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Minnesota		8221		41-1717955
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

225 South 6th Street, 9th Floor Minneapolis, Minnesota 55402 (888) 227-3552 (Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices) Stephen G. Shank Chairman and Chief Executive Officer Capella Education Company 225 South 6th Street, 9th Floor Minneapolis, Minnesota 55402 (888) 227-3552 (Name, address, including zip code, and telephone number, including area code, of agent for service)

David B. Miller, Esq. Michael K. Coddington, Esq. Faegre & Benson LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Telephone: (612) 766-7000 Facsimile: (612) 766-1600		Kris F. Heinzelman, Esq. George A. Stephanakis, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Telephone: (212) 474-1000 Facsimile: (212) 474-3700

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Underwriting

Proceeds to

Price to

Discounts and

Proceeds to

Selling

Public

Commissions

Capella

Shareholders

Per Share

$

$

$

$

Total

$

$

$

$

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		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			11
FORWARD-LOOKING STATEMENTS			31
USE OF PROCEEDS			32
DIVIDEND POLICY			33
CAPITALIZATION			34
DILUTION			37
SELECTED CONSOLIDATED FINANCIAL DATA			39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			43
BUSINESS			63
REGULATORY ENVIRONMENT			76
MANAGEMENT			88
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			106
PRINCIPAL AND SELLING SHAREHOLDERS			111
DESCRIPTION OF CAPITAL STOCK			117
SHARES ELIGIBLE FOR FUTURE SALE			122
U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK			125
UNDERWRITING			127
NOTICE TO CANADIAN RESIDENTS			130
LEGAL MATTERS			131
EXPERTS			131
WHERE YOU CAN FIND MORE INFORMATION			131
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1
Specimen of Common Stock Certificate
Opinion/Consent of Faegre & Benson LLP
Consent Ernst & Young

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	If we fail to comply with the extensive regulatory requirements for our business, we could face significant restrictions on our operations and monetary penalties, including loss of access to federal loans and grants for our learners on which we are substantially dependent.

	We must seek recertification to participate in Title IV programs no less than every six years, and may, in certain circumstances, be subject to review by the Department of Education prior to seeking recertification.

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	Congress may change the law or reduce funding for Title IV programs, which could reduce our learner population, revenues and profit margin.

	The Office of Inspector General of the U.S. Department of Education has commenced a compliance audit of Capella University which is ongoing and which may result in repayment of Title IV funds, fines, penalties, remedial action and damage to our reputation in the industry.

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	If we fail to maintain our institutional accreditation, we would lose our ability to participate in Title IV programs.

	If Capella University does not maintain its authorization in Minnesota, it may not operate or participate in Title IV programs.

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	Our regulatory environment and our reputation may be negatively influenced by the actions of other for-profit institutions.

	We are subject to sanctions if we fail to correctly calculate and timely return Title IV program funds for learners who withdraw before completing their educational program.

	A failure to demonstrate “financial responsibility” may result in the loss of eligibility by Capella University to participate in Title IV programs or require the posting of a letter of credit in order to maintain eligibility to participate in Title IV programs.

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	A failure to demonstrate “administrative capability” may result in the loss of Capella University’s eligibility to participate in Title IV programs.

	•	comply with all applicable Title IV program regulations;
	•	have capable and sufficient personnel to administer the federal student financial aid programs;
	•	have acceptable methods of defining and measuring the satisfactory academic progress of its students;
	•	not have cohort default debt rates above specified levels;
	•	have various procedures in place for safeguarding federal funds;
	•	not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension;
	•	provide financial aid counseling to its students;
	•	refer to the Department of Education’s Office of Inspector General any credible information indicating that any applicant, student, employee or agent of the institution has been engaged in any fraud or other illegal conduct involving Title IV programs;
	•	submit in a timely manner all reports and financial statements required by the regulations; and
	•	not otherwise appear to lack administrative capability.

	•	require the repayment of Title IV funds;
	•	transfer the institution from the “advance” system of payment of Title IV funds to cash monitoring status or to the “reimbursement” system of payment;
	•	place the institution on provisional certification status; or
	•	commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs.

	We are subject to sanctions if we pay impermissible commissions, bonuses or other incentive payments to individuals involved in certain recruiting, admissions or financial aid activities.

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	Our failure to comply with regulations of various states could result in actions taken by those states that would have a material adverse effect on our enrollments, revenues and results of operations.

State		Capella University activity constituting presence requiring licensure or authorization
Alabama		Agreement with a former provider of library services to Capella students; employment of one-full time individual at the offices of the former library services provider.
Arizona		State agency broadly interprets presence requiring licensure to include the offering of degree programs by distance education; Capella also conducts in-state seminars.
Arkansas		Agreement with Wal-Mart Stores, Inc. under which Wal-Mart employees located in Arkansas receive discounted tuition for certain Capella University programs.
Colorado		No determination of presence; authorization granted in order to have marketing and recruiting agents in the state.
Florida		Recruiting activities in the state.
Georgia		Direct marketing and recruiting activities in the state.
Illinois		Authorization to conduct in-state seminars.
Kentucky		Direct marketing and recruiting activities in the state.
Nevada		Direct marketing and recruiting activities in the state; agreements with community colleges.
Ohio		Direct marketing and recruiting activities in the state for select programs.
Virginia		Direct marketing and recruiting activities in the state; agreements with community colleges.
Washington		Direct marketing and recruiting activities in the state; agreements with community colleges.
West Virginia		Direct marketing and recruiting activities in the state.
Wisconsin		State agency broadly interprets licensure requirements to cover all institutions serving residents of the state.

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	The inability of our graduates to obtain licensure in their chosen professional fields of study could reduce our enrollments and revenues, and potentially lead to litigation that could be costly to us.

	If regulators do not approve or delay their approval of transactions involving a change of control of our company, our ability to participate in Title IV programs may be impaired.

	Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate litigation against us.

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	We may lose eligibility to participate in Title IV programs if our student loan default rates are too high, which would significantly reduce our learner population.

	We may lose eligibility to participate in Title IV programs if the 50% Rules are reinstated temporarily or permanently, which would significantly reduce our learner population and have an adverse effect on our revenues and operating profits.

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	We may lose eligibility to participate in Title IV programs if the percentage of our revenue derived from those programs is too high, which would significantly reduce our learner population.

	Our success depends in part on our ability to update and expand the content of existing programs and develop new programs and specializations on a timely basis and in a cost-effective manner.

	Our financial performance depends on our ability to continue to develop awareness among, and attract and retain, working adult learners.

	•	the emergence of more successful competitors;
	•	factors related to our marketing, including the costs of Internet advertising and broad-based branding campaigns;
	•	performance problems with our online systems;
	•	failure to maintain accreditation;
	•	learner dissatisfaction with our services and programs;
	•	adverse publicity regarding us, our competitors or online or for-profit education generally;

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	•	price reductions by competitors that we are unwilling or unable to match;
	•	a decline in the acceptance of online education; and
	•	a decrease in the perceived or actual economic benefits that learners derive from our programs.

	Strong competition in the post-secondary education market, especially in the online education market, could decrease our market share, increase our cost of acquiring learners and put downward pressure on our tuition rates.

	We operate in a highly competitive market with rapid technological change, and we may not have the resources needed to compete successfully.

	System disruptions and vulnerability from security risks to our online computer networks could impact our ability to generate revenue and damage the reputation of Capella University, limiting our ability to attract and retain learners.

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	At present we derive a significant portion of our revenues and, after the full allocation of corporate overhead expenses, all of our operating income from our doctoral programs.

	We are transitioning our library services and resources in-house, and by July 2007 we will have responsibility for providing library services to our learners. We have limited experience providing such services and any inability to do so effectively could limit our ability to attract and retain learners, and adversely affect our enrollments, revenues and operating profits.

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	We may experience declines in our revenue and enrollment growth rates, and our growth may place a strain on our resources.

	We rely on exclusive proprietary rights and intellectual property that may not be adequately protected under current laws, and we encounter disputes from time to time relating to our use of intellectual property of third parties.

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	We may incur liability for the unauthorized duplication or distribution of class materials posted online for class discussions.

	A reclassification of our adjunct faculty by authorities may have a material adverse effect on our results of operations.

	We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.

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	Our learner population and revenues could decrease if the government tuition assistance offered to U.S. Armed Forces personnel is reduced or eliminated, if the tuition discounts which we offer to U.S. Armed Forces personnel are reduced or eliminated, or if our informal arrangements with any military bases deteriorate.

	Our expenses may cause us to incur operating losses if we are unsuccessful in achieving growth.

	Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock.

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	Our current success and future growth depend on the continued acceptance of the Internet and the corresponding growth in users seeking educational services on the Internet.

	•	inadequate Internet infrastructure;
	•	security and privacy concerns; and
	•	the unavailability of cost-effective Internet service and other technological factors.

	Government regulations relating to the Internet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business.

	An increase in interest rates could adversely affect our ability to attract and retain learners.

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	The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.

	•	our quarterly or annual earnings or those of other companies in our industry;
	•	the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission, or SEC;
	•	changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry;
	•	changes in our number of enrolled learners;
	•	new laws or regulations or new interpretations of laws or regulations applicable to our business;
	•	seasonal variations in our learner population;
	•	changes in accounting standards, policies, guidance, interpretations or principles;
	•	changes in general conditions in the U.S. and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events;
	•	litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors; and
	•	sales of common stock by our directors, executive officers and significant shareholders.

	There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.

	Future sales of our common stock in the public market could lower our stock price.

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	Our executive officers, directors and principal existing shareholders will continue to own a large percentage of our voting stock after this offering, which may allow them to collectively control substantially all matters requiring shareholder approval and, in the case of certain of our principal shareholders, will have other unique rights that may afford them access to our management.

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	Our articles of incorporation, bylaws, Minnesota law and regulations of state and federal education agencies may discourage takeovers and business combinations that our shareholders might consider in their best interests.

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	Being a public company will increase our expenses and administrative workload.

	•	create or expand the roles and duties of our board of directors, our board committees and management;
	•	institute more comprehensive compliance and internal audit functions;
	•	evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
	•	prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;
	•	implement more comprehensive internal policies, such as those relating to disclosure controls and procedures and insider trading;
	•	involve and retain to a greater degree outside counsel and accountants in the above activities;
	•	hire investor relations support personnel; and
	•	hire additional personnel to perform external reporting and internal accounting functions, including tax accounting functions.

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	We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.

	We intend to use the proceeds from this offering to pay a special dividend to our existing shareholders. As a result, we do not expect to retain proceeds from this offering and our cash on hand may decrease.

	You will suffer immediate and substantial dilution.

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	•	our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting agency requirements;
	•	issuance of draft and final audit reports of the OIG arising out of its ongoing compliance audit of Capella University, unanticipated findings therein, and possible remedial actions resulting therefrom;
	•	risks associated with changes in applicable federal and state laws and regulations and accrediting agency policies;
	•	the pace of growth of our enrollment;
	•	our ability to convert prospective learners to enrolled learners and to retain active learners;
	•	our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timely basis;
	•	industry competition;
	•	failure on our part to maintain and expand existing commercial relationships with the U.S. Armed Forces and various corporations and develop new commercial relationships;
	•	risks associated with the competitive marketing environment in which we operate;
	•	failure on our part to keep up with advances in technology that could enhance the online experience for our learners;
	•	our ability to effectively implement our enterprise resource planning system;
	•	our ability to manage future growth effectively;
	•	general and economic conditions; and
	•	other factors discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and “Regulatory Environment.”

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	•	on an actual basis;
	•	on a pro forma basis, giving effect to (i) our sale of                      shares of our common stock in this offering (at an assumed initial public offering price of $           per share, the midpoint of the range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us); (ii) the conversion of all outstanding shares of our Class A, Class B and Class D convertible preferred stock and our Class E and Class G redeemable convertible preferred stock into 9,178,097 shares of our common stock, which is expected to occur concurrently with the consummation of this offering in accordance with the provisions of each class of preferred stock’s respective certificate of designation; and (iii) the payment of a special dividend to our existing shareholders in the amount of the aggregate gross proceeds from the sale of common stock by us in this offering (not including any proceeds received by us from the underwriters’ exercise of their over-allotment option), which is expected to occur promptly upon the consummation of this offering.

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					As of
					September 30, 2006
					Actual				Pro Forma(a)
					(In thousands,
					except share and
					per share amounts)
Cash, cash equivalents and short-term marketable securities					$	77,434
Debt:
	Line of credit(b)				$	—
	Capital lease obligations					14
	Notes payable(c)					476
		Total debt				490
Redeemable preferred stock:
	Class E Redeemable Convertible Preferred Stock: $0.01 par value; 2,596,491 shares authorized, issued and outstanding, actual; none authorized, issued and outstanding, pro forma					34,985
	Class G Redeemable Convertible Preferred Stock: $0.01 par value; 2,184,550 shares authorized, 2,184,540 shares issued and outstanding, actual; none authorized, issued and outstanding, pro forma					22,661
		Total redeemable preferred stock				57,646
Shareholders’ equity:
	Class A Convertible Preferred Stock: $1.00 par value; 3,000,000 shares authorized, 2,810,000 shares issued and outstanding, actual; none authorized, issued and outstanding, pro forma					2,810
	Class B Convertible Preferred Stock: $2.50 par value; 1,180,000 shares authorized, 460,000 shares issued and outstanding, actual; none authorized, issued and outstanding, pro forma					1,150
	Class D Convertible Preferred Stock: $4.50 par value; 1,022,222 shares authorized, issued and outstanding, actual; none authorized, issued and outstanding, pro forma					4,600
	Undesignated preferred stock: 2,961,808 authorized, none issued and outstanding, actual; 10,000,000 shares authorized, none issued and outstanding, pro forma					—
	Common stock: $0.10 par value; 100,000,000 shares authorized, 2,555,533 shares issued and outstanding, actual; 100,000,000 shares authorized,            shares issued and outstanding, $0.01 par value, pro forma(d)					255
	Additional paid-in capital					13,189
	Accumulated other comprehensive loss					(2	)
	Retained earnings/(Accumulated deficit)					4,049
		Total shareholders’ equity				26,051
			Total capitalization		$	84,187

(a)	Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and

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	estimated offering expenses payable by us, a $1.00 increase in the assumed public offering price of $          per share would:

	•	increase additional paid-in capital by approximately $      million;
	•	decrease each of total shareholders’ equity and total capitalization by approximately $      million; and
	•	decrease cash, cash equivalents and short-term marketable securities by approximately $      million.

	Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, a $1.00 decrease in the assumed public offering price of $          per share would:

	•	decrease additional paid-in capital by approximately $      million;
	•	increase each of total shareholders’ equity and total capitalization by approximately $      million; and
	•	increase cash, cash equivalents and short-term marketable securities by approximately $      million.

	Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, a $1.00 increase or decrease in the assumed public offering price of $          per share would increase or decrease, as applicable, the aggregate amount of the special cash dividend by $     million.

(b)		At September 30, 2006, we had available funds under our revolving line of credit in the amount of $10.0 million. There have been no borrowings to date under our revolving line of credit.

(c)	During 2005 we entered into two payment plan agreements to finance asset purchases related to our enterprise resource planning system. See Note 6 to our consolidated financial statements included elsewhere in this prospectus for more information regarding these payment plan arrangements.
(d)	Excludes:

	•	4,195,528 shares of common stock reserved for future issuance under our stock option plans, including 2,254,743 shares of common stock reserved for future issuance upon the exercise of stock options outstanding as of September 30, 2006 under our stock option plans, at a weighted average exercise price of $16.76 per share; and
	•	450,000 shares of common stock reserved for future issuance upon the vesting of common stock outstanding under our stock purchase plan.

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Assumed initial public offering price per share of common stock							$
	Pro forma net tangible book value per share of common stock as of September 30, 2006		$
	Increase per share of common stock attributable to new investors
	Decrease per share of common stock after payment of underwriting discounts and commissions and estimated offering expenses by us
	Decrease per share of common stock after payment of the special dividend to our existing shareholders
Pro forma as adjusted net tangible book value per share of common stock after this offering							$
Dilution per share of common stock to new investors							$

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Shares Purchased

Total Consideration

Average Price

Number

Percent

Amount

Percent

Per Share

(In thousands)

(In thousands)

Existing shareholders

%

$

%

$

New investors

$

Total

%

$

%

$

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																								Nine Months Ended
				Year Ended December 31,																				September 30,
				2001				2002				2003				2004				2005				2005				2006(a)
				(In thousands, except per share and enrollment data)
Statement of Operations Data:
Revenues				$	29,806			$	49,556			$	81,785			$	117,689			$	149,240			$	107,321			$	129,278
Costs and expenses:
	Instructional costs and services				21,230				28,074				43,759				58,850				71,243				52,218				61,473
	Selling and promotional				13,848				15,894				22,246				35,089				45,623				32,548				42,540
	General and administrative				8,422				11,582				11,710				13,885				17,501				11,962				15,115
		Total costs and expenses			43,500				55,550				77,715				107,824				134,367				96,728				119,128
Operating income (loss)					(13,694	)			(5,994	)			4,070				9,865				14,873				10,593				10,150
Other income, net					731				327				427				724				2,306				1,525				3,094
Income (loss) before income taxes					(12,963	)			(5,667	)			4,497				10,589				17,179				12,118				13,244
Income tax expense (benefit)					—				—				104				(8,196	)			6,929				4,853				5,506
Net income (loss)				$	(12,963	)		$	(5,667	)		$	4,393			$	18,785			$	10,250			$	7,265			$	7,738
Net income (loss) per common share:
	Basic			$	(1.54	)		$	(0.58	)		$	0.41			$	1.68			$	0.89			$	0.64			$	0.66
	Diluted			$	(1.54	)		$	(0.58	)		$	0.39			$	1.62			$	0.86			$	0.61			$	0.64
Weighted average number of common shares outstanding:
	Basic				8,407				9,698				10,804				11,189				11,476				11,426				11,691
	Diluted				8,407				9,698				11,154				11,599				11,975				11,950				12,021

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																						Nine Months Ended
		Year Ended December 31,																				September 30,
		2001				2002				2003				2004				2005				2005				2006(a)
		(In thousands, except per share and enrollment data)
Other Data:
Depreciation and amortization(b)		$	2,044			$	3,108			$	4,177			$	5,454			$	6,474			$	4,675			$	6,046
Net cash provided by (used in) operating activities		$	(9,977	)		$	123			$	15,399			$	16,049			$	28,940			$	18,789			$	18,461
Capital expenditures		$	4,555			$	3,805			$	3,719			$	7,541			$	9,079			$	6,073			$	11,132
EBITDA(c)		$	(11,650	)		$	(2,886	)		$	8,247			$	15,319			$	21,347			$	15,268			$	16,196
Enrollment(d)			4,038				6,578				9,313				12,252				14,613				13,308				16,374

		As of December 31,																				As of September 30, 2006
		2001				2002				2003				2004				2005				Actual				Pro Forma(e)
		(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term marketable securities		$	10,655			$	22,060			$	41,190			$	49,980			$	72,133			$	77,434			$
Working capital(f)			6,203				15,340				27,516				37,935				53,718				57,449
Total assets			23,882				35,380				55,402				80,026				106,562				120,274
Total redeemable preferred stock			34,985				50,401				57,646				57,646				57,646				57,646
Shareholders’ equity (deficit)			(20,999	)			(26,250	)			(20,416	)			(5	)			14,414				26,051

(a)	Operating income, income before income taxes and EBITDA for the nine months ended September 30, 2006 included $2.7 million of stock-based compensation expense recognized under FAS 123(R). Net income and net income per common share for the nine months ended September 30, 2006 included $2.1 million of stock-based compensation expense recognized under FAS 123(R). In accordance with the modified prospective transition method provided under FAS 123(R), our consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of FAS 123(R).
(b)	Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets. Amortization includes amounts related to purchased software, capitalized website development costs and internally developed software.

(c)		EBITDA consists of net income minus other income, net plus income tax expense (benefit) and plus depreciation and amortization. Other income, net consists primarily of interest income earned on short-term marketable securities, net of any interest expense for capital leases and notes payable. We use EBITDA as a measure of operating performance. However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, net income (loss) as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments.

We believe EBITDA is useful to an investor in evaluating our operating performance and liquidity because it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization. Depreciation and amortization can vary depending upon accounting methods and the book value of assets. We believe EBITDA presents a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired.

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	•	as a measurement of operating performance, because it assists us in comparing our performance on a consistent basis, as it removes depreciation, amortization, interest and taxes; and
	•	in presentations to the members of our board of directors to enable our board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with the results of other companies in our industry.

	The following table provides a reconciliation of net income (loss) to EBITDA:

																						Nine Months Ended
		Year Ended December 31,																				September 30,
		2001				2002				2003				2004				2005				2005				2006
		(In thousands)
Net income (loss)		$	(12,963	)		$	(5,667	)		$	4,393			$	18,785			$	10,250			$	7,265			$	7,738
Other income, net			(731	)			(327	)			(427	)			(724	)			(2,306	)			(1,525	)			(3,094	)
Income tax expense (benefit)			—				—				104				(8,196	)			6,929				4,853				5,506
Depreciation and amortization			2,044				3,108				4,177				5,454				6,474				4,675				6,046
EBITDA		$	(11,650	)		$	(2,886	)		$	8,247			$	15,319			$	21,347			$	15,268			$	16,196

(d)	Enrollment reflects the total number of learners registered in a course as of the last day of classes for such periods.
(e)	The consolidated pro forma balance sheet data as of September 30, 2006, give effect to:

	•	the conversion of all outstanding shares of preferred stock into shares of common stock in connection with this offering;
	•	the sale of                      shares of common stock by us in this offering at an offering price of $           per share (the mid-point of the range set forth on the cover page of this prospectus);
	•	our receipt of the estimated net proceeds of that sale after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and
	•	the payment following the closing of this offering of a special cash dividend to our existing shareholders of record as of October 3, 2006 in an amount equal to the gross proceeds from the sale of common stock by us in this offering, not including any proceeds received by us from the underwriters’ exercise of their over-allotment option. Based on an estimated offering price of $           per share (the midpoint of the range set forth on the cover page of this prospectus), the aggregate amount of the special cash dividend would be $           million, or $           per common share on an as if converted basis.

	A $1.00 increase in the assumed offering price of $           per share would increase the aggregate amount of the special cash dividend by $           million and would increase the per share amount of the special cash dividend by $          , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. A $1.00 decrease in the assumed offering price of $           per share would decrease the aggregate amount of the special cash dividend by $           million and would decrease the per share amount of the special cash dividend by $          , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
	A $1.00 increase in the assumed offering price of $ per share would decrease each of total assets, cash, cash equivalents and short-term marketable securities, and shareholders’ equity by $           million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 decrease in the assumed offering price of

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	$           per share would increase each of total assets, cash, cash equivalents and short-term marketable securities, and shareholders’ equity by $           million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(f)	Working capital is calculated by subtracting total current liabilities from total current assets.

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	Background

	Our key financial results metrics

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															For the Quarter
			For the Years Ended												Ended
			December 31,												September 30,
			2003				2004				2005				2005				2006
Doctoral				4,251				5,611				6,471				6,052				6,872
Master’s				3,695				4,543				5,640				5,125				6,953
Bachelor’s				1,169				1,859				2,380				2,023				2,455
Other				198				239				122				108				94
	Total			9,313				12,252				14,613				13,308				16,374

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	Factors affecting comparability

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Instructional costs and services		$	701
Selling and promotional			317
General and administrative			1,702
Stock-based compensation expense included in operating income			2,720
Tax benefit			654
Stock-based compensation expense, net of tax		$	2,066

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			Year Ended December 31,
															Nine Months Ended
			2003				2004				2005				September 30, 2005
Net income			$	4,393			$	18,785			$	10,250			$	7,265
Stock-based compensation expense included in net income as reported				37				4				202				138
Compensation expense determined under fair- value-based method, net of tax				(1,868	)			(2,154	)			(1,966	)			(1,387	)
Pro forma net income			$	2,562			$	16,635			$	8,486			$	6,016
Net income per common share:
	Basic — as reported		$	0.41			$	1.68			$	0.89			$	0.64
	Basic — pro forma		$	0.24			$	1.49			$	0.74			$	0.53
	Diluted — as reported		$	0.39			$	1.62			$	0.86			$	0.61
	Diluted — pro forma		$	0.23			$	1.45			$	0.71			$	0.51

Instructional costs and services		$	701
Selling and promotional			317
General and administrative			1,702
Stock-based compensation expense included in operating income			2,720
Tax benefit			654
Stock-based compensation expense, net of tax		$	2,066

														Nine Months Ended
		Year Ended December 31,												September 30,
		2003				2004				2005				2005
		(Pro forma)				(Pro forma)				(Pro forma)				(Pro forma)				2006
Expected life (in years)(1)			6.0				6.0				6.0				6.0				4.25-6.25
Expected volatility(2)			53.9%				44.1%				38.5%				38.5%				45.6%
Risk-free interest rate(3)			3.8%				3.9%				3.9-4.4%				3.9-4.3%				4.4-5.1%
Dividend yield(4)			0.0%				0.0%				0.0%				0.0%				0.0%
Weighted-average fair value of options granted		$	6.49			$	8.54			$	8.87			$	8.84			$	9.89

(1)	For the nine months ended September 30, 2006, the expected option life was determined using the simplified method for estimating expected option life for service-based stock options. Prior to the nine months ended September 30, 2006, the expected option life was based on the average expected option life experienced by our peer group of post-secondary education companies.
(2)	As our stock has not been publicly traded, the expected volatility assumption for the nine months ended September 30, 2006 reflects a detailed evaluation of the stock price of our peer group of public post-secondary education companies for a period equal to the expected life of the options, starting from the date they went public. Prior to the nine months ended September 30, 2006 the expected

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	volatility assumption reflects the public disclosures of our peer group of post-secondary education companies.
(3)	The risk-free interest rate assumption is based upon the U.S. Treasury zero coupon yield curve on the grant date for a maturity similar to the expected life of the options.
(4)	The dividend yield assumption is based on our history and expectation of regular dividend payments.

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																Nine Months
																Ended
				Year Ended December 31,												September 30,
				2003				2004				2005				2005				2006
Revenues					100.0	%			100.0	%			100.0	%			100.0	%			100.0	%
Costs and expenses:
	Instructional costs and services				53.5				50.0				47.7				48.7				47.6
	Selling and promotional				27.2				29.8				30.6				30.3				32.9
	General and administrative				14.3				11.8				11.7				11.1				11.7
		Total costs and expenses			95.0				91.6				90.0				90.1				92.2
Operating income					5.0				8.4				10.0				9.9				7.8
Other income, net					0.5				0.6				1.5				1.4				2.4
Income before income taxes					5.5				9.0				11.5				11.3				10.2
Income tax expense (benefit)					0.1				(7.0	)			4.6				4.5				4.3
Net income					5.4	%			16.0	%			6.9	%			6.8	%			5.9	%

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	Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

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	Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

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	Quarterly Results and Seasonality

			First				Second				Third				Fourth
			Quarter				Quarter				Quarter				Quarter
			(In thousands, except per share and
			enrollment data)
2004
Revenues			$	26,488			$	28,321			$	28,040			$	34,840
Operating income				1,383				1,773				2,147				4,562
Net income				1,466				1,892				2,310				13,117
Net income per common share:
	Basic		$	0.13			$	0.17			$	0.21			$	1.17
	Diluted		$	0.13			$	0.16			$	0.20			$	1.11
Enrollment				10,157				10,623				11,293				12,252

			First				Second				Third				Fourth
			Quarter				Quarter				Quarter				Quarter
			(In thousands, except per share and
			enrollment data)
2005
Revenues			$	34,610			$	35,408			$	37,303			$	41,919
Operating income				4,145				3,523				2,925				4,280
Net income				2,705				2,356				2,204				2,985
Net income per common share:
	Basic		$	0.24			$	0.21			$	0.19			$	0.26
	Diluted		$	0.23			$	0.20			$	0.18			$	0.25
Enrollment				12,955				13,208				13,308				14,613

			First				Second				Third
			Quarter				Quarter				Quarter
			(In thousands, except per share
			and enrollment data)
2006
Revenues			$	41,858			$	43,518			$	43,902
Operating income				1,884				4,203				4,063
Net income				1,642				3,055				3,041
Net income per common share:
	Basic		$	0.14			$	0.26			$	0.26
	Diluted		$	0.14			$	0.25			$	0.25
Enrollment				15,792				16,078				16,374

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	Liquidity

	Operating Activities

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	Investing Activities

	Financing Activities

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		Payments Due by Period
						Less than												More than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
Capital leases		$	8			$	8			$	—			$	—			$	—
Operating leases(a)			12,436				2,691				7,881				1,864				—
Notes payable(b)			2,639				2,639				—				—				—
Adjunct faculty obligations(c)			8,299				8,299				—				—				—
Total contractual obligations		$	23,382			$	13,637			$	7,881			$	1,864			$	—

(a)		Minimum lease commitments for our headquarters and miscellaneous office equipment.
(b)		Consists of notes payable used to finance asset purchases related to the enterprise resource planning system.
(c)		Consists of payment obligations to adjunct faculty as of December 31, 2005, based on existing contractual agreements with them.

	Market Risk

	Interest Rate Risk

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	Our Approach to Academic Quality

	•	Curricula. We design the curriculum for our programs around professional competencies desired for high performance in each field. The particular competencies are identified and validated through a variety of external sources and reviews. There are specific learning outcomes for each course as well as for the overall program, and we assess the learner’s achievement of the expected learning outcomes during his or her period of enrollment.
	•	Faculty. We select our faculty based on their academic credentials and teaching and practitioner experience. Our faculty members tend to be scholars as well as practitioners, and they bring relevant, practical experience from their professional careers into the courses they teach. Approximately 79% of our faculty members hold a doctoral degree in their respective fields. We invest in the professional development of our faculty members through training in online teaching techniques as well as events and discussions designed to foster sharing of best practices and a commitment to academic quality.
	•	Online Course Design. We employ a comprehensive design framework to ensure that our online courses offer a consistent learning experience, high quality interaction, and the tools required for assessing learning outcomes. We regularly assess course outcomes data as well as learner assessments to identify opportunities for course upgrades.
	•	Learner Support. We establish teams comprised of both academic and administrative personnel that are assigned to serve as the primary support contact point for each of our learners throughout

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		the duration of their studies. All of our support services, including academic, administrative, library and career counseling services are accessible online, allowing users to access these services at a time and in a manner that is convenient to them. We believe that a committed support network is as important to maintaining learner motivation and commitment as the knowledge and engagement of our faculty.
	•	Academic Oversight. Our academic management organization is structured to provide leadership and continuity across our academic offerings. In addition to regular reviews by accrediting bodies, our academic management team oversees periodic examinations of our curricula by internal and external reviewers. Internal reviews are performed by our assessment and institutional research team to assess academic content, delivery method and learning outcomes for each program. Our internal academic oversight process is further strengthened by our ability to track and analyze data and metrics related to learner performance and satisfaction. External reviews are performed by individuals with professional certifications in their fields to provide additional evaluation and verification of program quality and workplace applicability.
	•	Accreditation. In addition to being accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools, we also pursue specialized accreditation, where appropriate, such as our accreditation from the Council for the Accreditation of Counseling and Related Educational Programs (CACREP) for our mental health counseling and marital, couple, and family counseling/therapy specializations within our master’s in human services program. Our commitment to maintaining regional accreditation, and specialized accreditation where appropriate, reflects our goal to provide our learners with an academic experience commensurate with that of traditional post-secondary educational institutions.

	•	Low student to faculty ratio. Our courses average between 15 and 20 learners, providing each learner the opportunity to interact directly with our faculty and to receive individualized feedback and attention. We believe this adds to the academic quality of our programs by ensuring that each learner is encouraged to participate actively, thus enabling the instructor to better evaluate the learner’s understanding of course material.
	•	Diverse learner population. Our online format allows us to focus on adult learners as well as to attract a diverse population of learners with a variety of professional backgrounds and life experiences.
	•	Practitioner-oriented course experience. Our courses are designed to encourage our learners to incorporate workplace issues or projects into their studies, providing relevant context to many of the academic theories covered by our curricula.
	•	Time efficiency. While many campus-based students are required to spend time commuting, parking, or otherwise navigating a large campus, our online learning format enables our learners to focus their time on course assignments and discussions.
	•	Residential colloquia experience. Our residential colloquia allows doctoral learners to engage in face-to-face interaction with other learners and faculty, which provides for a rich learning experience with relevant content.

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	Curricula

Programs		Specializations
Business, Organization and Management
Doctor of Philosophy in		• General
Organization and Management		• Human Resource Management
		• Information Technology Management
		• Leadership
Master of Science in		• General
Organization and Management		• Human Resource Management
		• Information Technology Management
		• Leadership
Master of Business		• General Business
Administration		• Accounting
		• Finance
		• Health Care Management
		• Information Technology Management
		• Marketing
		• Project Management
Bachelor of Science in		• Accounting
Business		• Business Administration
		• Finance
		• Human Resource Management
		• Management and Leadership
		• Marketing
Education
Doctor of Philosophy		• Leadership in Educational
in Education		Administration
		• Leadership for Higher Education
		• Curriculum and Instruction
		• Post-Secondary and Adult Education
		• Instructional Design for Online Learning
		• Training and Performance Improvement
		• Professional Studies in Education
		• K-12 Studies in Education
Master of Science in		• Leadership in Educational
in Education		Administration
		• Leadership for Higher Education
		• Curriculum and Instruction
		• Post-Secondary and Adult Education
		• Instructional Design for Online Learning
		• Training and Performance Improvement
		• Professional Studies in Education
		• K-12 Studies in Education
		• Reading and Literacy
		• Enrollment Management

Programs		Specializations
Psychology
Doctor of Psychology		• Clinical Psychology
		• Counseling Psychology
Doctor of Philosophy in		• General Psychology
Psychology		• Industrial/Organizational Psychology
		• Educational Psychology
Master of Science in		• Clinical Psychology
Psychology		• Counseling Psychology
		• School Psychology
		• General Psychology
		• Industrial/Organizational Psychology
		• Educational Psychology
		• Sport Psychology
Human Services
Doctor of Philosophy in		• General Human Services
Human Services		• Criminal Justice
		• Counseling Studies
		• Health Care Administration
		• Management of Non-Profit Agencies
		• Social and Community Services
Master of Science in		• General Human Services
Human Services		• Criminal Justice
		• Counseling Studies
		• Health Care Administration
		• Management of Non-Profit Agencies
		• Marital, Couple, and Family Counseling/Therapy
		• Mental Health Counseling
		• Social and Community Services
Information Technology
Master of Science in		• General Information
Information Technology		Technology
		• Information Security
		• Network Architecture and Design
		• Project Management and Leadership
		• System Design and Programming
Bachelor of Science in		• General Information
Information Technology		Technology
		• Graphics and Multimedia
		• Information Assurance and Security
		• Network Technology
		• Project Management
		• Web Application Development

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	Faculty

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	Learner Support Services

	•	Academic Services. We provide learners with a variety of services designed to support their academic studies. These services include new learner orientation, technical support, academic advising, research services (particularly for doctoral degree candidates), writing services and other online tutoring. We also provide appropriate educational accommodations to learners with documented disabilities through our disability support services team.
	•	Administrative Services. We provide learners with the ability to access a variety of administrative services both telephonically and via the Internet. For example, learners can register for classes, apply for financial aid, pay their tuition and access their transcripts online. We believe this online accessibility provides the convenience and self-service capabilities that our learners value. Our financial aid counselors provide personalized online and telephonic support to our learners.
	•	Library Services. We provide learners with complete online access to the Capella University Library. Our library, currently provided through a contractual relationship with the Sheridan Libraries at The Johns Hopkins University, supplies learners with full-text articles, electronic books, reference assistants and hard copy materials via inter-library loans. Over the next year, we will be terminating our current relationship with The Johns Hopkins University and transitioning in-house most of the library services currently performed by The Johns Hopkins University, while continuing to outsource certain library services to other university providers.
	•	Career Counseling Services. Our staff of professional career counselors use a variety of tools, including individualized phone, email and face-to-face communications, online newsletters, online seminars and conference calls to provide career planning services to learners and alumni. Our counselors also assist our recruitment staff with prospective learners’ selection of the Capella University program and specialization that best suits their professional aspirations.

	Admissions

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	Marketing and Learner Recruitment

	•	Corporate Relationships. We developed our corporate alliance program to offer education opportunities to employees of large companies. Pursuant to these arrangements, program participants make information about Capella University available to their employees. In return, we provide a tuition discount to participants’ employees and their immediate family members. Our corporate alliance program agreements are non-exclusive written agreements that generally have three year terms with automatic renewal provisions, but the parties may generally terminate the agreements at any time on 60 to 90 days prior notice. Through our corporate alliance programs, we presently have learners from approximately 110 corporations.
	•	U.S. Armed Forces Relationships and Discount Program. We offer a discount on tuition to all members of the U.S. Armed Forces, including active duty members, veterans, national guard members, reservists, civilian employees of the Department of Defense and immediate family members of active duty personnel. We also have arrangements with various educational institutions of the U.S. Armed Forces pursuant to which we have agreed to accept credits from certain military educational programs earned by learners who meet our transfer requirements, which they can apply toward a Capella University degree. As part of these arrangements, several of these educational institutions make information about Capella University available to their members. In addition, we have arrangements with the Army National Guard, the U.S. Coast Guard Institute and several military bases pursuant to which these organizations make information about Capella University available to interested service members. Our arrangements with the various educational institutions, the Army National Guard and the U.S. Coast Guard Institute, are non-exclusive written agreements with varying terms that may generally be terminated by either party upon 30 to 45 days prior notice. Our arrangements with military bases are established through informal relationships between us and the respective base. For the nine months ended September 30, 2006, approximately 18% of our learners received a U.S. Armed Forces tuition discount.
	•	Educational Relationships. We developed our educational alliance program to allow graduates of community colleges to matriculate into our programs and to recruit community college faculty to attend our graduate programs. Pursuant to the arrangements between us and approximately 240

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		community colleges, we provide a tuition discount and an application fee waiver for community college students, alumni, faculty, administrators and staff in exchange for marketing opportunities within each community college. Our educational alliance agreements are non-exclusive written agreements that generally have a one year term which automatically renews annually, but generally either party may terminate the agreement at any time upon 30 to 60 days prior notice.

	Enrollment

			Enrollment
			Number of
			Learners				% of Total
Doctoral				6,872				42.0	%
Master’s				6,953				42.4	%
Bachelor’s				2,455				15.0	%
Other				94				0.6	%
	Total			16,374				100.0	%

	Tuition and Fees

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	Technology

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	•	relevant, practical and accredited program offerings;
	•	reputation of the college or university and marketability of the degree;
	•	convenient, flexible and dependable access to programs and classes;
	•	qualified and experienced faculty;
	•	level of learner support;
	•	cost of the program;
	•	relative marketing and selling effectiveness; and
	•	the time necessary to earn a degree.

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	•	authorized to offer its programs of instruction by the applicable state education agencies in the states in which it is physically located (in our case, Minnesota);
	•	accredited by an accrediting agency recognized by the Secretary of the Department of Education; and
	•	certified as an eligible institution by the Department of Education.

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	•	whether the institution and the program were approved by the state in which the graduate seeks licensure, or by a professional association;

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	•	whether the program from which the student graduated meets all state requirements for professional licensure; and
	•	whether the institution is accredited.

	1) FFEL. Under the FFEL program, banks and other lending institutions make loans to learners. If a learner defaults on a loan, payment is guaranteed by a federally recognized guaranty agency, which is then reimbursed by the Department of Education. Students with financial need qualify for interest subsidies while in school and during grace periods. In 2005, we derived approximately 66.6% of our revenues (calculated on a cash basis) from the FFEL program.
	2) Pell. Under the Pell program, the Department of Education makes grants to students who demonstrate financial need. In 2005, we derived approximately 0.4% of our revenues (calculated on a cash basis) from the Pell program.

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	•	comply with all applicable Title IV program regulations;
	•	have capable and sufficient personnel to administer the federal student financial aid programs;
	•	have acceptable methods of defining and measuring the satisfactory academic progress of its students;
	•	not have cohort default debt rates above specified levels;
	•	have various procedures in place for safeguarding federal funds;

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	•	not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension;
	•	provide financial aid counseling to its students;
	•	refer to the Department of Education’s Office of Inspector General any credible information indicating that any applicant, student, employee or agent of the institution, has been engaged in any fraud or other illegal conduct involving Title IV programs;
	•	submit in a timely manner all reports and financial statements required by the regulations; and
	•	not otherwise appear to lack administrative capability.

	•	require the repayment of Title IV funds;
	•	transfer the institution from the “advance” system of payment of Title IV funds to cash monitoring status or to the “reimbursement” system of payment;
	•	place the institution on provisional certification status; or
	•	commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs.

	•	posting a letter of credit in an amount equal to at least 50% of the total Title IV program funds received by the institution during the institution’s most recently completed fiscal year;
	•	posting a letter of credit in an amount equal to at least 10% of such prior year’s Title IV program funds received by us, accepting provisional certification, complying with additional Department of Education monitoring requirements and agreeing to receive Title IV program funds under an arrangement other than the Department of Education’s standard advance funding arrangement; or

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	•	complying with additional Department of Education monitoring requirements and agreeing to receive Title IV program funds under an arrangement other than the Department of Education’s standard advance funding arrangement such as the “reimbursement” system of payment or cash monitoring.

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Name		Age				Position
Stephen G. Shank			62			Chairman and Chief Executive Officer (Mr. Shank also serves as Chancellor of Capella University)
Kenneth J. Sobaski			50			President and Chief Operating Officer
Michael J. Offerman			58			Senior Vice President (Dr. Offerman also serves as President and as a director of Capella University)
Lois M. Martin			43			Senior Vice President and Chief Financial Officer
Paul A. Schroeder			47			Senior Vice President (Mr. Schroeder also serves as Senior Vice President and a director of Capella University)
Reed A. Watson			47			Senior Vice President, Marketing
Scott M. Henkel			51			Vice President and Chief Information Officer
Gregory W. Thom			49			Vice President, General Counsel, and Secretary
Elizabeth M. Rausch			55			Vice President, Human Resources
Tony J. Christianson			54			Director
Gordon A. Holmes			37			Director
S. Joshua Lewis			44			Director
Jody G. Miller			48			Director
James A. Mitchell			64			Director
Jon Q. Reynolds, Jr.			38			Director
David W. Smith			61			Director
Jeffrey W. Taylor			53			Director
Sandra E. Taylor			55			Director
Darrell R. Tukua			52			Director

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	(1) Insight-Salmon River LLC, which has designated Mr. Lewis;
	(2) Cherry Tree Ventures IV, which has designated Mr. Christianson;
	(3) Forstmann VI, which has designated Mr. Holmes;
	(4) Stephen Shank (so long as he is our Chief Executive Officer or the beneficial owner of not less than 5% of our outstanding capital stock), who has designated himself;
	(5) The holders of 662/3% of our outstanding shares of Class G preferred stock, who at the date of this prospectus have not designated a director; and
	(6) The directors designated under (1) to (5) above, by majority vote; these directors have designated Mr. Taylor.

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															Long Term
															Compensation Awards
			Annual Compensation
															Securities Underlying				All Other
Name and Principal Position			Year				Salary				Bonus				Options (#)				Compensation(a)
Stephen G. Shank				2005			$	396,539			$	145,267				26,971			$	10,369
	Chairman and Chief Executive Officer
Lois M. Martin				2005			$	267,308			$	65,416				16,494			$	9,390
	Senior Vice President and Chief Financial Officer
Michael J. Offerman(b)				2005			$	263,846			$	64,434				16,556			$	10,405
	Senior Vice President
Paul A. Schroeder(c)				2005			$	263,846			$	64,434				16,556			$	9,350
	Senior Vice President
Scott M. Henkel				2005			$	191,769			$	40,970				—			$	9,399
	Vice President and Chief Information Officer
Heidi K. Thom(d)				2005			$	229,462			$	177,987				—			$	935
	Former Senior Vice President of Marketing

(a)		Represents the value of shares of our common stock contributed to the accounts of the named executives in the Employee Stock Ownership Plan, our matching contributions to the 401(k) accounts of the named executives and the premiums we paid for group term life insurance on behalf of the named executives.
(b)		Dr. Offerman also serves as President and a director of Capella University.
(c)		Mr. Schroeder also serves as Senior Vice President and a director of Capella University.
(d)		Ms. Thom terminated her employment with us on December 1, 2005. Ms. Thom’s bonus compensation consisted of $55,987 under the 2005 Annual Incentive Plan for Management Employees, and a special one-time retention bonus of $122,000.

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																		Potential Realizable
										Option Term								Value at Assumed
																		Annual Rates of Stock
						Percent of Total												Price Appreciation for
		Number of Shares				Options Granted				Exercise or								Option Term(a)
		Underlying				to Employees				Base Price				Expiration
Name		Options Granted				in 2005				Per Share				Date				5% ($)				10% ($)
Stephen G. Shank			26,971	(b)			9.1	%		$	20.00				8/12/15
Lois M. Martin			16,494	(c)			5.6	%		$	20.00				8/12/15
Michael J. Offerman			16,556	(d)			5.6	%		$	20.00				8/12/15
Paul A. Schroeder			16,556	(e)			5.6	%		$	20.00				8/12/15
Scott M. Henkel			—				—				—				—				—				—
Heidi K. Thom			—				—				—				—				—				—

(a)		In accordance with the rules of the SEC, the amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10% compounded annually and do not reflect our estimates or projections of the future price of our common stock. These amounts represent assumed rates of appreciation in the value of our common stock from the initial public offering price, assuming an initial public offering price of $           per share (the midpoint of the range set forth on the cover page of this prospectus). The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock, the option holder’s continued employment through the option period, and the date on which the options are exercised.
(b)		The options were granted under our 2005 Stock Incentive Plan on August 12, 2005, and vest as to 331/3% of the shares on each of the first three anniversaries of the date of grant.
(c)		The options were granted under our 2005 Stock Incentive Plan on August 12, 2005, and vest as to 25% of the shares on each of the first four anniversaries of the date of grant.
(d)		The options were granted under our 2005 Stock Incentive Plan on August 12, 2005, and vest as to 25% of the shares on each of the first four anniversaries of the date of grant.
(e)		The options were granted under our 2005 Stock Incentive Plan on August 12, 2005, and vest as to 25% of the shares on each of the first four anniversaries of the date of grant.

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										Number of Shares
										Underlying Unexercised								Value of
										Options at								In-the-Money Options
										December 31, 2005								at December 31, 2005(a)
		Shares Acquired				Value
Name		on Exercise				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Stephen G. Shank			—				—				130,574				74,412
Lois M. Martin			—				—				25,000				91,494
Michael J. Offerman			—				—				88,896				38,057
Paul A. Schroeder			—				—				114,128				38,290
Scott M. Henkel			—				—				8,750				26,250
Heidi K. Thom			—				—				—				—

(a)	There was no public trading market for the common stock as of December 31, 2005. Accordingly, these values have been calculated in accordance with the rules of the SEC, on the basis of the initial public offering price per share of $          (the midpoint of the range set forth on the cover page of this prospectus), less the applicable exercise price.

	Paul Schroeder

	Michael J. Offerman, Ed.D.

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	Scott M. Henkel

	Lois M. Martin

	Kenneth J. Sobaski

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	Reed A. Watson

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		Shares Beneficially
		Owned and
		Outstanding as of				Special Dividend
		October 3,				Amount as to Shares
Name of Beneficial Owner		2006(a)(b)				Beneficially Owned(c)
Directors
Stephen G. Shank(d)			2,293,679
Tony Christianson			1,779,746
Gordon A. Holmes(e)			—
S. Joshua Lewis			1,204,211
Jody G. Miller(f)			—
James A. Mitchell			41,275
David W. Smith			8,992
Jeffrey W. Taylor			—
Darrell R. Tukua			—
Jon Q. Reynolds, Jr.			1,858,681
Sandra Taylor			—
Executive Officers
Michael J. Offerman			4,496
Lois M. Martin			—
Paul A. Schroeder			6,744
Scott M. Henkel			—
Ken Sobaski			—
Greg Thom			—
Elizabeth Rausch			4,496
Reed Watson			—
All directors and executive officers as a group			7,202,320

(a)		For the purpose of calculating shares beneficially owned and outstanding as of October 3, 2006, the number of shares of common stock deemed outstanding assumes the conversion of all outstanding shares of our preferred stock into common stock, and excludes all shares of common stock subject to options. Beneficial ownership is determined in accordance with the rules of the SEC that generally attribute beneficial ownership of securities to persons that possess sole or shared voting power and/or

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		investment power with respect to those securities. The persons identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, except as set forth in the footnotes to the table included in “Principal and Selling Shareholders.”
(b)		Does not include portions of the special cash dividend to be paid to the Employee Stock Ownership Plan with respect to shares credited to the Employee Stock Ownership Plan accounts of each executive officer, in approximately the following amounts: Mr. Shank, $                    ; Dr. Offerman, $                    ; Ms. Martin, $                    ; Mr. Schroeder, $                    ; Mr. Henkel; $                    ; Mr. Thom, $                    ; and Ms. Rausch, $                    .
(c)		Assumes an initial public offering price of $          per share (the midpoint of the range set forth on the cover page of this prospectus).
(d)		Mr. Shank is our Chairman and Chief Executive Officer.
(e)		Entities affiliated with Forstmann Little & Co. will receive $           million of the special dividend. Mr. Holmes is a limited partner of each general partner of such entities.
(f)		Entities affiliated with Maveron LLC will receive $           million of the special dividend. Ms. Miller is a venture partner with Maveron LLC.

		Shares of				Shares of
		Class F				Class G
Investors(a)		Preferred Stock(b)				Preferred Stock(c)
Directors and executive officers:
Stephen G. Shank(d)			17,079				—
Michael J. Offerman(e)			4,270				—
Paul A. Schroeder(e)			6,405				—
Elizabeth M. Rausch(e)			4,270				—
David W. Smith(c)			—				8,992
S. Joshua Lewis(e)			42,699				—
Stephen J. Weiss and Piper Jaffray as custodian for Stephen J. Weiss IRA(f)			12,810				—
Russell A. Gullotti(g)			10,000				—
Piper Jaffray as custodian for Joseph C. Gaylord IRA (h)			4,270				—
5% shareholders:
Forstmann VII and VIII(i)			640,478				—
Maveron entities(c)(j)			—				674,460.2
Putnam entities(e)			640,478				—

(a)		See “Principal and Selling Shareholders” for additional information about ownership of shares held by these shareholders.
(b)		The Class F preferred stock was issued and sold on January 31, 2002, for an aggregate purchase price of $16,692,101.47. In January 2003, all shares of Class F preferred stock were exchanged for shares of Class G preferred stock pursuant to an exchange agreement. Each share of Class F preferred stock

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		was exchanged for 1.053 shares of our Class G preferred stock. As a result, there are no shares of Class F preferred stock currently outstanding.
(c)		The Class G preferred stock was issued and sold on January 15, 2003, for an aggregate purchase price of $7,599,988.42. Each share of Class G preferred stock is convertible into one share of common stock, subject to adjustments. We expect that each share of Class G preferred stock will convert into one share of common stock upon the closing of this offering.
(d)		Mr. Shank originally acquired 17,985.17 shares of Class G preferred stock pursuant to the exchange agreement discussed in footnote (b) above and subsequently transferred 14,967 shares of Class G preferred stock to the entities affiliated with Technology Crossover Ventures and 3,018 shares of Class G preferred stock to the Maveron entities.
(e)		Messrs. Offerman, Schroeder and Lewis, Ms. Rausch, The S. Joshua and Teresa D. Lewis Issue Trust, and the Putnam entities obtained their Class G preferred stock pursuant to the exchange agreement discussed in footnote (b) above.
(f)		Stephen J. Weiss was an executive officer of Capella from 1998 to 2003.
(g)		Russell A. Gullotti was a director of Capella from 2001 to 2004.
(h)		Joseph C. Gaylord was an executive officer of Capella from 2003 to 2004.
(i)		Gordon A. Holmes, a director of the company, represents the interests of FLC XXXII Partnership, L.P. and FLC XXXIII Partnership, L.P., the general partners of Forstmann VII and Forstmann VIII. Forstmann VII and Forstmann VIII originally obtained 674,460.20 shares of Class G preferred stock pursuant to the exchange agreement described in footnote (b) above. Forstmann VII and Forstmann VIII subsequently transferred 369,023 shares of Class G preferred stock to the entities affiliated with Technology Crossover Ventures and 74,400 shares of Class G preferred stock to the Maveron entities.
(j)		Jody Miller, a director of the company, is a venture partner at Maveron LLC, an affiliate of the Maveron entities. Dan Levitan, a board observer of the company, is a managing partner of Maveron General Partner 2000 LLC and a managing member of Maveron LLC, affiliates of the Maveron entities. The Maveron entities acquired 674,460.20 shares of Class G preferred stock pursuant to the Class G preferred issuance discussed in footnote (b) above and acquired an additional 77,418 shares of Class G preferred stock pursuant to a transfer of 3,018 shares of Class G preferred stock to the Maveron entities by Mr. Shank and a transfer of 74,400 shares of Class G preferred stock to the Maveron entities by Forstmann VII and Forstmann VIII.

Directors:		Stephen Shank (Mr. Shank is also an executive officer of the company and beneficially holds more than 5% of our voting securities), David Smith and Joshua Lewis (Mr. Lewis also beneficially holds more than 5% of our voting securities)
Executive Officers:		Elizabeth Rausch, Michael Offerman and Paul Schroeder
5% Shareholders:		Cherry Tree Ventures IV, the Forstmann Little entities, the Maveron entities, the Putnam entities, the entities affiliated with Technology Crossover Ventures, as transferees of

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	Forstmann VII and Forstmann VIII, and Insight-Salmon River LLC, as transferee of NCS Pearson, Inc.

Immediate Family Members of the Related Parties:		Judith F. Shank, Susan Shank, Mary Retzlaff and The S. Joshua and Teresa D. Lewis Issue Trust

Directors:		Stephen Shank (Mr. Shank is also an executive officer of the company and beneficially holds more than 5% of our voting securities), David Smith and Joshua Lewis (Mr. Lewis also beneficially holds more than 5% of our voting securities)
Executive Officers:		Elizabeth Rausch, Michael Offerman and Paul Schroeder
5% Shareholders:		The Forstmann Little entities, the Maveron entities, the Putnam entities and the entities affiliated with Technology Crossover Ventures, as transferees of Forstmann VII and VIII and Stephen Shank.

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	•	each person, or group of affiliated persons, known to us to own beneficially 5% or more of our outstanding common stock,
	•	each of our directors,
	•	each of our named executive officers,
	•	all of our directors and executive officers as a group, and
	•	each selling shareholder.

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		Shares Beneficially												Shares Beneficially												Shares Beneficially
		Owned Prior to the												Owned After												Owned After
		Offering(a)								Shares				Offering								Over-Allotment				Over-Allotment(b)
										Being												Shares Being
Name of Beneficial Owner		Shares				Percent				Offered				Shares				Percent				Offered(b)				Shares				Percent
Principal Shareholders
Forstmann Little entities(c)			1,106,372				9.4	%															—
Cherry Tree Ventures IV, L.P.(d)			1,779,746				15.2	%															—
Entities affiliated with Technology Crossover Ventures(e)			1,858,681				15.8	%															—
Putnam entities(f)			674,459				5.7	%															—
Maveron entities(g)			1,049,191				8.9	%															—
Salmon River and Insight entities(h)			1,224,726				10.4	%															—
Directors and Named Executive Officers
Stephen G. Shank(i)			2,456,979				20.7	%															—
Michael J. Offerman(j)			106,381				*																—
Lois M. Martin(k)			54,123				*																—
Paul A. Schroeder(l)			133,976				1.1	%															—
Scott M. Henkel(m)			17,500				*																—
Tony J. Christianson(d)			1,779,746				15.2	%															—
Gordon A. Holmes			—				—																—
S. Joshua Lewis(n)			1,216,711				10.4	%															—
Jody G. Miller(o)			2,500				*																—
James A. Mitchell(p)			59,775				*																—
David W. Smith(q)			21,992				*																—
Jeffrey W. Taylor(r)			5,000				*																—
Darrell R. Tukua(s)			12,500				*																—
Jon Q. Reynolds, Jr.(e)			1,858,681				15.8	%															—
Sandra E. Taylor(t)			—				—																—
All directors and executive officers as a group (19 persons)			7,789,348				63.2	%															—
Other Selling Shareholders
Sheng-Yang Chiu(u)			73,040				*																—
J. Bruce Francis(v)			119,816				1.0	%															—
Rotherwood Investments, LLC(w)			25,000				*																—

*		Less than 1%
(a)		Beneficial ownership is determined in accordance with the rules of the SEC that generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities and includes shares of common stock issuable pursuant to the exercise of stock options that are immediately exercisable or exercisable within 60 days. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Percentage ownership calculations for each beneficial owner prior to the offering, after the offering, and after over-allotment are based on 11,733,630 shares,                      shares and                      shares, respectively, of common stock outstanding plus any shares of common stock subject to options held by such beneficial owner that are exercisable within 60 days of September 30, 2006.
(b)		Amounts presented assume that the over-allotment option is exercised in full.
(c)		Consists of (1) 875,336 shares of common stock issuable upon conversion of preferred stock owned by Forstmann VI; (2) 144,397 shares of common stock issuable upon conversion of preferred stock owned by Forstmann VII; and (3) 86,639 shares of common stock issuable upon conversion of preferred stock owned by Forstmann VIII. Each of Forstmann VI, Forstmann VII and Forstmann VIII disclaims beneficial ownership of shares owned by the other entities. The general partner of Forstmann VI and Forstmann VII is FLC XXXII Partnership, L.P. (FLC XXXII) and

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		the general partner of Forstmann VIII is FLC XXXIII Partnership, L.P. (FLC XXXIII). The general partners of FLC XXXII and FLC XXXIII are Theodore J. Forstmann, Winston W. Hutchins, and T. Geoffrey McKay. Accordingly, each of the individuals named above, other than Mr. McKay for the reason described below, may be deemed the beneficial owner of shares owned by Forstmann VI, Forstmann VII and Forstmann VIII. Mr. McKay does not have any voting or investment power with respect to, or any economic interest in, the shares of our common stock held by Forstmann VI, Forstmann VII or Forstmann VIII and, accordingly, Mr. McKay is not deemed to be a beneficial owner of these shares. The address of Forstmann VI, Forstmann VII and Forstmann VIII is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, New York 10153.
(d)		Consists of (1) 50,000 shares of common stock and 1,698,000 shares of common stock issuable upon conversion of preferred stock owned by Cherry Tree Ventures IV, L.P.; (2) 29,366 shares of common stock owned by Cherry Tree Core Growth Fund, L.L.L.P.; and (3) 2,380 shares of common stock owned by InfoPower L.L.L.P. The general partner of Cherry Tree Ventures IV, L.P. is CTV Partners IV. CTV Partners IV is controlled by Tony J. Christianson and Gordon Stofer, its managing partners, who share voting and investment power with respect to the shares beneficially owned by Cherry Tree Ventures IV, L.P. The general partner of Cherry Tree Core Growth Fund, L.L.L.P. is Cherry Tree Investments, LLC. Cherry Tree Investments, LLC is controlled by Tony J. Christianson and Gordon Stofer, its managing members, who share voting and investment power with respect to the shares beneficially owned by Cherry Tree Core Growth Fund, L.L.L.P. The general partners of InfoPower, L.L.L.P. are Gordon Stofer and Adam Smith Companies, LLC. Adam Smith Companies, LLC. is controlled by Tony J. Christianson, its managing member. Gordon Stofer and Tony J. Christianson share voting and investment power with respect to the shares beneficially owned by InfoPower, L.L.L.P. Messrs. Christianson and Stofer disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address of Cherry Tree Ventures IV, L.P., Cherry Tree Core Growth Fund, L.L.L.P. and InfoPower, L.L.L.P. is 301 Carlson Parkway, Suite 103, Minnetonka, MN 55305.
(e)		Consists of (1) 6,289 shares of common stock and 1,817,937 shares of common stock issuable upon conversion of preferred stock owned by TCV V, L.P.; and (2) 119 shares of common stock and 34,336 shares of common stock issuable upon conversion of preferred stock owned by TCV Member Fund, L.P. As described under “Certain Relationships and Related Transactions — Purchase of Shares in this Offering”, certain of the entities affiliated with Technology Crossover Ventures have expressed an interest in purchasing shares in this offering, although they are not committed to do so. In the event that any of the entities affiliated with Technology Crossover Ventures were to purchase shares in this offering, the information set forth in the table above under the headings “Shares Beneficially Owned After Offering” and “Shares Beneficially Owned After Over-Allotment Option” would be increased accordingly. The general partner of TCV V, L.P. and TCV Member Fund, L.P. is Technology Crossover Management V, L.L.C. (TCM V). The investment activities of TCM V are managed by Jon Q. Reynolds, Jr., a director of the company, Jay C. Hoag, Richard H. Kimball, John L. Drew, Henry J. Feinberg and William J.G. Griffith IV (collectively, the TCM Members), who share voting and investment power with respect to the shares beneficially owned by TCV V, L.P. and TCV Member Fund, L.P. TCM V and the TCM Members disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address of TCV V, L.P. and TCV Member Fund, L.P. is 528 Ramona Street, Palo Alto, CA 94301.
(f)		Consists of (1) 224,820 shares of common stock issuable upon conversion of preferred stock owned by Putnam OTC & Emerging Growth Fund; and (2) 449,639 shares of common stock issuable upon conversion of preferred stock owned by TH Lee, Putnam Investment Trust — TH Lee, Putnam Emerging Opportunities Portfolio. The investment adviser of Putnam OTC & Emerging Growth Fund is Putnam Investment Management, LLC, which is a wholly owned subsidiary of Putnam, LLC, which is an indirectly owned subsidiary of Marsh & McLennan Companies, Inc., a company traded on the New York Stock Exchange. The investment adviser of TH Lee, Putnam Investment Trust — TH Lee, Putnam Emerging Opportunities Portfolio is TH Lee, Putnam Capital Management, LLC. TH Lee, Putnam Capital Management, LLC is

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		indirectly majority owned by Putnam, LLC, which is an indirectly owned subsidiary of Marsh & McLennan Companies, Inc., a company traded on the New York Stock Exchange. Marsh & McLennan Companies, Inc. and Putnam, LLC disclaim beneficial ownership of all such shares. The address for Putnam OTC & Emerging Growth Fund and TH Lee, Putnam Investment Trust — TH Lee, Putnam Emerging Opportunities Portfolio is One Post Office Square, Boston, MA 02109.
(g)		Consists of (1) 1,089 shares of common stock and 887,643 shares of common stock issuable upon conversion of preferred stock owned by Maveron Equity Partners 2000, L.P.; (2) 42 shares of common stock and 34,348 shares of common stock issuable upon conversion of preferred stock owned by Maveron Equity Partners 2000-B, L.P.; and (3) 161 shares of common stock and 125,908 shares of common stock issuable upon conversion of preferred stock owned by MEP 2000 Associates LLC. The general partner of Maveron Equity Partners 2000, L.P. and Maveron Equity Partners 2000-B, L.P. is Maveron General Partner 2000 LLC. Maveron General Partner 2000 LLC is controlled by Dan Levitan, Howard Schultz, and Debra Somberg, its managing partners, who share voting and investment power with respect to the shares beneficially owned by Maveron Equity Partners 2000, L.P. and Maveron Equity Partners 2000-B, L.P. The managing member of MEP 2000 Associates LLC is Maveron LLC. Maveron LLC is controlled by Dan Levitan, Howard Schultz, and Debra Somberg, its managing members, who share voting and investment power with respect to the shares beneficially owned by MEP 2000 Associates LLC. Mr. Levitan, Mr. Schultz, and Ms. Somberg disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address for Maveron LLC is 505 Fifth Avenue South, Suite 600, Seattle, WA 98104.
(h)		Consists of (1) 750,000 shares of common stock issuable upon conversion of preferred stock owned by Insight-Salmon River LLC; (2) 24,308 shares of common stock owned by Insight Venture Partners IV, L.P.; (3) 272,222 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital I LLC; (4) 146,018 shares of common stock issuable upon conversion of preferred stock owned by Salmon River CIP LLC; (5) 194 shares of common stock owned by Insight Venture Partners IV (Fund B), L.P.; (6) 2,997 shares of common stock owned by Insight Venture Partners IV (Co-Investors), L.P.; (7) 3,251 shares of common stock owned by Insight Venture Partners (Cayman) IV, L.P.; and (8) 25,736 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital II, L.P. As described under “Certain Relationships and Related Transactions — Purchase of Shares in this Offering,” certain of the Salmon River and Insight entities have expressed an interest in purchasing shares in this offering, although they are not committed to do so. In the event that any of the Salmon River and Insight entities were to purchase shares in this offering, the information set forth in the table above under the headings “Shares Beneficially Owned After Offering” and “Shares Beneficially Owned After Over-Allotment Option” would be increased accordingly. The managing member of Insight-Salmon River LLC is Salmon River Capital LLC, and the non-managing members of Insight-Salmon River LLC are Insight Venture Partners IV, L.P., Insight Venture Partners IV (Fund B), L.P., Insight Venture Partners IV (Co-Investors), L.P., and Insight Venture Partners (Cayman) IV, L.P. (collectively, the Insight Partnerships). Salmon River Capital LLC, as managing member of Insight-Salmon River LLC, generally controls the voting power over the shares held by Insight-Salmon River LLC, but the Insight Partnerships have shared voting power with Salmon River Capital LLC over such shares with respect to certain matters. In addition, Salmon River Capital LLC and the Insight Partnerships have shared investment power over the shares held by Insight-Salmon River LLC. The managing member of Salmon River Capital LLC is S. Joshua Lewis, a director of the company. The general partner of the Insight Partnerships is Insight Venture Associates IV, LLC. The managing member of Insight Venture Associates IV, LLC is Insight Holdings Group, LLC. Insight Holdings Group, LLC is managed by its board of managers. Accordingly, Mr. Lewis, Insight Venture Associates IV, LLC, and Insight Holdings Group, LLC have shared voting and investment powers with respect to the shares beneficially owned by Insight-Salmon River LLC. The foregoing is not an admission by such persons that such persons are the beneficial owners of the shares held by Insight-Salmon River LLC, and each disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein. Insight Venture Associates IV, LLC and Insight Holdings Group, LLC have voting and

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		investment power with respect to the shares beneficially owned by the Insight Partnerships. The foregoing is not an admission by Insight Venture Associates IV, LLC or Insight Holdings Group, LLC that they are the beneficial owners of the shares held by the Insight Partnerships, and each disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein. The managing member of Salmon River Capital I LLC and Salmon River CIP LLC is Salmon River Capital LLC. The managing member of Salmon River Capital LLC is Mr. Lewis. Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital I LLC and Salmon River CIP LLC. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital I LLC and Salmon River CIP LLC, and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The general partner of Salmon River Capital II, L.P. is Salmon River Capital GP, LLC. The sole member of Salmon River Capital GP, LLC is Mr. Lewis. Accordingly, Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital II, L.P. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital II, L.P., and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address for the Salmon River and Insight entities is 680 Fifth Avenue, 8th Floor, New York, NY 10019.
(i)		Consists of (1) 635,892 shares of common stock owned by Stephen G. Shank, 1,380,188 shares of common stock issuable upon conversion of preferred stock owned by Mr. Shank, and 163,300 shares of common stock underlying options that are exercisable within 60 days granted to Mr. Shank; (2) 75,202 shares of common stock controlled by Mary Shank Retzlaff, Mr. Shank’s daughter, as trustee of the Stephen G. Shank 2004 Grantor Retained Annuity Trust; (3) 39,798 shares of common stock owned by Judith F. Shank, Mr. Shank’s wife, and 85,397 shares of common stock issuable upon conversion of preferred stock owned by Judith F. Shank; (4) 75,202 shares of common stock controlled by Susan Shank, Mr. Shank’s daughter, as trustee of the Judith F. Shank 2004 Grantor Retained Annuity Trust; and (5) 2,000 shares of common stock controlled by Susan Shank, as trustee of the Emma Jia Chen Retzlaff 2004 Irrevocable Trust.
(j)		Includes 4,496 shares of common stock issuable upon conversion of preferred stock and 101,885 shares of common stock underlying options, that are exercisable within 60 days, granted to Dr. Offerman.
(k)		Consists of 54,123 shares underlying options, that are exercisable within 60 days, granted to Ms. Martin.
(l)		Includes 6,744 shares of common stock issuable upon conversion of preferred stock and 127,232 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Schroeder.
(m)		Consists of 17,500 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Henkel.
(n)		Consists of (1) 750,000 shares of common stock issuable upon conversion of preferred stock owned by Insight-Salmon River LLC; (2) 272,222 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital I LLC; (3) 146,018 shares of common stock issuable upon conversion of preferred stock owned by Salmon River CIP LLC; (4) 25,736 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital II, L.P.; (5) 10,235 shares of common stock issuable upon conversion of preferred stock owned by S. Joshua Lewis; and (6) 12,500 shares of common stock underlying options that are exercisable within 60 days granted to S. Joshua Lewis. The managing member of Insight-Salmon River LLC is Salmon River Capital LLC, and the non-managing members of Insight-Salmon River LLC are Insight Venture Partners IV, L.P., Insight Venture Partners IV (Fund B), L.P., Insight Venture Partners IV (Co-Investors), L.P., and Insight Venture Partners (Cayman) IV, L.P. (collectively, the Insight Partnerships). Salmon River Capital LLC, as managing member of Insight-Salmon River LLC, generally controls the voting power over the shares held by Insight-Salmon River LLC, but the Insight Partnerships have shared voting power with Salmon River Capital LLC over such shares with

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		respect to certain matters. In addition, Salmon River Capital LLC and the Insight Partnerships have shared investment power over the shares held by Insight-Salmon River LLC. The managing member of Salmon River Capital LLC is S. Joshua Lewis. The general partner of the Insight Partnerships is Insight Venture Associates IV, LLC. The managing member of Insight Venture Associates IV, LLC is Insight Holdings Group, LLC. Insight Holdings Group, LLC is managed by its board of managers. Accordingly, Mr. Lewis, Insight Venture Associates IV, LLC, and Insight Holdings Group, LLC have shared voting and investment powers with respect to the shares beneficially owned by Insight-Salmon River LLC. The foregoing is not an admission by such persons that such persons are the beneficial owners of the shares held by Insight-Salmon River LLC, and each disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein. The managing member of Salmon River Capital I LLC and Salmon River CIP LLC is Salmon River Capital LLC. The managing member of Salmon River Capital LLC is Mr. Lewis. Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital I LLC and Salmon River CIP LLC. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital I LLC and Salmon River CIP LLC, and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The general partner of Salmon River Capital II, L.P. is Salmon River Capital GP, LLC. The sole member of Salmon River Capital GP, LLC is Mr. Lewis. Accordingly, Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital II, L.P. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital II, L.P., and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
(o)		Consists of 2,500 shares underlying options, that are exercisable within 60 days, granted to Ms. Miller.
(p)		Consists of (1) 41,275 shares of common stock controlled by James A. Mitchell, as trustee of the James A. Mitchell Trust; and (2) 18,500 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Mitchell.
(q)		Consists of 8,992 shares of common stock issuable upon conversion of preferred stock and 13,000 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Smith.
(r)		Consists of 5,000 shares underlying options, that are exercisable within 60 days, granted to Mr. Taylor.
(s)		Consists of 12,500 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Tukua.
(t)		No options exercisable within 60 days.
(u)		Consists of 73,040 shares of common stock owned by Mr. Chiu.
(v)		Consists of (1) 117,941 shares of common stock owned by Mr. Francis, and (2) 1,875 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Francis.
(w)		Consists of 25,000 shares of common stock owned by Rotherwood Investments, LLC. The president of Rotherwood Investments, LLC, Greg Nelson, has voting and investment power with respect to the shares of common stock owned by Rotherwood Investments, LLC.

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	Minnesota Law

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	Articles of Incorporation and Bylaws

	•	any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of a majority of the directors then in office;
	•	any action required or permitted to be taken by the shareholders at a regular meeting or special meeting of shareholders may only be taken if it is properly brought before such meeting;
	•	special meetings of the shareholders may only be called by our chief executive officer, chief financial officer, our board of directors, any two or more members of our board of directors or holders of at least 10% of the voting power of all shares then entitled to vote, provided that any special meeting called by one or more shareholders to take action concerning a proposed business combination may be called only by holders of at least 25% of the voting power of all shares then entitled to vote; and
	•	in order for any matter to be considered properly brought before a meeting, a shareholder must comply with requirements to provide advance notice to us.

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	•	shares will be eligible for immediate sale on the date of this prospectus because such shares may be sold pursuant to Rule 144(k);
	•	shares will be eligible for sale at various times beginning 90 days after the date of this prospectus pursuant to Rules 144, 144(k) and 701; and
	•	shares subject to the lock-up agreements will be eligible for sale at various times beginning 180 days after the date of this prospectus pursuant to Rules 144, 144(k) and 701.

	•	one percent of the number of shares of common stock then outstanding, which will equal approximately                      shares immediately after this offering, or

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	•	the average weekly trading volume of our common stock on The Nasdaq Stock Market, Inc. during the four calendar weeks preceding the date of filing of a notice on Form 144 with respect to the sale.

	•	125,783 shares of common stock were reserved pursuant to our 1993 Plan for future issuance in connection with the exercise of outstanding options previously awarded under this plan, and options with respect to 125,783 shares had vested;
	•	1,056,357 shares of common stock were reserved pursuant to our 1999 Plan for future issuance in connection with the exercise of outstanding options previously awarded under this plan, and options with respect to 761,738 shares had vested;
	•	1,072,603 shares of common stock were reserved pursuant to our 2005 Plan for future issuance in connection with the exercise of outstanding options previously awarded under this plan, and options with respect to 73,502 shares had vested; and
	•	450,000 shares of common stock were reserved pursuant to our ESPP for future employee purchases under this plan.

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	•	a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the “substantial presence” test under section 7701(b)(3) of the Internal Revenue Code;
	•	a corporation (or an entity treated as a corporation) created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia;
	•	an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
	•	a trust, if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons can control all substantial decisions of the trust, or certain other trusts that have a valid election to be treated as a U.S. person in effect.

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	•	the gain is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States, in which case the branch profits tax discussed above may also apply if the Non-U.S. Holder is a corporation; and
	•	the Non-U.S. Holder is an individual who holds shares of common stock as capital assets and is present in the United States for 183 days or more in the taxable year of disposition and various other conditions are met.

	•	the broker has documentary evidence in its files that the holder is a Non-U.S. Holder and other conditions are met; or
	•	the holder otherwise establishes an exemption.

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			Number of
Underwriter			Shares
Credit Suisse Securities (USA) LLC
Banc of America Securities LLC
Piper Jaffray & Co.
Stifel, Nicolaus & Company, Incorporated
	Total

Per Share

Total

Without

With

Without

With

Over-allotment

Over-allotment

Over-allotment

Over-allotment

Underwriting Discounts and Commissions paid by us

$

$

$

$

Expenses payable by us

$

$

$

$

Underwriting Discounts and Commissions paid by selling shareholders

$

$

$

$

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	•	the information presented in this prospectus and otherwise available to the underwriters;
	•	the history of and the prospectus for the industry in which we will compete;
	•	the ability of our management;
	•	the prospects for our future earning;
	•	the present state of our development and our current financial condition;
	•	the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and
	•	the general condition of the securities markets at the time of the offering.

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	•	Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
	•	Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.
	•	Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
	•	Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

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	•	the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws,
	•	where required by law, that the purchaser is purchasing as principal and not as agent,
	•	the purchaser has reviewed the text above under Resale Restrictions and
	•	the purchaser acknowledges and consents to the provision of specified information concerning its purchase of the common stock to the regulatory authority that by law is entitled to collect the information.

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		Page
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as of December 31, 2004 and 2005, and September 30, 2006 (unaudited)			F-3
Consolidated Statements of Income for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006 (unaudited)			F-4
Consolidated Statement of Shareholders’ Equity (Deficit) for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2006 (unaudited)			F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006 (unaudited)			F-6
Notes to Consolidated Financial Statements			F-7

F-1

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F-2

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				As of December 31,
												As of
				2004				2005				September 30, 2006
												(Unaudited)
				(In thousands, except per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents			$	5,480			$	13,972			$	6,976
	Short-term marketable securities				44,500				58,161				70,458
	Accounts receivable, net of allowance of $1,065 in 2004, $1,299 in 2005, and $1,182 in 2006				5,878				7,720				7,695
	Prepaid expenses and other current assets				3,056				4,758				5,689
	Deferred income taxes				1,398				1,243				1,242
Total current assets					60,312				85,854				92,060
Restricted cash					391				—				—
Property and equipment, net					12,126				19,559				26,409
Deferred income taxes					7,197				1,149				1,805
Total assets				$	80,026			$	106,562			$	120,274
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable			$	3,144			$	4,222			$	3,004
	Accrued liabilities				12,253				17,223				19,103
	Income taxes payable				140				—				2,601
	Deferred revenue				6,526				8,044				9,422
	Notes payable and current portion of capital lease obligations				314				2,647				481
Total current liabilities					22,377				32,136				34,611
Deferred rent					—				2,366				1,957
Capital lease obligations					8				—				9
Total liabilities					22,385				34,502				36,577
Redeemable preferred stock:
	Class E Redeemable Convertible Preferred Stock, $0.01 par value:
		Authorized shares – 2,596
		Issued and outstanding shares – 2,596
		Redemption value: $37,000			34,985				34,985				34,985
	Class G Redeemable Convertible Preferred Stock, $0.01 par value:
		Authorized shares – 2,185
		Issued and outstanding shares – 2,185
		Redemption value: $24,292			22,661				22,661				22,661
Total redeemable preferred stock					57,646				57,646				57,646
Shareholders’ equity (deficit):
	Class A Convertible Preferred Stock, $1.00 par value:
		Authorized shares – 3,000
		Issued and outstanding shares – 2,810			2,810				2,810				2,810
	Class B Convertible Preferred Stock, $2.50 par value:
		Authorized shares – 1,180
		Issued and outstanding shares – 460			1,150				1,150				1,150
	Class D Convertible Preferred Stock, $4.50 par value:
		Authorized shares – 1,022
		Issued and outstanding shares – 1,022			4,600				4,600				4,600
	Common stock, $0.10 par value:
		Authorized shares – 100,000
		Issued and outstanding shares – 2,074 in 2004, 2,431 in 2005, and 2,556 in 2006			208				243				255
	Additional paid-in capital				5,166				9,308				13,189
	Accumulated other comprehensive income (loss)				—				(8	)			(2	)
	Retained earnings (accumulated deficit)				(13,939	)			(3,689	)			4,049
Total shareholders’ equity (deficit)					(5	)			14,414				26,051
Total liabilities, redeemable preferred stock and shareholders’ equity (deficit)				$	80,026			$	106,562			$	120,274

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															Nine Months Ended
			Year Ended December 31,												September 30,
			2003				2004				2005				2005				2006
															(Unaudited)
			(In thousands, except per share amounts)
Revenues			$	81,785			$	117,689			$	149,240			$	107,321			$	129,278
Costs and expenses:
Instructional costs and services				43,759				58,850				71,243				52,218				61,473
Selling and promotional				22,246				35,089				45,623				32,548				42,540
General and administrative				11,710				13,885				17,501				11,962				15,115
	Total costs and expenses			77,715				107,824				134,367				96,728				119,128
Operating income				4,070				9,865				14,873				10,593				10,150
Other income, net				427				724				2,306				1,525				3,094
Income before income taxes				4,497				10,589				17,179				12,118				13,244
Income tax expense (benefit)				104				(8,196	)			6,929				4,853				5,506
Net income			$	4,393			$	18,785			$	10,250			$	7,265			$	7,738
Net income per common share:
	Basic		$	0.41			$	1.68			$	0.89			$	0.64			$	0.66
	Diluted		$	0.39			$	1.62			$	0.86			$	0.61			$	0.64
Weighted average number of common shares outstanding:
	Basic			10,804				11,189				11,476				11,426				11,691
	Diluted			11,154				11,599				11,975				11,950				12,021

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		Class A								Class B								Class D
		Convertible								Convertible								Convertible																								Accumulated				Retained
		Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Additional								Other				Earnings/
																																		Paid-In				Deferred				Comprehensive				(Accumulated								Comprehensive
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Compensation				Income (Loss)				Deficit)				Total				Income
		(In thousands)
Balance at December 31, 2002			2,810			$	2,810				460			$	1,150				1,022			$	4,600				1,548			$	155			$	2,193			$	(41	)		$	—			$	(37,117	)		$	(26,250	)		$	—
Exercise of stock options			—				—				—				—				—				—				176				17				789				—				—				—				806				—
Exercise of stock warrants			—				—				—				—				—				—				56				6				120				—				—				—				126				—
Issuance of common stock to the Employee Stock Ownership Plan			—				—				—				—				—				—				48				5				485				—				—				—				490				—
Amortization of deferred compensation			—				—				—				—				—				—				—				—				—				37				—				—				37				—
Employee Stock Ownership Plan distribution			—				—				—				—				—				—				(2	)			—				(18	)			—				—				—				(18	)			—
Net income			—				—				—				—				—				—				—				—				—				—				—				4,393				4,393				4,393
Balance at December 31, 2003			2,810				2,810				460				1,150				1,022				4,600				1,826				183				3,569				(4	)			—				(32,724	)			(20,416	)		$	4,393
Exercise of stock options			—				—				—				—				—				—				205				21				837				—				—				—				858				—
Income tax benefits associated with stock-based compensation			—				—				—				—				—				—				—				—				150				—				—				—				150				—
Issuance of common stock to the Employee Stock Ownership Plan			—				—				—				—				—				—				47				4				637				—				—				—				641				—
Amortization of deferred compensation			—				—				—				—				—				—				—				—				—				4				—				—				4				—
Employee Stock Ownership Plan distribution			—				—				—				—				—				—				(4	)			—				(27	)			—				—				—				(27	)			—
Net income			—				—				—				—				—				—				—				—				—				—				—				18,785				18,785				18,785
Balance at December 31, 2004			2,810				2,810				460				1,150				1,022				4,600				2,074				208				5,166				—				—				(13,939	)			(5	)		$	18,785
Exercise of stock options			—				—				—				—				—				—				52				5				273				—				—				—				278				—
Exercise of stock warrants			—				—				—				—				—				—				271				27				3,012				—				—				—				3,039				—
Issuance of common stock to the Employee Stock Ownership Plan			—				—				—				—				—				—				46				4				924				—				—				—				928				—
Employee Stock Ownership Plan distribution			—				—				—				—				—				—				(12	)			(1	)			(279	)			—				—				—				(280	)			—
Issuance of restricted stock			—				—				—				—				—				—				3				—				50				(50	)			—				—				—				—
Amortization of deferred compensation			—				—				—				—				—				—				—				—				—				19				—				—				19				—
Cancellation of restricted stock			—				—				—				—				—				—				(3	)			—				(50	)			31				—				—				(19	)			—
Stock-based compensation							—				—				—				—				—				—				—				202				—				—				—				202				—
Income tax benefits associated with stock-based compensation			—				—				—				—				—				—				—				—				10				—				—				—				10				—
Unrealized loss on marketable securities							—				—				—				—				—				—				—				—				—				(8	)			—				(8	)			(8	)
Net income			—				—				—				—				—				—				—				—				—				—				—				10,250				10,250				10,250
Balance at December 31, 2005			2,810				2,810				460				1,150				1,022				4,600				2,431				243				9,308				—				(8	)			(3,689	)			14,414			$	10,242
Exercise of stock options (unaudited)			—				—				—				—				—				—				63				6				298				—				—				—				304				—
Repurchase of stock options (unaudited)			—				—				—				—				—				—				—				—				(412	)			—				—				—				(412	)			—
Stock-based compensation (unaudited)			—				—				—				—				—				—				—				—				2,720				—				—				—				2,720				—
Income tax benefits associated with stock-based compensation (unaudited)			—				—				—				—				—				—				—				—				46				—				—				—				46				—
Employee Stock Ownership Plan contribution (unaudited)			—				—				—				—				—				—				62				6				1,235				—				—				—				1,241				—
Employee Stock Ownership Plan distribution (unaudited)			—				—				—				—				—				—				—				—				(6	)			—				—				—				(6	)			—
Unrealized gain on marketable securities (unaudited)			—				—				—				—				—				—				—				—				—				—				6				—				6				6
Net Income (unaudited)			—				—				—				—				—				—				—				—				—				—				—				7,738				7,738				7,738
Balance at September 30, 2006 (unaudited)			2,810			$	2,810				460			$	1,150				1,022			$	4,600				2,556			$	255			$	13,189			$	—			$	(2	)		$	4,049			$	26,051			$	7,744

F-5

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Table of Contents

																Nine Months Ended
				Year Ended December 31,												September 30,
				2003				2004				2005				2005				2006
																(Unaudited)
				(In thousands)
Operating activities
Net income				$	4,393			$	18,785			$	10,250			$	7,265			$	7,738
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for bad debts				616				1,376				2,263				1,564				2,026
	Depreciation and amortization				4,177				5,454				6,474				4,675				6,046
	Amortization of investment discount/premium				—				—				(158	)			(97	)			(239	)
	Gain on disposal of assets				—				—				(35	)			(35	)			—
	Asset impairment				359				1,020				156				71				23
	Loss realized on sale of marketable securities				—				—				—				—				3
	Stock-based compensation				—				—				—				—				2,720
	Noncash equity-related expense				578				1,135				1,381				978				224
	Excess tax benefits from stock-based compensation				—				—				—				—				(28	)
	Deferred income taxes				—				(8,445	)			6,203				4,267				(654	)
	Changes in operating assets and liabilities:
		Accounts receivable			(271	)			(4,278	)			(4,106	)			(2,112	)			(2,001	)
		Prepaid expenses and other assets			(348	)			(1,905	)			(409	)			(1,262	)			(1,101	)
		Accounts payable			831				(768	)			(318	)			(1,386	)			(2,273	)
		Accrued liabilities			4,642				1,036				3,647				2,942				2,197
		Income taxes payable			—				140				(292	)			(280	)			2,811
		Deferred rent			—				—				2,366				—				(409	)
		Deferred revenue			422				2,499				1,518				2,199				1,378
Net cash provided by operating activities					15,399				16,049				28,940				18,789				18,461
Investing activities
Capital expenditures					(3,719	)			(7,541	)			(9,079	)			(6,073	)			(11,132	)
Purchases of marketable securities					(53,000	)			(39,700	)			(59,879	)			(46,355	)			(163,782	)
Sales of marketable securities					30,600				35,050				46,360				34,725				151,732
Net cash used in investing activities					(26,119	)			(12,191	)			(22,598	)			(17,703	)			(23,182	)
Financing activities
Payments of capital lease obligations					(469	)			(629	)			(314	)			(293	)			(11	)
Payments on notes payable					—				—				(964	)			(494	)			(2,178	)
Change in restricted cash					(241	)			80				391				214				—
Excess tax benefits from stock-based compensation					—				—				—				—				28
Proceeds from exercise of stock options					806				858				278				267				304
Proceeds from exercise of warrants					126				—				3,039				3,039				—
Repurchase of stock options					—				—				—								(412	)
Employee Stock Ownership Plan distributions					(18	)			(27	)			(280	)			—				(6	)
Net proceeds from issuance of Class G Redeemable Convertible Preferred Stock					7,245				—				—				—				—
Net cash provided by (used in) financing activities					7,449				282				2,150				2,733				(2,275	)
Net increase (decrease) in cash and cash equivalents					(3,271	)			4,140				8,492				3,819				(6,996	)
Cash and cash equivalents at beginning of period					4,611				1,340				5,480				5,480				13,972
Cash and cash equivalents at end of period				$	1,340			$	5,480			$	13,972			$	9,299			$	6,976
Supplemental disclosures of cash flow information
Interest paid				$	78			$	56			$	23			$	17			$	22
Income taxes paid				$	104			$	109			$	1,080			$	866			$	3,348
Noncash transactions:
	Purchase of equipment and increase in prepaid asset through proceeds from issuance of notes payable			$	—			$	—			$	3,595			$	1,237			$	—
	Purchase of equipment included in accounts payable and accrued liabilities			$	629			$	1,445			$	2,477			$	459			$	1,771
	Purchase of equipment through capital lease obligations			$	837			$	—			$	—			$	—			$	16
	Issuance of common stock to the Employee Stock Ownership Plan			$	490			$	641			$	928			$	928			$	1,241

F-6

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Table of Contents

1.	Nature of Business

2.	Summary of Significant Accounting Policies

	Consolidation

	Unaudited Interim Financial Information

	Revenue Recognition

F-7

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Table of Contents

	Cash and Cash Equivalents

	Marketable Securities

	Allowance for Doubtful Accounts

	Concentration of Credit Risk

F-8

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Table of Contents

	Property and Equipment

Computer equipment		2-3 years
Furniture and office equipment		5-7 years
Computer software		3-7 years

	Income Taxes

	Use of Estimates

	Impairment of Long-Lived Assets

F-9

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Table of Contents

	Advertising

	Net Income Per Common Share

															Nine Months Ended
			Year Ended December 31,												September 30,
			2003				2004				2005				2005				2006
															(Unaudited)
Numerator:
	Net income		$	4,393			$	18,785			$	10,250			$	7,265			$	7,738
Denominator:
	Denominator for basic net income per common share — weighted average shares outstanding			10,804				11,189				11,476				11,426				11,691
	Effect of dilutive stock options and warrants			350				410				499				524				330
	Denominator for diluted net income per common share			11,154				11,599				11,975				11,950				12,021
	Basic net income per common share		$	0.41			$	1.68			$	0.89			$	0.64			$	0.66
	Diluted net income per common share		$	0.39			$	1.62			$	0.86			$	0.61			$	0.64

F-10

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Table of Contents

	Deferred Initial Public Offering Costs

	Reclassification

	Comprehensive Income

	Stock-Based Compensation

F-11

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Table of Contents

	New Accounting Standards

3.	Marketable Securities

			December 31, 2004
							Gross				Gross				Estimated
			Amortized				Unrealized				Unrealized				Fair
			Cost				Gains				(Losses)				Value
Auction rate			$	44,500			$	—			$	—			$	44,500
U.S. Agency				—				—				—				—
Corporate debt				—				—				—				—
	Total		$	44,500			$	—			$	—			$	44,500

F-12

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			December 31, 2005
							Gross				Gross				Estimated
			Amortized				Unrealized				Unrealized				Fair
			Cost				Gains				(Losses)				Value
Auction rate			$	44,775			$	—			$	—			$	44,775
U.S. Agency				4,851				—				(9	)			4,842
Corporate debt				8,550				2				(8	)			8,544
	Total		$	58,176			$	2			$	(17	)		$	58,161

		As of December 31,
		2004				2005
Due in one year or less		$	—			$	11,382
Due in one to five years			—				2,004
Due after ten years			44,500				44,775
		$	44,500			$	58,161

4.	Property and Equipment

		As of December 31,
		2004				2005
Computer software		$	12,076			$	18,469
Computer equipment			5,077				10,235
Furniture and office equipment			5,445				6,612
Leasehold improvements			1,318				1,318
			23,916				36,634
Less accumulated depreciation and amortization			(11,790	)			(17,075	)
Property and equipment, net		$	12,126			$	19,559

F-13

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Table of Contents

5.	Accrued Liabilities

		As of December 31,								As of
										September 30,
		2004				2005				2006
										(Unaudited)
Accrued compensation and benefits		$	3,952			$	4,510			$	3,918
Accrued instructional fees			2,626				3,189				4,013
Accrued vacation			1,494				1,386				1,594
Customer deposits			924				1,010				1,152
Other			3,257				7,128				8,426
		$	12,253			$	17,223			$	19,103

6.	Financing Arrangements

7.	Operating and Capital Lease Obligations

F-14

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		Operating
2006		$	2,691
2007			2,773
2008			2,803
2009			2,305
2010			1,864
Total minimum payments		$	12,436

8.	Litigation

9.	Preferred Stock

F-15

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Table of Contents

	Class A Convertible Preferred Stock

	Class B Convertible Preferred Stock

	Class D Convertible Preferred Stock

10.	Redeemable Preferred Stock

	Class E Redeemable Convertible Preferred Stock

F-16

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Table of Contents

	Class F Redeemable Convertible Preferred Stock

	Class G Redeemable Convertible Preferred Stock

F-17

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Table of Contents

11.	Stock-Based Compensation

	Stock-based compensation plans

F-18

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Table of Contents

F-19

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Table of Contents

						Plan Options
						Outstanding												Weighted-Average
		Available																Exercise Price
Service-based stock options		for Grant				Incentive				Non-Qualified				Price Per Share				Per Share
Balance, December 31, 2002			470				1,048				354			$	2.50 - 15.68			$	9.90
Granted			(481	)			375				106				11.12 - 13.11				12.07
Exercised			—				(146	)			(27	)			2.50 - 14.25				4.79
Canceled			101				(101	)			(28	)			4.50 - 14.25				12.18
Additional shares reserved			500				—				—				—				—
1993 plan expiration			(98	)			—				—				—				—
Balance, December 31, 2003			492				1,176				405				2.50 - 15.68				10.93
Granted			(415	)			241				174				15.13 - 20.00				17.83
Exercised			—				(190	)			(20	)			2.50 - 14.25				4.42
Canceled			139				(139	)			(11	)			4.50 - 15.13				11.66
Balance, December 31, 2004			216				1,087				548				2.50 - 20.00				13.45
Granted			(307	)			230				77				20.00				20.00
Exercised			—				(56	)			—				2.50 - 14.25				6.27
Canceled			10				(141	)			(31	)			11.12 - 20.00				15.30
1999 plan expiration			(214	)			—				—				—				—
Shares allocated to 2005 plan			1,613				—				—				—				—
Balance, December 31, 2005			1,318				1,120				594				4.50 - 20.00				14.67
Granted			(543	)			107				436								20.00
Exercised			—				(82	)			(3	)							8.84
Canceled			22				(126	)			(47	)							14.53
Shares allocated to 2005 plan			1,400				—				—								—
Balance, September 30, 2006 (unaudited)(a)			2,197				1,019				980								16.35

(a)		The total available for grant, including the 255 performance-based stock option grants, was 1,941.

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
		Number of				Exercise				Contractual				Intrinsic
Service-based stock options		Shares				Price				Term				Value
Balance at September 30, 2006 (unaudited)			1,999			$	16.35				7.0			$	7,301
Vested and expected to vest, September 30, 2006 (unaudited)			1,910			$	16.20				7.0			$	7,255
Exercisable, September 30, 2006 (unaudited)			961			$	13.73				5.7			$	6,029

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Table of Contents

Proceeds from stock options exercised		$	304
Tax benefits related to stock options exercised			46
Intrinsic value of stock options exercised			945

Instructional costs and services		$	701
Selling and promotional			317
General and administrative			1,702
Stock-based compensation expense included in operating income			2,720
Tax benefit			654
Stock-based compensation expense, net of tax		$	2,066

F-21

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Table of Contents

		Options Outstanding												Options Exercisable
		Number				Weighted								Number
		Outstanding				Average				Weighted				Exercisable				Weighted
		as of				Remaining				Average				as of				Average
Range of		December 31,				Contractual				Exercise				December 31,				Exercise
Exercise Prices		2005				Life (Years)				Price				2005				Price
$4.01 - 6.00			96				3.3			$	4.50				96			$	4.50
6.01 - 8.00			—				—				—				—				—
8.01 - 10.00			10				4.2				10.00				10				10.00
10.01 - 12.00			389				7.3				11.74				279				11.73
12.01 - 14.00			172				6.5				12.79				118				12.76
14.01 - 16.00			499				5.7				14.47				447				14.39
16.01 - 18.00			142				8.6				17.72				49				17.72
18.01 - 20.00			406				9.4				19.99				39				20.00
			1,714				7.1			$	14.67				1,038			$	12.89

			2003								2004								2005
			Fair				Exercise				Fair				Exercise				Fair				Exercise
			Value				Price				Value				Price				Value				Price
Weighted average:
	Stock price greater than exercise price		$	—			$	—			$	—			$	—			$	—			$	—
	Stock price equal to exercise price			6.55				11.99				8.56				17.80				8.87				20.00
	Stock price less than exercise price			5.64				13.11				7.23				19.49				—				—

														Nine Months
														Ended
		Year Ended December 31,												September 30,
		2003				2004				2005				2005
														(Unaudited)
Net income		$	4,393			$	18,785			$	10,250			$	7,265
Stock-based compensation expense included in net income as reported			37				4				202				138
Compensation expense determined under fair-value-based method, net of tax			(1,868	)			(2,154	)			(1,966	)			(1,387	)
Pro forma net income		$	2,562			$	16,635			$	8,486			$	6,016
Net income per common share:
Basic — as reported		$	0.41			$	1.68			$	0.89			$	0.64
Basic — pro forma		$	0.24			$	1.49			$	0.74			$	0.53
Diluted — as reported		$	0.39			$	1.62			$	0.86			$	0.61
Diluted — pro forma		$	0.23			$	1.45			$	0.71			$	0.51

F-22

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Table of Contents

														Nine Months Ended
		Year Ended December 31,												September 30,
		2003				2004				2005				2005
		(Pro forma)				(Pro forma)				(Pro forma)				(Pro forma)				2006
														(Unaudited)
Expected life (in years)(1)			6.0				6.0				6.0				6.0				4.25-6.25
Expected volatility(2)			53.9	%			44.1	%			38.5	%			38.5	%			45.6	%
Risk-free interest rate(3)			3.8	%			3.9	%			3.9-4.4	%			3.9-4.3	%			4.4-5.1	%
Dividend yield(4)			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%
Weighted-average fair value of options granted		$	6.49			$	8.54				$8.87			$	8.84				$9.89

(1)	For the nine months ended September 30, 2006, the expected option life was determined using the simplified method for estimating expected option life for service-based stock options. Prior to the nine months ended September 30, 2006, the expected option life was based on the average expected option life experienced by our peer group of post-secondary education companies.
(2)	As the Company’s stock has not been publicly traded, the expected volatility assumption for the nine months ended September 30, 2006 reflects a detailed evaluation of the stock price of its peer group of public post-secondary education companies for a period equal to the expected life of the options, starting from the date they went public. Prior to the nine months ended September 30, 2006 the expected volatility assumption reflects the public disclosures of the Company’s peer group of post-secondary education companies.
(3)	The risk-free interest rate assumption is based upon the U.S. Treasury zero coupon yield curve on the grant date for a maturity similar to the expected life of the options.
(4)	The dividend yield assumption is based on the Company’s history and expectation of regular dividend payments.

12.	Deferred Compensation

F-23

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Table of Contents

13.	Warrants

14.	Income Taxes

F-24

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Table of Contents

			Year Ended December 31,
			2003				2004				2005
Current:
	Federal		$	104			$	187			$	345
	State			—				62				381
Deferred				—				(8,445	)			6,203
			$	104			$	(8,196	)		$	6,929

		Year Ended December 31,
		2003				2004				2005
Statutory rate			34.0	%			35.0	%			35.0	%
State income taxes			7.0				3.5				2.6
Other			0.1				2.0				2.7
Change in rate applied to deferred tax assets and liabilities			—				3.6				—
Change in valuation allowance			(38.8	)			(121.5	)			—
			2.3	%			(77.4	)%			40.3	%

			As of December 31,
			2004				2005
Deferred tax assets:
	Net operating loss carryforwards		$	8,613			$	1,878
	Accounts receivable			415				489
	Alternative minimum tax credit			327				646
	Goodwill			105				89
	Accrued liabilities			981				1,810
	Other			36				5
				10,477				4,917
Deferred tax liabilities:
	Property and equipment			(1,882	)			(2,525	)
				(1,882	)			(2,525	)
Net deferred tax asset			$	8,595			$	2,392

F-25

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15.	Regulatory

16.	Other Employee Benefit Plans

F-26

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Table of Contents

17.	Subsequent Event

F-27

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Table of Contents

18.	Quarterly Financial Summary (unaudited)

			First				Second				Third				Fourth(a)				Total
2004
Revenues			$	26,488			$	28,321			$	28,040			$	34,840			$	117,689
Operating income				1,383				1,773				2,147				4,562				9,865
Net income(b)				1,466				1,892				2,310				13,117				18,785
Net income per common share
	Basic		$	0.13			$	0.17			$	0.21			$	1.17			$	1.68
	Diluted		$	0.13			$	0.16			$	0.20			$	1.11			$	1.62

			First				Second				Third				Fourth				Total
2005
Revenues			$	34,610			$	35,408			$	37,303			$	41,919			$	149,240
Operating income				4,145				3,523				2,925				4,280				14,873
Net income				2,705				2,356				2,204				2,985				10,250
Net income per common share
	Basic		$	0.24			$	0.21			$	0.19			$	0.26			$	0.89
	Diluted		$	0.23			$	0.20			$	0.18			$	0.25			$	0.86

(a)		During the fourth quarter of 2004, the Company recorded an impairment charge of $1,020 related to previously capitalized software development costs for software projects that were abandoned.
(b)		Because the Company achieved three years of cumulative taxable income and expected profitability in future years, the Company concluded that it is more likely than not that all of its net deferred tax assets will be realized. As a result, in accordance with FAS No. 109, the remaining valuation allowance applied to net deferred tax assets of $10,619 was reversed during the fourth quarter of 2004.

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Item 13.	Other Expenses of Issuance and Distribution

SEC registration fee			$	10,152
NASD filing fee				9,125
Nasdaq listing fee				*
Legal fees and expenses				1,400,700
Accounting fees and expenses				655,000
Printing expenses				325,000
Transfer agent fees and expenses				18,000
Miscellaneous expenses				498,000
	Total		$	3,020,669

*	To be filed by amendment.

Item 14.	Indemnification of Directors and Officers

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Item 15.	Recent Sales of Unregistered Securities

Item 16.	Exhibits and Financial Statement Schedules

Exhibit
Number				Description
	1	.1*		Form of Underwriting Agreement.
	3	.1#		Articles of Incorporation of the Registrant, as amended to date and as currently in effect, including all Certificates of Designation.
	3	.2#		Form of Amended and Restated Articles of Incorporation of the Registrant to be effective upon completion of this offering.

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Exhibit
Number				Description
	3	.4#		Amended and Restated By-Laws of the Registrant, as amended to date and as currently in effect.
	4	.1		Specimen of common stock certificate.
	4	.2#		Third Amended and Restated Co-Sale and Board Representation Agreement, dated as of January 22, 2003, by and among the Registrant and the shareholders named therein.
	4	.3		Reserved.
	4	.4		Reserved.
	4	.5		Reserved.
	4	.6		Reserved.
	4	.7#		Second Amended and Restated Investor Rights Agreement, dated as of January 22, 2003, by and among the Registrant and the shareholders named therein.
	4	.8#		Warrant, dated as of June 16, 1998, issued by the Registrant to Legg Mason Wood Walker, Incorporated.
	4	.9#		Amendment No. 1 to Warrant, dated as of April 20, 2000, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.10#		Amendment No. 2 to Warrant, dated as of February 21, 2002, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.11#		Amendment No. 3 to Warrant, dated as of January 22, 2003, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.12#		Warrant, dated as of May 11, 2000, issued by the Registrant to Legg Mason Wood Walker, Incorporated.
	4	.13#		Amendment No. 1 to Warrant, dated as of February 21, 2002, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.14#		Amendment No. 2 to Warrant, dated as of January 22, 2003, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.15#		Exchange Agreement, dated as of January 22, 2003, by and among the Registrant and the shareholders named therein.
	4	.16#		Class G Convertible Preferred Stock Purchase Agreement, dated as of January 15, 2003, by and among the Registrant and the shareholders named therein.
	4	.17#		Class F Convertible Preferred Stock Purchase Agreement, dated as of January 31, 2002, by and among the Registrant and the shareholders named therein.
	4	.18#		Class E Convertible Preferred Stock Purchase Agreement, dated as of April 20, 2000, by and among the Registrant and the shareholders named therein.
	5	.1		Opinion of Faegre & Benson LLP.
	10	.1#		Capella Education Company 2005 Stock Incentive Plan.
	10	.2#		Forms of Option Agreements for the Capella Education Company 2005 Stock Incentive Plan.
	10	.3#		Capella Education Company 1999 Stock Option Plan, as amended.
	10	.4#		Form of Non-Statutory Stock Option Agreement (Director) for the Capella Education Company 1999 Stock Option Plan.
	10	.5#		Form of Non-Statutory Stock Option Agreement (Employee) for the Capella Education Company 1999 Stock Option Plan.
	10	.6#		Form of Incentive Stock Option Agreement for the Capella Education Company 1999 Stock Option Plan.
	10	.7#		Learning Ventures International, Inc. 1993 Stock Option Plan, as amended.
	10	.8#		Form of Option Agreement for the Learning Ventures International, Inc. 1993 Stock Option Plan.
	10	.9#		Capella Education Company Employee Stock Ownership Plan as amended.

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Exhibit
Number				Description
	10	.10#		Capella Education Company Retirement Plan with Adoption Agreement and EGTRRA Amendment.
	10	.11#		Capella Education Company Executive Severance Plan.
	10	.12#		Capella Education Company Employee Stock Purchase Plan.
	10	.13#		Capella Education Company Annual Incentive Plan for Management Employees – 2005.
	10	.14#		Confidentiality, Non-Competition and Inventions Agreement, dated as of April 16, 2001, by and between the Registrant and Michael J. Offerman.
	10	.15#		Confidentiality, Non-Competition and Inventions Agreement, dated as of May 9, 2001, by and between the Registrant and Paul A. Schroeder.
	10	.16#		Form of Confidentiality, Non-Competition and Inventions Agreement (executed by Scott M. Henkel).
	10	.17#		Offer Letter, dated as of March 9, 2001, by and between the Registrant and Paul A. Schroeder.
	10	.18#		Offer Letter, dated as of November 10, 2003, by and between the Registrant and Michael J. Offerman.
	10	.19#		Offer Letter, dated as of December 22, 2003, by and between the Registrant and Scott M. Henkel.
	10	.20#		Offer Letter, dated June 3, 2003, by and between the Registrant and Heidi K. Thom.
	10	.21#		Form of Nondisclosure Agreement (executed by Scott M. Henkel, Paul A. Schroeder, Stephen G. Shank, Heidi K. Thom, Michael J. Offerman and Lois M. Martin).
	10	.22#		Office Lease, dated as of February 23, 2004, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.23#		Short Term Office Space Lease, dated as of February 23, 2004, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.24#		Memorandum of Lease, dated as of March 10, 2004, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.25#		Office Lease, dated as of June 28, 2000, as amended, by and between the Registrant and 222 South Ninth Street Limited Partnership and ND Properties, Inc. as successor in interest to 222 South Ninth Street Limited Partnership.
	10	.26#		Capella Education Company Annual Incentive Plan for Management Employees – 2006.
	10	.27#		Form of Performance Vesting Option Agreement (Annual Incentive Plan for Management Employees – 2006) for the Capella Education Company 2005 Stock Incentive Plan.
	10	.28#		Offer Letter, dated October 20, 2004, by and between the Registrant and Lois M. Martin.
	10	.29#		Offer Letter, dated February 21, 2006, by and between the Registrant and Kenneth J. Sobaski.
	10	.30#		Confidentiality, Non-Competition and Inventions Agreement dated as of February 27, 2006, by and between the Registrant and Kenneth J. Sobaski.
	10	.31#		Offer Letter, dated June 6, 2006, by and between the Registrant and Reed Watson.
	10	.32#		Confidentiality, Non-Competition and Inventions Agreement dated as of June 20, 2006, by and between the Registrant and Reed Watson.
	10	.33#		Employment Agreement dated May 30, 2006 between Capella Education Company and Michael J. Offerman.
	10	.34#		Amendment to Confidentiality, Non-Competition and Inventions Agreement, dated June 16, 2005, by and between the Registrant and Michael J. Offerman.
	10	.35#		Employment Agreement dated May 30, 2006 between Capella Education Company and Paul A. Schroeder.
	10	.36#		First Amendment to Lease, dated as of May 16, 2006, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.37#		Letter Agreement, dated July 5, 2006, between the Registrant and ASB Minneapolis 225 Holdings, LLC

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Exhibit
Number				Description
	10	.38#		Amendment No. 3 to Lease Agreement, dated as of June 16, 2005, by and between the Registrant and ND Properties, Inc. and ND Properties of Delaware, Inc.
	10	.39#		Amendments to Capella Education Company Retirement Plan dated as of April 20, 2006 and June 1, 2006.
	10	.40#		Amendment 1 to Employment Agreement dated August 25, 2006 between Paul Schroeder and Capella Education Company
	10	.41#		Amendment 1 to Employment Agreement dated August 25, 2006 between Michael Offerman and Capella Education Company
	10	.42#		Amendment No. 1 to Capella Education Company 2005 Stock Incentive Plan.
	10	.43#		Capella Education Company Senior Executive Severance Plan.
	21	.1#		Subsidiaries of the Registrant.
	23	.1		Consent of Ernst & Young.
	23	.2		Consent of Faegre & Benson LLP (to be included in Exhibit No. 5.1 to Registration Statement).
	24	.1#		Powers of Attorney other than for Ms. Taylor and Ms. Drifka.
	24	.2#		Powers of Attorney for Ms. Taylor and Ms. Drifka.

#	Previously filed

*	To be filed by Amendment

	(b)	Financial Statement Schedule

	Schedule II – Valuation and Qualifying Accounts.
	Other schedules are omitted because they are not required.

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	Minneapolis, Minnesota
	February 10, 2006

II-6

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						Additions
		Beginning				Charged to								Ending
		Balance				Expense				Deductions				Balance
		(In thousands)
Allowance accounts for the years ended:
December 31, 2003
Allowance for doubtful accounts		$	1,222			$	616			$	(1,125	) (a)		$	713
Deferred tax asset valuation allowance			14,465				—				(1,602	) (b)			12,863
December 31, 2004
Allowance for doubtful accounts			713				1,376				(1,024	) (a)			1,065
Deferred tax asset valuation allowance			12,863				—				(12,863	) (c)			—
December 31, 2005
Allowance for doubtful accounts			1,065				2,263				(2,029	) (a)			1,299

(a)		Write-off of accounts receivables.
(b)		Reversal of valuation allowance in an amount equal to the reduction in net deferred tax assets due primarily to utilization of net operating loss carryforwards.
(c)		Reversal of deferred tax valuation allowance as a result of achieving three years of cumulative taxable income in 2004 along with expectations of future profitability.

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Item 17.	Undertakings.

	(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
	(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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	Capella Education Company

	By	/s/ Stephen G. Shank

	Stephen G. Shank
	Chairman of the Board of Directors
	and Chief Executive Officer

Signature				Title
/s/ Stephen G. Shank   Stephen G. Shank				Chairman and Chief Executive Officer (Principal Executive Officer)
/s/ Lois M. Martin   Lois M. Martin*				Senior Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ Amy L. Drifka   Amy L. Drifka*				Vice President and Corporate Controller (Principal Accounting Officer)
/s/ S. Joshua Lewis   S. Joshua Lewis*				Director
/s/ James A. Mitchell   James A. Mitchell*				Director
/s/ David W. Smith   David W. Smith*				Director
/s/ Tony J. Christianson   Tony J. Christianson*				Director
/s/ Gordon A. Holmes   Gordon A. Holmes*				Director
/s/ Jody G. Miller   Jody G. Miller*				Director
/s/ Jeffrey W. Taylor   Jeffrey W. Taylor*				Director
/s/ Darrell R. Tukua   Darrell R. Tukua*				Director

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Signature				Title
/s/ Jon Q. Reynolds, Jr.   Jon Q. Reynolds, Jr.*				Director
/s/ Sandra E. Taylor   Sandra E. Taylor*				Director

*	Stephen G. Shank, by signing his name hereto, does hereby sign this document on behalf of each of the above-named officers and/or directors of the Registrant pursuant to powers of attorney duly executed by such persons.

	By	/s/ Stephen G. Shank

	Stephen G. Shank
	Attorney-in-Fact

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Exhibit
Number				Description
	1	.1*		Form of Underwriting Agreement.
	3	.1#		Articles of Incorporation of the Registrant, as amended to date and as currently in effect, including all Certificates of Designation.
	3	.2#		Form of Amended and Restated Articles of Incorporation of the Registrant to be effective upon completion of this offering.
	3	.4#		Amended and Restated By-Laws of the Registrant, as amended to date and as currently in effect.
	4	.1		Specimen of common stock certificate.
	4	.2#		Third Amended and Restated Co-Sale and Board Representation Agreement, dated as of January 22, 2003, by and among the Registrant and the shareholders named therein.
	4	.3		Reserved.
	4	.4		Reserved.
	4	.5		Reserved.
	4	.6		Reserved.
	4	.7#		Second Amended and Restated Investor Rights Agreement, dated as of January 22, 2003, by and among the Registrant and the shareholders named therein.
	4	.8#		Warrant, dated as of June 16, 1998, issued by the Registrant to Legg Mason Wood Walker, Incorporated.
	4	.9#		Amendment No. 1 to Warrant, dated as of April 20, 2000, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.10#		Amendment No. 2 to Warrant, dated as of February 21, 2002, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.11#		Amendment No. 3 to Warrant, dated as of January 22, 2003, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.12#		Warrant, dated as of May 11, 2000, issued by the Registrant to Legg Mason Wood Walker, Incorporated.
	4	.13#		Amendment No. 1 to Warrant, dated as of February 21, 2002, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.14#		Amendment No. 2 to Warrant, dated as of January 22, 2003, by and between the Registrant and Legg Mason Wood Walker, Incorporated.
	4	.15#		Exchange Agreement, dated as of January 22, 2003, by and among the Registrant and the shareholders named therein.
	4	.16#		Class G Convertible Preferred Stock Purchase Agreement, dated as of January 15, 2003, by and among the Registrant and the shareholders named therein.
	4	.17#		Class F Convertible Preferred Stock Purchase Agreement, dated as of January 31, 2002, by and among the Registrant and the shareholders named therein.
	4	.18#		Class E Convertible Preferred Stock Purchase Agreement, dated as of April 20, 2000, by and among the Registrant and the shareholders named therein.
	5	.1		Opinion of Faegre & Benson LLP.
	10	.1#		Capella Education Company 2005 Stock Incentive Plan.
	10	.2#		Forms of Option Agreements for the Capella Education Company 2005 Stock Incentive Plan.
	10	.3#		Capella Education Company 1999 Stock Option Plan, as amended.
	10	.4#		Form of Non-Statutory Stock Option Agreement (Director) for the Capella Education Company 1999 Stock Option Plan.
	10	.5#		Form of Non-Statutory Stock Option Agreement (Employee) for the Capella Education Company 1999 Stock Option Plan.
	10	.6#		Form of Incentive Stock Option Agreement for the Capella Education Company 1999 Stock Option Plan.

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Exhibit
Number				Description
	10	.7#		Learning Ventures International, Inc. 1993 Stock Option Plan, as amended.
	10	.8#		Form of Option Agreement for the Learning Ventures International, Inc. 1993 Stock Option Plan.
	10	.9#		Capella Education Company Employee Stock Ownership Plan as amended.
	10	.10#		Capella Education Company Retirement Plan with Adoption Agreement and EGTRRA Amendment.
	10	.11#		Capella Education Company Executive Severance Plan.
	10	.12#		Capella Education Company Employee Stock Purchase Plan.
	10	.13#		Capella Education Company Annual Incentive Plan for Management Employees – 2005.
	10	.14#		Confidentiality, Non-Competition and Inventions Agreement, dated as of April 16, 2001, by and between the Registrant and Michael J. Offerman.
	10	.15#		Confidentiality, Non-Competition and Inventions Agreement, dated as of May 9, 2001, by and between the Registrant and Paul A. Schroeder.
	10	.16#		Form of Confidentiality, Non-Competition and Inventions Agreement (executed by Scott M. Henkel).
	10	.17#		Offer Letter, dated as of March 9, 2001, by and between the Registrant and Paul A. Schroeder.
	10	.18#		Offer Letter, dated as of November 10, 2003, by and between the Registrant and Michael J. Offerman.
	10	.19#		Offer Letter, dated as of December 22, 2003, by and between the Registrant and Scott M. Henkel.
	10	.20#		Offer Letter, dated June 3, 2003, by and between the Registrant and Heidi K. Thom.
	10	.21#		Form of Nondisclosure Agreement (executed by Scott M. Henkel, Paul A. Schroeder, Stephen G. Shank, Heidi K. Thom, Michael J. Offerman and Lois M. Martin).
	10	.22#		Office Lease, dated as of February 23, 2004, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.23#		Short Term Office Space Lease, dated as of February 23, 2004, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.24#		Memorandum of Lease, dated as of March 10, 2004, by and between the Registrant and 601 Second Avenue Limited Partnership.
	10	.25#		Office Lease, dated as of June 28, 2000, as amended, by and between the Registrant and 222 South Ninth Street Limited Partnership and ND Properties, Inc. as successor in interest to 222 South Ninth Street Limited Partnership.
	10	.26#		Capella Education Company Annual Incentive Plan for Management Employees – 2006.
	10	.27#		Form of Performance Vesting Option Agreement (Annual Incentive Plan for Management Employees – 2006) for the Capella Education Company 2005 Stock Incentive Plan.
	10	.28#		Offer Letter, dated October 20, 2004, by and between the Registrant and Lois M. Martin.
	10	.29#		Offer Letter, dated February 21, 2006, by and between the Registrant and Kenneth J. Sobaski.
	10	.30#		Confidentiality, Non-Competition and Inventions Agreement dated as of February 27, 2006, by and between the Registrant and Kenneth J. Sobaski.
	10	.31#		Offer Letter, dated June 6, 2006, by and between the Registrant and Reed Watson.
	10	.32#		Confidentiality, Non-Competition and Inventions Agreement dated as of June 20, 2006, by and between the Registrant and Reed Watson.
	10	.33#		Employment Agreement dated May 30, 2006 between Capella Education Company and Michael J. Offerman.
	10	.34#		Amendment to Confidentiality, Non-Competition and Inventions Agreement, dated June 16, 2005, by and between the Registrant and Michael J. Offerman.
	10	.35#		Employment Agreement dated May 30, 2006 between Capella Education Company and Paul A. Schroeder.
	10	.36#		First Amendment to Lease, dated as of May 16, 2006, by and between the Registrant and 601 Second Avenue Limited Partnership.

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Exhibit
Number				Description
	10	.37#		Letter Agreement, dated July 5, 2006, between the Registrant and ASB Minneapolis 225 Holdings, LLC
	10	.38#		Amendment No. 3 to Lease Agreement, dated as of June 16, 2005, by and between the Registrant and ND Properties, Inc. and ND Properties of Delaware, Inc.
	10	.39#		Amendments to Capella Education Company Retirement Plan dated as of April 20, 2006 and June 1, 2006.
	10	.40#		Amendment 1 to Employment Agreement dated August 25, 2006 between Paul Schroeder and Capella Education Company
	10	.41#		Amendment 1 to Employment Agreement dated August 25, 2006 between Michael Offerman and Capella Education Company
	10	.42#		Amendment No. 1 to Capella Education Company 2005 Stock Incentive Plan.
	10	.43#		Capella Education Company Senior Executive Severance Plan.
	21	.1#		Subsidiaries of the Registrant.
	23	.1		Consent of Ernst & Young.
	23	.2		Consent of Faegre & Benson LLP (to be included in Exhibit No. 5.1 to Registration Statement).
	24	.1#		Powers of Attorney other than for Ms. Taylor and Ms. Drifka.
	24	.2#		Powers of Attorney for Ms. Taylor and Ms. Drifka.

#	Previously filed

*	To be filed by Amendment