8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) February 24, 2009

Capella Education Company

(Exact name of Registrant as specified in its charter)

Minnesota	001-33140	41-1717955
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

225 South 6th Street, 9th Floor Minneapolis, Minnesota	55402
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (888) 227-3552

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02. Departure of Directors or Certain Officers.

Effective February 25, 2009, Reed A. Watson, the Company’s Senior Vice President of Markets and Marketing, has taken on a new role as Vice President of Differentiation Strategy. Mr. Watson will report to Stephen Shank, the Company’s chairman. Based on Mr. Watson’s revised job responsibilities, Mr. Watson will no longer be a member of the Company’s executive leadership team. As part of this organizational realignment, the marketing operations team, headed by Vice President Brad Frank, will report directly to Kevin Gilligan when he joins our Company as CEO on March 2, 2009.

In connection with Mr. Watson’s transition to his new role, the Company has entered into a letter agreement with him, dated February 25, 2009 the (“Letter Agreement”), the terms of which were approved by the Company’s compensation committee. The Letter Agreement modifies certain terms of Mr. Watson’s current compensation arrangement, including base salary, bonus plan participation and potential severance benefits. The terms of the Letter Agreement are included as Exhibit 10.1 and incorporated by reference into this Item 5.02.

Item 8.01. Other Events.

Effective February 24, 2009, Capella University, the Company’s wholly owned subsidiary, appointed Dr. Christopher Cassirer as President. Dr. Cassirer has also been appointed to serve as a Senior Vice President for the Company. Since May 13, 2008, Dr. Cassirer had been the Acting President of the University. The press release announcing Dr. Cassirer’s appointment is attached as Exhibit 99.1.

Item 9.01. Financial Statements and Exhibits.

10.1 Letter Agreement between the Company and Reed Watson, dated February 25, 2009*

99.1 Press Release dated February 25, 2009

* Compensatory plan or agreement

SIGNATURES

Pursuant to the requirements 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
Date: February 26, 2009	By	/s/ Gregory W. Thom
		Gregory W. Thom
		Vice President, General Counsel and Secretary

EX-10.1

Exhibit 10.1

February 25, 2009

Mr. Reed A. Watson

4465 Vinewood Lane North

Plymouth, MN 55442

Dear Reed:

As we have discussed, yesterday the Compensation Committee of the Company’s Board of Directors approved revised compensation terms for you in your new role as Vice President of Differentiation Strategy, reporting to Steve Shank. The Compensation Committee has authorized management to enter into a letter agreement, reflecting these revised terms. In light of your new position, the Board of Directors has also formally removed you from our list of Section 16 officers.

Except as specifically provided below, this letter agreement supersedes and replaces your initial employment arrangement, as reflected in your letter agreement with the Company, dated June 6, 2006 (the “Offer Letter”).

Salary. Commencing immediately, you will be paid an annualized salary of $150,000, payable on the Company’s normal payroll cycle. This position is classified as exempt.

Work Expectations. For any period in which you remain an employee of the Company, you will be expected to work on a full-time basis. The Company is an “at-will employer;” this means that either you or the Company may terminate your employment at any time for any reason, without advance notice, except as otherwise set forth in this letter.

Management Incentive Plan. In your new position, you will not be eligible to participate in the 2009 Management Incentive Plan. The payout schedule under the 2008 Management Incentive Plan (“2008 MIP”) has been finalized, and you will receive payout under the 2008 MIP, based on your 2008 total base compensation, at the same time as other 2008 MIP participants (scheduled for early March 2009).

Stock Options. The stock options that were granted to you on June 26, 2006 will continue to be governed by the terms of the Stock Option Grant Agreement between you and the Company.

Employee Benefits. Except as provided below, you will be eligible to participate in the employee benefit plans generally available to full-time employees of the Company, including our 401(k) plan and health, dental and disability plans, subject to the terms and conditions of such plans. In addition, through June 30, 2009, the Company will continue to provide you with parking benefits in our building and pay the same portion of your premiums as we have paid in the past.

Paid Time Off (PTO). You will continue to accrue PTO for any period in which you remain an employee of the Company. Any PTO that you use from this date forward will be drawn on a pro rata basis from the PTO that you currently have accrued and any PTO that you will accrue in the future. Upon any termination of your employment, you will be paid for accrued PTO in accordance with our PTO policy, except that the payout for remaining PTO, if any, accrued prior to this date will be based on your annualized base salary in effect prior to the modifications described in this letter.

Severance Benefits. If prior to June 30, 2009, your employment is terminated without Cause (as defined in the Offer Letter) or you resign for good reason (as defined in the Offer Letter), then you will be eligible to receive severance pay equal to 12 months of your base salary, notwithstanding any contrary provision in the Company’s Senior Executive Severance Plan. “Base salary” for this purposes will equal $262,000 (your annualized base salary as in effect prior to the modifications described in this letter). You will be able to receive this severance pay regardless whether you find other employment during that time and no amounts of replacement income will be set off. The Company will require any successor to assume its obligations in this letter or will remain obligated after any sale.

In addition, you would also be eligible for up to 12 months of outplacement assistance, and the Company will pay the regular employer portion toward continued coverage for you, your spouse and dependent children under the Company’s group health, dental and basic life insurance plans for up to 12 months. After that time, you must pay the entire cost of continuation coverage if you wish to continue coverage. To receive this continuation coverage benefit, you must elect continuation coverage in accordance with the documents you receive. If you are not eligible for continuation coverage at the time of termination or if you do not properly elect continuation coverage, you will not receive any payments in lieu of this subsidized continuation coverage. If you lose eligibility for COBRA or other continuation coverage, as described in the COBRA documents you will receive, the Company will stop paying its portion of the premiums for your continuation coverage.

Due to the reduction in your base salary, a resignation by you prior to June 30, 2009, would generally qualify as a good reason termination (as defined in the Offer Letter). Please note, however, that to satisfy the requirements of the Senior Executive Severance Plan and Internal Revenue Code section 409A, you must provide Capella with a 30-day notice of your intent to terminate for good reason, so if you wish to exercise such right, notice should be given to Capella not later than May 31, 2009. If you provide such notice between May 27, 2009 and May 29, 2009 (last business day preceding May 31, 2009), the Company agrees that it will not terminate your employment prior to June 30, 2009.

Continued Employment After June 30, 2009. If you remain employed by the Company after June 30, 2009, you will no longer be a participant in (or eligible for any severance benefits under) the Company’s Senior Executive Severance Plan. Unless otherwise mutually agreed, you would not be entitled to any severance payments or benefits upon subsequent termination of employment, except as may be required by law (for example COBRA continuation coverage). Except as required by law, you must pay the entire cost of continuation coverage if you wish to continue coverage.

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

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Please let me know if you have any questions.

Sincerely,

/s/ Gregory W. Thom

Gregory W. Thom

Vice President, General Counsel

Enclosure

Please sign and date below your acceptance of the terms set forth in this correspondence and return to my attention. Please retain the additional copy for your records.

/s/ Reed A. Watson	2/25/09
Signed	Dated

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EX-99.1

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE

Media Contact:

Irene Silber

Capella University

612-977-4132

irene.silber@capella.edu

Capella University names new president

Dr. Chris Cassirer chosen to lead the online university

MINNEAPOLIS, Feb. 25, 2009 — Capella University (www.capella.edu), an accredited*, fully online university that has built its reputation by providing quality education for working adults, announced today that it has named Dr. Chris Cassirer, ScD, MPH, as president of Capella University.

“Capella and our learners will benefit greatly from Chris’ leadership, strategic vision, insight on the current and future state of academia, and passion for the boundless possibilities of online education for adult learners,” said Stephen Shank, chancellor of Capella University and chairman and CEO of Capella Education Company.

Cassirer had been serving as acting president of Capella University since May 2008. Prior to that he served as dean of Capella’s School of Human Services. Cassirer is an internationally recognized teacher, researcher, and business leader with expertise in executive leadership programs, business and management strategy, medical malpractice risk management, and patient safety. He completed both his doctoral and post-doctoral training in health policy and management at the Johns Hopkins Bloomberg School of Public Health. He holds a Master of Public Health in health policy from the Yale University School of Medicine, and a Bachelor of Arts in psychology from Rutgers University.

“There are few issues more important at this time in our history as a nation than ensuring that adult learners have the opportunity to continue their education. Through the extraordinary passion and commitment of our faculty, staff and leaders, Capella continues to demonstrate that we are a great university, increasingly recognized as leading the definition of high quality online education for adult learners,” Cassirer said. “Capella graduates are emerging as leaders in their

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Capella University names new president

professions, demonstrating that through our learning model at Capella they have gained the competencies they need to lead in their professions. I am honored and excited by the opportunity to serve as president of Capella University and further advance Capella’s reputation as the leader in quality adult online education.”

About Capella University

Capella University (www.capella.edu) is an accredited*, fully online university that has built its reputation by providing quality graduate education for working adults. Eighty-three percent of Capella students are currently enrolled in master’s or doctoral degree programs in business, information technology, education, human services, psychology, public health, and public safety. Capella also offers bachelor’s degree programs in business, information technology, and public safety. Within those areas, Capella currently offers 114 graduate and undergraduate specializations and 15 certificate programs. More than 26,800 learners were enrolled as of Dec. 31, 2008, from all 50 states and 45 other countries. Capella is committed to providing high-caliber academic excellence and pursuing balanced business growth. Founded in 1993, Capella University is a wholly owned subsidiary of Capella Education Company (NASDAQ: CPLA), headquartered in Minneapolis. For more information, please visit http://www.capella.edu or call 1-888-CAPELLA (227-3552).

* Capella University is accredited by The Higher Learning Commission and is a member of the North Central Association of Colleges and Schools (NCA), www.ncahlc.org.

Capella University, 225 South Sixth Street, Ninth Floor, Minneapolis, MN 55402, 1-888-CAPELLA (227-3552), www.capella.edu.

Learn more about earning an online degree at Capella University:

online education (http://www.capella.edu/online_education.aspx)

distance learning (http://www.capella.edu/distance_learning.aspx)

online university (http://www.capella.edu/online_university.aspx)

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