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                                                                    EXHIBIT 10.1
                            CAPELLA EDUCATION COMPANY
                            2005 STOCK INCENTIVE PLAN

                          (EFFECTIVE AS OF MAY 5, 2005)

      1.    Purpose. The purpose of the Capella Education Company 2005 Stock
Incentive Plan (the "Plan") is to promote the interests of the Company and its
shareholders by providing key personnel of the Company and its Affiliates with
an opportunity to acquire a proprietary interest in the Company and reward them
for achieving a high level of corporate performance and thereby develop a
stronger incentive to put forth maximum effort for the continued success and
growth of the Company and its Affiliates. In addition, the opportunity to
acquire a proprietary interest in the Company will aid in attracting and
retaining key personnel of outstanding ability. The Plan is also intended to
provide Non-Employee Directors with an opportunity to acquire a proprietary
interest in the Company, to compensate Non-Employee Directors for their
contribution to the Company and to aid in attracting and retaining Non-Employee
Directors.

      2.    Definitions.

            2.1   The capitalized terms used elsewhere in the Plan have the
      meanings set forth below.

                  (a) "Affiliate" means any corporation that is a "parent
            corporation" or "subsidiary corporation" of the Company, as those
            terms are defined in Code Sections 424(e) and (f), or any successor
            provisions, and, for purposes other than the grant of Incentive
            Stock Options, any joint venture in which the Company or any such
            "parent corporation" or "subsidiary corporation" owns an equity
            interest.

                  (b) "Agreement" means a written contract (i) consistent with
            the terms of the Plan entered into between the Company or an
            Affiliate and a Participant and (ii) containing the terms and
            conditions of an Award in such form and not inconsistent with the
            Plan as the Committee shall approve from time to time, together with
            all amendments thereto, which amendments may be unilaterally made by
            the Company (with the approval of the Committee) unless such
            amendments are deemed by the Committee to be materially adverse to
            the Participant and not required as a matter of law.

                  (c) "Award" or "Awards" means a grant made under the Plan in
            the form of Restricted Stock, Options, Stock Appreciation Rights,
            Performance Units, Stock or any other stock-based award.

                  (d) "Board" means the Board of Directors of the Company.

                  (e) "Cause" shall, unless otherwise defined in an employment
            agreement between the Participant and the Company, be deemed to
            exist upon (i) the Participant's failure or refusal substantially to
            perform his duties to the full extent of his abilities for reasons
            other than death or disability, after written notice to the
            Participant of such failure or refusal providing the Participant 30
            days to take corrective action, (ii) conviction of a felony crime,
            or commission of any act, the conviction for which would be a felony
            conviction, (iii) theft or misappropriation of the Company's
            property, and (iv) knowingly making a material false written
            statement to the Company's Board of Directors regarding the affairs
            of the Company.

                  (f) "Code" means the Internal Revenue Code of 1986, as amended
            and in effect from time to time or any successor statute.

                  (g) "Committee" means the Compensation Committee or such other
            committee of the Board as the Board may from time to time designate,
            which shall be composed of not less than two Non-Employee Directors
            designated by the Board to administer the Plan under Section 3.1

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            and constituted so as to permit grants thereby to comply with
            Exchange Act Rule 16b-3 and Code Section 162(m).

                  (h) "Company" means Capella Education Company, a Minnesota
            corporation, or any successor to all or substantially all of its
            businesses by merger, consolidation, purchase of assets or
            otherwise.

                  (i) "Disability" means any physical or mental incapacitation
            whereby a Participant is unable for a period of twelve consecutive
            months or for an aggregate of twelve months in any twenty-four
            consecutive month period to perform his or her duties for the
            Company or any Affiliate.

                  (j) "Effective Date" means the date specified in Section 12.1.

                  (k) "Employee" means an employee (including an officer or
            director who is also an employee) of the Company or an Affiliate.

                  (l) "Exchange Act" means the Securities Exchange Act of 1934,
            as amended and in effect from time to time or any successor statute.

                  (m) "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by
            the Securities and Exchange Commission under the Exchange Act, as
            now in force and in effect from time to time or any successor
            regulation.

                  (o) "Fair Market Value" as of any date means, unless otherwise
            expressly provided in the Plan:

                        (i) the closing sale price of a Share on the date
                  immediately preceding that date or, if no sale of Shares shall
                  have occurred on that date, on the next preceding day on which
                  a sale of Shares occurred

                              (A) on the composite tape for New York Stock
                        Exchange listed shares, or

                              (B) if the Shares are not quoted on the composite
                        tape for New York Stock Exchange listed shares, on the
                        principal United States Securities Exchange registered
                        under the Exchange Act on which the Shares are listed,
                        or

                              (C) if the Shares are not listed on any such
                        exchange, on the National Association of Securities
                        Dealers, Inc. Automated Quotations National Market
                        System or any system then in use, or

                        (ii) if clause (i) is inapplicable, the mean between the
                  closing "bid" and the closing "asked" quotation of a Share on
                  the date immediately preceding that date, or, if no closing
                  bid or asked quotation is made on that date, on the next
                  preceding day on which a closing bid and asked quotation is
                  made, on the National Association of Securities Dealers, Inc.
                  Automated Quotations System or any system then in use, or

                        (iii) if clauses (i) and (ii) are inapplicable, what the
                  Committee determines in good faith to be 100% of the fair
                  market value of a Share on that date, using such criteria as
                  it shall determine, in its sole discretion, to be appropriate
                  for valuation.

                  However, if the applicable securities exchange or system has
            closed for the day at the time the event occurs that triggers a
            determination of Fair Market Value, whether the grant of an

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            Award, the exercise of an Option or Stock Appreciation Right or
            otherwise, all references in this paragraph to the "date immediately
            preceding that date" shall be deemed to be references to "that
            date." In the case of an Incentive Stock Option, if this
            determination of Fair Market Value is not consistent with the then
            current regulations of the Secretary of the Treasury, Fair Market
            Value shall be determined in accordance with those regulations. The
            determination of Fair Market Value shall be subject to adjustment as
            provided in Section 16.

                  (o) "Fundamental Change" means a dissolution or liquidation of
            the Company, a sale of substantially all of the assets of the
            Company, a merger or consolidation of the Company with or into any
            other corporation, regardless of whether the Company is the
            surviving corporation, or a statutory share exchange involving
            capital stock of the Company.

                  (p) "Incentive Stock Option" means any Option designated as
            such and granted in accordance with the requirements of Code Section
            422 or any successor provision.

                  (q) "Insider" as of a particular date means any person who, as
            of that date is an officer of the Company as defined under Exchange
            Act Rule 16a-1(f) or its successor provision.

                  (r) "Non-Employee Director" means a member of the Board who is
            considered an independent director within the meaning of Rule 303A
            of the New York Stock Exchange, a non-employee director within the
            meaning of Exchange Act Rule 16b-3(b)(3) or its successor provision
            and an outside director for purposes of Code Section 162(m).

                  (s) "Non-Statutory Stock Option" means an Option that is not
            designated as, or the extent to which an Option fails to qualify as,
            an Incentive Stock Option.

                  (t) "Option" means a right to purchase Stock, including both
            Non-Statutory Stock Options and Incentive Stock Options.

                  (u) "Participant" means a person or entity to whom an Award is
            or has been made in accordance with the Plan.

                  (v) "Performance Cycle" means the period of time as specified
            in an Agreement over which Performance Units are to be earned.

                  (w) "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 invested capital, return on incremental invested
            capital, free cash flow, 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.

                  (x) "Performance Units" means an Award made pursuant to
            Section 11.

                  (y) "Plan" means this Capella Education Company 2005 Stock
            Incentive Plan, as may be amended and in effect from time to time.

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                  (z) "Restricted Stock" means Stock granted under Section 7 so
            long as such Stock remains subject to one or more restrictions.

                  (aa) "Retirement" means, unless otherwise specified in an
            individual Award Agreement, retirement at age 65, or the applicable
            normal retirement age then specified by the U.S. government's social
            security administration definition.

                  (bb) "Section 16" or "Section 16(b)" means Section 16 or
            Section 16(b), respectively, of the Exchange Act or any successor
            statute and the rules and regulations promulgated thereunder as in
            effect and as amended from time to time.

                  (cc) "Share" means a share of Stock.

                  (dd) "Stock" means the common stock, par value $0.10 per
            share, of the Company.

                  (ee) "Stock Appreciation Right" means a right, the value of
            which is determined in relation to the appreciation in value of
            Shares pursuant to an Award granted under Section 10.

                  (ff) "Subsidiary" means a "subsidiary corporation," as that
            term is defined in Code Section 424(f) or any successor provision.

                  (gg) "Successor" with respect to a Participant means the legal
            representative of an incompetent Participant, and if the Participant
            is deceased the estate of the Participant or the person or persons
            who may, by bequest or inheritance, or pursuant to the terms of an
            Award, acquire the right to exercise an Option or Stock Appreciation
            Right or to receive cash and/or Shares issuable in satisfaction of
            an Award in the event of the Participant's death.

                  (hh) "Term" means the period during which an Option or Stock
            Appreciation Right may be exercised or the period during which the
            restrictions or terms and conditions placed on Restricted Stock or
            any other Award are in effect.

                  (ii) "Transferee" means any member of the Participant's
            immediate family (i.e., his or her children, step-children,
            grandchildren and spouse) or one or more trusts for the benefit of
            such family members or partnerships in which such family members are
            the only partners.

            2.2 Gender and Number. Except when otherwise indicated by the
      context, reference to the masculine gender shall include, when used, the
      feminine gender and any term used in the singular shall also include the
      plural.

      3.    Administration and Indemnification.

            3.1   Administration.

                  (a) The Committee shall administer the Plan. The Committee
            shall have exclusive power to (i) make Awards, (ii) determine when
            and to whom Awards will be granted, the form of each Award, the
            amount of each Award, and any other terms or conditions of each
            Award consistent with the Plan, and (iii) determine whether, to what
            extent and under what circumstances Awards may be settled, paid or
            exercised in cash, Shares or other Awards, or other property or
            canceled, forfeited or suspended. Each Award shall be subject to an
            Agreement authorized by the Committee. A majority of the members of
            the Committee shall constitute a quorum for any meeting of the
            Committee, and acts of a majority of the members present at any
            meeting at which a quorum is present or the acts unanimously
            approved in writing by all members of the Committee shall be the
            acts of the Committee. Notwithstanding the foregoing, the Board
            shall have the sole

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            and exclusive power to administer the Plan with respect to Awards
            granted to Non-Employee Directors.

                  (b) Solely for purposes of determining and administering
            Awards to Participants who are not Insiders, the Committee may
            delegate all or any portion of its authority under the Plan to one
            or more persons who are not Non-Employee Directors.

                  (c) To the extent within its discretion and subject to
            Sections 15 and 16, other than price, the Committee may amend the
            terms and conditions of any outstanding Award.

                  (d) The Plan and all Awards granted pursuant to it shall be
            administered by the Committee so as to permit the Plan and Awards to
            comply with Exchange Act Rule 16b-3, except in such instances as the
            Committee, in its discretion, may so provide. If any provision of
            the Plan or of any Award would otherwise frustrate or conflict with
            the intent expressed in this Section 3.1(d), that provision to the
            extent possible shall be interpreted and deemed amended in the
            manner determined by the Committee so as to avoid the conflict. To
            the extent of any remaining irreconcilable conflict with this
            intent, the provision shall be deemed void as applicable to Insiders
            to the extent permitted by law and in the manner deemed advisable by
            the Committee.

                  (e) The Committee's interpretation of the Plan and of any
            Award or Agreement made under the Plan and all related decisions or
            resolutions of the Board or Committee shall be final and binding on
            all parties with an interest therein. Consistent with its terms, the
            Committee shall have the power to establish, amend or waive
            regulations to administer the Plan. In carrying out any of its
            responsibilities, the Committee shall have discretionary authority
            to construe the terms of the Plan and any Award or Agreement made
            under the Plan.

            3.2 Indemnification. Each person who is or shall have been a member
      of the Committee, or of the Board, and any other person to whom the
      Committee delegates authority under the Plan, shall be indemnified and
      held harmless by the Company, to the extent permitted by law, against and
      from any loss, cost, liability or expense that may be imposed upon or
      reasonably incurred by such person in connection with or resulting from
      any claim, action, suit or proceeding to which such person may be a party
      or in which such person may be involved by reason of any action taken or
      failure to act, made in good faith, under the Plan and against and from
      any and all amounts paid by such person in settlement thereof, with the
      Company's approval, or paid by such person in satisfaction of any judgment
      in any such action, suit or proceeding against such person, provided such
      person shall give the Company an opportunity, at the Company's expense, to
      handle and defend the same before such person undertakes to handle and
      defend it on such person's own behalf. The foregoing right of
      indemnification shall not be exclusive of any other rights of
      indemnification to which such person or persons may be entitled under the
      Company's Articles of Incorporation or Bylaws, as a matter of law, or
      otherwise, or any power that the Company may have to indemnify them or
      hold them harmless.

      4.    Shares Available Under the Plan.

                  (a) The number of Shares available for distribution under the
            Plan shall not exceed 1,613,000 (subject to adjustment pursuant to
            Section 16).

                  (b) Any Shares subject to the terms and conditions of an Award
            under the Plan that are not used because the terms and conditions of
            the Award are not met may again be used for an Award under the Plan;
            provided however, that Shares with respect to which a Stock
            Appreciation Right has been exercised whether paid in cash and/or in
            Shares may not again be awarded under the Plan.

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                  (c) Any unexercised or undistributed portion of any
            terminated, expired, exchanged, or forfeited Award, or any Award
            settled in cash in lieu of Shares (except as provided in Section
            4(b)) shall be available for further Awards.

                  (d) For the purposes of computing the total number of Shares
            granted under the Plan, the following rules shall apply to Awards
            payable in Shares where appropriate:

                        (i) each Option shall be deemed to be the equivalent of
                  the maximum number of Shares that may be issued upon exercise
                  of the particular Option;

                        (ii) an Award (other than an Option) payable in some
                  other security shall be deemed to be equal to the number of
                  Shares to which it relates;

                        (iii) where the number of Shares available under the
                  Award is variable on the date it is granted, the number of
                  Shares shall be deemed to be the maximum number of Shares that
                  could be received under that particular Award; and

                        (iv) where two or more types of Awards (all of which are
                  payable in Shares) are granted to a Participant in tandem with
                  each other, such that the exercise of one type of Award with
                  respect to a number of Shares cancels at least an equal number
                  of Shares of the other, each such joint Award shall be deemed
                  to be the equivalent of the maximum number of Shares available
                  under the largest single Award.

                  Additional rules for determining the number of Shares granted
            under the Plan may be made by the Committee as it deems necessary or
            desirable.

                  (e) No fractional Shares may be issued under the Plan;
            however, cash shall be paid in lieu of any fractional Share in
            settlement of an Award.

                  (f) The maximum number of Shares that may be awarded to a
            Participant in any calendar year (i) in the form of Options is
            500,000, (ii) in the form of Stock Appreciation Rights is 500,000,
            (iii) in the form of Restricted Stock is 200,000, and (iv) in the
            form of Performance Units is 200,000 (or, if the Performance Units
            are not denominated in Shares, the value of the maximum payment
            shall be $1,000,000), and in each case the maximum number of Shares
            shall be subject to adjustment pursuant to Section 16.

                  (g) The maximum number of Shares that may be issued pursuant
            to Options intended to be Incentive Stock Options shall be 1,613,000
            (subject to adjustment pursuant to Section 16).

      5.    Eligibility. Participation in the Plan shall be limited to (i)
Employees, (ii) individuals who are not Employees but who provide services to
the Company or an Affiliate, including services provided in the capacity of a
consultant, advisor or director, such as a Non-Employee Director, and (iii) any
individual that the Company desires to induce to become an Employee, but any
such grant shall be contingent upon such individual becoming an Employee. The
granting of Awards is solely at the discretion of the Committee, except that
Incentive Stock Options may only be granted to Employees. References herein to
"employed," "employment" or similar terms (except "Employee") shall include the
providing of services in any capacity or as a director. Neither the transfer of
employment of a Participant between any of the Company or its Affiliates, nor
change of status from an Employee to a consultant of the Company, nor a leave of
absence granted to such Participant and approved by the Committee, shall be
deemed a termination of employment for purposes of the Plan.

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      6.    General Terms of Awards.

            6.1 Amount of Award. Each Agreement shall set forth the number of
      Shares of Restricted Stock, Stock or Performance Units subject to the
      Agreement, or the number of Shares to which the Option subject to the
      Agreement applies or with respect to which payment upon the exercise of
      the Stock Appreciation Right subject to the Agreement is to be determined,
      as the case may be, together with such other terms and conditions
      applicable to the Award as determined by the Committee acting in its sole
      discretion.

            6.2 Term. Each Agreement, other than those relating solely to Awards
      of Shares without restrictions, shall set forth the Term of the Option,
      Stock Appreciation Right, Restricted Stock or other Award or the
      Performance Cycle for the Performance Units, as the case may be.
      Acceleration of the expiration of the applicable Term is permitted, upon
      such terms and conditions as shall be set forth in the Agreement, which
      may, but need not, include, without limitation, acceleration in the event
      of the Participant's death or retirement. Acceleration of the Performance
      Cycle of Performance Units shall be subject to Section 11.2.

            6.3 Transferability. Except as provided in this Section, during the
      lifetime of a Participant to whom an Award is granted, only that
      Participant (or that Participant's legal representative) may exercise an
      Option or Stock Appreciation Right, or receive payment with respect to
      Performance Units or any other Award. No Award of Restricted Stock (before
      the expiration of the restrictions), Options, Stock Appreciation Rights or
      Performance Units or other Award may be sold, assigned, transferred,
      exchanged or otherwise encumbered other than to a Successor in the event
      of a Participant's death or pursuant to a qualified domestic relations
      order as defined in the Code or Title 1 of the Employee Retirement Income
      Security Act of 1974, as amended ("ERISA"), or the rules thereunder;
      provided, however, that any Participant may transfer an Award, granted
      under this Plan, other than an Incentive Stock Option, to a member or
      members of his or her immediate family (i.e., his or her children,
      grandchildren and spouse) or to one or more trusts for the benefit of such
      family members or partnerships in which such family members are the only
      partners, if (i) the agreement with respect to such Award expressly so
      provides either at the time of initial grant or by amendment to an
      outstanding Award agreement and (ii) the Participant does not receive any
      consideration for the transfer. Any attempted transfer in violation of
      this Section 6.3 shall be of no effect. Notwithstanding the immediately
      preceding sentence, the Committee, in an Agreement or otherwise at its
      discretion, may provide that the Award (other than Incentive Stock
      Options) may be transferable to a Transferee if the Participant does not
      receive any consideration for the transfer. Any Award held by a Transferee
      shall continue to be subject to the same terms and conditions that were
      applicable to that Award immediately before the transfer thereof to the
      Transferee. For purposes of any provision of the Plan relating to notice
      to a Participant or to acceleration or termination of an Award upon the
      death, disability or termination of employment of a Participant, the
      references to "Participant" shall mean the original grantee of an Award
      and not any Transferee.

            6.4 Termination of Employment. Except as otherwise provided in the
      Plan or determined by the Committee or provided by the Committee in an
      Agreement, in case of a Participant's termination of employment, the
      following provisions shall apply:

                  (a) Options and Stock Appreciation Rights.

                        (i) If a Participant's employment or other relationship
                  with the Company and its Affiliates terminates because of the
                  Participant's death or if the Participant dies during the
                  three month period described below in Section 6.4(a)(iv), then
                  any Option or Stock Appreciation Right that has not expired or
                  been terminated shall become exercisable in full, and may be
                  exercised by the Participant's Successor at any time, or from
                  time to time, within one year after the date of the
                  Participant's death.

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                        (ii) If a Participant's employment or other relationship
                  with the Company and its Affiliates terminates because of the
                  Participant's Disability, then any Option or Stock
                  Appreciation Right that has not expired or been terminated
                  shall become exercisable in full if the Participant's
                  employment or other relationship with the Company and its
                  Affiliates has been continuous between the date the Option or
                  Stock Appreciation Right was granted and the date of such
                  disability, and the Participant or the Participant's Successor
                  may exercise such Option or Stock Appreciation Right at any
                  time, or from time to time, within one year after the date of
                  the Participant's disability.

                        (iii) If a Participant's employment or other
                  relationship with the Company and its Affiliates is terminated
                  by the Company for Cause, then any Option or Stock
                  Appreciation Right that has not expired or been terminated
                  shall terminate immediately upon termination of the
                  Participant's employment.

                        (iv) If a Participant's employment or other
                  relationships with the Company and its Affiliates terminates
                  because of the Participant's Retirement, then any Option or
                  Stock Appreciation Right that has not expired or been
                  terminated shall remain exercisable for one year after
                  termination of the Participant's employment, but, unless
                  otherwise provided in the Agreement, only to the extent that
                  such Option or Stock Appreciation Right was exercisable
                  immediately prior to such Participant's Retirement; provided,
                  however, that if the Participant is a Non-Employee Director,
                  the Option or Stock Appreciation Right shall remain
                  exercisable until the expiration of the Term but, unless
                  otherwise provided in the Agreement, only to the extent that
                  such Option or Stock Appreciation Right was exercisable
                  immediately prior to such Non-Employee Director ceasing to be
                  a director.

                        (v) If a Participant's employment terminates for any
                  reason other than death, Disability, Retirement or termination
                  by the Company for Cause, then any Option or Stock
                  Appreciation Right that has not expired or been terminated
                  shall remain exercisable for three months after termination of
                  the Participant's employment, but, unless otherwise provided
                  in the Agreement, only to the extent that such Option or Stock
                  Appreciation Right was exercisable immediately prior to such
                  Participant's termination of employment; provided, however,
                  that if the Participant is a Non-Employee Director, the Option
                  or Stock Appreciation Right shall remain exercisable until the
                  expiration of the Term but, unless otherwise provided in the
                  Agreement, only to the extent that such Option or Stock
                  Appreciation Right was exercisable immediately prior to such
                  Non-Employee Director ceasing to be a director.

                        (vi) Notwithstanding the foregoing Sections 6.4(a)(i),
                  (ii), (iv) and (v), in no event shall an Option or a Stock
                  Appreciation Right be exercisable after the expiration of the
                  Term of such Award. Any Option or Stock Appreciation Right
                  that is not exercised within the periods set forth in Sections
                  6.4 (i), (ii), (iv) and (v), except as otherwise provided by
                  the Committee in the Agreement, shall terminate as of the end
                  of the periods described in such Sections.

                  (b) Performance Units. If a Participant's employment with the
            Company and its Affiliates terminates during a Performance Cycle
            because of death or disability, or under other circumstances
            provided by the Committee in its discretion in the Agreement or
            otherwise, the Participant, unless the Committee shall otherwise
            provide in the Agreement, shall be entitled to a payment with
            respect to Performance Units at the end of the Performance Cycle
            based upon the extent to which achievement of performance targets
            was satisfied at the end of such period (as determined at the end of
            the Performance Cycle) and prorated for the portion of the
            Performance Cycle during which the Participant was employed by the
            Company or its Affiliates. Except as provided in this Section 6.4(b)
            or in the Agreement, if a Participant's employment or other
            relationship with the Company and its Affiliates terminates during a
            Performance Cycle, then such Participant shall not be entitled to
            any payment with respect to that Performance Cycle.

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                  (c) Restricted Stock Awards. Unless otherwise provided in the
            Agreement, in case of a Participant's death or disability, the
            Participant shall be entitled to receive a number of Shares of
            Restricted Stock under outstanding Awards that has been prorated for
            the portion of the Term of the Awards during which the Participant
            was employed by the Company and its Affiliates, and, with respect to
            such Shares, all restrictions shall lapse. Any Shares of Restricted
            Stock as to which restrictions do not lapse under the preceding
            sentence shall terminate at the date of the Participant's
            termination of employment and such Shares of Restricted Stock shall
            be forfeited to the Company.

            6.5 Rights as Stockholder. Each Agreement shall provide that a
      Participant shall have no rights as a stockholder with respect to any
      securities covered by an Award unless and until the date the Participant
      becomes the holder of record of the Stock, if any, to which the Award
      relates.

            6.6 Performance-Based Awards. Any Award may be granted as a
      performance-based Award if the Committee establishes one or more
      Performance Measures upon which vesting, the lapse of restrictions or
      settlement in cash or Shares is contingent. With respect to any Award
      intended to qualify as "performance-based compensation" under Section
      162(m) of the Code, the Committee shall establish and administer
      Performance Measures in the manner described in Section 162(m) of the Code
      and the then current regulations of the Secretary of the Treasury.

      7.    Restricted Stock Awards.

                  (a) An Award of Restricted Stock under the Plan shall consist
            of Shares subject to restrictions on transfer and conditions of
            forfeiture, which restrictions and conditions shall be included in
            the applicable Agreement. The Committee may provide for the lapse or
            waiver of any such restriction or condition based on such factors or
            criteria as the Committee, in its sole discretion, may determine.

                  (b) Except as otherwise provided in the applicable Agreement,
            each Stock certificate (or uncertificated direct registration
            book-entry) issued with respect to an Award of Restricted Stock
            shall either be deposited with the Company or its designee, together
            with an assignment separate from the certificate, in blank, signed
            by the Participant, or bear such legends or stop transfer
            instructions with respect to the restricted nature of the Restricted
            Stock evidenced thereby as shall be provided for in the applicable
            Agreement.

                  (c) The Agreement shall describe the terms and conditions by
            which the restrictions and conditions of forfeiture upon awarded
            Restricted Stock shall lapse. Upon the lapse of the restrictions and
            conditions, Shares free of restrictive legends, if any, relating to
            such restrictions shall be issued to the Participant or a Successor
            or Transferee.

                  (d) A Participant or a Transferee with a Restricted Stock
            Award shall have all the other rights of a stockholder including,
            but not limited to, the right to receive dividends and the right to
            vote the Shares of Restricted Stock.

                  (e) No more than 1,000,000 of the total number of Shares
            available for Awards under the Plan shall be issued during the term
            of the Plan as Restricted Stock (subject to adjustment pursuant to
            Section 16).

      8.    Other Awards. The Committee may from time to time grant Stock and
other Awards under the Plan including, without limitation, those Awards pursuant
to which Shares are or may in the future be acquired, Awards denominated in
Stock units, securities convertible into Stock and phantom securities. The
Committee, in its sole discretion, shall determine the terms and conditions of
such Awards provided that such Awards shall not be inconsistent with the terms
and purposes of the Plan. The Committee may, at its sole discretion, direct the
Company to issue Shares subject to restrictive legends and/or stop transfer
instructions that are consistent with the terms and conditions of the Award to
which the Shares relate. No more than 150,000 of the total number of Shares
available

                                       9
<PAGE>

for Awards under the Plan shall be issued during the term of the Plan in the
form of Stock without restrictions (subject to adjustment pursuant to Section
16).

      9.    Stock Options.

            9.1   Terms of All Options.

                  (a) An Option shall be granted pursuant to an Agreement as
            either an Incentive Stock Option or a Non-Statutory Stock Option.
            The purchase price of each Share subject to an Option shall be
            determined by the Committee and set forth in the Agreement, but
            shall not be less than 100% of the Fair Market Value of a Share as
            of the date the Option is granted (except as provided in Section
            19).

                  (b) The purchase price of the Shares with respect to which an
            Option is exercised shall be payable in full at the time of
            exercise, provided that to the extent permitted by law, the
            Agreement may permit some or all Participants to simultaneously
            exercise Options and sell the Shares thereby acquired pursuant to a
            brokerage or similar relationship and use the proceeds from the sale
            as payment of the purchase price of the Shares. To the extent
            provided in the Agreement, the purchase price may be payable in (i)
            cash (including check, bank draft or money order); (ii) cancellation
            of indebtedness; (iii) delivery or tender of Shares already owned by
            the optionee having a Fair Market Value on the date of exercise
            equal to the exercise price for the total number of Shares as to
            which the Option is exercised; (iv) authorization of the Company to
            retain from the total number of Shares as to which the Option is
            exercised that number of Shares having a Fair Market Value on the
            date of exercise equal to the exercise price for the total number of
            Shares as to which the Option is exercised; (v) any combination of
            the methods of payments described above; or (vi) such other
            consideration and method of payment for the issuance of Shares to
            the extent permitted under applicable law, as determined by the
            Committee, but no fractional Shares will be issued or accepted.
            Notwithstanding the foregoing, however, that a Participant
            exercising a stock option shall not be permitted to pay any portion
            of the purchase price with Shares if, in the opinion of the
            Committee, payment in such manner could have adverse financial
            accounting consequences for the Company.

                  (c) Each Option shall be exercisable in whole or in part on
            the terms provided in the Agreement. In no event shall any Option be
            exercisable at any time after the expiration of its Term. When an
            Option is no longer exercisable, it shall be deemed to have lapsed
            or terminated.

            9.2   Incentive Stock Options. In addition to the other terms and
      conditions applicable to all Options:

                  (a) the aggregate Fair Market Value (determined as of the date
            the Option is granted) of the Shares with respect to which Incentive
            Stock Options held by an individual first become exercisable in any
            calendar year (under the Plan and all other incentive stock option
            plans of the Company and its Affiliates) shall not exceed $100,000
            (or such other limit as may be required by the Code) if this
            limitation is necessary to qualify the Option as an Incentive Stock
            Option and to the extent an Option or Options granted to a
            Participant exceed this limit, the Option or Options shall be
            treated as a Non-Statutory Stock Option;

                  (b) an Incentive Stock Option shall not be exercisable more
            than 10 years after the date of grant (or such other limit as may be
            required by the Code) if this limitation is necessary to qualify the
            Option as an Incentive Stock Option;

                  (c) notwithstanding any other provision of the Plan to the
            contrary, an Incentive Stock Option shall not be exercisable more
            than one year after termination of the Participant's employment with
            the Company and its Affiliates if the Participant's employment with
            the Company

                                       10
<PAGE>

            and its Affiliates terminates because of the Participant's death or
            Disability or more than three months after termination of the
            Participant's employment if the Participant's employment terminates
            for any reason other than death or disability;

                  (d) the Agreement covering an Incentive Stock Option shall
            contain such other terms and provisions that the Committee
            determines necessary to qualify this Option as an Incentive Stock
            Option; and

                  (e) notwithstanding any other provision of the Plan to the
            contrary, no Participant may receive an Incentive Stock Option under
            the Plan if, at the time the Award is granted, the Participant owns
            (after application of the rules contained in Code Section 424(d), or
            its successor provision) Shares possessing more than 10% of the
            total combined voting power of all classes of stock of the Company
            or its Subsidiaries, unless (i) the option price for that Incentive
            Stock Option is at least 110% of the Fair Market Value of the Shares
            subject to that Incentive Stock Option on the date of grant and (ii)
            that Option is not exercisable after the date five years from the
            date that Incentive Stock Option is granted.

      10.   Stock Appreciation Rights. An Award of a Stock Appreciation Right
shall entitle the Participant (or a Successor or Transferee), subject to terms
and conditions determined by the Committee, to receive upon exercise of the
Stock Appreciation Right all or a portion of the excess of (i) the Fair Market
Value of a specified number of Shares as of the date of exercise of the Stock
Appreciation Right over (ii) a specified price that shall not be less than 100%
of the Fair Market Value of such Shares as of the date of grant of the Stock
Appreciation Right. A Stock Appreciation Right may be granted in connection with
part or all of, in addition to, or completely independent of an Option or any
other Award under the Plan. If issued in connection with a previously or
contemporaneously granted Option, the Committee may impose a condition that
exercise of a Stock Appreciation Right cancels a pro rata portion of the Option
with which it is connected and vice versa. Each Stock Appreciation Right may be
exercisable in whole or in part on the terms provided in the Agreement. No Stock
Appreciation Right shall be exercisable at any time after the expiration of its
Term. When a Stock Appreciation Right is no longer exercisable, it shall be
deemed to have lapsed or terminated. Upon exercise of a Stock Appreciation
Right, payment to the Participant or a Successor or Transferee shall be made at
such time or times as shall be provided in the Agreement in the form of cash,
Shares or a combination of cash and Shares as determined by the Committee. The
Agreement may provide for a limitation upon the amount or percentage of the
total appreciation on which payment (whether in cash and/or Shares) may be made
in the event of the exercise of a Stock Appreciation Right.

      11.   Performance Units.

            11.1  Initial Award.

                  (a) An Award of Performance Units under the Plan shall entitle
            the Participant or a Successor or Transferee to future payments of
            cash, Shares or a combination of cash and Shares, as determined by
            the Committee, based upon the achievement of specified levels of one
            or more Performance Measures. The Agreement may establish that a
            portion of a Participant's Award will be paid for performance that
            exceeds the minimum target but falls below the maximum target
            applicable to the Award. The Agreement shall also provide for the
            timing of the payment.

                  (b) Following the conclusion or acceleration of each
            Performance Cycle, the Committee shall determine the extent to which
            (i) Performance Measures have been attained, (ii) any other terms
            and conditions with respect to an Award relating to the Performance
            Cycle have been satisfied and (iii) payment is due with respect to
            an Award of Performance Units.

            11.2 Acceleration and Adjustment. The Agreement may permit an
      acceleration of the Performance Cycle and an adjustment of performance
      targets and payments with respect to some or all of the Performance Units
      awarded to a Participant upon the occurrence of certain events, which may
      but need not include, without limitation, a Fundamental Change, a
      recapitalization, a change in the accounting

                                       11
<PAGE>

      practices of the Company, a change in the Participant's title or
      employment responsibilities, the Participant's death or retirement or,
      with respect to payments in Shares with respect to Performance Units, a
      reclassification, stock dividend, stock split or stock combination as
      provided in Section 16. The Agreement also may provide for a limitation on
      the value of an Award of Performance Units that a Participant may receive.

      12.   Effective Date and Duration of the Plan.

            12.1 Effective Date. The Plan shall become effective as of May 5,
      2005, provided that the Plan is approved by the requisite vote of
      shareholders at the 2005 Annual Meeting of Shareholders or any adjournment
      thereof.

            12.2 Duration of the Plan. The Plan shall remain in effect until all
      Stock subject to it shall be distributed, all Awards have expired or
      lapsed, the Plan is terminated pursuant to Section 15, or May 5, 2015 (the
      "Termination Date"); provided, however, that Awards made before the
      Termination Date may be exercised, vested or otherwise effectuated beyond
      the Termination Date unless limited in the Agreement or otherwise. No
      Award of an Incentive Stock Option shall be made more than 10 years after
      the Effective Date (or such other limit as may be required by the Code) if
      this limitation is necessary to qualify the Option as an Incentive Stock
      Option. The date and time of approval by the Committee of the granting of
      an Award shall be considered the date and time at which the Award is made
      or granted.

      13.   Plan Does Not Affect Employment Status.

                  (a) Status as an eligible Employee shall not be construed as a
            commitment that any Award will be made under the Plan to that
            eligible Employee or to eligible Employees generally.

                  (b) Nothing in the Plan or in any Agreement or related
            documents shall confer upon any Employee or Participant any right to
            continue in the employment of the Company or any Affiliate or
            constitute any contract of employment or affect any right that the
            Company or any Affiliate may have to change such person's
            compensation, other benefits, job responsibilities, or title, or to
            terminate the employment of such person with or without cause.

      14.   Tax Withholding. The Company shall have the right to withhold from
any cash payment under the Plan to a Participant or other person (including a
Successor or a Transferee) an amount sufficient to cover any required
withholding taxes. The Company shall have the right to require a Participant or
other person receiving Shares under the Plan to pay the Company a cash amount
sufficient to cover any required withholding taxes before actual receipt of
those Shares. In lieu of all or any part of a cash payment from a person
receiving Shares under the Plan, the Committee may permit the individual to
cover all or any part of the required withholdings through a reduction of the
number of Shares delivered or delivery or tender to the Company of Shares held
by the Participant or other person, in each case valued in the same manner as
used in computing the withholding taxes under the applicable laws.

      15.   Amendment, Modification and Termination of the Plan.

            (a) The Board may at any time and from time to time terminate,
      suspend or modify the Plan. Except as limited in (b) below, the Committee
      may at any time alter or amend any or all Agreements under the Plan to the
      extent permitted by law.

            (b) No termination, suspension, or modification of the Plan will
      materially and adversely affect any right acquired by any Participant or
      Successor or Transferee under an Award granted before the date of
      termination, suspension, or modification, unless otherwise agreed to by
      the Participant in the Agreement or otherwise, or required as a matter of
      law; but it will be conclusively presumed that any adjustment for changes
      in capitalization provided for in Sections 11.2 or 16 does not adversely
      affect these rights.

                                       12
<PAGE>

      16.   Adjustment for Changes in Capitalization. Subject to any required
action by the Company's shareholders, appropriate adjustments, so as to prevent
enlargement of rights or inappropriate dilution -- (i) in the aggregate number
and type of Shares available for Awards, or any type of Award, under the Plan,
(ii) in the limitations on the number of Shares that may be issued to an
individual Participant as an Option or a Stock Appreciation Right in any
calendar year or that may be issued in the form of Restricted Stock or Shares
without restrictions, (iii) in the number and type of Shares and amount of cash
subject to Awards then outstanding, (iv) in the Option price as to any
outstanding Options and, (v) subject to Section 11.2, in outstanding Performance
Units and payments with respect to outstanding Performance Units -- may be made
by the Committee in its sole discretion to give effect to adjustments made in
the number or type of Shares through a Fundamental Change (subject to Section
17), recapitalization, reclassification, stock dividend, stock split, stock
combination or other relevant change, provided that fractional Shares shall be
rounded to the nearest whole Share.

      17.   Fundamental Change. In the event of a proposed Fundamental Change,
the Committee may, but shall not be obligated to:

            (a) if the Fundamental Change is a merger or consolidation or
      statutory share exchange, make appropriate provision for the protection of
      the outstanding Options and Stock Appreciation Rights by the substitution
      of options, stock appreciation rights and appropriate voting common stock
      of the corporation surviving any merger or consolidation or, if
      appropriate, the parent corporation of the Company or such surviving
      corporation; or

            (b) at least ten days before the occurrence of the Fundamental
      Change, declare, and provide written notice to each holder of an Option or
      Stock Appreciation Right of the declaration, that each outstanding Option
      and Stock Appreciation Right, whether or not then exercisable, shall be
      canceled at the time of, or immediately before the occurrence of, the
      Fundamental Change in exchange for payment to each holder of an Option or
      Stock Appreciation Right, within ten days after the Fundamental Change, of
      cash equal to (i) for each Share covered by the canceled Option, the
      amount, if any, by which the Fair Market Value (as defined in this
      Section) per Share exceeds the exercise price per Share covered by such
      Option or (ii) for each Stock Appreciation Right, the price determined
      pursuant to Section 10, except that Fair Market Value of the Shares as of
      the date of exercise of the Stock Appreciation Right, as used in clause
      (i) of Section 10, shall be deemed to mean Fair Market Value for each
      Share with respect to which the Stock Appreciation Right is calculated
      determined in the manner hereinafter referred to in this Section. At the
      time of the declaration provided for in the immediately preceding
      sentence, each Stock Appreciation Right and each Option shall immediately
      become exercisable in full and each person holding an Option or a Stock
      Appreciation Right shall have the right, during the period preceding the
      time of cancellation of the Option or Stock Appreciation Right, to
      exercise the Option as to all or any part of the Shares covered thereby or
      the Stock Appreciation Right in whole or in part, as the case may be. In
      the event of a declaration pursuant to Section 17(b), each outstanding
      Option and Stock Appreciation Right granted pursuant to the Plan that
      shall not have been exercised before the Fundamental Change shall be
      canceled at the time of, or immediately before, the Fundamental Change, as
      provided in the declaration. Notwithstanding the foregoing, no person
      holding an Option or a Stock Appreciation Right shall be entitled to the
      payment provided for in this Section 17(b) if such Option or Stock
      Appreciation Right shall have terminated, expired or been cancelled. For
      purposes of this Section only, "Fair Market Value" per Share means the
      cash plus the fair market value, as determined in good faith by the
      Committee, of the non-cash consideration to be received per Share by the
      shareholders of the Company upon the occurrence of the Fundamental Change.

      18.   Forfeitures. An Agreement may provide that if a Participant has
received or been entitled to payment of cash, delivery of Shares, or a
combination thereof pursuant to an Award within six months before the
Participant's termination of employment with the Company and its Affiliates, the
Committee, in its sole discretion, may require the Participant to return or
forfeit the cash and/or Shares received with respect to the Award (or its
economic value as of (i) the date of the exercise of Options or Stock
Appreciation Rights, (ii) the date of, and immediately following, the lapse of
restrictions on Restricted Stock or the receipt of Shares without restrictions,
or (iii) the date on which the right of the Participant to payment with respect
to Performance Units vests, as the case may be) in the event of certain
occurrences specified in the Agreement. The Committee's right to require
forfeiture must be exercised within ninety days after discovery of such an
occurrence but in no event later than fifteen months

                                       13
<PAGE>

after the Participant's termination of employment with the Company and its
Affiliates. The occurrences may, but need not, include competition with the
Company or any Affiliate, unauthorized disclosure of material proprietary
information of the Company or any Affiliate, a violation of applicable business
ethics policies of the Company or Affiliate or any other occurrence specified in
the Agreement within the period or periods of time specified in the Agreement.

      19.   Corporate Mergers, Acquisitions, Etc. The Committee may also grant
Options, Stock Appreciation Rights, Restricted Stock or other Awards under the
Plan in substitution for, or in connection with the assumption of, existing
options, stock appreciation rights, restricted stock or other award granted,
awarded or issued by another corporation and assumed or otherwise agreed to be
provided for by the Company pursuant to or by reason of a transaction involving
a corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a Subsidiary is a party.
The terms and conditions of the substitute Awards may vary from the terms and
conditions set forth in the Plan to the extent that the Board at the time of the
grant may deem appropriate to conform, in whole or in part, to the provisions of
the awards in substitution for which they are granted.

      20.   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. Neither the Company, its Affiliates, the Committee, nor
the Board of Directors shall be deemed to be a trustee of any amounts to be paid
under the Plan nor shall anything contained in the Plan or any action taken
pursuant to its provisions create or be construed to create a fiduciary
relationship between the Company and/or its Affiliates, and a Participant or
Successor or Transferee. To the extent any person acquires a right to receive an
Award under the Plan, this right shall be no greater than the right of an
unsecured general creditor of the Company.

      21.   Limits of Liability.

            (a) Any liability of the Company to any Participant with respect to
      an Award shall be based solely upon contractual obligations created by the
      Plan and the Award Agreement.

            (b) Except as may be required by law, neither the Company nor any
      member of the Board of Directors or of the Committee, nor any other person
      participating in any determination of any question under the Plan, or in
      the interpretation, administration or application of the Plan, shall have
      any liability to any party for any action taken, or not taken, in good
      faith under the Plan.

      22.   Compliance with Applicable Legal Requirements. No Shares
distributable pursuant to the Plan shall be issued and delivered unless the
issuance of the Shares complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Shares may, at the time, be listed.

      23.   Deferrals and Settlements. The Committee may require or permit
Participants to elect to defer the issuance of Shares or the settlement of
Awards in cash under such rules and procedures as it may establish under the
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts.

      24.   Other Benefit and Compensation Programs. Payments and other
benefits received by a Participant under an Award made pursuant to the Plan
shall not be deemed a part of a Participant's regular, recurring compensation
for purposes of the termination, indemnity or severance pay laws of any country
and shall not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan, contract or similar arrangement
provided by the Company or an Affiliate unless expressly so provided by such
other plan, contract or arrangement, or unless the Committee expressly
determines that an Award or portion of an Award should be included to accurately
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of competitive cash compensation.

                                       14
<PAGE>

      25.   Beneficiary Upon Participant's Death. To the extent that the
transfer of a Participant's Award at his or her death is permitted under an
Agreement, a Participant's Award shall be transferable at death to the estate or
to the person who acquires the right to succeed to the Award by bequest or
inheritance.

      26.   Requirements of Law.

            (a) 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 the State of Minnesota without regard to
      its conflicts-of-law principles and shall be construed accordingly.

            (b) If any provision of the Plan shall be held illegal or invalid
      for any reason, the illegality or invalidity shall not effect the
      remaining parts of the Plan, and the Plan shall be construed and enforced
      as if the illegal or invalid provision had not been included.

      27.   Repricing; Shareholder Approval. Except as provided in Section 16,
neither the Board nor any committee thereof shall cause the Company to adjust or
amend the exercise price of any outstanding Award, whether through amendment,
replacement grant, or other means, without the prior approval of the
shareholders of the Company.

                                       15<PAGE>

                                                                    EXHIBIT 10.9

                            CAPELLA EDUCATION COMPANY

                          EMPLOYEE STOCK OWNERSHIP PLAN

                               (2005 RESTATEMENT)

<PAGE>
                                                                               .
                                                                               .
                                                                               .

                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN
                               (2005 RESTATEMENT)

                                TABLE OF CONTENTS

<TABLE>
<S>           <C>                                                                     <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.....................................................       6
    3.1       START OF PARTICIPATION............................................       6
    3.2       END OF PARTICIPATION..............................................       6

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

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

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....................................      13

ARTICLE VIII  INVESTMENT OF ACCOUNTS............................................      13
    8.1       INVESTMENT IN COMPANY STOCK.......................................      13
    8.2       REPAYMENT OF EXEMPT LOAN..........................................      13

ARTICLE IX    VESTING...........................................................      14
    9.1       VESTING AT NORMAL RETIREMENT AGE..................................      14
    9.2       VESTING IN EVENT OF DISABILITY OR DEATH...........................      14
    9.3       VESTING BASED ON SERVICE..........................................      14
    9.4       FORFEITURE OF NONVESTED BALANCE...................................      14
    9.5       FORFEITURE ACCOUNT................................................      14
    9.6       REINSTATEMENT UPON RETURN TO SERVICE..............................      14
    9.7       FORFEITURE IN EVENT OF MISSING PARTICIPANT OR BENEFICIARY.........      14

ARTICLE X     DIVERSIFICATION DISTRIBUTIONS WHILE EMPLOYED......................      15
    10.1      ELIGIBILITY FOR DIVERSIFICATION DISTRIBUTIONS.....................      15
    10.2      MAXIMUM PERCENTAGE LIMIT..........................................      15
    10.3      MAXIMUM NUMBER OF SHARES..........................................      15
    10.4      DIVERSIFICATION DISTRIBUTION PROCEDURES...........................      15

ARTICLE XI    DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT......................      16
    11.1      DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT......................      16
    11.2      DISTRIBUTION PROCEDURES...........................................      16
    11.3      CASH-OUT OF SMALL ACCOUNTS........................................      17
    11.4      MINIMUM DISTRIBUTION RULES........................................      17

ARTICLE XII   DISTRIBUTION AFTER DEATH..........................................      17
    12.1      DISTRIBUTION AFTER DEATH..........................................      17
    12.2      DISTRIBUTION PROCEDURES...........................................      17
    12.3      BENEFICIARY DESIGNATION...........................................      18
    12.4      MULTIPLE BENEFICIARIES............................................      19
    12.5      CASH-OUT OF SMALL ACCOUNTS........................................      19
</TABLE>

                                       -i-
<PAGE>

                                                                    EXHIBIT 10.9

<TABLE>
<S>           <C>                                                                     <C>
    12.6      MINIMUM DISTRIBUTION RULES........................................      19

ARTICLE XIII  MISCELLANEOUS BENEFIT PROVISIONS..................................      19
    13.1      VALUATION OF ACCOUNTS FOLLOWING TERMINATION OF EMPLOYMENT.........      19
    13.2      DIRECT ROLLOVER OPTION............................................      19
    13.3      BENEFIT STATEMENTS................................................      20
    13.4      MISSING PARTICIPANTS OR BENEFICIARIES.............................      20
    13.5      DISTRIBUTION TO ALTERNATE PAYEE...................................      20
    13.6      PUT OPTION; OTHER RESTRICTIONS ON COMPANY STOCK...................      21
    13.7      NO OTHER BENEFITS.................................................      21
    13.8      SOURCE OF BENEFITS................................................      21
    13.9      INCOMPETENT PAYEE.................................................      22
    13.10     NO ASSIGNMENT OR ALIENATION OF BENEFITS...........................      22
    13.11     PAYMENT OF TAXES..................................................      22
    13.12     CONDITIONS PRECEDENT..............................................      22
    13.13     DELAY OF DISTRIBUTION IN EVENT OF STOCK DIVIDEND OR SPLIT.........      22
    13.14     EFFECT OF REEMPLOYMENT............................................      22

ARTICLE XIV   TRUST FUND........................................................      22
    14.1      COMPOSITION.......................................................      22
    14.2      NO DIVERSION......................................................      22
    14.3      BORROWING TO PURCHASE COMPANY STOCK...............................      23
    14.4      FUNDING POLICY....................................................      24
    14.5      SHARE REGISTRATION................................................      24
    14.6      PURCHASE/SALE OF COMPANY STOCK....................................      24

ARTICLE XV    ADMINISTRATION....................................................      25
    15.1      ADMINISTRATION....................................................      25
    15.2      CERTAIN FIDUCIARY PROVISIONS......................................      25
    15.3      PAYMENT OF EXPENSES...............................................      25
    15.4      EVIDENCE..........................................................      25
    15.5      CORRECTION OF ERRORS AND DUTY TO REVIEW INFORMATION...............      26
    15.6      CLAIMS AND LIMITATIONS ON ACTIONS.................................      26
    15.7      WAIVER OF NOTICE..................................................      26
    15.8      AGENT FOR LEGAL PROCESS...........................................      26
    15.9      INDEMNIFICATION...................................................      26
    15.10     EXERCISE OF AUTHORITY.............................................      26
    15.11     TELEPHONIC OR ELECTRONIC NOTICES AND TRANSACTIONS.................      27

ARTICLE XVI   AMENDMENT, TERMINATION, MERGER....................................      27
    16.1      AMENDMENT.........................................................      27
    16.2      PERMANENT DISCONTINUANCE OF CONTRIBUTIONS.........................      28
    16.3      TERMINATION.......................................................      28
    16.4      PARTIAL TERMINATION...............................................      28
    16.5      MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS.................      28
    16.6      DEFERRAL OF DISTRIBUTIONS.........................................      28

ARTICLE XVII  MISCELLANEOUS PROVISIONS..........................................      28
    17.1      SPECIAL TOP-HEAVY RULES...........................................      28
    17.2      QUALIFIED MILITARY SERVICE........................................      30
    17.3      INSURANCE COMPANY NOT RESPONSIBLE FOR VALIDITY OF PLAN............      30
    17.4      NO GUARANTEE OF EMPLOYMENT........................................      30
</TABLE>

                                      -ii-

<PAGE>

                            CAPELLA EDUCATION COMPANY
                          EMPLOYEE STOCK OWNERSHIP PLAN
                               (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.

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

      If there is no such common stock, Company Stock shall mean only 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.

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.

                                      -1-
<PAGE>

      (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 Section 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-
<PAGE>

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):

            (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.

                                      -3-
<PAGE>

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.

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

                                      -4-
<PAGE>

       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:

       (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 "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)).

2.1.25 "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).

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

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

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

       (a)    The proceeds of an Exempt Loan,

                                      -5-
<PAGE>

       (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.

2.1.29 "Valuation Date" means each day on which trading occurs on the principal
       United States Securities Exchanges registered under the Securities
       Exchange Act of 1934, as amended.

2.1.30 "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.

                                      -6-
<PAGE>

                                   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 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:

      (a)   A Participant who both:

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

                                      -7-
<PAGE>

            (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.

                                   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).

            (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

                                      -8-
<PAGE>

            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.

                                      -10-
<PAGE>

                  (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.

                  (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 Daily 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

                                      -11-
<PAGE>

            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.

      (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). With respect to any
      contribution, dividend, distribution or transfer, or other

                                      -12-
<PAGE>

      transaction, the processing date of the transaction will be considered the
      applicable Valuation Date for that transaction and will be binding for all
      purposes of the Plan.

7.2.4 Valuation of Non-Traded Shares. If shares of Company Stock cease to be
      readily tradable on an established securities market, all valuations of
      such shares 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.

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 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
      shareholder 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.

7.3.2 Voting of Unallocated Shares/Shares for Which Directions Not Received. The
      Trustee will vote all shares of Company Stock held in the Unallocated
      Reserve (if any) and 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 pursuant to Sec. 7.4.1.

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.

                                  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.

                                      -13-
<PAGE>

                                   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.

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

                                      -14-
<PAGE>

        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 DISTRIBUTIONS WHILE EMPLOYED

10.1    ELIGIBILITY FOR DIVERSIFICATION DISTRIBUTIONS. Diversification
        distributions 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 diversification distributions to a
        Participant will not exceed the following percentage of the shares of
        Company Stock that have been credited to his/her Account:

        (a)     First Five Years. During the first five (5) Plan Years that the
                Participant is eligible for diversification distributions, the
                maximum is twenty-five percent (25%) of the shares.

        (b)     Subsequent Years. During the sixth (6th) and subsequent Plan
                Years that the Participant is eligible for diversification
                distributions, the maximum is fifty percent (50%) of the shares.

10.3    MAXIMUM NUMBER OF SHARES. The maximum number of shares of Company Stock
        available for diversification distributions to the Participant 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
                received in diversification distributions.

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

        (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 received in diversification distributions.

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

10.4    DIVERSIFICATION DISTRIBUTION PROCEDURES.

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

10.4.2  Time of Distribution. The diversification distribution will be made as
        soon as administratively practicable after proper application is
        received from the Participant.

                                      -15-
<PAGE>

10.4.3  Form of Distribution. The diversification distribution will be made in
        either one or a combination of the following forms at the election of
        the Participant:

        (a)     Single-Sum Distribution. The Participant may elect a single-sum
                distribution of 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.

        (b)     Directed Rollover. The Participant may elect a direct rollover
                to an eligible retirement plan (as described in Sec. 13.2) of
                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 (but the rollover cannot be less
                than $200).

10.4.4  Medium of Distribution. The diversification distribution (including any
        direct rollover) will be made in whole shares of Company Stock.

10.4.5  Annual Limit. Only one diversification distribution 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  Time of Distribution.

        (a)     General Rule. The distribution will be made as soon as
                administratively practicable after proper application is
                received from the Participant.

        (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).

11.2.3  Form of Distribution. The distribution will be made in either one or a
        combination of the following forms at the election of the Participant:

        (a)     Single-Sum Distribution. The Participant may elect a single-sum
                distribution of the full vested balance of his/her Account.

        (b)     Direct Rollover. The Participant 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 the full vested balance
                of his/her Account. If a direct rollover is elected for only
                part of the balance, the

                                      -16-
<PAGE>

                remaining vested balance of the Account will be distributed to
                the Participant in a single-sum distribution.

11.2.4  Medium of Distribution. The distribution (including any direct rollover)
        will be made in whole shares of Company Stock (with any fractional share
        in cash).

11.2.5  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. 11.2.2, a distribution will be made to the Participant
        immediately before his/her required beginning date in the form of a
        single-sum distribution in whole shares of Company Stock (with any
        fractional share in cash).

11.3    CASH-OUT OF SMALL ACCOUNTS.

11.3.1  Cash-Out Amount. Any contrary provision notwithstanding, if the vested
        balance of a Participant's Account does not exceed $1,000, a single-sum
        distribution of the full vested balance of the Account will be made to
        the Participant as soon as administratively practicable after his/her
        Termination of Employment.

11.3.2  Subsequent Changes. If the vested balance of a Participant's Account
        exceeds $1,000 as of the earliest payment date available to the
        Participant, 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. Any distribution under this Section (including
        any direct rollover) 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  Time of Distribution. The distribution will be made as soon as
        administratively practicable after (i) the Participant dies, (ii) the
        Beneficiary makes proper application for distribution, and (iii) the
        Company determines the entitlement of the Beneficiary. The deadline for
        distribution to the Beneficiary, however, is December 31st of the
        calendar year in which falls the fifth (5th) anniversary of the
        Participant's death.

12.2.3  Form of Distribution. The distribution will be made in the form of a
        single-sum distribution of the full vested balance of the Account that
        is payable to such Beneficiary. A Beneficiary who is the Participant's
        surviving Spouse may request 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.

12.2.4  Medium of Distribution. The distribution (including any direct rollover)
        will be made in whole shares of Company Stock (with any fractional share
        paid in cash).

12.2.5  Default Upon Failure to Request Distribution. If the Beneficiary fails
        to apply for distribution in advance of the deadline specified in Sec.
        12.2.2, a distribution will be made to the Beneficiary

                                      -17-
<PAGE>

        immediately before such deadline in the form of a single-sum
        distribution 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.

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.

                                      -18-
<PAGE>

        (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. Any contrary provision notwithstanding, if the vested
        balance of the Account payable to a Beneficiary does not exceed
        one-thousand dollars ($1,000), a single-sum distribution of the full
        vested balance of the Account will be made to the Beneficiary as soon as
        administratively practicable after (i) the Participant dies and (ii) the
        entitlement of the Beneficiary has been determined by the Company.

12.5.2  Subsequent Changes. If the vested balance of the Account payable to a
        Beneficiary exceeds one-thousand dollars ($1,000) as of the earliest
        payment date available to the Beneficiary, 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. Any distribution under this Section (including
        any direct rollover) 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

                                      -19-
<PAGE>

        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
        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)).

13.5.2  Small Amounts. If the amount assigned to the alternate payee under a
        qualified domestic relations order does not exceed one thousand dollars
        ($1,000), such amount will be distributed to

                                      -20-
<PAGE>

        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.

13.5.3  Medium of Distribution. Any distribution to an alternate payee under a
        qualified domestic relations order (including any direct rollover) will
        be made in whole shares of Company Stock (with any fractional share in
        cash).

13.6    PUT OPTION; 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 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.

        (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 fifteen (15)
                month period beginning on the date the shares are distributed
                from the Plan; provided that, the 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)     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  No Other Restrictions. 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 this 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.

                                      -21-
<PAGE>

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.

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

                                      -22-
<PAGE>

                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

        (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.

                                      -23-
<PAGE>

        (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.

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. If 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. If 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, 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.

                                      -24-
<PAGE>

                                   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:

        (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.

                                      -25-
<PAGE>

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 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

                                      -26-
<PAGE>

        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 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.

                                      -27-
<PAGE>

        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 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%).

                                      -28-
<PAGE>

        (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.

        (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

                                      -29-
<PAGE>

                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.

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.

IN WITNESS WHEREOF, the Company has caused this Plan document to be executed on
May 11, 2005.

                                                CAPELLA EDUCATION COMPANY

                                                By /s/Gregory W. Thom
                                                   ------------------------
                                                Its  Vice President, General
                                                     Counsel, and Secretary

                                                And

                                                By /s/ Stephen G. Shank
                                                   ------------------------
                                                   Its  Chairman and CEO

                                      -30-
<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.

                                      -31-
<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.

                                      -32-

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