EXHIBIT 10.1


EMPLOYMENT AGREEMENT




              THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this 
1st day of January  2004 by and between Mutual Federal Savings Bank (hereinafter referred to as the
"Bank"), MutualFirst Financial, Inc. (the "Company") and David W. Heeter (the "Employee").




              WHEREAS, the Employee is currently serving as Chief Executive Officer of the Bank and
President and Chief Executive Officer of the Company; and




              WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank
to enter into this Agreement with the Employee in order to assure continuity of management of the
Bank and to reinforce and encourage the continued attention and dedication of the Employee; and




              WHEREAS, the Board of Directors of the Company has approved and authorized the
execution of this Agreement for the purpose of the Company making the guarantee set forth in
Section 18; and




              WHEREAS, the Board of Directors of the Bank has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2 hereof.




              NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and
agreements of the parties herein, it is AGREED as follows:




              1.              Definitions.




                            (a)              The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Bank or the Company within the meaning of the Home Owners'
Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii) would be required
to be reported in response to Item I of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2)
any person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of
securities of the Bank or the Company representing 20% or more of the Bank's or the Company's
outstanding securities; (3) individuals who are members of the board of directors of the Bank or the
Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be considered a member of the
Incumbent Board; or (4) a reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not
the resulting entity. The term "Change in Control" shall not include an acquisition of securities by
an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 574 to




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a determination of a Change in Control, determinations to be made by the OTS or its Director under
such regulations shall be made by the Board of Directors.




                            (b)              The term "Commencement Date" means January 1, 2004.




                            (c)              The term "Date of Termination" means the date upon which the Employee
ceases to serve as an employee of the Bank.




                            (d)              The term "Involuntarily Termination" means termination of the
employment of Employee without the Employee's express written consent, and shall include a
material diminution of or interference with the Employee's duties, responsibilities and benefits as
Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company,
including (without limitation) any of the following actions unless consented to in writing by the
Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile
radius from the Bank's headquarters office as of the date hereof, (2) a material demotion of the
Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to
the Employee or a material reduction in the frequency with which, or in the nature of the matters
with respect to which, such personnel are to report to the Employee, other than as part of a Bank-
or Company-wide reduction in staff, (4) a material adverse change in the Employee's salary,
perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied
uniformly and with equitable effect to all members of the senior management of the Bank or the
Company; and (5) a material permanent increase in the required hours of work or the workload of
the Employee. The term "Involuntary Termination" does not include Termination for Cause or
termination of employment due to retirement, death, disability or suspension or temporary or
permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the
Federal Deposit Insurance Act ("FDIA").




                            (e)              The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. The Employee shall not be deemed to have been Terminated for Cause unless and
until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the
Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), stating that in the good faith opinion of the Board the Employee has engaged in
conduct described in the preceding sentence and specifying the particulars thereof in detail.




              2.              Term. The term of this Agreement shall be a period of three years beginning on the
Commencement Date, subject to earlier termination as provided herein. Beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the term of this




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Agreement shall be extended for a period of one year in addition to the then-remaining term,
provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to
such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such
anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension.
Reference herein to the term of this Agreement shall refer to both such initial term and such extended
terms.




              3.              Employment. The Employee is employed as Chief Executive Officer of the Bank and
President and Chief Executive Officer of the Company as of the Commencement Date. As such, the
Employee shall render administrative and management services as are customarily performed by
persons situated in similar executive capacities, and shall have such other powers and duties of an
officer of the Bank and the Company as the Board of Directors may prescribe from time to time.




              4.              Compensation.




                            (a)              Salary. The Bank agrees to pay the Employee during the term of this
Agreement, not less frequently than monthly, the salary established by the Board of Directors, which
shall be at least $192,5000 annually.  The amount of the Employee's salary shall be reviewed by the
Board of Directors, beginning not later than the first anniversary of the commencement Date.
Adjustments in salary or other compensation shall not limit or reduce any other obligation of the
Bank or of the Company under this Agreement.  The Employee's salary in effect from time to time
during the term of this Agreement shall not thereafter be reduced.




                            (b)              Discretionary Bonuses. The Employee shall be entitled to participate in
an equitable manner with all other executive officers of the Bank in discretionary bonuses as
authorized and declared by the Board of Directors to its executive employees. No other
compensation provided for in this Agreement shall be deemed a substitute for the Employee's right
to participate in such bonuses when and as declared by the Board of Directors.




                            (c)              Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing services under
this Agreement in accordance with the policies and procedures applicable to the executive officers
of the Bank, provided that the Employee accounts for such expenses as required under such policies
and procedures.




              5.              Benefits.




                            (a)              Participation in Retirement and Employee Benefit Plans. The Employee
shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and
disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or
employee benefits or combinations thereof, in which the Bank's executive officers participate.




                            (b)              Fringe Benefits. The Employee shall be eligible to participate in, and



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receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's
executive officers, including, without limitation, the Company's Stock Option Plan and Management
Recognition Plan.




              6.              	Vacations; Leave. The Employee shall be entitled to annual paid vacation in
accordance with the policies established by the Board of Directors for executive employees and to
voluntary leave of absence, with or without pay, from time to time at such times and upon such
conditions as the Board of Directors may determine in its discretion.




              7.              	Termination of Employment.




                            (a)              Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for Cause, termination
of employment shall not prejudice the Employee's right to compensation or other benefits under this
Agreement. In the event of Involuntary Termination other than in connection with or within twelve
(12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining
term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of
Termination, payable in such manner and at such times as such salary would have been payable to
the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2)
the Bank shall provide to the Employee during the remaining term of this Agreement substantially
the same benefits as the Bank maintained for its executive officers immediately prior to the Date of
Termination, including Bank-paid dependent medical and dental coverage.




                            (b)              Termination for Cause. In the event of Termination for Cause, the Bank
shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the
Bank shall have no further obligation to the Employee under this Agreement.




                            (c)              Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter
period as may be agreed upon between the Employee and the Board of Directors. In the event of such
voluntary termination, the Bank shall be obligated to continue to pay to the Employee the
Employee's salary and benefits only through the Date of Termination, at the time such payments are
due, and the Bank shall have no further obligation to the Employee under this Agreement.




                            (d)              Change in Control. In the event of Involuntary Termination in connection
with or within 12 months after a Change in Control which occurs at any time while the Employee
is employed under this Agreement, the Bank shall, subject to Section 8 of this Agreement, (1) pay
to the Employee in a lump sum in cash within 25 business days after the Date of Termination an
amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee during the
remaining term of this Agreement substantially the same health benefits as the Bank maintained for
its executive officers immediately prior to the Change in Control.




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                            (e)              Death;  Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the Employee's estate,
or such person as the Employee may have previously designated in writing, shall be entitled to
receive from the Bank the salary and benefits of the Employee through the last day of the calendar
month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then
current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity,
this Agreement shall continue in fall force and effect, except that the salary paid to the Employee
shall be reduced by any disability insurance payments made to Employee on policies of insurance
maintained by the Bank at its expense.




                            (f)              Temporary Suspension or Prohibition. If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's
obligations under this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion
(i) pay the Employee all or part of the compensation withheld while its obligations under this
Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were
suspended.




                            (g)              Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the
Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of
the contracting parties shall not be affected.




                            (h)              Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1)
of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this
provision shall not affect any vested rights of the contracting parties.




                            (i)              Termination by Regulators. All obligations of the Bank under this
Agreement shall be terminated, except to the extent determined that continuation of this Agreement
is necessary for the continued operation of the Bank: (1) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of the FDIA; or (2) by the Director or his or her designee, at the
time the Director or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however, shall not be affected
by any such action.




              8.              	Certain Reduction of Payments by the Bank.




                            (a)              Notwithstanding any other provision of this Agreement, if payments under



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this Agreement, together with any other payments received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible for federal
income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall
be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee
without causing any amount to become nondeductible. The Employee shall determine the allocation
of such reduction among payments to the Employee.




                            (b)              Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any
regulations promulgated thereunder.




              9.              	No Mitigation. The Employee shall not be required to mitigate the amount of any
salary or other payment or benefit provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced
by any compensation earned by the Employee as the result of employment by another employer, by
retirement benefits after the Date of Termination or otherwise.




              10.              	Attorneys Fees. In the event the Bank exercises its right of Termination for Cause,
but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17
that cause did not exist for such termination, or if in any event it is determined by any such court or
arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee
under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs,
including attomeys'fees, incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under
this Agreement.




              11.              No Assignments.




                            (a)              This Agreement is personal to each of the parties hereto, and no party may
assign or delegate any of its rights or obligations hereunder without first obtaining the written
consent of the other party; provided, however, that the Bank shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Bank, by an assumption agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if no such succession
or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to
the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall
entitle the Employee to compensation from the Bank in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of
this Section I I (a), the date on which any such succession becomes effective shall be deemed the
Date of Termination.




                            (b)              This Agreement and all rights of the Employee hereunder shall inure to



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the benefit of and be enforceable by the Employee's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die
while any amounts would still be payable to the Employee hereunder if the Employee had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such
designee, to the Employee's estate.




              12.              	Notice. For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and, shall be deemed to have been duly given when
personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank
or Company at its home office, to the attention of the Board of Directors with a copy to the
Secretary, or, if to the Employee, to such home or other address as the Employee has most recently
provided in writing to the Bank.




              13.              	Amendments. No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties, except as herein otherwise provided.




              14.              	Headings. The headings used in this Agreement are included solely for convenience
and shall not affect, or be used in connection with, the interpretation of this Agreement.




              15.              Severability. The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or enforceability of the
other provisions hereof.




              16.              	Governing Law. This Agreement shall be governed by the laws of the United States
to the extent applicable and otherwise by the laws of the State of Indiana.




              17.              	Arbitration. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction.




              18.              Company Guarantee. The Company hereby guarantees the obligations of the Bank
to the Employee under the Employment Agreement. This guarantee shall be subject to the provisions
of 12 U.S.C. Section 1828(k) and regulations thereunder.




              19.              Supercedes Prior Agreements.  This Agreement supercedes any and all prior
employment agreements entered into by and between the Employee, the Bank or the Company.








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              IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year
first above written.




              THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.




	Attest:


	 MUTUAL FEDERAL SAVINGS BANK
	
/s/ Rosalie Petro
Secretary	/s/ David W. Heeter

By: David W. Heeter
Its: Chief Executive Officer






	
Attest:	MUTUALFIRST FINANCIAL INC.
	
/s/ Rosalie Petro
Secretary	/s/ David W. Heeter

By: David W. Heeter
Its: Chief Executive Officer







		EMPLOYEE










							/s/ David W. Heeter

							David W. Heeter

















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