EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is made and entered into this 24th day of February, 2009, by and between First Mid-Illinois Bancshares, Inc. ("the Company"), a corporation with its principal place of business located in Mattoon, Illinois, and Eric S. McRae (“Manager”).

In consideration of the promises and mutual covenants and agreements contained herein, the parties hereto acknowledge and agree as follows:

1.01   Term of Agreement .  The term of this Agreement shall commence as of February 24, 2009 and shall continue for until February 29, 2012.  Thereafter, unless Manager’s employment with the Company has been previously terminated, Manager shall continue his employment with the Company on an at will basis and, except as provided in Articles Five, Six and Seven, this Agreement shall terminate unless extended by mutual written agreement.

1.02   Employment .  The Company agrees to employ Manager and Manager accepts such employment by the Company on the terms and conditions herein set forth. The duties of Manager shall be determined by the Company’s Chief Executive Officer and shall adhere to the policies and procedures of the Company and shall follow the supervision and direction of the Chief Executive Officer or his designee in the performance of such duties.  During the term of his employment, Manager agrees to devote his full working time, attention and energies to the diligent and satisfactory performance of his duties hereunder.  Manager shall not, while he is employed by the Company, engage in any activity which would (a) interfere with, or have an adverse effect on, the reputation, goodwill or any business relationship of the Company or any of its subsidiaries; (b) result in economic harm to the Company or any of its subsidiaries; or (c) result in a breach of Section Six of the Agreement.

While Manager is employed with the Company during the term of this Agreement, the Company shall provide Manager with the following compensation and benefits:

2.01   Base Salary .  The Company shall pay Manager an annual base salary of $160,000 per fiscal year, payable in accordance with the Company’s customary payroll practices for management employees.  The Chief Executive Officer or his designee may review and adjust Manager's base salary from year to year; provided, however, that during the term of Manager's employment, the Company shall not decrease Manager's base salary.

2.02   Incentive Compensation Plan .  Manager shall continue to participate in the First Mid-Illinois Bancshares, Inc. Incentive Compensation Plan in accordance with the terms and conditions of such Plan.  Pursuant to the Plan, Manager shall have an opportunity to receive incentive compensation of up to a maximum of 35% of Manager's annual base salary.  The Chief Executive Office or his designee may review and adjust the maximum percentage from year to year, provided, however, that during the term of manager’s employment, the Company shall not decrease this percentage.  The incentive compensation payable for a particular fiscal year will be based upon the attainment of the performance goals in effect under the Plan for such year and will be paid in accordance with the terms of the Plan and at the sole discretion of the Board.

2.03   Deferred Compensation Plan .   Manager shall be eligible to participate in the First Mid-Illinois Bancshares, Inc. Deferred Compensation Plan in accordance with the terms and conditions of such Plan.

2.04   Vacation .  Manager shall be entitled to three (3) weeks of paid vacation each year during the term of this Agreement.

2.05   Other Benefits .  Manager shall be eligible (to the extent he qualifies) to participate in any other retirement, health, accident and disability insurance, or similar employee benefit plans as may be maintained from time to time by the Company for its other management employees subject to and on a consistent basis with the terms, conditions and overall administration of such plans.

2.06   Business Expenses .  Manager shall be entitled to reimbursement by the Company for all reasonable expenses actually and necessarily incurred by him on its behalf in the course of his employment hereunder and in accordance with expense reimbursement plans and policies of the Company from time to time in effect for management employees.

2.07   Withholding .  All salary, incentive compensation and other benefits provided to Manager pursuant to this Agreement shall be subject to withholding for federal, state or local taxes, amounts withheld under applicable employee benefit plans, policies or programs, and any other amounts that may be required to be withheld by law, judicial order or otherwise or by agreement with, or consent of, Manager.

This Agreement shall terminate prior to the end of the term described in Section 1.01 upon Manager’s termination of employment with the Company due to his death.  Upon Manager’s termination due to death, the Company shall pay Manager’s estate the amount of Manager’s base salary plus his accrued but unused vacation time earned through the date of such death and any incentive compensation earned for the preceding fiscal year that is not yet paid as of the date of such death.

Manager’s employment with the Company may be terminated by Manager or by the Company at any time for any reason.  Upon Manager’s termination of employment prior to the end of the term of the Agreement, the Company shall pay Manager as follows:

4.01   Termination by the Company for Other than Cause .  If the Company terminates Manager’s employment for any reason other than Cause, the Company shall pay Manager the following:

(a)   An amount equal to Manager’s monthly base salary in effect at the time of such termination of employment for a period of twelve (12) months thereafter.  Such amount shall be paid to Manager periodically in accordance with the Company’s customary payroll practices for management employees.

(b)   The base salary and accrued but unused paid vacation time earned through the date of termination and any incentive compensation earned for the preceding fiscal year that is not yet paid.

(c)   Continued coverage for Manager and/or Manager’s family under the Company’s health plan pursuant to Title I, Part 6 of the Employee Retirement Income Security Act of 1974 (“COBRA”) and for such purpose the date of Manager’s termination of employment shall be considered the date of the “qualifying event” as such term is defined by COBRA.  During the period beginning on the date of such termination and ending at the end of the period described in Section 4.01(a), Manager shall be charged for such coverage in the amount that he would have paid for such coverage had he remained employed by the Company, and for the duration of the COBRA period, Manager shall be charged for such coverage in accordance with the provisions of COBRA.

For purposes of this Agreement, “Cause” shall mean Manager’s (i) conviction in a court of law of (or entering a plea of guilty or no contest to) any crime or offense involving fraud, dishonesty or breach of trust or involving a felony; (ii) performance of any act which, if known to the customers, clients, stockholders or regulators of the Company, would materially and adversely impact the business of the Company; (iii)  act or omission that causes a regulatory body with jurisdiction over the Company  to demand, request, or recommend that Manager be suspended or removed from any position in which Manager serves with the Company; (iv) substantial nonperformance of any of his obligations under this Agreement; (v)  misappropriation of or intentional material damage to the property or business of the Company or any affiliate; or (vi) breach of Article Five or Six of this Agreement.

4.02   Termination Following a Change in Control .  Notwithstanding Section 4.01, if, following a Change in Control, and prior to the end of the term of this Agreement, Manager’s employment is terminated by the Company (or any successor thereto) for any reason other than Cause, or if Manager terminates his employment because of a decrease in his then current base salary or a substantial diminution in his position and responsibilities, the Company (or any successor thereto) shall pay Manager the following:

(a)   An amount equal to Manager’s monthly base salary in effect at the time of such termination f