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Annual Base Pay that occurred after that date, and such recalculated present value shallconstitute the Grandfathered Component if greater than the initially calculated amount. Forall present value calculations under this Section 2(e)(ii), reasonable actuarial assumptionsand methods shall be used.     - The Post-2004 Component. This is the portion of the present value of the totalMonthly Annuity on the annuity commencement date that is in excess of the GrandfatheredComponent as calculated above.          (b) COMMENCEMENT AND DURATION OF MONTHLY ANNUITY. Following Sperling’s termination ofemployment with the Company, the Company shall pay Sperling the Monthly Annuity as follows:     - To the extent each monthly payment is attributable to the Grandfathered Component ofthe Monthly Annuity, the first such payment shall be made on the first business day of themonth following the month in which Sperling terminates employment with the Company and shallnot be subject to the hold-back provisions of Section (e) of this Agreement. Such monthlypayments shall continue to be made on the first business day of each succeeding month, withthe last such monthly payment to be made on the first business day of the month in whichSperling’s death occurs     - To the extent the monthly payment is attributable to the Post-2004 Component of theMonthly Annuity, the first such payment shall be made on the first business day of the monthfollowing the month in which Sperling’s Separation from Service occurs by reason of histermination of employment. Such monthly payments shall continue to be made on the firstbusiness day of each succeeding month, with the last such monthly payment to be made on thefirst day of the month in which Sperling’s death occurs     - In no event shall any monthly payment of the Monthly Annuity be made later thanthirty (30) calendar days after the due date, except for any required deferral under Section2(e).          (c) AVERAGE ANNUAL BASE PAY. For purposes of this Agreement, Sperling’s “HighestAnnual Base Pay” shall be equal to the highest base salary (exclusive of bonuses, incentivecompensation, fringe benefits and other extraordinary types of compensation) paid by the Company toSperling during any one of the three (3) calendar years preceding the calendar year in whichSperling’s employment terminates.          (d) SEPARATION FROM SERVICE. For purposes of this Agreement, “Separation from Service”shall mean Sperling’s cessation of Employee status and shall be deemed to occur at such time as thelevel of the bona fide services Sperling is to perform in Employee status (or as a consultant orother independent contractor) permanently decreases to a level that is not more than twenty percent(20%) of the average level of services Sperling rendered in Employee status during the immediatelypreceding thirty-six (36) months. Any such determination as to Separation from Service, however,shall be made in accordance with the applicable standards of the Treasury Regulations issued underSection 409A of the Code. For
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purposes of determining whether Sperling has incurred a Separation from Service, Sperling willbe deemed to continue in “Employee**”**status for so long as he remains in the employ of one or moremembers of the Employer Group, subject to the control and direction of the employer entity as toboth the work to be performed and the manner and method of performance. “Employer Group” means theCompany and any other corporation or business controlled by, controlling or under common controlwith, the Company as determined in accordance with Sections 414(b) and (c) of the Code and theTreasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) for purposesof determining the controlled group of corporations under Section 414(b), the phrase “at least 50percent” shall be used instead of “at least 80 percent” each place the latter phrase appears insuch sections, and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes ofdetermining trades or businesses that are under common control for purposes of Section 414(c), thephrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latterphrase appears in Section 1.414(c)-2 of the Treasury Regulations.          (e) SECTION 409A HOLD-BACK               (i) Notwithstanding any provision to the contrary in this Agreement, no monthly payment of theportion of the Monthly Annuity attributable to the Post-2004 Component shall be made or paid toSperling prior to the *earlier*of (i) the first business day of the seventh month following the dateof Sperling’s Separation from Service or (ii) the date of Sperling’s death, if Sperling is deemedat the time of such Separation from Service a “specified employee” within the meaning of that termunder Section 409A of the Code and such delayed commencement is otherwise required in order toavoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of theapplicable deferral period, all payments deferred pursuant to this Section 2(e)(i) shall be paid ina lump sum to Sperling, and any remaining payments due under this letter shall be paid inaccordance with the normal payment dates specified for them herein.               (ii) The six month holdback set forth in Section 2(e)(i) above shall not be applicable to themonthly payment of the portion of the Monthly Annuity attributable to the Grandfathered Component.     3. DEATH BENEFITS.          (a) GENERAL. At Sperling’s death, regardless of whether he is then employed by theCompany, the Company agrees to pay Sperling’s beneficiary an amount equal to three (3) timesSperling’s Highest Annual Base Pay, as calculated pursuant to Section 2(c). The death benefitshall be paid in thirty-six (36) successive equal monthly installments on the first business day ofeach month, with the first such installment to be paid on the first business day of the monthfollowing the month in which Sperling’s death occurs.          (b) BENEFICIARY DESIGNATIONS. Sperling shall designate a beneficiary in a writteninstrument filed with the Company. A beneficiary designation may be modified or revoked bySperling at any time without the consent of the previously designated beneficiary. If Sperling’sbeneficiary predeceases him or dies prior to the receipt of all payments due hereunder,
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the payments shall be made to Sperling’s contingent beneficiary. If Sperling fails todesignate a beneficiary or contingent beneficiary, or if the designated beneficiary predeceaseshim, or if the contingent beneficiary predeceases the beneficiary, the payments shall be made toSperling’s surviving descendants *per stirpes*, or if none of Sperling’s descendants are then living,to Sperling’s estate.     4. CLAIMS PROCEDURES.          (a) CLAIMS FOR BENEFITS. Claims for benefits under the Agreement shall be filed withthe Company. Written notice of the disposition of a claim shall be furnished the claimant withinsixty (60) days after the application therefor is filed. In the event the claim is denied, thereasons for the denial shall be specifically set forth. Pertinent provisions of the Agreementshall be cited. In addition, the written notice shall describe any additional material orinformation necessary for the claimant to perfect the claim (along with an explanation of why suchmaterial or information is needed), and the written notice will fully describe the claim reviewprocedures of Section 4(b), below.          (b) APPEALS. Any claimant who has been denied a benefit shall be entitled, uponrequest to the Company, to receive a written notice of such action, together with a full and clearstatement of the reasons for the action. The claimant may also review this Agreement if he or sheso chooses. If the claimant wishes further consideration of his or her position, he or she mayrequest a hearing. The request, together with a written statement of the claimant’s position,shall be filed with an officer of the Company no later than sixty (60) days after receipt of thewritten notification provided for above. The Company shall schedule an opportunity for a full andfair hearing of the issue within the next sixty (60) days. The date of the hearing shall becommunicated in writing to the claimant. If the claimant requests, the hearing may be waived, inwhich case the Company’s decision shall be made within sixty (60) days from the date on which thehearing is waived and shall be communicated in writing to the claimant.     5. MISCELLANEOUS.          (a) PROHIBITION AGAINST ALIENATION. Neither Sperling nor his beneficiary mayanticipate, encumber, alienate or assign (either at law or in equity) any of their right, claim orinterest under this Agreement, and the payments, benefits, or rights arising by reason of thisAgreement shall not in any way be subject to their debts, contracts or engagements and shall not besubject to attachment, garnishment, levy, execution or other legal or equitable process, except asotherwise required under applicable law.          (b) DISTRIBUTION TO MINORS. Distributions to minors or persons under legal disabilitymay be made by the Company, in its discretion, either (A) directly to said persons, (B) to theguardian or custodian of said persons, or (C) by expending the same for the education andmaintenance of said persons. Except as to (C), the Company shall not be required to see to theapplication of any distributions so made.          (c) INTEGRATION. This Agreement shall supersede and replace the Prior Agreement, andthe Prior Agreement shall no longer be of any force or effect.
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          (d) BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon the heirs,executors, administrators, successors and assigns of any and all interested parties, present andfuture.     IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the day and year firstabove written.         **APOLLO GROUP, INC.**           By: