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Confidentiality, Non-Competition and Inventions Agreement - Capella Education Co. and Paul Schroeder

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            CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT

      This Agreement About Confidentiality, Non-Competition, and Inventions
("Agreement") is entered into this 9th day of May, 2001, between Paul Schroeder
("Employee") and Capella Education Company.

      A. Capella Education Company and its subsidiaries are collectively
referred to as "Capella" in this Agreement.

      B. Capella desires to employ Employee as Senior Vice President and Chief
Financial Officer, and Employee desires to be employed in that capacity.

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

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

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

                                    AGREEMENT

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

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

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

            b. "Inventions" means discoveries, improvements, ideas, concepts,
processes, formulas, methods, analyses, and works of authorship (whether or not
reduced to writing or put into practice) that (1) relate directly to the
business of Capella; (2) relate to Capella's actual or demonstrably anticipated
research or development; (3) result from any work performed by Employee for
Capella; (4) for which equipment, supplies, facilities, or

<PAGE>

trade secret information of Capella is used; or (5) is developed using any time
for which Employee is compensated by Capella.

            c. "Competing Organization" means any person, corporation,
not-for-profit organization, or other entity that provides, develops, sells, or
markets on-line credit-granting educational products or services in any country
in which Capella did business or had customers at any time during the last 12
months of Employee's Capella employment.

      2. CONFIDENTIAL INFORMATION. Except as required in his duties of Capella
employment or as authorized in writing by an officer of Capella, Employee shall
not, either during the Employee's employment by Capella or at any time
thereafter, use or disclose to any person any Confidential Information for any
purpose.

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

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

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

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

      4. INVENTIONS. With respect to Inventions developed, made, authored, or
conceived by Employee, either by the Employee or in connection with others,
during the Employee's employment by Capella or (regardless of whether during
normal working hours or whether at Capella premises) or within one year after
the termination of that employment for any reason, Employee shall:

            a. keep complete and accurate records of such Inventions, which
records shall be Capella property;

            b. promptly disclose such Inventions in writing to Capella;

            c. assign (and the Employee hereby does assign) to Capella all of
the Employee's rights to such inventions and to letters patent and copyrights
granted upon such Inventions in all countries; and

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

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<PAGE>

            Nothing in this section 4 shall apply to any invention for which no
equipment, supplies, facility or trade secret information of Capella was used
and which was developed entirely on Employee's own time, and (1) which does not
relate (a) directly to the business of Capella or (b) to Capella's actual or
demonstrably anticipated research and development, or (2) which does not result
from any work performed for Capella.

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

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

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

      8. NO EMPLOYMENT RIGHTS. This Agreement does not require Capella to employ
Employee for any particular length of time and does not restrict the ability of
Capella to terminate the employment relationship. Employee's Capella employment
is at-will.

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

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<PAGE>

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

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

      12. FORUM SELECTION. Any disputes arising out of or related to this
Agreement shall be litigated only in Minnesota state courts or in the United
States District Court for the District of Minnesota, and Capella and Employee
hereby consent to the exercise of personal jurisdiction over them for that
purpose by Minnesota state courts and the United States District Court for the
District of Minnesota.

                                        EMPLOYEE

                                        /s/ Paul Schroeder
                                        ----------------------------------------

                                        CAPELLA EDUCATION COMPANY

                                        By /s/ Betsy Rausch
                                           -------------------------------------

                                           Its VP Human Resources
                                               ---------------------------------

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