Exhibit 10.2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
     This Amended and Restated Employment Agreement (this “Agreement”) is made
as of December 31, 2009, between John C. Molina (“Executive”) and Molina
Healthcare, Inc. (the “Company”).
RECITALS
     The Company desires to establish its right to the services of Executive in
the capacities described below, on the terms and conditions hereinafter set
forth, and Executive is willing to accept such employment on such terms and
conditions. The parties hereto have previously entered into an Employment
Agreement dated January 1, 2002 (the “Existing Agreement”), and this Agreement
supersedes the Existing Agreement.
     The parties desire to amend and restate the Existing Agreement to conform
it to the requirements of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and the Treasury Regulations and interpretive guidance
issued thereunder.
AGREEMENT
     The parties agree as follows:
1. DUTIES
     (a) The Company does hereby hire, engage, and employ Executive as Chief
Financial Officer of the Company, and Executive does hereby accept and agree to
such hiring, engagement, and employment. During the Period of Employment (as
defined in Section 2), Executive shall serve the Company in such position in
conformity with the provisions of this Agreement, directives of the Chief
Executive Officer and the corporate policies of the Company as they presently
exist, and as such policies may be amended, modified, changed, or adopted during
the Period of Employment. Executive shall have duties and authority consistent
with Executive’s position as Chief Financial Officer and shall report to the
Chief Executive Officer of the Company (the “Reporting Relationship”).
     (b) Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company, vacations
and other leave authorized under this Agreement excepted. Notwithstanding the
foregoing, Executive shall be permitted to (i) engage in charitable and
community affairs and (ii) make direct investments of any character in any
non-competing business or businesses and to manage such investments (but not be
involved in the day-to-day operations of any such business); provided, in each
case, and in the aggregate, that such activities do not materially interfere
with the performance of Executive’s duties hereunder, and further provided that
Executive may invest in a publicly traded competing business so long as such
investment does not equal or exceed one percent of the outstanding shares of
such publicly traded competing business.

 

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     (c) Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive’s duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment or other agreement or policy
to which Executive is a party or otherwise bound.
2. PERIOD OF EMPLOYMENT
     The “Period of Employment” shall, unless sooner terminated as provided
herein, be a period commencing on January 1, 2002 (the “Effective Date”) and
ending with the close of business on December 31, 2003. Notwithstanding the
preceding sentence, commencing with January 1, 2004 and on each January 1st
thereafter (each an “Extension Date”), the Period of Employment shall be
automatically extended for an additional one-year period so as to expire one
year from such Extension Date, unless: (i) the Company or Executive provides the
other party hereto ninety (90) days’ prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the “Non-Extension Notice”); or (ii) Executive is not less than sixty-five
(65) years of age as of the next scheduled Extension Date. The term “Period of
Employment” shall include any extension that becomes applicable pursuant to the
preceding sentence.
3. COMPENSATION
     (a) BASE SALARY. Executive’s Base Salary shall be at a rate of not less
than $775,000 on an annual basis (“Executive’s Base Salary”), commencing as of
January 1, 2009, and paid in accordance with the Company’s regular payroll
practices. The Company’s Compensation Committee shall review at least annually
Executive’s Base Salary for possible increase and may, in its sole discretion
and in accordance with applicable rules and regulations of the Securities and
Exchange Commission and the New York Stock Exchange, periodically adjust
Executive’s Base Salary.
     (b) BONUS. Executive shall be eligible to earn annual performance and/or
discretionary bonuses as determined each year at the discretion of the Company’s
Compensation Committee. Executive shall be entitled to participate in all bonus
or incentive plans applicable to the senior executives of the Company, including
without limitation, any Effective Equity Compensation Plan (as defined in
Section 4(e)). The Company’s Chief Executive Officer may also, in his
discretion, award to Executive such extraordinary bonus(es) as the Chief
Executive Officer deems appropriate.
4. BENEFITS
     (a) HEALTH AND WELFARE. During the Period of Employment, Executive shall be
entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs generally
available to other executives or employees of the Company (including, without
limitation, the Company’s medical, dental, vision, life benefits, life
insurance, and long-term disability plans) as in effect from time to time and to
receive any special benefits provided from time to time, subject to any legally
required restrictions specified in such plans and programs. Without limiting the
generality of the foregoing, Company shall provide life insurance for Executive,
with Executive to designate the

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beneficiary thereunder, in an amount equal to Executive’s Base Salary as in
effect on the date of this Agreement and as in effect on the first business day
of each calendar year thereafter.
     (b) PAID TIME OFF AND OTHER LEAVE. During the Period of Employment,
Executive shall receive 8.62 hours of paid time off per “pay period” of the
Company (the “PTO”), subject to the Company’s policies concerning accrual of
PTO, and provided that for any three hundred sixty five (365) day period within
the Period of Employment Executive shall earn no less than a total of
twenty-eight (28) days of PTO. Executive shall also be entitled to all other
holiday and leave pay generally available to other executives of the Company.
     (c) TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment,
Company will reimburse Executive for all reasonable expenses incurred in
connection with performance of his duties under Section 1 of this Agreement in
accordance with the Company’s expense reimbursement policies.
     (d) RETIREMENT. During the Period of Employment, Executive shall be
eligible to participate on the same terms and at the same level as other
executives, in all retirement, 401(k), deferred compensation, or other savings
plans generally available to other executives, or employees of the Company as in
effect from time to time, subject to any legally required restrictions specified
in such plans and programs.
     (e) EQUITY GRANTS. Executive shall be eligible, at the discretion of the
Company’s Compensation Committee, for grants of equity compensation (the “Equity
Compensation”) pursuant to an equity compensation agreement. Any Equity
Compensation will be granted under and subject to the terms and conditions of an
equity compensation plan of the Company as then in effect (as of the date of any
grant, an “Effective Equity Compensation Plan”). The terms and conditions of
such Equity Compensation are intended to be such that Executive shall receive a
compensation package commensurate with executives performing the same functions
as executives for businesses similar to the Company.
     (f) OTHER BENEFITS. In addition to benefits specifically provided herein,
during the Period of Employment, Executive shall be entitled to participate, on
the same terms and at the same level as other executives, in all fringe benefit
plans and perquisites provided by Company to its executives.
     The employee benefits described in Sections 4(a) through (f) inclusive are
referred to as “Executive Benefits.”
5. DEATH OR DISABILITY
     (a) PERMANENTLY DISABLED AND PERMANENT DISABILITY. The terms “Permanently
Disabled” and “Permanent Disability” shall mean Executive’s inability, because
of physical or mental illness or injury, to perform the essential functions of
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period of
twelve (12) months.
     (b) TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment

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and Executive’s employment shall automatically cease and terminate as of the
date of Executive’s death or the date of Permanent Disability as determined by
the Board (which date shall be referred to as the “Disability Date”), as the
case may be. In the event of the termination of the Period of Employment and
Executive’s employment hereunder due to Executive’s death or Permanent
Disability, Executive or his estate shall be entitled to receive:
          (i) Within five (5) business days, a lump sum cash payment equal to
the sum of (x) any accrued but unpaid Base Salary and PTO as of the Termination
Date hereunder and (y) any unpaid annual incentive compensation in respect of
the most recently completed fiscal year preceding the Termination Date (the
“Unpaid Annual Bonus”); and
          (ii) Within thirty (30) days, such employee benefits described in
Sections 4(a) and 4(c) through 4(f) inclusive, if any, as to which Executive may
be entitled as of the Termination Date under the employee benefit plans and
arrangements of the Company ((i) and (ii) collectively, the “Accrued
Obligations”).
6. TERMINATION BY THE COMPANY
     (a) TERMINATION FOR CAUSE. The Company may terminate for Cause (as defined
below) at any time the Period of Employment and Executive’s employment hereunder
by providing to Executive written notice of such termination (“Notice of
Termination for Cause”). The term “Cause” shall mean a termination of service
based upon a finding by the Company, acting in good faith and based on its
reasonable belief at the time, that Executive:
          (i) has engaged in unlawful acts involving moral turpitude or gross
negligence with respect to the Company;
          (ii) has consistently and willfully failed to perform his duties or
has intentionally breached any material provision of any agreement with the
Company or an affiliated entity; provided, however, that such failure or breach
shall not constitute Cause unless it is (A) not reasonably curable or (B) if
reasonably curable, is not cured by the Executive within thirty (30) days notice
from the Company.
     If the Executive’s employment is terminated for Cause, the termination
shall take effect on the Termination Date (as defined below). In the event of
termination of the Period of Employment and Executive’s employment hereunder due
to a termination by the Company for Cause, Executive shall be entitled to
receive the Accrued Obligations. All of the Accrued Obligations shall be paid on
the Termination Date except those benefits described in Sections 4(a) and 4(c)
through (f) inclusive, which shall be paid within thirty (30) days of the
Termination Date.
     If the Company attempts to terminate Executive’s employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) (“Termination by the Company-Termination Without
Cause”) shall apply as if the Company had provided Executive with Notice of
Termination Without Cause (as defined below) on the date the Company actually
provided Executive with Notice of Termination for Cause.

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     (b) TERMINATION WITHOUT CAUSE. The Company may, without cause or reason,
terminate at any time the Period of Employment and Executive’s employment
hereunder by providing Executive written notice of such termination (“Notice of
Termination Without Cause”). A Non-Extension Notice by the Company shall be
considered a termination without Cause. If Executive’s employment is terminated
without Cause, the termination shall take effect on the Termination Date. In the
event of the termination of Executive’s employment hereunder due to a
termination by the Company without Cause (other than due to Executive’s death or
Permanent Disability):
          (i) Executive shall be entitled to receive: (1) an amount equal to
100% of the sum of (x) Executive’s Base Salary then in effect as of the
Termination Date and (y) the Termination Bonus for the year in which Executive’s
employment is terminated (such sum, the “Severance Payment”), which Severance
Payment shall be distributable upon Executive’s Separation from Service; (2) a
pro rata portion of the Termination Bonus for the year in which Executive’s
employment is terminated, based on the number of entire months of such year that
have elapsed through the date of Executive’s termination of employment as a
fraction of twelve (12) (the “Pro Rata Bonus”), which Pro Rata Bonus shall be
distributable upon Executive’s Separation from Service; (3) the Accrued
Obligations; (4) the entirety of Executive’s contributions and the Company’s
contributions to Executive’s 401(k) plan account as if Executive were fully
vested as of the Termination Date; and (5) a cash payment of $65,000
representing eighteen (18) months of health and welfare benefits as contemplated
under Section 4(a). The term “Termination Bonus” shall mean an amount equal to
seventy-five percent (75%) of the Executive’s Base Salary for the most recently
completed fiscal year.
          (ii) Executive shall be entitled to one hundred percent vesting of all
of the previously granted Equity Compensation, including, without limitation,
shares of restricted stock and options to purchase shares of common stock of the
Company held by Executive as of the Termination Date.
          (iii) Amounts payable under this Section 6(b) shall be payable as
follows:
               (A) the total amount payable under clauses (i)(1) and (2) shall
be subject to and shall comply with Section 409A of the Code and shall be paid
in a lump sum payment within the ten (10) day period commencing on the 60th day
after the date of Executive’s Separation from Service; provided, however, that,
if Executive is a Specified Employee on the date of Executive’s Separation from
Service, such payment shall be paid within the ten (10) day period following the
earlier of (x) the expiration of the six (6) month period commencing on the date
of Executive’s Separation from Service, or (y) the date of Executive’s death.
               (B) amounts representing accrued but unpaid Executive Base
Salary, PTO, and Unpaid Annual Bonus shall be paid on the Termination Date.
          Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 6(b) shall be reduced by any amounts earned or
received by Executive from a third party at any time.
7. TERMINATION BY EMPLOYEE

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     (a) TERMINATION WITHOUT GOOD REASON. Executive shall have the right to
terminate the Period of Employment and Executive’s employment hereunder at any
time without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. A Non-Extension Notice by Executive
shall be considered a termination without Good Reason. Any such termination by
Executive without Good Reason shall be treated for all purposes of this
Agreement as a termination by the Company for Cause and the provisions of
Section 6(a) shall apply.
     (b) TERMINATION WITH GOOD REASON. Executive may terminate the Period of
Employment and resign from employment hereunder for “Good Reason.” “Good Reason”
shall mean (with or without regard to whether a Change in Control Event has
occurred), without obtaining Executive’s prior written consent thereto:
          (i) a material and adverse change in Executive’s position, duties,
responsibilities, or Reporting Relationship with the Company,
          (ii) a change in Executive’s office location to a point more than
fifty (50) miles from Executive’s current office,
          (iii) the taking of any action by the Company to: (A) eliminate
benefit plans applicable to Executive without providing substitutes which
provide a substantially similar aggregate value of benefits, (B) materially
reduce Executive’s benefits thereunder or (C) substantially diminish the
aggregate value to Executive of incentive awards or other fringe benefits,
provided, however, that it shall not constitute Good Reason for the Company to,
as part of an overall cost-reduction program, take any action described in (A) —
(C) so long as such action is taken with respect to all senior executives and
Executive is not disproportionately affected thereby,
          (iv) any reduction in the Base Salary, provided, however, that it
shall not constitute Good Reason for the Company to, as part of an overall
cost-reduction program, reduce Executive’s Base Salary so long as the base
salaries of all other senior executives are simultaneously reduced by not less
than the same percentage, or
          (v) any breach of this Agreement by the Company or any successor
thereto, including without limitation any failure by the Company to obtain the
consent of any Successor Entity (as defined below) to the provisions contained
in Section 15;
          provided, however, that none of the events described in clauses
(i) through (v) of this Section 7(b) shall constitute Good Reason unless
Executive shall have notified the Company in writing describing the events which
constitute Good Reason within ninety (90) days following the initial occurrence
of such event, and then only if the Company shall have failed to cure such event
within thirty (30) days after the Company’s receipt of such written notice; and
provided, further, that a termination for Good Reason occurs within the two-year
period following the initial existence of such event.
     Any such termination by Executive for Good Reason shall be treated for all
purposes of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good

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Reason pursuant to this Section 7(b) and it is ultimately determined that Good
Reason did not exist, Executive shall be deemed to have resigned from employment
without Good Reason and the provisions of Section 7(a) and, by reference
therein, the provisions of Section 6(a), shall apply.
8. TERMINATION DATE
     The term “Termination Date” shall mean (i) if Executive’s employment is
terminated by the Company for Cause, or by Executive for Good Reason, the
effective date (pursuant to Section 25 (“Notices”)) of written notice of such
termination to Executive or to the Company, as the case may be; (ii) if
Executive’s employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies Executive of such
termination; or (iii) if Executive’s employment is terminated by reason of Death
or Disability, the Disability Date.
9. CHANGE IN CONTROL
     (a) Notwithstanding anything to the contrary in this Agreement, if a Change
in Control Event (as defined below) of the Company occurs during the term of
this Agreement, and if within two years following such Change in Control Event
either (1) the Company terminates Executive’s employment without Cause or
(2) Executive terminates his employment for Good Reason:
          (i) the Company shall pay to Executive an amount equal to the sum of
(w) two times the Severance Payment, which shall be distributable upon
Executive’s Separation from Service, (x) the Pro Rata Bonus, which shall be
distributable upon Executive’s Separation from Service, (y) the Accrued
Obligations and (z) the entirety of Executive’s contributions and the Company’s
contributions to Executive’s 401(k) plan account as if Executive were fully
vested as of the Termination Date. This payment shall be in lieu of the payment
otherwise payable under clause (i) of Section 6(b).
          (ii) the Company shall also pay to Executive a cash payment of
$135,000 representing thirty-six (36) months of health and welfare benefits
contemplated under Section 4(a).
          (iii) and, regardless of whether any of the Equity Compensation has
been assumed by any Successor Entity, the provisions of clause (ii) of Section
6(b) will apply.
          (iv) upon a change in control all unassumed and unvested Equity
Compensation shall vest immediately.
          (v) the total amount payable under clauses (i)(w) and (x) shall be
subject to and shall comply with Section 409A of the Code and shall be paid in a
lump sum payment within the ten (10) day period commencing on the 60th day after
the date of Executive’s Separation from Service; provided, however, that, if
Executive is a Specified Employee on the date of Executive’s Separation from
Service, such payment shall be paid within the ten (10) day period following the
earlier of (x) the expiration of the six (6) month period commencing on the date
of Executive’s Separation from Service, or (y) the date of Executive’s death.

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     (b) A “Change in Control Event” shall mean any of the following:
          (i) Approval by the Board and by shareholders of the Company (or, if
no shareholder approval is required, by the Board alone) of the dissolution or
liquidation of the Company, other than in the context of a transaction that does
not constitute a Change in Control Event under clause (ii) below;
          (ii) Consummation of a merger, consolidation, or other reorganization,
with or into, or the sale of all or substantially all of the Company’s business
and/or assets as an entirety to, one or more entities that are not Subsidiaries
or other affiliates of the Company (a “Business Combination”), unless (1) as a
result of the Business Combination, more than fifty percent (50%) of the
outstanding voting power generally in the election of directors of the surviving
or resulting entity or a parent thereof (the “Successor Entity”) immediately
after the reorganization is, or will be, owned, directly or indirectly, by
holders of the Company’s voting securities immediately before the Business
Combination; and (2) no “person” (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), excluding the Successor Entity or an Excluded
Person, beneficially owns, directly or indirectly, more than fifty percent (50%)
of the outstanding shares or the combined voting power of the outstanding voting
securities of the Successor Entity, after giving effect to the Business
Combination, except to the extent that such ownership existed prior to the
Business Combination; or
          (iii) Any “person” (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than an Excluded Person: (a) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company’s then outstanding securities entitled to
then vote generally in the election of directors (the “Voting Power”) of the
Company (a “Majority Holder”), other than as a result of (1) an acquisition
directly from the Company, (2) an acquisition by the Company, or (3) an
acquisition by an entity pursuant to a transaction which is expressly excluded
under clause (ii) above (an “Excluded Transaction”); or (b) provided that the
beneficial owner of a majority of the Voting Power as of the Effective Date is
no longer a Majority Holder, becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than thirty percent (30%) of the Voting Power, other
than as a result of an Excluded Transaction.
          (iv) For the purposes of this Section 9(b):
               (A) “Exchange Act” shall mean the Securities Exchange Act of
1934, as amended from time to time.
               (B) “Excluded Person” shall mean (a) any person described in and
satisfying the conditions of Rule 13d-1(b)(1) under the Exchange Act, (b) the
Company, (c) an employee benefit plan (or related trust) sponsored or maintained
by the Company or the Successor Entity, or (d) any person who is the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of more than 25% of the
Common Stock on the Effective Date (or an affiliate, successor, heir,
descendant, or related party of or to such person).

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               (C) “Subsidiary” shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially
owned, directly or indirectly, by the Company.
     (c) Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 9 shall be reduced by any amounts earned or
received by Executive from a third party at any time. Notwithstanding anything
to the contrary in this Section 9, if, in connection with a Change in Control
Event, Executive voluntarily enters a new written employment agreement with the
Company or the Successor Entity, Executive may no longer rely upon the
provisions of this Section 9.
10. CONFIDENTIALITY
     Executive will not at any time (whether during or after his employment with
the Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any subsidiary or affiliate of
the Company; provided that the foregoing shall not apply to information which is
not unique to the Company or which is generally known to the industry or the
public other than as a result of Executive’s breach of this covenant. Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of the Company or its affiliates.
11. NON-SOLICITATION AND NON-DISPARAGEMENT
     During the Period of Employment and for a period of eighteen (18) months
thereafter, Executive will not, directly or indirectly: (a) solicit or attempt
to solicit any employee of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business entity; (b) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business with the
Company or to engage in business with any competing entity; (c) disparage the
Company, its business, or its reputation; or (d) otherwise disrupt or interfere
with business relationships (whether formed before or after the date of this
Agreement) between the Company or any of its affiliates and customers,
suppliers, partners, members or investors of the Company or its affiliates.
12. RELEASE REQUIRED FOR SEVERANCE PAYMENTS

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     Notwithstanding anything to the contrary in this Agreement, as a condition
precedent to the receipt of any payment under Section 6, Section 7, or Section 9
of this Agreement pursuant to Executive’s termination of employment with the
Company, Executive shall be required to execute a general waiver and release
agreement, in form drafted by and satisfactory to the Company, providing for the
complete waiver, release, and discharge of all known and unknown present and
future claims against the Company to be delivered no later than sixty (60) days
following the Executive’s Separation of Service, any revocation of release
period provided by law has run, and Executive has not revoked the release of
claims and covenant not to sue within such period.
13. SECTION 280G
     (a) GROSS-UP.
          (i) Gross-Up Payment. If, notwithstanding clause (a) above, it is
determined (pursuant to Section 13(b)(ii)) or finally determined (as defined in
Section 13(b)(iii)) that any payment, distribution, transfer, or benefit by the
Company or a direct or indirect subsidiary or affiliate of the Company, to or
for the benefit of Executive or Executive’s dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event occurs
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 13(b)) (each a
“Payment” and collectively the “Payments”) is subject to the excise tax imposed
by Section 4999 of the Code, and any successor provision or any comparable
provision of state or local income tax law (collectively, “Section 4999”), or
any interest, penalty or addition to tax is incurred by Executive with respect
to such excise tax (such excise tax, together with any such interest, penalty,
and addition to tax, hereinafter collectively referred to as the “Excise Tax”),
then, within ten (10) days after such determination or final determination, as
the case may be, the Company shall pay to Executive (or to the applicable taxing
authority on Executive’s behalf) an additional cash payment (hereinafter
referred to as the “Gross-Up Payment”) equal to an amount such that after
payment by Executive of all taxes, interest, penalties, additions to tax and
costs imposed or incurred with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon such Payment or Payments. This provision is intended to
put Executive in the same position as Executive would have been had no Excise
Tax been imposed upon or incurred as a result of any Payment.
          (ii) Determination of Gross-Up.
               (A) Except as provided in Section 13(b)(iii), the determination
that a Payment is subject to an Excise Tax shall be made in writing by the
principal certified public accounting firm then retained by the Company to audit
its annual financial statements (the “Accounting Firm”). Such determination
shall include the amount of the Gross-Up Payment and detailed computations
thereof, including any assumptions used in such computations. Any determination
by the Accounting Firm will be binding on the Company and Executive.
               (B) For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay Federal income taxes at the actual
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made. Such actual

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marginal rate shall take into account the loss of itemized deductions by
Executive and shall also include Executive’s share of the hospital insurance
portion of FICA and state and local income taxes at the actual marginal rate of
taxation in the state and locality of Executive’s residence on the Termination
Date, net of the maximum reduction in Federal income taxes that could be
obtained from the deduction of such state and local taxes.
          (iii) Notification.
               (A) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service (or any successor thereof) or any state or local
taxing authority (individually or collectively, the “Taxing Authority”) that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than thirty
(30) days after Executive receives written notice of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid; provided, however, that failure by Executive to give
such notice within such thirty (30) day period shall not result in a waiver or
forfeiture of any of Executive’s rights under this Section 13(b) except to the
extent of actual damages suffered by the Company as a result of such failure.
Executive shall not pay such claim prior to the expiration of the fifteen
(15) day period following the date on which Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes,
interest, penalties or additions to tax with respect to such claim is due). If
the Company notifies Executive in writing prior to the expiration of such
fifteen (15) day period (regardless of whether such claim was earlier paid as
contemplated by the preceding parenthetical) that it desires to contest such
claim, Executive shall:
               (1) give the Company any information reasonably requested by the
Company relating to such claim;
               (2) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company;
               (3) cooperate with the Company in good faith in order effectively
to contest such claim; and
               (4) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all attorneys
fees, costs and expenses (including additional interest, penalties and additions
to tax) incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for all taxes (including, without
limitation, income and excise taxes), interest, penalties and additions to tax
imposed in relation to such claim and in relation to the payment of such costs
and expenses or indemnification.

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               (B) Without limitation on the foregoing provisions of this
Section 13(b)(iii), and to the extent its actions do not unreasonably interfere
with or prejudice Executive’s disputes with the Taxing Authority as to other
issues, the Company shall control all proceedings taken in connection with such
contest and, in its or their reasonable discretion, may pursue or forego any and
all administrative appeals, proceedings, hearings and conferences with the
Taxing Authority in respect of such claim and may, at its or in their sole
option, either direct Executive to pay the tax, interest or penalties claimed
and sue for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs Executive to pay such claim and sue for a refund, the Company
shall reimburse an amount equal to such payment to Executive, and shall
indemnify and hold Executive harmless, on an after-tax basis, from all taxes
(including, without limitation, income and excise taxes), interest, penalties
and additions to tax imposed with respect to such reimbursement or with respect
to any imputed income with respect to such reimbursement, as any such amounts
are incurred; and, further, provided, that any extension of the statute of
limitations relating to payment of taxes, interest, penalties or additions to
tax for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount; and,
provided, further, that any settlement of any claim shall be reasonably
acceptable to Executive, and the Company’s control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest, as the case may
be, any other issue.
               (C) If, after receipt by Executive of an amount reimbursed by the
Company pursuant to Section 13(b)(iii)(B), Executive receives any refund with
respect to such claim, Executive shall (subject to the Company’s complying with
the requirements of this Section 13(b)) promptly pay to the Company an amount
equal to such refund (together with any interest paid or credited thereof after
taxes applicable thereto), net of any taxes (including, without limitation, any
income or excise taxes), interest, penalties or additions to tax and any other
costs incurred by Executive in connection with such reimbursement, after giving
effect to such repayment. If, after the receipt by Executive of an amount
reimbursed by the Company pursuant to Section 13(b)(iii)(B), it is finally
determined that Executive is not entitled to any refund with respect to such
claim, then such reimbursement shall be forgiven and shall not be required to be
repaid and the amount of such reimbursement shall be treated as a Gross-Up
Payment and shall offset, to the extent thereof, the amount of any Gross-Up
Payment otherwise required to be paid.
               (D) For purposes of this Section 13(b), whether the Excise Tax is
applicable to a Payment shall be deemed to be “finally determined” upon the
earliest of: (1) the expiration of the fifteen (15) day period referred to in
Section 13(b)(iii)(A) if the Company or Executive’s Company has not notified
Executive that it intends to contest the underlying claim, (2) the expiration of
any period following which no right of appeal exists, (3) the date upon which a
closing agreement or similar agreement with respect to the claim is executed by
Executive and the Taxing Authority (which agreement may be executed only in
compliance with this Section), or (4) the receipt by Executive of notice from
the Company that it no longer seeks to pursue a contest (which shall be deemed
received if the Company does not, within fifteen (15)

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days following receipt of a written inquiry from Executive, affirmatively
indicate in writing to Executive that the Company intends to continue to pursue
such contest).
     It is possible that no Gross-Up Payment will initially be made but that a
Gross-Up Payment should have been made, or that a Gross-Up Payment will
initially be made in an amount that is less than what should have been made
(either of such events is referred to as an “Underpayment”). It is also possible
that a Gross-Up Payment will initially be made in an amount that is greater than
what should have been made (an “Overpayment”). The determination of any
Underpayment or Overpayment shall be made by the Accounting Firm in accordance
with Section 13(b)(ii). In the event of an Underpayment, the amount of any such
Underpayment shall be paid to Executive as an additional Gross-Up Payment. In
the event of an Overpayment, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code. In such case, the amount of the
loan shall be subject to reduction to the extent necessary to put Executive in
the same after-tax position as if such Overpayment were never made. The amount
of any such reduction to the loan shall be determined by the Accounting Firm in
accordance with the principles set forth in Section 13(b)(ii). Executive shall
repay the amount of the loan (after reduction, if any) to the Company as soon as
administratively practicable after the Company notifies Executive of (x) the
Accounting Firm’s determination that an Overpayment was made and (y) the amount
to be repaid.
          (iv) Compliance with Section 409A of the Code. Notwithstanding any
foregoing provision of this Section 13 to the contrary, all Gross-Up Payments
shall be paid in a manner that complies with Treasury
Regulation Section 1.409A-(3)(i)(1)(v). Any Gross-Up Payment and any payment of
any income or other taxes and any related interest and penalties to be paid by
the Company under this Section 13 shall be made by the end of Executive’s
taxable year next following Executive’s taxable year in which Executive remits
the related taxes. Any costs and expenses incurred by the Company on behalf of
Executive under this Section 13 due to any tax contest, audit or litigation will
be paid by the Company by the end of Executive’s taxable year following
Executive’s taxable year in which the taxes that are the subject of the tax
contest, audit or litigation are remitted to the taxing authority, or where as a
result of such tax contest, audit or litigation no taxes are remitted, the end
of Executive’s taxable year following Executive’s taxable year in which the
audit is completed or there is a final and nonappealable settlement or other
resolution of the contest or litigation. To the extent required by Section 409A
of the Code or the Treasury Regulations thereunder, if any Gross-Up Payment is
made with respect to any payment under Section 6(b)(i)(1), Section 6(b)(i)(2),
Section 9(a)(i)(w), Section 9(a)(i)(x) or Section 23, such Gross-Up Payment
shall be payable only upon Executive’s Separation from Service, and if Executive
is a Specified Employee on the date of his Separation from Service, such
Gross-Up Payment shall be paid within the ten (10) day period following the
earlier of (x) the expiration of the six (6) month period commencing on the date
of Executive’s Separation from Service, or (y) the date of Executive’s death.
14. CONTRACT REIMBURSEMENT
     The Company shall reimburse Executive on a fully grossed-up, after-tax
basis or directly pay for all reasonable legal fees and costs attributed to the
development, reviews and modifications of this Agreement and associated legal
services. Such fees and costs shall not

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exceed two thousand five hundred dollars ($2,500). This Section 14 shall not be
deemed to limit any of Executive’s rights under Section 23 (“Attorneys’ Fees”).
15. ASSIGNMENT
     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.
16. GOVERNING LAW
     This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of laws
principles thereof.
17. ENTIRE AGREEMENT
     This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior
agreements of the parties hereto on the subject matter hereof, including the
Existing Agreement. Any prior negotiations, correspondence, agreements,
proposals, or understandings relating to the subject matter hereof shall be
deemed to be merged into this Agreement and to the extent inconsistent herewith,
such negotiations, correspondence, agreements, proposals, or understandings
shall be deemed to be of no force or effect. There are no representations,
warranties, or agreements, whether express or implied, or oral or written, with
respect to the subject matter hereof, except as set forth herein.
18. MODIFICATIONS
     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.
19. WAIVER
     Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
20. NUMBER AND GENDER
     Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

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21. SECTION HEADINGS
     The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.
22. ARBITRATION
     Any controversy arising out of or relating to Executive’s employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Los Angeles County, California, before a sole
arbitrator who is either (a) a member of the National Academy of Arbitrators
located in the State of California or (b) a retired California Superior Court or
Appellate Court judge, and shall be conducted in accordance with the provisions
of California Civil Procedure Code Sections 1280 et seq. as the exclusive remedy
of such dispute; provided, however, that provisional injunctive relief may, but
need not, be sought in a court of law while arbitration proceedings are pending,
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any award or relief granted by
the Arbitrator hereunder shall be final and binding on the parties hereto and
may be enforced by any court of competent jurisdiction. The parties acknowledge
and agree that they are hereby waiving any rights to trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement or Executive’s employment.
23. ATTORNEYS’ FEES
     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to
reimbursement for its or his reasonable attorneys’ fees and costs incurred by it
or him in connection with resolution of the dispute in addition to any other
relief granted (the “Legal Fees”). Any reimbursement of Executive’s Legal Fees
under this Section 23 shall be provided in a manner that complies with Treasury
Regulation Section 1.409A-3(i)(1)(iv). Executive’s Legal Fees shall be
reimbursed only if such Legal Fees are incurred not later than ten (10) years
following the date of Executive’s Separation from Service. The Legal Fees paid
to Executive for any taxable year of Executive shall not affect the Legal Fees
paid to Executive for any other taxable year of Executive. The Legal Fees shall
be paid to Executive on or before the last day of Executive’s taxable year
following the taxable year in which the Legal Fees are incurred. Executive’s
right to reimbursement of Legal Fees shall not be subject to liquidation or
exchange for any other benefit. If the Legal Fees are payable in connection with
Executive’s Separation from Service, and Executive is a Specified Employee on
the date of Executive’s Separation from Service, the Legal Fees shall be paid
within the ten (10) day period following the earlier of (x) the expiration of
the six (6) month period commencing on the date of Executive’s Separation from
Service, or (y) the date of Executive’s death.

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24. SEVERABILITY
     In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
25. NOTICES
     All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

  (a)   if to the Company:         Molina Healthcare, Inc.
Attention: Mark L. Andrews
200 Oceangate, Suite 100
Long Beach, California 90802     (b)   if to Executive:         John C. Molina
2625 East Ocean
Long Beach, CA 90803

     Notice shall be effective when personally delivered, or five (5) business
days after being so mailed, or when transmitted via facsimile with confirmation
of receipt.
26. COUNTERPARTS
     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
27. WITHHOLDING TAXES
     The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.
28. APPENDIX
     Appendix A hereto regarding Code Section 409A is incorporated herein by
this reference.

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     IN WITNESS WHEREOF, the Company and Executive have executed this Employment
Agreement as of the date first above written.

            MOLINA HEALTHCARE, INC.
      /s/ Joseph M. Molina, M.D.      By:   Joseph M. Molina, M.D.      Title:  
Chief Executive Officer and President        EXECUTIVE
      /s/ John C. Molina      John C. Molina         

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Appendix A
SECTION 409A PROVISIONS
1. EXEMPTION FROM AND COMPLIANCE WITH SECTION 409A OF THE CODE
     (a) ADMINISTRATION OF AGREEMENT. Certain payments and benefits payable
under the Agreement are intended to be exempt from, or comply with, the
requirements of Section 409A of the Code. The Agreement shall be interpreted in
accordance with the applicable exemptions from Section 409A of the Code and the
Treasury Regulations thereunder. To the extent the payments and benefits under
the Agreement are subject to Section 409A of the Code, the Agreement shall be
interpreted, construed and administered in a manner that satisfies the
requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury
Regulations and interpretive guidance issued thereunder. If the Company and
Executive determine that any compensation, benefits or other payments that are
payable under the Agreement and intended to comply with Sections 409A(a)(2),
(3) and (4) of the Code do not comply with Section 409A of the Code, the
Treasury Regulations and interpretive guidance issued thereunder, the Company
and Executive agree to amend the Agreement, or take such other actions as the
Company and Executive deem reasonably necessary or appropriate, to comply with
the requirements of Section 409A of the Code, the Treasury Regulations and
interpretive guidance issued thereunder. In the case of any compensation,
benefits or other payments that are payable under the Agreement and intended to
comply with Sections 409A(a)(2), (3) and (4) of the Code, if any provision of
the Agreement would cause such compensation, benefits or other payments to fail
to so comply, such provision shall not be effective and shall be null and void
with respect to such compensation, benefits or other payments, and such
provision shall otherwise remain in full force and effect.
     (b) DELAYED DISTRIBUTION UNDER SECTION 409A OF THE CODE. If Executive is a
Specified Employee on the date of Executive’s Separation from Service, any
payments or benefits under the Agreement that are subject to Section 409A of the
Code and any related Gross-Up Payment shall be delayed in order to comply with
Section 409A(a)(2)(B)(i) of the Code, and such payments or benefits shall be
paid or distributed to Executive within the ten (10) day period following the
earlier of (x) the expiration of the six (6) month period commencing on the date
of Executive’s Separation from Service, or (y) the date of Executive’s death.
2. DEFINITIONS
     For purposes of this Agreement, the following capitalized terms have the
meanings set forth below:
     (a) The “Exemption Limit” shall mean the exemption limit set forth in
Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) and shall equal two times the
lesser of:
          (i) the amount of Executive’s annualized compensation based upon the
Executive’s annual rate of pay for the calendar year immediately preceding the
calendar year in

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which Executive’s Separation from Service occurs (adjusted for any increase
during the calendar year in which such Separation from Service occurs that would
be expected to continue indefinitely had Executive remained employed with the
Company), or
          (ii) the maximum amount that may be taken into account under a
qualified plan pursuant to Section 401(a)(17) of the Code for the calendar year
in which Executive’s Separation from Service occurs (the Section 401(a)(17)
annual compensation limit for 2009 is $245,000).
     (b) “Separation from Service”, with respect to Executive (or another
Service Provider), means Executive’s (or such Service Provider’s) “separation
from service,” as defined in Treasury Regulation Section 1.409A-1(h), with
respect to the Service Recipient.
     (c) “Service Provider” means Executive or any other “service provider,” as
defined in Treasury Regulation Section 1.409A-1(f).
     (d) “Service Recipient,” with respect to Executive, means Molina
Healthcare, Inc. or the subsidiary of Molina Healthcare, Inc. employing the
Executive, whichever is applicable, and all persons considered part of the
“service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), as
determined from time to time. As provided in Treasury Regulation Section
1.409A-1(g), the “Service Recipient” shall mean the person for whom the services
are performed and with respect to whom the legally binding right to compensation
arises, and all persons with whom such person would be considered a single
employer under Section 414(b) or 414(c) of the Code.
     (e) “Specified Employee” means a Service Provider who, as of the date of
the Service Provider’s Separation from Service is a “Key Employee” of the
Service Recipient any stock of which is publicly traded on an established
securities market or otherwise. For purposes of this definition, a Service
Provider is a “Key Employee” if the Service Provider meets the requirements of
Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with
the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the
Code) at any time during the Testing Year. If a Service Provider is a “Key
Employee” (as defined above) as of a Specified Employee Identification Date, the
Service Provider shall be treated as “Key Employee” for the entire twelve
(12) month period beginning on the Specified Employee Effective Date. The
“Specified Employees” shall be determined in accordance with
Section 409A(a)(2)(B)(i) of the Code and Treasury
Regulation Section 1.409A-1(i).
     (f) “Specified Employee Effective Date” means the first day of the fourth
month following the Specified Employee Identification Date. The Specified
Employee Effective Date may be changed by Molina Healthcare, Inc., in its
discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(4).
     (g) “Specified Employee Identification Date”, for purposes of Treasury
Regulation Section 1.409A-1(i)(3), shall mean December 31. The “Specified
Employee Identification Date” shall apply to all “nonqualified deferred
compensation plans” (as defined in Treasury Regulation Section 1.409A-1(a)) of
the Service Recipient and all affected Service Providers. The “Specified
Employee Identification Date” may be changed by Molina Healthcare, Inc., in its
discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

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