Document:

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                                                                   EXHIBIT 10.31

                            (CAPELLA UNIVERSITY LOGO)

June 6, 2006

Reed A. Watson
4465 Vinewood Lane North
Plymouth, MN 55442

Dear Reed,

We are pleased to formally extend you this offer of employment for the position
of Senior Vice President of Marketing for Capella University. The position
reports to Ken Sobaski, President and Chief Operating Officer. Your start date
is to be determined pending further discussion. Please note that this offer of
employment is contingent upon successful completion of a background check and
the signing of a confidentiality / non-compete agreement on or prior to your
first day of employment.

You will be paid on a bi-weekly basis at a rate of $9,423.07, which equals
$245,000.00 when annualized. This position is classified as exempt. You will be
eligible for a prorated performance and salary review in March 2007. Capella is
an "at-will employer;" this means that either you or Capella may terminate
employment at any time for any reason, without advance notice.

On your first day, please report to the 9th floor lobby at the 225 S. 6th St.
building by 8:15 a.m. and check in with the receptionist as a new employee
attending orientation. If you have questions in regards to your first day,
scheduling, or other concerns, please contact me directly at (612) 977-5309.

Signing Bonus--In addition, you will receive a signing bonus equal to $50,000.00
(pretax) payable on your first pay date. By accepting this offer of employment,
you authorize Capella to reclaim a pro-rated portion of this signing bonus
should you voluntarily leave the company within your first year of employment.
As used in this paragraph "prorate" means that the amount of the signing bonus
to be returned is reduced by 1/12 for each month that you do not work (due to
you leaving the organization voluntarily) prior to your one year anniversary
date with the Capella.

Annual incentive compensation potential - In addition to your salary, you will
be eligible to earn an annual incentive compensation award with a target of 40%
of your annual base salary earnings. Payout for this award typically takes place
in March of each year. The details of the incentive compensation program will be
specified in an annual award plan. As discussed, you will be eligible to
participate in the 2006 plan on a pro-rated basis based on your date of hire.
Capella will guarantee a minimum of target payout for the 2006 plan. (Target is
40%, and the pro-ration factor will be determined by your date of hire.) If
company performance should yield a payout higher than target, your payout will
be based on company performance. You will receive this guaranteed 2006 incentive
compensation award if you remain employed as of December 31, 2006. The target
percentage is subject to modification after fiscal year 2006.

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Stock Option Grant - You will be granted options to purchase 75,000 shares of
Capella University common stock at the exercise price then in effect on the date
of the award. This option grant is subject to approval by the Board of
Director's Compensation Committee. The terms and conditions of the stock option
grant will be outlined in a Capella Education Stock Option Agreement that you
will receive within a week following confirmation of the stock option award. The
stock option shares will vest pro rata over a four-year period of time after the
grant and the options can be exercised during a ten-year period from the date of
the award, providing you are still employed by the company.

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

Medical/Dental- Beginning the first day of the month following your hire date,
you will be eligible to participate in the company's medical and dental plans.
The medical plan is administered through Medica. As a Senior Vice President,
Capella will pay 100% of the premium for medical coverage for you, your spouse
and dependent children. (For specific options and plan details, please refer to
your benefits handout.) You will also be eligible to participate in the
company's dental plan, administered by Delta Dental. Both plans offer you a
choice of networks and/or benefit levels.

Life Insurance - The company provides paid life insurance in the amount of lx
salary. You may also elect to purchase additional coverage for yourself, spouse
and/or dependents. You will be eligible to participate in the company's life
insurance plan on the first day of the month following employment.

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.

401k Retirement Plan - Under this plan, you may contribute up to 100% of your
eligible compensation, up to the IRS annual limit on deferrals. The company will
match 50% of employee contributions, up to 4% of compensation - or, put another
way, the company contributes a 2% match. There is a 5-year vesting schedule on
the employer match, with 20% of the employer contribution vesting annually. You
can begin to participate in this plan after approximately one month of service.
More specific information and details about the plan and the investment funds
will be provided in your orientation.

ESOP - The Company may 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. The form and amount of employer contributions
is currently under review and, while it is our desire to offer a competitive
retiree benefit program, there should be no expectation that future ESOP
contributions will continue in the same manner as in the past.

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Time Off - You will be entitled to Capella's paid time off (PTO) benefit which
is accrued and earned on a pro-rated bi-weekly basis equal to a maximum 27
days/year, as well as 10 paid holidays/year.

Executive Severance Plan - Capella Education Company has established the Capella
Education Company Executive Severance Plan (the "Severance Plan") to provide
severance pay and other benefits to eligible employees. Notwithstanding any
contrary provisions of the Severance Plan, you will receive severance of 12
months total compensation (defined as base salary). You will be able to receive
the above listed severance compensation if you are terminated without cause or
quit for good reason, as both are defined and limited in this letter. You will
be entitled to receive the full 12 months compensation regardless whether you
find other employment during that time and no amount of replacement income will
be set off. Capella will require any successor to assume its obligations in this
letter or will remain obligated after any sale. You are eligible for up to 12
months of outplacement assistance through the outplacement agency then used by
Capella. Any outplacement assistance provided under the Plan will be paid
directly to the outplacement agency.

Continuation Coverage - Federal and state laws require Capella Education Company
to offer certain departing employees (and where applicable, their dependents)
the right to continue coverage, at their own expense, under our group health,
dental and life insurance programs. For health and dental benefits, this
continuation coverage is called COBRA. Upon termination of employment, you will
receive information further describing how this continuation coverage works, its
limitations, and your rights and duties to maintain coverage. Capella Education
Company will pay the regular employer portion towards continued coverage for
you, your spouse and dependent children under Capella Education Company's group
health, dental and basic life insurance plans for the number of months upon
which your severance pay is based. After that time, you must pay the entire cost
of continuation coverage if you wish to continue coverage.

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

Please refer to the Severance Plan document you have already received for
information on the additional provisions and conditions of the Severance Plan.
You are entitled all other Level 2 benefits in the Plan and any enhancements
provided at that level in the future. Your rights to severance as provided in
this letter continue even if the Severance Plan is changed after you sign this
letter. Your entitlement begins on your first day of employment.

Parking - Capella will also provide monthly-contract parking for you at our
expense. More information will be provided to you about parking once you start.

Definition of Cause - For purposes of this letter and in interpreting your
rights to severance under the Severance Plan, Incentive Compensation Plan and
Stock Incentive Plan, as well as under any Change of Control, "Cause" for
termination shall be defined and limited as follows: 1) your conviction of a
crime or commission of other acts either of which could materially damage the
reputation of Capella; 2) your theft, misappropriation, or embezzlement of
Capella property, 3) your falsification of records maintained by Capella; 4)
your failure substantially to comply with the written policies and procedures of
Capella as they may be published or revised from time to time (in

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writing, on the Faculty Center website, or on the Stella intranet); or 5) your
gross misconduct directed toward learners, employees, or adjunct faculty.

Definition of Good Reason - "Good reason" shall be defined as a termination
initiated by you, whether or not preceded by a Change in Control, in any of the
following circumstances: (i) your position is changed to a position with a lower
pay grade or lesser responsibilities than the Senior Vice President of Marketing
position; (ii) your fixed compensation is decreased by more than 10 percent
(10%) in any twelve (12) month period; or (iii) you are reassigned to a work
location more than fifty (50) miles from the location in which you are working
immediately prior to the reassignment.

Attorneys' Fees - If either party breaches its obligations under this letter and
the referenced documents, the prevailing party shall be entitled to its costs
and reasonable attorneys' fees incurred in enforcing its rights.

Reed, we are pleased to be able to offer you this opportunity to join Capella!
We are confident you will find this a rewarding role where you will make a
valuable contribution to the company's success!

Sincerely,

/s/ Seth Lockner
-------------------------------------
Seth Lockner
Human Resources Director

cc: Ken Sobaski

Enclosures

PLEASE SIGN AND DATE BELOW YOUR ACCEPTANCE OF THIS OFFER AND RETURN IN THE
ENCLOSED ENVELOPE. PLEASE RETAIN THE ADDITIONAL COPY FOR YOUR RECORDS.

/s/ Reed A. Watson                      June 6, 2006
-------------------------------------   DATED
SIGNED<PAGE>

                                                                   EXHIBIT 10.32

            CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT

     This Confidentiality, Non-Competition, and Inventions Agreement
("Agreement") is entered into this 20th day of June 2006 between Reed Watson
("Employee") and Capella Education Company.

     A. Capella Education Company and its subsidiaries (including Capella
University, Inc.) are collectively referred to as "Capella" in this Agreement.

     B. Capella desires to employ Employee as Senior Vice President of
Marketing, and Employee desires to be employed in that capacity.

     C. As an employee of Capella, Employee would have access to Confidential
Information (a term which is defined below).

     D. Capella provides, develops, sells, and markets on-line educational
products and services. Much of the work of Capella is done through the Internet,
which is global in coverage and can be accessed by people throughout the world.

     E. As a condition of Employee's employment by Capella, Employee and Capella
enter into this Agreement, the terms of which Employee acknowledges are
reasonable and necessary for the protection of the legitimate interests of
Capella.

                                    AGREEMENT

     In consideration of Capella's employing Employee, the parties agree as
follows:

     1. DEFINITIONS. For the purposes of this Agreement, the following terms
have the following meanings:

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

          b. "Inventions" means discoveries, improvements, ideas, concepts,
processes, formulas, methods, analyses, software, and works of authorship
(whether or not reduced to writing or put into practice, and whether or not
copyrighted, copyrightable, patented, or patentable) that (1) relate directly to
the business of Capella; (2) relate to Capella's actual or demonstrably
anticipated research or development; (3) result from any work performed by
Employee for Capella; (4) for which equipment, supplies, facilities, or trade
secret information of Capella is used; (5) are developed, created, conceived or
reduced

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to practice using any time for which Employee is compensated by Capella; or (6)
are developed, created, conceived, or reduced to practice during the period in
which Employee is employed by Capella or within one year after the termination
of that employment for any reason.

          c. "Non-Assigned Inventions" means as any invention for which no
equipment, supplies, facility or trade secret information of Capella was used
and which was developed entirely on Employee's own time, and (1) which does not
relate (a) directly to the business of Capella or (b) to Capella's actual or
demonstrably anticipated research and development, or (2) which does not result
from any work performed for Capella.

          d. "Competitor" means 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 Capella
did business or had customers or learners at any time the last 12 months of my
Capella employment. In the case of a not-for-profit 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 "Competitor" shall be
limited to the On-Line Unit, and shall not apply to the organization as a whole.

     2. CONFIDENTIAL INFORMATION. Except as required in Employee's duties of
Capella employment or as authorized in writing by the Chief Executive Officer or
his designee, Employee shall not, either during the Employee's employment by
Capella or at any time thereafter, use or disclose to any person any Capella
Confidential Information for any purpose. Employee shall follow all procedures
and policies adopted by Capella from time to time regarding the treatment and
protection of Capella Confidential Information as well as the confidential
information of learners or of others.

     3. RESTRICTIONS ON COMPETITION. For a period of 12 months after the
Employee's Capella employment ends for any reason, Employee shall:

          a. inform any prospective new employer, prior to accepting employment,
of the existence of this Agreement and provide such employer a copy of this
Agreement;

          b. not, directly or indirectly, as employee, consultant, contractor or
otherwise, perform services for any Competitor; and

          c. not directly or indirectly solicit or attempt to solicit any
employee or independent contractor of Capella to cease working for Capella.

     4. INVENTIONS.

          a. With respect to Inventions developed, made, created, authored,
conceived, or reduced to practice by Employee, in whole or in part, either by
Employee or in connection with others, during Employee's employment by Capella
(regardless of whether

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during normal working hours or whether at Capella premises) or within one year
after the termination of that employment for any reason, Employee shall:

               (i) keep complete and accurate records of such Inventions, which
records shall be Capella property (except for records related solely to
Non-Assigned Inventions, which records must be kept but are not Capella
property);

               (ii) comply with all of Capella's policies and guidelines related
to inventions and copyrights, as they may be revised from time to time;

               (iii) promptly disclose in writing such Inventions to Capella;

               (iv) assign (and Employee hereby does assign) to Capella all of
Employee's rights to such Inventions (except for Non-Assigned Inventions) and to
letters patent and copyrights granted upon such Inventions (except for
Non-Assigned Inventions) in all countries; and

               (v) execute such documents and do such other acts as may be
necessary in the opinion of Capella to establish and preserve its property
rights and to obtain and maintain letters patent and copyrights in favor of
Capella.

If for any reason any such assignment is invalid or ineffective for any reason,
then Employee hereby grants Capella a perpetual, royalty-free, non-exclusive,
worldwide license fully to exploit any intellectual property or proprietary
rights in such Invention and any copyrights or patents (or other intellectual
property or proprietary registrations or applications) resulting therefrom.

          b. Capella shall compensate employees for assigning their rights in
inventions that Capella seeks to protect under patent laws in an amount not to
exceed $100 per invention (evenly allocated among all inventors).

          c. If Capella in good faith believes that any Invention constitutes a
Non-Assigned Invention, then Capella shall inform Employee of that fact within
thirty (30) days of receiving a disclosure under subparagraph a(iii) of this
Paragraph 4 (unless the parties agree on a different period of time on a
case-by-case basis). If Capella does not so notify Employee and Employee
nonetheless in good faith believes that such Invention constitutes a
Non-Assigned Invention, then Employee shall inform Capella within thirty (30)
days of the end of the period set forth in the preceding sentence, setting forth
reasons for such belief. If within thirty (30) days of Capella's receipt thereof
Capella informs Employee that it disagrees, then the parties shall attempt in
good faith to resolve their disagreement. Employee shall bear the burden of
proving that such Invention constitutes a Non-Assigned Invention.

          d. Unless proven otherwise, any Invention shall be presumed to have
been conceived during Employee's employment with Capella if within one (1) year
after termination of such employment such Invention is disclosed to others, is
completed, or has a patent application filed thereon.

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          e. When developing a Capella course and/or content for a Capella
course, (i) Employee shall abide by all of the terms, conditions and policies of
Capella related to course and content development; (ii) Employee shall abide by
the terms of any separate agreement between Employee and Capella related to the
course or content development; and (iii) if Employee chooses to include or refer
to any materials for which Employee owns the copyright, then Employee hereby
grants, and agrees to grant, to Capella a royalty-free, perpetual, irrevocable,
nonexclusive, and fully sublicensable right to use, reproduce, adapt, publish,
translate, create derivative works of, distribute, perform, and display such
materials (in whole or in part) worldwide and/or to incorporate them in other
works in any form, media, or technology now known or later developed, solely in
connection with providing the course (as the course may be changed from time to
time).

          f. Except to the degree that such materials are created in connection
with the development of course design or content, Capella does not claim the
copyrights to scholarly books or articles written by faculty members that relate
to the faculty member's area of subject matter expertise and that do not relate
to methods of course delivery or distance learning proprietary to Capella.

     5. RETURN OF PROPERTY. Upon termination of employment with Capella,
Employee shall deliver promptly to Capella all records, manuals, books, forms,
documents, letters, memoranda, data, tables, photographs, video tapes, audio
tapes, computer disks and other computer storage media, and copies thereof, that
are the property of Capella, or that relate in any way to the business,
products, services, personnel, customers, learners, practices, or techniques of
Capella, and all other property of Capella (such as, for example, computers,
cellular telephones, pagers, credit cards, and keys), whether or not containing
Confidential Information, that are in Employee' possession or under his control.

     6. REASONABLENESS OF RESTRICTIONS. Employee acknowledges and agrees that
the terms of this Agreement are reasonable and necessary for the protection of
Capella's Confidential Information and business and to prevent damage or loss to
Capella as a result of any action of Employee. Employee specifically
acknowledges and agrees that because of the world-wide coverage and
accessibility of the Internet, it is not possible to limit further the
geographic scope of the restrictions described in Paragraph 3 above in a manner
that would still provide reasonable protection for the legitimate interests of
Capella.

     7. REMEDIES FOR BREACH. Employee hereby acknowledges and agrees that any
breach by Employee of the provisions of this Agreement may cause Capella
irreparable harm for which there is no adequate remedy at law. Therefore,
Capella shall be entitled, in addition to any other remedies available, to
injunctive or other equitable relief to require specific performance or to
prevent a breach of the provisions of this Agreement. Any delay by Capella in
asserting a right under this Agreement or any failure by Capella to assert a
right under this Agreement will not constitute a waiver by Capella of any right
hereunder, and Capella may subsequently assert any or all of its rights under
this Agreement as if the delay or failure to assert rights had not occurred.

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     8. NO EMPLOYMENT RIGHTS. This Agreement does not require Capella to employ
Employee for any particular length of time and does not restrict the ability of
Capella to terminate the employment relationship. Except as provided in a
separate written agreement signed by the Capella Chief Executive Officer or his
designee, Employee's Capella employment is at-will.

     9. PARTIAL INVALIDITY. In the event that any portion of this Agreement is
held to be invalid or unenforceable for any reason, that invalidity or
unenforceability shall not affect the other portions of this Agreement and the
remaining terms and conditions, or portions thereof, shall remain in full force
and effect. A court of competent jurisdiction may so modify the objectionable
provision as to make it valid, reasonable, and enforceable. It is the intention
of the parties that the restrictions imposed by this Agreement be enforced to
the maximum permissible extent.

     10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
be enforceable by the parties hereto and their respective successors and
assigns.

     11. GOVERNING LAW. This Agreement and any disputes arising out of it shall
be governed by the laws of the State of Minnesota without regard for the
conflicts of law principles of any state.

     12. FORUM SELECTION. Any disputes arising out of or related to this
Agreement shall be litigated only in Minnesota state courts or in the United
States District Court for the District of Minnesota, and Capella and Employee
hereby consent to the exercise of personal jurisdiction over them for that
purpose by Minnesota state courts and the United States District Court for the
District of Minnesota. Neither employee nor Capella shall commence litigation
against the other arising out of or related to this Agreement in any court
outside the state of Minnesota.

                                        EMPLOYEE

                                        /s/ Reed Watson
                                        ----------------------------------------

                                        CAPELLA EDUCATION COMPANY

                                        By /s/ Betsy Rausch
                                           -------------------------------------
                                        Its 6/27/2006

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