plan (as described in Sec. 13.2) of all or any part
              (but not less than $200) of his/her benefit.

       (c)    Transition Rules.

              (1)    Special Installment Option. Notwithstanding the above, if
                     the Participant died prior to June 1, 2005, the Beneficiary
                     may also elect to receive distribution in five (5) (or
                     more) annual installment distributions, pursuant to the
                     terms of the Plan as in effect prior to June 1, 2005.

              (2)    Special Single-Sum Option. Notwithstanding anything in the
                     Plan to the contrary, a Beneficiary who as of June 1, 2005
                     is receiving installment distributions under the terms of
                     the Plan as in effect prior to June 1, 2005, may elect to
                     receive his/her remaining vested Account balance in a
                     single-sum distribution.

12.2.5 Medium of Distribution. The distribution (including any direct rollover)
       will be made in the following medium, as applicable:

       (a)    Private. If the Company is Private, the Beneficiary may elect
              either one or a combination of the following:

              (1)    Cash, or

              (2)    Whole shares of Company Stock (with any fractional share in
                     cash).

                                      -20-
<PAGE>

              If the Beneficiary does not elect a medium of distribution, the
              distribution will be made in cash.

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

12.2.6 Default Upon Failure to Request Distribution. If the Beneficiary fails to
       apply for distribution in advance of the deadline specified in Sec.
       12.2.3, a single-sum distribution will be made to the Beneficiary
       immediately before such deadline in the following medium, as applicable:

       (a)    Private. If the Company is Private, the distribution will be made
              in cash.

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

12.3   BENEFICIARY DESIGNATION.

12.3.1 General Rule. A Participant may designate any person (natural or
       otherwise, including a trust or estate) as his/her Beneficiary to receive
       any balance remaining in his/her Account when he/she dies, and may change
       or revoke a Beneficiary designation previously made without the consent
       of any Beneficiary named therein.

12.3.2 Special Requirements for Married Participants. If a Participant has a
       Spouse at the time of death, such Surviving Spouse will be his/her
       Beneficiary unless:

       (a)    The Spouse has consented in writing to the designation of a
              different Beneficiary;

       (b)    The Spouse's consent acknowledges the effect of such designation;
              and

       (c)    The Spouse's consent is witnessed by a notary public or an
              authorized representative of the Plan.

       Consent of a Spouse will be deemed to have been obtained if it is
       established to the satisfaction of the Company that such consent cannot
       be obtained because the Spouse cannot be located, or because of such
       other circumstances as may be prescribed by the Secretary of Treasury. A
       consent by a Spouse will be effective only with respect to such Spouse,
       and cannot be revoked. A Beneficiary designation that has received
       spousal consent cannot be changed without spousal consent.

12.3.3 Form and Method of Designation. A Beneficiary designation must be made on
       such form and in accordance with such rules as may be prescribed for this
       purpose by the Company. A Beneficiary designation will be effective (and
       will revoke all prior designations) only if it is received by the Company
       and either:

       (a)    It is received by the Company prior to the date of death of the
              Participant; or

       (b)    If sent by mail, the post-mark of the mailing is prior to the date
              of death of the Participant.

       The Company may rely on the latest designation on file with it (or may
       direct that payment be made pursuant to the default provision if an
       effective designation is not on file) and will not be liable to any
       person making claim for such payment under a subsequently filed
       designation or for any other reason.

       If a Participant designates a Beneficiary by name that is accompanied by
       a description of a business, legal or familial relationship to the
       Participant (for example, "spouse", "business partner", "landlord"), such
       Beneficiary will be deemed to have predeceased the Participant if such
       relationship has been dissolved or no longer exists at the death of the
       Participant. If a Participant designates a Beneficiary by name that is
       accompanied by a description of a personal relationship to the
       Participant (for example, "friend"), the dissolution of that relationship
       will not affect the designation.

                                      -21-
<PAGE>

12.3.4 Default Designation. If a Beneficiary designation is not on file with the
       Company, or if no designated Beneficiary survives the Participant, the
       Beneficiary will be the person or persons surviving the Participant in
       the first of the following classes in which there is a survivor, share
       and share alike:

       (a)    The Participant's Spouse.

       (b)    The Participant's children, except that if any of the
              Participant's children predecease the Participant but leave issue
              surviving the Participant, such issue will take by right of
              representation the share their parent would have taken if living.

       (c)    The Participant's parents.

       (d)    The Participant's brothers and sisters, except that if any of the
              Participant's siblings predecease the Participant but leave issue
              surviving the Participant, such issue will take by right of
              representation the share their parent would have taken if living.

       (e)    The Participant's estate.

       The identity of the Beneficiary in each case will be determined by the
       Company.

12.3.5 Successor Beneficiary. If a Beneficiary survives the Participant but dies
       before receiving the full balance to which he/she is entitled, the
       remaining balance will be payable to the surviving contingent Beneficiary
       designated by the Participant or otherwise to the estate of the deceased
       Beneficiary.

12.4   MULTIPLE BENEFICIARIES. If more than one Beneficiary is entitled to
       benefits following the death of a Participant, the interest of each will
       be segregated for purposes of applying this Article.

12.5   CASH-OUT OF SMALL ACCOUNTS.

12.5.1 Cash-Out Amount. If the vested balance of the Account payable to a
       Beneficiary does not exceed one thousand dollars ($1,000) when the
       Beneficiary becomes eligible for distribution, a single-sum distribution
       of the full vested balance of the Account will be made to the Beneficiary
       as follows:

       (a)    Private. If the Company is Private, the distribution will be made
              as soon as administratively practicable after (i) the Beneficiary
              becomes eligible for distribution, (ii) the Company determines the
              entitlement of the Beneficiary, and (iii) the valuation required
              under Sec. 7.2.4 has been completed.

       (b)    Public. If the Company is Public, the distribution will be made as
              soon as administratively practicable after (i) the Participant's
              death occurs and (ii) the Company determines the entitlement of
              the Beneficiary.

12.5.2 Subsequent Changes. If the vested balance of the Account payable to a
       Beneficiary exceeds one-thousand dollars ($1,000) when the Beneficiary
       becomes eligible for distribution, but subsequently falls below such
       amount (for example, because of investment losses), the Company may then
       direct that a single-sum distribution of the full vested balance of the
       Account be made to the Beneficiary.

12.5.3 Medium of Distribution. The distribution (including any direct rollover)
       will be made in the following medium, as applicable:

       (a)    Private. If the Company is Private, the Beneficiary may elect
              either one or a combination of the following:

              (1)    Cash, or

              (2)    Whole shares of Company Stock (with any fractional share in
                     cash).

              If the Beneficiary does not elect a medium of distribution, the
              distribution will be made in cash.

                                      -22-
<PAGE>

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

12.6   MINIMUM DISTRIBUTION RULES. Any contrary provision notwithstanding,
       distribution after the death of the Participant will be made as necessary
       to comply with the minimum distribution rules of Code Section 401(a)(9).

                                  ARTICLE XIII

                        MISCELLANEOUS BENEFIT PROVISIONS

13.1   VALUATION OF ACCOUNTS FOLLOWING TERMINATION OF EMPLOYMENT.

13.1.1 Continued Adjustment of Accounts. If a distribution of all or any portion
       of an Account is deferred or delayed for any reason, the Account will
       continue to be adjusted to reflect increases or decreases in the value of
       Company Stock, dividends on Company Stock, and other investment income,
       gains or losses of the Trust Fund in accordance with the terms of the
       Plan.

13.1.2 Disbursement Account. To facilitate cash distributions from the Plan, the
       Plan may participate in a disbursement account established by the Trustee
       or recordkeeper for the Plan. The person entitled to the distribution
       will not be entitled to any interest or other income earned on such
       disbursement account; rather, such interest or other income will be
       applied in accordance with the policies and procedures of the Trustee or
       recordkeeper for the Plan.

13.2   DIRECT ROLLOVER OPTION.

13.2.1 Eligible Individuals. An eligible rollover distribution of two hundred
       dollars ($200) or more made to a Participant, the Spouse of a deceased
       Participant, or an alternate payee under a qualified domestic relations
       order who is the Spouse or former Spouse of a Participant may be made in
       the form of a direct rollover to an eligible retirement plan. The
       recipient of an eligible rollover distribution must provide the Company
       with the information necessary to accomplish the direct rollover in such
       manner and in accordance with such rules as may be prescribed for this
       purpose by the Company.

13.2.2 Eligible Rollover Distribution. An "eligible rollover distribution" for
       purpose is any distribution defined as such under Code Section 402(c)(4)
       (for example, an eligible rollover distribution does not include a
       hardship distribution, a distribution that is part of a series of
       installments payable over a period of ten (10) years or more, a cash
       dividend distribution under Code Section 404(k) or a distribution that is
       required under Code Section 401(a)(9)).

13.2.3 Eligible Retirement Plan. An "eligible retirement plan" for this purpose
       is any individual retirement plan described in Code Section 408(a), any
       individual retirement annuity described in Code Section 408(b) (other
       than an endowment contract), any qualified trust as described in Code
       Section 402(c)(8)(a), any annuity plan described in Code Section 403(a),
       any eligible deferred compensation plan described in Code Section 457(b)
       which is maintained by an eligible employer described in Code Section
       457(e)(1)(A), and any annuity contract described in Code Section 403(b).

13.3   BENEFIT STATEMENTS.

13.3.1 Issuance of Statements. The Company may cause benefit statements to be
       issued from time to time advising Participants and Beneficiaries of the
       balance and/or investment of their Accounts. However, the Company is not
       required to issue benefits statements except at the request of a
       Participant or Beneficiary to the extent so required by ERISA.

13.3.2 Errors on Statements. The Company may correct errors that appear on
       benefit statements at any time, and the issuance of a benefit statement
       (and any errors that may appear on a statement) will not in any way alter
       or affect the rights of a Participant or Beneficiary with respect to the
       Plan.

13.3.3 Participant's Duty to Review Statements. Each Participant or Beneficiary
       has a duty to promptly review each benefit statement and to notify the
       Company of any error that appears on such statement within thirty (30)
       days of the date such statement is provided or made available to the

                                      -23-
<PAGE>

       Participant or Beneficiary (for example, the date the statement is sent
       by mail, or the date the statement is provided or made available
       electronically). If a Participant or Beneficiary fails to review a
       benefit statement or fails to notify the Company of any error that
       appears on such statement within such period of time, he/she will not be
       able to bring any claim seeking relief or damages based on the error.

13.4   MISSING PARTICIPANTS OR BENEFICIARIES. A Participant or Beneficiary must
       maintain his/her most recent post office address on file with the
       Company. Any communication addressed to the Participant or Beneficiary at
       the post office address on file with the Company will be binding on the
       Participant or Beneficiary for all purposes of the Plan. If a Participant
       or Beneficiary fails to claim any amount payable under the Plan, or if
       any check or stock certificate is returned after being sent to the most
       recent post office address on file with the Company, or if a Participant
       or Beneficiary fails to cash any check drawn on the disbursement account
       established for the Plan, such amount will be disposed of as provided in
       Sec. 9.7.

13.5   DISTRIBUTION TO ALTERNATE PAYEE.

13.5.1 Immediate Distribution Option. An alternate payee under a qualified
       domestic relations order (each as defined in Code Section 414(p)) may
       elect to receive a single-sum distribution of the amount assigned to such
       individual under the order as soon as administratively practicable after
       the Company has determined that the order is a qualified domestic
       relations order (and all time for appeal of such decision has expired),
       or as of such later date as may be specified in the order, without regard
       to whether such distribution is made prior to the earliest retirement age
       (as defined in Code Section 414(p)). The Valuation Date for such
       distribution will be determined under Sec. 11.2.2 using the date the
       Company receives the order (or any later distribution date specified in
       the order) as the application date under that section. If the Company is
       Private, the distribution will be delayed until the valuation required
       under Sec. 7.2.4 has been completed.

13.5.2 Small Amounts. If the amount assigned to the alternate payee under a
       qualified domestic relations order does not exceed one thousand ($1,000),
       such amount will be distributed to the alternate payee in a single-sum
       distribution as soon as administratively practicable after the Company
       has determined that the order is a qualified domestic relations order
       (and all time for appeal of such decision has expired), and a delayed
       distribution option will not be available to the alternate payee. The
       Valuation Date for such distribution will be determined under Sec. 11.2.3
       using the date the Company receives the order as the application date
       under that section. If the Company is Private, the distribution will be
       delayed until the valuation required under Sec. 7.2.4 has been completed.

13.5.3 Medium of Distribution. The distribution (including any direct rollover)
       will be made in the following medium, as applicable:

       (a)    Private. If the Company is Private, the alternate payee may elect
              either one or a combination of the following:

              (1)    Cash, or

              (2)    Whole shares of Company Stock (with any fractional share in
                     cash).

              If the alternate payee does not elect a medium of distribution,
              the distribution will be made in cash.

       (b)    Public. If the Company is Public, the distribution will be made in
              whole shares of Company Stock (with any fractional share in cash).

13.6   PUT OPTION; RIGHT OF FIRST REFUSAL; OTHER RESTRICTIONS ON COMPANY STOCK.

13.6.1 Put Option. If shares of Company Stock are either not readily tradable on
       an established securities market (in other words, the Company is Private)
       or are subject to a trading limitation when such shares are distributed,
       such shares will be subject to a "put option" as follows:

       (a)    The put option will be to the Company; provided that, the Trustee
              may at its discretion cause the Plan to voluntarily assume the
              rights and obligations of the Company with respect to the put
              option.

                                      -24-
<PAGE>

       (b)    The put option may be exercised only by the distributee (whether
              the Participant, Beneficiary or alternate payee), any person to
              whom the shares have passed by gift from the distributee or any
              person (including an estate or distributee of an estate) to whom
              the shares have passed on the death of the distributee.

       (c)    The put option may be exercised only during the following periods:

              (1)    The three (3) month period beginning on the date the shares
                     are distributed from the Plan; and

              (2)    The three (3) month period beginning on the first
                     anniversary of the date the shares were distributed from
                     the Plan;

              provided that, each exercise period will be extended by the number
              of days during such period that the holder is unable to exercise
              the put option because the Company is prohibited from honoring the
              put option by federal or state law.

       (d)    The put option may be exercised by written notice of exercise to
              the Company made on such form and in accordance with such rules as
              may be prescribed for this purpose by the Company.

       (e)    Any put option provided under this Sec. 13.6.1 will lapse at the
              time that such distributed shares become readily tradable on an
              established securities market (in other words, when the Company is
              Public).

       (f)    The Company will honor a put option by paying to the holder the
              fair market value either in a single lump sum or substantially
              equal installments (bearing a reasonable rate of interest and
              providing adequate security to the holder) over a period beginning
              within thirty (30) days following the date the put option is
              exercised and ending not more than five (5) years after the date
              the put option is exercised.

       A "trading limitation" means a restriction under any federal or state
       securities law or under any agreement affecting the shares that would
       make the shares not as freely tradable as shares not subject to such
       restriction.

13.6.2 Right of First Refusal. If the Company is Private when shares of Company
       stock are distributed from the Plan, the shares will be subject to a
       "right of first refusal" as follows:

       (a)    A distributee (as defined in Sec. 13.6.1(b) above) will not sell,
              assign, give, bequeath or otherwise transfer or dispose of any of
              the shares of Company Stock distributed hereunder without first
              giving written notice to the Company of the distributee's intent
              to sell or make such disposition. Notwithstanding the above, an
              eligible distributee may transfer the shares of Company Stock to
              an individual retirement account as defined in Code Section 408
              that is established by the distributee for his/her benefit;
              provided that, the put option and right of first refusal provided
              in the Plan continue to apply after the transfer.

       (b)    The notice must state the number of shares that are proposed to be
              disposed of, the amount of any consideration offered, and the name
              of the respective purchaser or assignee.

       (c)    For fourteen (14) days following the receipt of the notice, the
              Company will have the option to purchase the shares for the
              greater of the following:

              (1)    The fair market value of the shares of Company Stock, or

              (2)    The price per share to be paid in the manner consistent
                     with the payment terms contained in a good-faith written
                     offer to buy such shares, as provided under (b) above.

       (d)    The Company will notify the distributee of its intent to exercise
              its rights under this Sec. 13.6.2; provided that, the such right
              may also be exercised by the Plan.

                                      -25-
<PAGE>

       (e)    The Company (or the Plan) will exercise its rights by paying to
              the holder the purchase price either in a single lump sum or
              substantially equal installments (bearing a reasonable rate of
              interest and providing adequate security to the holder) over a
              period beginning within thirty (30) days following the date the
              right of first refusal is exercised and ending not more than five
              (5) years after the date the right of first refusal is exercised.

       (f)    If the Company (or the Plan) does not exercise its right of first
              refusal, the distributee may dispose of the shares of Company
              Stock in accordance with the notice provided under (b) above for a
              period of one hundred twenty (120) days after the expiration of
              the Company's fourteen (14) day option period.

       (g)    The right of first refusal provided under this Sec. 13.6.2 will
              lapse at the time that such distributed shares become readily
              tradable on an established securities market (in other words, when
              the Company is Public).

13.6.3 No Other Restrictions. Except as provided above, no other options,
       buy-sell arrangements, puts, call, rights of first refusal or other
       restrictions on alienability will attach to any shares of Company Stock
       acquired with the proceeds of an Exempt Loan and held in the Trust Fund
       or distributed from the Plan, whether or not the Plan continues to be an
       employee stock ownership plan.

13.7   NO OTHER BENEFITS. No benefits other than those specifically provided for
       in the Plan document will be provided under the Plan.

13.8   SOURCE OF BENEFITS. All benefits to which any person becomes entitled
       under the Plan will be provided only out of the Trust Fund and only to
       the extent that the Trust Fund is adequate therefor. The Participants and
       Beneficiaries assume all risk connected with any decrease in the market
       value of shares of Company Stock or any other assets held under the Plan,
       and the Company and its Affiliates do not in any way guarantee the Trust
       Fund against any loss or depreciation, or the payment of any amount, that
       may be or become due to any person from the Trust Fund.

13.9   INCOMPETENT PAYEE. If a person entitled to distribution hereunder is in
       the opinion of the Company unable to care for his/her affairs because of
       a mental or physical condition, any distribution due such person may be
       made to such person's guardian, conservator, or other legal personal
       representative upon furnishing the Company with evidence satisfactory to
       the Company of such status. Prior to the furnishing of such evidence, the
       Company may cause the distribution due the person to be made, for such
       person's use and benefit, to any person or institution then in the
       opinion of the Company caring for or maintaining the person. The Company
       will have no liability with respect to any distribution so made and will
       have no duty to make inquiry as to the competence of any person entitled
       to receive distribution hereunder.

13.10  NO ASSIGNMENT OR ALIENATION OF BENEFITS. The interests of any person who
       is entitled to benefits under the Plan may not in any manner whatsoever
       be assigned or alienated, whether voluntarily or involuntarily, directly
       or indirectly, except as expressly permitted under Code Section
       401(a)(13).

13.11  PAYMENT OF TAXES. The Trustee may pay any estate, inheritance, income, or
       other tax, charge, or assessment attributable to any benefit payable
       hereunder which in the Trustee's opinion it will be or may be required to
       pay out of such benefit. The Trustee may require, before making any
       payment, such release or other document from any taxing authority and
       such indemnity from the intended payee as the Trustee will deem necessary
       for its protection.

13.12  CONDITIONS PRECEDENT. No person will be entitled to a benefit until
       his/her right to such benefit has been finally determined by the Company
       nor until he/she has submitted to the Company relevant data reasonably
       requested by the Company, including, but not limited to, proof of birth
       or death.

13.13  DELAY OF DISTRIBUTION IN EVENT OF STOCK DIVIDEND OR SPLIT. The Company
       may direct that, no distribution will be made between the record date and
       the ex-date of any stock dividend, stock split or reverse stock split if
       the ex-date is after the record date.

                                      -26-
<PAGE>

13.14  EFFECT OF REEMPLOYMENT. If a Participant is reemployed by the Company or
       an Affiliate (while it is an Affiliate) before he/she has received full
       distribution of the vested balance of his/her Account, entitlement to a
       distribution will cease upon such reemployment, and will recommence in
       accordance with the terms of the Plan upon subsequent Termination of
       Employment.

                                   ARTICLE XIV

                                   TRUST FUND

14.1   COMPOSITION. The assets of the Plan will be held in trust by one or more
       Trustees appointed by the Company under one or more trust agreements. The
       Company may cause the assets held under any trust agreement to be divided
       into any number of parts for investment purposes or any other purpose
       deemed necessary or advisable for the proper administration of the Plan.

14.2   NO DIVERSION. The Trust Fund will be maintained for the exclusive purpose
       of providing benefits to Participants and their Beneficiaries and
       defraying reasonable expenses of administering the Plan. No part of the
       corpus or income of the Trust Fund may be used for, or diverted to,
       purposes other than for the exclusive benefit of Participants or their
       Beneficiaries. Notwithstanding the foregoing:

       (a)    Mistake of Fact. If all or any portion of a contribution is made
              as a result of a mistake of fact, the Trustee will, upon written
              request of the Company, return such portion of the contribution to
              the Company within one year after its payment to the Trust Fund.
              Earnings attributable to such contribution (or portion thereof)
              will not be returned but will remain in the Trust Fund, and the
              amount returned will be reduced by any losses attributable to such
              contribution (or portion thereof).

       (b)    Disallowance of Deduction. Each contribution is conditioned upon
              the deductibility of the contribution under Code Section 404. To
              the extent the deduction is disallowed, the Trustee will return
              such contribution to the Company within one year after the
              disallowance of the deduction; however, earnings attributable to
              such contribution (or disallowed portion thereof) will not be
              returned but will remain in the Trust Fund, and the amount
              returned will be reduced by any losses attributable to such
              contribution (or disallowed portion thereof).

       In the case of any such return of contribution, the Company will cause
       such adjustments to be made to the Accounts of Participants as it
       considers fair and equitable under the circumstances resulting in the
       return of such contribution.

14.3   BORROWING TO PURCHASE COMPANY STOCK. The Plan may engage in an Exempt
       Loan that satisfies the following requirements:

14.3.1 Lender. The Exempt Loan may be made by the Company or any lender
       acceptable to the Company, and may be made or guaranteed by a party in
       interest (as defined in ERISA Section 3(14)) or a disqualified person (as
       defined in Code Section 4975).

14.3.2 Use of Loan Proceeds. The Exempt Loan must be used within a reasonable
       time after receipt to acquire shares of Company Stock for the Unallocated
       Reserve, or to repay a prior Exempt Loan, or for any combination of these
       purposes.

14.3.3 No Recourse Against Trust Fund. The Exempt Loan must be without recourse
       against the Trust Fund, except that:

       (a)    The Company Stock acquired with the proceeds of the Exempt Loan
              may be pledged or otherwise used to secure repayment of the Exempt
              Loan.

       (b)    The Company Stock acquired with the proceeds of a prior Exempt
              Loan which is repaid with the proceeds of the Exempt Loan may be
              pledged or otherwise used to secure repayment of the Exempt Loan,
              and

                                      -27-
<PAGE>

       (c)    Any cash contributions to the Plan that are made for the purpose
              of satisfying the obligations under the Exempt Loan (and earnings
              thereon) may be pledged or otherwise used to secure repayment of
              the Exempt Loan.

       (d)    The earnings attributable to shares of Company Stock acquired with
              the proceeds of an Exempt Loan may be used to repay that Exempt
              Loan or any renewal or extension of it.

       (e)    The earnings attributable to unallocated shares of Company Stock
              that were acquired with the proceeds of an Exempt Loan may be
              pledged or otherwise used as security for another Exempt Loan.

14.3.4 Term of Loan. The Exempt Loan must provide for principal and interest to
       be paid over a specific term.

14.3.5 Release of Shares from Unallocated Reserve. Payments on an Exempt Loan
       will result in release of shares from the Unallocated Reserve, with the
       number of shares released each Plan Year being determined in accordance
       with one of the following methods as directed by the Company:

       (a)    Principal and Interest Method. The number of shares released from
              the Unallocated Reserve will equal the number of shares held in
              the Unallocated Reserve immediately before the release multiplied
              by a fraction, the numerator of which is equal to the principal
              and interest payments made on the Exempt Loan for the Plan Year
              and the denominator of which is equal to the total principal and
              interest paid on the Exempt Loan for the current Plan Year and
              scheduled to be paid for all subsequent Plan Years. The number of
              future years for which principal and interest are payable under
              the Exempt Loan must be definitely ascertainable and must be
              determined without taking into Account any possible extensions or
              renewal periods. If the interest rate under the loan is variable,
              the amount of future interest payable will be calculated by using
              the interest rate in effect on the last day of the current Plan
              Year.

       (b)    Principal Only Method. The number of shares of Company Stock
              released from the Unallocated Reserve will be equal to the number
              of shares held in the Unallocated Reserve immediately before the
              release multiplied by a fraction, the numerator of which is equal
              to the principal payments made on the Exempt Loan for the Plan
              Year and the denominator of which is equal to the total principal
              outstanding on the Exempt Loan. This method may be used only if:

              (1)    The Exempt Loan provides for principal and interest
                     payments at a cumulative rate that is not less rapid at any
                     time than level annual payments of such amounts for ten
                     (10) years.

              (2)    If the Exempt Loan constitutes a renewal, extension or
                     refinancing of a prior Exempt Loan, the sum of the expired
                     duration of the prior Exempt Loan, the renewal period, the
                     extension period, and the duration of the new Exempt Loan
                     does not exceed ten (10) years.

              (3)    For purposes of this subsection, the amount of interest
                     included in any payment is disregarded only to the extent
                     that it would be determined to be interest under standard
                     loan amortization tables.

14.3.6 Interest Rate. The Exempt Loan must bear interest at a fixed or variable
       rate that is not in excess of a reasonable rate of interest considering
       all relevant factors (including, but not limited to, the amount and
       duration of the loan, the security given, the guarantees involved, the
       credit standing of the Plan, the Company, and the guarantors, and the
       generally prevailing rates of interest).

14.3.7 Default. The Exempt Loan must provide that, in the event of default, the
       fair market value of Company Stock and other assets which can be
       transferred in satisfaction of the loan must not exceed the amount of the
       loan. If the lender is a party in interest or disqualified person, the
       loan must provide for a transfer of Plan assets upon default only upon
       and to the extent of the failure of the Plan to satisfy the payment
       schedule of the Exempt Loan.

                                      -28-
<PAGE>

14.4   FUNDING POLICY. The Company will adopt a procedure, and revise it from
       time to time as it considers advisable, for establishing and carrying out
       a funding policy and method consistent with the objectives of the Plan
       and the requirements of ERISA.

14.5   SHARE REGISTRATION. Interests in the Plan, and any shares of Company
       Stock contributed by or purchased from the Company will be registered in
       accordance with requirements prescribed by the Securities and Exchange
       Commission. The number of shares so registered will be appropriately
       adjusted to reflect any stock dividends, stock splits, or other similar
       changes.

14.6   PURCHASE/SALE OF COMPANY STOCK.

14.6.1 Purchases of Company Stock.

       (a)    Private. If the Company is Private and it is necessary to purchase
              Company Stock for the Trust Fund, such purchase may be made from a
              shareholder or from the Company. If shares are purchased from a
              disqualified person as (defined in Code Section 4975(e)(2)) or
              party in interest (as defined in ERISA Section 3(14)), the
              purchase will be for not more than fair market value, as
              determined by an independent appraiser meeting the requirements of
              Code section 401(a)(28), and no commission will be paid.

       (b)    Public. If the Company is Public and it is necessary to purchase
              Company Stock for the Trust Fund, such purchase may be on the open
              market or from the Company. If shares are purchased from the
              Company, the purchase will be made at the closing price of a share
              of Company Stock on the Valuation Date immediately preceding the
              transaction (as reported in a financial newspaper or by any
              electronic stock reporting service deemed accurate by the Company
              and Trustee). No commission will be paid on any purchase from the
              Company.

14.6.2 Sales of Company Stock.

       (a)    Private. If the Company is Private and it is necessary to convert
              shares of Company Stock held in the Trust Fund to cash to provide
              for a distribution, transfer, or for any other reason required
              under the Plan, the conversion may be made by exchanging such
              shares for cash (if any) then held in the Trust Fund and credited
              to Accounts, or by selling such shares to the Company or another
              purchaser. If shares are sold to a disqualified person (as defined
              in Code Section 4975(e)(2)) or party in interest (as defined in
              ERISA Section 3(14)), the sale will be for not less than fair
              market value, as determined by an independent appraiser meeting
              the requirements of Code Section 401(a)(28), and no commission
              will be paid.

       (b)    Public. If the Company is Public and it is necessary to convert
              shares of Company Stock held in the Trust Fund to cash to provide
              for a distribution, transfer, or for any other reason required
              under the Plan, the conversion may be made by exchanging such
              shares for cash (if any) then held in the Trust Fund and credited
              to Accounts, or by selling such shares on the open market or to
              the Company. If shares are exchanged for cash then held in the
              Trust Fund or sold to the Company, the exchange or sale will be
              made at the closing price of a share of Company Stock for the
              Valuation Date immediately preceding the transaction (as reported
              in any financial newspaper or by any electronic stock reporting
              service deemed accurate by the Company and Trustee). No commission
              will be paid on any sale to the Company.

                                   ARTICLE XV

                                 ADMINISTRATION

15.1   ADMINISTRATION.

15.1.1 Administrator. The Company is the "administrator" of the Plan, with
       authority to control and manage the operation and administration of the
       Plan and make all decisions and determinations incident thereto. Action
       on behalf of the Company as administrator may be taken by any of the
       following:

                                      -29-
<PAGE>

       (a)    Its Board of Directors (or a committee thereof).

       (b)    Its Chief Executive Officer.

       (c)    Any individual, committee, or entity to whom responsibility for
              the operation and administration of the Plan is allocated to by
              action of one of the above.

15.1.2 Third-Party Service Providers. The Company may from time to time contract
       with or appoint a recordkeeper or other third-party service provider for
       the Plan. Any such recordkeeper or other third-party service provider
       will serve in a nondiscretionary capacity and will act in accordance with
       directions given and/or procedures established by the Company, unless
       such recordkeeper or other third-party service provider is expressly
       designated as a "named fiduciary" of the Plan and makes a written
       acceptance of such designation.

15.2   CERTAIN FIDUCIARY PROVISIONS.

15.2.1 Named Fiduciaries. The Company is a "named fiduciary" of the Plan with
       authority to appoint additional named fiduciaries and to allocate
       responsibilities among them, and the power to appoint one or more
       investment managers (as defined in ERISA Section 3(38)) to manage any
       assets of the Plan (including the power to acquire and dispose of such
       assets). If so permitted by the Company in the appointment of a named
       fiduciary, such named fiduciary may designate another person to carry out
       any or all of the fiduciary responsibilities of the named fiduciary;
       except that, a named fiduciary may not designate another person to carry
       out any responsibilities relating to the management or control of Plan
       assets other than in exercise of a power granted under the trust
       agreement to appoint an investment manager.

15.2.2 Corporate Versus Personal Liability. The Company as a legal entity can
       only act through others. The Company's intent is that, while the Company
       will at times be a fiduciary (as that term is used in ERISA) with respect
       to the Plan, the individual directors, officers and employees of the
       Company through which the Company acts will not individually be
       considered to be fiduciaries. Accordingly, it is intended that while the
       Company with have corporate responsibility and liability for its actions
       or omissions with respect to the Plan, the individual directors, officers
       and employees through which the Company acts will not have individual
       liability for their actions or omissions with respect to the Plan.

15.3   PAYMENT OF EXPENSES. The compensation and expense reimbursements payable
       to any fiduciary, or to any recordkeeper or other third-party service
       provider, any other fees and expenses incurred in the operation or
       administration of the Plan may be paid out of the Trust Fund if not
       prohibited by ERISA. Such other fees and expenses include, but are not
       limited to, fees and expenses for investment education or advice
       services, distribution costs (for example, stock certificate issuance
       fees and check-writing fees), premiums on bonds required under ERISA and
       direct costs incurred by the Company or any Affiliate to the extent that
       the payment of such amounts out of the Trust Fund is not prohibited by
       ERISA. Distribution costs (for example, the actual stock certificate
       issuance fee and actual check-writing fee) of any elective distribution
       and similar fees may be charged to the Account of the Participant (or
       Beneficiary of a deceased Participant) if directed by the Company and not
       prohibited under ERISA.

15.4   EVIDENCE. Evidence required of anyone under the Plan may be by
       certificate, affidavit, document, or other instrument which the person
       acting in reliance thereon considers to be pertinent and reliable and to
       be signed, made, or presented by the proper party.

15.5   CORRECTION OF ERRORS AND DUTY TO REVIEW INFORMATION.

15.5.1 Correction of Errors. Errors may occur in the operation and
       administration of the Plan. The Company reserves the right to cause such
       equitable adjustments to be made to correct for such errors as it
       considers appropriate (including adjustments to Participant or
       Beneficiary Accounts), which will be final and binding on the Participant
       or Beneficiary.

15.5.2 Participant's Duty to Review Information. Each Participant and
       Beneficiary has the duty to promptly review any information that is
       provided or made available to the Participant or Beneficiary and that
       relates in any way to the operation and administration of the Plan or
       his/her elections under the Plan (for example, to review benefit
       statements, to review summary plan descriptions, etc.) and to notify the
       Company of any error made in the operation or

                                      -30-
<PAGE>

       administration of the Plan that affects the Participant or Beneficiary
       within thirty (30) days of the date such information is provided or made
       available to the Participant or Beneficiary (for example, the date the
       information is sent by mail or the date the information is provided or
       made available electronically). If the Participant or Beneficiary fails
       to review any information or fails to notify the Company of any error
       within such period of time, he/she will not be able to bring any claim
       seeking relief or damages based on the error.

       If the Company is notified of an alleged error within the thirty (30) day
       time period, the Company will investigate and either correct the error or
       notify the Participant or Beneficiary that it believes that no error
       occurred. If the Participant or Beneficiary is not satisfied with the
       correction (or the decision that no correction is necessary), he/she will
       have sixty (60) days from the date of notification of the correction (or
       notification of the decision that no correction is necessary), to file a
       formal claim under the claims procedures established for the Plan.

15.6   CLAIMS AND LIMITATIONS ON ACTIONS.

15.6.1 Claims Procedures. The Company will establish a claims procedure for the
       Plan as a separate written document (which may be a section in the
       summary plan description) that will be deemed to form a part of the Plan
       and is hereby incorporated by reference into the Plan.

15.6.2 Limitation on Actions After Exhaustion of Claims Process. A claimant must
       follow the claims procedure (and comply with all applicable deadlines
       established as part thereof) as a condition to the receipt of any benefit
       under the Plan, and as a condition to the availability of any other
       relief under or with respect to the Plan. The failure of a claimant to
       follow the claims procedure (including the failure to comply with the
       deadlines established as part thereof) will extinguish his/her right to
       file a subsequent claim or to file a lawsuit with respect to the claim.
       If a claimant follows the claims procedure, but his/her final appeal is
       denied, he/she will have six months to file a lawsuit with respect to
       that claim, and failure to meet the six-month deadline will extinguish
       his/her right to file a lawsuit with respect to that claim.

15.7   WAIVER OF NOTICE. Any notice required hereunder may be waived by the
       person entitled thereto.

15.8   AGENT FOR LEGAL PROCESS. The Company will be the agent for service of
       legal process with respect to any matter concerning the Plan (unless it
       designates some other entity or individual as such agent).

15.9   INDEMNIFICATION. The Company and its Affiliates jointly and severally
       agree to indemnify and hold harmless, to the extent permitted by law,
       each director, officer, and employee against any and all liabilities,
       losses, costs, or expenses (including legal fees) of whatsoever kind and
       nature that may be imposed on, incurred by, or asserted against such
       person at any time by reason of such person's services in the
       administration of the Plan, but only if such person did not act
       dishonestly, or in bad faith, or in willful violation of the law or
       regulations under which such liability, loss, cost, or expense arises.

15.10  EXERCISE OF AUTHORITY. The Company and any person who has authority with
       respect to the management, administration or investment of the Plan may
       exercise that authority in its/his/her full discretion, subject only to
       the duties imposed under ERISA. This discretionary authority includes,
       but is not limited to, the authority to make any and all factual
       determinations and interpret all terms and provisions of this document
       (or any other document established for use in the administration of the
       Plan) relevant to the issue under consideration. The exercise of
       authority will be binding upon all persons. It is intended that the
       exercise of authority be given deference in all courts of law to the
       greatest extent allowed under law, and that it not be overturned or set
       aside by any court of law unless found to be arbitrary and capricious.

15.11  TELEPHONIC OR ELECTRONIC NOTICES AND TRANSACTIONS. Any notice that is
       required to be given under the Plan to a Participant or Beneficiary, and
       any action that can be taken under the Plan by a Participant or
       Beneficiary (including enrollments, distributions, consents, etc.), may
       be by means of voice response or other electronic system to the extent so
       authorized by the Company and permitted under the Code and ERISA. Any
       notice or other communication sent by a Participant or Beneficiary to the
       Company, or to a recordkeeper or other service-provider acting on behalf
       of the Company with respect to the Plan, via e-mail will be considered
       adequate only if it is sent to a specific e-mail address provided for
       purposes of such notice or other

                                      -31-
<PAGE>

       communication, it is confirmed to have been received and it complies with
       such other procedural requirements as may be established for this purpose
       by the Company.

                                   ARTICLE XVI

                         AMENDMENT, TERMINATION, MERGER

16.1   AMENDMENT.

16.1.1 Amendment. The Company expressly reserves the right to amend the Plan in
       whole or in part at any time and from time to time and for any reason. An
       amendment may be adopted:

       (a)    By resolution of the Board of Directors (or a committee thereof).

       (b)    By signed writing of the Chief Executive Officer (but only if such
              amendment does not materially increase the cost of the Plan to
              Participating Employers).

       (c)    By signed writing of any person to whom amendment authority has
              been delegated by action of one of the above.

       No action by any individual, committee or entity with amendment authority
       will constitute an amendment to the Plan unless it is expressly
       designated as an amendment to the Plan.

16.1.2 Effect on Prior Operation of Plan. An amendment will not affect the
       operation of the Plan or the rights of any Participant retroactive to a
       date prior to the effective date of the amendment. The Account of a
       Participant (and all payment options and other rights with respect
       thereto) will be determined and paid in accordance with the terms of the
       Plan in effect as of his/her Termination of Employment, without regard to
       any subsequent amendment to the Plan (including an amendment with an
       effective date retroactive to a date prior to Termination of Employment)
       unless such amendment is required by law to be applied to the Participant
       or the amendment expressly provides that it will apply to Participants
       who have already had a Termination of Employment. The Company reserves
       the right to adopt an amendment with a retroactive effective date to the
       extent that retroactive application of the amendment is required by law
       or for any other reason deemed appropriate by the Company.

16.1.3 Effect on Vesting. An amendment will not reduce the vested percentage of
       a Participant determined as of the later of the effective date or
       adoption date of the amendment. Further, if the Company amends the
       vesting schedule under the Plan, with respect to any Participant who has
       three (3) or more years of vesting service (determined using the elapsed
       time methodology set forth in ERISA Reg. Section 2530.200b-9), the
       Company either will permit such Participant to elect to have his/her
       vested percentage computed without regard to such amendment or will amend
       the Plan to provide that the vested interest of such Participant will be
       the greater of his/her vested interest with regard to such amendment or
       his/her vested interest without regard to such amendment.

       The election period for which the Participant may elect to have his or
       her vested percentage computed without regard to such amendment shall
       begin no later than the adoption date of the amendment and end no earlier
       than sixty (60) days after the latest of the following dates:

       (a)    The adoption date of the amendment,

       (b)    The effective date of the amendment, or

       (c)    The day of the Participant is issued written notice of the
              amendment.

16.1.4 Effect on Protected Benefits. An amendment will not reduce any Account
       balance or eliminate any optional form of benefit to the extent to
       prohibited under Code Section 411(d)(6).

16.2   PERMANENT DISCONTINUANCE OF CONTRIBUTIONS. The Company may completely
       discontinue contributions under the Plan. No Employee will become a
       Participant after such discontinuance, and each Participant will be
       vested in the full balance of his/her Account. Subject to the

                                      -32-
<PAGE>

       foregoing, all of the provisions of the Plan will continue in effect, and
       upon entitlement thereto distributions will be made in accordance with
       the terms of the Plan.

16.3   TERMINATION. The Company may terminate the Plan at any time and for any
       reason by action of its Board of Directors. After the Plan is terminated
       no further contributions will be made. No Employee will become a
       Participant after such termination, and each Participant will be vested
       in the full balance of his/her Account. Distributions will be made to
       Participants and Beneficiaries promptly after the termination of the
       Plan, but not before the earliest date permitted under the Code and
       applicable regulations, and the Plan and any related trust agreement will
       continue in force for the purpose of making such distributions.

16.4   PARTIAL TERMINATION. If the Company determines that there has been a
       partial termination of the Plan, any Participant affected by such partial
       termination will become vested in the full balance of his/her Account.

16.5   MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS. If the Plan is merged
       or consolidated with any other plan, or if assets or liabilities of the
       Plan are transferred to any other plan, provision will be made so that
       each Participant and Beneficiary would (if such other plan then
       terminated) receive a benefit immediately after the merger,
       consolidation, or transfer that is equal to or greater than the benefit
       he/she would have been entitled to receive immediately before the merger,
       consolidation, or transfer (if the Plan had then terminated).

16.6   DEFERRAL OF DISTRIBUTIONS. In the case of a complete discontinuance of
       contributions to the Plan or of a complete or partial termination of the
       Plan, the Company or the Trustee may defer any distribution of benefits
       to Participants and Beneficiaries with respect to which such
       discontinuance or termination applies (except for distributions which are
       required to be made under Code Section 401(a)(9)) until appropriate
       adjustment of Accounts to reflect taxes, costs, and expenses, if any,
       incident to such discontinuance or termination.

                                  ARTICLE XVII

                            MISCELLANEOUS PROVISIONS

17.1   SPECIAL TOP-HEAVY RULES. The following provisions apply in any Plan Year
       in which the Plan is top-heavy.

17.1.1 Minimum Contribution. If the Plan is Top-Heavy for a Plan Year, a minimum
       contribution will be made for such Plan Year on behalf of each
       Participant who is not a Key Employee and who is employed with the
       Company or an Affiliate on the last day of such Plan Year. The minimum
       contribution will equal that percentage of the Participant's Compensation
       for the Plan Year which is the smaller of:

       (a)    Three percent (3%).

       (b)    The percentage which is the largest percentage of Compensation
              allocated to any Key Employee from employer contributions for such
              Plan Year.

       However, any required minimum contribution will be made under the
       Company's profit sharing plan before any minimum contribution is made
       under this Plan. Also, the minimum contribution due under this Plan for
       each Top-Heavy Eligible Participant will be reduced by the amount of any
       minimum contribution made for him/her under the Company's profit sharing
       plan.

17.1.2 Definitions. The following terms have the following meanings in this
       Section:

       (a)    "Compensation" means compensation as defined in Sec. 6.1.2, but
              disregarding any amounts in excess of the limit in effect under
              Code Section 401(a)(17).

       (b)    "Determination Date" means the last day of the preceding Plan
              Year.

       (c)    "Determination Period" means the Plan Year in which the applicable
              Determination Date occurs and the four preceding Plan Years.

                                      -33-
<PAGE>

       (d)    "Key Employee" means any Employee or former Employee of the
              Company or an Affiliate who is defined as such under Code Section
              416(i).

       (e)    "Required Aggregation Group" means each qualified plan of the
              Company or an Affiliate in which at least one Key Employee
              participates in the Plan Year that contains the Determination Date
              or any of the four preceding Plan Years, and any other qualified
              plan of the Company or an Affiliate that enables such a Plan to
              meet the requirements of Code Sections 401(a)(4) and 410.

       (f)    "Permissive Aggregation Group" means the Required Aggregation
              Group plus any other qualified plan of the Company or an Affiliate
              which, when consolidated as a group with the Required Aggregation
              Group, would continue to satisfy the requirements of Code Sections
              401(a)(4) and 410.

       (g)    "Present Value" for purposes of determining whether a defined
              benefit plan is Top-Heavy, will be calculated using the actuarial
              assumptions specified in the defined benefit plan for this
              purpose.

       (h)    "Top-Heavy" means the condition of the Plan that exists (or would
              exist) for any Plan Year if:

              (1)    The Plan is not part of a Required Aggregation Group and
                     the top-heavy ratio for the Plan exceeds 60%; or

              (2)    The Plan is a part of a Required Aggregation Group and the
                     top-heavy ratio for the Required Aggregation Group exceeds
                     60%

              Notwithstanding the above, the Plan is not Top-Heavy if the Plan
              is a part of a Permissive Aggregation Group and the top-heavy
              ratio for the Permissive Aggregation Group does not exceed 60%.

              The "top-heavy ratio" for this purpose means a fraction, the
              numerator of which is the sum of account balances as of the
              Determination Date of all Key Employees under all defined
              contribution plans maintained by the Company or an Affiliate
              (including any part of any account balance distributed in the
              five-year period ending on the Determination Date), and the
              Present Value of accrued benefits as of the Determination Date of
              all Key Employees under all defined benefit plans maintained by
              the Company or an Affiliate, and the denominator of which is the
              sum of all account balances as of the Determination Date of all
              Employees under all such defined contribution plans (including any
              part of any account balance distributed in the five-year period
              ending on the Determination Date), and the Present Value of
              accrued benefits as of the Determination Date of all Employees
              under all such defined benefit plans, all determined in accordance
              with Code Section 416 and the regulations thereunder. The account
              balances under a defined contribution plan and the accrued
              benefits under a defined benefit plan in both the numerator and
              denominator of the top-heavy ratio will be increased for any
              distribution made during the one-year period (or, in the case of a
              distribution for any reason other than separation from service,
              death or disability, the five-year period) ending on the
              Determination Date.

              For purposes of calculating the top-heavy ratio, the value of the
              account balances and the accrued benefits will be determined as of
              the most recent Valuation Date that falls within the 12-month
              period ending on the Determination Date. If an individual has not
              performed services for the Company or an Affiliate at any time
              during the one-year period ending on the Determination Date, any
              account balance or accrued benefit of such individual will be
              disregarded.

       (i)    "Valuation Date" is the last day of each Plan Year and is the date
              as of which account balances or accrued benefits are valued for
              purposes of calculating the top-heavy ratio.

17.1.3 Exception For Collective Bargaining Unit. The minimum contribution
       requirement described above will not apply to any Employee covered by the
       provisions of a collective bargaining agreement.

                                      -34-
<PAGE>

17.1.4 Defined Benefit Plan Accrued Benefit. For purposes of determining if a
       defined benefit plan included in a Required Aggregation Group of which
       this Plan is a part is a Top-Heavy Plan, the accrued benefit to any
       employee (other than a Key Employee) shall be determined under the method
       which is used for accrual purposes under all defined benefit plans
       maintained by the employer, or, if there is no such method, as if such
       benefit accrued not more rapidly than the lowest accrual rate permitted
       under Code Section 411(b)(1)(C).

17.2   QUALIFIED MILITARY SERVICE. The Plan will comply with the requirements of
       Code Section 414(u) with respect to each Participant who is absent from
       service because of "qualified military service" (as defined in Code
       Section 414(u)(5)) provided that he/she returns to employment within such
       period after the end of the qualified military service as is prescribed
       under Code Section 414(u) (or other federal law cited therein).

17.3   INSURANCE COMPANY NOT RESPONSIBLE FOR VALIDITY OF PLAN. Any insurance
       company that issues a contract under the Plan will not have any
       responsibility for the validity of the Plan. An insurance company to
       which an application may be submitted hereunder may accept such
       application and will have no duty to make any investigation or inquiry
       regarding the authority of the applicant to make such application or any
       amendment thereto or to inquire as to whether a person on whose life any
       contract is to be issued is entitled to such contract under the Plan.

17.4   NO GUARANTEE OF EMPLOYMENT. The Plan is not an employment agreement, and
       participation herein does not constitute a guarantee of employment with
       the Company or any Affiliate.

                                      -35-
<PAGE>

IN WITNESS WHEREOF, the Company has caused this Plan document to be executed on
October 27, 2005.

                                      CAPELLA EDUCATION COMPANY

                                      By  /s/ Stephen Shank

                                          Its Chairman and CEO

                                          And

                                      By  /s/ Gregory W. Thom

                                          Its VP, General Counsel and Secretary

                                      -36-
<PAGE>

                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN
                               (2005 RESTATEMENT)

                         LIST OF PARTICIPATING EMPLOYERS
                            (EFFECTIVE JUNE 1, 2005)

As of June 1, 2005, the Participating Employers are:

1.     Capella Education Company

2.     Capella University, Inc.

                                      -37-
<PAGE>

                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN

                               (2005 RESTATEMENT)

                          LIST OF PREDECESSOR EMPLOYERS
                            (EFFECTIVE JUNE 1, 2005)

As of June 1, 2005, there are no Predecessor Employers.

                                      -38-
<PAGE>

                                 FIRST AMENDMENT
                                     TO THE
                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN

                            (SECOND 2005 RESTATEMENT)

The Capella Education Company Employee Stock Ownership Plan (Second 2005
Restatement) is amended by adding a new section 5.2.5 to read as follows:

      5.2.5 Plan Year 2006 Allocations. Notwithstanding anything to the contrary
            in this Article V, the ESOP Contribution for the 2006 Plan Year will
            be allocated in accordance with the following:

            (a)   To be an "allocation eligible" Participant for the ESOP
                  Contribution for the 2006 Plan Year, the Participant must be
                  an Employee on June 30, 2006. However, the special rules in
                  Sec. 5.2.3(b) continue to apply to these 2006 Plan Year
                  allocations for any Participant whose Termination of
                  Employment occurred during the Plan Year and prior to June 30,
                  2006.

            (b)   The portion of the ESOP Contribution allocated to the Account
                  of the allocation eligible Participant for the 2006 Plan Year
                  (as defined in (a) above) will equal the total amount of the
                  ESOP Contribution to be so allocated multiplied by a fraction,
                  the numerator of which is Covered Compensation of the
                  Participant for the period from January 1, 2006 through June
                  30, 2006 (the "allocation period"), and the denominator of
                  which is the aggregate Covered Compensation for that period of
                  all allocation eligible Participants.

      In witness whereof, this Amendment has been signed as of the date set
      forth below.

      Date: June 1 2006            Capella Education Company

                                       By: Gregory W. Thom
                                         Its: VP, General Counsel and Secretary<PAGE>

                                                                   EXHIBIT 10.26

                            CAPELLA EDUCATION COMPANY
                              ANNUAL INCENTIVE PLAN
                           MANAGEMENT EMPLOYEES - 2006

PLAN OBJECTIVE

To recognize and reward eligible management employees for the achievement of
company financial goals.

PLAN SUMMARY

     -    The plan is based upon company performance components, revenue and
          profit as compared to plan, for eligible participants as follows:

          -    70% of the incentive opportunity is based on 2006 total company
               performance, measured by achievement of revenue and profit to
               plan.

          -    30% of the incentive opportunity is based on achievement of the
               total company revenue and profit achievement in Q3 and Q4,
               cumulatively, compared to the Q3/Q4 plan for 2006.

     -    You have the opportunity to earn from 0% - 200 % of your target
          incentive amount. The financial performance and payout matrices will
          be reviewed periodically as to progress during the year.

     -    Your incentive earnings will be paid within two and a half months
          after the end of the plan year based on year-end company financial
          achievement (plan funding).

NOTE: The remaining pages and exhibits provide further explanation regarding
plan design, payout criteria, and administration.

SEE EXHIBIT 1 FOR SPECIFIC INFORMATION, INCLUDING DEFINITIONS, TERMS AND
CONDITIONS, AND PAYOUT CRITERIA.

ELIGIBILITY CRITERIA

Select management-level employees who meet the Eligibility Criteria (see
Definition of Eligibility Criteria) are eligible for plan participation.
Criteria the plan administrator will consider when selecting eligible employees
for participation include scope and level of responsibility, organizational
impact, internal equity and external competitiveness. Incentive awards for
employees who work less than full-time will be prorated accordingly.

PLAN ADMINISTRATOR

The Compensation Committee of the Board of Directors of the Company will
administer the plan. The Committee may delegate to the Chief Executive Officer
and the Vice President of Human Resources the authority to determine incentive
awards under the plan for eligible employees who are not executive officers of
the Company. Awards granted pursuant to such

<PAGE>

delegated authority shall be made consistent with the criteria established by
the Committee and shall be subject to any other restrictions placed on the
delegation by the Committee. Any incentive award under the plan to the Company's
Chief Executive Officer will be approved and administered by the Executive
Committee of the Board of Directors.

To the full extent permitted by law, (i) no member of the Committee or other
plan administrator shall be liable for any action or determination taken or made
in good faith with respect to the plan or any award made under the plan, and
(ii) the members of the Committee and the other plan administrators shall be
entitled to indemnification by the Company with regard to such actions.

SIZE OF AWARD OPPORTUNITY

Incentive potential for plan participants is expressed as a percentage of base
compensation as of December 31st of the plan year (see Definition section for
Base Compensation). At target level performance, the size of the incentive award
opportunity is based upon your position as determined by the plan administrator.

PAYOUT CRITERIA - COMPANY FINANCIAL RESULTS

TOTAL YEAR REVENUE AND PROFIT

     -    70% of your targeted incentive potential is based on total year,
          year-end company financial results, combining revenue and profit
          against the plan.

     -    At the beginning of the year, an annual financial target will be
          established at the Company level, approved by the Board of Directors.
          The Chief Executive Officer or designate will communicate this
          financial target to you. Incentive potential will be based on the
          level of Company financial performance within a specified range.

     -    All participants, unless otherwise communicated to you, will have a
          financial target that reflects overall Company financial results.

     -    If the Company exceeds the target financial level on the full year
          performance, you will be eligible to receive a greater than target
          level incentive award for this portion of the plan.

     -    This portion of the plan pays out for a range of financial performance
          with an upward potential of 170% of your target incentive award
          opportunity. (Please see the financial matrices for the specific
          payout schedule).

Q3 AND Q4 REVENUE AND PROFIT

     -    30% of your targeted incentive potential is based on Q3 and Q4
          cumulative results for revenue and profit. 0-30% is the incentive
          potential for this factor. The maximum target level for this component
          of the plan is 30%.

                                       2

<PAGE>

QUALIFICATION OF AWARD PAYMENT

The plan administrator reserves the right to withhold incentive payment in the
event an individual fails to perform his or her day-to-day job in a satisfactory
manner after the Company has provided reasonable notice of such failure.

                                       3

<PAGE>

                                                                       EXHIBIT 1

                            CAPELLA EDUCATION COMPANY
                            MANAGEMENT INCENTIVE PLAN

I. DEFINITIONS OF TERMS

     The following terms as used in the plan have meaning as described below:

     COMPANY - Capella Education Company.

     BASE COMPENSATION - total base salary wages for the plan year. (Note:
     excludes any incentive compensation payment(s), lump sump merit increases
     and taxable fringes). Base salary wages will be reduced for any leave of
     absence, paid or unpaid, beyond 90 days.

     ELIGIBILITY CRITERIA - Individuals need to be regular status, work a
     minimum of half time to be eligible for plan participation (average of 40
     hours per pay period), and be considered a management level employee
     (functional leader or above). Incentive awards for employees who work less
     than full-time will be prorated according to his/her total annual base
     salary wages.

     FINANCIAL OBJECTIVE - the level of company performance against any
     financial measure approved by the Committee to define operating
     performance. The Committee may amend the goals to reflect material
     adjustment in or changes to the Company's policies; to reflect material
     company changes such as mergers or acquisitions; and to reflect such other
     events having a material impact on goals.

     PERFORMANCE MEASURES - means any of the following measures with respect to
     the performance of the Company or a group, a unit, an Affiliate, or an
     individual; specified levels of the Company's stock price, market share,
     sales, earnings per share, return on equity, costs, operating income, net
     income before interest, taxes, depreciation and/or amortization, net income
     before or after extraordinary items, return on operating assets or levels
     of cost savings, earnings before taxes, net earnings, asset turnover, total
     shareholder return, pre-tax, pre-interest expense return on invested
     capital, return on incremental invested capital, free cash flow or cash
     flow from operations, or customer satisfaction or learner success metrics.
     In addition, with respect to an Award that is not intended to qualify for
     the exemption from the limitation on deductibility imposed by Section
     162(m) of the Code on compensation paid to "covered employees" as defined
     therein, "Performance Measures" may include any other measure determined by
     the Committee. Such performance measures may be set as an absolute measure
     or relative to a designated peer group or index of comparable companies.

     PLAN YEAR - the fiscal year of the Company.

     PAYOUT -- the actual amount to be paid to a participant based upon
     achievement of Company financial objectives.

<PAGE>

II. PLAN ADMINISTRATION

     NEW HIRES - new hires must start by October 1st to qualify. For individuals
     hired by October 1st of the plan year, eligibility begins on the first date
     of employment. Individual incentive awards will be prorated from the date
     of hire based on an individual's year-to-date total annual base wages.

     PROMOTIONS - individuals must be promoted into an eligible management level
     position by October 1st to be eligible for participation in that plan year.
     Note: if an individual is promoted October 1st or after of the plan year it
     will be at the Committee's discretion to determine the percentage of
     incentive payout that an employee will receive at year-end.

     TERMINATION OF EMPLOYMENT - in the event any eligible participant ceases to
     be an employee during any year in which he/she is participating in the
     plan, he/she will not be eligible to receive any incentive compensation for
     such year unless otherwise provided for in the Executive Severance Plan.
     Individuals need to be employed at the time of award payment to be eligible
     for any incentive payments unless otherwise provided for in the Executive
     Severance Plan. Incentive awards to individuals who are subject to the
     Executive Severance Plan will be determined in accordance with the plan, as
     adjusted in accordance with the Executive Severance Plan, and all payouts
     will be made in accordance with the Executive Severance Plan. Employees who
     become disabled or retire during the year will be eligible to receive a
     prorated portion of the incentive payment, if earned.

     RIGHT TO CONTINUE EMPLOYMENT - nothing contained in the plan shall be
     construed to confer upon any employee the right to continue in the
     employment of, or the Company's right to terminate his/her employment at
     any time.

     TAX WITHHOLDING - The Company shall have the right to withhold from cash
     payments under the plan to a participant or other person an amount
     sufficient to cover any required withholding taxes.

     UNFUNDED PLAN - The plan shall be unfunded and the Company shall not be
     required to segregate any assets that may at any time be represented by
     awards under the plan.

     PLAN AMENDMENT, MODIFICATION, OR TERMINATION - from time to time the
     Committee may amend the plan as it believes appropriate and/or may
     terminate the plan, provided that no such amendment or termination will
     affect the right of any participant to receive incentive compensation in
     accordance with the terms of the plan for the portion of any year up to the
     date of the amendment or termination. Typically, any such modification
     would be made on an annual basis.

     GOVERNING LAW - To the extent that federal laws do not otherwise control,
     the plan and all determinations made and actions taken pursuant to the plan
     shall be governed by the laws of Minnesota and construed accordingly.

                                        2

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