Document:

exv4w2w3

 

EXHIBIT 4.2.3

GUARANTEE

     This GUARANTEE (this “Guarantee”), dated as of ___, 2006, is entered into by
Sprint Nextel Corporation, a Kansas corporation (“Sprint Nextel”), in favor of each holder
(“Holder”) of the 8 1/8% Senior Notes due 2011 (the “Securities”), and The Bank of
New York Trust Company, N.A. (as successor to BNY Western Trust Company), as Trustee under the
Indenture referred to below (the “Trustee”).

     WHEREAS, Nextel Partners, Inc., a Delaware corporation (“Nextel Partners”), issued the
Securities pursuant to that certain Indenture, dated as of May 19, 2004, between Nextel Partners
and the Trustee, as amended by the First Supplemental Indenture, dated as of ___, 2006,
between Nextel Partners and the Trustee (as so amended, the “Indenture”);

     WHEREAS, Nextel Partners is a wholly-owned subsidiary of Sprint Nextel;

     WHEREAS, the Board of Directors of Sprint Nextel has determined it to be in the best interest
of Sprint Nextel to guarantee all of Nextel Partners’ payment obligations under the Securities and
all other monetary obligations of Nextel Partners under the Indenture and the Securities;

     WHEREAS, Sprint Nextel desires to enter into this Guarantee on the terms and conditions set
forth herein; and

     WHEREAS, all capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Sprint Nextel hereby agrees as follows:

     1. Sprint Nextel hereby jointly and severally, with any other Person who may also guarantee
the Guaranteed Obligations (defined below), unconditionally and irrevocably guarantees, on a senior
unsecured basis, as a primary obligor and not as a surety, to each Holder of Securities and to the
Trustee and its successors and assigns, the full and punctual payment when due, whether at
maturity, by acceleration, redemption or otherwise, of the principal of and interest on, if any,
the Securities, only if lawful, and all other monetary obligations of Nextel Partners under the
Indenture, insofar as such monetary obligations relate to the Securities (collectively, the
“Guaranteed Obligations”). Sprint Nextel further agrees that the Guaranteed Obligations
may be extended or renewed, in whole or in part, without notice or further assent from Sprint
Nextel, and Sprint Nextel shall remain bound under this Guarantee, notwithstanding any such
extension or renewal. Failing payment when due of any amount so guaranteed for whatever reason,
Sprint Nextel will be obligated to pay the same in full, or cause to be duly and punctually paid in
full, without any demand or notice whatsoever.

     2. Sprint Nextel hereby waives presentation to, demand of payment from and protest to, Nextel
Partners of any of the Guaranteed Obligations, and also waives notice of protest for nonpayment.
Sprint Nextel also hereby waives notice of any default by Nextel Partners under the Securities or
the Indenture. Sprint Nextel agrees that its obligations under this Guarantee

 

 

shall be continuing, absolute, full and unconditional under any and all circumstances, to the
fullest extent permitted by applicable law, and shall not be discharged except by payment in full
of the Securities, irrespective of:

     (a) the value, genuineness, regularity, validity, enforceability, avoidance,
subordination, discharge or disaffirmance of any of the Guaranteed Obligations, the
Securities or the Indenture, or the absence of any action to enforce the same;

     (b) any extension or waiver, at any time or from time to time, without notice to Sprint
Nextel, of the time for compliance by Nextel Partners with any of its obligations under the
Securities or the Indenture;

     (c) any substitution, release or exchange of any other guarantee of or security for any
obligations of Nextel Partners under the Securities or the Indenture;

     (d) any recission, amendment or modification to any of the terms or provisions of the
Securities or the Indenture;

     (e) any law, regulation or order of any jurisdiction affecting any term of any of the
Securities or the Indenture or the rights of any Holder of Securities or the Trustee with
respect thereto;

     (f) any failure to obtain any authorization or approval from, or other action by, to
notify, or to file anything with, any governmental authority or regulatory body required in
connection with the performance of this Guarantee by Sprint Nextel;

     (g) the failure by any Holder of Securities or the Trustee to assert any claim or
demand or to exercise any right or remedy against Nextel Partners or any other guarantor of
the Guaranteed Obligations or any other Person;

     (h) the failure by any Holder of Securities or the Trustee to exercise any right or
remedy against any collateral securing any of the Guaranteed Obligations; or

     (i) any other circumstance whatsoever that might otherwise constitute a defense to or a
legal or equitable discharge of Sprint Nextel’s obligations, in its capacity as guarantor,
under this Guarantee.

     3. Sprint Nextel’s obligations under this Guarantee shall not be limited by any valuation,
estimation or disallowance made in connection with any proceedings filed by or against Sprint
Nextel under the United States Bankruptcy Code of 1978, as amended (the “Bankruptcy Code”),
whether pursuant to Section 502 of the Bankruptcy Code or any other section thereof. Sprint Nextel
further agrees that, in its capacity as guarantor, none of the Holders of Securities shall be under
any obligation to marshall any assets in favor of or against or in payment of any or all of the
Guaranteed Obligations or the Securities. To the extent that Sprint Nextel makes a payment or
payments on any or all of the Guaranteed Obligations and such payment or payments (or any part
thereof) is or are subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to Sprint Nextel, its estate, trustee or receiver or any other party,
including, without limitation, Sprint Nextel, under any bankruptcy

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law, state or federal law, common law or equitable cause, then to the extent of such payment
or repayment, the Guaranteed Obligations (or, if applicable, such part thereof as had been paid,
reduced or satisfied by such amount), shall be reinstated and revived and continued in full force
and effect as of the date such initial payment, reduction or satisfaction occurred. Sprint Nextel
waives all set-offs, counterclaims, reductions and diminutions of any obligation, and any defense
of any kind or nature (other than payment of the Guaranteed Obligations), that Sprint Nextel may
have or assert against Nextel Partners or any other Person, and all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of this Guarantee.

     4. Sprint Nextel hereby unconditionally and irrevocably waives (a) any defense arising by
reason of any claim or defense based upon an election of remedies by any Holder of Securities that
in any manner impairs, reduces, releases or otherwise adversely affects the subrogation,
reimbursement, exoneration, contribution or indemnification rights of Sprint Nextel or other rights
of Sprint Nextel to proceed against Nextel Partners or any other guarantor or any other Person or
collateral, if any, and (b) any defense based on any right of set-off or counterclaim against or in
respect of the Guaranteed Obligations, the Securities or the Indenture.

     5. Sprint Nextel hereby waives any right to which it may be entitled to have its obligations
under this Guarantee divided among it and other guarantors of the Guaranteed Obligations, if any,
such that Sprint Nextel’s obligations would be less than the full amount claimed. Sprint Nextel
hereby waives any right to which it may be entitled to have the assets of Nextel Partners or any
other Person who became an “obligor” under the Securities or the Indenture first be used and
depleted as payment of the obligations of Nextel Partners or such other Person, respectively, under
the Securities and the Indenture prior to any amounts being claimed from or paid by Sprint Nextel
under this Guarantee. Sprint Nextel hereby waives any right to which it may be entitled to require
that suit be instituted against Nextel Partners or any other guarantor of the Guaranteed
Obligations or “obligor” under the Securities or the Indenture prior to an action being initiated
against Sprint Nextel. Sprint Nextel further agrees that this Guarantee constitutes a guarantee of
payment when due (and not a guarantee of collection) and waives any right, in its capacity as
guarantor, to require that any resort be had by any Holder of Securities or the Trustee to any
security held for payment of the Guaranteed Obligations.

     6. The failure to endorse a notation of this Guarantee on any Security shall not affect or
impair the validity thereof.

     7. Sprint Nextel’s obligations under this Guarantee shall not be affected if any Holder of
Securities is precluded for any reason (including, without limitation, the application of the
automatic stay under Section 362 of the Bankruptcy Code) from enforcing or exercising any right or
remedy with respect to the Securities, and Sprint Nextel shall pay to each affected Holder of
Securities, upon demand, the amount that would otherwise have been due and payable had the exercise
of such rights and remedies been permitted. In the event of any such application of the automatic
stay under Section 362 of the Bankruptcy Code, the Securities shall forthwith become due and
payable by Sprint Nextel for purposes of this Guarantee.

     8. Sprint Nextel hereby agrees that, unless and until all obligations with respect to the
Securities and the Indenture have been paid in full, in its capacity as guarantor, it shall have

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no right (whether direct or indirect) of subrogation (whether contractual, under Section 509
of the Bankruptcy Code or otherwise) to the claims of any Holder of Securities or the Trustee
against Nextel Partners or any other Person who became an “obligor” under the Securities or the
Indenture in respect of any obligation with respect to the Securities or the Indenture,
notwithstanding any payment or payments made by Sprint Nextel hereunder or any set-off or
application of funds of Sprint Nextel or by the Holder of Securities; and Sprint Nextel hereby
waives all contractual, statutory and common law rights of reimbursement, contribution or indemnity
it may have against Nextel Partners or any other such Person, as the case may be, and any and all
other rights of payment or recovery from Nextel Partners or any other such Person, as the case may
be, that it may now have or hereafter acquire until all Securities and all obligations under the
Indenture in respect of the Securities have been paid in full (in which event such rights of
payment or recovery shall be deemed to be in the form of a loan or loans made from Sprint Nextel to
Nextel Partners or any other such Person, as the case may be). Sprint Nextel further agrees that
as between Sprint Nextel, on the one hand, and the Holders of Securities and the Trustee, on the
other hand, (a) the maturity of the Securities guaranteed hereby may be accelerated as provided in
Article 5 of the Indenture for the purpose of this Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Securities guaranteed pursuant
to this Guarantee, and (b) in the event of any declaration of acceleration of such Securities as
provided in Article 5 of the Indenture, such Securities (whether or not due and payable) will
forthwith become due and payable by Sprint Nextel for the purpose of this Guarantee.

     9. Except as otherwise specifically provided in Section 12 hereof with respect to the release
of Sprint Nextel from this Guarantee, this Guarantee shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon Sprint Nextel and the successors
thereof, and shall inure to the benefit of (and be enforceable by) the Trustee and the Holders of
Securities from time to time, or their respective successors or assignees, until the Indenture
shall have been satisfied and discharged in accordance with the terms thereof, and the principal of
and interest, if any, on the Securities, and the obligations of Sprint Nextel in respect of the
Guaranteed Obligations, have been satisfied by payment in full.

     10. Payments made by Sprint Nextel pursuant to this Guarantee will be made to each Holder of
Securities in the same manner, and to the same location, as payments to such Holder of Securities
are required to be made pursuant to the provisions of the Indenture.

     11. Sprint Nextel shall pay all reasonable costs and expenses (including reasonable attorneys’
fees and expenses) paid or incurred by the Trustee or any Holder of Securities in connection with
the enforcement of this Guarantee or any other rights of the Trustee or such Holder of Securities
under the Securities or the Indenture with respect to this Guarantee and the prosecution or defense
of any action by or against any of the Holder of Securities in connection with this Guarantee or
the Indenture with respect to this Guarantee, whether involving Sprint Nextel or any other Person,
including a trustee in bankruptcy; provided, however, that Sprint Nextel shall have
no such obligation in connection with any action brought by any Holder of Securities against Sprint
Nextel or Nextel Partners to the extent that Sprint Nextel or Nextel Partners is the prevailing
party in the judgment rendered in any such action; and provided, further, that
Sprint Nextel shall not be responsible for the fees and expenses of more than one firm of attorneys
(in addition to any required local counsel).

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     12. Sprint Nextel may be released from this Guarantee upon the sale or other transfer of the
capital stock of Nextel Partners or of all or substantially all of the assets of Nextel Partners to
an entity that is not Sprint Nextel or a Subsidiary of Sprint Nextel, which release shall be
effective (a) only upon (1) the execution and delivery by such transferee of a guarantee of the
Guaranteed Obligations, in form and substance substantially similar to this Guarantee, in favor of
each Holder of Securities and the Trustee, and (2) written notice by Sprint Nextel to the Trustee
accompanied by an Officer’s Certificate certifying as to compliance with this Section 12, and (b)
without any further action on the part of the Trustee or any Holder of Securities. Upon any such
release in compliance with the above requirements, the Trustee shall deliver an appropriate
instrument evidencing such release. Any actions taken pursuant to this Section 12 shall not
release Nextel Partners as a primary obligor under the Indenture or the Securities.

     13. Any invalidity or unenforceability of any provision or application of this Guarantee shall
not affect other lawful provisions and applications hereof, and to this end the provisions of this
Guarantee are declared to be severable. Except as otherwise provided herein, this Guarantee may
not be waived, amended, released or otherwise changed except with the consent of Sprint Nextel and
not less than a majority in aggregate principal amount of the then outstanding Securities.

     14. This Guarantee shall be construed according to the laws of the State of New York without
regard to conflicts of laws principles.

[Remainder of Page Blank — Signature Page Follows]

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     IN WITNESS WHEREOF, the undersigned has duly executed this Guarantee as of the date first
written above.

	 	 	 	 	 
	 	SPRINT NEXTEL CORPORATION

 	 
	 	By:  	 	 
	 	 	Paul N. Saleh 	 
	 	 	Chief Financial Officer<PAGE>

                                                                   EXHIBIT 10.11

                            CAPELLA EDUCATION COMPANY
                            EXECUTIVE SEVERANCE PLAN

            (AS ORIGINALLY EFFECTIVE FEBRUARY 1, 2003 AND AS AMENDED
               MAY 11, 2005, MAY 25, 2006 AND SEPTEMBER 11, 2006)

I.       INTRODUCTION

         Capella Education Company ("CEC") has established the Capella Education
         Company Executive Severance Plan (the "Plan") to provide severance pay
         and other benefits to eligible employees of CEC and its subsidiaries
         whose employment terminates under certain covered circumstances. CEC,
         in its complete and sole discretion, will determine who is an eligible
         employee, the requirements to receive severance benefits, and the
         amount of any benefits.

         The Plan was originally effective February 1, 2003. The Plan was
         amended effective May 11, 2005 and May 25, 2006. The Plan, as amended
         in this document, is effective for eligible employees who terminate on
         or after September 11, 2006. This Plan supersedes and replaces any
         policy, plan or practice that may have existed in the past regarding
         the payment of severance benefits to eligible employees, with the
         exception of the Capella Education Company Senior Executive Severance
         Plan. However, any individual written employment contract or agreement
         between CEC (or a subsidiary) and an eligible employee that
         specifically provides for the payment of severance benefits remains in
         force, as detailed below.

         This document is both the "Plan document" and the "Summary Plan
         Description" for the Plan.

         Any reference in this Plan to "Capella" includes CEC and its
         subsidiaries.

II.      ELIGIBILITY

         Only those employees who have been designated in writing by CEC's Chief
         Executive Officer ("CEO") as eligible to participate in the Plan are
         eligible to become participants in the Plan. However, any employee who
         is a participant in the Capella Education Company Senior Executive
         Severance Plan is not eligible to participate in this Plan while
         participating in that plan, regardless of any designation to the
         contrary.

         The terms of the written designation by the CEO, not the employee's job
         title or classification for other purposes, determine whether an
         employee is eligible for benefits under the Plan. The written
         designation for a particular employee may be changed from time to time
         at the discretion of the CEO.

<PAGE>

         If you are designated as an eligible employee, you must also complete
         90 days of service with Capella, measured from your most recent date of
         hire, prior to becoming a participant in the Plan.

         You will cease to be a participant in this Plan when you cease to be
         designated by CEC as an eligible employee.

III.     SEVERANCE EVENTS

         In general, if you are an eligible participant in this Plan, and you
         comply with all provisions and requirements of the Plan, you will
         receive severance benefits if your employment with Capella is
         involuntarily terminated other than for Cause. A voluntary termination
         by you for Good Reason within 24 months following a qualified Change in
         Control is also a severance eligible event. These concepts are
         described in detail below.

         "FOR CAUSE". You will not be eligible for benefits under this Plan if
         your employment is terminated by Capella "for Cause." "Cause" means 1)
         employee's commission of a crime or other act that could materially
         damage the reputation of Capella; 2) employee's theft,
         misappropriation, or embezzlement of Capella property; 3) employee's
         falsification of records maintained by Capella; 4) employee's failure
         substantially to comply with the written policies and procedures of
         Capella as they may be published or revised from time to time (in
         writing, on the Faculty Center website, or on the Stella intranet); 5)
         employee's misconduct directed toward learners, employees, or adjunct
         faculty; or 6) employee's failure substantially to perform the material
         duties of employee's Capella employment, which failure is not cured
         within 30 days after written notice from Capella specifying the act of
         non-performance.

         "GOOD REASON". If you terminate employment with Capella voluntarily,
         you will be eligible for Plan benefits only if you terminated with Good
         Reason following a qualified Change in Control, as defined below. "Good
         Reason" means 1) the demotion or reduction of your job responsibilities
         upon a Change in Control; 2) your total targeted compensation is
         decreased by more than ten percent in a twelve month period; or 3) a
         reassignment of your principal place of work, without your consent, to
         a location more than 50 miles from your principal place of work upon a
         Change of Control. To be eligible for Plan benefits, you must terminate
         employment for Good Reason within 24 months after the date of the
         qualified Change in Control. In addition, you must have provided
         written notice to CEC of the asserted Good Reason not later than 30
         days after the occurrence of the event on which Good Reason is based
         and at least 30 days prior to your proposed termination date. CEC may
         take action to cure your stated Good Reason within this 30-day period.
         If CEC does so, you will not be eligible for Plan benefits if you
         voluntarily terminate.

         "CHANGE IN CONTROL". For purposes of this Plan, a qualifying "Change in
         Control" of CEC shall be deemed to occur if any of the following occur:

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<PAGE>

                  (1) Any "person" (as such term is used in Section 13(d) and
         14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"))
         acquires or becomes a "beneficial owner" (as defined in Rule 13d-3 or
         any successor rule under the Exchange Act), directly or indirectly, of
         securities of CEC representing the following: (i) 50% or more of the
         combined voting power of CEC's then outstanding securities entitled to
         vote generally in the election of directors ("Voting Securities") at
         any time prior to CEC selling any of its shares in a public offering
         pursuant to a registration statement filed under the Securities Act of
         1933, as amended (the "Securities Act"), or (ii) 35% or more of the
         combined voting power of CEC's then outstanding Voting Securities at
         any time after CEC sells any of its shares in a public offering
         pursuant to a registration statement filed under the Securities Act.
         Provided, however, that the following shall not constitute a Change in
         Control:

                           (A) any acquisition or beneficial ownership by CEC or
                  a subsidiary;

                           (B) any acquisition or beneficial ownership by any
                  employee benefit plan (or related trust) sponsored or
                  maintained by CEC or one or more of its subsidiaries;

                           (C) any acquisition or beneficial ownership by any
                  corporation with respect to which, immediately following such
                  acquisition, more than 50% of both the combined voting power
                  of CEC's then outstanding Voting Securities and the Shares of
                  CEC is then beneficially owned, directly or indirectly, by all
                  or substantially all of the persons who beneficially owned
                  Voting Securities and Shares of CEC immediately prior to such
                  acquisition in substantially the same proportions as their
                  ownership of such Voting Securities and Shares, as the case
                  may be, immediately prior to such acquisitions;

                           (D) any acquisition of Shares or Voting Securities in
                  CEC's initial public offering pursuant to a registration
                  statement filed under the Securities Act.

                  (2) A majority of the members of the Board of Directors of CEC
         shall not be Continuing Directors. "Continuing Directors" shall mean:
         (A) individuals who, on the date hereof, are directors of CEC, (B)
         individuals elected as directors of CEC subsequent to the date hereof
         for whose election proxies shall have been solicited by the Board of
         Directors of CEC or (C) any individual elected or appointed by the
         Board of Directors of CEC to fill vacancies on the Board of Directors
         of CEC caused by death or resignation (but not by removal) or to fill
         newly-created directorships;

                  (3) Approval by the stockholders of CEC of a reorganization,
         merger or consolidation of CEC or a statutory exchange of outstanding
         Voting Securities of CEC, unless, immediately following such
         reorganization, merger, consolidation or exchange, all or substantially
         all of the persons who were the beneficial owners,

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<PAGE>

         respectively, of Voting Securities and Shares of CEC immediately prior
         to such reorganization, merger, consolidation or exchange beneficially
         own, directly or indirectly, more than 50% of, respectively, the
         combined voting power of the then outstanding voting securities
         entitled to vote generally in the election of directors and the then
         outstanding shares of common stock, as the case may be, of the
         corporation resulting from such reorganization, merger, consolidation
         or exchange in substantially the same proportions as their ownership,
         immediately prior to such reorganization, merger, consolidation or
         exchange, of the Voting Securities and Shares of CEC as the case may
         be; or

                  (4) Approval by the stockholders of CEC of (x) a complete
         liquidation or dissolution of CEC or (y) the sale or other disposition
         of all or substantially all of the assets of CEC (in one or a series of
         transactions), other than to a corporation with respect to which,
         immediately following such sale or other disposition, more than 50% of,
         respectively, the combined voting power of the then outstanding voting
         securities of such corporation entitled to vote generally in the
         election of directors and the then outstanding shares of common stock
         of such corporation is then beneficially owned, directly or indirectly,
         by all or substantially all of the persons who were the beneficial
         owners, respectively, of the Voting Securities and Shares of CEC
         immediately prior to such sale or other disposition in substantially
         the same proportions as their ownership, immediately prior to such sale
         or other disposition, of the Voting Securities and Shares of CEC, as
         the case may be.

         At all times after CEC sells any of its shares in a public offering
         pursuant to a registration statement filed under the Securities Act,
         the references to 50% in subsections (1)(C), (3) and (4) above shall be
         changed to 65%.

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<PAGE>

         RELEASE REQUIRED. Regardless of the reason for your termination, you
         will not be eligible for Plan benefits unless you sign a release form
         after your employment with CEC or a subsidiary actually terminates. You
         may obtain a copy of the current release form at any time by contacting
         the CEC Human Resources Department. However, CEC will determine the
         contents of the release form, and may revise it from time to time as
         appropriate to deal with particular severance situations. As such, the
         release form you will be required to sign to receive benefits under the
         Plan may differ from any release form you previously received.

         The release will generally include provisions regarding noncompetition
         with Capella for a period of time after your employment terminates,
         confidentiality, return of Capella property and other topics, including
         a release of all claims against Capella, its employees and its
         representatives. The release may also include other topics in a given
         situation, including non-solicitation of clients and/or employees and
         compliance with CEC policies (such as code of conduct, business ethics
         and insider trading, as applicable). Severance benefits will be paid
         only after any period for rescinding the release has expired. If you
         violate the release, CEC will no longer be required to pay you any
         remaining severance benefits due to you under the Plan.

         INELIGIBILITY FOR BENEFITS. Severance benefits will not be paid under
         this Plan in any of the following circumstances:

                           -  You are offered another position with Capella (or
                              the successor/purchasing entity) and you refuse to
                              accept that position, other than for Good Reason
                              in connection with a qualified Change in Control.
                           -  You voluntarily terminate your employment with
                              Capella (or the successor/purchasing entity),
                              other than for Good Reason in connection with a
                              qualified Change in Control.
                           -  Your termination of employment does not qualify as
                              a "separation from service" under Internal Revenue
                              Code Section 409A or any guidance issued
                              thereunder.
                           -  Your employment is terminated by Capella (or the
                              successor/purchasing entity) for Cause, whether or
                              not in connection with a Change in Control.
                           -  You are placed on a temporary layoff.
                           -  Your employment terminates due to death,
                              disability, or failure to return to work for
                              Capella following a leave of absence, layoff or
                              any other period of authorized absence from
                              Capella.
                           -  You refuse to sign the release form prepared by
                              CEC, or you rescind the release before it becomes
                              final.
                           -  You are a participant in the Capella Education
                              Company Senior Executive Severance Plan at the
                              time of your termination.

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<PAGE>

                           -  You leave Capella under any other program in which
                              management solicits and accepts voluntary
                              terminations (in which case, severance pay will be
                              determined and paid only under the other program).
                           -  You are covered by an individual written
                              employment contract or agreement with Capella at
                              the time your employment terminates that provides
                              for severance pay or other benefits upon
                              termination, except as described below.

IV.      PLAN BENEFITS

         A Participant who experiences a qualifying severance event under
         Section III will be eligible to receive severance benefits under the
         Plan, including severance pay, outplacement assistance and continuation
         coverage under certain employee benefit plans.

         SEVERANCE PAY

         The amount and type of severance pay provided under the Plan depends on
         the severance event.

         INVOLUNTARY TERMINATION. If your employment is involuntarily terminated
         by Capella, other than for Cause or within 24 months after a qualified
         Change in Control, you will be entitled to severance pay equal to six
         months of your base salary.

         CHANGE IN CONTROL. If you voluntarily terminate for Good Reason
         following a Change in Control, or if you are involuntarily terminated
         other than for Cause, within 24 months after a qualified Change in
         Control, you will be entitled to severance pay equal to twelve months
         of your base salary. You will also be entitled to 80% of the amount of
         any targeted bonus for the year in which you terminate, prorated to the
         date of termination, without regard to performance.

         YOUR "BASE SALARY." Severance pay under this Plan is calculated using
         your base salary at the time your employment terminates. Base salary
         excludes all bonuses (such as signing bonuses and incentive bonuses),
         stock options, profit sharing, benefits, taxable fringes, expenses
         allowances or reimbursements, imputed income, or any other special
         compensation.

         PAYMENT. Generally, you will receive any severance pay you are entitled
         to in bi-weekly payments, spread out over the number of months on which
         your severance amount is based. Severance payments will begin as soon
         as administratively feasible after the date the release becomes
         irrevocable.

         However, if as of the date of your termination of employment, you are a
         "specified employee", as such term is defined in Section 409A of the
         Internal Revenue Code (or the regulations thereunder) and if CEC's
         stock is publicly traded on an established

                                      -6-

<PAGE>

         securities market, then you will receive any severance pay under this
         Plan in accordance with the following rules. Your initial severance
         payment will be made as of the first bi-weekly payment date occurring
         on or after the first day of the seventh month following your
         separation from service. The initial payment will equal the amount you
         would have received under the prior paragraph from the date the release
         became irrevocable until the initial payment date. After the initial
         payment, payments will continue bi-weekly for the remainder of the
         number of months on which your severance amount is based, if any.

         OUTPLACEMENT ASSISTANCE

         Participants eligible for benefits under this Plan will be eligible for
         up to 6 months of outplacement assistance. Any outplacement assistance
         provided under this Plan will be paid directly to the outplacement
         agency.

         CONTINUATION COVERAGE

         Federal and state laws require CEC to offer certain departing employees
         (and where applicable, their dependents) the right to continue
         coverage, at their own expense, under our group health, dental and life
         insurance programs. For health and dental benefits, this continuation
         coverage is called COBRA. Upon termination of employment, you will
         receive information further describing how this continuation coverage
         works, its limitations, and your rights and duties to maintain
         coverage.

         If you are eligible for benefits under this Plan, CEC will pay the
         regular employer portion towards your continued coverage under CEC's
         group health, dental and basic life insurance plans for the number of
         months upon which your severance pay is based. For example, if you are
         a entitled to six months of severance pay, CEC will contribute to your
         continuation coverage for six months, subject to the limitations
         described below. After that time, you must pay the entire cost of
         continuation coverage if you wish to continue coverage.

         To receive this continuation coverage benefit, you must elect
         continuation coverage in accordance with the documents you receive. In
         addition, you must pay the remaining portion of the cost of your
         continued coverage. If CEC changes the portion it contributes toward
         benefit coverage for active employees, it may also change its employer
         portion for purposes of continuation coverage benefits under this Plan.
         Any continuation benefit provided under this Plan will be paid directly
         to the applicable health, dental and/or basic life insurance program.
         If you are not eligible for continuation coverage at the time of
         termination or if you do not properly elect continuation coverage, you
         will not receive any payments in lieu of this subsidized continuation
         coverage.

                                      -7-

<PAGE>

         IF YOU LOSE ELIGIBILITY FOR COBRA OR OTHER CONTINUATION COVERAGE, AS
         DESCRIBED IN THE COBRA DOCUMENTS YOU WILL RECEIVE, CEC WILL STOP PAYING
         ITS PORTION OF THE PREMIUMS FOR YOUR CONTINUATION COVERAGE.

         REDUCTIONS OF SEVERANCE BENEFITS

         All severance benefits payable under this Plan will be reduced by the
         amount of any severance or similar payment required to be paid to you
         by CEC under applicable federal, state, and local laws. Cash severance
         payments are also subject to all applicable withholding, including
         state and federal income tax withholding and FICA and Medicare tax
         withholding.

         In addition, in no event will the severance amount you receive exceed
         two times your yearly salary for the twelve months preceding your
         termination (or the amount you would have earned had you worked a full
         year).

         Severance pay under this Plan will be reduced (offset) by the amount of
         any payment made by CEC to you pursuant to an employment contract,
         agreement or other severance arrangement, to the extent such payment is
         called a severance payment or otherwise becomes payable due to a
         termination. If such an agreement, contract or arrangement provides for
         severance payments in excess of those provided under this Plan, no
         severance pay will be due under this Plan, however, you may still be
         eligible for other benefits under the Plan, to the extent benefits are
         not duplicative of what you are receiving under the agreement, contract
         or arrangement.

         TERMINATION OF SEVERANCE BENEFITS

         All severance benefits payable under this Plan (including severance
         pay, outplacement assistance and continuation coverage premiums) will
         be terminated if CEC determines that you have violated the
         noncompetition or confidentiality provisions contained in your release
         form.

V.       AMENDMENT AND TERMINATION OF THE PLAN

         Except as provided below, CEC reserves the right in its discretion to
         amend or terminate this Plan, or to alter, reduce, or eliminate any
         severance benefit, practice or policy hereunder, in whole or in part,
         at any time and for any reason without the consent of or notice to any
         employee or any other person having any beneficial interest in this
         Plan. Such action may be taken by the Board of Directors of CEC, by the
         Chief Executive Officer of CEC, or by any other individual or committee
         to whom such authority has been delegated by the Board of Directors.

         However, during the 24-month period following a Change in Control, the
         Plan may not be amended, terminated or otherwise altered to reduce the
         amount (or change the

                                      -8-

<PAGE>

         terms) of any severance benefit that becomes payable to a Participant
         who was a Participant in the Plan on the day prior to the Change in
         Control.

         In addition, if a Change in Control occurs within the 6-month period
         following the effective date of an amendment to terminate the Plan or
         otherwise reduce the amount (or alter the terms) of any severance
         benefit under the Plan, such amendment (or portion of such amendment)
         will become null and void upon the Change in Control. Upon the Change
         in Control, the Plan will automatically revert to the terms in effect
         prior to the adoption of said amendment.

         Notwithstanding the above limitations, the Plan may be amended at any
         time (and such amendment will be given affect) if such amendment is
         required to bring the Plan into compliance with applicable law,
         including but not limited to Section 409A of the Internal Revenue Code.

         This Plan shall terminate immediately upon CEC's filing for relief in
         bankruptcy or on such date as an order for relief in bankruptcy is
         entered against CEC. A Participant who experiences a severance event
         after such termination will not be eligible for benefits under this
         Plan.

VI.      SUBMITTING CLAIMS FOR BENEFITS

         Normally, CEC will determine an employee's eligibility and benefit
         amount on its own and without any action on the part of the terminating
         employee, other than returning the release form. The severance payments
         will begin as soon as administratively feasible after the date the
         release becomes irrevocable.

         FORMAL CLAIMS FOR BENEFITS. If you think you are entitled to benefits
         but have not been so notified by CEC, if you disagree with a decision
         made by CEC, or if you have any other complaint regarding the Plan that
         is not resolved to your satisfaction, you or your authorized
         representative may submit a written claim for benefits. The claim must
         be submitted to CEC's Human Resources Department in Minneapolis,
         Minnesota within six months after the date you terminated employment.
         Claims received after that time will not be considered.

         CEC will ordinarily respond to the claim within 90 days of the date on
         which it is received. However, if special circumstances require an
         extension of the period of time for processing a claim, the 90-day
         period can be extended for an additional 90 days by giving you written
         notice of the extension, the reason why the extension is necessary, and
         the date a decision is expected.

         CEC will give you a written notice of its decision if it denies your
         claim for benefits in whole or in part. The notice will explain the
         specific reasons for the decision, including references to the relevant
         plan provision upon which the decision is based,

                                      -9-

<PAGE>

         with a description of any additional material or information necessary
         for you to perfect your claim, and the procedures for appealing the
         decision.

         APPEALS. If you disagree with the initial claim determination, in whole
         or in part, you or your authorized representative can request that the
         decision be reviewed by filing a written request for review with CEC's
         Human Resources Department in Minneapolis, Minnesota within 60 days
         after receiving notice that the claim has been denied. You or your
         representative may present written statements describing reasons why
         you believe the claim denial was in error, and should include copies of
         any documents you want us to consider in support of your appeal. Your
         claim will be decided based on the information submitted, so you should
         make sure that your submission is complete. Upon request to CEC, you
         may review all documents we considered or relied on in deciding your
         claim. (You may also receive copies of these documents free of charge.)

         Any appeal will be reviewed and decided by person(s) other than the
         person(s) who made the determination on your original claim. Generally,
         the decision will be reviewed within 60 days after CEC receives a
         request for review. However, if special circumstances require a delay,
         the review may take up to 120 days. (If a decision cannot be made
         within the 60-day period, you will be notified of this fact in
         writing.) You will receive a written notice of the decision on the
         appeal, which will explain the reasons for the decision by making
         specific reference to the Plan provisions on which the decision is
         based.

         LIMITATIONS PERIOD. The claims procedure above is mandatory. If an
         employee has completed the entire claims procedure and still disagrees
         with the outcome of the employee's claim, the employee may commence a
         civil action under Section 502(a) of the Employee Retirement Income
         Security Act of 1974, as amended ("ERISA"). The employee must commence
         such civil action within one year of the date of the final denial, or
         the employee will waive all rights to relief under ERISA.

VII.     PLAN ADMINISTRATION

         The following information relates to the administration of the Plan and
         the determination of Plan benefits.

         NAME OF PLAN:

         Capella Education Company Executive Severance Plan

         TYPE OF PLAN:

         The Plan is a "welfare benefits plan" that provides severance benefits
         in the event a participant's employment with CEC or its subsidiaries
         terminates under certain

                                      -10-

<PAGE>

         circumstances. All benefits are paid from the general assets of CEC. No
         trust fund, insurance contract or other pool of assets is maintained to
         provide Plan benefits.

         PLAN ADMINISTRATOR/PLAN SPONSOR:

         CEC is the "Plan Sponsor" and "Plan Administrator" of this Plan.
         Communications to CEC regarding the Plan should be addressed to:

                  Capella Education Company
                  ATTN:  Human Resources Department
                  225 South Sixth Street, 8th Floor
                  Minneapolis, MN  55402

                  Telephone:  (612) 977-5299

         As Plan Administrator, CEC has complete discretionary authority to
         interpret the provisions of the Plan and to determine which employees
         are eligible to participate and eligible for Plan benefits, the
         requirements to receive severance benefits, and the amount of those
         benefits. CEC also has authority to correct any errors that may occur
         in the administration of the Plan, including recovering any overpayment
         of benefits from the person who received it.

         EMPLOYER IDENTIFICATION NUMBER:  41-1717955

         PLAN NUMBER:  506

         PLAN YEAR:  The calendar year.

         AGENT FOR SERVICE OF LEGAL PROCESS:

         Legal process regarding the Plan may be served on CEC at the address
         listed above.

         ASSIGNMENT OF BENEFITS:

         You cannot assign your benefits under this Plan to anyone else, and
         your benefits are not subject to attachment by your creditors. CEC will
         not pay Plan benefits to anyone other than you (or your estate, if you
         die after having a qualifying severance event but before receiving the
         complete severance amount payable to you up to the date of your death).

         GOVERNING LAW:

         This Plan, to the extent not preempted by ERISA or any other federal
         law shall be governed by and construed in accordance with, the laws of
         the sate of Minnesota.

                                      -11-

<PAGE>

         EMPLOYMENT RIGHTS:

         Establishment of the Plan shall not be construed to in any way modify
         the parties' at-will employment relationship, or to give any employee
         the right to be retained in CEC's service or to any benefits not
         specifically provided by the Plan. The right of an employer to
         terminate the employment relationship of an employee (or to accelerate
         the termination date) will not in any way be affected by the terms of
         this Plan or any release.

         STATEMENT OF RIGHTS OF PARTICIPANTS:

         As a participant in this Plan, you are entitled to certain rights and
         protections under the Employee Retirement Income Security Act of 1974
         ("ERISA"). ERISA provides that all Plan participants are entitled to:

         1.       Examine, without charge, at CEC's Human Resources Department
                  and at other specified locations, such as worksites, all
                  documents governing the Plan and a copy of the latest annual
                  report (Form 5500 Series) filed by the Plan with the U.S.
                  Department of Labor and available at the Public Disclosure
                  Room of the Employee Benefits Security Administration, if
                  required.

         2.       Obtain, upon written request to CEC's Human Resources
                  Department, copies of documents governing the operation of the
                  Plan and copies of the latest annual report (Form 5500
                  Series), if required, and updated summary plan description.
                  CEC may make a reasonable charge for the copies.

         3.       Receive a summary of the Plan's annual financial report (if
                  the Plan is required to file such a report). CEC is required
                  by law to furnish each participant with a copy of this summary
                  financial report.

         In addition to creating rights for Plan participants, ERISA imposes
         duties upon the people who are responsible for the operation of the
         Plan. The people who operate your Plan, called "fiduciaries" of the
         Plan, have a duty to do so prudently and in the interest of you and
         other Plan participants and beneficiaries. No one may fire you or
         otherwise discriminate against you in any way to prevent you from
         obtaining a welfare benefit or exercising your rights under ERISA.

         If your claim for a welfare benefit is denied or ignored, in whole or
         in part, you have the right to know why this was done, to obtain copies
         of documents relating to the decision without charge, and to appeal any
         denial, all with certain time schedules.

         Under ERISA there are steps you can take to enforce the above rights.
         For instance, if you request a copy of plan documents or the latest
         annual report from the Plan and do not receive them within 30 days, you
         may file suit in a federal court. In such a case, the court may require
         CEC to provide the materials and pay you up to $110 a

                                      -12-

<PAGE>

         day until you receive the materials, unless the materials were not sent
         because of reasons beyond its control. If you have a claim for benefits
         which is denied or ignored, in whole or in part, and you have exhausted
         your appeal rights under the Plan's claims procedure, you may file suit
         in a state or federal court. If you are discriminated against for
         asserting your rights, you may seek assistance from the U.S. Department
         of Labor, or you may file suit in federal court. The court will decide
         who should pay costs and legal fees. If you are successful, the court
         may order the person you have sued to pay these costs and fees. If you
         lose, the court may order you to pay these costs and fees, for example,
         if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact CEC's
         Human Resources Department. If you have any questions about this
         statement or about your rights under ERISA, or if you need assistance
         in obtaining documents from CEC, you should contact the nearest office
         of the Employee Benefits Security Administration, U.S. Department of
         Labor, listed in your telephone directory or the Division of Technical
         Assistance and Inquiries, Employee Benefits Security Administration,
         U.S. Department of Labor, 200 Constitution Avenue N.W., Washington,
         D.C., 20210. You may also obtain certain publications about your rights
         and responsibilities under ERISA by calling the publications hotline of
         the Employee Benefits Security Administration.

                                      -13-

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