Document:

EXHIBIT 10.27

[CAPELLA UNIVERSITY LOGO]

To: __________________
From: Shawn Featherston
Date: __________, 2006
Subj: Special Stock Option Grant - 2006

Attached is the stock option agreement(s) as granted by the Capella Education
Company Compensation Committee on February 14, 2006. I am confirming the
previous communication that explains the terms associated with this grant as
follows:

      -     These options are being issued in lieu of the cash incentive
            opportunity that is normally offered as part of the Management
            Annual Incentive Plan and is intended to replace the cash incentive
            for 2006 only.

      -     This agreement reflects the number of options from the February 14,
            2006 grant that will vest assuming achievement of 100% performance
            against the incentive plan matrix.

      -     The number of options granted was calculated based on the following
            formula:

                  -     Salary x incentive opportunity target at 100% divided by
                        Black Scholes value of stock option x 1.75 (risk
                        multiplier)

      -     The actual number of options that ultimately vest will depend upon
            the actual achievement of the company's operating plan performance
            thresholds.

      -     This grant is scheduled to vest on 12/31/06, assuming minimum
            performance thresholds are achieved.

      -     The company performance to operating plan will be measured using the
            same payout matrix as the 2006 Management Incentive Plan.

      -     If company performance is greater than 100% of operating plan, any
            excess over 100% will be payable in the form of a cash incentive.

      -     If company performance is between the minimum payout threshold and
            100% of operating plan, the number of stock options will be reduced
            by a pro-rating factor that is per the payout matrix.

      -     If the company performance is below the minimum threshold for
            payout, these options will be cancelled.

The terms of this memo modify and supplement the terms of the attached
agreement(s).

Please indicate your concurrence with these terms by signing below, and signing
the attached agreement(s), and returning one original to me by April 20th, 2006.
If you have any questions, let me know. Thank you.

____________________________
Signature

____________________________ (Date)

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                                 Attach form of

              Capella Education Company 2005 Stock Incentive Plan,
                        Incentive Stock Option Agreement

                                     and/or

              Capella Education Company 2005 Stock Incentive Plan,
                Non-Statutory Stock Option Agreement (Employee),

                                 as applicable.<PAGE>

                                                                   EXHIBIT 10.28

(CAPELLA EDUCATION COMPANY LOGO)

October 20, 2004

Ms. Lois Martin
2460 Sunrise Drive
Little Canada, MN 55117

Dear Lois:

We are pleased to formally extend you this offer of employment for the position
of Senior Vice President and Chief Financial Officer for Capella Education
Company. This is a corporate officer position and reports to the Chairman and
Chief Executive Officer, Steve Shank. This offer is contingent upon signing a
Confidentiality, Non-Competition and Inventions Agreement, a copy of which is
enclosed, and the successful completion of a background check.

You will be paid on a bi-weekly basis, an amount that will equal $265,000 when
annualized. You will be eligible for a performance and salary review as of July
1, 2005. Your next review will be scheduled for March 1, 2006 and, under normal
circumstances, annually thereafter. Capella offers a comprehensive compensation
system; more information will be provided to you after your start.

ANNUAL INCENTIVE COMPENSATION: In addition to your salary, you will be eligible
to earn an annual incentive compensation award with a target of 40% of your base
salary starting in fiscal 2005. The details of the incentive compensation
program will be specified in the enclosed annual award plan, a copy of which you
have received.

SIGNING BONUS: Capella will pay you a lump sum of $50,000 (before taxes) the
first payroll period following your hire date. Should you voluntarily leave
Capella within 12 months of your hire date, for other than "Good Reason," as
defined in the Addendum, you agree to reimburse Capella for this payment on a
prorata basis.

BENEFIT PLANS: The following will summarize the current benefit plans, for which
you would be eligible as a full-time employee:

Medical - Effective the first day of the month following employment, you would
be eligible to participate in the company's medical plan. The plan is
administered through Medica. Medica offers you a choice of networks and/or
benefit levels. Capella will pay 100% of the premium for the medical coverage.

Dental - You will also be eligible to participate in the company's dental plan,
administered by Delta Dental. Delta offers you a choice of networks and/or
benefit levels.

<PAGE>

Life Insurance - The company provides paid life insurance in the amount of 1X
salary. You may also elect to purchase additional coverage for yourself, spouse
and/or dependents.

Disability Benefits - The Company offers short and long-term disability
benefits. The short-term disability coverage provides salary replacement for up
to 26 weeks of disability. The amount and length of coverage is based upon
length of service with the company. This benefit is paid for by the Company. You
may elect to purchase long-term disability coverage. The Plan replaces up to 60%
of your salary as long as you are eligible for disability benefits under the
Plan. The Company pays 50% of the cost of this plan.

Cafeteria Plan - This plan allows you to pay for medical premiums, unreimbursed
medical and child care expenses from pre-tax dollars. You would be eligible for
this plan at the same time you are eligible for the medical insurance.

Physical: If you choose to waive company provided medical insurance, Capella
will pay for an annual physical at a provider of your choice up to an annual
maximum of $10,000.

401K Retirement Plan - Under this plan, you may contribute up to 35% of your
eligible compensation on a pre-tax basis (up to IRS limits).

ESOP - The Company will also make an annual discretionary contribution to the
ESOP up to 3% of eligible compensation in the form of company stock once you are
eligible to participate. Employer contributions made in your first three years
with Capella will vest at the end of your third year of service as defined in
the Plan document. Employer contributions made after the end of your third year
of service will vest immediately.

Stock Option Grant - You will be granted options to purchase 100,000 shares of
Capella Education Company common stock at the exercise price then in effect at
the next scheduled Board of Directors meeting. The terms of the stock option
grant will be specified in a definitive stock option agreement (the "Stock
Option Agreement") which will provide that the right to exercise options to
purchase 25,000 shares which will vest on each of your first four anniversary
dates of your initial employment with the Company. The Stock Option Agreement
will also provide for immediate acceleration of the vesting of your stock option
rights if, within the period required for full vesting of your stock option
exercise rights, (1) there is a change of control of the ownership of the
Company as defined in the Stock Option Agreement, and (2) within such period
your employment is terminated or your job adversely affected by such changes as
a reduction in responsibility or compensation or a relocation of the job.

Capella also offers an annual executive option grant award program that becomes
effective for eligible participants July 1 following two years of employment.
Capella will waive the standard waiting period and you will become eligible to
participate in the program beginning July 1, 2005.

The specific amount of the grant is based on your position and base compensation
using a "multiple of pay" formula, and calculated using the Black Sholes
valuation based on the market price at the time of the grant. Your multiple of
pay percentage is set at 60% of base pay. The number of options is determined by
taking your salary as of June 30 (in the year the grant is awarded) multiplied
by the multiple of pay percentage. That amount is

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<PAGE>

divided by the Black Scholes valuation of the FMV of the options at the time of
the grant to determine the actual number of options that will be granted.
Options granted as part of the annual grant program vest over a 4-year period.

EXECUTIVE SEVERANCE PLAN. Capella Education Company has established the Capella
Education Company Executive Severance Plan to provide severance pay and other
benefits to eligible employees. In your current position as Senior Vice
President and Chief Financial Officer, you have been designated as an eligible
Level II participant. Please refer to the Plan Document you have already
received, for information on the specific provisions and conditions of the Plan.
Special considerations are outlined in the attached Addendum.

CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT: With our growing
leadership position in the market, the Company has a great opportunity to build
national recognition of the Capella brand as the brand of choice in the
elearning market. However, Capella expects increasing competition from
for-profit and not for-profit organizations in the rapidly growing elearning
market. Capella believes it is essential to take certain steps, including the
execution of a Confidentiality, Non-Competition, and Inventions Agreement for
certain key positions, in order to protect the legitimate business interests of
the Company and to ensure the security and confidentiality of the company's
customers, pricing, sales strategy, and technology. Accordingly, Capella
requires as a condition of employment that candidates, such as you, for key
positions execute Confidentiality, Non-Competition and Invention Agreements.
This Agreement must be signed and dated no later than your first day of
employment.

EMPLOYMENT AT WILL: Your employment will be at will. This means that either you
or Capella may terminate the employment at any time for any reason, without
advance notice.

OTHER BENEFITS: You will be entitled to Personal Time Off earned on a prorated
monthly basis equal to a maximum 27 days/year, in accordance with the Company
benefit statement, and 10 paid holidays. You are also eligible for paid parking
in a designated parking facility. You will also be provided a personal wireless
connectivity product such as Blackberry, which includes cell phone service.

Lois, we are delighted to be able to offer you this opportunity to join Capella.
Your education and experience are impressive and I am confident you will make a
valuable contribution to the Company's continued success.

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<PAGE>

Please sign and date below your acceptance of this offer and return in the
enclosed envelope.

Sincerely,

CAPELLA EDUCATION COMPANY

/s/ Betsy Rausch
-------------------------------------
Betsy Rausch
Vice President Human Resources

c.c Steve Shank

ACCEPTANCE: I hereby accept the offer of employment by Capella Education Company
on the terms described in this letter and Addendum A. I understand that I must
sign and return to Capella the Confidentiality, Non-Competition and Inventions
Agreement provided to me with this letter before I start my Capella employment.

/s/ Lois Martin                         10/25/04
-------------------------------------   Date
Lois Martin

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