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Employment Agreement - Capella Education Co. and Paul Schroeder

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                              EMPLOYMENT AGREEMENT

     This Employment Agreement ("Agreement") is entered into as of this 30th day
of May, 2006 between Paul Schroeder ("Employee") and Capella Education Company.


     WHEREAS, Capella Education Company and its affiliates and subsidiaries,
including without limitation Capella University, Inc., (individually and
collectively "CEC") are engaged in the business of providing, developing,
selling and marketing on-line educational products and services;

     WHEREAS, CEC employed Employee as its Senior Vice President, Business Team

     WHEREAS, CEC desired Employee to move into the position of Senior Vice
President, Capella University;

     WHEREAS, Employee also desired to move into the position of Senior Vice
President, Capella University; and

     WHEREAS, in March, 2006, Employee moved into the position of Senior Vice
President, Capella University.


     NOW, THEREFORE, in consideration of the foregoing recitals and the
following undertakings, CEC and Employee agree as follows:

     1.   Employment.

          (a)  Position. CEC has employed Employee effective this date as its
               Senior Vice President, Capella University. Employee reports to
               the President of Capella University.

          (b)  Duties. Employee's duties are as set forth on Exhibit A hereto,
               subject to modification from time to time as jointly agreed by
               Employee and CEC.

     2.   Term of Employment. CEC will continue to employ Employee on an at-will
          basis with no fixed employment termination date. Either Employee or
          CEC may terminate Employee's employment with CEC at any time and for
          any reason upon 30 days' prior written notice.

     3.   Compensation. As compensation for services to be rendered by Employee
          under this Agreement, CEC will provide the following:


          (a)  Base Salary. CEC will pay to Employee a base salary at the same
               rate currently in effect for Employee, which salary shall be paid
               in accordance with CEC's normal payroll policies and procedures.

          (b)  Management Incentive Plan. The terms of the Management Incentive
               Plan for 2006 shall continue to apply to Employee. If Employee's
               employment with CEC ends prior to December 31, 2006, he shall not
               receive a bonus for calendar year 2006; provided, however, that
               if Employee gives notice of termination on or before October 31,
               2006, but his employment does not end until December 31, 2007 or
               later, he shall be entitled to receive a bonus for full calendar
               year 2006, regardless of when such bonus is paid by CEC.

          (c)  Participation in Benefit Plans. Employee shall be entitled to
               participate in employee benefit plans or programs established by
               CEC from time to time to the extent that he is eligible under the
               terms of the plan or program. Employee's participation in any
               such plan or program shall be subject to the terms, rules, and
               laws applicable thereto.

     4.   Stock Options. Employee shall be entitled to receive an annual stock
          option grant in 2006, provided that he is still an employee of CEC at
          the time of the grant.

     5.   Severance Plan.

          (a)  Participation in Severance Plan. Employee shall be eligible to
               participate in the Capella Education Company Executive Severance
               Plan (the "Severance Plan"), as amended from time to time,
               according to its terms.

          (b)  Termination for Cause. If CEC terminates Employee's employment at
               any time for "Cause," as defined in the Severance Plan, Employee
               shall not be entitled to receive severance benefits outlined in
               the Severance Plan.

          (c)  Termination other than for Cause. If CEC terminates Employee's
               employment at any time other than for "Cause," as defined in the
               Severance Plan, Employee shall be entitled to receive severance
               benefits outlined in the Severance Plan.

          (d)  Voluntary Termination Prior to January 31, 2007. If Employee
               voluntarily terminates his employment with CEC such that his
               employments ends before January 31, 2007, Employee shall not be
               entitled to receive severance benefits outlined in the Severance

          (e)  Voluntary Termination Between January 31, 2007 and April 30,
               2007. If Employee voluntarily terminates his employment with CEC
               by providing advance notice of termination on or before October
               31, 2006, such that his employment ends on or after January 31,
               2007, and on or before April 30,



               2007, he shall be entitled to receive severance benefits outlined
               in the Severance Plan.

     6.   Confidentiality Agreement. The Confidentiality, Non-Competition and
          Inventions Agreement entered into between Employee and CEC on May 9,
          2001 ("Confidentiality Agreement") shall remain in effect and shall
          not expire upon termination of Employee's employment.

     7.   Release of Claims. As a condition of receiving the severance payments
          described in Section 5 above, Employee must sign a release of all
          claims in a form prescribed by CEC and allow all applicable rescission
          and revocation periods to expire without a rescission or revocation.
          Without limiting the generality of the foregoing, it is intended that
          the release will release all claims that Employee may have against
          CEC, its shareholders, directors, officers, insurers, agents,
          representatives, and employees that relate in any manner to Employee's
          employment by CEC or the termination of his employment from CEC.

     8.   Term of Agreement. This Agreement shall remain in effect until May 1,
          2007, and shall terminate on that date. In the event that Employee is
          still employed by CEC on May 1, 2007, such employment shall be at-will
          and on such terms as are at such time agreed by Employee and CEC.

     9.   Covenant by Employee. In consideration of the commitments made by CEC
          in Section 5 above, Employee agrees that, from the date hereof until
          October 31, 2006, he shall not actively search for employment
          opportunities outside of CEC.

     10.  Notices. For the purpose of this Agreement, notices and all other
          communications provided for in this Agreement shall be in writing and
          shall be deemed to have been duly given when personally delivered to
          Employee or to the Chief Executive Officer of CEC or when mailed by
          United States registered or certified mail (return receipt requested,
          postage pre-paid) or sent by express delivery service to the last
          known residence address of the Employee or, in the case of the
          Company, to its principal executive office to the attention of the
          Chief Executive Officer, or to such other address as either party may
          have furnished to the other in writing in accordance herewith, except
          that notice of change of address shall be effective only upon receipt.

     11.  Successors and Assigns. This Agreement is binding on and inures to the
          benefit of Employee and Employee's heirs and legal representatives and
          on CEC and its successors and assigns. No rights or obligations of the
          Employee hereunder may be assigned, pledged, disposed of, or
          transferred to any other person or entity without the prior written
          consent of CEC.

     12.  Governing Law. This Agreement shall be construed under and governed by
          the laws of the State of Minnesota without regard for the conflicts of
          law principles of any state.



     13.  Amendments and Waivers. No provision hereof may be modified, waived,
          or discharged in any way whatsoever except by written agreement
          executed by both parties. No delay or failure of either party to
          insist, in any one or more instances, upon performance of any of the
          terms and conditions of this Agreement or to exercise any rights or
          remedies hereunder shall constitute a waiver of such rights or
          remedies or any other rights or remedies hereunder.

     14.  Entire Agreement. This Agreement constitutes the entire agreement
          between the parties with respect to the specific subjects addressed
          herein, and this Agreement supersedes all prior oral and written
          agreements, representations, and promises between the parties which
          are inconsistent with the terms herein. It is specifically understood
          that this Agreement does not supersede any agreements or terms of
          employment not specifically discussed or contradicted herein, such as,
          by way of example but not limitation, stock option agreements
          currently in place between Employee and CEC, the Management Incentive
          Plan, the Confidentiality Agreement and the Severance Plan.

     IN WITNESS WHEREOF, the parties have hereunto set their hands, intending to
be legally bound, as of the date first above written.

                                        CAPELLA EDUCATION COMPANY

                                        By: /s/ Stephen Shank
                                            Its: Chair and CEO


                                        /s/ Paul Schroeder
                                        Paul Schroeder



                                    EXHIBIT A

                              DESCRIPTION OF DUTIES

As a core member of the senior management team of CEC and reporting to the
President of Capella University, the Senior Vice President participates in the
development and implementation of CEC's strategic direction and works
effectively with the organization's business functions which provide financial,
marketing, operations and technology support to the University.

The Senior Vice President provides overall direction and direct day-to-day
management for the University, which includes five schools, learner support, and
related academic support services. The Senior Vice President will lead the
University in efforts to offer a broad range of innovative educational programs
ensuring the highest possible quality, exceptional teaching and student services
capabilities, and outstanding learning outcomes.

Specific expectations for the position will include but not be limited to:

-    ensuring the high quality implementation of the academic programs,
     including improving institutional research and data collection for planning
     and benchmarking purposes;

-    promulgating best practices in higher education and incorporating them
     throughout the University;

-    developing and achieving multiple-year budgets to support the strategic

-    championing and continuing to develop an effective and interactive
     educational process;

-    providing inspirational leadership and collaborative management, while
     developing and empowering a strong academic management team;

-    addressing key learner management issues, such as retention and completion
     rates, through development of academic requirements, advising and

-    managing, recruiting and developing a faculty community;

-    providing the leadership and professional development opportunities
     necessary for the faculty and administration; and

-    diversifying the current course and degree offerings according to market