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EXHIBIT 10.38    
  

 
 

FIRST AMENDMENT TO LEASE    
  

        This FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into effective as of May 14, 2001, by and
between LNR WARNER CENTER, LLC, a California limited liability company ("Landlord"), and HEALTH NET, a California corporation
("Tenant"). 

 
 

RECITALS:    
  

        A.    DCA
Homes, Inc., a Florida corporation and Lennar Rolling Ridge, Inc., a California corporation (collectively, "Prior
Landlord") and Tenant entered into that certain Office Lease dated as of September 20, 2000 (the "Lease") pursuant to which
Prior Landlord leased to Tenant and Tenant leased from Prior Landlord certain "Premises," as described in the Lease, consisting of the entire rentable
square feet of Building B located at 21281 Burbank Boulevard, Woodland Hills, California, and the 3rd, 4th and 5th floors of Building C located at 21271 Burbank Boulevard, Woodland Hills, California,
as more particularly described in the Lease. The Premises currently leased by Tenant under the Lease is sometimes referred to herein as the "Original
Premises". 

        B.    Landlord
has succeeded to the interest of Prior Landlord as the landlord under the Lease. 

        C.    Except
as otherwise set forth herein, all capitalized terms used in this First Amendment shall have the same meaning as given such terms in the Lease. 

        D.    Landlord
and Tenant desire to amend the Lease to (i) expand the Original Premises leased by Tenant to include that certain space located on the second (2nd) floor of
Building C containing approximately 34,987 rentable and 32,906 usable square feet of space (subject to adjustment as provided in Section 1.2 of the Lease) as depicted on  Exhibit "A" attached hereto (the
"2nd Floor Building C Space") and (ii) otherwise modify the Lease, all upon the terms and conditions as hereinafter
provided. 

        NOW,
THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows: 

        1.    Modification of Premises; 2nd Floor Lease Term.    

        (a)    Addition of 2nd Floor Building C Space.    The "Premises" described in the Lease are hereby modified by adding
thereto the 2nd Floor Building C Space. As a result of such modification, (i) all references in the Lease to the "Premises" shall include the 2nd Floor Building C Space, unless otherwise set forth
herein, and (ii) the 2nd Floor Building C Space shall be leased upon and subject to the same terms and conditions set forth in the Lease as applicable to the Original Premises, subject to the
modifications set forth herein. As a result of the addition of the 2nd Floor Building C Space to the Premises, the "Premises" shall contain a total of approximately 323,736 rentable square feet and
303,913 usable square feet of space, including (A) the entire rentable and usable square feet of Building B as described in Section 6.2 of the Summary, plus (B) approximately 145,491 rentable square
feet and 136,528 usable square feet of space in Building C on the 2nd, 3rd, 4th and 5th floors of Building C. 

        (b)    2nd Floor Lease Term.    Notwithstanding the foregoing, the Lease Term for the 2nd Floor Building C Space (the
"2nd Floor Lease Term") shall only be for a term of six (6) years commencing upon the same Lease Commencement Date as applicable for the Original Premises, as determined pursuant to Section 7.2 of the
Summary; provided, however, Tenant shall have the option (the "2nd Floor Extension Option") to extend the 2nd Floor Lease Term for an additional 

1

 

four (4) year period (the "2nd Floor Extension Term") to be conterminous with the initial Lease Term for the Original Premises, by delivering written notice of exercise of such option ("2nd Floor
Exercise Notice") to Landlord not less than nine (9) months prior to the expiration date of such 6-year term. Notwithstanding the foregoing, at Landlord's option, and in addition to all of Landlord's
remedies under the Lease (as amended hereby), at law or in equity, the 2nd Floor Extension Option hereinabove granted to Tenant shall not be deemed to be properly exercised if, as of the date of
Tenant's delivery of the 2nd Floor Exercise Notice, Tenant is in monetary or material non-monetary default under the Lease (as amended hereby) and any applicable notice of such default has been
delivered and any applicable cure period has expired; provided, however, that Tenant shall be entitled to an additional five (5) business days from the date of Tenant's receipt of Landlord's notice to
cure any such monetary or material non-monetary default in order to preserve the 2nd Floor Extension Option so exercised by Tenant. If Tenant does not timely exercise the 2nd Floor Extension Term,
then upon the expiration of
the initial 6-year 2nd Floor Lease Term, the "Premises" shall no longer include the 2nd Floor Building C Space for all purposes under the Lease, including for determining the amount of parking spaces
Tenant shall be entitled to use pursuant to Article 24 of the Lease. If Tenant timely exercises the 2nd Floor Extension Option, then the Lease Term for the 2nd Floor Building C Space shall thereafter
be conterminous with the Lease Term for the Original Premises, as may be extended pursuant to the Extension Rider attached to the Lease. 

        2.    Base Rent.    The Base Rent payable for the 2nd Floor Building C Space shall be calculated separate and apart
from the Base Rent payable for the Original Premises and shall be as set forth in the following schedule: 

	Months of 2nd Floor Lease Term
	 	Annual Base Rent
	 	Monthly Installment

of Base Rent
	 	Monthly Rental Rate per Rentable Square Foot

	1 - 12	 	$	1,070,602.20	 	$	89,216.85	 	$	2.550
	13 - 24	 	$	1,102,930.20	 	$	91,910.85	 	$	2.627
	25 - 36	 	$	1,135,678.00	 	$	94,639.84	 	$	2.705
	37 - 48	 	$	1,169,685.30	 	$	97,473.78	 	$	2.786
	49 - 60	 	$	1,204,952.28	 	$	100,412.69	 	$	2.87  
	61 - 72	 	$	1,241,058.86	 	$	103,421.57	 	$	2.956

        If
Tenant timely exercises the 2nd Floor Extension Term, the Base Rent for the 2nd Floor Building C Space for months 73 through 120 of the Lease Term shall be as follows: 

	Months of 2nd Floor Lease Term
	 	Annual Base Rent
	 	Monthly Installment

of Base Rent
	 	Monthly Rental Rate per Rentable Square Foot

	73 - 84	 	$	1,278,424.98	 	$	106,535.42	 	$	3.045
	85 - 96	 	$	1,316,630.78	 	$	109,719.23	 	$	3.136
	97 - 108	 	$	1,356,096.12	 	$	113,008.01	 	$	3.230
	109 - 120	 	$	1,396,820.99	 	$	116,401.75	 	$	3.327

        The
foregoing Base Rent amounts shall be adjusted upon the final determination of the amount of rentable square feet of the 2nd Floor Building C Space pursuant to Section 1.2 of the
Lease. The parties shall also modify the Base Rent schedule set forth in the amendment attached to the Lease as Exhibit C to reflect the addition of the 2nd Floor Building C Space to the Premises when
they execute such amendment in accordance with Section 2.1 of the Lease. 

        3.    Tenant's Building C Share of Direct Expenses.    During the 2nd Floor Lease Term, as may be extended, Tenant's
Building C Share of Direct Expenses shall be increased to 81.62% to reflect the addition of the 2nd Floor Building C Space to the Premises. 

2

 

        4.    Parking.    As a result of the addition of the 2nd Floor Building C Space to the Premises, Tenant shall be
entitled to use an additional four (4) unreserved parking spaces for every 1,000 rentable square feet of the 2nd Floor Building C Space during the 2nd Floor Lease Term therefor, as may be extended.
All of such parking spaces shall be unreserved, undesignated parking spaces at such locations in the Parking Facilities as Landlord shall determine from time to time. Tenant shall not be charged any
parking
charges for the use of such parking spaces during the initial 2nd Floor Lease Term and the 2nd Floor Extension Term if Tenant exercises its 2nd Floor Extension Option. Thereafter during any applicable
Option Term, Tenant shall be charged for the use of such parking spaces at the prevailing parking rates, if any, charged by Landlord and/or Landlord's parking operator from time to time for parking in
the Parking Facilities. 

        5.    Tenant Improvements for 2nd Floor Building C Space; Work Letter.    The Base, Shell and Core and Tenant
Improvements for the 2nd Floor Building C Space shall be designed and constructed in accordance with the provisions of the Tenant Work Letter attached to the Lease as Exhibit "B", with the following
modifications: 

          (i)  Section 1.2(iv)
of the Tenant Work Letter is hereby deleted and replaced with the following: 

	"(iv)
	any
work to be constructed on the first (1st) floor of Building C, except for the ground floor lobby and curtain wall shown on the
Phase I Project Plan"; 

        (ii)  the
Tenant Improvement Allowance to be provided for the 2nd Floor Building C Space shall equal $1,151,710.00 (i.e., $35.00 per usable square foot of the 2nd Floor
Building C Space); 

        (iii)  the
total minimum amount of the Building C Portion set forth in Section 2.1.1(i)(A) of the Tenant Work Letter is hereby increased from $2,849,605.00 to $3,754,520.00
to reflect the addition of the 2nd Floor Building C Space to the Premises; (i.e., $27.50 per usable square foot of the Premises, including the 2nd Floor Building C Space). 

        (iv)  for
purposes of determining the Tenant's Maximum Available MPP Amount in Section 2.1.2 of the Tenant Work Letter, (A) the amount set forth in clause (2) thereof is
hereby increased from $4,607,119.00 to $4,853,914.00 to reflect the addition of the 2nd Floor Building C Space to the Premises (i.e., the sum of $17.00 per usable square foot of the Original Premises,
plus $7.50 per usable square foot of the 2nd Floor Building C Space), and (B) notwithstanding the addition of the 2nd Floor Building C Space to the Premises, the foregoing revised amount set forth in
clause (2) of the Tenant Work Letter may be increased as currently provided in the fourth sentence of Section 2.1.2 of the Tenant Work Letter, but in determining any such increase, all references in
such fourth (4th) sentence to the "Premises" shall exclude the 2nd Floor Building C Space and thus the $6,639,671.50 amount set forth in clause (II) thereof shall not be revised (i.e., such amount
equals $24.50 per usable square foot of the Original Premises, specifically excluding the 2nd Floor Building C Space); 

        (v)  the
date for Tenant and Architect to prepare the Final Space Plan for the 2nd Floor Building C Space pursuant to Section 3.2 of the Tenant Work Letter shall be modified
to the date of full execution and delivery of this First Amendment, but all other Time Deadlines currently set forth in the Tenant Work Letter for Tenant to perform its obligations with respect to the
Construction Drawings, Permits
and design and construction of the initial Tenant Improvements for the Original Premises (including the FWD Delivery Date and the Permits Issuance Date ) shall apply and be the same Time Deadlines for
Tenant's obligations with respect to the Construction Drawings, Permits and design and construction of the initial Tenant Improvements for the 2nd Floor Building C Space; 

        (vi)  Notwithstanding
Sections 5.1.1 and 5.1.3 of the Tenant Work Letter (A) the Delivery Condition Date for the 2nd Floor Building C Space (which, for purposes of the Tenant
Work 

3

 

Letter shall be known as "Stage 1A") shall be October 1, 2001, and (B) the outside Substantial Completion Date for the 2nd Floor Building C Space shall be October 17, 2001; and 

      (vii)  the
exclusions/modifications to the Base, Shell and Core set forth in Schedule 2 to the Tenant Work Letter are hereby modified with respect to the 2nd Floor Building C
Space as follows: as part of the Base, Shell and Core for Building C, Landlord shall install, in the elevator lobby of the 2nd floor of the Building C (A) the 2nd floor elevator lobby finishes
(including aluminum column covers and wall reveals), and (B) the 2nd floor elevator lobby ceiling finishes and lighting. 

        6.    Right of First Offer.    Tenant acknowledges that Landlord has previously delivered to Tenant a First Offer
Notice to lease the Aetna First Offer Space pursuant to Section 1.5.1.2 of the Lease, and Tenant failed to timely exercise such right; accordingly, notwithstanding any references to the Aetna First
Offer Space set forth in the Lease, Tenant's right of first offer to lease any portion of the Aetna First Offer Space is of no further force or effect, subject to any subsequent right to lease such
space as provided in Section 1.5.3 of the Lease. Further, Tenant acknowledges and agrees that although Landlord has previously submitted offers to third parties to lease all or portions of the First
Floor Offer Space described in Section 1.5.1.1 above, Landlord is not in default of the provisions of Section 1.5 of the Lease for failing to deliver any First Offer Notice to Tenant therefor;
however, Landlord acknowledges and agrees that it shall not enter into a Third Party Lease with any third party other than Aetna for the First Floor First Offer Space without first offering to lease
such space to Tenant pursant to Section 1.5.1.1 of the Lease. 

        7.    Miscellaneous Modifications.    Section 25.25.2 of the Lease is hereby deleted in its entirety and of no further
force or effect. 

        8.    Brokers.    Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate
broker or agent in connection with the negotiation of this Amendment other than Colliers Seeley representing Landlord and Cushman & Wakefield, Inc. representing Tenant, and that they know of no other
real estate broker or agent who is entitled to a commission in connection with this Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from
any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or
equivalent compensation alleged to be owing in connection with this Amendment on account of the indemnifying party's dealings with any other real estate broker or agent. 

        9.    SNDA.    The parties hereby acknowledge that this First Amendment shall be incorporated as part of the "Lease"
pursuant to, and thus shall be subject to the terms and conditions contained in, that certain Subordination, Non-Disturbance and Attornment Agreement dated December 19, 2000 among Landlord, Tenant and
U.S. Bank National Association, a national banking association ("US Bank"). Landlord shall cause US Bank to consent to this First Amendment by executing the consent at the end of this First Amendment
or in a separate consent document acceptable to US Bank and reasonably acceptable to Landlord and Tenant. 

        10.    Counterparts.    This Amendment may be executed in any number of original counterparts. Any such counterpart,
when executed, shall constitute an original of this Amendment, and all such counterparts together shall constitute one and the same Amendment. 

        11.    No Further Modification.    Except as set forth in this First Amendment, all of the terms and provisions of the
Lease shall remain unmodified and in full force and effect. 

4

 

        IN
WITNESS WHEREOF, this First Amendment to Lease has been executed as of the day and year first above written. 

	 	 	"LANDLORD":
	

 	
 	

LNR WARNER CENTER, LLC,

a California limited liability company
	

 	
 	

By:	
 	

/s/ David O. Team

	 	 	 	 	Name:	 	David O. Team

	 	 	 	 	Title:	 	Vice President

	

 	
 	

By:	
 	

/s/ Curtis J. Stephenson

	 	 	 	 	Name:	 	Curtis J. Stephenson

	 	 	 	 	Title:	 	Asst VP

	

 	
 	

"TENANT":
	

 	
 	

HEALTH NET,

a California corporation
	

 	
 	

By:	
 	

/s/ Michael Radford

	 	 	 	 	Name:	 	Michael Radford

	 	 	 	 	Title:	 	Vice President

5

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EXHIBIT 10.38

FIRST AMENDMENT TO LEASE

RECITALSQuickLinks
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EXHIBIT 10(q)    
  

(Telephone
numbers and addresses have been omitted.) 

Revised
Offer

July 23, 2001 

Richard
L. Manetta 

Dear
Dick: 

        It
is my pleasure to offer you the position of Corporate Vice-President and General Counsel for The Dow Chemical Company, located in Midland, Michigan, with a starting date of
July 30th, 2001. I feel very confident that over the coming years, you can be instrumental in building a foundation of leadership for Dow's Law Department that will serve us far into the
future, leaving a lasting impression on our company. In our discussions we have come to understand that this is what you want as well, and, as such, I believe that there is a unique fit between your
aspirations and what Dow has to offer. I hope that you will decide to take up this challenge and join what I believe is a truly outstanding Corporate Leadership Team, working to make Dow the
preeminent chemical company in the world today. 

        As
you might expect, an offer for a position at a level such as this requires some detail to address properly. While there are a number of details not represented in this offer, below is
a summary of the package that Dow will provide should you accept this position. As you will see, the offer is constructed
around the five-year time period that we discussed would be optimal in terms of your ability to develop a robust line of succession in Dow's Law Department. 

	Base Pay:	 	Your initial salary will be $450,000 per year, or $37,500 per month. Under our Salary Management Process, your future increases will be based upon individual performance. Dow conducts a global compensation planning exercise
in February of each year. At that time, you will be eligible to receive consideration for a salary increase to become effective in March of 2002.
	

Variable Pay:	
 	

You will be eligible for variable pay as a participant in the Performance Award Program. This program is linked to a combination of company performance and individual/team performance goals. Your variable pay target amount for 2001 will be 70% of
your annual base salary. The actual amount paid could range from $0 to $630,000 (2 times the target amount) based on performance. Payment would be delivered in March of 2002. Assuming you accept this offer and report to work before August 1,
 2001, you will receive a Performance Award, based on actual company and individual performance, for the year 2001. Payment would be delivered in March of 2002. For 2001 only, if the actual payment delivered in March of 2002 is less than
the target award amount ($315,000), an additional payment representing the difference will be made to you.
	

Cash Bonus:	
 	

As an additional incentive, after acceptance of this offer and reporting to work, you will receive a lump sum bonus in the amount of $250,000 (gross).
	

Stock Options:	
 	

You will also be eligible to participate in our Long Term Incentive Program each year. At your level in the corporation, this program generally includes one or more types of stock awards on an annual basis. For 2001, your award will consist of
regular, market price stock options. After acceptance of this offer and reporting to work, you will receive:
	

 	
 	

1.	
 	

A Stock Options grant of 40,000 shares. This is to directly replace the 2001 stock options grant you would lose upon leaving your current employer.
	
 	
 	

 	
 	

 

92

 

	

 	
 	

2.	
 	

A Stock Options grant of an additional 50,000 shares. This grant, plus the replacement grant of 40,000 shares, is your total Long-Term Incentive Program grant for the calendar year 2001.
	

 	
 	

3.	
 	

In addition, as a special one-time incentive, you will be granted 10,000 Dividend Units shortly after the time of your hire. Dividend Units represent a payment equal to the actual dividend paid on a share of Common Stock of The Dow Chemical Company,
with a term of twenty years from the time of grant. Dow estimates the present value of these units to be approximately $150,000.
	

 	
 	

4.	
 	

For the 2002 calendar year, you will be granted one or more stock awards with a minimum Black-Scholes value of $1,000,000.
	

Pension Issues:	
 	

It is our understanding that you would experience a significant pension shortfall as a result of accepting this position and leaving your current employer at this time. Based upon the data available to Dow, the present value of this pension shortfall
is just over $900,000. In order to facilitate your acceptance of this offer, Dow will make the following provisions:
	

 	
 	

•	
 	

A grant of 15,000 deferred shares of The Dow Chemical Company common stock (with a five-year deferral period) will be made upon your acceptance of this offer and reporting to work. These shares, with a market value of approximately $540,000 at the
current market price, will be delivered at the end of the five-year deferral period so long as you remain employed, in good standing, with The Dow Chemical Company through the scheduled delivery date. Dividend Equivalent payments on these shares will
be made quarterly throughout the deferral period.
	

 	
 	

•	
 	

A deferred cash account, with an initial balance of $400,000, will be established upon your acceptance of this offer and reporting to work. You will have the ability to direct the investment of these funds, with an array of fixed income and equity
investment vehicles from which to choose. The account balance will vest 20% per year on approximately the anniversary date of your employment, so long as you remain an employee in good standing through each vesting date.
	

 	
 	

The total present value of these two tax-deferred arrangements more than offsets the present value of the pension shortfall from your current employer as understood by Dow. In addition, you will participate in the Dow Employee Pension Plan during the
time of your employment, subject to a five-year vesting period. This pension plan design, known as a Pension Equity Plan, is very favorable to mid-career hires that have built a significant career elsewhere before joining The Dow Chemical Company.
For example, if you join Dow and work for five years, we would estimate that a cash value pension balance of over $900,000 would accrue over this time, yielding an immediate annuity of over $90,000 per year, for life.
	

Benefits:	
 	

In addition to a full array of employee benefits for which all U.S.-based salaried employees are eligible, you will also be eligible to participate in several of Dow's Executive Benefits Programs, including support for financial planning, executive
physical examinations, and special life insurance programs.
	
 	
 	

 	
 	

 

93

 

	

Relocation:	
 	

You are eligible for Dow's North American Relocation Package for transferees, with a period of one year after your hire date to access the benefits provided by the package. All provisions will apply except you will not be eligible for a geographic
cost of living allowance. The major components of our transferee policy include a house-hunting trip, a guaranteed offer to purchase your home in the departure location, new home closing costs for your home in your destination location, the shipment
of your household goods, final move expenses and one month's net salary for relocation related expenses that are not covered by the policy.
	

 	
 	

Upon acceptance of this offer, Dow will inform our relocation services supplier, Cendant Mobility, to contact you to review the policy provisions in detail. If you should wish to do this in advance of accepting Dow's offer, let me know and I will
arrange for Cendant to contact you.
	

Vacation:	
 	

You will receive 28 days of vacation for the calendar year 2001, prorated to your date of hire. You will enter the Dow vacation schedule with 28 days in 2002, at the equivalent of 22 years of service credited for vacation eligibility.
	

 	
 	

 	
 	

 

        This
job offer is contingent upon: 

	•
	Ensuring
that your commencing employment with Dow does not violate any confidentiality and/or non-competition agreements you may have entered into with your
current or former employers. 

        Continued
employment is contingent upon complying with the following requirements: 

	•
	Signing
(2) Dow Chemical Employee Agreement forms (patent and trade secret) on your report-to-work date, a sample of which is enclosed for your
review.

	•
	Completing
a baseline physical examination during the first week of employment by the Dow Occupational Medical Department to establish your Dow health
record. This testing is not being conducted to identify pre-existing conditions or to diagnose a specific condition. It is being conducted to establish a baseline history of your health during your
first week of employment with Dow.

	•
	Passing
a screening for illegal and controlled substances (negative results) during the first week of employment by the Dow Occupational Medical Department. 

        Dick—I
know this offer is quite complex, and may require an explanation of the details of the compensation and benefits that make up the package. I would propose that you
take the time to contact Chip Bell, our Global Director of Compensation and Benefits. Chip would be happy to meet with you, either in person or by telephone, to go over the offer and answer any
questions that you may have. 

        As
I mentioned in the opening of this letter, I truly believe that you are the right candidate for the critical position of leading Dow's Law Department at this point in our journey, in
addition to making a valuable contribution in running the corporation as a key member of the Corporate Operating Board. The leadership and expertise you bring will be particularly valuable, and as
such, I hope that you will choose to accept this offer. Please give it your full consideration and if you accept, please indicate your acceptance by signing and returning the second copy of this
letter on or before Monday, July 30th, 2001. 

94

 

        Again,
if we can answer any questions or concerns that will assist you with your decision, please call me or Larry Washington. 

Sincerely,

	

/s/ Michael D. Parker
 Michael D. Parker

Chief Executive Officer

The Dow Chemical Company

2030 Dow Center

Midland, MI 48674

cvb

	

 	

 

	

Acceptance of Dow Offer:	

 	

 
	

/s/ Richard L. Manetta
 Signature	
 	

July 29, 2001
 Date

95

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