10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-33140

CAPELLA EDUCATION COMPANY

(Exact name of registrant as specified in its charter)

Minnesota	41-1717955
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

225 South Sixth Street, 9th Floor

Minneapolis, Minnesota 55402

(Address, including zip code, of principal executive offices)

(888) 227-3552

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The total number of shares of common stock outstanding as of April 28, 2008, was 16,767,116.

CAPELLA EDUCATION COMPANY

FORM 10-Q

INDEX

	Page
PART I – FINANCIAL INFORMATION
Item 1 Financial Statements	3
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3 Quantitative and Qualitative Disclosures About Market Risk	15
Item 4 Controls and Procedures	16
PART II – OTHER INFORMATION
Item 1 Legal Proceedings	16
Item 1A Risk Factors	16
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3 Defaults Upon Senior Securities	17
Item 4 Submission of Matters to a Vote of Security Holders	17
Item 5 Other Information	17
Item 6 Exhibits	17
SIGNATURES	18

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CAPELLA EDUCATION COMPANY

Consolidated Balance Sheets

(In thousands, except par value)

	As of March 31, 2008			As of December 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,040		$	60,600
Marketable securities		113,813			83,167
Accounts receivable, net of allowance of $1,686 at March 31, 2008 and $951 at December 31, 2007		8,523			7,557
Prepaid expenses and other current assets		8,538			12,593
Deferred income taxes		1,877			1,896
Total current assets		150,791			165,813
Property and equipment, net		35,586			34,462
Total assets	$	186,377		$	200,275
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,989		$	6,089
Accrued liabilities		25,990			23,826
Deferred revenue		6,941			6,476
Total current liabilities		36,920			36,391
Deferred rent		1,247			1,167
Other liabilities		335			335
Deferred income taxes		5,210			5,508
Total liabilities		43,712			43,401
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares — 100,000
Issued and outstanding shares — 17,010 at March 31, 2008 and 17,363 at December 31, 2007		170			173
Additional paid-in capital		177,010			196,643
Accumulated other comprehensive income		134			195
Retained earnings (accumulated deficit)		(34,649	)		(40,137	)
Total shareholders’ equity		142,665			156,874
Total liabilities and shareholders’ equity	$	186,377		$	200,275

The accompanying notes are an integral part of these consolidated financial statements.

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CAPELLA EDUCATION COMPANY

Consolidated Statements of Income

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2008		2007
	(Unaudited)
Revenues	$	65,251	$	52,824
Costs and expenses:
Instructional costs and services		29,016		23,523
Marketing and promotional		21,393		18,320
General and administrative		7,730		5,981
Total costs and expenses		58,139		47,824
Operating income		7,112		5,000
Other income, net		1,389		1,092
Income before income taxes		8,501		6,092
Income tax expense		3,013		2,248
Net income	$	5,488	$	3,844
Net income per common share:
Basic	$	0.32	$	0.24
Diluted	$	0.31	$	0.23
Weighted average number of common shares outstanding:
Basic		17,316		16,015
Diluted		17,894		16,700

The accompanying notes are an integral part of these consolidated financial statements.

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CAPELLA EDUCATION COMPANY

Consolidated Statements of Cash Flows

(In thousands)

	Three Months Ended March 31,
	2008			2007
	(Unaudited)
Operating activities
Net income	$	5,488		$	3,844
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for bad debts		1,141			700
Depreciation and amortization		2,765			2,410
Amortization of investment discount (premium)		446			(65	)
Asset impairment		—			23
Gain realized on sale of marketable securities		(169	)		—
Stock-based compensation		1,042			684
Excess tax benefits from stock-based compensation		(400	)		(53	)
Deferred income taxes		(242	)		(150	)
Changes in operating assets and liabilities:
Accounts receivable		(2,107	)		(386	)
Prepaid expenses and other current assets		4,489			2,230
Accounts payable and accrued liabilities		(2,914	)		(2,764	)
Deferred rent		80			(157	)
Deferred revenue		465			(35	)
Net cash provided by operating activities		10,084			6,281
Investing activities
Capital expenditures		(4,449	)		(3,556	)
Purchases of marketable securities		(69,030	)		(71,412	)
Sales and maturities of marketable securities		38,010			69,188
Net cash used in investing activities		(35,469	)		(5,780	)
Financing activities
Payments of capital lease obligations and notes payable		—			(1	)
Excess tax benefits from stock-based compensation		400			53
Net proceeds from exercise of stock options		638			329
Repurchase of common stock		(18,213	)		—
Net cash (used in) provided by financing activities		(17,175	)		381
Net (decrease) increase in cash and cash equivalents		(42,560	)		882
Cash and cash equivalents at beginning of period		60,600			22,491
Cash and cash equivalents at end of period	$	18,040		$	23,373
Supplemental disclosures of cash flow information
Income taxes paid	$	33		$	49
Noncash transactions:
Purchase of shares included in accrued liabilities	$	3,537		$	—
Purchase of equipment included in accounts payable and accrued liabilities	$	987		$	937
Retirement of equipment financed through capital lease obligations	$	—		$	11

The accompanying notes are an integral part of these consolidated financial statements.

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CAPELLA EDUCATION COMPANY

Notes to Consolidated Financial Statements

(In thousands, except per share data)

(Unaudited)

1. Nature of Business

Capella Education Company (the Company) was incorporated on December 27, 1991. Through its wholly-owned subsidiary, Capella University (the University), the Company manages its business on the basis of one reportable segment. The University is an online post-secondary education services company that offers a variety of bachelor’s, master’s and doctoral degree programs primarily delivered to working adults. Capella University is accredited by The Higher Learning Commission and is a member of the North Central Association of Colleges and Schools (NCA).

2. Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of the Company and the University, after elimination of all intercompany accounts and transactions.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (2007 Annual Report on Form 10-K).

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Contingencies

The Company accrues for costs associated with contingencies including, but not limited to, regulatory compliance and legal matters when such costs are probable and reasonably estimable. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved. The Company bases these accruals on management’s estimate of such costs, which may vary from the ultimate cost and expenses associated with any such contingency.

Recently Adopted Financial Accounting Pronouncements

The Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement No. 157 (FAS 157), Fair Value Measurements, on January 1, 2008. FAS 157 defines fair value, establishes a framework for measuring fair value in Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements. The implementation of this Statement was not material to the Company’s consolidated financial position or results of operations.

3. Net Income Per Common Share

Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of options and restricted stock.

The table below is a reconciliation of the numerator and denominator in the basic and diluted net income per common share calculation.

	Three Months Ended March 31,
	2008		2007
Numerator:
Net income	$	5,488	$	3,844
Denominator:
Denominator for basic net income per common share — weighted average shares outstanding		17,316		16,015
Effect of dilutive stock options and restricted stock		578		685
Denominator for diluted net income per common share		17,894		16,700
Basic net income per common share	$	0.32	$	0.24
Diluted net income per common share	$	0.31	$	0.23

Options to purchase 96 and 12 common shares, respectively, were outstanding but not included in the computation of diluted net income per common share in the three months ended March 31, 2008 and 2007, respectively, because their effect would be antidilutive.

4. Accrued Liabilities

Accrued liabilities consist of the following:

	As of March 31, 2008		As of December 31, 2007
Accrued compensation and benefits	$	5,305	$	8,879
Accrued instructional fees		5,031		4,767
Accrued vacation		1,445		1,032
Customer deposits		1,847		1,658
Stock repurchase accrual		3,537		—
Other		8,825		7,490
	$	25,990	$	23,826

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5. Operating Lease Obligations

The Company leases its office facilities and certain office equipment under various noncancelable operating leases. Effective March 17, 2008, the Company entered into an amendment of its current lease with Minneapolis 225 Holdings, LLC pursuant to which the Company will renew and expand its existing lease premises at 225 South Sixth Street in Minneapolis, Minnesota through 2015.

Future minimum lease commitments under the leases as of March 31, 2008, are as follows:

2008	$	3,079
2009		4,002
2010		4,574
2011		5,097
2012		5,250
2013 and thereafter		15,734
Total	$	37,736

The Company recognizes rent expense on a straight-line basis over the term of the lease, although the lease may include escalation clauses that provide for lower rent payments at the start of the lease term and higher lease payments at the end of the lease term. Cash or lease incentives received from lessors are recognized on a straight-line basis as a reduction to rent from the date the Company takes possession of the property through the end of the lease term. The Company records the unamortized portion of the incentive as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.

6. Litigation

In the ordinary conduct of business, the Company is subject to various lawsuits and claims covering a wide range of matters, including, but not limited to, claims involving learners or graduates and routine employment matters. The Company does not believe that the outcome of any pending claims will have a material adverse impact on its consolidated financial position or results of operations.

7. Common Stock

On March 3, 2008, the Company announced that its Board of Directors has authorized the Company to repurchase up to $50,000 of shares of common stock with no expiration date. As of March 31, 2008, the Company had repurchased 394 shares for total consideration of $21,766 including $16 in commissions, which were expensed. Cash spent during the period on the purchase of shares totaled $18,213. The amount of cash expended excludes $3,537 for shares purchased March 27, March 28, and March 31, 2008, but due to timing, the cash payments for these purchases were made April 1, April 2, and April 3, 2008, respectively.

8. Stock-Based Compensation

The table below reflects our stock-based compensation expense recognized in the consolidated statements of income for the three months ended March 31, 2008 and 2007:

	Three Months Ended March 31,
	2008		2007
Instructional costs and services	$	332	$	250
Marketing and promotional		199		123
General and administrative		511		311
Stock-based compensation expense included in operating income		1,042		684
Tax benefit		284		150
Stock-based compensation expense, net of tax	$	758	$	534

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The tables below summarize stock option activity and other stock option information for the periods indicated:

	Available for Grant		Plan Options Outstanding				Weighted- Average Exercise Price per Share
Service-based Stock Options			Incentive		Non-Qualified
Balance, December 31, 2007	1,795		505		768		$	23.24
Granted	(39	)	—		39			54.42
Exercised	—		(23	)	(17	)		15.67
Canceled	10		(6	)	(7	)		23.88
Balance, March 31, 2008	1,766		476		783			24.45
Performance-based Stock Options
Balance, December 31, 2007			—		50		$	20.00
Exercised			—		—			—
Balance, March 31, 2008			—		50			20.00

The outstanding performance-based stock options had a weighted-average remaining contractual life of 7.9 years and an aggregate intrinsic value of $1,736 at March 31, 2008.

Service-based Stock Options	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at March 31, 2008	1,259	$	24.45	6.5	$	38,508
Vested and expected to vest, March 31, 2008	1,210	$	24.18	6.5	$	37,344
Exercisable, March 31, 2008	528	$	17.70	6.0	$	19,469

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on March 31, 2008 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2008. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

Restricted stock activity for the three months ended March 31, 2008 is summarized as follows:

Restricted Stock	Number of Shares	Weighted- Average Grant Date Fair Value per Share
Balance, December 31, 2007	1	$	51.69
Granted	4		53.69
Vested	—		—
Forfeited	—		—
Balance, March 31, 2008	5	$	53.26

The following table summarizes information regarding all stock option exercises for the periods indicated:

	Three Months Ended March 31,
	2008		2007
Proceeds from stock options exercised	$	638	$	329
Tax benefits related to stock options exercised		434		95
Intrinsic value of stock options exercised		1,662		477

Intrinsic value of stock options exercised is estimated by taking the difference between the Company’s closing stock price on the date of exercise and the exercise price, multiplied by the number of options exercised for each option holder and then aggregated.

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As of March 31, 2008, total compensation cost related to nonvested service-based stock options not yet recognized was $8,024, which is expected to be recognized over the next 27 months on a weighted-average basis.

9. Fair Value Measurements

The following table summarizes certain fair value information at March 31, 2008 for assets and liabilities measured at fair value on a recurring basis:

			Fair Value Measurements Using
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	18,040	$	18,040	$	—	$	—
Marketable securities Municipals	$	113,813	$	—	$	113,813	$	—
	$	131,853	$	18,040	$	113,813	$	—

10. Regulatory Supervision and Oversight

The University is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act (HEA) and the regulations promulgated thereunder by the U.S. Department of Education (DOE) subject the University to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy to participate in the various types of federal learner financial assistance under Title IV Programs.

To participate in the Title IV Programs, an institution must be authorized to offer its programs of instruction by the relevant agencies of the state in which it is located, accredited by an accrediting agency recognized by the DOE and certified as eligible by the DOE. The DOE will certify an institution to participate in the Title IV Programs only after the institution has demonstrated compliance with the HEA and the DOE’s extensive academic, administrative, and financial regulations regarding institutional eligibility. An institution must also demonstrate its compliance with these requirements to the DOE on an ongoing basis.

The Company performs periodic reviews of its compliance with the various applicable regulatory requirements. The Company has not been notified by any of the various regulatory agencies of any significant noncompliance matters that would adversely impact its ability to participate in Title IV programs, however, the Office of Inspector General (OIG) has conducted a compliance audit of Capella University. The audit commenced on April 10, 2006 and the Company subsequently provided the OIG with periodic information, responded to follow up inquiries and facilitated site visits and access to the Company’s records. The OIG completed its field work in January 2007 and the Company received a draft audit report on August 23, 2007. Capella University provided written comments on the draft audit report to the OIG on September 25, 2007. On March 7, 2008, the OIG’s final report was issued to the Acting Chief Operating Officer (COO) for Federal Student Aid (FSA), which is responsible for primary oversight of the Title IV funding programs. The Company responded to the final report on April 8, 2008. The FSA will subsequently issue final findings and requirements for Capella University. The FSA may take certain actions, including that we refund certain federal student aid funds, modify our Title IV administration procedures and pay fines or penalties.

Based on the final audit report, the most significant potential financial exposure from the audit pertains to repayments to the Department of Education that could be required if the OIG concludes that Capella University did not properly calculate the amount of Title IV funds required to be returned for learners that withdrew without providing an official notification of such withdrawal and without engaging in academic activity prior to such withdrawal. If it is determined that Capella University improperly withheld any portion of these funds, Capella University would be required to return the improperly withheld funds. For the three year audit period, and for the 2005-2006 aid year, the Company estimates that the total amount of Title IV funds not returned for learners who withdrew without providing official notification was less than $1,000, including interest, but not including fines and penalties.

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Political and budgetary concerns significantly affect the Title IV Programs. Congress reauthorizes the HEA and other laws governing Title IV Programs approximately every five to eight years. The last reauthorization of the HEA was completed in 1998. Although the process for reauthorization of the HEA is underway, there is no assurance on when or if it will be completed. Because reauthorization was not completed in a timely manner, Congress had extended the current provisions of the HEA through April 30, 2008. As of the time of this filing, Congress has failed to reauthorize or further extend the current provisions of the HEA; however, we understand that appropriations for current Title IV programs will not be impacted as they were addressed in the Deficit Reduction Act of 2008. Additionally, Congress reviews and determines appropriations for Title IV programs on an annual basis through the budget and appropriations processes. As of March 31, 2008, programs in which the Capella University’s learners participate are operative and sufficiently funded.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this report.

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). In addition, certain statements in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to, statements regarding: proposed new programs; regulatory developments; projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this report on Form 10-Q. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission (SEC).

Overview

Background

We are an exclusively online post-secondary education services company. Our wholly owned subsidiary, Capella University, is a regionally accredited university that offers a variety of undergraduate and graduate degree programs primarily delivered to working adults. At March 31, 2008, we offered over 950 courses and 19 degree programs with 104 specializations at the undergraduate and graduate levels to approximately 23,500 learners.

We were founded in 1991, and in 1993 we established our wholly owned university subsidiary, then named The Graduate School of America, to offer doctoral and master’s degrees through distance learning programs in management, education, human services and interdisciplinary studies. In 1995, we launched our online format for delivery of our doctoral and master’s degree programs over the Internet. In 1997, our university subsidiary received accreditation from the North Central Association of Colleges and Schools (later renamed The Higher Learning Commission of the North Central Association of Colleges and Schools). In 1998, we began the expansion of our original portfolio of academic programs by introducing doctoral and master’s degrees in psychology and a master of business administration degree. In 1999, to expand the reach of our brand in anticipation of moving into the bachelor’s degree market,

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we changed our name to Capella Education Company and the name of our university to Capella University. In 2000, we introduced our bachelor’s degree completion program in information technology, which provided instruction for the last two years of a four-year bachelor’s degree. In 2001, we introduced our bachelor’s degree completion program in business. In 2004, we introduced our four-year bachelor’s degree programs in business and information technology, as well as three master’s-level specializations in education targeted at K-12 teachers. In November 2006, we completed an initial public offering of our common stock. In May 2007, we completed a follow-on offering of our common stock. Additionally, during 2007, we introduced six new degree programs and 31 new specializations, including our first ever specializations in Public Safety and nine new PhD specializations. During the first quarter of 2008, we commenced a stock repurchase program and Capella University’s accreditation was reaffirmed by The Higher Learning Commission (HLC).

Critical Accounting Policies and Use of Estimates

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. During the three months ended March 31, 2008, there have been no significant changes in our critical accounting policies.

Results of Operations

The following table sets forth statements of operations data as a percentage of revenues for each of the periods indicated:

	Three Months Ended March 31,
	2008		2007
Revenues	100.0	%	100.0	%
Costs and expenses:
Instructional costs and services	44.5		44.5
Marketing and promotional	32.8		34.7
General and administrative	11.8		11.3
Total costs and expenses	89.1		90.5
Operating income	10.9		9.5
Other income, net	2.1		2.1
Income before income taxes	13.0		11.6
Income tax expense	4.6		4.3
Net income	8.4	%	7.3	%

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Revenues. Our revenues for the three months ended March 31, 2008 were $65.3 million, representing an increase of $12.4 million, or 23.5%, as compared to revenues of $52.8 million for the three months ended March 31, 2007. Of this increase, 20.3 percentage points were due to increased enrollments and 4.6 percentage points were due to the impact of pricing increases, which was partially offset by a 0.9 percentage point decrease due to a larger proportion of master’s and bachelor’s learners, who generated less revenue per learner than our doctoral learners. End-of-period enrollment increased 22.7% in 2008 compared to 2007.

Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended March 31, 2008 were $29.0 million, representing an increase of $5.5 million, or 23.4%, as compared to instructional costs and services expenses of $23.5 million for the three months ended March 31, 2007. This increase was primarily due to an increase in learner support services and increases in instructional pay as a result of the increase in enrollments, as well as an increase in information technology expenses and depreciation due to the implementation of additional modules of our enterprise resource planning system. Our instructional costs and services expenses as a percentage of revenues remained consistent at 44.5% for the three months ended March 31, 2008 and 2007. There was a decrease due to a decrease in the ratio between faculty compensation and revenue, a decrease in bonus expense, and an increased margin on colloquia due to leveraging fixed colloquia costs and a price increase. These decreases as a percentage of revenue were offset by increases in learner support services as a result of preparation for the implementation of the student administration module of our enterprise resource planning system.

Marketing and promotional expenses. Our marketing and promotional expenses for the three months ended March 31, 2008 were $21.4 million, representing an increase of $3.1 million, or 16.8%, as compared to marketing and promotional expenses of $18.3 million for the three months ended March 31, 2007. This increase was driven by greater spending in online media and an increase in recruitment and marketing staffing. Our marketing and promotional expenses as a percentage of revenues decreased by 1.9 percentage

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points to 32.8% for the three months ended March 31, 2008, from 34.7% for the three months ended March 31, 2007. This decline as a percent of revenues was planned, and reflects a combination of a greater percentage of expected annual new enrollment marketing spending in the first quarter of 2007 compared to 2008, marketing efficiencies across total enrollments, and a decrease in bonus expense.

General and administrative expenses. Our general and administrative expenses for the three months ended March 31, 2008 were $7.7 million, representing an increase of $1.7 million, or 29.2%, as compared to general and administrative expenses of $6.0 million for the three months ended March 31, 2007. Our general and administrative expenses as a percentage of revenues increased by 0.5 percentage points to 11.8% for the three months ended March 31, 2008, from 11.3% for the three months ended March 31, 2007. In dollars and as a percent of revenues, the increase was primarily attributable to expected increases in bad debt expense related to a condensed collection period and a change to a more conservative policy resulting from the enterprise resource planning system implementation, an increase in information technology expenses due to higher professional services costs related to the implementation of our enterprise resource planning system and infrastructure investments related to current and future growth, including recruitment costs. This increase was partially offset by a decrease in bonus expense.

Other income, net. Other income, net increased by $0.3 million, or 27.2%, to $1.4 million for the three months ended March 31, 2008, from $1.1 million for the three months ended March 31, 2007. The increase was principally due to increased levels of interest income on higher average marketable securities balances and an increase in realized gains on the sale of marketable securities, partially offset by lower interest rates earned in 2008.

Income tax expense. We recognized tax expense for the three months ended March 31, 2008 and 2007 of $3.0 million and $2.2 million, respectively, or at effective tax rates of 35.4% and 36.9%, respectively. The decrease in our effective tax rate in the first quarter of 2008 from 2007 reflects our continued focus on tax mitigation strategies and a decrease in the impact of non-deductible FAS 123(R) stock-based compensation expense for incentive stock options.

Net income. Net income was $5.5 million for the three months ended March 31, 2008, compared to net income of $3.8 million for the three months ended March 31, 2007, an increase of $1.6 million, because of the factors discussed above.

Liquidity and Capital Resources

Liquidity

We financed our operating activities and capital expenditures during the three months ended March 31, 2008 and 2007 primarily through cash provided by operating activities. Our cash, cash equivalents and marketable securities were $131.9 million and $143.8 million at March 31, 2008 and December 31, 2007, respectively. Our cash, cash equivalents and marketable securities decreased primarily due to the share repurchase program announced in March 2008. As of March 31, 2008, we had repurchased 0.4 million shares under this program for total consideration of $21.8 million. Cash spent during the period on the purchase of shares totaled $18.2 million. The amount of cash expended excludes $3.5 million for shares purchased March 27, March 28, and March 31, 2008, but due to timing, the cash payments for these purchases were made April 1, April 2, and April 3, 2008.

We had a higher cash and cash equivalents balance at the beginning of 2008 due to cash received from stock option exercises and redemption of certain securities converted to cash and cash equivalents in light of market conditions, which occurred during the fourth quarter of 2007. During the first quarter of 2008, some of this cash and cash equivalents balance was used to purchase marketable securities as well as to fund the share repurchase program.

In August 2004, we entered into an unsecured $10.0 million line of credit with Wells Fargo Bank. The line of credit has an expiration date of June 30, 2008. There have been no borrowings to date under this line of credit, therefore $10.0 million is available. Any borrowings would bear interest at a rate of either LIBOR plus 2.5% or the bank’s prime rate, at our discretion on the borrowing date.

A significant portion of our revenues are derived from Title IV programs. Federal regulations dictate the timing of disbursements under Title IV programs. Learners must apply for new loans and grants each academic year, which starts July 1. Loan funds are generally provided by lenders in multiple disbursements for each academic year. The disbursements are usually received by the start of the second week of the term. These factors, together with the timing of our learners beginning their programs, affect our operating cash flow.

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Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash, cash equivalents and marketable securities, will provide adequate funds for ongoing operations and planned capital expenditures for the foreseeable future.

Operating Activities

Net cash provided by operating activities was $10.1 million and $6.3 million for the three months ended March 31, 2008 and 2007, respectively. The increase from 2007 to 2008 was primarily due to a $2.5 million increase in various working capital items primarily related to timing of vendor payments and an increase in deferred revenue, a $1.6 million increase in net income, a $0.8 million increase in depreciation and bad debt expense, and a $0.4 million increase in stock-based compensation expense. This was offset by a $1.7 million decrease in cash from accounts receivable. Our accounts receivable balance increased from 2007 to 2008 due to the condensed collection period due to the implementation of our enterprise resource planning system.

Investing Activities

Our cash used in investing activities is primarily related to the purchase of property and equipment and investments in marketable securities. Net cash used in investing activities was $35.5 million and $5.8 million for the three months ended March 31, 2008 and 2007, respectively. Investments in marketable securities consist primarily of purchases, sales and maturities of taxable and tax-exempt municipal securities. As of December 31, 2007, we had $9.8 million in auction rate securities scheduled to mature by January 8, 2008. At maturity, the funds from these auction rate securities were reinvested in variable rate demand notes. No losses were incurred on any investments in auction rate securities during 2007 or in January 2008.

Net purchases of these securities were $31.0 million and $2.2 million during the three months ended March 31, 2008 and 2007, respectively. This increase was driven by lower sales of marketable securities due to the higher cash and cash equivalents balance at December 31, 2007 than December 31, 2006, as we did not require additional sales of securities to fund our normal operations and the share repurchase program. Capital expenditures were $4.4 million and $3.6 million for the three months ended March 31, 2008 and 2007, respectively. The increase in 2008 from 2007 was primarily due to the implementation of additional modules of our enterprise resource planning system.

We are continuing to invest in integrating most of our business systems with an enterprise resource planning system. In 2007 and the first quarter of 2008 we successfully launched several modules. Each had risk mitigation strategies in place to limit the impact to the business. We expect that once implementation is complete, this integration of our systems and processes will improve efficiencies within our instructional costs and services, marketing and promotional expenses, and general and administrative expenses.

We lease all of our facilities. We expect to make future payments on existing leases from cash generated from operations. Effective March 17, 2008, we entered into an amendment of our current lease with Minneapolis 225 Holdings, LLC pursuant to which we will renew and expand our existing lease premises at 225 South Sixth Street in Minneapolis, Minnesota through 2015.

Financing Activities

Net cash used in financing activities was $17.2 million for the three months ended March 31, 2008, and net cash provided by financing activities was $0.4 million for the three months ended March 31, 2007. Financing activities during the three months ended March 31, 2008 were primarily related to the repurchase of common stock in the amount of $18.2 million, partially offset by $0.6 million in proceeds from stock option exercises and $0.4 million in excess tax benefits due to an increase in stock option exercises in the three months ended March 31, 2008 over the same period in 2007. Financing activities during the three months ended March 31, 2007 were primarily related to proceeds of $0.3 million from stock option exercises.

Contractual Obligations

The following table sets forth, as of March 31, 2008, the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms due in each of the periods presented (in thousands):

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	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating leases(a)	$	37,736	$	3,079	$	8,576	$	10,347	$	15,734
Total contractual obligations	$	37,736	$	3,079	$	8,576	$	10,347	$	15,734

(a) Minimum lease commitments for our headquarters and miscellaneous office equipment. Effective March 17, 2008, we entered into an amendment of our current lease with Minneapolis 225 Holdings, LLC pursuant to which we will renew and expand our existing lease premises at 225 South Sixth Street in Minneapolis, Minnesota through 2015.

Regulation and Oversight

We perform periodic reviews of our compliance with the various applicable regulatory requirements. We have not been notified by any of the various regulatory agencies of any significant noncompliance matters that would adversely impact its ability to participate in Title IV programs, however, the Office of Inspector General (OIG) has conducted a compliance audit of Capella University. The audit commenced on April 10, 2006 and we subsequently provided the OIG with periodic information, responded to follow up inquiries and facilitated site visits and access to the Company’s records. The OIG completed its field work in January 2007 and the Company received a draft audit report on August 23, 2007. Capella University provided written comments on the draft audit report to the OIG on September 25, 2007. On March 7, 2008, the OIG’s final report was issued to the Acting Chief Operating Officer (COO) for Federal Student Aid (FSA), which is responsible for primary oversight of the Title IV funding programs. We responded to the final report on April 8, 2008. The FSA will subsequently issue final findings and requirements for Capella University. The FSA may take certain actions, including that we refund certain federal student aid funds, modify our Title IV administration procedures and pay fines or penalties.

Based on the final audit report, the most significant potential financial exposure from the audit pertains to repayments to the Department of Education that could be required if the OIG concludes that Capella University did not properly calculate the amount of Title IV funds required to be returned for learners that withdrew without providing an official notification of such withdrawal and without engaging in academic activity prior to such withdrawal. If it is determined that Capella University improperly withheld any portion of these funds, Capella University would be required to return the improperly withheld funds. For the three year audit period, and for the 2005-2006 aid year, we estimate that the total amount of Title IV funds not returned for learners who withdrew without providing official notification was less than $1.0 million, including interest, but not including fines and penalties.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We have no derivative financial instruments or derivative commodity instruments. We believe the risk related to marketable securities is limited due to the adherence to our investment policy that requires marketable securities to have a minimum Standard & Poor’s rating of A minus (or equivalent). All of our marketable securities as of March 31, 2008 and December 31, 2007 consisted of cash equivalents and marketable securities rated A minus or higher.

Interest Rate Risk

We manage interest rate risk by investing excess funds in cash equivalents and marketable securities bearing a combination of fixed and variable interest rates, which are tied to various market indices. Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. At March 31, 2008, a 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair values, or cash flows related to investments in cash equivalents or interest earning marketable securities.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our chief executive officer and chief financial officer concluded that the company’s disclosure controls and procedures are effective, as of March 31, 2008, in ensuring that material information relating to us required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Securities Exchange Act is accumulated and communicated to management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.

During the first quarter of 2008, we completed the implementation of our largest module of our enterprise resource planning system designed to increase the efficiency of processing transactions and to produce more accurate and timely information for our learner-facing departments.

Except for the preceding change, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not at this time a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on our business, financial condition or results of operation.

Item 1A. Risk Factors

Other than with respect to the risk factor below, there have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2007. We revise, by inserting a new risk factor after our current risk factor captioned “An increase in interest rates or other decrease in loan availability could adversely affect our ability to attract and retain learners.” The new risk factor reads as follows:

Disruptions in FFELP could restrict or limit our learners’ access to federal student loans, thereby materially impacting our enrollment and revenue.

The Title IV federal financial aid received by our learners is administered through the Federal Family Education Loan Program (FFELP), which enables private sector lenders to make federally guaranteed student loans. In response to both Congressional subsidy cuts and instability in the credit markets, a certain number of FFELP lenders have recently either withdrawn from the program or limited the borrowers to whom they will make student loans. Some of the lenders who have withdrawn from or limited access to FFELP loans had previously made loans to certain of our learners. To date, our learners have been able to continue to access FFELP loans through other program participants; however, there is no assurance that they will be able to continue to do so if additional FFELP disruptions occur. If our learners are unable to utilize FFELP loans, either through lack of accessibility or prohibitive cost increases, our enrollment and revenue would be materially reduced.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the three months ended March 31, 2008, the Company used $21.8 million to repurchase shares of common stock under its repurchase program ⁽¹⁾. The Company’s remaining authorization for common stock repurchases was $28.2 million at March 31, 2008. A summary of the Company’s share repurchases during the quarter is set forth below:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
1/1/2008 to 1/31/2008	—		—	—		—
2/1/2008 to 2/28/2008	—		—	—		—
3/1/2008 to 3/31/2008	393,512	$	55.27	393,512	$	28,249,908
Total	393,512	$	55.27	393,512	$	28,249,908

(1) The Company’s repurchase program was announced on March 3, 2008 for repurchases up to an aggregate amount of $50 million in value of common stock with no expiration date. As of March 31, 2008, we purchased 393,512 shares at an average price of $55.27 totaling $21.8 million. Cash spent during the period on the purchase of shares totaled $18.2 million. The amount of cash expended excludes $3.5 million for shares purchased March 27, March 28, and March 31, 2008, but due to timing, the cash payments for these purchases were made April 1, April 2, and April 3, 2008.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

Number	Description	Method of Filing
3.1	Amended and Restated Articles of Incorporation.	Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 11, 2006.
3.2	Amended and Restated By-Laws.	Incorporated by reference to Exhibit 3.4 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 6, 2006.
4.1	Specimen of common stock certificate.	Incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 19, 2006.
10.1	Second Amendment to Lease, dated as of March 17, 2008, by and between the Registrant and Minneapolis 225 Holdings, LLC.	Filed electronically.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed electronically.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed electronically.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed electronically.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed electronically.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAPELLA EDUCATION COMPANY
/s/ STEPHEN G. SHANK	May 1, 2008
Stephen G. Shank
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ LOIS M. MARTIN	May 1, 2008
Lois M. Martin
Senior Vice President and Chief
Financial Officer (Principal Financial Officer)
/s/ AMY L. DRIFKA	May 1, 2008
Amy L. Drifka
Vice President and Controller
(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

SECOND AMENDMENT TO LEASE

This Second Amendment to Lease (the “Amendment” or “Second Amendment”) is entered into effective as of March 17, 2008 (the “Effective Date”), by and between Minneapolis 225 Holdings, LLC, a Delaware limited liability company (“Landlord”), and Capella Education Company, a Minnesota corporation (“Tenant”).

RECITALS

A. Landlord and Tenant are parties to an Office Lease dated February 23, 2004 (the “Original Lease”), which was amended by a First Amendment to Lease dated May 16, 2006 (the “First Amendment”) (as so previously amended the “Existing Lease” and as amended by this Second Amendment, the “Lease”), relating to certain premises situated in the office project now commonly known as 225 South Sixth in Minneapolis, Minnesota.

B. Landlord and Tenant now want to expand the size of the Premises and to extend the Term of the Lease on the terms and conditions hereinafter set forth.

Accordingly, Landlord and Tenant hereby agree as follows:

1. Application of Lease Terms. Except to the extent inconsistent with this Amendment and except to the extent that the terms of this Amendment specifically address a topic, the terms and conditions of the Existing Lease shall apply. Those capitalized terms which are used in this Amendment and are not defined herein shall have the respective meaning given to them in the Existing Lease.

2. Definitions. The following definitions are hereby added alphabetically to Section 1 of the Lease:

“Applicable Improvement Allowance” means (i) Six Dollars ($6.00) per square foot of the Rentable Area of the Existing Premises, (ii) Thirty Six Dollars ($36.00) per square foot of the Rentable Area of the First Expansion Space, (iii) Thirty Four Dollars ($34.00) per square foot of the Rentable Area of the Second Expansion Space, (iv) Thirty One Dollars ($31.00) per square foot of the Rentable Area of the Third Expansion Space, and (v) Thirty Dollars ($30.00) per square foot of the Rentable Area of the Fourth Expansion Space.

“Applicable Improvement Allowance Expiration Date” means (i) December 31, 2009, with respect to the Applicable Improvement Allowance for the Existing Premises, (ii) December 31, 2009, with respect to the Applicable Improvement Allowance for the First Expansion Space, (iii) September 30, 2010, with respect to the Applicable Improvement Allowance for the Second Expansion Space, (iv) September 30, 2011, with respect to the Applicable Improvement Allowance for the Third Expansion Space, and (v) September 30, 2011, with respect to the Applicable Improvement Allowance for the Fourth Expansion Space.

“Break Room-Meeting Room Space” means the approximately 10,008 square feet of the Rentable Area of the Third Expansion Space which is depicted on Exhibit Q-3 that is attached to this Second Amendment.

“Break Room-Meeting Room Space Delivery Date” shall be July 1, 2008, or on such earlier date as Ameriprise Financial, Inc. permits Landlord to deliver possession of such space to Tenant.

“Existing Premises” means the 203,321 square feet of Rentable Area that Tenant is currently leasing from Landlord pursuant to the Existing Lease.

“Expansion Space Delivery Date” means (i) the First Expansion Space Delivery Date, or (ii) the Second Expansion Space Delivery Date, or (iii) the Third Expansion Space Delivery Date, (iv) the Fourth Expansion Space Delivery Date, or (v) the Break Room-Meeting Room Space Delivery Date.

“Expansion Space Rent Commencement Date” means (i) the First Expansion Space Rent Commencement Date, or (ii) the Second Expansion Space Rent Commencement Date, or (iii) the Third Expansion Space Rent Commencement Date, or (iv) the Fourth Expansion Space Rent Commencement Date.

“First Expansion Space” means the approximately 26,148 square feet of Rentable Area which is located on the 5^th floor of the Tower and which is depicted on Exhibit Q-1 that is attached to this Second Amendment.

“First Expansion Space Delivery Date” means the date on which this Second Amendment has been fully executed and delivered.

“First Expansion Space Rent Commencement Date” means July 1, 2008.

“Second Amendment Expansion Space” means (i) the First Expansion Space, or (ii) the Second Expansion Space, or (iii) the Third Expansion Space, or (iv) the Fourth Expansion Space.

“Second Amendment Expansion Spaces” means the First Expansion Space, the Second Expansion Space, the Third Expansion Space and the Fourth Expansion Space.

“Second Expansion Space” means the approximately 109,941 square feet of Rentable Area which is located on the 10^th and 11th floors of the Building and the Tower and which is depicted on Exhibit Q-2 that is attached to this Second Amendment.

“Second Expansion Space Delivery Date” means August 1, 2008.

“Second Expansion Space Rent Commencement Date” means March 1, 2009.

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“Third Expansion Space” means the approximately 26,708 square feet of Rentable Area which is located on the 5th floor of the Building and which is depicted on Exhibit Q-3 that is attached to this Second Amendment.

“Third Expansion Space Delivery Date” means August 1, 2009, except that the portion of the Third Expansion Space which is defined as the Break Room-Meeting Room Space shall be delivered on the Break Room-Meeting Room Space Delivery Date.

“Third Expansion Space Rent Commencement Date” means the earlier of (i) March 1, 2010, or (ii) sixty (60) days after Tenant occupies any portion of the Third Expansion Space (other than the Break Room-Meeting Space) for the conduct of Tenant’s business.

“Fourth Expansion Space” means the approximately 29,520 square feet of Rentable Area which is located on the 6th floor of the Building and which is depicted on Exhibit Q-4 that is attached to this Second Amendment.

“Fourth Expansion Space Delivery Date” means August 1, 2009.

“Fourth Expansion Space Rent Commencement Date” means the earlier of (i) November 1, 2010, or (ii) thirty (30) days after Tenant occupies any portion of the Fourth Expansion Space for the conduct of Tenant’s business.

In addition, the definition of “Premises” in Section 1 of the Lease is hereby amended to read as follows:

“Premises” means the Existing Premises (as defined in the Second Amendment) and all other space which is added to the Premises after the Effective Date of the Second Amendment.

3. Extension of Lease Term. The Term of the Lease is hereby extended for a period of five (5) years beginning on November 1, 2010, and ending on October 31, 2015 (the “First Extension Term”). Any reference to “Term” in the Lease or in any Exhibit thereto shall mean the Term as extended by the First Extension Term, and as the Term of this Lease may be further extended or renewed pursuant to Exhibit G.

4. Delivery of Second Amendment Expansion Spaces.

(a) Landlord shall deliver possession of each Second Amendment Expansion Space to Tenant on the applicable Expansion Space Delivery Date as set forth in Section 2 of this Second Amendment. Tenant acknowledges, however, that Landlord shall not be liable to Tenant for any delays in delivering possession of any portion of the Second Amendment Expansion Space to Tenant because of any holding over by any previous tenant or occupant of the Second Amendment Expansion Space, nor shall any such delay or failure impair the validity of this Lease. Landlord shall, however, use all reasonable efforts (including the institution of any eviction action needed to recover space from any holdover tenant) to deliver possession of each portion of the Second Amendment Expansion Space to Tenant on the applicable Expansion

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Space Delivery Date for such space. If Landlord does not deliver possession of any Second Amendment Expansion Space to Tenant on or before the applicable Expansion Space Delivery Date, then the Expansion Space Rent Commencement Date for such space shall be delayed by one day for each day of such delay until the space is delivered to Tenant in accordance with the requirements of the Lease.

(b) Landlord hereby certifies to Tenant that the Rentable Area of each of the Second Amendment Expansion Spaces, as set forth in Section 2 of this Second Amendment, has been calculated on the basis of the definitions contained in Section 3.1 of the Original Lease.

5. Break Room–Meeting Room Space. Landlord shall use reasonable efforts to obtain the agreement of Ameriprise Financial, Inc. to permit Landlord to deliver, as soon as is reasonably possible, possession to Tenant of the Break Room-Meeting Room Space which Ameriprise Financial, Inc. is currently leasing from Landlord pursuant to a lease which will expire on June 30, 2008. From and after the Break Room–Meeting Room Space Delivery Date, the Break Room–Meeting Room Space shall be a part of the Premises for all purposes of this Lease except for Tenant’s obligation to pay Base Rent and Tenant’s Additional Rent. Beginning on the earlier of (i) date on which Tenant begins to use any portion of the Break Room-Meeting Room Space for the conduct of Tenant’s business, and (ii) October 1, 2008, and continuing thereafter until the Third Expansion Space Rent Commencement Date, Tenant shall pay Landlord on the first day of each month (in lieu of Base Rent or Tenant’s Additional Rent) for the Break Room–Meeting Room Space an amount equal to Landlord’s reasonable determination of the variable expenses for the utilities and janitorial services which will be provided to the Break Room-Meeting Room Space (the “Variable Expenses”); provided that in no event shall Tenant be obligated to pay more than Four Dollars ($4.00) per square foot of the Break Room–Meeting Room Space for Variable Expenses on an annual basis. Landlord estimates that the Variable Expenses for calendar year 2008 shall be approximately $3.88 per square foot of the Break Room–Meeting Room Space on an annual basis. Tenant’s obligation to pay Base Rent and Tenant’s Additional Rent for the Break Room–Meeting Room Space (as part of the Third Expansion Space) shall commence on the Third Expansion Space Rent Commencement Date.

6. Addition to Premises; Declarations Each Second Amendment Expansion Space shall be added to the Premises on the applicable Expansion Space Delivery Date for such space as set forth in Section 2 of this Second Amendment and from and after such Expansion Space Delivery Date, the term “Premises” wherever it appears in this Lease and any Exhibits thereto shall include such Second Amendment Expansion Space; except that Tenant shall not be obligated to pay any Base Rent or Tenant’s Additional Rent with respect to such Second Amendment Expansion Space until the applicable Expansion Space Rent Commencement Date for such space. Landlord shall promptly after each Expansion Space Rent Commencement Date prepare a declaration (substantially in the form of Exhibit C attached hereto) confirming the Commencement Date for the applicable Second Amendment Expansion Space and the other information set forth thereon. Tenant shall execute and return such declaration within twenty (20) days after submission. If Tenant fails to execute and return such declaration to Landlord within said twenty (20) day period, Tenant shall be conclusively deemed to have agreed that the information in the declaration is accurate and Tenant shall have thereby waived any right to object to the accuracy of such information unless Landlord has, during said twenty (20) day period, received a written notice from Tenant objecting to such information and describing in detail Tenant’s reasons for so objecting.

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7. “As Is” Condition. Tenant agrees to accept each Second Amendment Expansion Space in its “as is” condition on the date possession of such space is delivered to Tenant; provided that each Second Amendment Expansion Space must comply with the Space Delivery Standards, and Landlord shall deliver such space broom clean, with all personal property removed. Tenant shall notify the Landlord of any base building systems or equipment that Tenant proposes to relocate or modify that are not in working order prior to relocating or modifying such systems or equipment. Tenant acknowledges that Landlord shall not be obligated to make any improvements to any of the Second Amendment Expansion Spaces and that Tenant shall not be entitled to any construction, build-out or other allowance with respect thereto, except as otherwise provided in Section 8 of this Second Amendment.

8. Improvement Allowances. To help pay for those costs which are incurred by Tenant in designing and constructing those improvements which Tenant desires to make to the Existing Premises and to each of the Second Amendment Expansion Spaces (the “Second Amendment Improvements”), Landlord shall make each Applicable Improvement Allowance available to Tenant. Landlord shall disburse each Applicable Improvement Allowance on a monthly basis in accordance with customary construction disbursement procedures and upon receipt of a sworn construction statement and draw requests, with supporting invoices for actual costs incurred and lien waivers from all material contractors and subcontractors delivered one month in arrears; it being agreed, however, that Landlord shall not be required to disburse any portion of an Applicable Improvement Allowance if Tenant is then in default of its obligations under the Lease. If the actual cost of the Second Amendment Improvements for the Existing Premises or for any Second Amendment Expansion Space exceeds the amount of the Applicable Improvement Allowance, Tenant shall pay the excess costs without reimbursement from Landlord as and when such excess costs become due and payable. If Tenant has not submitted requisitions covering all of the Applicable Improvement Allowance for the Existing Premises or for any Second Amendment Expansion Space on or before the Applicable Improvement Allowance Expiration Date, then up to, but not more than $5.00 of any unused portion of the Applicable Improvement Allowance may be applied as a credit against the next installments of Rent due under this Lease. Notwithstanding anything to the contrary in the foregoing, Tenant may pool the Applicable Improvement Allowances for use in paying the costs of designing and constructing improvements to any one or more of the Second Amendment Expansion Spaces and/or the Existing Premises, but Tenant shall not be entitled to draw upon an Applicable Improvement Allowance prior to the Delivery Date for such Second Amendment Expansion Space (or prior to July 1, 2008, with respect to the Applicable Improvement Allowance for the Existing Premises), or after the Applicable Improvement Allowance Expiration Date. Although possession of the Break Room–Meeting Room Space shall be delivered to Tenant prior to the Delivery Date for the balance of the Third Expansion Space, no portion of the Applicable Improvement Allowance for the Third Expansion Space shall be made available to Tenant prior to August 1, 2009. Landlord shall be permitted to offset against any Applicable Improvement Allowance any amounts past due to Landlord by Tenant under this Lease.

Each Applicable Improvement Allowance shall be treated by Landlord and Tenant as a tenant improvement allowance and all of the leasehold improvements that are constructed and paid for with each Applicable Improvement Allowance shall be owned by Landlord. When Tenant submits a draw request and other supporting materials to Landlord requesting an advance of funds under any Applicable Improvement Allowance (each, an “Advance”), Tenant shall in writing advise Landlord whether the check (or checks) in the amount of the requested Advance

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should be payable to Tenant and/or to one or more of Tenant’s contractors. If Tenant requests that a check for any Advance be made payable to any of Tenant’s contractors, Landlord shall nonetheless deliver such check to Tenant, so that Tenant may deliver the check to the relevant contractor. Promptly following disbursement in full of any Applicable Improvement Allowance, Tenant will submit to Landlord a statement identifying the categories of work with respect to which the Applicable Improvement Allowance was disbursed, allocating to one or more of such categories of work amounts (in the aggregate) equal to the total of the Advances made by Landlord under the Applicable Improvement Allowance. Landlord will execute and return such statement within twenty (20) days after submission by Tenant. If Landlord fails to execute and return such statement and allocation to Landlord within said twenty (20) day period, Landlord shall be conclusively deemed to have agreed with such statement. If Landlord fails to pay any portion of an Applicable Improvement Allowance which is properly due and payable, the unpaid amount shall bear interest until paid at the Interest Rate, and if Landlord fails to pay such properly due and payable amount within ten (10) business days after receiving written notice from Tenant that such amount was not paid when due, then Tenant shall be entitled to offset said amounts (including interest) against Rent due and payable under the Lease.

9. Construction Matters.

(a) Tenant shall have the right to select its own designer and general contractor (subject to Landlord’s approval, which shall not be unreasonably withheld) to design and construct those leasehold improvements which Tenant desires to make to the Second Amendment Expansion Spaces (the “Expansion Space Improvements”). The plans and specifications for the Expansion Space Improvements must be submitted to and be approved by Landlord in accordance with the procedures set forth in Exhibit D to the Original Lease before construction of the Expansion Space Improvements may begin for any Second Amendment Expansion Space and the provisions of Exhibit D shall apply to the Expansion Space Improvements, except to the extent clearly not applicable. Landlord agrees to review Tenant’s Space Plan and Tenant Working Drawings for the Expansion Space Improvements within the review periods requested in said Exhibit D. Mike Julius is hereby designated as the individual who Landlord agrees shall be available to meet and consult with Tenant as Landlord’s representative with respect to the Expansion Space Improvements, and who, as between Landlord and Tenant, shall have the power to legally bind Landlord (“Landlord’s Designated Representative”). Carla Bustrom is hereby designated as the individual who Tenant agrees shall be available to meet and consult with Landlord as Tenant’s representative with respect to the Expansion Space Improvements, and who, as between Tenant and Landlord, shall have the power to legally bind Tenant (“Tenant’s Designated Representative”). Landlord and Tenant shall each have the right to change their respective representatives, and such representatives’ responsibilities, upon notice to the other party given pursuant to the terms of the Lease. All inquiries or instructions from Tenant’s Designated Representative with respect to the Expansion Space Improvements shall be directed in writing to the Landlord’s Designated Representative. Tenant shall not be obligated to pay Landlord any administrative, oversight or management fees with respect to any of the Expansion Space Improvements (or with respect to any Expansion Space added to the Premises pursuant to Exhibit I-1, or any Available Space added to the Premises pursuant to Exhibit J), unless Tenant requests specific services from Landlord, in which case fees for Landlord’s services will be agreed upon at such time. Landlord’s review of plans submitted by Tenant in accordance with the requirements of this Lease, and any election by Landlord to attend Tenant’s construction meetings, do not constitute administration, oversight or management activities for which Landlord is entitled to a fee.

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(b) During the initial construction of improvements to any portion of the Second Amendment Expansion Space (or to any Expansion Space or Available Space that is added to the Premises pursuant to Exhibit I or J hereto), Landlord shall use reasonable efforts to control access to the space(s) under construction, subject to standard building rules and procedures, and subject to Tenant’s right to monitor, inspect and direct the construction work in such space, until such construction is completed.

(c) At any time after all or any portion of the 12th Floor Expansion Space is added to the Premises, Tenant shall have the right, subject to the conditions set forth below, to require that additional elevator access be provided to one floor of the Premises (to create a transfer floor for Tenant’s use, or to serve a floor in the Premises through which existing elevators now pass but do not stop) through the installation and construction of building standard elevator doorways and door frames, call buttons, and related improvements, and the reprogramming of all of the elevators in one elevator bank. Tenant’s right to require such additional elevator access shall be conditioned upon (i) the Project’s elevator contractor first determining that the elevator service after any such additional access is created will remain consistent in all respects with that of a first class office project, (ii) any such additional access complying with all applicable Legal Requirements, (iii) any such additional access being created in accordance with plans and procedures acceptable to Landlord, and (iv) all such work being performed by Landlord, but at Tenant’s expense. Tenant shall be obligated to pay for the cost of any elevator study required pursuant to this section, whether or not, such additional elevator access is constructed.

10. Union Labor. All of Tenant’s contractors and subcontractors (other than furniture, office equipment and trade fixture vendors) at any tier performing any construction, repair, refurbishment or restoration of improvements in or to the Premises (including, without limitation, tenant improvements and build-outs; alterations, additions, improvements, renovations, repairs, remodeling, and painting of such tenant improvements and build-outs; installations of fixtures, including mechanical, electrical, and plumbing work; wiring and cabling within the Premises, including low voltage lines, for data, security, and telecommunications; elevator equipment or systems; and any other construction work in, on, or to the Premises) shall: (i) be bound by and be a signator to a collective bargaining agreement with a labor organization (a) whose jurisdiction covers the type of work to be performed in the Premises, and (b) who is an “Approved Building Trades Department Contractor or Subcontractor;” and (ii) observe area standards for wages and other terms and conditions of employment, including fringe benefits. For purposes hereof, an “Approved Building Trades Department Contractor or Subcontractor” is a contractor or subcontractor that is currently affiliated with the Building and Construction Trades Department of the AFL-CIO (the “BCTD”) or, if no such BCTD-affiliated contractor or subcontractor competent to perform the work is readily available for a particular trade (e.g., carpentry work), a contractor or subcontractor which is affiliated with a national trade union which recognizes (and will recognize and respect, for its work on the Project), the jurisdictional limitations established by the local BCTD. Notwithstanding the foregoing, Tenant shall not be obligated to use union labor as otherwise would be required by this Section 10 for, and the provisions of this Section 10 shall have no application to, routine installation, maintenance and repair work in any portion of Premises that is performed after completion of the initial Tenant Improvements for such portion of the Premises; provided that no such single

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installation, maintenance or repair project shall be exempt from the provisions of this Section 10 if the total cost of such project is estimated to exceed $25,000, and provided further that the Tenant shall be solely responsible for the cost and expense of such maintenance, repair or installation project. The agreements of Landlord and Tenant in this Section 10 are not intended to confer any right or benefit on any third-party.

11. Base Rent for Existing Premises during First Extension Term. Tenant shall, throughout the First Extension Term, pay as monthly “Base Rent” for the Existing Premises one twelfth of the product of:

1. Eleven and 25/100 Dollars ($11.25) times the number of square feet of the Rentable Area of the Existing Premises for the period beginning on November 1, 2010, and ending on October 31, 2011;

2. Eleven and 59/100 Dollars ($11.59) times the number of square feet of the Rentable Area of the Existing Premises for the period beginning on November 1, 2011, and ending on October 31, 2012;

3. Eleven and 94/100 Dollars ($11.94) times the number of square feet of the Rentable Area of the Existing Premises for the period beginning on November 1, 2012, and ending on October 31, 2013;

4. Twelve and 29/100 Dollars ($12.29) times the number of square feet of the Rentable Area of the Existing Premises for the period beginning on November 1, 2013, and ending on October 31, 2014; and

5. Twelve and 66/100 Dollars ($12.66) times the number of square feet of the Rentable Area of the Existing Premises for the period beginning on November 1, 2014, and ending on October 31, 2015.

The Base Rent for the Existing Premises for the period prior to First Extension Term shall be as provided in the Existing Lease.

12. Base Rent for Second Amendment Expansion Spaces.

(a) Tenant shall pay as monthly “Base Rent” for the First Expansion Space one twelfth of the product of:

1. Thirteen and 25/100 Dollars ($13.25) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on the First Expansion Space Rent Commencement Date and ending on October 31, 2008;

2. Thirteen and 65/100 Dollars ($13.65) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2008, and ending on October 31, 2009;

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3. Fourteen and 06/100 Dollars ($14.06) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2009, and ending on October 31, 2010;

4. Fourteen and 48/100 Dollars ($14.48) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2010, and ending on October 31, 2011;

5. Fourteen and 91/100 Dollars ($14.91) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2011, and ending on October 31, 2012;

6. Fifteen and 36/100 Dollars ($15.36) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2012, and ending on October 31, 2013;

7. Fifteen and 82/100 Dollars ($15.82) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2013, and ending on October 31, 2014; and

8. Sixteen and 30/100 Dollars ($16.30) times the number of square feet of the Rentable Area of the First Expansion Space for the period beginning on November 1, 2014, and ending on October 31, 2015.

(b) Tenant shall pay as monthly “Base Rent” for the Second Expansion Space one twelfth of the product of:

1. Thirteen and 65/100 Dollars ($13.65) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on the Second Expansion Space Rent Commencement Date and ending on October 31, 2009;

2. Fourteen and 06/100 Dollars ($14.06) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on November 1, 2009, and ending on October 31, 2010;

3. Fourteen and 48/100 Dollars ($14.48) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on November 1, 2010, and ending on October 31, 2011;

4. Fourteen and 91/100 Dollars ($14.91) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on November 1, 2011, and ending on October 31, 2012;

5. Fifteen and 36/100 Dollars ($15.36) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on November 1, 2012, and ending on October 31, 2013;

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6. Fifteen and 82/100 Dollars ($15.82) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on November 1, 2013, and ending on October 31, 2014; and

7. Sixteen and 30/100 Dollars ($16.30) times the number of square feet of the Rentable Area of the Second Expansion Space for the period beginning on November 1, 2014, and ending on October 31, 2015.

(c) Tenant shall pay as monthly “Base Rent” for the Third Expansion Space one twelfth of the product of:

1. Fourteen and 06/100 Dollars ($14.06) times the number of square feet of the Rentable Area of the Third Expansion Space for the period beginning on Third Expansion Space Rent Commencement Date and ending on October 31, 2010;

2. Fourteen and 48/100 Dollars ($14.48) times the number of square feet of the Rentable Area of the Third Expansion Space for the period beginning on November 1, 2010, and ending on October 31, 2011;

3. Fourteen and 91/100 Dollars ($14.91) times the number of square feet of the Rentable Area of the Third Expansion Space for the period beginning on November 1, 2011, and ending on October 31, 2012;

4. Fifteen and 36/100 Dollars ($15.36) times the number of square feet of the Rentable Area of the Third Expansion Space for the period beginning on November 1, 2012, and ending on October 31, 2013;

5. Fifteen and 82/100 Dollars ($15.82) times the number of square feet of the Rentable Area of the Third Expansion Space for the period beginning on November 1, 2013, and ending on October 31, 2014; and

6. Sixteen and 30/100 Dollars ($16.30) times the number of square feet of the Rentable Area of the Third Expansion Space for the period beginning on November 1, 2014, and ending on October 31, 2015.

(d) Tenant shall pay as monthly “Base Rent” for the Fourth Expansion Space one twelfth of the product of:

1. Fourteen and 48/100 Dollars ($14.48) times the number of square feet of the Rentable Area of the Fourth Expansion Space for the period beginning on Fourth Expansion Space Rent Commencement Date and ending on October 31, 2011;

2. Fourteen and 91/100 Dollars ($14.91) times the number of square feet of the Rentable Area of the Fourth Expansion Space for the period beginning on November 1, 2011, and ending on October 31, 2012;

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3. Fifteen and 36/100 Dollars ($15.36) times the number of square feet of the Rentable Area of the Fourth Expansion Space for the period beginning on November 1, 2012, and ending on October 31, 2013;

4. Fifteen and 82/100 Dollars ($15.82) times the number of square feet of the Rentable Area of the Fourth Expansion Space for the period beginning on November 1, 2013, and ending on October 31, 2014; and

5. Sixteen and 30/100 Dollars ($16.30) times the number of square feet of the Rentable Area of the Fourth Expansion Space for the period beginning on November 1, 2014, and ending on October 31, 2015.

13. Tenant’s Additional Rent. Tenant shall remain obligated to pay Tenant’s Additional Rent for the Existing Premises throughout the Lease Term, as extended by this Second Amendment or as the same may hereafter be extended, and Tenant shall be obligated to pay Tenant’s Additional Rent for each Second Amendment Expansion Space from and after the applicable Expansion Space Rent Commencement Date until the end of the Lease Term for each such space in accordance with the provisions of the Lease.

14. Contraction Option. The Contraction Option granted to Tenant in Section 5.3 of the Original Lease shall have no further force or effect and Section 5.3 of the Original Lease is hereby deleted in its entirety.

15. Extension Options. Exhibit G to the Lease (entitled “Extension Option”) is hereby deleted and replaced in its entirety with Exhibit G which is attached to this Second Amendment.

16. Expansion Options. Exhibits I-1 and I-2 to the Lease (entitled “Expansion Options” and “Potential Expansion Floors”) are hereby deleted and replaced in their entirety with Exhibits I-1 and I-2 which are attached to this Second Amendment.

17. Right of Offer. Exhibit J to the Lease (entitled “Right of Offer”) is hereby deleted and replaced in its entirety with Exhibit J which is attached to this Second Amendment.

18. Parking Rights. From and after the Expansion Space Rent Commencement Date for each of the Second Amendment Expansion Spaces, Tenant shall have the right to obtain one additional Parking Contract for unreserved parking in the Parking Garage for each 2,500 square feet of the Rentable Area of the applicable Second Amendment Expansion Space which Tenant will then be leasing, but only if Tenant gives written notice to Landlord at least sixty (60) days prior to the applicable Expansion Space Rent Commencement Date that Tenant desires to use additional Parking Contracts and the number of such Parking Contracts which Tenant desires to use. Any such additional Parking Contracts shall be made available and be used by Tenant on the same terms and conditions as are applicable to the Parking Contracts under Exhibit H to the Original Lease. Tenant shall execute and deliver to Landlord such documentation as Landlord may reasonably require, from time to time, to memorialize the number of Parking Contracts which Tenant is then using. Landlord shall continue to make four (4) Parking Contracts for reserved parking spaces in the Parking Garage available to Tenant throughout the Lease Term at a discounted rate equal to the charge applicable, from time to time, to the Parking Contracts for unreserved parking in the Parking Garage.

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19. Additional Generator Installation. Landlord hereby grants Tenant the right (which must be exercised, if at all, by giving written notice to Landlord on or before the last day on which Tenant shall be entitled to exercise the Extension Option for the Second Extension Term), to install and maintain an additional emergency generator, related equipment and switchgear (collectively, “Tenant’s Additional Emergency Generator Equipment”) at the location on the B1 Level of the Project which is identified on the floor plan attached hereto as Exhibit P-1 (“Tenant’s Additional Emergency Generator Site”) in accordance with and subject to Tenant’s compliance with all of the terms and conditions set forth in the First Amendment of the Existing Lease which are applicable to Tenant’s Emergency Generator Equipment to transmit power from Tenant’s Additional Emergency Generator Equipment to the Premises for the exclusive use of Tenant. Tenant hereby agrees that Landlord shall have no obligation to make any improvements to Tenant’s Additional Emergency Generator Site or to provide any improvement or build-out allowance with respect thereto. Tenant shall execute and deliver to Landlord such documentation as Landlord may reasonably require to memorialize any exercise by Tenant of the rights granted in this Section.

20. Additional Storage Space. Beginning on January 1, 2009, or on any earlier date specified by Tenant, Tenant shall lease the approximately 2,508 square feet of storage space on the B-1 level of the Project which is identified as Storage Space B-184 (the “First Additional Storage Space”) for a gross annual rental of Eight Dollars ($8.00) per square foot and otherwise in accordance with all of the terms and conditions which are applicable to the Storage Space which Tenant is leasing from Landlord pursuant to Exhibit L which is attached to the Original Lease. Tenant shall execute and deliver to Landlord such documentation as Landlord may reasonably require to memorialize Tenant’s leasing of the Additional Storage Space.

21. Additional Project Amenities. Within twelve (12) months after the Effective Date of this Second Amendment, Landlord shall, construct a conference center in the Project with one meeting room having the capability of seating not less than one hundred fifty (150) people (the “Conference Room Center”). Tenant shall have the right to use the Conference Room Center on an advance reservation basis, with no charge applicable to the first twenty (20) business days of such use each year, and, after twenty (20) business days of such use, upon payment of such standard charges for such additional use as shall be established by Landlord from time to time, which charges shall not, however, exceed the fees being charged from time to time for similar conference room facilities in the central business district of downtown Minneapolis. Landlord shall also, within twelve (12) months after the Effective Date of this Second Amendment, construct men’s and women’s shower facilities on the B-1 Level of the Project which may be used by Tenant’s employees in accordance with such reasonable rules as may be established by Landlord with respect to such use.

22. Naming Rights. Notwithstanding anything to the contrary in Section 36.2 of the Original Lease, Tenant shall have the Naming Right (as defined in Section 36.2 of the Original Lease) on and after March 1, 2009, through October 31, 2010, so long as, on the date of such exercise and at all times thereafter (i) Tenant is Directly Occupying not less than 339,000 square feet of Rentable Area in the Project, and (ii) Tenant remains legally obligated to lease the Third Expansion Space and the Fourth Expansion Space from Landlord in accordance with the provisions of this Second Amendment. On and after November 1, 2010, all rights and obligations of Landlord and Tenant with respect to the Naming Right shall be as stated in Section 36.2 of the Original Lease, except that the reference to “400,000” in the first sentence of Section

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36.2 of the Original Lease shall be changed to “395,000”, and except as otherwise provided in this Second Amendment. Tenant shall not be responsible for any costs of Landlord or of other tenants which result from the exercise by Tenant of its Naming Right (except that Tenant shall be obligated to reimburse Landlord for all reasonable third-party costs incurred by Landlord in connection with designing, fabricating and/or installing any new signs that are installed pursuant to Section 23 of this Second Amendment). Tenant shall have the right at any time during the Term or after the expiration or termination of the Lease to require Landlord to remove the Capella name from the Tower (and to cease use of any name associated with Tenant, or any of its Affiliates, in connection with the Tower or the Project) at any time upon not less than ninety (90) days prior written notice provided that Tenant reimburses Landlord for all third-party costs incurred by Landlord in removing and replacing such signage as necessary.

23. Project Signage.

(a) During any period that the Naming Right is in effect, Tenant’s rights under Section 36.1 of the Original Lease shall be supplemented as follows:

(i) Tenant shall have the right, at Tenant’s expense, to install and display the name “Capella Tower” (or other Permitted Name) at the top of the Second Avenue Monument Sign (above the three sign panel areas) substantially as shown on Exhibit S-24 hereto. Tenant shall also be entitled to use the topmost of the three sign panels on the Second Avenue Monument Sign, as shown on Exhibit S-24. No other Project tenant shall be entitled to use a sign panel on the Second Avenue Monument Sign with an area greater than the area of Tenant’s sign panel. Landlord may place Project identification signage on a sign panel on the Second Avenue Monument Sign, but such identification signage may not be placed on a sign panel with an area greater than the area of Tenant’s sign panel.

(ii) Tenant shall have the right, at Tenant’s expense, to install and display signage at any or all of the locations in the Project which are identified in Exhibit R attached hereto, in accordance with the depictions attached in Exhibit S attached hereto.

(iii) Tenant shall have the right, at Tenant’s expense, to remove the existing characters (“225 South Sixth”) from under the glass canopy at the Sixth Street and Second Avenue entrance to the Project (the “Eyebrow Sign Area”). Landlord shall not install or permit to be installed in the Eyebrow Sign Area any other name, character or symbol which alone or in combination identify the Tower, Building or Project, or any tenant in the Tower, Building or Project, or any other person or entity.

(iv) No signage identifying the Tower, Building, Project or any Project tenant shall be permitted in the Common Areas of the Tower or on exterior portions of the Tower (including the exterior street plaza at the base of the Tower) that is more prominent than Tenant’s Project signage as described in this Section 23, Exhibit R and Exhibit S.

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(v) Landlord shall, when referring to the Tower, refer to the Tower as either “Capella Tower” or “Capella Tower at 225 South Sixth” (i) in any advertisement created by Landlord (or its agents) to welcome a new tenant to the Tower or to thank an existing tenant of the Tower for extending its lease or to offer space in the Tower for lease, (ii) in any marketing materials hereafter created by Landlord (or its agents), or (iii) in Landlord’s website for the Project.

(vi) For purposes of this Section 23, a “Permitted Name” shall mean any name approved by Landlord pursuant to clause (ii) of Section 36.2 of the Original Lease. If at any time Tenant shall elect to use a Permitted Name instead of “Capella Tower”, all references on Exhibit R and Exhibit S shall be adjusted to reflect the Permitted Name (but Tenant shall be responsible for all reasonable third-party costs incurred by Landlord in changing any signage from “Capella Tower” to reflect the Permitted Name).

(b) The second sentence of Section 36.2 of the Original Lease (beginning with the phrase “For so long as Tenant’s naming right is in effect. . .” and ending with the phrase “. . . all applicable Legal Requirements.”) is hereby deleted from the Lease, and shall be of no further force or effect.

24. After Hours HVAC Services Charges. The following example is intended to clarify the charges to be paid by Tenant for after hours HVAC services under Section 14(b) of the Existing Lease:

If Tenant requests after hours HVAC services be provided to the 7^th floor of the Tower, Tenant will be charged the current after hours HVAC services rate (currently $35.00 per hour) for such services and if Tenant then requests after hours HVAC services for the same period of time to the 8^th floor of the Tower and the 8^th floor of the Building, Tenant will be charged the current additional after hours HVAC services rate for each additional floor (currently $5.00 per hour) for such services for a total of $10.00 per hour for the two floors combined (each additional $5.00 per hour per floor is intended to cover the costs associated with running the air handling units on such floors).

25. Acknowledgement. Tenant hereby acknowledges that Tenant now has no extension, renewal, expansion, contraction or early termination rights (except for rights to terminate based on damage, condemnation or Landlord’s default, and except as set forth in Section 10.10 of the Original Lease and in Section 30 of this Second Amendment) or rights of first offer or refusal with respect to the Premises or any other space in the Project (collectively, “Modification Rights”), except for (i) the Extension Options described in Section 15 above and in Exhibit G attached hereto, (ii) the Expansion Options described in Section 16 above and in Exhibits I-1 and I-2 attached hereto, and (iii) the Right of Offer described in Section 17 above and in Exhibit J attached hereto. Any provision in the Existing Lease or in any Exhibits thereto that establishes or that might be interpreted to establish any other Modification Rights is hereby deleted.

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26. Brokerage Commissions.

(a) Tenant warrants that Tenant has not engaged or dealt with any broker in connection with this Second Amendment except for TEGRA Group. Tenant agrees to defend, indemnify and hold Landlord and Landlord’s agents harmless from and against all losses, damages, costs and expenses (including reasonable attorneys’ fees) suffered by Landlord as a result of any claim for brokers’ fees or finders’ fees asserted on account of any dealings with Tenant by any broker in connection with this Second Amendment, but excluding any claims of TEGRA Group. Landlord warrants that it has not engaged or dealt with any broker in connection with this Second Amendment other than TEGRA Group. Landlord agrees to defend, indemnify and hold Tenant harmless from and against all losses, damages, costs and expenses (including reasonable attorneys’ fees) suffered by Tenant as a result of any claim for brokers’ or finders’ fees asserted on account of any dealing with Landlord by any broker in connection with this Second Amendment.

(b) Landlord agrees to pay or cause to be paid to TEGRA Group a commission in an amount equal to (i) $4.00 per square foot of the Rentable Area of the Existing Premises, (ii) $5.50 per square foot of the Rentable Area of the First Expansion Space and the Second Expansion Space, (iii) $4.50 per square foot of the Rentable Area of the Third Expansion Space, and (iv) $4.00 per square foot of the Rentable Area of the Fourth Expansion Space; with one half of such commission being due and payable within thirty (30) days after the date on which this Second Amendment has been fully executed and delivered and the other one half of the commission being due and payable on March 1, 2009. If Tenant exercises its Extension Option for the Second Extension Term pursuant to Exhibit G which is attached to this Second Amendment, Landlord agrees to pay Tenant or, at Tenant’s request, Tenant’s broker a commission in an amount equal to $3.00 per square foot of the Premises (as of the first day of the Second Extension Term), with such commission being due and payable within thirty (30) days after the first day of the Second Extension Term. If Tenant exercises an Expansion Option pursuant to Exhibit I-1 which is attached to this Second Amendment or if Tenant exercises a Right of Offer pursuant to Exhibit J which is attached to this Second Amendment, then in any such case, Landlord agrees to pay Tenant or, at Tenant’s request, Tenant’s broker a commission in an amount equal to $0.065 per square foot of the Rentable Area of the space then being leased pursuant to such Expansion Option or Right of Offer for each month that Tenant will pay Base Rent for such space during the First Extension Term; with such commission being due and payable within thirty (30) days after the first day such space is leased to Tenant.

(c) The last three sentences in Section 35.10 of the Original Lease are hereby deleted from the Lease, and shall be of no further force or effect. Tenant hereby agrees that Landlord shall not be obligated to pay any commission to Tenant or to Tenant’s broker pursuant to the last three sentences in Section 35.10 of the Original Lease because of any of the matters contemplated in this Second Amendment or otherwise.

27. Counterparts. This Second Amendment may be executed in any number of counterparts, all of which shall be considered one and the same Amendment, even though all parties hereto have not signed the same counterpart. Signatures on this Second Amendment which are transmitted by facsimile shall be valid for all purposes. Any party shall, however, deliver an original signature for this Second Amendment to the other party upon request.

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28. Reaffirmation of Lease. Except as expressly amended herein, all of the terms and conditions of the Existing Lease remain in full force and effect.

29. Successors and Assigns. This Second Amendment shall be binding upon and be enforceable by Landlord and Tenant and their successors and permitted assigns.

30. Lender Consent and Confirmation. Landlord represents and warrants to Tenant that Landlord owns fee simple title to the Project, subject only to a Mortgage in favor of LaSalle Bank National Association, as Trustee (“Mortgage Holder”). Landlord agrees to obtain and deliver to Tenant as soon as reasonably possible, but in no event later than June 30, 2008, a Subordination, Non-Disturbance and Attornment Agreement (the “Mortgage Holder SNDA”), in the form attached hereto as Exhibit T, or with such changes thereto as are approved by Tenant, executed and acknowledged by the Mortgage Holder. If the Mortgage Holder SNDA is executed on behalf of the Mortgage Holder by a servicer or other third party purporting to act for and bind the Mortgage Holder, then the Mortgage Holder SNDA shall be accompanied by recordable evidence of the authority of such servicer or third party to so act for and bind the Mortgage Holder, which recordable evidence of authority shall be in form and substance acceptable to Tenant.

If Landlord shall fail to deliver to Tenant a recordable original of the Mortgage Holder SNDA (and, if applicable, recordable evidence of authority of any servicer or third party purporting to act for and bind the Mortgage Holder, as described above) by June 30, 2008, Tenant may by written notice to Landlord terminate this Second Amendment at any time on or before August 31, 2008, and upon any such termination, this Second Amendment shall be of no further force or effect, except that Landlord shall reimburse Tenant for the actual out-of-pocket costs and expenses incurred by Tenant in connection with this Second Amendment, including, without limitation, design fees, construction costs and expenses, attorneys’ fees and consultants’ fees.

[The remainder of this page is blank]

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IN WITNESS WHEREOF, Tenant has executed this Second Amendment to Lease to be effective as of the date first above written.

TENANT:
CAPELLA EDUCATION COMPANY a Minnesota corporation
By:	/s/ Lois M. Martin
Name:	Lois M. Martin
Title:	SVP and CFO

This is a signature page to the Second Amendment to Lease between Minneapolis 225 Holdings, LLC, a Delaware limited liability company, as Landlord, and Capella Education Company, a Minnesota corporation, as Tenant.

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IN WITNESS WHEREOF, Landlord has executed this Second Amendment to Lease to be effective as of the date first above written.

LANDLORD:
MINNEAPOLIS 225 HOLDINGS, LLC, a Delaware limited liability company
By:	Michael Potts, ASBCM
Name:	Michael Potts
Title:	Vice President

This is a signature page to the Second Amendment to Lease between Minneapolis 225 Holdings, LLC, a Delaware limited liability company, as Landlord, and Capella Education Company, a Minnesota corporation, as Tenant.

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Index to Exhibits

Each of the following Exhibits replaces and supersedes in its entirety the corresponding Exhibit to the Existing Lease:

	Exhibit C	Declaration of Expansion Space Rent Commencement Date
	Exhibit G	Extension Options
	Exhibit I-1	Expansion Option
	Exhibit I-2	Potential Expansion Floors
	Exhibit J	Right of Offer
Each of the following Exhibits is new, and does not replace or supersede any prior Exhibit.
	P-1	Depiction of Tenant’s Emergency Generator Site
	Q-1	Depiction of First Expansion Space
	Q-2	Depiction of Second Expansion Space
	Q-3	Depiction of Third Expansion Space
	Q-4	Depiction of Fourth Expansion Space
	R	Capella Tower Signage Rights
	R-1	Capella Tower Signage Floor Plans
	S	Sign Renderings
	T	Form of Mortgage Holder SNDA

EXHIBIT C

DECLARATION OF                     

EXPANSION SPACE RENT COMMENCEMENT DATE

This Declaration is made as of             , 200    , by and between Minneapolis 225 Holdings, LLC, a Delaware limited liability company (“Landlord”), and Capella Education Company, a Minnesota corporation (“Tenant”).

Landlord and Tenant are parties to an Office Lease dated as of February 23, 2004, which was amended by a First Amendment to Lease dated May 16, 2006, and by a Second Amendment to Lease dated                     , 200     (as amended, the “Lease”), relating to certain premises situated in the office project now commonly known as 225 South Sixth in Minneapolis, Minnesota.

In accordance with Section             of the Lease, Landlord and Tenant hereby memorialize that:

1. The [insert applicable Expansion Space Rent Commencement Date] is                     , 20        .

2. The expiration date of the First Extension Term is October 31, 2015.

TENANT:

CAPELLA EDUCATION COMPANY,

a Minnesota corporation

By:

Name:

Title:

LANDLORD:

MINNEAPOLIS 225 HOLDINGS, LLC,

a Delaware limited liability company

By:

Name:

Title:

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EXHIBIT G

EXTENSION OPTIONS

1. Subject to the provisions of this Exhibit G, Tenant is hereby granted the option to extend the Term of this Lease (the “Extension Options”) as to all (but not part) of the Premises for two (2) periods of five (5) years each (respectively, the “Second Extension Term” and the “Third Extension Term,” individually an “Extension Term” and collectively, the “Extension Terms”).

2. Each Extension Term shall commence at the expiration of the then present Term of the Lease.

3. Not earlier than eighteen (18) months and not later than fifteen (15) months prior to the expiration of the First Extension Term, Landlord shall notify Tenant in writing as to Landlord’s reasonable estimate of the Market Base Rental Rate for the Premises during the last two and one half years of the Second Extension Term (the “Second Extension Term Rate Notice”). Not earlier than eighteen (18) months and not later than fifteen (15) months prior to the expiration of the Second Extension Term, Landlord shall notify Tenant in writing as to Landlord’s reasonable estimate of the Market Base Rental Rate for the Premises during the Third Extension Term (the “Third Extension Term Rate Notice”).

4. If Tenant desires to exercise an Extension Option, Tenant must give Landlord written notice of such exercise (“Tenant’s Exercise Notice”):

(a) in the case of the Extension Option for the Second Extension Term, no later than the later of (i) fifteen (15) months prior to the expiration of the First Extension Term, and (ii) thirty (30) days after Tenant’s receipt of the Second Extension Term Rate Notice described in Section 3 of this Exhibit G; and

(b) in the case of the Extension Option for the Third Extension Term, no later than the later of (i) fifteen (15) months prior to the expiration of the Second Extension Term, and (ii) thirty (30) days after Tenant’s receipt of the Second Extension Term Rate Notice described in Section 3 of this Exhibit G.

Tenant’s Exercise Notice for either the Second Extension Term or the Third Extension Term shall be subject to rescission as provided in Section 10 of this Exhibit G. Time is of the essence and timely notice is an express condition to the valid exercise of each Extension Option.

5. The extension of this Lease pursuant to the exercise of the Extension Option for the Second Extension Term shall be upon the same terms and conditions of this Lease (including, without limitation, Tenant’s obligation to pay Tenant’s Additional Rent), except:

(a) the monthly Base Rent for the Premises shall be equal to one-twelfth of the product of:

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(i) 104% of the Blended Annual Base Rate (as defined below) times the number of square feet of the Rentable Area of the Premises for the period beginning on November 1, 2015, and ending on October 31, 2016 (the “First Year Base Rent”);

(ii) 104% of the First Year Base Rent (as defined above) times the number of square feet of the Rentable Area of the Premises for the period beginning on November 1, 2016, and ending on October 31, 2017 (the “Second Year Base Rent”);

(iii) 104% of the Second Year Base Rent (as defined above) times the number of square feet of the Rentable Area of the Premises for the period beginning on November 1, 2017, and ending on April 30, 2018; and

(iv) an amount equal to ninety five percent (95%) of the annual Market Base Rental Rate (as defined below) times the number of square feet of the Rentable Area of the Premises for the period beginning on May 1, 2018, and ending on October 31, 2020; and

(b) Landlord shall make available to Tenant an improvement allowance of up to Seven Dollars ($7.00) per square foot of the Rentable Area of the Premises (the “Second Extension Term Improvement Allowance”) to pay for those costs which Tenant incurs in making improvements to the Premises on or before October 31, 2017 (the “Second Extension Term Improvements”). Landlord shall disburse the Second Extension Term Improvement Allowance on a monthly basis in accordance with customary construction disbursement procedures and upon receipt of a sworn construction statement and draw requests, with supporting invoices for actual costs incurred and lien waivers from all contractors and subcontractors delivered one month in arrears; it being agreed, however, that Landlord shall not be required to disburse any portion of the Second Extension Term Improvement Allowance if Tenant is then in default of its obligations under the Lease. If the actual cost of the Second Extension Term Improvements exceeds the amount of the Second Extension Term Improvement Allowance, Tenant shall pay the excess costs without reimbursement from Landlord as and when such excess costs become due and payable. If Tenant has not submitted requisitions covering all of the Second Extension Term Improvement Allowance on or before October 31, 2017, then any unused portion of the Second Extension Term Improvement Allowance shall be retained by Landlord, except that Landlord shall, at Tenant’s request, credit up to but not more than $5.00 per square foot of the Second Extension Term Improvement Allowance against the Rent next coming due under the Lease. Landlord shall be permitted to offset against the Second Extension Term Improvement Allowance any amounts past due to Landlord by Tenant under this Lease.

(c) The Second Extension Term Improvement Allowance shall be treated by Landlord and Tenant as a tenant improvement allowance and all of the leasehold improvements that are constructed and paid for with the Second Extension Term Improvement Allowance shall be owned by Landlord; and

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(d) If Landlord fails to pay any portion of the Second Extension Term Improvement Allowance which is properly due and payable, the unpaid amount shall bear interest until paid at the Interest Rate, and if Landlord fails to pay such properly due and payable amount within ten (10) business days after receiving written notice from Tenant that such amount was not paid when due, then Tenant shall be entitled to offset said amounts (including interest) against Rent due and payable under the Lease.

For purposes of determining the Base Rent during the first two and one half years of the Second Extension Term, the “Blended Annual Base Rate” means the weighted average of the Base Rent paid for all of the Premises on a per square foot basis as of October 31, 2015.

6. The renewal of this Lease pursuant to the exercise of the Extension Option for the Third Extension Term shall be upon the same terms and conditions of this Lease (including, without limitation, Tenant’s obligation to pay Tenant’s Additional Rent), except:

(a) the Base Rent for the Premises during the Third Extension Term shall be equal to ninety five percent (95%) of the Market Base Rental Rate for the Third Extension Term as of the commencement of the Third Extension Term;

(b) Tenant shall have no option to renew this Lease beyond the Third Extension Term provided for herein; and

(c) the leasehold improvements will be provided in their then-existing condition (on an “as is” basis) at the time the Third Renewal Term commences and Tenant shall not be entitled to any leasehold, build-out or other improvement allowance.

7. Tenant shall have no right to exercise either Extension Option if Capella Education Company has assigned this Lease other than to an Affiliate or in connection with a Permitted Transfer (as defined in Section 10.7 of the Lease) or subleased more than twenty percent (20%) of the Rentable Area of the Premises other than to an Affiliate or in connection with a Permitted Transfer.

8. If Tenant fails to duly and timely exercise the Extension Option for the Second Extension Term, Tenant’s Extension Option for the Third Extension Term shall thereupon automatically terminate and expire.

9. Tenant shall not have the right to exercise an Extension Option if an Event of Default exists under this Lease on the date Tenant’s notice is sent under Section 4 above, and if, at any time thereafter until the commencement of the applicable Extension Term, an Event of Default exists under this Lease, Landlord shall, in addition to any other rights which Landlord may have under this Lease, have the right to terminate this Lease effective as of the scheduled expiration date of the then current Term of this Lease and prior to the commencement of the applicable Extension Term.

10. For the purpose of this Exhibit G, the term “Market Base Rental Rate” shall mean the amount of cash which a landlord would receive annually by then renting the space in question assuming the landlord to be a prudent person willing to lease but being under no compulsion to do so, assuming the tenant to be a prudent person willing to lease but being under

G-3

no compulsion to do so, and assuming a lease containing the same terms and provisions as those herein contained. Market Base Rental Rate shall take into consideration all relevant factors including the condition of the space and the Second Extension Term Allowance. During the sixty (60) day period (the “Negotiation Period”) commencing on (A) the later of (i) the date that is fifteen (15) months prior to the expiration of the First Extension Term, or (ii) the date of Landlord’s delivery to Tenant of the Second Extension Term Rate Notice with respect to the Second Extension Term, or (B) the later of (i) the date that is fifteen (15) months prior to the expiration of the Second Extension Term, or (ii) the date of Landlord’s delivery to Tenant of the Third Extension Term Rate Notice with respect to the Third Extension Term, Landlord and Tenant shall each be available to meet with the other on a regular basis to determine whether they can agree on the Market Base Rental Rate for the Premises for the applicable Extension Term. If they fail to reach agreement, Tenant may, by written notice to Landlord given at any time prior to the date that is twenty (20) days after the last day of the Negotiation Period (a) elect to rescind the Tenant’s Exercise Notice theretofore given by Tenant with respect to the applicable Extension Term, in which case the rights of Landlord and Tenant under the Lease shall continue just as though Tenant’s Exercise Notice had never been given and the Term of the Lease shall expire at the end of the then current Term of this Lease; or (b) elect to have the Market Base Rental Rate for the applicable Extension Term determined by arbitration in accordance with this Exhibit G; if within said twenty (20) day period Tenant does not in writing elect option (b), Tenant will be conclusively deemed to have elected option (a).

11. If Tenant and Landlord cannot agree to the Market Base Rental Rate for the last two and one half years of the Second Extension Term or the Market Base Rental Rate for the Third Extension Term (it being agreed that both Landlord and Tenant will be reasonable in their attempt to determine the Market Base Rental Rate), and if such rate is to be determined by arbitration in accordance with this Exhibit G, the following procedures shall apply:

The determination of the Market Base Rental Rate will be determined by an arbitration board consisting of three reputable real estate professionals with experience with first-class office buildings in the Minneapolis-St. Paul metropolitan area, each of whom shall be a Member of the Appraisal Institute with the designation of “MAI.” Within twenty (20) days after initiation of arbitration, each party shall appoint one arbitrator who shall have no material financial or business interest in common with the party making the selection and shall not have been employed by such party for a period of three years prior to the date of selection. If a party fails to give notice of appointment of its arbitrator within the twenty (20) day period provided above, then upon two (2) business days notice the other party may appoint the second arbitrator. The arbitrators selected by the parties shall attempt to agree upon a third arbitrator. If the first two arbitrators are unable to agree on a third arbitrator within thirty (30) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the presiding judge of the Hennepin County District Court, or by any person to whom such presiding judge formally delegates the matter or, if such methods of appointment fail, by the American Arbitration Association. The parties will submit to the arbitrators the definition of the Market Base Rental Rate, each party will be entitled to present to the arbitrators evidence concerning the Market Base Rental Rate at a hearing scheduled not earlier than thirty (30) and not later than sixty (60) days after the final arbitrator has been selected, and each arbitrator shall submit his or her determination in a sealed envelope by the twentieth (20 ^th) day following the date of such hearing, and any determination not submitted by such time shall be disregarded. The parties

G-4

shall meet on said twentieth (20^th) day (or if it is not a business day, on the first business day thereafter) at 11:00 a.m. at the office of Landlord, or such other place as the parties may agree and simultaneously deliver the determinations. If the determinations of at least two of the arbitrators shall be identical in amount such amount shall be deemed the Market Base Rental Rate. If the determination of the three arbitrators shall be different in amount, the Market Base Rental Rate shall be determined as follows:

(a) If neither the highest or lowest determination differs from the middle determination by more than ten percent (10%) of such middle determination, then the Market Base Rental Rate shall be deemed to be the average of the three determinations; and

(b) If clause (a) does not apply, then the Market Base Rental Rate shall be deemed to be the average of the middle determination and the determination closest in amount to such middle determination.

The decision of the arbitrators, determined as above set forth, will be final and non-appealable. Except where specifically provided otherwise in this Lease, each party shall bear its own expenses in connection with the arbitration and the costs of its arbitrator, and the cost of the third arbitrator shall be shared equally by Landlord and Tenant. The costs of all counsel, experts and other representatives that are retained by a party will be paid by such party.

G-5

EXHIBIT I-1

EXPANSION OPTIONS

1. Subject to the terms and conditions set forth in this Exhibit I-1, Landlord hereby grants Tenant the options (individually, an “Expansion Option” and collectively, the “Expansion Options”) to add the following expansion spaces (each an “Expansion Space”) to the Premises:

(a) “Fifth Expansion Option” shall mean all 29,394 square feet of the Rentable Area on the 4^th floor of the Tower which is identified on the floor plan that is attached hereto as Exhibit I-2 (the “Fifth Expansion Space”); with possession of the Fifth Expansion Space being delivered to Tenant on any date (but in no event later than August 31, 2011) which is specified by Tenant on not less than sixty (60) days prior written notice to Landlord; and

(b) “Sixth Expansion Option” shall mean either (i) all 26,923 square feet of the Rentable Area on the 12th floor of the Tower which is identified on the floor plan that is attached hereto as Exhibit I-2 (the “12^th Floor Tower Expansion Space”) plus all 28,097 square feet of the Rentable Area on the 12th floor of the Building which is identified on the floor plan that is attached hereto as Exhibit I-2 (the “12^th Floor Building Expansion Space”), or (ii) either all of the 12^th Floor Tower Expansion Space or all of the 12^th Floor Building Expansion Space, with the determination being made by Landlord as to which of these two 12^th Floor Expansion Spaces shall be leased to Tenant (the 12^th Floor Tower Expansion Space and the 12^th Floor Building Expansion Space are collectively referred to herein as the “12^th Floor Expansion Spaces”, and the space which is being leased to Tenant pursuant to Tenant’s exercise of the Sixth Expansion Option shall be referred to herein as the “Sixth Expansion Space”); with possession of the Sixth Expansion Space being delivered to Tenant on July 1, 2011, unless Landlord and Tenant agree in writing to an earlier delivery date. If Tenant desires to exercise the Expansion Option for the Sixth Expansion Space, Tenant must deliver written notice thereof to Landlord on or before June 1, 2010, and such notice must state whether Tenant desires to lease both of the 12^th Floor Expansion Spaces or only one of the 12^th Floor Expansion Spaces. If Tenant elects to lease only one of the two 12^th Floor Expansion Spaces, Landlord shall promptly, after receipt of Tenant’s Exercise Notice, inform Tenant as to which of the two 12^th Floor Expansion Spaces will be leased to Tenant.

2. Failure by Tenant to give timely notice of its exercise of either Expansion Option (“Tenant’s Exercise Notice”) shall constitute Tenant’s decision not to exercise the applicable Expansion Option, which shall thereupon automatically terminate; it being agreed that time is of the essence and timely notice shall be an express and agreed condition of such exercise.

3. Each Expansion Space shall be added to the Premises and leased to Tenant upon the same terms and conditions of this Lease (including, without limitation, Tenant’s obligation to pay Additional Rent), except:

I-1-1

(a) Tenant shall not be obligated to pay any Base Rent or Tenant’s Additional Rent for the Expansion Space until the earlier of (i) the date which is sixty (60) days after the date on which possession of the Expansion Space is delivered to Tenant, and (ii) the date on which Tenant takes occupancy of any portion of the applicable Expansion Space for the conduct of its business (the “Expansion Space Rent Commencement Date”); provided that from and after the date on which possession of the Expansion Space is delivered to Tenant, the Expansion Space shall be part of the Premises for all purposes of this Lease other than Tenant’s obligation to pay Base Rent and Tenant’s Additional Rent and Tenant shall be bound by and shall comply with all of the provisions of this Lease (including those terms and conditions pertaining to acts or omissions of Tenant or Tenant’s representatives, employees, agents, and contractors);

(b) the Base Rent which Tenant shall pay for each Expansion Space shall be the same as the Base Rent as Tenant is obligated to pay from time to time for the First Expansion Space;

(c) Tenant shall accept each Expansion Space in its “as is” condition on the date that possession of the Expansion Space is delivered to Tenant; except that the Expansion Space shall be delivered in accordance with the Space Delivery Standards, and Landlord shall deliver such space broom clean, with all personal property removed, and except that Landlord shall make an allowance available to Tenant in an amount equal to $0.42 per square foot of the Rentable Area of the Expansion Space for each month (or a pro rata portion thereof for any partial month) remaining in the First Extension Term as of the applicable Expansion Space Rent Commencement Date to pay for those costs which are incurred by Tenant in designing and constructing those leasehold improvements which Tenant desires to make to the Expansion Space (the “Expansion Space Improvement Allowance”). For so long as Tenant is not in default under this Lease, Landlord shall pay each Expansion Space Improvement Allowance on a monthly basis in accordance with customary construction disbursement procedures and upon receipt of a sworn construction statement and draw request, with supporting lien waivers from all material contractors and subcontractors delivered one month in arrears. Landlord shall be permitted to offset against each Expansion Space Improvement Allowance any amounts past due to Landlord by Tenant under this Lease. If the actual cost of designing and constructing improvements to the Expansion Space plus the cost of moving into the Expansion Space shall be less than the Expansion Space Improvement Allowance, Landlord shall credit up to but not more than $5.00 per square foot of the Expansion Space Improvement Allowance against the Rent coming due under the Lease commencing on the first day of any month designated by Tenant, but in no event commencing later than the sixth full month after the applicable Expansion Space Rent Commencement Date;

(d) The Term of this Lease for each Expansion Space shall expire upon the expiration of the Lease Term for the Existing Premises;

(e) Each Expansion Space Improvement Allowance shall be treated by Landlord and Tenant as a tenant improvement allowance and all of the leasehold improvements that are constructed and paid for with an Expansion Space Improvement Allowance shall be owned by Landlord;

I-1-2

(f) If Landlord fails to pay any portion of an Expansion Space Improvement Allowance which is properly due and payable, the unpaid amount shall bear interest until paid at the Interest Rate, and if Landlord fails to pay such properly due and payable amount within ten (10) business days after receiving written notice from Tenant that such amount was not paid when due, then Tenant shall be entitled to offset said amounts (including interest) against Rent due and payable under the Lease.

4. Tenant shall have no right to exercise an Expansion Option if Capella Education Company has assigned this Lease other than to an Affiliate or in connection with a Permitted Transfer (as defined in Section 10.7 of the Lease) or if Capella Education Company has subleased more than twenty percent (20%) of the Rentable Area of the Premises other than an Affiliate or in connection with a Permitted Transfer.

5. Tenant shall have no right to exercise an Expansion Option if on the date Tenant delivers a Tenant’s Expansion Notice an Event of Default exists under this Lease and, if at any time after Tenant exercises an Expansion Option until the date on which Landlord is scheduled to deliver possession of the Expansion Space to Tenant, an Event of Default exists under this Lease, Landlord shall, in addition to any other rights which Landlord may have under this Lease, have the right to terminate Tenant’s right to lease the Expansion Space by giving Tenant written notice of such termination.

6. Landlord shall promptly after any Expansion Space Rental Commencement Date prepare a declaration confirming the Expansion Space Rental Commencement Date and the Rentable Area of the Expansion Space and deliver such declaration to Tenant. If such declaration is complete and correct, Tenant shall execute and return such declaration within thirty (30) days after submission, failing which, Tenant shall be conclusively deemed to have agreed that the information in the declaration is accurate and Tenant shall have thereby waived any right to object to the accuracy of such information unless within such thirty (30) day period Tenant notifies Landlord of its reasons for objecting to the declaration.

7. Landlord shall not be liable for any delay in delivering or any failure to deliver possession of any Expansion Space to Tenant by reason of any holding over by any previous tenants or occupants of same, nor shall such failure impair the validity of the Lease. Landlord shall, however, use all reasonable efforts to deliver possession of any Expansion Space in accordance with the provisions of this Exhibit I-1.

8. Tenant’s Expansion Options shall be independent of Tenant’s Right of Offer and no failure by Tenant to exercise its Right of Offer with respect to any Available Space shall affect any Expansion Option.

I-1-3

EXHIBIT I-2

POTENTIAL EXPANSION FLOORS

[Copy attached hereto]

I-2-1

EXHIBIT J

RIGHT OF OFFER

1. Tenant shall have the continuous right (“Right of Offer”) during the Term of this Lease to elect to lease any Available Space which is located on a floor which is then contiguous to a floor of the Premises on and subject to the terms and conditions set forth in this Exhibit J. Notwithstanding the foregoing, the Right of Offer shall not apply to (i) the 15^th floor of the Tower, (ii) the 12^th floor of the Tower until the Sixth Expansion Option expires, or (iii) the 12^th floor of the Building until the Sixth Expansion Option expires.

2. “Available Space” means space described in Section 1 of this Exhibit J upon the expiration of the rights of existing tenants to such space. As of the Effective Date of this Second Amendment, Landlord represents to Tenant that, as to the floors which now constitute Available Space, the only rights of existing tenants are the rights of International Business Machines Corporation to the 4^th Floor of the Building under its current lease, which lease is currently scheduled to expire on December 31, 2011 (subject to a right to extend for a five-year period ending December 31, 2016). Tenant’s Right of Offer is subject to (a) any existing rights in favor of other tenants specified in this Section 2, (b) any rights hereafter granted by Landlord with respect to space on any floor that is not contiguous to the Premises at the time such rights are granted by Landlord, and (c) any rights granted by Landlord with respect to space on any floor that is contiguous to the Premises which Landlord has offered to Tenant pursuant to this Exhibit J but as to which Tenant has not exercised its Right of Offer hereunder. The date following the expiration of all of such rights to lease any such space shall be deemed to be the date on which such space becomes available for lease pursuant to this Exhibit J.

3. Landlord shall use reasonable efforts to give notice to Tenant as and when Landlord anticipates that any Available Space will become available. Landlord shall state in each notice (an “Available Space Notice”) hereunder (i) the space available, (ii) the date Landlord anticipates that such space will be available for delivery, (iii) the term that the Available Space is available for lease by Tenant (if less than for all of the remaining Lease Term) and (iv) with respect to any Available Space which would be added to the Premises after the expiration of the First Extension Term, Landlord’s reasonable estimate of the Market Base Rental Rate with respect to such space. Landlord shall not give Tenant an Available Space Notice more than eighteen (18) months prior to the date on which Landlord anticipates that any space shall become available with respect to such space unless prior thereto Landlord has in good faith entered into substantive discussions with respect to leasing all or a significant portion of such space with a specific third party. If an Available Space Notice from Landlord identifies Available Space on more than one (1) floor or two (2) or more non-contiguous spaces on the same floor, Tenant may exercise its Right of Offer as to all of such spaces or on a floor-by-floor basis (when the Available Space is on more than one floor) and on a space-by-space basis (when the Available Space includes non-contiguous spaces on the same floor, or when the Available Space includes both space in the Building and space in the Tower).

4. Tenant may elect to lease all (but, except as provided in Section 3 above, not less than all) of any individual Available Space by giving Landlord written notice of such election on or before the date that is thirty (30) days after Tenant’s receipt of the Available Space Notice given by Landlord with respect to such Available Space, which notice from Tenant shall specify

J-1

the Available Space which Tenant desires to lease (if Tenant is entitled to lease less than all of such Available Space under Section 3 above) and (for any Available Space which would be added to the Premises after the First Extension Term) whether Tenant accepts Landlord’s reasonable estimate of the Market Base Rental Rate for such Available Space. If Tenant fails to respond within the time required, Tenant’s rights under this Exhibit J with respect to such space shall automatically terminate, and Tenant shall have no further right under this Exhibit J to lease such space unless (i) Landlord leases such space and such lease expires or is terminated, or (ii) Landlord fails to lease such space within two hundred seventy (270) days after the latest date that Tenant could have elected to lease such Available Space pursuant to this Right of Offer.

5. Tenant may not elect to lease any Available Space under this Exhibit J during the last year of the First Extension Term, unless Tenant has then exercised the Extension Option for the Second Extension Term, or during the last year of the Second Extension Term, unless Tenant has then exercised the Extension Option for the Third Extension Term,. For purposes of this Exhibit J, Available Space shall be deemed to have been “added to the Premises” on the Available Space Rent Commencement Date.

6. Any space for which Tenant elects to exercise its Right of Offer under this Exhibit J shall become part of the Premises, and except to the extent expressly provided to the contrary in this Exhibit J (including without limitation, this Section 6), shall be subject to the terms of this Lease applicable thereto, without modification, and the Term of this Lease shall commence for such Available Space on the earlier of (i) sixty (60) days after the date such space is delivered to Tenant in accordance with the requirements of the Lease, and (ii) the date on which Tenant takes occupancy of any portion of the Available Space for the conduct of its business (the “Available Space Rent Commencement Date”); provided that from and after the date on which possession of the Available Space is delivered to Tenant, the Available Space shall be part of the Premises for all purposes of this Lease other than Tenant’s obligation to pay Base Rent and Tenant’s Additional Rent and Tenant shall be bound by and shall comply with all of the provisions of this Lease (including those terms and conditions pertaining to acts or omissions of Tenant or Tenant’s representatives, employees, agents, and contractors).

7. For Available Space that is added to the Premises prior to the end of the First Extension Term, from and after the Available Space Rent Commencement Date, Tenant shall be obligated to pay Base Rent for the Available Space (the “Available Space Rent”) at the same rate as the Base Rent which Tenant is obligated to pay from time to time for the First Expansion Space. Tenant shall also be obligated to pay Tenant’s Additional Rent for any Available Space from and after the Available Space Rent Commencement Date. The Base Rent for any Available Space which is added to the Premises after the First Extension Term shall (unless Tenant accepts Landlord’s reasonable estimate of the Market Base Rental Rate for such space, as set forth in the applicable Available Space Notice) be computed at the Market Base Rental Rate determined by arbitration in accordance with this Exhibit J.

The Market Base Rental Rate for any Available Space that is added to the Premises after the First Extension Term shall be determined as of the applicable Available Space Rent Commencement Date. As provided in Section 3 (and, for re-offered space, Section 4) above, Landlord shall give Tenant notice of Landlord’s reasonable estimate of the Market Base Rental Rate for any Available Space that will be added to the Premises after the First Extension Term. If Tenant does not accept Landlord’s reasonable estimate, and if Landlord and Tenant

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cannot agree upon the determination of the Market Base Rental Rate within thirty (30) days after Landlord’s Available Space Notice is given, and if Tenant nonetheless timely exercises its Right of Offer for the Available Space, the determination of the Market Base Rental Rate will be submitted to arbitration in accordance with this Exhibit J. If the arbitration has not been completed on the applicable Available Space Rent Commencement Date, Tenant will pay, in monthly installments (and in addition to and not in lieu of the Rent due with respect to the Premises [exclusive of such Available Space]), one-twelfth of Landlord’s reasonable determination of the Available Space Rent, plus Additional Rent for such Available Space. Upon determination of the Market Base Rental Rate by arbitration, Landlord shall pay to Tenant or Tenant shall pay to Landlord, as appropriate, the amount equal to the overpayment or underpayment of the Available Space Rent from the applicable Available Space Rent Commencement Date until the determination of the Market Base Rental Rate by arbitration, together with interest accrued thereon during such period at a rate of interest equal to the Interest Rate. Commencing as of the later of the determination of such Market Base Rental Rate or the applicable Available Space Rent Commencement Date, and on the first day of each and every month thereafter, Tenant shall pay to Landlord in addition to the Rent then in effect with respect to the Premises (exclusive of such Available Space), an amount equal to one-twelfth (1/12th) of the per annum Available Space Rent, plus Additional Rent with respect to such Available Space.

8. The term of this Lease for all Available Space shall expire upon the expiration of the Term for the Existing Premises, unless, as specified in Landlord’s notice, such space is not available to be leased to Tenant through the expiration of the Term for the Existing Premises (in which event such shorter term specified in the Landlord’s notice shall apply to any such Available Space).

9. Tenant shall accept any Available Space or permitted portion thereof in its “as is” condition as of the applicable Available Space Rent Commencement Date; except that the Available Space shall be delivered in accordance with the Space Delivery Standards, and Landlord shall deliver such space broom clean, with all personal property removed, and except that, for Available Space that is added to the Premises prior to the end of the First Extension Term, Landlord shall make an allowance available to Tenant in an amount of up to $0.42 per square foot of the Rentable Area of the Available Space for each month (or a pro rata portion thereof for any partial month) remaining in the First Extension Term as of the applicable Available Space Rent Commencement Date to pay for those costs which are incurred by Tenant in designing and constructing those leasehold improvements which Tenant desires to make to the Available Space (the “Available Space Improvement Allowance”). For so long as Tenant is not in default under this Lease, Landlord shall pay any Available Space Improvement Allowance on a monthly basis in accordance with customary construction disbursement procedures and upon receipt of a sworn construction statement and draw request, with supporting lien waivers from all material contractors and subcontractors delivered one month in arrears. Landlord shall be permitted to offset against any Available Space Improvement Allowance any amounts past due to Landlord by Tenant under this Lease. If the actual cost of designing and constructing improvements to the Available Space plus the cost of moving into the Available Space shall be less than the Available Space Improvement Allowance, Landlord shall credit up to but not more than $5.00 per square foot of the Available Space Improvement Allowance against the Rent due commencing on the first day of any month designated by Tenant, but in no event commencing later than the sixth full month after the applicable Available Space Rent Commencement Date.

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10. Each Available Space Improvement Allowance shall be treated by Landlord and Tenant as a tenant improvement allowance and all of the leasehold improvements that are constructed and paid for with an Available Space Improvement Allowance shall be owned by Landlord.

11. If Landlord fails to pay any portion of an Available Space Improvement Allowance which is properly due and payable, the unpaid amount shall bear interest until paid at the Interest Rate, and if Landlord fails to pay such properly due and payable amount within ten (10) business days after receiving written notice from Tenant that such amount was not paid when due, then Tenant shall be entitled to offset said amounts (including interest) against Rent due and payable under the Lease.

12. Landlord shall promptly after any Available Space Rent Commencement Date prepare a declaration confirming the Available Space Rent Commencement Date and the Rentable Area of the Available Space. If the declaration is complete and correct, Tenant shall execute and return such declaration within thirty (30) days after submission, failing which Tenant shall be conclusively deemed to have agreed that the information in the declaration is accurate and Tenant shall have thereby waived any right to object to the accuracy of such information unless within such thirty (30) day period Tenant notifies Landlord of its reasons for objecting to the declaration.

13. This Exhibit J shall in no event constitute a covenant or guarantee by Landlord that any Available Space will be available for lease by Tenant at any time.

14. Tenant shall have no right to exercise the Right of Offer if an Event of Default exists under this Lease at the time Landlord gives an Available Space Notice under Section 3 above and, if at any time thereafter until the date Landlord is to deliver the Available Space in question to Tenant, an Event of Default exists under this Lease, Landlord shall, in addition to any other rights which Landlord may have under this Lease, have the right to terminate Tenant’s right to lease such Available Space by giving Tenant written notice of such termination.

15. If at the time Landlord would be required to provide Tenant with an Available Space Notice pursuant to Section 3 above, Capella Education Company has assigned this Lease other than to an Affiliate or in connection with a Permitted Transfer (as defined in Section 10.7 of the Lease), or Capella Education Company has subleased more than twenty percent (20%) of the Rentable Area of the Premises other than to an Affiliate or in connection with a Permitted Transfer, then Landlord shall not be obligated to provide Tenant with notice of such Available Space and Tenant’s Right of Offer to lease such Available Space (if not already exercised and added to the Premises by Tenant) shall, upon the occurrence of any such event, automatically terminate and have no further force or effect.

16. Landlord shall not be liable for failure to give possession of any Available Space by reason of any holding over or retention of possession by any previous tenants or occupants of same, nor shall such failure impair the validity of this Lease. However, Landlord does agree to use reasonable diligence to deliver possession of the Available Space on the date specified in Landlord’s Available Space Notice.

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17. For the purpose of this Exhibit J, the term “Market Base Rental Rate” shall mean the amount of cash which a landlord would receive annually by then renting the space in question assuming the landlord to be a prudent person willing to lease but being under no compulsion to do so, assuming the tenant to be a prudent person willing to lease but being under no compulsion to do so, and assuming a lease containing the same terms and provisions as those herein contained. Market Base Rental Rate shall take into consideration all relevant factors including the condition of the space.

If Tenant elects to lease Available Space offered to Tenant in accordance with this Exhibit J, but does not accept Landlord’s reasonable estimate of the Market Base Rental Rate for such space, and if Tenant and Landlord cannot agree to the Market Base Rental Rate on or before the date that is thirty (30) days after Tenant’s receipt of the Available Space Notice given by Landlord with respect to such Available Space, either party may by written notice to the other initiate the determination of such rate by arbitration in accordance with the following provisions:

The determination of the Market Base Rental Rate will be determined by an arbitration board consisting of three reputable real estate professionals with experience with first-class office buildings in the Minneapolis-St. Paul metropolitan area, each of whom shall be a Member of the Appraisal Institute with the designation of “MAI.” Within twenty (20) days after initiation of arbitration, each party shall appoint one arbitrator who shall have no material financial or business interest in common with the party making the selection and shall not have been employed by such party for a period of three years prior to the date of selection. If a party fails to give notice of appointment of its arbitrator within the twenty (20) day period specified above, then upon two (2) business days notice the other party may appoint the second arbitrator. The arbitrators selected by the parties shall attempt to agree upon a third arbitrator. If the first two arbitrators are unable to agree on a third arbitrator within thirty (30) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the presiding Judge of the Hennepin County District Court, or by any person to whom such presiding judge formally delegates the matter or, if such methods of appointment fail, by the American Arbitration Association. The parties will submit to the arbitrators the definition of the Market Base Rental Rate from this Exhibit J each party will be entitled to present to the arbitrators evidence concerning the Market Base Rental Rate at a hearing scheduled not earlier than thirty (30) and not later than sixty (60) days after the final arbitrator has been selected, and each arbitrator shall submit his or her determination in a sealed envelope by the 20^th day following such hearing, and any determination not submitted by such time shall be disregarded. The parties shall meet on said 20^th day (or if it is not a business day, on the first business day thereafter) at 11:00 a.m. at the office of Landlord, or such other place as the parties may agree and simultaneously deliver the determinations. If the determinations of at least two of the arbitrators shall be identical in amount, such amount shall be deemed the Market Base Rental Rate. If the determination of the three arbitrators shall be different in amount, the Market Base Rental Rate shall be determined as follows:

(1) If neither the highest or lowest determination differs from the middle determination by more than ten (10) percent of such middle determination, then the Market Base Rental Rate shall be deemed to be the average of the three determinations; and

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(2) If clause (1) does not apply, then the Market Base Rental Rate shall be deemed to be the average of the middle determination and the determination closest in amount to such middle determination.

The decision of the arbitrators, determined as above set forth, will be final and non-appealable. Except where specifically provided otherwise in this Lease, each party shall bear its own expenses in connection with the arbitration and the costs of its arbitrator, and the cost of the third arbitrator shall be shared equally by Landlord and Tenant. The costs of all counsel, experts and other representatives that are retained by a party will be paid by such party.

18. Tenant’s Right of Offer shall be independent of Tenant’s Expansion Options and no failure by Tenant to exercise an Expansion Option shall affect any Right of Offer to which Tenant is entitled under this Exhibit J.

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EXHIBIT P-1

DEPICTION OF TENANT’S ADDITIONAL

EMERGENCY GENERATOR SITE

P-1-1

EXHIBIT Q-1

DEPICTION OF FIRST EXPANSION SPACE

(Attach Floor Plan)

Q-1-1

EXHIBIT Q-2

DEPICTION OF SECOND EXPANSION SPACE

(Attach Floor Plan)

Q-2-1

EXHIBIT Q-3

DEPICTION OF THIRD EXPANSION SPACE

(Attach Floor Plan)

Q-3-1

EXHIBIT Q-4

DEPICTION OF FOURTH EXPANSION SPACE

(Attach Floor Plan)

Q-4-1

EXHIBIT R

“CAPELLA TOWER” SIGNAGE RIGHTS

Tenant shall have the following rights to modify and/or install, at Tenant’s expense, signage at the locations referenced below and identified on the floor plans attached hereto as Exhibit R-1.

In this Exhibit R: (i) the “Project logo” shall mean the geometric shapes and adjoining “225 South Sixth” address, an example of which is shown in the bottom right quadrant of the sign depicted on Exhibit S-1, and (ii) the “Capella Tower logo” shall mean the words “Capella Tower” (in the stylized type face commonly used by Tenant), an example of which is shown in the upper left quadrant of the sign depicted on Exhibit S-1.

1. Signs #1 and #9: Shall be revised as shown on Exhibit S-1. Landlord shall have the right to make changes to Signs #1 and #9 as it deems necessary, subject to the following: (a) these signs shall be for use by retail tenants only and no retail tenant shall have its name or logo more prominently displayed than the Capella Tower logo; (b) the Capella Tower logo shall remain in the upper left quadrant position.

2. Sign #2: Shall be revised as shown on Exhibit S-2.

3. Sign #3: Shall be revised as shown on Exhibit S-3.

4. Sign #4A and 4B: Sign #4A shall be revised as shown on Exhibit S-4. Sign #4B shall be revised in a manner consistent with Sign #4A as shown on Exhibit S-4 with the exception that the directional arrows shall be adjusted accordingly.

5. Sign #5: Shall be revised as shown on Exhibit S-5.

6. Sign #6: Shall be revised as shown on Exhibit S-6.

7. Sign #7: Shall be revised as shown on Exhibit S-7.

8. Sign #8: Shall be revised as shown on Exhibit S-8.

9. Sign #10: Shall be revised as shown on Exhibit S-10.

10. Sign #11: Shall be revised as shown on Exhibit S-11.

11. Sign #12: Shall be revised as shown on Exhibit S-12.

12. Sign #13: Shall be revised as shown on Exhibit S-13.

13. Sign #14: Shall be revised as shown on Exhibit S-14.

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14. Sign #15: Shall be revised as shown on Exhibit S-15.

15. Sign #16: Shall be revised as shown on Exhibit S-16.

16. Sign #17: Shall be revised as shown on Exhibit S-17.

17. Sign #18: Shall be revised as shown on Exhibit S-18.

18. Sign #19: Shall be revised as shown on Exhibit S-19.

19. Sign #20: Shall be removed.

20. Sign #21: Shall be revised as shown on Exhibit S-21

21. Sign #22: Shall be revised as shown on Exhibit S-22.

22. Sign #23: Shall be removed.

23. Sign #24: Shall be revised as shown on Exhibit S-24. Landlord shall continue to have the right to make changes to the lower two panels of the sign, subject to the provisions of Section 23(a)(i) of the Second Amendment.

24. Signs #25, #26 and #27: Sign #25 shall be revised as shown on Exhibit S-25. Signs #26 and #27 shall be revised in a manner consistent with Sign #25 as shown on Exhibit S-25 with the exception that the floor level indicators shall be adjusted accordingly.

25. Landlord and Tenant shall work together to modify the electronic directory to reflect and display the Capella Tower name change in a manner acceptable to both parties.

26. The phrase “225 South Sixth Street” shall be removed from the glass skyway sign leading from the US Bank Plaza skyway into the Tower. The skyway sign leading from the Ameriprise skyway into the Park Building shall be revised so that the phrase “Capella Tower – 225 South Sixth” is added below the phrase “Park Building – 650 Third Avenue South”. In no event will the names or logos of any other Project tenants be placed on these skyway signs.

27. Tenant shall have the right, at Tenant’s option, to add the Capella Tower logo on the existing external sign to the parking ramp entrance on Seventh Street. The size of the Capella Tower logo shall be similar to that of the Bremer logo currently on the sign.

28. Wherever the Project logo is relocated or added to the directional signage in the Project all of the existing text on each sign may need to be replaced and repositioned to accommodate the relocation of the Project logo to the bottom of the sign.

29. The materials used to modify the signs noted above shall be the same as those currently used on the existing signs.

R-1-2

EXHIBIT S

SIGN RENDERINGS

This Exhibit S contains renderings of various of the signs referred to on Exhibit R, as follows:

Exhibit	Sign
S-1	#1 and #9
S-2	#2
S-3	#3
S-4	#4A and #4B
S-5	#5
S-6	#6
S-7	#7
S-8	#8
S-10	#10
S-11	#11
S-12	#12
S-13	#13
S-14	#14
S-15	#15
S-16	#16
S-17	#17
S-18	#18
S-19	#19
S-21	#21
S-22	#22
S-24	#24
S-25	#25, #26 and #27

S-1

EXHIBIT T

SUBORDINATION, NON-DISTURBANCE

AND ATTORNMENT AGREEMENT

LASALLE BANK NATIONAL ASSOCIATION, as Trustee for Bear Stearns Commercial

Mortgage Securities Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-TOP 24

(“Lender”)

- and -

CAPELLA EDUCATION COMPANY

(“Tenant”)

- and –

MINNEAPOLIS 225 HOLDINGS, LLC

(“Landlord”)

Dated: March 17, 2008

Location: 225 South Sixth, Minneapolis, Minnesota

THIS INSTRUMENT WAS DRAFTED BY

AND UPON RECORDATION RETURN TO:

Maslon Edelman Borman & Brand, LLP

3300 Wells Fargo Center

Minneapolis, Minnesota

Attention: Edwin Chanin

(612) 672 8323

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SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

This Subordination, Non-Disturbance and Attornment Agreement (this “Agreement”) is entered into effective as of March 17, 2008, by and among LaSalle Bank National Association, as Trustee for Bear Stearns Commercial Mortgage Securities Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-TOP 24, having an address c/o Wells Fargo Bank, N.A., 1320 Willow Pass Rd Suite Concord, CA 94520 and its successors and assigns (collectively, “Lender”), Capella Education Company, a Minnesota corporation (“Tenant”), and Minneapolis 225 Holdings, LLC, a Delaware limited liability company, having an address at 225 South Sixth Street, Suite 2590, Minneapolis, Minnesota 55402 (“Landlord”).

RECITALS:

A. 601 Second Avenue Limited Partnership (“Original Landlord”), as Landlord, and Capella Education Company, as Tenant, entered into an Office Lease dated February 23, 2004 (the “Original Lease”), which was amended by a First Amendment to Lease dated May 16, 2006 (as so amended the “Existing Lease”) relating to certain premises (as may be modified from time to time, the “Premises”) situated in the office project which is now commonly known as 225 South Sixth in Minneapolis, Minnesota, and which is located on the real property that is legally described on Exhibit A attached hereto (the “Property”).

B. Landlord purchased the Property from Original Landlord on August 17, 2006, in part with acquisition financing (the “Acquisition Loan”) that was obtained from Morgan Stanley Mortgage Capital, Inc. (the “Original Lender”).

C. The Acquisition Loan was secured by a Mortgage, Assignment of Leases and Rents, Fixture Filing and Security Agreement dated August 16, 2006, against the Property that was recorded on August 17, 2006, as Document No. 4294846, in the Office of the Registrar of Titles in and for Hennepin County, Minnesota (the “Mortgage”).

D. Lender acquired the Acquisition Loan from the Original Lender and Lender is now the present owner and holder of the Mortgage pursuant to an Assignment of Mortgage, Assignment of Leases and Rents, Fixture Financing Statement and Security Agreement and Assignment of Assignment of Leases and Rents dated October 31, 2006, which was recorded on February 9, 2007, as Document No. 4356462 in the Registrar of Titles Office in and for Hennepin County, Minnesota (such Loan now being identified as Loan No.:70-0401222).

E. Landlord and Tenant are entering into a Second Amendment to Lease with an effective date of March 17, 2008 (the “Second Amendment”), pursuant to which Landlord and Tenant have agreed to increase the size of the Premises being leased to Tenant under the Existing Lease, to extend the Term of the Lease, and to modify the Existing Lease in various other respects, all as set forth in the Second Amendment (the Existing Lease as modified by the Second Amendment and as the same may be hereafter amended or modified is referred to in this Agreement as the “Lease”).

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F. As a condition to making the Acquisition Loan, Tenant, Landlord and Original Lender executed a Non-Disturbance and Attornment Agreement dated August 8, 2006 (the “Existing NDA”).

G. Landlord and Tenant are required under the Existing NDA to obtain the Lender’s consent to the Second Amendment and Tenant has required, as a condition to its execution and delivery of the Second Amendment, that Lender execute this Agreement.

H. Landlord, Tenant and Lender have agreed that the Existing NDA shall have no further force or effect and shall be replaced in its entirety with the provisions of this Agreement.

AGREEMENT:

For good and valuable consideration, Tenant, Lender and Landlord agree as follows:

(a) Subordination. The Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Mortgage and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Mortgage had been executed, delivered and recorded prior to the execution and delivery of the Lease.

(b) Non-Disturbance. If any action or proceeding is commenced by Lender for the foreclosure of the Mortgage or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant’s possession or use of the Premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Mortgage shall be made subject to all rights of Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights (a) the Lease shall be in full force and effect, and (b) Tenant shall not be in default (after any applicable notice and cure period) of any of the terms, covenants or conditions of the Lease or of this Agreement on Tenant’s part to be observed or performed.

Attornment. If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Mortgage or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Mortgage (Lender or such other purchaser being hereinafter referred as “Purchaser”), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (a) liable for the failure of any

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prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a “Prior Landlord”) to perform any of its obligations under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property, provided that the foregoing shall not limit Purchaser’s obligations under the Lease to correct any conditions of a continuing nature that (i) existed as of the date Purchaser became the owner of the Property and (ii) violate Purchaser’s obligations as landlord under the Lease; provided further, however, that Purchaser shall have received written notice of such omissions, conditions or violations and shall have had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease, (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property, except to the extent that such offsets are otherwise expressly provided for under the Lease or were used to fund any Improvement Allowance under the Lease including interest thereon or to fund the repairs, maintenance or other actions which would otherwise be an obligation of Purchaser upon its acquisition of the Property, (c) liable for the return of rental security deposits, if any, paid by Tenant to any Prior Landlord in accordance with the Lease unless such sums are actually received by Purchaser, (d) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one (1) month in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Lender or Purchaser, (e) bound by any agreement terminating or amending or modifying the rent, term, commencement date or other material term of the Lease (except for Amendments to the Lease which are executed to memorialize rights granted in the Lease), or any voluntary surrender of the Premises demised under the Lease, made without Lender’s or Purchaser’s prior written consent prior to the time Purchaser succeeded to Landlord’s interest or (f) bound by any assignment of the Lease or sublease of the Property, or any portion thereof, made prior to the time Purchaser succeeded to Landlord’s interest other than if pursuant to the provisions of the Lease. In the event that any liability of Purchaser does arise pursuant to this Agreement, such liability shall be limited and restricted to Purchaser’s interest in the Property and shall in no event exceed such interest. Alternatively, upon the written request of Lender or its successors or assigns, Tenant shall enter into a new lease of the Premises with Lender or such successor or assign for the then remaining term of the Lease, upon the same terms and conditions as contained in the Lease (including, without limitation, any extension rights), except as otherwise specifically provided in this Agreement.

(c) Notice to Tenant. After notice is given to Tenant by Lender that (a) the Landlord is in default under the Mortgage, (b) Lender has exercised its right under the assignment of leases and rents executed and delivered by Landlord to Lender in connection with the Mortgage (the “Assignment of Leases”), and has revoked the license granted to Landlord to collect rentals and monies due under the Lease, and (c) the rentals under the Lease should be paid to Lender pursuant to the terms of the Assignment of Leases, Tenant shall thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments.

(d) Lender’s Consent. None of the following shall be binding upon Lender without such action being taken with Lender’s prior consent: (a) any agreement amending,

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modifying or terminating the Lease (except for Amendments to the Lease which are executed to memorialize rights granted in the Lease), (b) prepayment by Tenant of any of the rents, additional rents or other sums due under the Lease for more than one (1) month in advance of the due dates thereof, (c) except as expressly permitted under the Lease, Tenant’s voluntarily surrender of the Premises demised under the Lease, termination of the Lease, or shortening of the term thereof, or (d) assignment of the Lease or sublease of the premises demised under the Lease or any part thereof other than as permitted by and pursuant to the provisions of the Lease.

(e) Notice to Lender and Right to Cure. Notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and (i) in the case of any such default that can be cured by the payment of money, until thirty (30) days shall have elapsed following the giving of such notice, or (ii) in the case of any other such default, until a reasonable period for remedying such default shall have elapsed following the giving of such notice. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default.

(f) Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

If to Landlord:
	Minneapolis 225 Holdings, LLC
	c/o Hines Interests Limited Partnership
	225 South Sixth Street, Suite 2590
	Minneapolis, MN 55402
	Attention: Property Manager
With a copy to:
	Minneapolis 225 Holdings, LLC
	c/o ASB Capital Management, LLC
	7501 Wisconsin Avenue
	Bethesda, MD 20814
	Attention: Asset Manager – 225 South Sixth
If to Tenant:	Capella Education Company
	225 South Sixth Street
	Minneapolis, Minnesota 55402
	Attention: General Counsel

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If to Lender:	Wells Fargo Bank, N.A. as Master Servicer
	Attn: Commercial Mortgage Servicing
	1320 Willow Pass Road Ste 300
	Concord, Ca 94520

or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 7, the term “Business Day” shall mean a day on which commercial banks are not authorized or required by law to close in the state where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Tenant and Purchaser and their respective successors and assigns.

(h) Governing Law. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State where the Property is located.

(i) Miscellaneous. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

(j) Definitions. The term “Lender” as used herein shall include the successors and assigns of Lender and any person, party or entity which shall become the owner of the Property by reason of a foreclosure of the Mortgage or the acceptance of a deed or assignment in lieu of foreclosure or otherwise. The term “Landlord” as used herein shall mean and include the present landlord under the Lease and such landlord’s predecessors and successors in interest under the Lease, but shall not mean or include Lender. The term “Property” as used herein shall mean the Property, the improvements now or hereafter located thereon and the estates therein encumbered by the Mortgage.

(k) Further Acts. Tenant will, at the cost of Tenant, and without expense to Lender, do, execute, acknowledge and deliver all and every such reasonable further acts and assurances as Lender shall, from time to time, require, for the better assuring and confirming unto Lender the property and rights hereby intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of this Agreement or for filing, registering or recording this Agreement, or for complying with all applicable laws.

T-6

(l) Limitations on Purchaser’s Liability. In no event shall the Purchaser, nor any heir, legal representative, successor, or assignee of the Purchaser have any personal liability for the obligations of Landlord under the Lease and should the Purchaser succeed to the interests of the Landlord under the Lease, Tenant shall look only to the estate and property of any such Purchaser in the Property for the satisfaction of Tenant’s remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Purchaser as landlord under the Lease, and no other property or assets of any Purchaser shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to the Lease; provided, however, that the Tenant may exercise any other right or remedy provided thereby or by law in the event of any failure by Landlord to perform any such material obligation.

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T-7

IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement to be effective as of the date first above written.

LENDER:

LASALLE BANK NATIONAL ASSOCIATION, as Trustee for Bears Stearns Commercial Mortgage Securities Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-TOP 24

BY: Wells Fargo Bank, National Association, its Master Servicer and Authorized Agent

By:

Name:

Title:

STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF CONTRA COSTA	)

On              of                     , 2008, before me,                                         , the undersigned Notary Public in and for said County and State, personally appeared                                         , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), as                      of Wells Fargo Bank, N.A., as Master Servicer and Authorized Agent of LASALLE BANK NATIONAL ASSOCIATION, as Trustee for Bears Stearns Commercial Mortgage Securities Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-TOP 24, and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.
Signature of Notary Public
Commissioned for said County and State	(Seal)

T-8

IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement to be effective as of the date first above written.

TENANT:

CAPELLA EDUCATION COMPANY

a Minnesota corporation

By:

Name:

Title:

STATE OF MINNESOTA	)
	)	ss.
COUNTY OF HENNEPIN	)

The foregoing instrument was acknowledged before me this              day of                     , 2008, by             , the                      of Capella Education Company, a Minnesota corporation, on behalf of said corporation

Notary Public

Notarial Stamp or Seal

T-9

IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement to be effective as of the date first above written.

LANDLORD:

MINNEAPOLIS 225 HOLDINGS, LLC,

a Delaware limited liability company

By:

Name:

Title:

STATE OF	)
		)    ss.
COUNTY OF	)

The foregoing instrument was acknowledged before me this              day of                     , 2008, by                     , the                     of Minneapolis 225 Holdings, LLC, a Delaware limited liability company, on behalf of said limited liability company.

Notary Public

Notarial Stamp or Seal

T-10

EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

Lot 6, Block 219, Town of Minneapolis, according to the plat thereof on file or of record in the office of the Register of Deeds in and for Hennepin County.

The Northeasterly 7 feet of Lots 1, 2, and 3; the Northeasterly 7 feet of the Northwesterly half of Lot 4; the Southeasterly half of Lot 4; and Lots 5, 6, 7, 8, 9 and 10;

all in Block 219, Brown and Jackins’ Addition to Minneapolis, according to the plat thereof on file or of record in the office of the Register of Deeds in and for Hennepin County.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Stephen G. Shank, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Capella Education Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 1, 2008

/s/ Stephen G. Shank

Stephen G. Shank

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Lois M. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Capella Education Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

e) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

f) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

g) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

h) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

c) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 1, 2008

/s/ Lois M. Martin

Lois M. Martin

Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report of Capella Education Company (the “Company”) on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen G. Shank, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stephen G. Shank

Stephen G. Shank

Chairman and Chief Executive Officer

May 1, 2008

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report of Capella Education Company (the “Company”) on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lois M. Martin, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lois M. Martin

Lois M. Martin

Senior Vice President and Chief Financial Officer

May 1, 2008

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.