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Medicaid expansion. As of February 27, 2013, among the states where we operate our health plans, the states of California, Florida, Michigan, New Mexico, Ohio, and Washington have indicated that they intend to participate in the Medicaid expansion; the states of Texas and Wisconsin have indicated that they do not intend to participate in the expansion; and the state of Utah is undecided. We believe there are significant opportunities to increase our revenues through the Medicaid expansion.

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Duals. Nine million low-income elderly and disabled people in the United States are covered under both the Medicare and Medicaid programs. These beneficiaries, often called “dual eligibles” or simply “duals,” are more likely than other Medicare beneficiaries to be frail, live with multiple chronic conditions, and have functional and cognitive impairments. Policymakers at the federal and state level are developing initiatives for dual eligibles both to improve the coordination of their care, and to reduce spending for both Medicare and Medicaid. The Centers for Medicare and Medicaid Services, or CMS, has implemented several demonstrations designed to improve the coordination of care for dual eligibles and reduce spending under Medicare and Medicaid. These demonstrations include issuing contracts to 15 states to design a program to integrate Medicare and Medicaid services for dual eligibles in the state. Our health plans in California, Illinois, Michigan, Ohio, Texas, and Washington intend to take part in the duals demonstrations in those states. Beginning in September 2013, our California plan intends to serve duals in Riverside, San Bernardino and San Diego counties, and may participate with Health Net, Inc. for the duals contract in Los Angeles County. Our new Illinois plan will serve duals

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Insurance marketplaces. Under the ACA, insurance marketplaces will be online marketplaces organized on a state-by-state basis (although in many instances the insurance marketplace in a state will be operated by the federal government, and there could also be regional marketplaces where states combine their marketplace products). In the insurance marketplace, individuals and groups can purchase health insurance that in many instances will be federally subsidized (up to 400% of the federal poverty level by individual or family). We currently intend to participate in the insurance marketplaces in the states in which we operate our health plans. Our principal focus in participating in the marketplace is to capture the transition in membership that may result from a Medicaid member's income rising above the 138% level of the federal poverty line. By retaining that member in the marketplace, if the member's income subsequently declines, we will continuously serve that same member in all instances and not “lose” the member to another health plan. We endorse the so-called “bridge plan” as the best way to serve low-income persons who may qualify for coverage through the insurance marketplaces, and will be working with legislators and regulators during 2013 to advocate for the merits of the bridge plan.

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•	Provider Self Services. Providers have the ability to access information regarding their members and claims. Key functionalities include "Check Member Eligibility," "View Claim," and "View/Submit Authorizations."

•	Member Self Services. Members can access information regarding their personal data, and can perform the following key functionalities: "View Benefits," "Request New ID Card," "Print Temporary ID Card," and "Request Change of Address/PCP."

•	File Exchange Services. Various trading partners — such as service partners, providers, vendors, management companies, and individual IPAs — are able to exchange data files (such as those that may be required by the Health Insurance Portability and Accountability Act of 1996, or HIPAA, or any other proprietary format) with us using the file exchange functionality.

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•	Multi-Product Managed Care Organizations — National and regional managed care organizations that have Medicaid members in addition to numerous commercial health plan and Medicare members.

•	Medicaid HMOs — National and regional managed care organizations that focus principally on providing health care services to Medicaid beneficiaries, many of which operate in only one city or state.

•	Prepaid Health Plans — Health plans that provide less comprehensive services on an at-risk basis or that provide benefit packages on a non-risk basis.

•	Primary Care Case Management Programs — Programs established by the states through contracts with primary care providers to provide primary care services to Medicaid beneficiaries, as well as to provide limited oversight of other services.

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•	establishes its own member eligibility standards;

•	determines the type, amount, duration, and scope of services;

•	sets the rate of payment for health care services; and

•	administers its own program.

•	We must measure provider access and availability in terms of the time needed to reach the doctor’s office using public transportation;

•	Our quality improvement programs must emphasize member education and outreach and include measures designed to promote utilization of preventive services;

•	We must have linkages with schools, city or county health departments, and other community-based providers of health care, to demonstrate our ability to coordinate all of the sources from which our members may receive care;

•	We must be able to meet the needs of the disabled and others with special needs;

•	Our providers and member service representatives must be able to communicate with members who do not speak English or who are deaf; and

•	Our member handbook, newsletters, and other communications must be written at the prescribed reading level, and must be available in languages other than English.

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•	Establish the capability to receive and transmit electronically certain administrative health care transactions, like claims payments, in a standardized format;

•	Afford privacy to patient health information; and

•	Protect the privacy of patient health information through physical and electronic security measures.

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Risks associated with the health care excise tax. One notable provision of the ACA is an excise tax that applies to most health plans, including both commercial health plans and Medicaid and/or Medicare managed care plans like Molina Healthcare. While characterized as a “fee” in the text of the ACA, the intent of Congress was to impose a broad-based health insurance industry excise tax, with the understanding that the tax could be passed on to consumers, most likely through slightly higher commercial insurance premiums. However, Medicaid is jointly paid for by the federal government and by state governments, so the cost of this excise tax, as it may be applied to Medicaid plans, will be passed on in the form of higher Medicaid costs and rates. In Medicaid and Medicare, capitated rates paid to managed care plans are required to be developed using generally accepted principles of actuarial soundness. Actuarial soundness requires that the full costs of doing business, including the costs of both federal and state taxes, be considered and factored into the applicable rate. Thus, for Medicaid and/or Medicare managed care plans like Molina Healthcare, Inc., the excise tax will be included in their capitated rates. Because of the novelty of this new tax, actuaries have never factored the tax into the development of capitated rates, an exercise which must be undertaken during 2013 and well in advance of the 2014 calendar year when the tax is scheduled to go into effect. Moreover, because the tax will be based on a health plan's market share as applied to a total excise tax base of $8 billion in 2014 (and rising thereafter), there is substantial uncertainty regarding the actual size of the tax assessment on Molina. Currently, we project that the excise tax assessment on Molina will be approximately $100 million. Since this amount is not deductible for income tax purposes under current law, and since our total net income for fiscal year 2011 was $20.8 million, and our net income for fiscal year 2012 was $9.8 million,

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Risks associated with the duals expansion. Nine million low-income elderly and disabled people are covered under both the Medicare and Medicaid programs. These beneficiaries, often called “dual eligibles,” are more likely than other Medicare beneficiaries to be frail, live with multiple chronic conditions, and have functional and cognitive impairments. Medicare is their primary source of health insurance coverage, as it is for the nearly 50 million elderly and under-65 disabled beneficiaries in 2012. Medicaid supplements Medicare by paying for services not covered by Medicare, such as dental care and long-term care services and supports, and by helping to cover Medicare's premiums and cost-sharing requirements. Together, these two programs help to shield very low-income Medicare beneficiaries from potentially unaffordable out-of-pocket medical and long-term care costs. Policymakers at the federal and state level are increasingly developing initiatives for dual eligibles, both to improve the coordination of their care, and to reduce spending. The Centers for Medicare and Medicaid Services, or CMS, has implemented several demonstration projects designed to improve the coordination of care for dual eligibles and to reduce Medicare and Medicaid spending. These demonstrations include issuing contracts to 15 states to design a program to integrate Medicare and Medicaid services for dual eligibles in the relevant state. Our health plans in California, Illinois, Michigan, Ohio, Texas, and Washington intend to take part in the duals demonstrations in those states. Beginning in September 2013, our California plan intends to serve duals in Riverside, San Bernardino, and San Diego counties, and may participate with Health Net, Inc. for the duals contract in Los Angeles County. Our new Illinois plan will serve duals in Central Illinois beginning in 2014. Our Michigan plan will respond to a request for proposals to serve duals beginning in late 2013. Our Ohio plan will serve duals in three regions in southwestern Ohio (Dayton, Columbus and Cincinnati) beginning in late 2013. The state of Texas announced that it intends to cover duals through its existing Medicaid contracts beginning in 2014. Our Washington plan will respond to a request for proposals to serve duals also beginning in 2014.

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Risks associated with the Medicaid expansion.   Among other things, by January 1, 2014, in the states that elect to participate, the ACA provides that the Medicaid program will be greatly expanded to provide eligibility to nearly all low-income people under age 65 with incomes at or below 138% of the federal poverty line. As a result, millions of low-income adults without children who currently cannot qualify for coverage, as well as many low-income parents and, in some instances, children now covered through CHIP, will be made eligible for Medicaid. As of February 27, 2013, among the states where we operate our health plans, the states of California, Florida, Michigan, New Mexico, Ohio, and Washington have indicated that they intend to participate in the Medicaid expansion; the states of Texas and Wisconsin have indicated that they do not intend to participate in the expansion; and the state of Utah is undecided. In those states that participate in the expansion, our Medicaid membership is likely to grow appreciably. The new enrollees in our health plans will represent a population that is different from the population of Medicaid enrollees we have historically managed. In addition, such enrollees may be unfamiliar with managed care, and may have substantial pent-up demand for medical services that could result in greater than anticipated rates of utilization. All of the risk factors described above with regard to the duals demonstration programs apply equally to the Medicaid expansion.

•	Risks associated with the insurance marketplaces. Under the ACA, insurance marketplaces will be online marketplaces organized on a state-by-state basis (although in many instances the insurance marketplace in a state will be operated by the federal government, and there could also be regional marketplaces where states combine their marketplace products).

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Risk associated with implementing regulations. There are many parts of the ACA that will require further guidance in the form of regulations. Due to the breadth and complexity of the ACA, the lack of implementing regulations and interpretive guidance, and the phased-in nature of the ACA's implementation, the overall impact of the ACA on our business and on the health industry in general over the coming years is difficult to predict and not yet fully known.

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•	additional employees who are not familiar with our operations or our corporate culture,

•	new provider networks which may operate on terms different from our existing networks,

•	additional members who may decide to transfer to other health care providers or health plans,

•	disparate information, claims processing, and record-keeping systems,

•	internal controls and accounting policies, including those which require the exercise of judgment and complex estimation processes, such as estimates of claims incurred but not paid, accounting for goodwill, intangible assets, stock-based compensation, and income tax matters, and

•	new regulatory schemes, relationships, practices, and compliance requirements.

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•	a staggered board of directors, so that it would take three successive annual meetings to replace all directors,

•	prohibition of stockholder action by written consent,

•	advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting, and

•	the ability of our board of directors, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock.

•	the implementation of the ACA and duals demonstration programs,

•	state and federal budget pressures,

•	changes in expectations as to our future financial performance or changes in financial estimates, if any, by us or by security analysts or investors,

•	revisions in securities analysts' estimates,

•	announcements by us or our competitors of significant acquisitions or dispositions, strategic partnerships, joint ventures, or capital commitments,

•	announcements relating to our business or the business of our competitors,

•	changes in government payment levels,

•	adverse publicity regarding health maintenance organizations and other managed care organizations,

•	government action regarding member eligibility,

•	changes in state mandatory programs,

•	conditions generally affecting the managed care industry or our provider networks,

•	the success of our operating or acquisition strategy,

•	the operating and stock price performance of other comparable companies in the health care industry,

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•	the termination of our Medicaid or CHIP contracts with state or county agencies, or subcontracts with other Medicaid managed care organizations that contract with such state or county agencies,

•	regulatory or legislative change,

•	general economic conditions, including unemployment rates, inflation, and interest rates, and

•	the other factors set forth under “Risk factors” in this Annual Report on Form 10-K.

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(a)

During the three months ended December 31, 2012, we repurchased shares of our common stock from certain Molina family trusts. Janet M. Watt is the sister, and her husband Lawrence B. Watt is the brother-in-law, of Dr. J. Mario Molina, the Company's Chief Executive Officer, and John Molina, the Company's Chief Financial Officer. Ms. Watt is the sole trustee of the Janet M. Watt Separate Property Trust dated 10/22/2007 (the “Separate Property Trust”) and a co-trustee with Lawrence B. Watt, of the Watt Family Trust dated 10/11/1996 (the “Family Trust” and together with the Separate Property Trust, the “Trusts”).  On December 26, 2012, pursuant to a Stock Purchase Agreement between the Company and the Trusts, the Company purchased an aggregate of 110,988 shares of its common stock from the Trusts for an aggregate purchase price of $3,000,005.64, as follows: (i) 43,767 shares from the Family Trust for an aggregate purchase price of $ 1,183,022.01 and (ii) 67,221 shares from the Separate Property Trust for an aggregate purchase price of $1,816,983.63.  The shares were purchased at a price per share of $27.03, representing the closing price per share of the Company's common stock on December 26, 2012, as reported by the New York Stock Exchange.  The transaction was approved by the Company's board of directors. Other than these repurchases from the Trusts, we did not repurchase any shares of our common stock outside of our publicly announced repurchase program except shares of common stock withheld to settle our employees' income tax obligations described below.

(b)	During the quarter we withheld 88,028 shares of common stock under our 2002 Equity Incentive Plan and 2011 Equity Incentive Plan to settle our employees' income tax obligations.

(1)	Options to purchase shares of our common stock issued under the 2002 Equity Incentive Plan. Further grants under the 2002 Equity Incentive Plan have been suspended.

(2)	Includes only shares remaining available to issue under the 2011 Equity Incentive Plan, and the 2011 Employee Stock Purchase Plan. Further grants under the 2002 Equity Incentive Plan and the 2002 Employee Stock Purchase Plan have been suspended.

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(1)	Service revenue and cost of service revenue represent revenue and costs generated by our Molina Medicaid Solutions segment. Because we acquired this business on May 1, 2010, results for the year ended December 31, 2010 include eight months of results for this segment.

(2)

On February 17, 2012, the Division of Purchasing of the Missouri Office of Administration notified us that our Missouri health plan was not awarded a contract under the Missouri HealthNet Managed Care Request for Proposal; therefore, our Missouri health plan's existing contract with the state expired without renewal on June 30, 2012. In connection with this notification, we recorded a non-cash impairment charge of $64.6 million in the fourth quarter of 2011.

(3)

Medical care ratio represents medical care costs as a percentage of premium revenue, net of premium tax. We now compute the medical care ratio by dividing total medical care costs by premium revenue, net of premium taxes. Previously, we did not adjust premium revenue to remove the impact of premium taxes. We have made this change for all periods presented. The medical care ratio is a key operating indicator used to measure our performance in delivering efficient and cost effective health care services. Changes in the medical care ratio from period to period result from changes in Medicaid funding by the states, utilization of medical services, our ability to effectively manage costs, contract changes, and changes in accounting estimates related to incurred but not paid claims. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

(4)	General and administrative expense ratio represents such expenses as a percentage of total revenue.

(5)	Premium tax ratio represents such expenses as a percentage of premium revenue, net of premium tax.

(6)	Number of members at end of period.

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(1)	Our contract with the state of Missouri expired without renewal on June 30, 2012

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Fee-for-service: Physician providers paid on a fee-for-service basis are paid according to a fee schedule set by the state or by our contracts with these providers. Most hospitals are paid on a fee-for-service basis in a variety of ways, including per diem amounts, diagnostic-related groups or DRGs, percent of billed charges, and case rates. As discussed below, we also pay a small portion of hospitals on a capitated basis. We also have stop-loss agreements with the hospitals with which we contract. Under all fee-for-service arrangements, we retain the financial responsibility for medical care provided. Expenses related to fee-for-service contracts are recorded in the period in which the related services are dispensed. The costs of drugs administered in a physician or hospital setting that are not billed through our pharmacy benefit manager are included in fee-for-service costs.

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Capitation: Many of our primary care physicians and a small portion of our specialists and hospitals are paid on a capitated basis. Under capitation contracts, we typically pay a fixed PMPM payment to the provider without regard to the frequency, extent, or nature of the medical services actually furnished. Under capitated contracts, we remain liable for the provision of certain health care services. Certain of our capitated contracts also contain incentive programs based on service delivery, quality of care, utilization management, and other criteria. Capitation payments are fixed in advance of the periods covered and are not subject to significant accounting estimates. These payments are expensed in the period the providers are obligated to provide services. The financial risk for pharmacy services for a small portion of our membership is delegated to capitated providers.

•	Pharmacy: Pharmacy costs include all drug, injectibles, and immunization costs paid through our pharmacy benefit manager. As noted above, drugs and injectibles not paid through our pharmacy benefit manager are included in fee-for-service costs, except in those limited instances where we capitate drug and injectible costs.

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Other: Other medical care costs include medically related administrative costs, certain provider incentive costs, reinsurance cost, and other health care expense. Medically related administrative costs include, for example, expenses relating to health education, quality assurance, case management, disease management, and 24-hour on-call nurses. Salary and benefit costs are a substantial portion of these expenses. For the years ended December 31, 2012, 2011, and 2010, medically related administrative costs were approximately $127.5 million, $102.3 million, and $85.5 million, respectively.

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(1)	Medical care ratio represents medical care costs as a percentage of premium revenue, net of premium taxes; premium tax ratio represents premium taxes as a percentage of premium revenue, net of premium taxes.

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(1)

EBITDA is not prepared in conformity with GAAP because it excludes depreciation and amortization, as well as interest expense, and the provision for income taxes. This non-GAAP financial measure should not be considered as an alternative to the GAAP measures of net income, operating income, operating margin, or cash provided by operating activities; nor should EBITDA be considered in isolation from these GAAP measures of operating performance.

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(1)	A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2)	Our contract with the state of Missouri expired without renewal on June 30, 2012. The Missouri health plan's claims run-out activity subsequent to June 30, 2012, is reported in “Other.”

(3)	“Other” medical care costs also include medically related administrative costs of the parent company.

(4)	The “MCR Excluding Premium Tax Expense” represents medical costs as a percentage of premium revenues, where premium revenue is reduced by premium tax expense.

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•	Amortization of purchased intangibles relating to customer relationships is reported as amortization within the heading “Depreciation and amortization;”

•	Amortization of purchased intangibles relating to contract backlog is recorded as a reduction of “Service revenue;” and

•	Depreciation is recorded within the heading “Cost of service revenue.”

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In the fourth quarter of 2011, our New Mexico health plan entered into a contract amendment that more closely aligns the calculation of revenue with the methodology adopted under the Affordable Care Act. The contract amendment changed the calculation of the amount of revenue that may be recognized relative to medical costs, and resulted in the recognition of approximately $5.6 million of premium revenue which all related to periods prior to 2011.

•	Also in the fourth quarter of 2011, the addition of pharmacy benefits at our Ohio health plan effective October 1, 2011, increased premium revenue.

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(1)	A member month is defined as the aggregate of each month’s ending membership for the period presented.

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(2)	Our contract with the state of Missouri expired without renewal on June 30, 2012.

(3)	“Other” medical care costs also include medically related administrative costs at the parent company.

(4)	The “MCR Excluding Premium Tax Expense” represents medical costs as a percentage of premium revenues, where premium revenue is reduced by premium tax expense.

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•	Health plan contractual provisions that may limit revenue based upon the costs incurred or the profits realized under a specific contract;

•	Health plan quality incentives that allow us to recognize incremental revenue if certain quality standards are met;

•	The recognition of revenue and costs associated with contracts held by our Molina Medicaid Solutions segment; and;

•	The determination of medical claims and benefits payable.

•	California Health Plan Medical Cost Floors (Minimums): A portion of certain premiums received by our California health plan may be returned to the state if certain minimum amounts are not spent on defined medical care costs. We

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Florida Health Plan Medical Cost Floor (Minimum) for Behavioral Health: A portion of premiums received by our Florida health plan may be returned to the state if certain minimum amounts are not spent on defined behavioral health care costs. At both December 31, 2012 and December 31, 2011, we had not recorded any liability under the terms of this contract provision since behavioral health expenses are not less than the contractual floor.

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New Mexico Health Plan Medical Cost Floors (Minimums) and Administrative Cost and Profit Ceilings (Maximums): Our contract with the state of New Mexico directs that a portion of premiums received may be returned to the state if certain minimum amounts are not spent on defined medical care costs, or if administrative costs or profit (as defined) exceed certain amounts. At both December 31, 2012, and December 31, 2011, we had not recorded any liability under the terms of these contract provisions.

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Texas Health Plan Profit Sharing: Under our contract with the state of Texas, there is a profit-sharing agreement under which we pay a rebate to the state of Texas if our Texas health plan generates pretax income, as defined in the contract, above a certain specified percentage, as determined in accordance with a tiered rebate schedule. We are limited in the amount of administrative costs that we may deduct in calculating the rebate, if any. As a result of profits in excess of the amount we are allowed to fully retain, we accrued an aggregate liability of approximately $3.2 million and $0.7 million pursuant to our profit-sharing agreement with the state of Texas at December 31, 2012 and December 31, 2011, respectively.

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Washington Health Plan Medical Cost Floors (Minimums): A portion of certain premiums received by our Washington health plan may be returned to the state if certain minimum amounts are not spent on defined medical care costs. At both December 31, 2012, and December 31, 2011, we had not recorded any liability under the terms of this contract provision because medical expenses are not less than the contractual floor.

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Medicare Revenue Risk Adjustment: Based on member encounter data that we submit to CMS, our Medicare premiums are subject to retroactive adjustment for both member risk scores and member pharmacy cost experience for up to two years after the original year of service. This adjustment takes into account the acuity of each member’s medical needs relative to what was anticipated when premiums were originally set for that member. In the event that a member requires less acute medical care than was anticipated by the original premium amount, CMS may recover premium from us. In the event that a member requires more acute medical care than was anticipated by the original premium amount, CMS may pay us additional retroactive premium. A similar retroactive reconciliation is undertaken by CMS for our Medicare members’ pharmacy utilization. We estimate the amount of Medicare revenue that will ultimately be realized for the periods presented based on our knowledge of our members’ heath care utilization patterns and CMS practices. Based on our knowledge of member health care utilization patterns and expenses we have recorded a net receivable of approximately $0.3 million and $5.0 million for anticipated Medicare risk adjustment premiums at December 31, 2012, and December 31, 2011, respectively.

•	New Mexico Health Plan Quality Incentive Premiums: Under our contract with the state of New Mexico, incremental revenue of up to 0.75% of our total premium is earned if certain performance measures are met. These performance measures are generally linked to various quality-of-care and administrative measures dictated by the state.

•	Ohio Health Plan Quality Incentive Premiums: Under our contract with the state of Ohio, incremental revenue of up to 1% of our total premium is earned if certain performance measures are met. These performance measures are generally linked to various quality-of-care measures dictated by the state.

•	Texas Health Plan Quality Incentive Premiums: Effective March 1, 2012, under our contract with the state of Texas, incremental revenue of up to 5% of our total premium may be earned if certain performance measures are met. These performance measures are generally linked to various quality-of-care measures established by the state.

•	Wisconsin Health Plan Quality Incentive Premiums: Under our contract with the state of Wisconsin, effective beginning in 2011, up to 3.25% of premium revenue is withheld by the state. The withheld premiums can be earned by the health plan by meeting certain performance measures. These performance measures are generally linked to various quality-of-care measures dictated by the state.

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•	Each contract calls for the provision of its own specific set of services. While all contracts support the system of record for state MMIS, the actual services we provide vary significantly between contracts; and

•	The nature of the MMIS installed varies significantly between our older contracts (proprietary mainframe systems) and our new contracts (commercial off-the-shelf technology solutions)

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•	Transaction processing costs.

•	Employee costs incurred in performing transaction services.

•	Vendor costs incurred in performing transaction services.

•	Costs incurred in performing required monitoring of and reporting on contract performance.

•	Costs incurred in maintaining and processing member and provider eligibility.

•	Costs incurred in communicating with members and providers.

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•	At our Washington health plan, we underestimated the amount of recoveries we would collect for certain high-cost newborn claims, resulting in an overestimation of reserves at year end.

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•	At our Texas health plan, we overestimated the cost of new members in STAR+PLUS (the name of our ABD program in Texas), in the Dallas region.

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In early 2011, the state of Michigan was delayed in the enrollment of newborns in managed care plans; the delay was resolved by mid-2011. This caused a large number of claims with older dates of service to be paid during late 2011, resulting in an artificial increase in the lag time for claims payment at our Michigan health plan. We adjusted reserves downward for this issue at December 31, 2011, but the adjustment did not capture all of the claims overestimation.

•	The overestimation of our liability for medical claims and benefits payable was partially offset by an underestimation of that liability at our Missouri health plan, as a result of the costs associated with an unusually large number of premature infants during the fourth quarter of 2011.

•	At our Ohio health plan, we overestimated the impact of a buildup in claims inventory.

•	At our California health plan, we overestimated the impact of the settlement of disputed provider claims.

•	At our New Mexico health plan, we underestimated the impact of a reduction in the outpatient facility fee schedule.

•	At our New Mexico health plan, we underestimated the degree to which cuts to the Medicaid fees schedule would reduce our liability as of December 31, 2009.

•	At our California health plan, we underestimated the extent to which various network restructuring, provider contracting, and medical management initiatives had reduced our medical care costs during the second half of 2009, thereby resulting in a lower liability at December 31, 2009.

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Our Texas health plan membership nearly doubled effective March 1, 2012. In addition, effective March 1, 2012, we assumed inpatient medical liability for ABD members for which we were not previously responsible. Reserves for new coverage and new regions are now based on the newly developing claims lag patterns. While the lag patterns are now beginning to stabilize for the new membership and coverage, the true reserve liability continues to be more uncertain than usual.

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Data published by the Centers for Disease Control, or CDC, indicated a significant increase in the percentage of office visits for influenza-like illnesses, or ILI, during December 2012. This indicated that the annual flu season was starting earlier than it had in most recent years. This was most noticeable in the southeast region of the country, but impacted other areas as well. Our leading indicators, including inpatient authorizations and overall pharmacy utilization, did not show as great an increase as we had expected based on the severity of the CDC's flu-related indices. However, we did see a significant increase in the use of prescription flu medication, especially in our Texas health plan. Therefore, we increased our reserves to account for expected additional utilization due to the early onset of the flu season.

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Our California health plan has enrolled approximately 20,000 new ABD members since September 30, 2011, as a result of the mandatory assignment of ABD members to managed care plans effective July 1, 2011. These new members converted from a fee-for-service environment. Due to the relatively recent transition of these members to managed care, their utilization of medical services is less predictable than it is for many of our other members.

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Prior to July 2012, it was the state of Washington's practice to disenroll certain sick newborns from the Healthy Options Medicaid managed care program and cover them under the Supplemental Security Income program, or SSI, instead. When this occurred, the health plan would reimburse the premiums received for that member back to the state and the state in turn reimbursed the health plan for the cost of care, usually retroactively to the date of birth. Effective July 1, 2012, the health plans now retain these members and cover them under a new ABD program entitled Healthy Options Blind and Disabled, or HOBD. The premium we receive from the state for the HOBD members is very high to cover

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(1)	Represents the principal amount due on our 3.75% Convertible Senior Notes due 2014, our term loan due 2018, and the Credit Facility due 2016.

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•	Health plan contractual provisions that may limit revenue based upon the costs incurred or the profits realized under a specific contract;

•	Health plan quality incentives that allow us to recognize incremental revenue if certain quality standards are met;

•	The determination of medical claims and benefits payable of our Health Plans segment;

•	The valuation of certain investments;

•	Settlements under risk or savings sharing programs;

•	The assessment of deferred contract costs, deferred revenue, long-lived and intangible assets, and goodwill for impairment;

•	The determination of professional and general liability claims, and reserves for potential absorption of claims unpaid by insolvent providers;

•	The determination of reserves for the outcome of litigation;

•	The determination of valuation allowances for deferred tax assets; and

•	The determination of unrecognized tax benefits.

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•	Amortization of purchased intangibles relating to customer relationships is reported as amortization within the heading “Depreciation and amortization;”

•	Amortization of purchased intangibles relating to contract backlog is recorded as a reduction of “Service revenue;” and

•	Depreciation is recorded within the heading “Cost of service revenue.”

•	The contract backlog intangible asset comprises all contractual cash flows anticipated to be received during the remaining contracted period for each specific contract relating to work that was performed prior to the acquisition. Because each

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•	The customer relationship intangible asset comprises all contractual cash flows that are anticipated to be received during the option periods of each specific contract as well as anticipated renewals of those contracts. The customer relationship intangible is amortized on a straight-line basis for each specific contract over periods generally ranging from four to nine years.

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(1)	Our contract with the state of Missouri expired without renewal on June 30, 2012.

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•	California Health Plan Medical Cost Floors (Minimums): A portion of certain premiums received by our California health plan may be returned to the state if certain minimum amounts are not spent on defined medical care costs. We recorded a liability under the terms of these contract provisions of $0.3 million and $1.0 million at December 31, 2012, and December 31, 2011, respectively.

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Florida Health Plan Medical Cost Floor (Minimum) for Behavioral Health: A portion of premiums received by our Florida health plan may be returned to the state if certain minimum amounts are not spent on defined behavioral health care costs. At both December 31, 2012, and December 31, 2011, we had not recorded any liability under the terms of this contract provision since behavioral health expenses are not less than the contractual floor.

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New Mexico Health Plan Medical Cost Floors (Minimums) and Administrative Cost and Profit Ceilings (Maximums): Our contract with the state of New Mexico directs that a portion of premiums received may be returned to the state if certain minimum amounts are not spent on defined medical care costs, or if administrative costs or profit (as defined) exceed certain amounts. At both December 31, 2012, and December 31, 2011 we had not recorded any liability under the terms of these contract provisions.

•

Texas Health Plan Profit Sharing: Under our contract with the state of Texas, there is a profit-sharing agreement under which we pay a rebate to the state of Texas if our Texas health plan generates pretax income, as defined in the contract, above a certain specified percentage, as determined in accordance with a tiered rebate schedule. We are limited in the amount of administrative costs that we may deduct in calculating the rebate, if any. As a result of profits in excess of the amount we are allowed to fully retain, we accrued an aggregate liability of approximately $3.2 million and $0.7 million pursuant to our profit-sharing agreement with the state of Texas at December 31, 2012 and December 31, 2011, respectively.

•

Washington Health Plan Medical Cost Floors (Minimums): A portion of certain premiums received by our Washington health plan may be returned to the state if certain minimum amounts are not spent on defined medical care costs. At both December 31, 2012, and December 31, 2011, we had not recorded any liability under the terms of this contract provision because medical expenses are not less than the contractual floor.

•

Medicare Revenue Risk Adjustment: Based on member encounter data that we submit to CMS, our Medicare premiums are subject to retroactive adjustment for both member risk scores and member pharmacy cost experience for up to 2 years after the original year of service. This adjustment takes into account the acuity of each member’s medical needs relative to what was anticipated when premiums were originally set for that member. In the event that a member requires less acute medical care than was anticipated by the original premium amount, CMS may recover premium from us. In the event that a member requires more acute medical care than was anticipated by the original premium amount, CMS may pay us additional retroactive premium. A similar retroactive reconciliation is undertaken by CMS for our Medicare members’ pharmacy utilization. We estimate the amount of Medicare revenue that will ultimately be realized for the periods presented based on our knowledge of our members’ heath care utilization patterns and CMS practices. Based on our knowledge of member health care utilization patterns and expenses we have recorded a net receivable of approximately $0.3 million and $5.0 million for anticipated Medicare risk adjustment premiums at December 31, 2012 and December 31, 2011, respectively.

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•	New Mexico Health Plan Quality Incentive Premiums: Under our contract with the state of New Mexico, incremental revenue of up to 0.75% of our total premium is earned if certain performance measures are met. These performance measures are generally linked to various quality-of-care and administrative measures dictated by the state.

•	Ohio Health Plan Quality Incentive Premiums: Under our contract with the state of Ohio, incremental revenue of up to 1% of our total premium is earned if certain performance measures are met. These performance measures are generally linked to various quality-of-care measures dictated by the state.

•	Texas Health Plan Quality Incentive Premiums: Effective March 1, 2012, under our contract with the state of Texas, incremental revenue of up to 5% of our total premium may be earned if certain performance measures are met. These performance measures are generally linked to various quality-of-care measures established by the state.

•	Wisconsin Health Plan Quality Incentive Premiums: Under our contract with the state of Wisconsin, effective beginning in 2011, up to 3.25% of premium revenue is withheld by the state. The withheld premiums can be earned by the health plan by meeting certain performance measures. These performance measures are generally linked to various quality-of-care measures dictated by the state.

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•

Fee-for-service: Physician providers paid on a fee-for-service basis are paid according to a fee schedule set by the state or by our contracts with these providers. Most hospitals are paid on a fee-for-service basis in a variety of ways, including per diem amounts, diagnostic-related groups, or DRGs, percent of billed charges, and case rates. As discussed below, we also pay a small portion of hospitals on a capitated basis. We also have stop-loss agreements with the hospitals with which we contract. Under all fee-for-service arrangements, we retain the financial responsibility for medical care provided. Expenses related to fee-for-service contracts are recorded in the period in which the related services are dispensed. The costs of drugs administered in a physician or hospital setting that are not billed through our pharmacy benefit manager are included in fee-for-service costs.

•

Capitation: Many of our primary care physicians and a small portion of our specialists and hospitals are paid on a capitated basis. Under capitation contracts, we typically pay a fixed per-member per-month, or PMPM, payment to the provider without regard to the frequency, extent, or nature of the medical services actually furnished. Under capitated contracts, we remain liable for the provision of certain health care services. Certain of our capitated contracts also contain incentive programs based on service delivery, quality of care, utilization management, and other criteria. Capitation payments are fixed in advance of the periods covered and are not subject to significant accounting estimates. These payments are expensed in the period the providers are obligated to provide services. The financial risk for pharmacy services for a small portion of our membership is delegated to capitated providers.

•	Pharmacy: Pharmacy costs include all drug, injectibles, and immunization costs paid through our pharmacy benefit manager. As noted above, drugs and injectibles not paid through our pharmacy benefit manager are included in fee-for-service costs, except in those limited instances where we capitate drug and injectible costs.

•

Other: Other medical care costs include medically related administrative costs, certain provider incentive costs, reinsurance cost, and other health care expense. Medically related administrative costs include, for example, expenses relating to health education, quality assurance, case management, disease management, and 24-hour on-call nurses. Salary and benefit costs are a substantial portion of these expenses. For the years ended December 31, 2012, 2011, and 2010, medically related administrative costs were approximately $127.5 million, $102.3 million, and $85.5 million, respectively.

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•	Each contract calls for the provision of its own specific set of services. While all contracts support the system of record for state MMIS, the actual services we provide vary significantly between contracts; and

•	The nature of the MMIS installed varies significantly between our older contracts (proprietary mainframe systems) and our new contracts (commercial off-the-shelf technology solutions).

•	Transaction processing costs.

•	Employee costs incurred in performing transaction services.

•	Vendor costs incurred in performing transaction services.

•	Costs incurred in performing required monitoring of and reporting on contract performance.

•	Costs incurred in maintaining and processing member and provider eligibility.

•	Costs incurred in communicating with members and providers.

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(1)

Options to purchase common shares are included in the calculation of diluted earnings per share when their exercise prices are below the average fair value of the common shares for each of the periods presented. For the years ended December 31, 2012, 2011, and 2010 there were approximately 87,000, 137,000 and 478,000 anti-dilutive weighted options, respectively. Restricted shares are included in the calculation of diluted earnings per share when their grant date fair values are below the average fair value of the common shares for each of the periods presented. For the year ended December 31, 2012, there were approximately 304,000 anti-dilutive restricted shares. For the years ended December 31, 2011 and 2010, anti-dilutive restricted shares were insignificant.

(2)	Potentially dilutive shares issuable pursuant to our convertible senior notes were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the years ended December 31, 2012, 2011, and 2010.

•

Level 1 — Observable inputs such as quoted prices in active markets: Our Level 1 financial instruments recorded at fair value consist of investments including government-sponsored enterprise securities (GSEs) and U.S. treasury notes that are classified as current investments in the accompanying consolidated balance sheets. These financial instruments are actively traded and therefore the fair value for these securities is based on quoted market prices on one or more securities exchanges.

•

Level 2 — Inputs other than quoted prices in active markets that are either directly or indirectly observable: Our Level 2 financial instruments recorded at fair value consist of investments including corporate debt securities, municipal securities, and certificates of deposit that are classified as current investments in the accompanying consolidated balance sheets, and an interest rate swap derivative recorded as a noncurrent liability. Our investments classified as Level 2 are traded frequently though not necessarily daily. Fair value for these investments is determined using a market approach based on quoted prices for similar securities in active markets or quoted prices for identical securities in inactive markets. Fair value for the interest rate swap derivative is based on forward LIBOR rates that are and will be observable at commonly

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Level 3 — Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions: Our Level 3 financial instruments recorded at fair value consist of non-current auction rate securities that are designated as available-for-sale, and are reported at fair value of $13.4 million (par value of $14.7 million) as of December 31, 2012. To estimate the fair value of these securities we use valuation data from our primary pricing source, a third party who provides a marketplace for illiquid assets with over 10,000 participants including global financial institutions, hedge funds, private equity funds, mutual funds, corporations and other institutional investors. This valuation data is based on a range of prices that represent indicative bids from potential buyers. To validate the reasonableness of the data, we compare these valuations to data from two other third-party pricing sources, which also provide a range of prices representing indicative bids from potential buyers. We have concluded that these estimates, given the lack of market available pricing, provide a reasonable basis for determining the fair value of the auction rate securities as of December 31, 2012.

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•	At our Washington health plan, we underestimated the amount of recoveries we would collect for certain high-cost newborn claims, resulting in an overestimation of reserves at year end.

•	At our Texas health plan, we overestimated the cost of new members in STAR+PLUS (the name of our ABD program in Texas), in the Dallas region.

•

In early 2011, the state of Michigan was delayed in the enrollment of newborns in managed care plans; the delay was resolved by mid-2011. This caused a large number of claims with older dates of service to be paid during late 2011, resulting in an artificial increase in the lag time for claims payment at our Michigan health plan. We adjusted reserves downward for this issue at December 31, 2011, but the adjustment did not capture all of the claims overestimation.

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•	The overestimation of our liability for medical claims and benefits payable was partially offset by an underestimation of that liability at our Missouri health plan, as a result of the costs associated with an unusually large number of premature infants during the fourth quarter of 2011.

•	At our Ohio health plan, we overestimated the impact of a buildup in claims inventory.

•	At our California health plan, we overestimated the impact of the settlement of disputed provider claims.

•	At our New Mexico health plan, we underestimated the impact of a reduction in the outpatient facility fee schedule.

•	At our New Mexico health plan, we underestimated the degree to which cuts to the Medicaid fees schedule would reduce our liability as of December 31, 2009.

•	At our California health plan, we underestimated the extent to which various network restructuring, provider contracting, and medical management initiatives had reduced our medical care costs during the second half of 2009, thereby resulting in a lower liability at December 31, 2009.

•

Our Texas health plan membership nearly doubled effective March 1, 2012. In addition, effective March 1, 2012, we assumed inpatient medical liability for ABD members for which we were not previously responsible. Reserves for new coverage and new regions are now based on the newly developing claims lag patterns. While the lag patterns are now beginning to stabilize for the new membership and coverage, the true reserve liability continues to be more uncertain than usual.

•

Data published by the Centers for Disease Control, or CDC, indicated a significant increase in the percentage of office visits for influenza-like illnesses, or ILI, during December 2012. This indicated that the annual flu season was starting earlier than it had in most recent years. This was most noticeable in the southeast region of the country, but impacted other areas as well. Our leading indicators, including inpatient authorizations and overall pharmacy utilization, did not show as great an increase as we had expected based on the severity of the CDC's flu-related indices. However, we did see a significant increase in the use of prescription flu medication, especially in our Texas health plan. Therefore, we increased our reserves to account for expected additional utilization due to the early onset of the flu season.

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Our California health plan has enrolled approximately 20,000 new ABD members since September 30, 2011, as a result of the mandatory assignment of ABD members to managed care plans effective July 1, 2011. These new members converted from a fee-for-service environment. Due to the relatively recent transition of these members to managed care, their utilization of medical services is less predictable than it is for many of our other members.

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Prior to July 2012, it was the state of Washington's practice to disenroll certain sick newborns from the Healthy Options Medicaid managed care program and cover them under the Supplemental Security Income program, or SSI, instead. When this occurred, the health plan would reimburse the premiums received for that member back to the state and the state in turn reimbursed the health plan for the cost of care, usually retroactively to the date of birth. Effective July 1, 2012, the health plans now retain these members and cover them under a new ABD program entitled Healthy Options Blind and Disabled, or HOBD. The premium we receive from the state for the HOBD members is very high to cover the substantial cost of care. By December, we had enrolled approximately 26,000 members under HOBD. Because the program is relatively new, there is still some uncertainty as to the level of claims to be expected from these high-cost members.

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•	During any fiscal quarter after our fiscal quarter ending December 31, 2007, if the closing sale price per share of our common stock, for each of at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, is greater than or equal to 120% of the conversion price per share of our common stock;

•	During the five business day period immediately following any five consecutive trading day period in which the trading price per one thousand dollar principal amount of the 3.75% Notes for each trading day of such period was less than 98% of the product of the closing price per share of our common stock on such day and the conversion rate in effect on such day; or

•	Upon the occurrence of specified corporate transactions or other specified events.

•	An amount in cash (the “principal return”) equal to the sum of, for each of the 20 Volume-Weighted Average Price ("VWAP") trading days during the conversion period, the lesser of the daily conversion value for such VWAP trading day and fifty dollars (representing 1/20th of one thousand dollars); and

•	A number of shares based upon, for each of the 20 VWAP trading days during the conversion period, any excess of the daily conversion value above fifty dollars.

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•	an existing building, which comprises approximately 70,000 square feet of office space, and

•	a new building, which is expected to comprise approximately 120,000 square feet of office space.

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•	The ongoing activities of the VIE-collecting and remitting interest and fees and NMTC compliance-were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the VIE;

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•	Contractual arrangements obligate us to comply with NMTC rules and regulations and provide various other guarantees to Investment Fund and CDEs;

•	Wells Fargo lacks a material interest in the underling economics of the project; and

•	We are obligated to absorb losses of the VIE.

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(1)

On February 17, 2012, the Division of Purchasing of the Missouri Office of Administration notified us that our Missouri health plan was not awarded a contract under the Missouri HealthNet Managed Care Request for Proposal; therefore, our Missouri health plan's existing contract with the state expired without renewal on June 30, 2012. In connection with this notification, we recorded a total non-cash impairment charge of $64.6 million in the fourth quarter of 2011, of which $6.1 million related to finite-lived intangible assets, and $58.5 million related to goodwill. The impairment charge comprised substantially all intangible assets relating to contract rights and licenses, and provider networks recorded at the time of our acquisition of the Missouri health plan in 2007. For the quarter ended December 31, 2011, the impairment charge reduced diluted earnings per share by $1.34.

(2)	Potentially dilutive shares issuable pursuant to our 2007 offering of convertible senior notes were not included in the computation of diluted net income per share because to do so would have been anti-dilutive for the years ended December 31, 2012, and 2011.

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•	an existing building, which comprises approximately 70,000 square feet of office space, and

•	a new building, which is expected to comprise approximately 120,000 square feet of office space.

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•	an existing building located on the site and commonly known as the Independent Press Telegram building (the “Existing Building”), which the Landlord is required to substantially refurbish as part of Phase I of the Project. Upon completion of the refurbishment, the Existing Building is expected to contain approximately 70,000 square feet of office space and 15,000 square feet of storage space, and

•	a new building (the “New Building”), which the Landlord is required to construct as part of Phase II of the Project following the demolition of a building currently located on the site commonly known as the Meeker-Baker building. Upon completion of the construction, the New Building is expected to contain approximately 120,000 square feet of office space.

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(a)	The consolidated financial statements and exhibits listed below are filed as part of this report.

(1)	The Company's consolidated financial statements, the notes thereto and the report of the Independent Registered Public Accounting Firm are on pages 64 through 108 of this Annual Report on Form 10-K and are incorporated by reference.

(2)	Financial Statement Schedules

(3)	Exhibits

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•	he should consult with an attorney prior to executing this release;

•	he has at least twenty-one (21) days within which to consider this release;

•	he 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.

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(a)	Landlord:    6th& Pine Development, LLC, a California limited liability company.

(b)	Tenant:    Molina Healthcare, Inc., a Delaware corporation.

(c)	Site and Project:    That certain real property having the primary address of 604 Pine Avenue, Long Beach, California, as more particularly described on Exhibit “A-1” attached hereto (the “Site”). A site plan of the Buildings, the On-Site Parking and related common areas and amenities (collectively, the “Project”) is attached hereto as Exhibit “A-2.”

(d)	Existing Building:    The office building located on the Site as of the date hereof and commonly known as the Press-Telegram Building, to be refurbished by Landlord pursuant to the terms of the Work Letter Agreement attached hereto as Exhibit “B” (the “Work Letter”).

(e)	New Building:    The office building to be constructed by Landlord on the Site and in the general location of the office building commonly known as the Meeker-Baker Building, pursuant to the terms of the Work Letter; the Existing Building (as refurbished) and the New Building shall sometimes be collectively referred to as the “Buildings” and each, as a “Building.”

(f)	Premises:    The entire Rentable Area of each Building. In addition to the Premises in each Building, Tenant has the exclusive right to use the On-Site Parking Spaces as provided in clause (u) below and Article 30.

(g)	Rentable Area of Existing Building:    Subject to Section 1.2, approximately 89,702 rentable square feet (“RSF”), consisting of (i) approximately 70,110 RSF of office space , and (ii) approximately 19,592 RSF of subterranean storage space (the “Storage Space”).

(h)	Rentable Area of New Building:    Subject to Section 1.2 of the Lease, approximately 120,000 RSF of office space.

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(i)	Rentable Area of Premises:    The total Rentable Area of the Existing Building and the New Building.

(j)	Scheduled Commencement Date(s):    (i)    Existing Building: June 1, 2013. (ii)    New Building: November 1, 2014.

(k)	Term:    (i)    Existing Building: Approximately eleven (11) years, six (6) months from the Commencement Date of the Existing Building and ending on the Expiration Date, unless extended pursuant to Exhibit “J” attached hereto or earlier terminated as provided in the Lease.

(l)	Commencement Date(s):    See Section 2.3.

(m)	Expiration Date:    December 31, 2024, unless extended pursuant to Exhibit “J” attached hereto or earlier terminated as provided in the Lease.

(n)

Monthly Base Rent:    (i)    Existing Building. (A) For the period from the Commencement Date of the Existing Building through the date immediately preceding the first (1st) anniversary of the Commencement Date of the Existing Building, $2.70 per RSF for the Existing Building (excluding the Storage Space), and as increased by three point seven five percent (3.75%) per year on the first (1st) and each subsequent anniversary of the Commencement Date of the Existing Building (each such anniversary of the Commencement Date of the Existing Building being referred to herein as an “Adjustment Date”) thereafter through the end of the stated Term (subject to Exhibit “J” for the Extension Periods), and (B) for the period from the Commencement Date through the date immediately preceding the first Adjustment Date, $1.40 per RSF of the Storage Space, and as increased by three point seven five percent (3.75%) per year on the first (1st) and each subsequent Adjustment Date

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(o)	Security Deposit:    None.

(p)	Construction of Improvements:    Landlord shall construct the Project, including the Tenant Improvements in the Existing Building and the New Building in accordance with the Work Letter.

(q)

Use:    General business, executive, professional, corporate, and administrative office use only, and any other use only. Notwithstanding the foregoing, Landlord agrees that Tenant may use the Premises, in connection with its general business activities, for meeting, training and conference purposes, for the preparation, service and providing of food and beverages for the Tenant Parties (as defined below), for health club and childcare facilities for the Tenant Parties and others (as long as such use is primarily to provide a service or amenity to Tenant’s employees, staff and invitees), on‑site sale of logo and amenity type merchandise to employees, display, testing and demonstration events, in each case subject to the restrictions set forth in Article 5 and Applicable Laws.

(r)	Tenant’s Address for Notices:    Molina Healthcare, Inc. 200 Oceangate, Suite 100 Long Beach, CA 90802 Attention:     General Counsel With a copies to:

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(s)	Landlord’s Address for Notices:    6th& Pine Development, LLC 741 Atlantic Avenue Long Beach, CA 90813 Attention:     604 Pine Landlord With a copy to: 6th& Pine Development, LLC 741 Atlantic Avenue Long Beach, CA 90813 Attention:     Property Manager

(t)	Landlord’s Broker:    Cushman & Wakefield of California, Inc.

(u)

Parking:    As further described in Article 30, a total of up to seven hundred and thirteen (713) parking spaces, to be comprised of (a) (i) for the period commencing on the Commencement Date for the Existing Building and ending on the date immediately preceding the Commencement Date for the New Building, sixty (60) On-Site Parking Spaces (as defined in Section 30.2 below), and (ii) for the period commencing on the Commencement Date for the New Building and continuing through the Expiration Date, two hundred thirteen (213) On-Site Parking Spaces, and (b) for the period commencing on the Commencement Date for the Existing Building and continuing through the Expiration Date, up to five hundred (500) Off-Site Parking Spaces (as defined in Section 30.3 below), in each case as more particularly described in, and to be made available to Tenant in accordance with the terms

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(v)	Renewal Rights:    See Exhibit “J” attached hereto.

(w)	Right of First Offer to Purchase:    See Exhibit “I-1” attached hereto.

(x)	Option to Purchase:    See Exhibit “I-2” attached hereto.

(y)	Base Year:    Calendar Year 2015

(z)	Tenant’s Share:    100%

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Re:	Lease dated              , 2012 between 6th& Pine Development, LLC, a California limited liability company, Landlord, Molina Healthcare, Inc., a Delaware corporation, Tenant, concerning 604 Pine Avenue, Long Beach, California.

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1.

Lease. Landlord and Tenant have entered into that certain unrecorded Office Building Lease – Full Service Gross – Single Tenant Building(s) dated [___________], 2013 (as amended to date and as the same may hereafter be amended, modified or supplemented from time to time in accordance with the terms thereof, collectively, the “Lease”), pursuant to which Landlord has leased and does hereby lease to Tenant, and Tenant has leased and does hereby lease from Landlord, the premises more particularly described in the Lease and consisting of certain real property more particularly described on Exhibit “A” attached hereto (the “Premises”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Lease.

2.	Term of Lease. The fixed term of the Lease is scheduled to commence on [June 1, 2013] [To be confirmed], and expires on December 31, 2024, unless earlier terminated pursuant to the provisions of the Lease. Tenant has the option, subject to the terms of the Lease, to extend the term of the Lease by two (2) sequential renewal terms of five (5) years each.

3.

Rights to Purchase the Premises. Tenant has a right of first offer to purchase the Premises (together with all appurtenant rights with respect thereto) for the first five (5) years of the term, and an option to purchase the Premises (together with all appurtenant rights with respect thereto) thereafter, in each case upon and subject to the terms and conditions set forth in the Lease (collectively, the “Purchase Rights”).

4.	Miscellaneous. The purpose of this Memorandum is solely to give notice of the existence of the Lease, all the terms of which are incorporated herein by this reference, and the Purchase Rights contained therein. This Memorandum shall not modify or amend any of the provisions of the Lease, including the terms and conditions of any Purchase Rights contained therein.

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TO:	_____________________________________________________

RE:	_____________________________________________________

Date: ____________, 20__	_________________________________,

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ARTICLE 1 - PREMISES	11

1.1	Lease of Premises    11

1.2	Measurement of the Premises    11

1.3	Right of First Offer to Purchase    12

1.4	Option to Purchase    12

ARTICLE 2 - TERM	12

2.1	Effective Date    12

2.2	Term of Lease    12

2.3	Delivery of Premises; Commencement Date(s)    12

2.4	Early Entry Into Premises    13

2.5	Notice of Commencement Date    13

2.6	Option to Terminate Because of Non‑Commencement or Completion    13

2.7	Options to Extend Term    14

ARTICLE 3 - RENT	14

3.1	Payment of Rent    14

3.2	Late Charge    15

ARTICLE 4 - Additional rent	15

4.1	General Terms    15

4.2	Procedure for Payment of Tenant’s Share of Direct Expenses    16

4.3	Definitions of Key Terms Relating to Additional Rent    17

4.4	Taxes and Other Charges for Which Tenant Is Directly Responsible    25

4.5	Landlord’s Books and Records    26

ARTICLE 5 - USE	27

5.1	Permitted Use    27

5.2	Restriction on Use    27

ARTICLE 6 - ALTERATIONS AND ADDITIONS	27

6.1	Tenant’s Rights to Make Alterations    27

6.2	Installation of Alterations    27

6.3	Tenant Improvements - Treatment at End of Lease    28

ARTICLE 7 - TENANT’S REPAIRS	29

ARTICLE 8 - NO LIENS BY TENANT	29

ARTICLE 9 - LANDLORD’S REPAIRS	30

ARTICLE 10 - BUILDING SERVICES	30

10.1	Standard Tenant Services    30

10.2	Overstandard Tenant Use    31

10.3	Interruption of Use    31

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ARTICLE 11 - ASSIGNMENT AND SUBLETTING	32

11.1	Right to Assign, Sublease and Encumber    32

11.2	Procedure for Assignment and Sublease    32

11.3	Conditions Regarding Consent to Subleases    33

11.4	Affiliated Companies/Restructuring of Business Organization    33

11.5	Landlord’s Right to Assign    34

11.6	Occupancy By Others    34

ARTICLE 12 - LIMITATION ON LANDLORD’S LIABILITY; INDEMNIFICATION; INSURANCE	34

12.1	Limitation on Landlord’s Liability and Release    34

12.2	Indemnification    34

12.3	Insurance    35

12.4	Abatement of Rent/Limitations on Liability and Damages    37

12.5	Allocation of Insured Risks/Subrogation    38

ARTICLE 13 - DAMAGE OR DESTRUCTION	38

13.1	Loss Covered By Insurance    38

13.2	Loss Not Covered By Insurance    39

13.3	Destruction During Final Year    40

13.4	Destruction of Tenant’s Personal Property or Property of Tenant Parties    40

13.5	Exclusive Remedy    40

13.6	Option to Purchase    40

ARTICLE 14 - EMINENT DOMAIN	41

14.1	Permanent Taking - When Lease Can Be Terminated    41

14.2	Permanent Taking - When Lease Cannot Be Terminated    41

14.3	Temporary Taking    41

14.4	Exclusive Remedy    41

14.5	Release Upon Termination    41

ARTICLE 15 - DEFAULTS	42

15.1	Default by Tenant    42

15.2	Default by Landlord    42

ARTICLE 16 - LANDLORD’S REMEDIES AND RIGHTS	43

16.1	Termination of Lease    43

16.2	Continuation of Lease    43

16.3	Right of Entry    43

16.4	Right to Perform    44

16.5	Remedies Not Exclusive    44

16.6	Waiver of Redemption by Tenant    44

ARTICLE 17 - ATTORNEYS’ FEES	44

ARTICLE 18 - SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE	44

18.1	Obligations of Tenant    44

18.2	Landlord’s Right to Assign    45

18.3	Attornment by Tenant    45

18.4	Non-Disturbance    45

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ARTICLE 19 - [INTENTIONALLY DELETED]	45

ARTICLE 20 - HOLDING OVER	45

20.1	Surrender of Possession    45

ARTICLE 21 - INSPECTIONS AND ACCESS	46

21.1	Entry by Landlord    46

21.2	Secured Areas    46

ARTICLE 22 - NAME OF BUILDING	46

ARTICLE 23 - SURRENDER OF LEASE	46

ARTICLE 24 - WAIVER	46

ARTICLE 25 - SALE BY LANDLORD	47

ARTICLE 26 - NO LIGHT AND AIR EASEMENT	47

ARTICLE 27 - FORCE MAJEURE	47

ARTICLE 28 - ESTOPPEL CERTIFICATES	47

ARTICLE 29 - RIGHT TO PERFORMANCE	48

ARTICLE 30 - PARKING	48

30.1	Tenant Parking    48

30.2	On-Site Parking Spaces    48

30.3	Off-Site Parking Spaces    48

ARTICLE 31 - SECURITY SERVICES	51

ARTICLE 32 - NOTICES	51

ARTICLE 33 - SIGNAGE AND BUILDING IDENTITY	52

ARTICLE 34 - INTENTIONALLY DELETED	52

ARTICLE 35 - ROOF RIGHTS	52

ARTICLE 36 - SECURITY DEPOSIT	52

ARTICLE 37 - TENANT’S FINANCIAL STATEMENTS	53

ARTICLE 38 - MISCELLANEOUS	53

38.1	Authorization to Sign Lease    53

38.2	Entire Agreement    53

38.3	Separability and Survivability    53

38.4	Gender and Headings; Governing Law    53

38.5	Exhibits    54

38.6	Transportation System Management Program    54

38.7	Quiet Enjoyment    54

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38.8	Recordation    54

38.9	Cumulative Remedies    54

38.10	Brokers    54

38.11	Hazardous Materials    55

38.12	Definitions of “Hazardous Material” and “Environmental Laws”    56

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*	Wholly owned subsidiary of Molina Healthcare of Texas, Inc.