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                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made as of January 2, 2002,
between Joseph M. Molina, MD ("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 May 1,1997 (the "Existing Agreement"), and this Agreement
supercedes the Existing Agreement.

                                    AGREEMENT

          The parties agree as follows:

1. DUTIES

     (a) The Company does hereby hire, engage, and employ Executive as Chief
Executive 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 Board of
Directors 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 Executive Officer and shall report to the Board of
Directors 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.

     (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.

JMM Employment Agreement  2002

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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 31,2004. Notwithstanding the
preceding sentence, commencing with January 1, 2005 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 $500,000 annually ("Executive's Base Salary"), paid in accordance with
regular payroll practices, but not less than monthly. The Board of Directors
shall review at least annually Executive's Base Salary for possible increase in
accordance with the Company's customary review practices for its senior
executives and may, in his sole discretion, periodically adjust Executive's Base
Salary to reflect individual performance. In the event of an increase,
Executive's Base Salary for the year in which the increase occurs shall be
adjusted on a pro rata basis to reflect the increase.

     (b) BONUS. Executive shall be eligible to earn an annual discretionary
bonus for each fiscal year of the Company (an "Annual Bonus") as described in
the Addendum.

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 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 10.77 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 thirty five
(35) days of PTO. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.

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JMM Employment Agreement  2002

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     (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.

         (i) Existing Options. Executive holds on the Effective Date options for
     zero shares of common stock of the Company (the "Existing Options"). The
     Existing Options are subject to the terms and conditions of the Employment
     Agreement and shall hereafter continue to be subject to and controlled by
     the terms and conditions of the Employment Agreement.

         (ii) Initial Options. Executive shall, on the Effective Date, be
     granted stock options for sixty five hundred (6500) shares of the common
     stock of the Company (the "Initial Options") pursuant to an option
     agreement The exercise price of the Initial Options will be $ 180 per
     share. The Initial Options are subject to the terms and conditions of the
     "Molina Healthcare, Inc. Amended and Restated Stock Incentive Plan" (the
     "Restated Option Plan").

         (iii) Future Options. Executive shall be eligible, at the sole
     discretion of the Board, for additional annual stock option grants (the
     "Future Options") pursuant to one or more additional option agreements. Any
     Future Options will be granted under and subject to the terms and
     conditions of a stock option plan of the Company as then in effect (as of
     the date of any grant, an "Effective Option Plan"). The terms and
     conditions of such Future Options 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.

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JMM Employment Agreement   2002

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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
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;

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JMM Employment Agreement 2002

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     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.

     (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 Target Bonus for the fiscal year in which
     Executive's employment is terminated (the "Severance Payment"); (2) a pro
     rata portion of the Target Bonus for the fiscal year in which Executive's
     employment is terminated, based on the number of entire months of such
     fiscal year that have elapsed through the date of Executive's termination
     of employment as a fraction of twelve (12) (the "Pro Rata Bonus"); (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) all other benefits
     under the welfare benefit and retirement plans contemplated by Sections
     4(a) and 4(d) (the "Selected Benefits") until the earlier of (A)
     Executive's receipt of benefits substantially similar in scope and nature
     from another employer or (B) one year and one-half year after the
     Termination Date.

          (ii) Executive shall be entitled to one hundred percent vesting of all
     of the options (including, without limitation, Existing Options, Initial
     Options, and Future Options) to purchase common stock of the Company
     ("Common Stock") held by Executive as of the Termination Date (the
     "Options") and/or right to the difference in cash between the fair market
     value and the exercise price of each vested but unexercised option.

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JMM Employment Agreement 2002

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          (iii) Company shall, upon the written request of Executive (the
     "Executive Put Option") be required to repurchase all shares of Common
     Stock acquired by Executive pursuant to the exercise of stock options
     granted to and/or held by Executive as of the Termination Date (the
     "Executive Shares"). Executive may not exercise the Executive Put Option
     with respect to Executive Shares within the six-month period following the
     date Executive acquired such Executive Shares, and the Executive Put Option
     may not be exercised at any time after the Company becomes publicly traded.
     The repurchase price for each Executive Share shall be equal to the fair
     market value of a share of Common Stock ("Fair Market Value"), which Fair
     Market Value:

               (A) shall be determined as of the date of the exercise of
          Executive Put Option by an independent appraiser chosen by the Company
          and Executive as follows: the Company shall identify three appraisers
          independent of the Company, and Executive shall select one from the
          three identified; and

               (B) shall be determined without any minority, illiquidity or
          other discount.

          (iv) Amounts payable under this Section 6(b) shall be payable as
     follows:

               (A) amounts payable under clause (i) shall be, or shall commence
          to be, paid within 30 days following the Termination Date either in a
          single lump sum or in regular installments as a continuation of
          Executive's salary according to the Company's customary payroll
          practices, as determined by the Executive in his sole discretion;
          provided however that any amounts representing accrued but unpaid
          Executive Base Salary, PTO an Unpaid Annual Bonus shall be paid on the
          Termination Date.

               (B) amounts payable under clause (iii) that are attributable to
          the exercise of Existing Options and/or Initial Options shall be paid
          by the Company in accordance with the terms and conditions of the
          Option Plan. Amounts payable under clause (iii) that are attributable
          to the exercise of Future Options shall be paid by the Company in
          three annual lump sum installments as follows: (1) within 30 days
          after the Termination Date, one-third of the payout; (2) on the first
          anniversary of the Termination Date, one-third of the payout, with
          interest on the previously unpaid portion of the payout accrued from
          the Termination Date at the applicable federal rate; and (3) on the
          second anniversary of the Termination Date, the remaining one-third of
          the payout, with interest on such previously unpaid portion of the
          payout accrued from the first anniversary of the Termination Date at
          the applicable federal rate.

     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.

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JMM Employment Agreement 2002

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7.   TERMINATION BY EMPLOYEE

     (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, provided, however, that notwithstanding the foregoing,
if Executive terminates the Period of Employment without Good Reason, Executive
shall be allowed to exercise the Executive Put Option with respect to Executive
Shares received pursuant to the exercise of Existing Options, subject to the
terms and conditions generally applicable with respect to the Executive Put
Option.

     (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, Reporting Relationship or status 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 9; provided, however, that none of the events
     described in clause (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 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.

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JMM Employment Agreement 2002

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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 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, (x) the Pro Rata Bonus, (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, such amount to be,
     or to commence to be, paid on the Termination Date either in a single lump
     sum or in regular installments as a continuation of Executive's salary
     according to the Company's customary payroll practices, as determined by
     the Executive in his sole discretion at the time of termination. This
     payment shall be in lieu of the payment otherwise payable under clause (i)
     of Section 6(b).

          (ii)  the Company shall continue to provide the Selected Benefits
     until the earlier of (x) Executive's receipt of benefits substantially
     similar in scope and nature from another employer or (y) three years after
     the Termination Date.

          (iii) and, regardless of whether any of the Options have been assumed
     by any Successor Entity, the provisions of clauses (ii) and (iii) of
     Section 6(b) will apply.

          (iv)  upon a change in control all unassumed and unvested options
     shall vest immediately.

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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(c):

               (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-l(b)(l) 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.

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12.  RELEASE REQUIRED FOR SEVERANCE PAYMENTS

     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.

13.  SECTION 280G

     (a)  SHAREHOLDER APPROVAL REQUIRED.

     Notwithstanding anything to the contrary in this Agreement, Section 13 of
this Agreement shall not become effective in any part unless and until it is
fully disclosed to and approved by a vote of the persons who own more than
seventy five percent (75%) of the voting power of all outstanding capital stock
of the Company.

     (b)  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.

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     (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
     highest marginal rate of Federal income taxation in the calendar year in
     which the Gross-Up Payment is to be made. Such highest 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 highest marginal rate of taxation
     in the state and locality of Executive's residence on the date of his or
     her Qualifying Termination Event, 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;

                                       12
JMM Employment Agreement 2002

<PAGE>

                    (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.

               (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 advance an amount equal to such payment to Executive, on an
          interest-free basis, 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 advance or with respect to any imputed
          income with respect to such advance, 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.

                                       13
JMM Employment Agreement 2002

<PAGE>

               (C)  If, after receipt by Executive of an amount advanced by the
          Company pursuant to Section 13(b)(iii)(A), 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 advance,
          after giving effect to such repayment. If, after the receipt by
          Executive of an amount advanced by the Company pursuant to Section
          13(b)(iii)(A), it is finally determined that Executive is not entitled
          to any refund with respect to such claim, then such advance shall be
          forgiven and shall not be required to be repaid and the amount of such
          advance 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) 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.

                                       14
JMM Employment Agreement 2002

<PAGE>

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 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. 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.

                                       15
JMM Employment Agreement 2002

<PAGE>

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.

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 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.

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.

                                       16
JMM Employment Agreement 2002

<PAGE>

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:
          One Golden Shore Drive
          Long Beach, California 90802

     (b)  if to Executive:

          Joseph M. Molina, MD
          829 Stratford Avenue
          South Pasadena, CA 91030

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.

                                       17
JMM Employment Agreement 2002

<PAGE>

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

                                                      "COMPANY"
                                                      Molina Healthcare, Inc.

                                                      By: /s/ Janet Riedman
                                                          ---------------------

                                                      "EXECUTIVE"
                                                      Joseph M. Molina, MD

                                                      /s/
                                                      -------------------------
                                                      Joseph M. Molina, MD

                                       18
JMM Employment Agreement 2002

<PAGE>

                     ADDENDUM JOSEPH M MOLINA, MD AGREEMENT

                                    RECITALS

     Section 3 of the Agreement sets forth certain aspects of Executive's
compensation. The Company and Executive desire to specify additional terms and
conditions of Executive's compensation in this Addendum ("Addendum"), provided
that this Addendum, and each of the terms and conditions set forth herein, shall
be considered to be fully integrated into and a part of Section 3 of the
Agreement.

                                    AGREEMENT

     The parties agree as follows:
1.   Executive's Annual Bonus shall be equal to the lesser of:

     A.   the product of (1 %) and (the EBITDA of the Company and its
     subsidiaries as determined on a consolidated basis by the Company's regular
     annual audit for such year) ("EBITDA"); or

     B.   $500,000

provided that in no event shall such Annual Bonus be less than $0.

2.   Executive's Annual Bonus shall be paid in quarterly estimates, as follows:

     A.   Within a reasonable time after the Company's financial results for the
     first quarter of its fiscal year become available, Executive shall receive
     an amount equal to eighty percent (80%) of the lesser of: (i) the product
     of (1 %) and (EBITDA for such quarter) and (ii) $125,000 (the "First
     Quarter Payment"), provided that in no event shall such First Quarter
     Payment be less than $0.

     B.   Within a reasonable time after the Company's financial results for the
     second quarter of its fiscal year become available, Executive shall receive
     an amount equal to eighty percent (80%) of the lesser of: (i) the
     difference between (a) the product of (1 %) and (EBITDA for the first two
     quarters) and (b) the First Quarter Payment, and (ii) $125,000 (the "Second
     Quarter Payment"), provided that in no event shall such Second Quarter
     Payment be less than $0.

     C.   Within a reasonable time after the Company's financial results for the
     third quarter of its fiscal year become available, Executive shall receive
     an amount equal to the lesser of: (i) the difference between (a) the
     product of (1 %) and (EBITDA for the first three quarters) and (b) the sum
     of the First Quarter Payment and the Second Quarter Payment (the "Q2 Sum"),
     and (ii) the difference between $500,000 and the Q2 Sum (the "Third Quarter
     Payment"), provided that in no event shall such Third Quarter Payment be
     less than $0.

                                        1

<PAGE>

     D.   Prior to the end of the Company's fiscal year, Executive shall receive
     an amount equal to the lesser of: (i) the difference between (a) the
     product of (1 %) and (projected EBITDA, as estimated in good faith on a
     date reasonably close to the date of the Fourth Quarter Payment (as defined
     below) by the Compensation Committee of the Company's Board of Directors,
     for the Company's fiscal year) and (b) the sum of the First Quarter
     Payment, the Second Quarter Payment, and the Third Quarter Payment (the "Q3
     Sum"); and (ii) the difference between $500,000 and the Q3 Sum (the "Fourth
     Quarter Payment" and, together with the First Quarter Payment, the Second
     Quarter Payment, and the Third Quarter Payment, the "Estimation Payments"),
     provided that in no event shall such Fourth Quarter Payment be less than
     $0.

     E.   The difference between the Annual Bonus and the sum of the Estimation
     Payments shall be paid by the Company to Executive, or repaid by Executive
     to the Company, as the case may be, in cash within thirty (30) days of the
     date on which Executive receives notice (as provided in Section 25 of the
     Agreement) of the amount of the Annual Bonus.

 Executed and agreed to:

 "COMPANY"
 Molina Healthcare, Inc.

By: /s/ Janet Riedman
    -------------------------
    Name:
    Title: Chairman of Compensation

"EXECUTIVE"
Joseph M. Molina, MD

/s/
------------------------
Joseph M. Molina, MD

                                        2