Document:

exv10w41

 

Exhibit 10.41

AMENDMENT 8

This Amendment 8, dated April 1, 2005 (“Effective Date”), becomes part of the Xcelerate Partner
Agreement (the “Agreement”) dated August 2, 2001 between NSI Software, Inc. (“NSI”) and Sunbelt
Software Distribution, Inc. (“VAR”).

WHEREAS NSI and VAR wish to modify certain provisions within the Agreement;

NOW THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree to
amend the Agreement as follows:

	 	1.	 	The Term in Section 12(a) shall be extended to December 31, 2007.
	 
	 	2.	 	Schedule B Section 3 paragraph (d) shall be deleted in its entirety and replaced with
the following:

“*.”

	 	3.	 	Schedule B Section 6 shall be deleted in its entirety and replaced with the following:

* after the end of each Quarter, VAR will receive a check or a credit, at NSI’s sole
discretion, for *.

	 	4.	 	Schedule B Section 8 shall be deleted in its entirety and replaced with the following:

“The authorized territory (“Territory”) shall be limited to North America.”

	 	5.	 	Schedule C Section 1(a) shall be deleted and replaced with the following:

“(a) NSI shall accrue, on a Quarterly basis for VAR’s benefit, in an account created for such
purpose, amounts for later use as Market Development Funds (“MDF”), on the terms herein. MDF
shall accrue at the rate of *. MDF which accrues in any Quarter shall be available for use as
credits commencing with the next Quarter. VAR shall use the form attached hereto as
Attachment A to request approval for use of accrued MDF.

Unused MDF account balances shall expire upon the expiration of the Quarter following the
Quarter in which they accrued (as an example: VAR MDF balance at the end of Q1 shall expire at
the end of Q2 etc.). VAR will forfeit all such expired balances.”

 

			
	*	 	Denotes confidential information that has been omitted from the exhibit and filed separately,
accompanied by a confidential treatment request, with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933.

1

 

Except as modified under this Amendment 8, all other terms and conditions of the Agreement and
any Amendments shall remain in full force and effect. In the event of a conflict between the terms
and conditions of this Amendment and the Agreement or other Amendments, the terms and conditions of
this Amendment shall supersede.

IN WITNESS THEREOF, the parties hereto have caused this Amendment to be executed by their duly
authorized representatives.

	 	 	 	 	 	 	 	 	 
	NSI Software, Inc.	 	 	 	Sunbelt Software Distribution, Inc.
	 
	 	 	 	 	 	 	 	 
	Signature:

	 	/s/ S. Craig Huke
	 	 	 	Signature:
	 	/s/ Sam Licciardi
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Print Name: Craig S. Huke	 	 	 	Print Name: Sam Licciardi
	 
	 	 	 	 	 	 	 	 
	Title: Chief Financial Officer	 	 	 	Title: Exec Vice President
	 
	 	 	 	 	 	 	 	 
	Date: 7/8/05	 	 	 	Date: June 27, 2005

 

			
	*	 	Denotes confidential information that has been omitted from the exhibit and filed separately,
accompanied by a confidential treatment request, with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933.

2

 

ATTACHMENT A

NSI Software, Inc.

MDF approval form

MDF spends require prior approval from NSI Software, Inc.

Please complete this form and send to *

	 	 	 	 	 	 
	 	Date:

	 	 	 	 
	 	Partner Company Name:

	 	 	 	 
	 	Your Name:

	 	 	 	 
	 	Phone #:

	 	 	 	 
	 	Email Address:

	 	 	 	 
	 

	 	 	 
	 	Please describe the activity for which you require MDF:
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 

	 	 	 	 	 	 
	 	Date of activity:

	 	 	 	 
	 	Amount of MDF requested:

	 	 	 	 
	 

NSI Approval

	 	 	 	 	 	 
	 	Approved by:

	 	 	 	 
	 	Signature

	 	 	 	 
	 	Print Name

	 	 	 	 
	 	Title

	 	 	 	 
	 	Date

	 	 	 	 
	 	Notes:
	 	 	 	 
	 	 
	 	 	 	 
	 	 
	 	 	 	 
	 

 

			
	*	 	Denotes confidential information that has been omitted from the exhibit and filed separately,
accompanied by a confidential treatment request, with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933.

3exv10w42

 

Exhibit 10.42

AMENDMENT 9

This Amendment 9 becomes part of the Xcelerate Partner Agreement (the “Agreement”), dated August 2,
2001, between NSI Software, Inc. located at 257 Turnpike Road, Suite 210, Southborough, MA 01772
and Sunbelt Software Distribution Inc., located at 101 North Garden Avenue, Clearwater, Florida
33755 (“VAR”).

Whereas NSI and VAR wish to modify certain provisions pertaining to Aggregate Dollar Value;

Now therefore the Agreement shall be modified as follows:

1. The following should be added to Schedule B Section 1:

1. Aggregate Dollar Commitment

The annual Aggregate Dollar Value committed for 2006 is * which shall be distributed over *
as indicated below:

	 	 	 	 	 	 	 
	*

	 	*
	 	*
	 	*
	 
	 	 	 	 	 	 
	*

	 	*
	 	*
	 	*

2. Schedule B Section 6 shall be deleted in its entirety and replaced with the following:

* after the end of each Quarter or Fiscal Year as appropriate, VAR will receive a check or a
credit, at NSI’s sole discretion for up to * for the preceding Quarter based on the following
criteria:

	 	•	 	If the Aggregate Dollar sold for the Quarter is between * and * of the quarterly
Aggregate Dollar Value stated above, the VAR will receive *.
	 
	 	•	 	If the Aggregate Dollar sold for the Quarter * the quarterly Aggregate Dollar Value
stated above, the VAR will receive *.
	 
	 	•	 	If the Aggregate Dollar sold for the Quarter is * of the quarterly Aggregate Dollar
Value stated above, the VAR is not eligible for the quarterly rebate.
	 
	 	•	 	Annual Rebate Catch-up: If at least * quarterly quota was not achieved but the annual
quota is achieved, VAR will receive an additional rebate of *.

Within * prior to the end of the current calendar year both parties will meet and mutually agree on
new quarterly and annual Aggregate Dollar Value goals for the next calendar year. This must be
done in writing as an addition to this Addendum and signed by both parties.

3. Amendment 7 dated April 15, 2004 shall be amended as follows:

1. Schedule A shall be amended by adding the following:

 

			
	*	 	Denotes confidential information that has been omitted from the exhibit and filed
separately, accompanied by a confidential treatment request, with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933.

 

 

	 	•	 	Double-Take for Virtual Systems: Real time transaction based backup
software within Virtual Systems.

	 	2.	 	The table in Schedule B (3) shall be amended by deleting the title in the third
column and replacing same with *.

Except as modified under this Amendment, all other terms and conditions of the Agreement and
any Amendments shall remain in full force and effect. In the event of a conflict between the terms
and conditions of this Amendment 9, the Agreement or any prior Amendments, the terms and conditions
of this Amendment shall supersede.

IN WITNESS WHEREOF, the undersigned have caused this Amendment No.9 to be executed by their
respective representatives.

	 	 	 	 	 	 	 	 	 
	NSI Software, Inc.	 	 	 	Sunbelt Software Distribution Inc.
	 
	 	 	 	 	 	 	 	 
	Date: 2/15/06	 	 	 	Date: Feb. 13th, 2006
	 
	 	 	 	 	 	 	 	 
	Signature:

	 	/s/ S. Craig Huke
	 	 	 	Signature:
	 	/s/ Jo Murciano
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Print Name: S. Craig Huke	 	 	 	Print Name: Jo Murciano
	 
	 	 	 	 	 	 	 	 
	Title: CFO	 	 	 	Title: CEO

 

			
	*	 	Denotes confidential information that has been omitted from the exhibit and filed
separately, accompanied by a confidential treatment request, with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933.<PAGE>

                                                                    EXHIBIT 10.2

                            CAPELLA EDUCATION COMPANY
                            2005 STOCK INCENTIVE PLAN

                        INCENTIVE STOCK OPTION AGREEMENT

This is an Incentive Stock Option Agreement ("Agreement") between Capella
Education Company, a Minnesota corporation (the "Company"), and the optionee
identified above (the "Optionee") effective as of the date of grant specified
above. To the extent any capitalized terms used in this Agreement are not
defined, they shall have the meaning ascribed to them in the Company's 2005
Stock Incentive Plan (the "Plan").

                                    RECITALS

      WHEREAS, the Company maintains the Capella Education Company 2005 Stock
Incentive Plan (the "Plan"); and

      WHEREAS, pursuant to the Plan, the Board of Directors of the Company (the
"Board") or a committee of two or more directors of the Company (the
"Committee") designated by the Board administers the Plan and has the authority
to determine the awards to be granted under the Plan (if the Board has not
appointed a committee to administer the Plan, then the Board shall constitute
the Committee); and

      WHEREAS, the Committee has determined that the Optionee is eligible to
receive an award under the Plan in the form of an incentive stock option (the
"Option");

      NOW, THEREFORE, the Company hereby grants this Option to the Optionee
under the terms and conditions as follows.

<PAGE>

                             TERMS AND CONDITIONS*

1.    GRANT. The Optionee is granted this Option to purchase the number of
      Shares specified at the beginning of this Agreement.

2.    EXERCISE PRICE. The price to the Optionee of each Share subject to this
      Option shall be the exercise price specified at the beginning of this
      Agreement (which price shall not be less than the Fair Market Value (as
      defined in Section 2(o) of the Plan) as of the date of grant or, if the
      Optionee owns or is deemed to own stock possessing more than 10% of the
      combined voting power of all classes of stock of the Company, 110% of the
      Fair Market Value as of the date of grant).

3.    INCENTIVE STOCK OPTION. This Option is intended to be an "incentive stock
      option" within the meaning of Section 422 of the Internal Revenue Code of
      1986, as amended (the "Code").

4.    EXERCISE SCHEDULE. This Option shall vest and become exercisable as to the
      number of Shares and on the dates specified in the exercise schedule at
      the beginning of this Agreement. The exercise schedule shall be
      cumulative; thus, to the extent this Option has not already been exercised
      and has not expired, terminated or been cancelled, the Optionee or the
      person otherwise entitled to exercise this Option as provided herein may
      at any time, and from time to time, purchase all or any portion of the
      Shares then purchasable under the exercise schedule.

      This Option may also be exercised in full (notwithstanding the exercise
      schedule) under the circumstances described in Section 8 of this Agreement
      if it has not expired prior thereto.

5.    EXPIRATION. This Option shall expire at 5:00 p.m. Central Time on the
      earliest of:

      (a)   The expiration date specified at the beginning of this Agreement
            (which date shall not be later than ten years after the date of
            grant or, if the Optionee owns or is deemed to own stock possessing
            more than 10% of the combined voting power of all classes of stock
            of the Company, five years after the date of grant);

      (b)   The last day of the period following the termination of employment
            of the Optionee during which this Option can be exercised (as
            specified in Section 7 of this Agreement); or

      (c)   The date (if any) fixed for cancellation pursuant to Section 8 of
            this Agreement.

      If termination of the Optionee's employment by the Company shall have been
      for Cause, this Option shall expire immediately upon such termination. In
      no event may anyone

----------
*     Unless the context indicates otherwise, terms that are not defined in this
      Agreement shall have the meaning set forth in the Plan as it currently
      exists or as it is amended in the future.

                                       2
<PAGE>

      exercise this Option, in whole or in part, after it has expired,
      notwithstanding any other provision of this Agreement.

6.    PROCEDURE TO EXERCISE OPTION.

      Notice of Exercise. This Option may be exercised by delivering written
      notice of exercise to the Company at the principal executive office of the
      Company, to the attention of the Company's Secretary, in the form attached
      to this Agreement. The notice shall state the number of Shares to be
      purchased, and shall be signed by the person exercising this Option. If
      the person exercising this Option is not the Optionee, he/she also must
      submit appropriate proof of his/her right to exercise this Option.

      Tender of Payment. Upon giving notice of any exercise hereunder, the
      Optionee shall provide for payment of the purchase price of the Shares
      being purchased through one or a combination of the following methods:

      (a)   Cash;

      (b)   Cancellation of indebtedness;

      (c)   By delivery to the Company of unencumbered Shares having an
            aggregate Fair Market Value on the date of exercise equal to the
            purchase price of the Shares as to which this Option is exercised;

      (d)   To the extent permitted by law, a broker-assisted cashless exercise
            in which the Optionee irrevocably instructs a broker to deliver
            proceeds of a sale of all or a portion of the Shares to be issued
            pursuant to the exercise (or a loan secured by such Shares) to the
            Company in payment of the purchase price of the Shares as to which
            this Option is exercised.

      Notwithstanding the foregoing, the Optionee shall not be permitted to pay
      any portion of the purchase price with Shares if the Committee, in its
      sole discretion, determines that payment in such manner could have adverse
      financial accounting consequences for the Company.

      Execution of Shareholder Agreement. Optionee, or the person exercising
      this option, must execute the Purchase Agreement substantially in the form
      of Exhibit A to the notice of exercise attached to this Agreement.

      Company Right to Repurchase Option. At any time after six (6) months but
      within nine (9) months following the exercise of this Option (the
      "Repurchase Period:"), the Company shall have the right ("Repurchase
      Option") to cancel this Option to the extent, and reduce the number of
      Shares that the Optionees may purchase pursuant to this Option in the
      amount, of the number of Shares requested to be purchased in the notice of
      exercise (the "Requested Shares") and pay the Optionee cash in an amount,
      for each Requested Share, equal to the per Share Fair Market Value of the
      Requested Shares (the "Repurchase Option Price"). The Company may exercise
      its Repurchase Option by

                                       3
<PAGE>

      giving written notice to the Optionee and paying the Repurchase Option
      Price to the Optionee during the Repurchase Period. Coincident with the
      payment of the Repurchase Option Price, the Company and the Optionee shall
      enter into a written amendment to this Option to reflect the appropriate
      decrease the number of Shares which the Optionee may purchase pursuant to
      this Option. The Repurchase Option shall terminate upon the first
      underwritten sale of Common Stock of the Company to the general public
      pursuant to a registration statement filed with and declared effective by
      the Securities and Exchange Commission under the Securities Act of 1933,
      as amended.

      Delivery of Certificates. Subject to the right of repurchase of this
      Option set forth above, as soon as practicable after the Company receives
      the notice and purchase price and executed Purchase Agreement provided for
      above, it shall deliver to the person exercising this Option, in the name
      of such person, a certificate or certificates representing the Shares
      being purchased (or provide for direct registration book-entry of the
      Shares in the name of the person exercising this Option). The Company
      shall pay any original issue or transfer taxes with respect to the issue
      or transfer of the Shares and all fees and expenses incurred by it in
      connection therewith. All Shares so issued shall be fully paid and
      nonassessable. Notwithstanding anything to the contrary in this Agreement,
      the Company shall not be required to issue or deliver any Shares prior to
      the completion of such registration or other qualification of such Shares
      under any state or federal law, rule or regulation as the Company shall
      determine to be necessary or desirable.

7.    EMPLOYMENT REQUIREMENT. This Option may be exercised only while the
      Optionee remains employed with the Company or a parent or subsidiary
      thereof, and only if the Optionee has been continuously so employed since
      the date of this Agreement; provided that:

      (a)   If the Optionee's employment by the Company terminates because of
            the Optionee's death or if the Optionee dies during the three month
            period described below in Section 7(d), then this Option may be
            exercised, to the extent permissible under Section 8 below, for one
            year following the date of the Optionee's death.

      (b)   If the Optionee's employment by the Company terminates because of
            the Optionee's Disability (as defined in the Plan), then this Option
            may be exercised, to the extent permissible under Section 8 below,
            for one year following the date of the Optionee's Disability.

      (c)   If the Optionee's employment by the Company terminates because of
            the Optionee's Retirement (as defined in the Plan), then this Option
            may be exercised for one year following the date of the Optionee's
            Retirement, but only to the extent that it was exercisable
            immediately prior to termination of employment.

      (d)   If the Optionee's employment by the Company terminates for a reason
            other than death, Disability or Retirement, then this Option may be
            exercised for three months following the date of the Optionee's
            termination of employment, but only

                                       4
<PAGE>

      to the extent that it was exercisable immediately prior to termination of
      employment; provided, however, that if termination of the Optionee's
      employment shall have been for Cause, this Option shall expire, and all
      rights to purchase Shares hereunder shall terminate, immediately upon such
      termination.

      Notwithstanding the above, this Option may not be exercised after it has
expired.

8.    ACCELERATION OF OPTION.

      Death or Disability. This Option may be exercised in full, regardless of
      whether such exercise occurs prior to a date on which this Option would
      otherwise vest, upon the death or Disability of the Optionee; provided
      that the Optionee shall have been continuously employed by the Company or
      a parent or subsidiary thereof between the date of this Agreement and the
      date of such death or Disability. The Option may also be exercised in full
      upon the death of the Optionee during the three month period described in
      Section 7(d) above.

      Change in Control. If a Change in Control (as defined in Section 9 of this
      Agreement) of the Company shall occur and within three years of such
      Change in Control, (i) Optionee's employment with the Company shall be
      terminated other than for Cause (as defined in the Plan), or (ii) Optionee
      shall voluntarily leave employment with the Company for Good Reason (as
      defined below), then, upon the date of such termination or voluntary
      leaving of employment for Good Reason, the options subject to this
      Agreement, if not already exercised in full or otherwise terminated,
      expired or cancelled, shall become immediately exercisable in full and may
      be exercised within 30 days after such termination or voluntary leaving
      (subject to any applicable shorter time period for exercise set forth in
      this Section 8). For purposes of this Agreement, "Good Reason" is defined
      as the demotion or reduction of the job responsibilities of Optionee or
      the reassignment, without Optionee's consent, of Optionee's place of work
      to a location more than 50 miles from the Optionee's place of work
      immediately prior to the Change in Control.

      Merger or Sale. In the event of a merger of the Company with or into
      another corporation or limited liability company or the sale of
      substantially all of the assets of the Company, and the successor entity,
      or a parent or subsidiary of the successor entity, refuses to assume this
      Option or to substitute an equivalent option, then this Option shall
      become exercisable in full immediately. The Committee shall notify
      Optionee in writing or electronically that the Option shall be fully
      vested and exercisable for a period of 15 days from the date of such
      notice and that the Option shall terminate upon the expiration of such
      period.

      Dissolution or Liquidation. In the event of the proposed dissolution or
      liquidation of the Company, the Committee shall notify Optionee as soon as
      practicable prior to the effective date of such proposed transaction. The
      Committee in its discretion may provide for Optionee to have the right to
      exercise his or her Option until ten (10) days prior to such transaction
      as to all of the Shares covered thereby, including Shares as to which the
      Option would not otherwise be exercisable. In addition, the Committee may,
      but shall

                                       5
<PAGE>

      not be obligated to, provide that any Company repurchase option applicable
      to the Shares shall lapse as to all such Shares, provided that the
      proposed dissolution or liquidation takes place at the time and in the
      manner contemplated. To the extent it has not been previously exercised,
      an Option will terminate immediately prior to the consummation of such
      proposed action.

      Discretionary Acceleration. The Committee has the power, in its sole
      discretion, to declare at any time that this Option shall be immediately
      exercisable.

9.    CHANGE IN CONTROL.

      (a)   Definition. For purposes of this Plan, a "Change in Control" of the
            Company shall be deemed to occur if any of the following occur:

            (1)   Any "person" (as such term is used in Sections 13(d) and 14(d)
                  of the Exchange Act) acquires or becomes a "beneficial owner"
                  (as defined in Rule 13d-3 or any successor rule under the
                  Exchange Act), directly or indirectly, of securities of the
                  Company representing the following: (i) 50% or more of the
                  combined voting power of the Company's then outstanding
                  securities entitled to vote generally in the election of
                  directors ("Voting Securities") at any time prior to the
                  Company selling any of its shares in a public offering
                  pursuant to a registration statement filed under the
                  Securities Act of 1933, as amended (the "Securities Act"), or
                  (ii) 35% or more of the combined voting power of the Company's
                  then outstanding Voting Securities at any time after the
                  Company sells any of its shares in a public offering pursuant
                  to a registration statement filed under the Securities Act.
                  Provided, however, that the following shall not constitute a
                  Change in Control pursuant to this Section 9(a)(1):

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

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

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

                                       6
<PAGE>

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

            (3)   Consummation by the Company of a reorganization, merger or
                  consolidation of the Company or a statutory exchange of
                  outstanding Voting Securities of the Company, unless,
                  immediately following such reorganization, merger,
                  consolidation or exchange, all or substantially all of the
                  persons who were the beneficial owners, respectively, of
                  Voting Securities and Shares of the Company immediately prior
                  to such reorganization, merger, consolidation or exchange
                  beneficially own, directly or indirectly, more than 50%
                  (subject to the modification in subsection (b) below) of,
                  respectively, the combined voting power of the then
                  outstanding voting securities entitled to vote generally in
                  the election of directors and the then outstanding shares of
                  common stock, as the case may be, of the corporation resulting
                  from such reorganization, merger, consolidation or exchange in
                  substantially the same proportions as their ownership,
                  immediately prior to such reorganization, merger,
                  consolidation or exchange, of the Voting Securities and Shares
                  of the Company, as the case may be;

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

            (5)   Approval by the shareholders of the Company of a complete
                  liquidation or dissolution of the Company.

                                       7
<PAGE>

      (b)   After a Public Offering. At all times after the Company sells any of
            its shares in a public offering pursuant to a registration statement
            filed under the Securities Act, the references to 50% in subsections
            (a)(1)(C), (a)(3) and (a)(4) of this Section 9 shall be changed to
            65%.

10.   LIMITATION ON TRANSFER. While the Optionee is alive, only the Optionee or
      his/her legal representative may exercise this Option. This Option may not
      be assigned or transferred other than to a Successor in the event of the
      Optionee's death or pursuant to a qualified domestic relations order as
      defined by the Code or Title I of the Employee Retirement Income Security
      Act, or the rules thereunder.

11.   ASSIGNMENT OF THE COMPANY'S OBLIGATIONS. In the event of a merger of the
      Company with or into another corporation or limited liability company, or
      the sale of substantially all of the assets of the Company, then the
      successor entity, or a parent or subsidiary of the successor entity, may
      assume this Option or substitute an equivalent option.

12.   NO SHAREHOLDER RIGHTS BEFORE EXERCISE. No person shall have any of the
      rights of a shareholder of the Company with respect to any Share subject
      to this Option until the Share actually is issued to him/her upon exercise
      of this Option.

13.   DISCRETIONARY ADJUSTMENT. In the event of a Fundamental Change,
      recapitalization, reclassification, stock dividend, stock split, stock
      combination or other relevant change, the Committee (or if the Company
      does not survive any such transaction, a comparable committee of the board
      of directors of the surviving corporation) may in its sole discretion make
      such adjustment as it determines to be appropriate as to the number and
      kind of securities subject to and reserved under the Plan and, in order to
      prevent dilution or enlargement of rights of the Optionee, the number and
      kind of securities issuable upon exercise of this Option and the exercise
      price hereof.

14.   TRANSFER OF SHARES -- TAX EFFECTS. The Optionee hereby acknowledges that
      if any Shares received pursuant to the exercise of any portion of this
      Option are sold within two years from the date of grant or within one year
      from the effective date of exercise of the Option, or if certain other
      requirements of the Code are not satisfied, such Shares will be deemed
      under the Code not to have been acquired by the Optionee pursuant to an
      "incentive stock option" as defined in the Code; and that the Company
      shall not be liable to the Optionee in the event the Option for any reason
      is deemed not to be an "incentive stock option" within the meaning of the
      Code.

15.   INTERPRETATION OF THIS AGREEMENT. All decisions and interpretations made
      by the Committee with regard to any question arising hereunder or under
      the Plan shall be binding and conclusive upon the Company and the
      Optionee. If there is any inconsistency between the provisions of this
      Agreement and the Plan, the provisions of the Plan shall govern.

16.   DISCONTINUANCE OF EMPLOYMENT. This Agreement shall not give the Optionee a
      right to continued employment with the Company or any parent or subsidiary
      of the Company, and the Company or any such parent or subsidiary employing
      the Optionee may

                                       8
<PAGE>

      terminate his/her employment at any time and otherwise deal with the
      Optionee without regard to the effect it may have upon him/her under this
      Agreement.

17.   FORFEITURE EVENTS.

      (a)   The Optionee, by accepting this Option, agrees and covenants that
            during the period during which the Optionee is employed by the
            Company and twelve months following the date of termination of the
            Optionee's employment by the Company (the "Restricted Period") for
            any reason whatsoever, the Optionee will not, directly or
            indirectly:

            (1)   perform services for any Competitive Business as employee,
                  consultant, contractor or otherwise;

            (2)   solicit or attempt to solicit any employee or independent
                  contractor of the Company to cease working for the Company;

            (3)   use or disclose to any person any Confidential Information for
                  any purpose;

            (4)   take any action that might divert any opportunity from the
                  Company or any of its affiliates, successors or assigns (the
                  "Related Parties") that is within the scope of the present or
                  future operations or business of any Related Parties;

            (5)   contact, call upon or solicit any customer of the Company, or
                  attempt to divert or take away from the Company the business
                  of any of its customers;

            (6)   contact, call upon or solicit any prospective customer of the
                  Company that the Optionee became aware of or were introduced
                  to in the course of the Optionee's duties for the Company, or
                  otherwise divert or take away from the Company the business of
                  any prospective customer of the Company; or

            (7)   engage in any activity that is harmful to the interests of the
                  Company, including, without limitation, any conduct during the
                  term of the Optionee's employment that violates the Company's
                  codes of conduct or other policies.

      (b)   If the Company determines that the Optionee violated any provisions
            of Section 17(a) above during the Restricted Period, the Optionee
            agrees and covenants that:

      (1)   any portion of the Option (whether or not vested) that has not been
            exercised as of the date of such determination shall be immediately
            forfeited;

                                       9
<PAGE>

            (2)   the Optionee shall automatically forfeit any rights the
                  Optionee may have with respect to the Option as of the date of
                  such determination; and

            (3)   if the Optionee exercised all or any part of the Option within
                  the six-month period immediately preceding termination of the
                  Optionee's employment with the Company (or following the date
                  of any such violation), upon the Company's demand, the
                  Optionee shall immediately deliver to it a certificate or
                  certificates for shares of the Company's Common Stock with a
                  Fair Market Value (determined on the date of such demand)
                  equal to the gain realized by the Optionee upon such exercise.

      (c)   The foregoing remedies set forth in Section 17(b) shall not be the
            Company's exclusive remedies. The Company reserves all other rights
            and remedies available to it at law or in equity.

      (d)   The Company may exercise its right to demand forfeiture within
            ninety days after discovery of such an occurrence but in no event
            later than fifteen months after the Optionee's termination of
            employment with the Company.

      (e)   For purposes of this Section 17, the following terms shall have the
            meanings set forth below:

      "Competitive Business" shall mean any person, corporation, not-for-profit
      organization, or other entity that provides, develops, sells, or markets
      on-line credit-granting educational products or services in any country in
      which the Company did business or had customers at any time during the
      last 12 months of the Optionee's employment with the Company. In the case
      of an organization that provides, develops, sells, or markets on-line
      credit-granting educational products or services within or from a
      distinct, separate division or unit of the organization (the "On-Line
      Unit") and also provides, develops, sells, or markets credit-granting
      educational products or services through other means within other
      distinct, separate divisions or units, the term "Competitive Business"
      shall be limited to the On-Line Unit, and shall not apply to the
      organization as a whole.

      "Confidential Information" means information proprietary to the Company
      and not generally known (including trade secret information) about the
      Company's customers, products, services, personnel, pricing, sales
      strategy, technology, methods, processes, research, development, finances,
      systems, techniques, accounting, purchasing, and business strategies. All
      information disclosed to the Optionee or to which the Optionee obtains
      access, whether originated by the Optionee or by others, during the period
      of the Optionee's employment, shall be presumed to be Confidential
      Information if it is treated by the Company as being Confidential
      Information or if the Optionee has a reasonable basis to believe it to be
      Confidential Information.

18.   OPTION SUBJECT TO PLAN, ARTICLES OF INCORPORATION AND BY-LAWS. The
      Optionee acknowledges that this Option and the exercise thereof is subject
      to the Plan, the Articles of Incorporation, as amended from time to time,
      and the By-Laws, as amended from time to time, of the Company, and any
      applicable federal or state laws, rules or regulations.

                                       10
<PAGE>

19.   OBLIGATION TO RESERVE SUFFICIENT SHARES. The Company shall at all times
      during the term of this Option reserve and keep available a sufficient
      number of Shares to satisfy this Agreement.

20.   BINDING EFFECT. This Agreement shall be binding in all respects on the
      heirs, representatives, successors and assigns of the Optionee.

21.   CHOICE OF LAW. This Agreement is entered into under the laws of the State
      of Minnesota and shall be construed and interpreted thereunder (without
      regard to its conflict of law principles).

                                       11
<PAGE>

      IN WITNESS WHEREOF, the Optionee and the Company have executed this
Agreement as of the ____day of _______, 200__.

                                  OPTIONEE

                                  _________________________________________

                                  CAPELLA EDUCATION COMPANY

                                  By ______________________________________
                                  Its _____________________________________

                                       12
<PAGE>

                            __________________, 20___

CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402

Attention:  Secretary

Ladies and Gentlemen:

      I hereby exercise the following option (the "Option") granted to me under
the Capella Education Company 2005 Stock Incentive Plan (the "Plan") with
respect to the number of shares of Common Stock ("Shares") of Capella Education
Company (the "Company"), indicated below:

          NAME:                               ____________________________

          DATE OF GRANT OF OPTION:            ____________________________

          EXERCISE PRICE PER SHARE:           ____________________________

          NUMBER OF SHARES WITH RESPECT TO
          WHICH THE OPTION IS HEREBY
          EXERCISED:                          ____________________________

          TOTAL EXERCISE PRICE:               ____________________________

      [ ] Enclosed with this letter is a check, bank draft or money order in
          the amount of the Total Exercise Price.

      [ ] I hereby agree to pay the Total Exercise Price by cancellation of
          a debt owed to me by the Company.

      [ ] I hereby agree to pay the Total Exercise Price within five
          business days of the date hereof and, as stated in the attached
          Broker's Letter, I have delivered irrevocable instructions to
          __________________________________________________ to promptly
          deliver to the Company the amount of sale or loan proceeds from the
          Shares to be issued pursuant to this exercise necessary to satisfy
          my obligation hereunder to pay the Total Exercise Price.

      [ ] Enclosed with this letter is a certificate evidencing unencumbered
          Shares (duly endorsed in blank) having an aggregate Fair Market
          Value (as defined in the Plan) equal to or in excess of the Total
          Exercise Price.

      [ ] I elect to pay the Total Exercise Price through a reduction in the
          number of Shares delivered to me upon this exercise of the Option as
          provided in Section 6(d) of the Option.

<PAGE>

      If I am enclosing Shares with this letter, I hereby represent and warrant
that I am the owner of such Shares free and clear of all liens, security
interests and other restrictions or encumbrances. I agree that I will pay any
required withholding taxes in connection with this exercise as provided in
Section 14 of the Plan.

      I have read and signed the Purchase Agreement attached to this notice as
Exhibit A and I am enclosing a signed copy of the Purchase Agreement.

      Please issue a certificate (the "Certificate") for the number of Shares
with respect to which the Option is being exercised in the name of the person
indicated below and deliver the Certificate to the address indicated below:

          NAME IN WHICH TO ISSUE CERTIFICATE: __________________________________

          ADDRESS TO WHICH CERTIFICATE        __________________________________
          SHOULD BE DELIVERED:                __________________________________
                                              __________________________________
                                              __________________________________
                                              __________________________________

          PRINCIPAL MAILING ADDRESS FOR       __________________________________
          HOLDER OF THE CERTIFICATE (IF       __________________________________
          DIFFERENT FROM ABOVE):              __________________________________
                                              __________________________________
                                              __________________________________

                                Very truly yours,

_________________________________
          Signature

_________________________________
      Name, please print

_________________________________
    Social Security Number

<PAGE>

                            __________________, 20___

CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402

Attention:  Secretary

Ladies and Gentlemen:

          NAME OF OPTIONEE:                    _________________________________

          DATE OF GRANT OF OPTION:             _________________________________

          EXERCISE PRICE PER SHARE:            _________________________________

          NUMBER OF SHARES WITH RESPECT TO
          WHICH THE OPTION IS TO BE EXERCISED: _________________________________

          TOTAL EXERCISE PRICE:                _________________________________

      The above Optionee has requested that we finance the exercise of the above
Option to purchase Shares of common stock of Capella Education Company (the
"Company") and has given us irrevocable instructions to promptly deliver to the
Company the amount of sale or loan proceeds from the Shares to be issued
pursuant to such exercise to satisfy the Optionee's obligation to pay the Total
Exercise Price.

                                           Very truly yours,

                                           ____________________________________
                                           Broker Name

                                           ____________________________________
                                           By

<PAGE>

                          EXHIBIT A TO EXERCISE NOTICE

                            CAPELLA EDUCATION COMPANY

                            2005 STOCK INCENTIVE PLAN

                               PURCHASE AGREEMENT

      This Agreement ("Agreement") is made as of ____________, 20__, by and
between Capella Education Company, a Minnesota corporation (the "Company"), and
__________________________ ("Purchaser"). To the extent any capitalized terms
used in this Agreement are not defined, they shall have the meaning ascribed to
them in the Company's 2005 Stock Incentive Plan (the "Plan").

      1. DEFINITIONS. The term "Shares" shall mean the __________ shares of the
Common Stock of the Company the Purchaser purchased pursuant to an option
granted to the Purchaser under and pursuant to the Plan and the Stock Option
Agreement dated __________, 20__ (the "Option Agreement"). The term "Shares"
shall include the purchased Shares and all securities received in replacement of
the Shares or as stock dividends or splits, all securities received in
replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.

      2. REPURCHASE RIGHT. The Company shall have the right to purchase all
Shares from the Purchaser or any transferee of the Purchaser (or the Purchaser's
legal representative or beneficiaries if the Purchaser is deceased or
incapacitated) (collectively sometimes referred to herein as the "Holder") at
any time at least six (6) months but no more than nine (9) months after the
original issuance of the Shares (the "Repurchase Period") and on the terms and
conditions set forth in this Section 2 (the "Repurchase Right").

                  (i) EXERCISE OF REPURCHASE OPTION. The Company and/or its
assignee(s) may, by giving written notice to the Holder (the "Repurchase
Notice") at any time during the Repurchase Period, elect to purchase all, but
not less than all, of the Shares at the purchase price determined in accordance
with subsection (ii) below.

                  (ii) REPURCHASE PRICE. The purchase price (the "Repurchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 2 shall be the Fair Market Value (as defined in the Plan) of such
Shares.

                  (iii) PAYMENT AND DELIVERY OF SHARES. Payment of the
Repurchase Price shall be made, at the option of the Company or its assignee(s),
in cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or, in the case of repurchase by an
assignee, to the assignee), or by any combination thereof during of the
Repurchase Period. Coincident with the payment of the Repurchase Price, the
Holder shall deliver to the Company the certificates representing the Shares
purchased, duly endorsed in blank, and appropriate entries in the records of the
Company shall be made to effect

                                      A-1
<PAGE>

the transfer of the Shares to the Company free and clear of any restrictions on
transfer, voting agreements, liens, encumbrances or other defects of title.

                  (iv) TERMINATION OF RIGHTS. The Repurchase Option shall
terminate upon the earlier to occur of (i) the date nine (9) months after the
original issuance of the Shares and (ii) an IPO (as defined below). The term
"IPO" shall mean the first underwritten sale of Common Stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act").

      3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not sell,
transfer (including, without limitation, a transfer by gift), exchange, assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws and after such time as the
Repurchase Option has expired.

            (a) RIGHT OF FIRST REFUSAL. Before any Shares held by Holder may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section 3(a) (the
"Right of First Refusal").

                  (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Refusal Right Notice")
stating: (i) the Holder's bona fide intention to sell or otherwise transfer such
Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the terms and conditions of each proposed sale or transfer.
The Holder shall offer the Shares at the same price (the "Offered Price") and
upon the same terms (or terms as similar as reasonably possible) to the Company
or its assignee(s). The Company may, prior to the purchase of any Shares
hereunder, require evidence of a bona fide offer to purchase such Shares and, in
the case of a disposition for consideration, evidence that the Proposed
Transferee has offered such consideration for the Shares.

                  (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30
days after receipt of the Refusal Right Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.

                  (iii) REFUSAL RIGHT PURCHASE PRICE. The purchase price
("Refusal Right Purchase Price") for the Shares purchased by the Company or its
assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company, or a duly authorized committee of the Board of Directors, in good
faith.

                  (iv) PAYMENT AND DELIVERY OF SHARES. Payment of the Refusal
Right Purchase Price shall be made, at the option of the Company or its
assignee(s), in cash (by check),

                                      A-2
<PAGE>

by cancellation of all or a portion of any outstanding indebtedness of the
Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within 30 days after receipt of the
Refusal Right Notice or in the manner and at the times set forth in the Refusal
Right Notice. Coincident with the payment of the Refusal Right Purchase Price,
the Holder shall deliver to the Company the certificates representing the Shares
purchased, duly endorsed in blank, and appropriate entries in the records of the
Company shall be made to effect the transfer of the Shares to the Company free
and clear of any restrictions on transfer, voting agreements, liens,
encumbrances or other defects of title.

                  (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Refusal Right Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Refusal Right Notice and provided further that any such sale or other transfer
is effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Refusal Right Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new
Refusal Right Notice shall be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.

                  (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.

            (b) INVOLUNTARY TRANSFER.

                  (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the purchase price determined in accordance with subsection (ii)
below. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of 30 days following
receipt by the Company of written notice by the person acquiring the Shares.

                                      A-3
<PAGE>

                  (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock
to be transferred pursuant to Section 3(b)(i), the price per Share shall be the
Fair Market Value of the Shares. The Company shall notify Purchaser or his or
her executor of the price so determined within 30 days after receipt by it of
written notice of the transfer or proposed transfer of Shares. Coincident with
the payment of the said purchase price, the Holder shall deliver to the Company
the certificates representing the Shares purchased, duly endorsed in blank, and
appropriate entries in the records of the Company shall be made to effect the
transfer of the Shares to the Company free and clear of any restrictions on
transfer, voting agreements, liens, encumbrances or other defects of title.

            (c) ASSIGNMENT. The right of the Company to purchase any part of the
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and Fair Market Value, if
the original purchase price is less than the Fair Market Value of the Shares
subject to the assignment.

            (d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.

            (e) TERMINATION OF RIGHTS. The Right of First Refusal and the
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon an IPO.

            (f) MARKET STANDOFF AGREEMENT. In connection with an initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 270 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.

      4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:

            (a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.

                                      A-4
<PAGE>

            (b) Purchaser understands that the Shares have not been registered
under the Securities Act and applicable state laws by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Purchaser's investment intent as expressed herein.

            (c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.

            (d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.

      5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

            (a) LEGENDS. The certificate or certificates representing the Shares
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):

                  (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.

                  (ii) THE ISSUER OF THESE SECURITIES WILL FURNISH TO ANY
SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF
EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN
DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE
RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.

                  (iii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A PURCHASE

                                      A-5
<PAGE>

AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.

            (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

            (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.

            (d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(iii): (i) the termination of the Repurchase
Option; (ii) the termination of the Right of First Refusal; and (ii) the
expiration or termination of the market standoff provisions of Section 3(f) (and
of any agreement entered pursuant to Section 3(f)). After such time, and upon
Purchaser's request, a new certificate or certificates representing the Shares
not repurchased shall be issued without the legend referred to in Section
5(a)(iii), and delivered to Purchaser.

      6. NO EMPLOYMENT RIGHTS. This Agreement shall not give the Purchaser a
right to continued employment with the Company or any parent or subsidiary of
the Company, and the Company or any such parent or subsidiary employing the
Purchaser may terminate his/her employment at any time and otherwise deal with
the Purchaser without regard to the effect it may have upon him/her under this
Agreement.

      7. MISCELLANEOUS.

            (a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Minnesota, without giving effect to principles of conflicts of law.

            (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.

            (c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of

                                      A-6
<PAGE>

the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.

            (d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.

            (e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

            (f) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.

            (g) RIGHTS CUMULATIVE. The purchase rights of the Company pursuant
to Sections 2 and 3 shall be in addition to and not in lieu of any other
purchase rights that the Company or any other holders of capital stock of the
Company may at any time have under any other contract, by operation of law, or
otherwise.

                                      A-7
<PAGE>

      The parties have executed this Purchase Agreement as of the date first set
forth above.

                                      COMPANY:

                                      CAPELLA EDUCATION COMPANY

                                      By:

                                      Name:

                                      Title:

                                      Address:
                                      225 South 6th Street, 9th Floor
                                      Minneapolis, Minnesota 55402

                                      PURCHASER:

                                      _____________________________________
                                      (Signature)

                                      _____________________________________
                                      (Print Name)

                                      Address:
                                      _____________________________________
                                      _____________________________________

      I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.

                                          _____________________________________
                                          Spouse of

                                      A-8

<PAGE>

                            CAPELLA EDUCATION COMPANY
                            2005 STOCK INCENTIVE PLAN

                      NON-STATUTORY STOCK OPTION AGREEMENT
                                   (EMPLOYEE)

This is a Non-Statutory Stock Option Agreement ("Agreement") between Capella
Education Company, a Minnesota corporation (the "Company"), and the optionee
identified above (the "Optionee") effective as of the date of grant specified
above. To the extent any capitalized terms used in this Agreement are not
defined, they shall have the meaning ascribed to them in the Company's 2005
Stock Incentive Plan (the "Plan").

                                    RECITALS

      WHEREAS, the Company maintains the Capella Education Company 2005 Stock
Incentive Plan (the "Plan"); and

      WHEREAS, pursuant to the Plan, the Board of Directors of the Company (the
"Board") or a committee of two or more directors of the Company (the
"Committee") designated by the Board administers the Plan and has the authority
to determine the awards to be granted under the Plan (if the Board has not
appointed a committee to administer the Plan, then the Board shall constitute
the Committee); and

      WHEREAS, the Committee has determined that the Optionee is eligible to
receive an award under the Plan in the form of an incentive stock option (the
"Option");

      NOW, THEREFORE, the Company hereby grants this Option to the Optionee
under the terms and conditions as follows.

<PAGE>

                             TERMS AND CONDITIONS*

1.    GRANT. The Optionee is granted this Option to purchase the number of
      Shares specified at the beginning of this Agreement.

2.    EXERCISE PRICE. The price to the Optionee of each Share subject to this
      Option shall be the exercise price specified at the beginning of this
      Agreement (which price shall not be less than the Fair Market Value (as
      defined in Section 2(o) of the Plan) as of the date of grant.

3.    NON-STATUTORY STOCK OPTION. This Option is not intended to be an
      "incentive stock option" within the meaning of Section 422 of the Internal
      Revenue Code of 1986, as amended (the "Code").

4.    EXERCISE SCHEDULE. This Option shall vest and become exercisable as to the
      number of Shares and on the dates specified in the exercise schedule at
      the beginning of this Agreement. The exercise schedule shall be
      cumulative; thus, to the extent this Option has not already been exercised
      and has not expired, terminated or been cancelled, the Optionee or the
      person otherwise entitled to exercise this Option as provided herein may
      at any time, and from time to time, purchase all or any portion of the
      Shares then purchasable under the exercise schedule.

      This Option may also be exercised in full (notwithstanding the exercise
      schedule) under the circumstances described in Section 8 of this Agreement
      if it has not expired prior thereto.

5.    EXPIRATION. This Option shall expire at 5:00 p.m. Central Time on the
      earliest of:

      (a)   The expiration date specified at the beginning of this Agreement
            (which date shall not be later than ten years after the date of
            grant);

      (b)   The last day of the period following the termination of employment
            of the Optionee during which this Option can be exercised (as
            specified in Section 7 of this Agreement); or

      (c)   The date (if any) fixed for cancellation pursuant to Section 8 of
            this Agreement.

      If termination of the Optionee's employment by the Company shall have been
      for Cause, this Option shall expire immediately upon such termination. In
      no event may anyone exercise this Option, in whole or in part, after it
      has expired, notwithstanding any other provision of this Agreement.

----------
*     Unless the context indicates otherwise, terms that are not defined in this
      Agreement shall have the meaning set forth in the Plan as it currently
      exists or as it is amended in the future.

                                      -2-
<PAGE>

6.    PROCEDURE TO EXERCISE OPTION.

      Notice of Exercise. This Option may be exercised by delivering written
      notice of exercise to the Company at the principal executive office of the
      Company, to the attention of the Company's Secretary, in the form attached
      to this Agreement. The notice shall state the number of Shares to be
      purchased, and shall be signed by the person exercising this Option. If
      the person exercising this Option is not the Optionee, he/she also must
      submit appropriate proof of his/her right to exercise this Option.

      Tender of Payment. Upon giving notice of any exercise hereunder, the
      Optionee shall provide for payment of the purchase price of the Shares
      being purchased through one or a combination of the following methods:

      (a)   Cash;

      (b)   Cancellation of indebtedness;

      (c)   By delivery to the Company of unencumbered Shares having an
            aggregate Fair Market Value on the date of exercise equal to the
            purchase price of the Shares as to which this Option is exercised;

      (d)   To the extent permitted by law, a broker-assisted cashless exercise
            in which the Optionee irrevocably instructs a broker to deliver
            proceeds of a sale of all or a portion of the Shares to be issued
            pursuant to the exercise (or a loan secured by such Shares) to the
            Company in payment of the purchase price of the Shares as to which
            this Option is exercised.

      Notwithstanding the foregoing, the Optionee shall not be permitted to pay
      any portion of the purchase price with Shares if the Committee, in its
      sole discretion, determines that payment in such manner could have adverse
      financial accounting consequences for the Company.

      Execution of Shareholder Agreement. Optionee, or the person exercising
      this option, must execute the Purchase Agreement substantially in the form
      of Exhibit A to the notice of exercise attached to this Agreement.

      Company Right to Repurchase Option. At any time after six (6) months but
      within nine (9) months following the exercise of this Option (the
      "Repurchase Period"), the Company shall have the right ("Repurchase
      Option") to cancel this Option to the extent, and reduce the number of
      Shares that the Optionees may purchase pursuant to this Option in the
      amount, of the number of Shares requested to be purchased in the notice of
      exercise (the "Requested Shares") and pay the Optionee cash in an amount,
      for each Requested Share, equal to the per Share Fair Market Value of the
      Requested Shares (the "Repurchase Option Price"). The Company may exercise
      its Repurchase Option by giving written notice to the Optionee and paying
      the Repurchase Option Price to the Optionee during the Repurchase Period.
      Coincident with the payment of the Repurchase Option Price, the Company
      and the Optionee shall enter into a written amendment to this Option to
      reflect

                                      -3-
<PAGE>

      the appropriate decrease the number of Shares which the Optionee may
      purchase pursuant to this Option. The Repurchase Option shall terminate
      upon the first underwritten sale of Common Stock of the Company to the
      general public pursuant to a registration statement filed with and
      declared effective by the Securities and Exchange Commission under the
      Securities Act of 1933, as amended.

      Delivery of Certificates. Subject to the right of repurchase of this
      Option set forth above, as soon as practicable after the Company receives
      the notice and purchase price and executed Purchase Agreement provided for
      above, it shall deliver to the person exercising this Option, in the name
      of such person, a certificate or certificates representing the Shares
      being purchased (or provide for direct registration book-entry of the
      Shares in the name of the person exercising this Option). The Company
      shall pay any original issue or transfer taxes with respect to the issue
      or transfer of the Shares and all fees and expenses incurred by it in
      connection therewith. All Shares so issued shall be fully paid and
      nonassessable. Notwithstanding anything to the contrary in this Agreement,
      the Company shall not be required to issue or deliver any Shares prior to
      the completion of such registration or other qualification of such Shares
      under any state or federal law, rule or regulation as the Company shall
      determine to be necessary or desirable.

7.    EMPLOYMENT REQUIREMENT. This Option may be exercised only while the
      Optionee remains employed with the Company or a parent or subsidiary
      thereof, and only if the Optionee has been continuously so employed since
      the date of this Agreement; provided that:

      (a)   If the Optionee's employment by the Company terminates because of
            the Optionee's death or if the Optionee dies during the three month
            period described below in Section 7(d), then this Option may be
            exercised, to the extent permissible under Section 8 below, for one
            year following the date of the Optionee's death.

      (b)   If the Optionee's employment by the Company terminates because of
            the Optionee's Disability (as defined in the Plan), then this Option
            may be exercised, to the extent permissible under Section 8 below,
            for one year following the date of the Optionee's Disability.

      (c)   If the Optionee's employment by the Company terminates because of
            the Optionee's Retirement (as defined in the Plan), then this Option
            may be exercised for one year following the date of the Optionee's
            Retirement, but only to the extent that it was exercisable
            immediately prior to termination of employment.

      (d)   If the Optionee's employment by the Company terminates for a reason
            other than death, Disability or Retirement, then this Option may be
            exercised for three months following the date of the Optionee's
            termination of employment, but only to the extent that it was
            exercisable immediately prior to termination of employment;
            provided, however, that if termination of the Optionee's

                                      -4-
<PAGE>

            employment shall have been for Cause, this Option shall expire, and
            all rights to purchase Shares hereunder shall terminate, immediately
            upon such termination.

      Notwithstanding the above, this Option may not be exercised after it has
expired.

8.    ACCELERATION OF OPTION.

      Death or Disability. This Option may be exercised in full, regardless of
      whether such exercise occurs prior to a date on which this Option would
      otherwise vest, upon the death or Disability of the Optionee; provided
      that the Optionee shall have been continuously employed by the Company or
      a parent or subsidiary thereof between the date of this Agreement and the
      date of such death or Disability. The Option may also be exercised in full
      upon the death of the Optionee during the three month period described in
      Section 7(d) above.

      Change in Control. If a Change in Control (as defined in Section 9 of this
      Agreement) of the Company shall occur and within three years of such
      Change in Control, (i) Optionee's employment with the Company shall be
      terminated other than for Cause (as defined in the Plan), or (ii) Optionee
      shall voluntarily leave employment with the Company for Good Reason (as
      defined below), then, upon the date of such termination or voluntary
      leaving of employment for Good Reason, the options subject to this
      Agreement, if not already exercised in full or otherwise terminated,
      expired or cancelled, shall become immediately exercisable in full and may
      be exercised within 30 days after such termination or voluntary leaving
      (subject to any applicable shorter time period for exercise set forth in
      this Section 8). For purposes of this Agreement, "Good Reason" is defined
      as the demotion or reduction of the job responsibilities of Optionee or
      the reassignment, without Optionee's consent, of Optionee's place of work
      to a location more than 50 miles from the Optionee's place of work
      immediately prior to the Change in Control.

      Merger or Sale. In the event of a merger of the Company with or into
      another corporation or limited liability company or the sale of
      substantially all of the assets of the Company, and the successor entity,
      or a parent or subsidiary of the successor entity, refuses to assume this
      Option or to substitute an equivalent option, then this Option shall
      become exercisable in full immediately. The Committee shall notify
      Optionee in writing or electronically that the Option shall be fully
      vested and exercisable for a period of 15 days from the date of such
      notice and that the Option shall terminate upon the expiration of such
      period.

      Dissolution or Liquidation. In the event of the proposed dissolution or
      liquidation of the Company, the Committee shall notify Optionee as soon as
      practicable prior to the effective date of such proposed transaction. The
      Committee in its discretion may provide for Optionee to have the right to
      exercise his or her Option until ten (10) days prior to such transaction
      as to all of the Shares covered thereby, including Shares as to which the
      Option would not otherwise be exercisable. In addition, the Committee may,
      but shall not be obligated to, provide that any Company repurchase option
      applicable to the Shares shall lapse as to all such Shares, provided that
      the proposed dissolution or liquidation

                                      -5-
<PAGE>

      takes place at the time and in the manner contemplated. To the extent it
      has not been previously exercised, an Option will terminate immediately
      prior to the consummation of such proposed action.

      Discretionary Acceleration. The Committee has the power, in its sole
      discretion, to declare at any time that this Option shall be immediately
      exercisable.

9.    CHANGE IN CONTROL.

      (a)   Definition. For purposes of this Plan, a "Change in Control" of the
            Company shall be deemed to occur if any of the following occur:

            (1)   Any "person" (as such term is used in Sections 13(d) and 14(d)
                  of the Exchange Act) acquires or becomes a "beneficial owner"
                  (as defined in Rule 13d-3 or any successor rule under the
                  Exchange Act), directly or indirectly, of securities of the
                  Company representing the following: (i) 50% or more of the
                  combined voting power of the Company's then outstanding
                  securities entitled to vote generally in the election of
                  directors ("Voting Securities") at any time prior to the
                  Company selling any of its shares in a public offering
                  pursuant to a registration statement filed under the
                  Securities Act of 1933, as amended (the "Securities Act"), or
                  (ii) 35% or more of the combined voting power of the Company's
                  then outstanding Voting Securities at any time after the
                  Company sells any of its shares in a public offering pursuant
                  to a registration statement filed under the Securities Act.
                  Provided, however, that the following shall not constitute a
                  Change in Control pursuant to this Section 9(a)(1):

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

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

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

            (2)   A majority of the members of the Board of Directors of the
                  Company shall not be Continuing Directors. "Continuing
                  Directors" shall mean:

                                      -6-
<PAGE>

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

            (3)   Consummation by the Company of a reorganization, merger or
                  consolidation of the Company or a statutory exchange of
                  outstanding Voting Securities of the Company, unless,
                  immediately following such reorganization, merger,
                  consolidation or exchange, all or substantially all of the
                  persons who were the beneficial owners, respectively, of
                  Voting Securities and Shares of the Company immediately prior
                  to such reorganization, merger, consolidation or exchange
                  beneficially own, directly or indirectly, more than 50%
                  (subject to the modification in subsection (b) below) of,
                  respectively, the combined voting power of the then
                  outstanding voting securities entitled to vote generally in
                  the election of directors and the then outstanding shares of
                  common stock, as the case may be, of the corporation resulting
                  from such reorganization, merger, consolidation or exchange in
                  substantially the same proportions as their ownership,
                  immediately prior to such reorganization, merger,
                  consolidation or exchange, of the Voting Securities and Shares
                  of the Company, as the case may be;

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

            (5)   Approval by the shareholders of the Company of a complete
                  liquidation or dissolution of the Company.

      (b)   After a Public Offering. At all times after the Company sells any of
            its shares in a public offering pursuant to a registration statement
            filed under the Securities Act,

                                      -7-
<PAGE>

            the references to 50% in subsections (a)(1)(C), (a)(3) and (a)(4) of
            this Section 9 shall be changed to 65%.

10.   TRANSFERABILITY. While the Optionee is alive, only the Optionee, his/her
      legal representative or a transferee who receives this Option in a
      permitted transfer (as described below in this Section 10) may exercise
      this Option. This Option may not be assigned or transferred other than to
      a Successor in the event of the Optionee's death or pursuant to a
      qualified domestic relations order as defined by the Code or Title I of
      the Employee Retirement Income Security Act, or the rules thereunder;
      provided, however, that the Optionee may transfer this 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 the Optionee does not receive any consideration for the
      transfer. This Option shall continue to be subject to the same terms and
      conditions that were applicable to this Option immediately prior to its
      transfer and may be exercised by such transferee as and to the extent that
      this Option has become exercisable and has not terminated in accordance
      with the provisions of the Plan and this Agreement. For purposes of any
      provision of the Plan or this Agreement relating to notice to the Optionee
      or to vesting or termination of this Option upon the death, disability or
      termination of employment of the Optionee, the references to "optionee"
      shall mean the original grantee of this Option and not any transferee.

11.   ASSIGNMENT OF THE COMPANY'S OBLIGATIONS. In the event of a merger of the
      Company with or into another corporation or limited liability company, or
      the sale of substantially all of the assets of the Company, then the
      successor entity, or a parent or subsidiary of the successor entity, may
      assume this Option or substitute an equivalent option.

12.   NO SHAREHOLDER RIGHTS BEFORE EXERCISE. No person shall have any of the
      rights of a shareholder of the Company with respect to any Share subject
      to this Option until the Share actually is issued to him/her upon exercise
      of this Option.

13.   DISCRETIONARY ADJUSTMENT. In the event of a Fundamental Change,
      recapitalization, reclassification, stock dividend, stock split, stock
      combination or other relevant change, the Committee (or if the Company
      does not survive any such transaction, a comparable committee of the board
      of directors of the surviving corporation) may in its sole discretion make
      such adjustment as it determines to be appropriate as to the number and
      kind of securities subject to and reserved under the Plan and, in order to
      prevent dilution or enlargement of rights of the Optionee, the number and
      kind of securities issuable upon exercise of this Option and the exercise
      price hereof.

14.   TAX WITHHOLDING. Delivery of Shares upon exercise of this Option shall be
      subject to any required withholding taxes. As a condition precedent to
      receiving Shares upon exercise of this Option, the Optionee may be
      required to pay to the Company, in accordance with the provisions of
      Section 14 of the Plan, an amount equal to the amount of any required
      withholdings.

                                      -8-
<PAGE>

15.   INTERPRETATION OF THIS AGREEMENT. All decisions and interpretations made
      by the Committee with regard to any question arising hereunder or under
      the Plan shall be binding and conclusive upon the Company and the
      Optionee. If there is any inconsistency between the provisions of this
      Agreement and the Plan, the provisions of the Plan shall govern.

16.   DISCONTINUANCE OF EMPLOYMENT. This Agreement shall not give the Optionee a
      right to continued employment with the Company or any parent or subsidiary
      of the Company, and the Company or any such parent or subsidiary employing
      the Optionee may terminate his/her employment at any time and otherwise
      deal with the Optionee without regard to the effect it may have upon
      him/her under this Agreement.

17.   Forfeiture Events.

      (a)   The Optionee, by accepting this Option, agrees and covenants that
            during the period during which the Optionee is employed by the
            Company and twelve months following the date of termination of the
            Optionee's employment by the Company (the "Restricted Period") for
            any reason whatsoever, the Optionee will not, directly or
            indirectly:

            (1)   perform services for any Competitive Business as employee,
                  consultant, contractor or otherwise;

            (2)   solicit or attempt to solicit any employee or independent
                  contractor of the Company to cease working for the Company;

            (3)   use or disclose to any person any Confidential Information for
                  any purpose;

            (4)   take any action that might divert any opportunity from the
                  Company or any of its affiliates, successors or assigns (the
                  "Related Parties") that is within the scope of the present or
                  future operations or business of any Related Parties;

            (5)   contact, call upon or solicit any customer of the Company, or
                  attempt to divert or take away from the Company the business
                  of any of its customers;

            (6)   contact, call upon or solicit any prospective customer of the
                  Company that the Optionee became aware of or were introduced
                  to in the course of the Optionee's duties for the Company, or
                  otherwise divert or take away from the Company the business of
                  any prospective customer of the Company; or

            (7)   engage in any activity that is harmful to the interests of the
                  Company, including, without limitation, any conduct during the
                  term of the

                                      -9-
<PAGE>

                  Optionee's employment that violates the Company's codes of
                  conduct or other policies.

      (b)   If the Company determines that the Optionee violated any provisions
            of Section 17(a) above during the Restricted Period, the Optionee
            agrees and covenants that:

            (1)   any portion of the Option (whether or not vested) that has not
                  been exercised as of the date of such determination shall be
                  immediately forfeited;

            (2)   the Optionee shall automatically forfeit any rights the
                  Optionee may have with respect to the Option as of the date of
                  such determination; and

            (3)   if the Optionee exercised all or any part of the Option within
                  the six-month period immediately preceding termination of the
                  Optionee's employment with the Company (or following the date
                  of any such violation), upon the Company's demand, the
                  Optionee shall immediately deliver to it a certificate or
                  certificates for shares of the Company's Common Stock with a
                  Fair Market Value (determined on the date of such demand)
                  equal to the gain realized by the Optionee upon such exercise.

      (c)   The foregoing remedies set forth in Section 17(b) shall not be the
            Company's exclusive remedies. The Company reserves all other rights
            and remedies available to it at law or in equity.

      (d)   The Company may exercise its right to demand forfeiture within
            ninety days after discovery of such an occurrence but in no event
            later than fifteen months after the Optionee's termination of
            employment with the Company.

      (e)   For purposes of this Section 17, the following terms shall have the
            meanings set forth below:

            "Competitive Business" shall mean any person, corporation,
            not-for-profit organization, or other entity that provides,
            develops, sells, or markets on-line credit-granting educational
            products or services in any country in which the Company did
            business or had customers at any time during the last 12 months of
            the Optionee's employment with the Company. In the case of an
            organization that provides, develops, sells, or markets on-line
            credit-granting educational products or services within or from a
            distinct, separate division or unit of the organization (the
            "On-Line Unit") and also provides, develops, sells, or markets
            credit-granting educational products or services through other means
            within other distinct, separate divisions or units, the term
            "Competitive Business" shall be limited to the On-Line Unit, and
            shall not apply to the organization as a whole.

            "Confidential Information" means information proprietary to the
            Company and not generally known (including trade secret information)
            about the Company's customers, products, services, personnel,
            pricing, sales strategy, technology,

                                      -10-
<PAGE>

            methods, processes, research, development, finances, systems,
            techniques, accounting, purchasing, and business strategies. All
            information disclosed to the Optionee or to which the Optionee
            obtains access, whether originated by the Optionee or by others,
            during the period of the Optionee's employment, shall be presumed to
            be Confidential Information if it is treated by the Company as being
            Confidential Information or if the Optionee has a reasonable basis
            to believe it to be Confidential Information.

18.   OPTION SUBJECT TO PLAN, ARTICLES OF INCORPORATION AND BY-LAWS. The
      Optionee acknowledges that this Option and the exercise thereof is subject
      to the Plan, the Articles of Incorporation, as amended from time to time,
      and the By-Laws, as amended from time to time, of the Company, and any
      applicable federal or state laws, rules or regulations.

19.   OBLIGATION TO RESERVE SUFFICIENT SHARES. The Company shall at all times
      during the term of this Option reserve and keep available a sufficient
      number of Shares to satisfy this Agreement.

20.   BINDING EFFECT. This Agreement shall be binding in all respects on the
      heirs, representatives, successors and assigns of the Optionee.

21.   CHOICE OF LAW. This Agreement is entered into under the laws of the State
      of Minnesota and shall be construed and interpreted thereunder (without
      regard to its conflict of law principles).

                                      -11-
<PAGE>

      IN WITNESS WHEREOF, the Optionee and the Company have executed this
Agreement as of the ___ day of _______, 20__.

                                        OPTIONEE

                                        ________________________________________

                                        CAPELLA EDUCATION COMPANY

                                        By _____________________________________
                                        Its ____________________________________

<PAGE>

                            __________________, 20___

CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402

Attention:  Secretary

Ladies and Gentlemen:

      I hereby exercise the following option (the "Option") granted to me under
the Capella Education Company 2005 Stock Incentive Plan (the "Plan") with
respect to the number of shares of Common Stock ("Shares") of Capella Education
Company (the "Company"), indicated below:

          NAME:                            __________________________________

          DATE OF GRANT OF OPTION:         __________________________________

          EXERCISE PRICE PER SHARE:        __________________________________

          NUMBER OF SHARES WITH RESPECT TO
          WHICH THE OPTION IS HEREBY
          EXERCISED:                       __________________________________

          TOTAL EXERCISE PRICE:            __________________________________

      [ ] Enclosed with this letter is a check, bank draft or money order in
          the amount of the Total Exercise Price.

      [ ] I hereby agree to pay the Total Exercise Price by cancellation of
          a debt owed to me by the Company.

      [ ] I hereby agree to pay the Total Exercise Price within five business
          days of the date hereof and, as stated in the attached Broker's
          Letter, I have delivered irrevocable instructions to
          _________________________________________ to promptly deliver to the
          Company the amount of sale or loan proceeds from the Shares to be
          issued pursuant to this exercise necessary to satisfy my obligation
          hereunder to pay the Total Exercise Price.

      [ ] Enclosed with this letter is a certificate evidencing unencumbered
          Shares (duly endorsed in blank) having an aggregate Fair Market
          Value (as defined in the Plan) equal to or in excess of the Total
          Exercise Price.

<PAGE>

      [ ] I elect to pay the Total Exercise Price through a reduction in the
          number of Shares delivered to me upon this exercise of the Option as
          provided in Section 6(d) of the Option.

      If I am enclosing Shares with this letter, I hereby represent and warrant
that I am the owner of such Shares free and clear of all liens, security
interests and other restrictions or encumbrances. I agree that I will pay any
required withholding taxes in connection with this exercise as provided in
Section 14 of the Plan.

      I have read and signed the Purchase Agreement attached to this notice as
Exhibit A and I am enclosing a signed copy of the Purchase Agreement.

      Please issue a certificate (the "Certificate") for the number of Shares
with respect to which the Option is being exercised in the name of the person
indicated below and deliver the Certificate to the address indicated below:

          NAME IN WHICH TO ISSUE CERTIFICATE: _________________________________

          ADDRESS TO WHICH CERTIFICATE        _________________________________
          SHOULD BE DELIVERED:                _________________________________
                                              _________________________________
                                              _________________________________
                                              _________________________________

          PRINCIPAL MAILING ADDRESS FOR       _________________________________
          HOLDER OF THE CERTIFICATE (IF       _________________________________
          DIFFERENT FROM ABOVE):              _________________________________
                                              _________________________________
                                              _________________________________

                                 Very truly yours,

                                 _______________________________
                                 Signature

                                 _______________________________
                                 Name, please print

                                 _______________________________
                                 Social Security Number

<PAGE>

                            __________________, 20___

CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402

Attention:  Secretary

Ladies and Gentlemen:

          NAME OF OPTIONEE:                    _________________________________

          DATE OF GRANT OF OPTION:             _________________________________

          EXERCISE PRICE PER SHARE:            _________________________________

          NUMBER OF SHARES WITH RESPECT TO
          WHICH THE OPTION IS TO BE EXERCISED: _________________________________

          TOTAL EXERCISE PRICE:                _________________________________

      The above Optionee has requested that we finance the exercise of the above
Option to purchase Shares of common stock of Capella Education Company (the
"Company") and has given us irrevocable instructions to promptly deliver to the
Company the amount of sale or loan proceeds from the Shares to be issued
pursuant to such exercise to satisfy the Optionee's obligation to pay the Total
Exercise Price.

                                        Very truly yours,

                                        _______________________________
                                        Broker Name

                                        By ____________________________

<PAGE>

                          EXHIBIT A TO EXERCISE NOTICE

                            CAPELLA EDUCATION COMPANY

                            2005 STOCK INCENTIVE PLAN

                               PURCHASE AGREEMENT

      This Agreement ("Agreement") is made as of ____________, 20__, by and
between Capella Education Company, a Minnesota corporation (the "Company"), and
___________________________ ("Purchaser"). To the extent any capitalized terms
used in this Agreement are not defined, they shall have the meaning ascribed to
them in the Company's 2005 Stock Incentive Plan (the "Plan").

      1. DEFINITIONS. The term "Shares" shall mean the __________ shares of the
Common Stock of the Company the Purchaser purchased pursuant to an option
granted to the Purchaser under and pursuant to the Plan and the Stock Option
Agreement dated __________, 20__ (the "Option Agreement"). The term "Shares"
shall include the purchased Shares and all securities received in replacement of
the Shares or as stock dividends or splits, all securities received in
replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.

      2. REPURCHASE OPTION. The Company shall have the right to purchase all
Shares from the Purchaser or any transferee of the Purchaser (or the Purchaser's
legal representative or beneficiaries if the Purchaser is deceased or
incapacitated) (collectively sometimes referred to herein as the "Holder") at
any time at least six (6) months but no more than nine (9) months after the
original issuance of the Shares and on the terms and conditions set forth in
this Section 2 (the "Repurchase Option").

                  (i) EXERCISE OF REPURCHASE OPTION. The Company and/or its
assignee(s) may, by giving written notice to the Holder (the "Repurchase
Notice") at any time during the Repurchase Period, elect to purchase all, but
not less than all, of the Shares at the purchase price determined in accordance
with subsection (ii) below.

                  (ii) REPURCHASE PRICE. The purchase price (the "Repurchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 2 shall be the Fair Market Value (as defined in the Plan) of such
Shares.

                  (iii) PAYMENT AND DELIVERY OF SHARES. Payment of the
Repurchase Price shall be made, at the option of the Company or its assignee(s),
in cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or, in the case of repurchase by an
assignee, to the assignee), or by any combination thereof during the Repurchase
Period. Coincident with the payment of the Repurchase Price, the Holder shall
deliver to the Company the certificates representing the Shares purchased, duly
endorsed in

                                      A-1
<PAGE>

blank, and appropriate entries in the records of the Company shall be made to
effect the transfer of the Shares to the Company free and clear of any
restrictions on transfer, voting agreements, liens, encumbrances or other
defects of title.

                  (iv) TERMINATION OF RIGHTS. The Repurchase Right shall
terminate upon the earlier to occur of (i) the date nine (9) months after the
original issuance of the shares or (ii) an IPO (as defined below). The term
"IPO" shall mean the first underwritten sale of Common Stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act").

      3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not sell,
transfer (including, without limitation, a transfer by gift), exchange, assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws and after such time as the
Repurchase Option has expired.

            (a) RIGHT OF FIRST REFUSAL. Before any Shares held by Holder may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section 3(a) (the
"Right of First Refusal").

                  (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Refusal Right Notice")
stating: (i) the Holder's bona fide intention to sell or otherwise transfer such
Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the terms and conditions of each proposed sale or transfer.
The Holder shall offer the Shares at the same price (the "Offered Price") and
upon the same terms (or terms as similar as reasonably possible) to the Company
or its assignee(s). The Company may, prior to the purchase of any Shares
hereunder, require evidence of a bona fide offer to purchase such Shares and, in
the case of a disposition for consideration, evidence that the Proposed
Transferee has offered such consideration for the Shares.

                  (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30
days after receipt of the Refusal Right Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.

                  (iii) REFUSAL RIGHT PURCHASE PRICE. The purchase price
("Refusal Right Purchase Price") for the Shares purchased by the Company or its
assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company, or a duly authorized committee of the Board of Directors, in good
faith.

                                      A-2
<PAGE>

                  (iv) PAYMENT AND DELIVERY OF SHARES. Payment of the Refusal
Right Purchase Price shall be made, at the option of the Company or its
assignee(s), in cash (by check), by cancellation of all or a portion of any
outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within 30 days after receipt of the Refusal Right Notice or in the manner and at
the times set forth in the Refusal Right Notice. Coincident with the payment of
the Refusal Right Purchase Price, the Holder shall deliver to the Company the
certificates representing the Shares purchased, duly endorsed in blank, and
appropriate entries in the records of the Company shall be made to effect the
transfer of the Shares to the Company free and clear of any restrictions on
transfer, voting agreements, liens, encumbrances or other defects of title.

                  (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Refusal Right Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Refusal Right Notice and provided further that any such sale or other transfer
is effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Refusal Right Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new
Refusal Right Notice shall be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.

                  (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.

            (b) INVOLUNTARY TRANSFER.

                  (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the purchase price determined in accordance with subsection (ii)
below. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company

                                      A-3
<PAGE>

for a period of 30 days following receipt by the Company of written notice by
the person acquiring the Shares.

                  (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock
to be transferred pursuant to Section 3(b)(i), the price per Share shall be the
Fair Market Value of the Shares. The Company shall notify Purchaser or his or
her executor of the price so determined within 30 days after receipt by it of
written notice of the transfer or proposed transfer of Shares. Coincident with
the payment of the said purchase price, the Holder shall deliver to the Company
the certificates representing the Shares purchased, duly endorsed in blank, and
appropriate entries in the records of the Company shall be made to effect the
transfer of the Shares to the Company free and clear of any restrictions on
transfer, voting agreements, liens, encumbrances or other defects of title.

            (c) ASSIGNMENT. The right of the Company to purchase any part of the
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and Fair Market Value, if
the original purchase price is less than the Fair Market Value of the Shares
subject to the assignment.

            (d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.

            (e) TERMINATION OF RIGHTS. The Right of First Refusal and the
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon an IPO.

            (f) MARKET STANDOFF AGREEMENT. In connection with an initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 270 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.

      4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:

            (a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment

                                      A-4
<PAGE>

for his or her own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the Securities
Act.

            (b) Purchaser understands that the Shares have not been registered
under the Securities Act and applicable state laws by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Purchaser's investment intent as expressed herein.

            (c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.

            (d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.

      5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

            (a) LEGENDS. The certificate or certificates representing the Shares
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):

                  (i)   THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                        REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
                        (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE,
                        AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
                        PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE
                        REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
                        SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY
                        TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
                        REGISTRATION IS NOT REQUIRED.

                  (ii)  THE ISSUER OF THESE SECURITIES WILL FURNISH TO ANY
                        SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL
                        STATEMENT OF THE

                                      A-5
<PAGE>

                        DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE
                        RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED
                        TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND
                        THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE
                        RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR
                        SERIES.

                  (iii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
                        TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A
                        PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE
                        STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
                        SECRETARY OF THE COMPANY.

            (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

            (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.

            (d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(iii): (i) the termination of the Repurchase
Right; (ii) the termination of the Right of First Refusal; and (ii) the
expiration or termination of the market standoff provisions of Section 3(f) (and
of any agreement entered pursuant to Section 3(f)). After such time, and upon
Purchaser's request, a new certificate or certificates representing the Shares
not repurchased shall be issued without the legend referred to in Section
5(a)(iii), and delivered to Purchaser.

      6. NO EMPLOYMENT RIGHTS. This Agreement shall not give the Purchaser a
right to continued employment with the Company or any parent or subsidiary of
the Company, and the Company or any such parent or subsidiary employing the
Purchaser may terminate his/her employment at any time and otherwise deal with
the Purchaser without regard to the effect it may have upon him/her under this
Agreement.

      7. MISCELLANEOUS.

            (a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and

                                      A-6
<PAGE>

interpreted in accordance with the laws of the State of Minnesota, without
giving effect to principles of conflicts of law.

            (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.

            (c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.

            (d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.

            (e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

            (f) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.

            (g) RIGHTS CUMULATIVE. The purchase rights of the Company pursuant
to Sections 2 and 3 shall be in addition to and not in lieu of any other
purchase rights that the Company or any other holders of capital stock of the
Company may at any time have under any other contract, by operation of law, or
otherwise.

                                      A-7
<PAGE>

      The parties have executed this Purchase Agreement as of the date first set
forth above.

                                    COMPANY:

                                    CAPELLA EDUCATION COMPANY

                                    By: ________________________________

                                    Name: ______________________________

                                    Title: _____________________________

                                    Address:
                                    225 South 6th Street, 9th Floor
                                    Minneapolis, Minnesota 55402

                                    PURCHASER:

                                   _____________________________________
                                   (Signature)

                                   _____________________________________
                                   (Print Name)
                                    Address:

                                   _____________________________________
                                   _____________________________________

I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.

                                   _____________________________________
                                    Spouse of

                                      A-8
<PAGE>

                            CAPELLA EDUCATION COMPANY
                            2005 STOCK INCENTIVE PLAN

                      NON-STATUTORY STOCK OPTION AGREEMENT
                             (NON-EMPLOYEE DIRECTOR)

This is a Non-Statutory Stock Option Agreement ("Agreement") between Capella
Education Company, a Minnesota corporation (the "Company"), and the optionee
identified above (the "Optionee") effective as of the date of grant specified
above. To the extent any capitalized terms used in this Agreement are not
defined, they shall have the meaning ascribed to them in the Company's 2005
Stock Incentive Plan (the "Plan").

                                    RECITALS

      WHEREAS, the Company maintains the Capella Education Company 2005 Stock
Incentive Plan (the "Plan"); and

      WHEREAS, pursuant to the Plan, the Board of Directors of the Company (the
"Board") or a committee of two or more directors of the Company (the
"Committee") designated by the Board administers the Plan and the Board has the
authority to determine the awards to be granted under the Plan to non-employee
directors serving on the Board; and

      WHEREAS, the Board has determined that the Optionee is eligible to receive
an award under the Plan in the form of a non-statutory stock option (the
"Option");

      NOW, THEREFORE, the Company hereby grants this Option to the Optionee
under the terms and conditions as follows.

                             TERMS AND CONDITIONS*

1.    GRANT. The Optionee is granted this Option to purchase the number of
      Shares specified at the beginning of this Agreement.

2.    EXERCISE PRICE. The price to the Optionee of each Share subject to this
      Option shall be the exercise price specified at the beginning of this
      Agreement (which price shall not be less than the Fair Market Value (as
      defined in Section 2(o) of the Plan) as of the date of grant.

3.    NON-STATUTORY STOCK OPTION. This Option is not intended to be an
      "incentive stock option" within the meaning of Section 422 of the Internal
      Revenue Code of 1986, as amended (the "Code").

----------
*     Unless the context indicates otherwise, terms that are not defined in this
      Agreement shall have the meaning set forth in the Plan as it currently
      exists or as it is amended in the future.

<PAGE>

4.    EXERCISE SCHEDULE. This Option shall vest and become exercisable as to the
      number of Shares and on the dates specified in the exercise schedule at
      the beginning of this Agreement. The exercise schedule shall be
      cumulative; thus, to the extent this Option has not already been exercised
      and has not expired, terminated or been cancelled, the Optionee or the
      person otherwise entitled to exercise this Option as provided herein may
      at any time, and from time to time, purchase all or any portion of the
      Shares then purchasable under the exercise schedule.

      This Option may also be exercised in full (notwithstanding the exercise
      schedule) under the circumstances described in Section 8 of this Agreement
      if it has not expired prior thereto.

5.    EXPIRATION. This Option shall expire at 5:00 p.m. Central Time on the
      earliest of:

      (a)   The expiration date specified at the beginning of this Agreement
            (which date shall not be later than ten years after the date of
            grant);

      (b)   The last day of the period following the Optionee's termination of
            service as a director of the Company during which this Option can be
            exercised (as specified in Section 7 of this Agreement); or

      (c)   The date (if any) fixed for cancellation pursuant to Section 8 of
            this Agreement.

      If termination of the Optionee's status as a director of the Company shall
      have been for Cause, this Option shall expire immediately upon such
      termination. In no event may anyone exercise this Option, in whole or in
      part, after it has expired, notwithstanding any other provision of this
      Agreement.

6.    PROCEDURE TO EXERCISE OPTION.

      Notice of Exercise. This Option may be exercised by delivering written
      notice of exercise to the Company at the principal executive office of the
      Company, to the attention of the Company's Secretary, in the form attached
      to this Agreement. The notice shall state the number of Shares to be
      purchased, and shall be signed by the person exercising this Option. If
      the person exercising this Option is not the Optionee, he/she also must
      submit appropriate proof of his/her right to exercise this Option.

      Tender of Payment. Upon giving notice of any exercise hereunder, the
      Optionee shall provide for payment of the purchase price of the Shares
      being purchased through one or a combination of the following methods:

      (a)   Cash;

      (b)   Cancellation of indebtedness;

      (c)   By delivery to the Company of unencumbered Shares having an
            aggregate Fair Market Value on the date of exercise equal to the
            purchase price of the Shares as to which this Option is exercised;
            or

                                        2
<PAGE>

      (d)   To the extent permitted by law, a broker-assisted cashless exercise
            in which the Optionee irrevocably instructs a broker to deliver
            proceeds of a sale of all or a portion of the Shares to be issued
            pursuant to the exercise (or a loan secured by such Shares) to the
            Company in payment of the purchase price of the Shares as to which
            this Option is exercised.

      Notwithstanding the foregoing, the Optionee shall not be permitted to pay
      any portion of the purchase price with Shares if the Committee, in its
      sole discretion, determines that payment in such manner could have adverse
      financial accounting consequences for the Company.

      Execution of Shareholder Agreement. Optionee, or the person exercising
      this option, must execute the Purchase Agreement substantially in the form
      of Exhibit A to the notice of exercise attached to this Agreement.

      Company Right to Repurchase Option. At any time after six (6) months but
      within nine (9) months following the exercise of this Option (the
      "Repurchase Period"), the Company shall have the right ("Repurchase
      Option") to cancel this Option to the extent, and reduce the number of
      Shares that the Optionees may purchase pursuant to this Option in the
      amount, of the number of Shares requested to be purchased in the notice of
      exercise (the "Requested Shares") and pay the Optionee cash in an amount,
      for each Requested Share, equal to the per Share Fair Market Value of the
      Requested Shares (the "Repurchase Option Price"). The Company may exercise
      its Repurchase Option by giving written notice to the Optionee and paying
      the Repurchase Option Price to the Optionee during the Repurchase Period.
      Coincident with the payment of the Repurchase Option Price, the Company
      and the Optionee shall enter into a written amendment to this Option to
      reflect the appropriate decrease the number of Shares which the Optionee
      may purchase pursuant to this Option. The Repurchase Option shall
      terminate upon the first underwritten sale of Common Stock of the Company
      to the general public pursuant to a registration statement filed with and
      declared effective by the Securities and Exchange Commission under the
      Securities Act of 1933, as amended.

      Delivery of Certificates. Subject to the right of repurchase of this
      Option set forth above, as soon as practicable after the Company receives
      the notice and purchase price and executed Purchase Agreement provided for
      above, it shall deliver to the person exercising this Option, in the name
      of such person, a certificate or certificates representing the Shares
      being purchased (or provide for direct registration book-entry of the
      Shares in the name of the person exercising this Option). The Company
      shall pay any original issue or transfer taxes with respect to the issue
      or transfer of the Shares and all fees and expenses incurred by it in
      connection therewith. All Shares so issued shall be fully paid and
      nonassessable. Notwithstanding anything to the contrary in this Agreement,
      the Company shall not be required to issue or deliver any Shares prior to
      the completion of such registration or other qualification of such Shares
      under any state or federal law, rule or regulation as the Company shall
      determine to be necessary or desirable.

7.    STATUS AS DIRECTOR REQUIREMENT. This Option may be exercised only while
      the Optionee remains a director of the Company or a parent or subsidiary
      thereof, and only if

                                        3
<PAGE>

      the Optionee has been a director continuously since the date of this
      Agreement; provided that:

      (a)   If the Optionee's status as a director of the Company terminates
            because of the Optionee's death or Disability (as defined in the
            Plan), then this Option may be exercised, to the extent permissible
            under Section 8 below, for one year following the date of the
            Optionee's death or Disability.

      (b)   If the Optionee's status as a director of the Company terminates for
            a reason other than death or Disability, then this Option may be
            exercised any time before its expiration, but only to the extent
            that it was exercisable immediately prior to the termination of the
            Optionee's status as a director of the Company; provided, however,
            that if termination of the Optionee's status as a director of the
            Company shall have been for Cause, this Option shall expire, and all
            rights to purchase Shares hereunder shall terminate, immediately
            upon such termination.

      Notwithstanding the above, this Option may not be exercised after it has
expired.

8.    ACCELERATION OF OPTION.

      Death or Disability. This Option may be exercised in full, regardless of
      whether such exercise occurs prior to a date on which this Option would
      otherwise vest, upon the death or Disability of the Optionee; provided
      that the Optionee shall have been continuously been a director of the
      Company or a parent or subsidiary thereof between the date of this
      Agreement and the date of such death or Disability.

      Change in Control. If a Change in Control (as defined in Section 9 of this
      Agreement) of the Company shall occur and within three years of such
      Change in Control, Optionee's status as a director of the Company shall be
      terminated other than for Cause (as defined below), the options subject to
      this Agreement, if not already exercised in full or otherwise terminated,
      expired or cancelled, shall become immediately exercisable in full and may
      be exercised within 30 days after such termination (subject to any
      applicable shorter time period for exercise set forth in this Section 8).
      For purposes of this Agreement, the term "Cause" shall be limited to the
      following grounds for termination:

            (1)   Optionee's failure or refusal substantially to perform his/her
                  duties to the full extent of his/her abilities for reasons
                  other than death or disability, after written notice to
                  Optionee of such failure or refusal providing Optionee 30 days
                  to take corrective action;

            (2)   Conviction of a felony crime, or commission of any act, the
                  conviction for which would be a gross misdemeanor or felony
                  conviction; and

            (3)   Theft or misappropriation of the Company's property.

      Merger or Sale. In the event of a merger of the Company with or into
      another corporation or limited liability company or the sale of
      substantially all of the assets of the Company, and the successor entity,
      or a parent or subsidiary of the successor entity,

                                       4
<PAGE>

      refuses to assume this Option or to substitute an equivalent option, then
      this Option shall become exercisable in full immediately. The Committee
      shall notify Optionee in writing or electronically that the Option shall
      be fully vested and exercisable for a period of 15 days from the date of
      such notice and that the Option shall terminate upon the expiration of
      such period.

      Dissolution or Liquidation. In the event of the proposed dissolution or
      liquidation of the Company, the Committee shall notify Optionee as soon as
      practicable prior to the effective date of such proposed transaction. The
      Committee in its discretion may provide for Optionee to have the right to
      exercise his or her Option until ten (10) days prior to such transaction
      as to all of the Shares covered thereby, including Shares as to which the
      Option would not otherwise be exercisable. In addition, the Committee may,
      but shall not be obligated to, provide that any Company repurchase option
      applicable to the Shares shall lapse as to all such Shares, provided that
      the proposed dissolution or liquidation takes place at the time and in the
      manner contemplated. To the extent it has not been previously exercised,
      an Option will terminate immediately prior to the consummation of such
      proposed action.

      Discretionary Acceleration. The Committee has the power, in its sole
      discretion, to declare at any time that this Option shall be immediately
      exercisable.

9.    CHANGE IN CONTROL.

      (a)   Definition. For purposes of this Plan, a "Change in Control" of the
            Company shall be deemed to occur if any of the following occur:

            (1)   Any "person" (as such term is used in Sections 13(d) and 14(d)
                  of the Exchange Act) acquires or becomes a "beneficial owner"
                  (as defined in Rule 13d-3 or any successor rule under the
                  Exchange Act), directly or indirectly, of securities of the
                  Company representing the following: (i) 50% or more of the
                  combined voting power of the Company's then outstanding
                  securities entitled to vote generally in the election of
                  directors ("Voting Securities") at any time prior to the
                  Company selling any of its shares in a public offering
                  pursuant to a registration statement filed under the
                  Securities Act of 1933, as amended (the "Securities Act"), or
                  (ii) 35% or more of the combined voting power of the Company's
                  then outstanding Voting Securities at any time after the
                  Company sells any of its shares in a public offering pursuant
                  to a registration statement filed under the Securities Act.
                  Provided, however, that the following shall not constitute a
                  Change in Control pursuant to this Section 9(a)(1):

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

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

                                       5
<PAGE>

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

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

            (3)   Consummation by the Company of a reorganization, merger or
                  consolidation of the Company or a statutory exchange of
                  outstanding Voting Securities of the Company, unless,
                  immediately following such reorganization, merger,
                  consolidation or exchange, all or substantially all of the
                  persons who were the beneficial owners, respectively, of
                  Voting Securities and Shares of the Company immediately prior
                  to such reorganization, merger, consolidation or exchange
                  beneficially own, directly or indirectly, more than 50%
                  (subject to the modification in subsection (b) below) of,
                  respectively, the combined voting power of the then
                  outstanding voting securities entitled to vote generally in
                  the election of directors and the then outstanding shares of
                  common stock, as the case may be, of the corporation resulting
                  from such reorganization, merger, consolidation or exchange in
                  substantially the same proportions as their ownership,
                  immediately prior to such reorganization, merger,
                  consolidation or exchange, of the Voting Securities and Shares
                  of the Company, as the case may be;

            (4)   Consummation by the Company of the sale or other disposition
                  of all or substantially all of the assets of the Company (in
                  one or a series of transactions), other than to a corporation
                  with respect to which, immediately following such sale or
                  other disposition, more than 50% (subject to the modification
                  in subsection (b) below) of, respectively, the combined voting
                  power of the then outstanding voting securities of such
                  corporation entitled to vote generally in the election of
                  directors and the then outstanding shares of common stock of
                  such corporation is then beneficially owned, directly or
                  indirectly, by all or substantially all of the

                                       6
<PAGE>

                  persons who were the beneficial owners, respectively, of the
                  Voting Securities and Shares of the Company immediately prior
                  to such sale or other disposition in substantially the same
                  proportions as their ownership, immediately prior to such sale
                  or other disposition, of the Voting Securities and Shares of
                  the Company, as the case may be; or

            (5)   Approval by the shareholders of the Company of a complete
                  liquidation or dissolution of the Company.

      (b)   After a Public Offering. At all times after the Company sells any of
            its shares in a public offering pursuant to a registration statement
            filed under the Securities Act, the references to 50% in subsections
            (a)(1)(C), (a)(3) and (a)(4) of this Section 9 shall be changed to
            65%.

10.   TRANSFERABILITY. While the Optionee is alive, only the Optionee, his/her
      legal representative or a transferee who receives this Option in a
      permitted transfer (as described below in this Section 10) may exercise
      this Option. This Option may not be assigned or transferred other than to
      a Successor in the event of the Optionee's death or pursuant to a
      qualified domestic relations order as defined by the Code or Title I of
      the Employee Retirement Income Security Act, or the rules thereunder;
      provided, however, that the Optionee may transfer this 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 the Optionee does not receive any consideration for the
      transfer. This Option shall continue to be subject to the same terms and
      conditions that were applicable to this Option immediately prior to its
      transfer and may be exercised by such transferee as and to the extent that
      this Option has become exercisable and has not terminated in accordance
      with the provisions of the Plan and this Agreement. For purposes of any
      provision of the Plan or this Agreement relating to notice to the Optionee
      or to vesting or termination of this Option upon the death, disability or
      termination of the Optionee's status as a director of the Company, the
      references to "optionee" shall mean the original grantee of this Option
      and not any transferee.

11.   ASSIGNMENT OF THE COMPANY'S OBLIGATIONS. In the event of a merger of the
      Company with or into another corporation or limited liability company, or
      the sale of substantially all of the assets of the Company, then the
      successor entity, or a parent or subsidiary of the successor entity, may
      assume this Option or substitute an equivalent option.

12.   NO SHAREHOLDER RIGHTS BEFORE EXERCISE. No person shall have any of the
      rights of a shareholder of the Company with respect to any Share subject
      to this Option until the Share actually is issued to him/her upon exercise
      of this Option.

13.   DISCRETIONARY ADJUSTMENT. In the event of a Fundamental Change,
      recapitalization, reclassification, stock dividend, stock split, stock
      combination or other relevant change, the Committee (or if the Company
      does not survive any such transaction, a comparable committee of the board
      of directors of the surviving corporation) may in its sole discretion make
      such adjustment as it determines to be appropriate as to the number and

                                       7
<PAGE>

      kind of securities subject to and reserved under the Plan and, in order to
      prevent dilution or enlargement of rights of the Optionee, the number and
      kind of securities issuable upon exercise of this Option and the exercise
      price hereof.

14.   TAX WITHHOLDING. Delivery of Shares upon exercise of this Option shall be
      subject to any required withholding taxes. As a condition precedent to
      receiving Shares upon exercise of this Option, the Optionee may be
      required to pay to the Company, in accordance with the provisions of
      Section 14 of the Plan, an amount equal to the amount of any required
      withholdings.

15.   INTERPRETATION OF THIS AGREEMENT. All decisions and interpretations made
      by the Committee with regard to any question arising hereunder or under
      the Plan shall be binding and conclusive upon the Company and the
      Optionee. If there is any inconsistency between the provisions of this
      Agreement and the Plan, the provisions of the Plan shall govern.

16.   DISCONTINUANCE OF EMPLOYMENT OR SERVICE AS DIRECTOR. This Agreement shall
      not give the Optionee a right to continued employment or service as a
      director of the Company or any parent or subsidiary of the Company, and
      the Company or any such parent or subsidiary employing the Optionee or of
      which the Optionee serves as a director may terminate his/her employment
      or service as a director, as the case may be, at any time and otherwise
      deal with the Optionee without regard to the effect it may have upon
      him/her under this Agreement.

17.   OPTION SUBJECT TO PLAN, ARTICLES OF INCORPORATION AND BY-LAWS. The
      Optionee acknowledges that this Option and the exercise thereof is subject
      to the Plan, the Articles of Incorporation, as amended from time to time,
      and the By-Laws, as amended from time to time, of the Company, and any
      applicable federal or state laws, rules or regulations.

18.   OBLIGATION TO RESERVE SUFFICIENT SHARES. The Company shall at all times
      during the term of this Option reserve and keep available a sufficient
      number of Shares to satisfy this Agreement.

19.   BINDING EFFECT. This Agreement shall be binding in all respects on the
      heirs, representatives, successors and assigns of the Optionee.

20.   CHOICE OF LAW. This Agreement is entered into under the laws of the State
      of Minnesota and shall be construed and interpreted thereunder (without
      regard to its conflict of law principles).

      IN WITNESS WHEREOF, the Optionee and the Company have executed this
Agreement as of the ___ day of _______, 20__.

                                    OPTIONEE

                                       8
<PAGE>

                                    ___________________________________

                                    CAPELLA EDUCATION COMPANY

                                    By _________________________________
                                    Its ________________________________

                                       9
<PAGE>

                            __________________, 20___

CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402

Attention:  Secretary

Ladies and Gentlemen:

      I hereby exercise the following option (the "Option") granted to me under
the Capella Education Company 2005 Stock Incentive Plan (the "Plan") with
respect to the number of shares of Common Stock ("Shares") of Capella Education
Company (the "Company"), indicated below:

          NAME:                                  _______________________________

          DATE OF GRANT OF OPTION:               _______________________________

          EXERCISE PRICE PER SHARE:              _______________________________

          NUMBER OF SHARES WITH RESPECT TO
          WHICH THE OPTION IS HEREBY EXERCISED:  _______________________________

          TOTAL EXERCISE PRICE:                  _______________________________

      [ ] Enclosed with this letter is a check, bank draft or money order in the
          amount of the Total Exercise Price.

      [ ] I hereby agree to pay the Total Exercise Price by cancellation of a
          debt owed to me by the Company.

      [ ] I hereby agree to pay the Total Exercise Price within five business
          days of the date hereof and, as stated in the attached Broker's
          Letter, I have delivered irrevocable instructions to
          _________________________________________ to promptly deliver to the
          Company the amount of sale or loan proceeds from the Shares to be
          issued pursuant to this exercise necessary to satisfy my obligation
          hereunder to pay the Total Exercise Price.

      [ ] Enclosed with this letter is a certificate evidencing unencumbered
          Shares (duly endorsed in blank) having an aggregate Fair Market Value
          (as defined in the Plan) equal to or in excess of the Total Exercise
          Price.

      [ ] I elect to pay the Total Exercise Price through a reduction in the
          number of Shares delivered to me upon this exercise of the Option as
          provided in Section 6(d) of the Option.

<PAGE>

      If I am enclosing Shares with this letter, I hereby represent and warrant
that I am the owner of such Shares free and clear of all liens, security
interests and other restrictions or encumbrances. I agree that I will pay any
required withholding taxes in connection with this exercise as provided in
Section 14 of the Plan.

      I have read and signed the Purchase Agreement attached to this notice as
Exhibit A and I am enclosing a signed copy of the Purchase Agreement.

      Please issue a certificate (the "Certificate") for the number of Shares
with respect to which the Option is being exercised in the name of the person
indicated below and deliver the Certificate to the address indicated below:

          NAME IN WHICH TO ISSUE CERTIFICATE: __________________________________

          ADDRESS TO WHICH CERTIFICATE        __________________________________
          SHOULD BE DELIVERED:                __________________________________
                                              __________________________________
                                              __________________________________
                                              __________________________________

          PRINCIPAL MAILING ADDRESS FOR       __________________________________
          HOLDER OF THE CERTIFICATE (IF       __________________________________
          DIFFERENT FROM ABOVE):              __________________________________
                                              __________________________________
                                              __________________________________

                                     Very truly yours,

                                     ______________________________
                                     Signature

                                     ______________________________
                                     Name, please print

                                     ______________________________
                                     Social Security Number

<PAGE>

                            __________________, 20___

CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402

Attention:  Secretary

Ladies and Gentlemen:

          NAME OF OPTIONEE:                    _________________________________

          DATE OF GRANT OF OPTION:             _________________________________

          EXERCISE PRICE PER SHARE:            _________________________________

          NUMBER OF SHARES WITH RESPECT TO
          WHICH THE OPTION IS TO BE EXERCISED: _________________________________

          TOTAL EXERCISE PRICE:                _________________________________

      The above Optionee has requested that we finance the exercise of the above
Option to purchase Shares of common stock of Capella Education Company (the
"Company") and has given us irrevocable instructions to promptly deliver to the
Company the amount of sale or loan proceeds from the Shares to be issued
pursuant to such exercise to satisfy the Optionee's obligation to pay the Total
Exercise Price.

                                         Very truly yours,

                                         ___________________________
                                         Broker Name

                                         By ___________________________

<PAGE>

                          EXHIBIT A TO EXERCISE NOTICE

                            CAPELLA EDUCATION COMPANY

                            2005 STOCK INCENTIVE PLAN

                               PURCHASE AGREEMENT

      This Agreement ("Agreement") is made as of ____________, 20__, by and
between Capella Education Company, a Minnesota corporation (the "Company"), and
___________________________ ("Purchaser"). To the extent any capitalized terms
used in this Agreement are not defined, they shall have the meaning ascribed to
them in the Company's 2005 Stock Incentive Plan (the "Plan").

      1. DEFINITIONS. The term "Shares" shall mean the __________ shares of the
Common Stock of the Company the Purchaser purchased pursuant to an option
granted to the Purchaser under and pursuant to the Plan and the Stock Option
Agreement dated __________, 20__ (the "Option Agreement"). The term "Shares"
shall include the purchased Shares and all securities received in replacement of
the Shares or as stock dividends or splits, all securities received in
replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.

      2. REPURCHASE OPTION. The Company shall have the right to purchase all
Shares from the Purchaser or any transferee of the Purchaser (or the Purchaser's
legal representative or beneficiaries if the Purchaser is deceased or
incapacitated) (collectively sometimes referred to herein as the "Holder") at
any time at least six (6) months but no more than nine (9) months after the
original issuance of the Shares and on the terms and conditions set forth in
this Section 2 (the "Repurchase Option").

                  (i) EXERCISE OF REPURCHASE OPTION. The Company and/or its
assignee(s) may, by giving written notice to the Holder (the "Repurchase
Notice") at any time during the Repurchase Period, elect to purchase all, but
not less than all, of the Shares at the purchase price determined in accordance
with subsection (ii) below.

                  (ii) REPURCHASE PRICE. The purchase price (the "Repurchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 2 shall be the Fair Market Value (as defined in the Plan) of such
Shares.

                  (iii) PAYMENT AND DELIVERY OF SHARES. Payment of the
Repurchase Price shall be made, at the option of the Company or its assignee(s),
in cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or, in the case of repurchase by an
assignee, to the assignee), or by any combination thereof during the Repurchase
Period. Coincident with the payment of the Repurchase Price, the Holder shall
deliver to the Company the certificates representing the Shares purchased, duly
endorsed in blank, and appropriate entries in the records of the Company shall
be made to effect the transfer of the Shares to the Company free and clear of
any restrictions on transfer, voting agreements, liens, encumbrances or other
defects of title.

                                      A-1
<PAGE>

                  (iv) TERMINATION OF RIGHTS. The Repurchase Right shall
terminate upon the earlier to occur of (i) the date nine (9) months after the
original issuance of the shares or (ii) an IPO (as defined below). The term
"IPO" shall mean the first underwritten sale of Common Stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act").

      3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not sell,
transfer (including, without limitation, a transfer by gift), exchange, assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws and after such time as the
Repurchase Option has expired.

            (a) RIGHT OF FIRST REFUSAL. Before any Shares held by Holder may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section 3(a) (the
"Right of First Refusal").

                  (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Refusal Right Notice")
stating: (i) the Holder's bona fide intention to sell or otherwise transfer such
Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the terms and conditions of each proposed sale or transfer.
The Holder shall offer the Shares at the same price (the "Offered Price") and
upon the same terms (or terms as similar as reasonably possible) to the Company
or its assignee(s). The Company may, prior to the purchase of any Shares
hereunder, require evidence of a bona fide offer to purchase such Shares and, in
the case of a disposition for consideration, evidence that the Proposed
Transferee has offered such consideration for the Shares.

                  (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30
days after receipt of the Refusal Right Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.

                  (iii) REFUSAL RIGHT PURCHASE PRICE. The purchase price
("Refusal Right Purchase Price") for the Shares purchased by the Company or its
assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company, or a duly authorized committee of the Board of Directors, in good
faith.

                  (iv) PAYMENT AND DELIVERY OF SHARES. Payment of the Refusal
Right Purchase Price shall be made, at the option of the Company or its
assignee(s), in cash (by check), by cancellation of all or a portion of any
outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within 30 days after receipt of the Refusal Right Notice or in the manner and at
the times set

                                      A-2
<PAGE>

forth in the Refusal Right Notice. Coincident with the payment of the Refusal
Right Purchase Price, the Holder shall deliver to the Company the certificates
representing the Shares purchased, duly endorsed in blank, and appropriate
entries in the records of the Company shall be made to effect the transfer of
the Shares to the Company free and clear of any restrictions on transfer, voting
agreements, liens, encumbrances or other defects of title.

                  (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Refusal Right Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Refusal Right Notice and provided further that any such sale or other transfer
is effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Refusal Right Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new
Refusal Right Notice shall be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.

                  (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.

            (b) INVOLUNTARY TRANSFER.

                  (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the purchase price determined in accordance with subsection (ii)
below. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of 30 days following
receipt by the Company of written notice by the person acquiring the Shares.

                  (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock
to be transferred pursuant to Section 3(b)(i), the price per Share shall be the
Fair Market Value of the Shares. The Company shall notify Purchaser or his or
her executor of the price so determined

                                      A-3
<PAGE>

within 30 days after receipt by it of written notice of the transfer or proposed
transfer of Shares. Coincident with the payment of the said purchase price, the
Holder shall deliver to the Company the certificates representing the Shares
purchased, duly endorsed in blank, and appropriate entries in the records of the
Company shall be made to effect the transfer of the Shares to the Company free
and clear of any restrictions on transfer, voting agreements, liens,
encumbrances or other defects of title.

            (c) ASSIGNMENT. The right of the Company to purchase any part of the
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and Fair Market Value, if
the original purchase price is less than the Fair Market Value of the Shares
subject to the assignment.

            (d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.

            (e) TERMINATION OF RIGHTS. The Right of First Refusal and the
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon an IPO.

            (f) MARKET STANDOFF AGREEMENT. In connection with an initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 270 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.

      4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:

            (a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.

            (b) Purchaser understands that the Shares have not been registered
under the Securities Act and applicable state laws by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Purchaser's investment intent as expressed herein.

                                      A-4
<PAGE>

            (c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.

            (d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.

      5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

            (a) LEGENDS. The certificate or certificates representing the Shares
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):

                  (i)   THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                        REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
                        (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE,
                        AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
                        PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE
                        REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
                        SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY
                        TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
                        REGISTRATION IS NOT REQUIRED.

                  (ii)  THE ISSUER OF THESE SECURITIES WILL FURNISH TO ANY
                        SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL
                        STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS,
                        AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR
                        SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN
                        DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS
                        TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
                        SUBSEQUENT CLASSES OR SERIES.

                                      A-5
<PAGE>

                  (iii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
                        TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A
                        PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE
                        STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
                        SECRETARY OF THE COMPANY.

            (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

            (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.

            (d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(iii): (i) the termination of the Repurchase
Right; (ii) the termination of the Right of First Refusal; and (ii) the
expiration or termination of the market standoff provisions of Section 3(f) (and
of any agreement entered pursuant to Section 3(f)). After such time, and upon
Purchaser's request, a new certificate or certificates representing the Shares
not repurchased shall be issued without the legend referred to in Section
5(a)(iii), and delivered to Purchaser.

      6. NO EMPLOYMENT RIGHTS. This Agreement shall not give the Purchaser a
right to continued employment with the Company or any parent or subsidiary of
the Company, and the Company or any such parent or subsidiary employing the
Purchaser may terminate his/her employment at any time and otherwise deal with
the Purchaser without regard to the effect it may have upon him/her under this
Agreement.

      7. MISCELLANEOUS.

            (a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Minnesota, without giving effect to principles of conflicts of law.

            (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.

            (c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith.

                                      A-6
<PAGE>

In the event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.

            (d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.

            (e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

            (f) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.

            (g) RIGHTS CUMULATIVE. The purchase rights of the Company pursuant
to Sections 2 and 3 shall be in addition to and not in lieu of any other
purchase rights that the Company or any other holders of capital stock of the
Company may at any time have under any other contract, by operation of law, or
otherwise.

                                      A-7
<PAGE>

      The parties have executed this Purchase Agreement as of the date first set
forth above.

                                    COMPANY:

                                    CAPELLA EDUCATION COMPANY

                                    By:

                                    Name:

                                    Title:

                                    Address:
                                    225 South 6th Street, 9th Floor
                                    Minneapolis, Minnesota 55402

                                    PURCHASER:

                                   ___________________________________
                                   (Signature)

                                   ___________________________________
                                  (Print Name)

                                    Address:
                                   ___________________________________
                                   ___________________________________

I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.

                                   ___________________________________
                                   Spouse of

                                      A-8

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