Document:

exv10w3

Exhibit 10.3

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

     This Amended and Restated Employment Agreement (this “Agreement”) is made as of December 31,
2009, between Mark L. Andrews (“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 December 1, 2001 (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 Legal Officer, General
Counsel, and Corporate Secretary 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 Legal Officer, General Counsel, and Corporate Secretary 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.

 

 

     (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 December 1, 2001 (the “Effective Date”) and ending with the close of business on
December 1, 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 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 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 for each fiscal year of the Company (an “Annual Bonus”), with a target Annual Bonus (the
“Target Bonus”) of fifty percent (50%) of Executive’s Base Salary, to be awarded at the discretion
of the Company’s Compensation Committee based on the achievement of certain mutually agreed upon
objectives. 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 sole 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

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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
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.

          i. Existing Options. Executive holds on the Effective Date options for five thousand (5,000)
shares of common stock of the Company (the “Existing Options”) pursuant to an agreement entitled
Agreement Relating to Stock Options, dated December 13, 1999, as amended. The Existing Options are
subject to the terms and conditions of the Omnibus Stock and Incentive Plan (the “Option Plan”),
and shall hereafter continue to be subject to and controlled by the terms and conditions of the
Option Plan.

          ii. Initial Options. Executive shall, on the Effective Date, be granted stock options for one
thousand eight hundred (1,800) 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 Option Plan.

          iii. Future Equity Compensation. Executive shall be eligible, at the discretion of the
Company’s Compensation Committee, for grants of equity compensation (the “Future Equity
Compensation”) pursuant to one or more equity compensation agreements. Any Future 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 Future 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.

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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.

     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,

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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 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 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”), 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
contemplated under Section 4(a). The term “Termination Bonus” shall mean an amount equal to fifty
percent (50%) 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, Existing
Options, Initial Options, and Future Equity Compensation held by Executive as of the Termination
Date (the “Equity Compensation”).

          (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:

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               (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) the total amount payable under clauses (i)(1) and (2) shall be distributed as follows:

                    (1) the portion thereof that does not exceed the Exemption Limit shall satisfy the involuntary
separation pay exemption under Treasury Regulation Section 1.409A-1(b)(9)(iii), shall be exempt
from 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, and

                    (2) the remaining portion (if any) 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.

               (C) 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 Equity Compensation 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.

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

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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 material 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 and materially 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 material reduction in the Executive’s 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 material 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)

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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, 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 clauses (ii) and (iii) 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 distributed as follows:

               (A) the portion thereof that does not exceed the Exemption Limit shall satisfy the involuntary
separation pay exemption under Treasury Regulation Section 1.409A-1(b)(9)(iii), shall be exempt
from 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, and

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               (B) the remaining portion (if any) 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) 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.

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               (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).

               (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

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(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

     (a) 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 by Executive 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

11

 

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 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

12

 

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, 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.

               (C) If, after receipt by Executive of an amount advanced 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 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)(B), 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

13

 

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 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”).

14

 

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.

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.

15

 

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.

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

 

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: J. Mario Molina, M.D.

200 Oceangate, Suite 100

Long Beach, California 90802
	 
	 	(b)	 	if to Executive:

Mark L. Andrews

570 Morris Way

Sacramento, CA 95864

     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.

17

 

     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/
Mark L. Andrews	 
	 	Mark L. Andrews
 	 
	 	 	 

18

 

	 	 	 	 	 

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 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

19

 

          (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).

20exv10w4

Exhibit 10.4

AMENDED AND RESTATED

CHANGE IN CONTROL AGREEMENT

     THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT (the “Agreement”) is entered into as of
December 31, 2009, (the “Effective Date”), by and between Terry Bayer (the “Executive”) and Molina
Healthcare, Inc., a Delaware corporation (the “Company”).

RECITALS

     The parties hereto have previously entered into a Change in Control Agreement dated June 15,
2006 (“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, to the extent applicable.

1. Definitions. The following definitions shall apply for all purposes under this
Agreement:

     (a) Annual Base Salary. “Annual Base Salary” shall mean the Executive’s annualized
fiscal year base salary (as paid in accordance with the Company’s regular payroll practices) as in
effect on the date of Executive’s Separation from Service (or if Executive’s salary was greater, on
the date of the Announcement (as such term is defined below)).

     (b) Change in Control. “Change in Control” means the occurrence of any of the
following events after the Effective Date:

	 	(i)	 	The acquisition (other than by an Excluded Person), directly or
indirectly, in one or more transactions, by any person or by any group of
persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act, of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
more than fifty percent (50%) of either the outstanding shares of common stock
or the combined voting power of the Company’s outstanding voting securities
entitled to vote generally, whether or not the acquisition was previously
approved by the existing directors, other than an acquisition that complies
with clause (x) and (y) of paragraph (ii);
	 
	 	(ii)	 	Consummation of a reorganization, merger, or consolidation of
the Company or the sale or other disposition of all or substantially all of the
Company’s assets unless, immediately following such event, (x) all or
substantially all of the stockholders of the Company immediately prior to such
event own, directly or indirectly, more than fifty percent (50%) of the then
outstanding voting securities of the resulting corporation (including without
limitation, a corporation which as a result of such event owns the Company or
all or substantially all of the Company’s assets either directly or indirectly
through

 

 

	 	 	 	one or more subsidiaries) and (y) the securities of the surviving or
resulting corporation received or retained by the stockholders of the Company
are publicly traded;

	 	(iii)	 	Approval by the stockholders of the complete liquidation or
dissolution of the Company; or
	 
	 	(iv)	 	A change in the composition of a majority of the directors on
the Company’s Board of Directors within 12 months if not approved by a majority
of the pre-existing directors.

     A transaction shall not constitute a Change in Control if its sole purpose is to change the
state of the Company’s incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s securities immediately
before such transaction.

     (c) Excluded Person. “Excluded Person” means:

	 	(i)	 	Any person described in and satisfying the conditions of Rule
13d-1(b)(1) under the Exchange Act;
	 
	 	(ii)	 	The Company;
	 
	 	(iii)	 	An employee benefit plan (or related trust) sponsored or
maintained by the Company or its successor;
	 
	 	(iv)	 	Any person who is the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of more than 15% of the Common Stock on the
Effective Date (or any affiliate, successor, heir, descendant, or related party
of or to such person).

     (d) Good Reason. “Good Reason” shall mean that, on or after the effective date of a
Change in Control, the Executive (without Executive’s written consent):

	 	(i)	 	Has incurred a material reduction in his or her authority or
responsibility with the Company in comparison to the Executive’s authority or
responsibility prior to the public announcement of the Change in Control (the
“Announcement”);
	 
	 	(ii)	 	Has incurred one or more reductions in his or her “total
compensation” with the Company which is defined as follows:

	 	(A)	 	A material reduction in Annual Base Salary, or
	 
	 	(B)	 	A material reduction in the target annual bonus percentage of Annual Base
Salary; or

2

 

	 	(iii)	 	A material change in the geographic location of the
Executive’s principal office with the Company.
	 
	 	(iv)	 	The Executive gives to the Company written notice of the event
in clause (i), (ii), or (iii) giving rise to Good Reason within ninety (90)
days of the initial existence of such event and the Company has not cured the
event giving rise to Good Reason within thirty (30) days of receipt of written
notification by Executive and the Executive resigns from employment with the
Company within sixty (60) days following the end of the cure period.

     (e) Just Cause. “Just Cause” includes but is not limited to any of the following
committed by Executive (or omitted to be done by Executive) that occur on or after the Effective
Date:

	 	(i)	 	Theft, unethical or unlawful activity, or other dishonesty;
	 
	 	(ii)	 	Neglect of or failure to perform employment duties;
	 
	 	(iii)	 	Inability or unwillingness to perform employment duties;
	 
	 	(iv)	 	Insubordination;
	 
	 	(v)	 	Abuse of alcohol or other drugs or substances;
	 
	 	(vi)	 	Breach of this Agreement;
	 
	 	(vii)	 	A conviction of or plea of “guilty” or “no contest” to a
felony under the laws of the United States or any state thereof; or
	 
	 	(viii)	 	Any violation or breach of any Company policy that has been established to
comply with either the Sarbanes-Oxley Act of 2002 (or any regulations or rules
or decisions that implement/interpret such act) or any laws, rules, or
requirements of the Securities and Exchange Commission or the New York Stock
Exchange.

     (f) Total Disability. “Total Disability” shall be deemed to occur on the ninetieth
(90th) consecutive or non-consecutive calendar day within any twelve (12) month period that
Executive is unable to perform his or her duties because of any physical or mental illness or
disability.

     (g) Termination Bonus. “Termination Bonus” shall mean fifty percent (50%) of the
Executive’s Annual Base Salary.

2. Severance Payment and Equity Compensation.

     (a) The Executive shall be entitled to receive a severance payment from the Company as
provided herein (the “Severance Payment”) if the Executive has a Separation of Service within the
first twelve (12) month period after the occurrence of a Change in Control, by reason of either:

3

 

	 	(i)	 	The Executive’s voluntary resignation of his or her employment
with the Company for Good Reason pursuant to Section 1(c); or
	 
	 	(ii)	 	The Company’s discharge of the Executive from employment with
the Company for any reason other than Just Cause, death, or Total Disability.

     For all purposes under this Agreement, the amount of the Severance Payment shall be equal to
two times (2X) the sum of Annual Base Salary, plus a pro rata portion of the Executive’s
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), plus a cash payment of $43,500 for all Company group
health benefits. The Severance Payment shall be distributable upon Executive’s Separation from
Service as follows:

	 	(iii)	 	the portion thereof that does not exceed the Exemption Limit shall satisfy the
involuntary separation pay exemption under Treasury Regulation Section 1.409A-1(b)(9)(iii),
shall be exempt from 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, and
	 
	 	(iv)	 	the remaining portion (if any) 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 the Executive’s Separation from
Service; provided, however, that, if Executive is a Specified Employee on the date of the
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 the Executive’s Separation from Service and (y) the date of Executive’s death.

     Except as may be provided under Sections 2(b) and 2(c), the Severance Payment shall be in lieu
of any other post-termination employment payments.

     (b) Incentive, Deferred Compensation, and Retirement Programs. If the Executive is
entitled to a Severance Payment under Section 2(a) and notwithstanding anything to the contrary in
any stock option or stock appreciation right (SAR) or deferred compensation plan or retirement plan
or agreements, then (i) the Executive shall become immediately fully vested in all of his or her
outstanding stock options, SARs, warrants, restricted stock, phantom stock, deferred compensation,
retirement or similar plans or agreements of the Company, and (ii) the Executive (or his or her
personal representative if applicable) shall be permitted to exercise any of his or her vested
stock options/SARs until the earlier of (i) one (1) year after Executive’s termination of
employment or (ii) the term of such unexercised stock options, warrants, or SARs.

     (c) Mitigation. Except as may be expressly provided elsewhere in this Agreement, the
Executive shall not be required to mitigate the amount of any payment or benefit contemplated by
this Section 2 (whether by seeking new employment or in any other manner). No such payment shall
be reduced by earnings that the Executive may receive from any other source.

     (d) Conditions. All payments and benefits provided under this Section 2 are
conditioned on Executive’s continuing compliance with this Agreement and the Company’s

4

 

policies. All payments and benefits are also conditioned on, and in consideration for,
Executive’s execution (and effectiveness) of a release of claims and covenant not to sue
substantially in the form provided in Exhibit A to be delivered by Executive no later than
sixty (60) days following the Executive’s Separation of Service, any revocation period required by
law has run, and Executive has not revoked the release of claims and covenant not to sue.

3. Successors.

     (a) Company’s Successors. Any successor (whether direct or indirect and whether by
purchase, lease, merger, consolidation, liquidation, or otherwise) to all or substantially all of
the Company’s business and/or assets, shall be obligated to perform this Agreement in the same
manner and to the same extent as the Company would be required to perform it in the absence of a
succession.

     (b) Executive’s Successors. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees, and
legatees.

4. Miscellaneous Provisions.

     (a) Notice. Notices and all other communications contemplated by this Agreement shall
be in writing and shall be deemed to have been duly given when personally delivered or when mailed
by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of
the Executive, mailed notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the Company, mailed notices
shall be addressed to its corporate headquarters, and all notices shall be directed to the
attention of its Secretary.

     (b) Waiver. No provision of this Agreement shall be modified, waived or discharged
unless the modification, waiver or discharge is agreed to in writing and signed by the Executive
and by an authorized officer of the Company (other than the Executive). No waiver by either party
of any breach of, or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the same condition or
provision at another time.

     (c) Whole Agreement. This Agreement contains all the legally binding understandings
and agreements between Executive and the Company pertaining to the subject matter of this Agreement
and supersedes all such agreements, whether oral or in writing, previously entered into between the
parties.

     (d) Withholding Taxes. All payments made under this Agreement shall be subject to
reduction to reflect taxes required to be withheld by law.

     (e) Choice of Law. The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of California without regard to the
conflicts of laws principles thereof.

5

 

     (f) Severability. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other provision hereof,
which shall remain in full force and effect.

     (g) Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in Los Angeles County in
accordance with the Commercial Arbitration Rules of the American Arbitration Association.
Discovery shall be permitted to the same extent as in a proceeding under the Federal Rules of Civil
Procedure, including (without limitation) such discovery as is specifically authorized by section
1283.05 of the California Code of Civil Procedure, without need of prior leave of the arbitrator
under section 1283.05(e) of such Code. Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. All fees and expenses of the arbitrator and such
Association and attorney fees shall be paid as determined by the arbitrator.

     (h) No Assignment. The rights of Executive to payments or benefits under this
Agreement shall not be made subject to option or assignment, either by voluntary or involuntary
assignment or by operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor’s process, and any action in violation of this Subsection (h) shall be
void.

     (i) Nondisparagement; Confidentiality. On the Effective Date and thereafter,
Executive agrees that he/she will not disparage the Company or its directors, officers, employees,
affiliates, subsidiaries, predecessors, successors or assigns in any written or oral communications
to any third party. Executive further agrees that he/she will not direct anyone to make any
disparaging oral or written remarks to any third parties. During Executive’s employment and
following Executive’s termination of employment for any reason, Executive agrees to not
intentionally use or disclose the confidential information or trade secrets of the Company.

     (j) Nonsolicit. During the Executive’s employment with Company and for twelve months
after Executive’s termination of employment and payment of the Severance Payment hereunder, the
Executive shall not, directly or indirectly, either as an individual or as an employee, agent,
consultant, advisor, independent contractor, general partner, officer, director, stockholder,
investor, lender, or in any other capacity whatsoever, of any person, firm, corporation, or
partnership: (i) induce or attempt to induce any person who at the time of such inducement is an
employee of the Company to perform work or service for any other person or entity other than the
Company or (ii) participate or engage in the design, development, manufacture, production,
marketing, sale, or servicing of any product, or the provision of any service, that directly or
indirectly relates to Company business.

     (k) Notice of Employment. During Executive’s employment and for twelve months after
Executive’s termination of employment and payment of the Severance Payment hereunder, Executive
will promptly notify the Company in writing if Executive becomes (or agrees to become) an employee
or director of any other employer. Such notice shall include the name of the other employer and
the date of commencement of employment or service as a director.

     (l) Unfunded and Unsecured. The obligations of the Company under this Agreement shall
be unfunded and unsecured. With respect to any payments to which the Executive has a fixed

6

 

and vested interest but that have not yet been made by the Company, nothing contained herein
shall give the Executive any rights that are greater than those of a general unsecured creditor of
the Company.

     (m) Exhibit B. Exhibit B hereto regarding Code Section 409A is incorporated
herein by this reference.

     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the day and year first above written.

	 	 	 	 	 
	 	
EXECUTIVE:

 	 
	 	
/s/ Terry Bayer 	 
	 	Terry
Bayer 	 
	 	 	 
	 	
MOLINA HEALTHCARE, INC.:

 	 
	 	
/s/ Joseph M. Molina, M.D. 	 
	 	By:   Joseph M. Molina, M.D. 	 
	 	Its:   President and Chief Executive Officer 	 

7

 

	 	 	 	 	 

EXHIBIT A

Form of Release of Claims and Covenant Not To Sue

In consideration of the payments and other benefits that Molina Healthcare, Inc., a Delaware
corporation (the “Company”), is providing to Terry Bayer (“Executive”) under the Change in Control
Agreement entered into by and between Executive and the Company, dated June 12, 2006, the
Executive, on his or her own behalf and on behalf of Employee’s representatives, agents, heirs and
assigns, waives, releases, discharges and promises never to assert any and all claims, demands,
actions, costs, rights, liabilities, damages or obligations of every kind and nature, whether known
or unknown, suspected or unsuspected that Executive ever had, now have or might have as of the date
of Executive’s termination of employment with the Company against the Company or its predecessors,
parent, affiliates, subsidiaries, stockholders, owners, directors, officers, employees, agents,
attorneys, insurers, successors, or assigns (including all such persons or entities that have a
current and/or former relationship with the Company) for any claims arising from or related to
Executive’s employment with the Company, its parent or any of its affiliates and subsidiaries and
the termination of that employment.

These released claims also specifically include, but are not limited to, any claims arising under
any federal, state and local statutory or common law, such as (as amended and as applicable) Title
VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans With
Disabilities Act, the Employee Retirement Income Security Act, the Family Medical Leave Act, the
Equal Pay Act, the Fair Labor Standards Act, the Industrial Welfare Commission’s Orders, the
California Fair Employment and Housing Act, the California Constitution, the California Government
Code, the California Labor Code and any other federal, state or local constitution, law, regulation
or ordinance governing the terms and conditions of employment or the termination of employment, and
the law of contract and tort and any claim for attorneys’ fees.

Furthermore, the Executive acknowledges that this waiver and release is knowing and voluntary and
that the consideration given for this waiver and release is in addition to anything of value to
which Executive was already entitled. Executive acknowledges that there may exist facts or claims
in addition to or different from those which are now known or believed by Executive to exist.
Nonetheless, this Agreement extends to all claims of every nature and kind whatsoever, whether
known or unknown, suspected or unsuspected, past or present. Executive also expressly waives the
provisions of California Civil Code section 1542, which provides: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him/her must have materially affected his settlement with
the debtor.” With respect to the claims released in the preceding sentences, the Executive will
not initiate or maintain any legal or administrative action or proceeding of any kind against the
Company or its predecessors, parent, affiliates, subsidiaries, stockholders, owners, directors,
officers, employees, agents, successors, or assigns (including all such persons or entities that
have a current or former relationship with the Company), for the purpose of obtaining any personal
relief, nor assist or participate in any such proceedings, including any proceedings brought by any
third parties (except as otherwise required or permitted by law). The Executive further
acknowledges that she has been advised by this writing that:

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	 	•	 	she should consult with an attorney prior
to executing this release;
	 
	 	•	 	she has at least twenty-one (21) days within
which to consider this release;
	 
	 	•	 	she has up to seven (7) days following the
execution of this release by the parties to revoke
the release; and
	 
	 	•	 	this release shall not be effective until such
seven (7) day revocation period has expired.

Executive agrees that the release set forth above shall be and remain in effect in all respects as
a complete general release as to the matters released.

	 	 	 	 	 
	EXECUTIVE

 	 
	
 	 
	Terry Bayer 	 

Date:

9

 

Exhibit B

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 which
Executive’s Separation from Service occurs (adjusted for any increase during

10

 

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

11

 

Employee
Identification Date” may be changed by Molina Healthcare, Inc., in its discretion, in
accordance with Treasury Regulation Section 1.409A-1(i)(3).

12

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